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Senators in attendance:

Senator Faulkner, Special Minister of State and Cabinet Secretary

Air Chief Marshal Angus Houston AC, AFC, Chief of the Defence Force

Mr Nick Warner PSM, Secretary of Defence

Mr Phillip Prior, Chief Finance Officer

Mr Steve Wearn, First Assistant Secretary Budgets and Financial Planning

Mr Steve Grzeskowiak, Acting First Assistant Secretary Personnel

Mr Phil Minns, Deputy Secretary People Strategies and Policy

Major General Michael Slater DSC, AM, CSC, Head, Personnel Executive

Vice Admiral Matt Tripovich AM, CSC, Commander Capability Development

Dr Stephen Gumley, Chief Executive Officer, Defence Materiel Organisation

Air Chief Marshal Angus Houston AC, AFC, Chief of the Defence Force

Mr Warren King, General Manager, Programs, and Program Manager, Air Warfare Destroyer

Ms Shireane McKinnie, Head, Electronic and Weapon Systems Division

Air Vice Marshal Chris Deeble, Program Manager, Airborne Early Warning and Control

Major General Anthony Fraser, Head, Helicopter Systems Division

Mr Colin Sharp, Head, Land Systems Division

Ms Jane Wolfe, General Manager, Corporate

Mr Martin Bowles, Deputy Secretary Defence Support

Mr John Owens, Head, Infrastructure

Rear Admiral Boyd Robinson, Head, Marine Systems

Mr Stephen Merchant, Deputy Secretary Intelligence, Security and International Policy

Mr Michael Pezzullo, Deputy Secretary Strategy, Coordination and Governance

Mr Stephen Merchant, Deputy Secretary Intelligence, Security and International Policy

Mr Martin Bowles, Deputy Secretary Defence Support

Mr Phillip Prior, Chief Finance Officer

Mr Steve Wearn, First Assistant Secretary Budgets and Financial Planning

Defence Science and Technology Organisation

Dr Roger Lough, Chief Defence Scientist

Dr Doraisamy (Nanda) Nandagopal, Deputy Chief Defence Scientist (Policy and Programs)

Dr Ian Williams, Inspector General

Mr Greg Farr, Chief Information Officer

Major General Grant Cavenagh AM, Commander Joint Logistics

Mr Martin Bowles, Deputy Secretary Defence Support

Mr Mark Cunliffe, Head Defence Legal

Mr Kieran Gleeson, Chief Operating Officer Defence Support Group

Commodore Vicki McConachie, CSC, RAN, Director-General ADF Legal Services

Mr Peter Jennings, First Assistant Secretary Coordination and Public Affairs

Mr Michael Pezzullo, Deputy Secretary Strategy, Coordination and Governance

Michael Del Gigante, Managing Director

Mr Robert Groom, Acting Chief Financial Officer

1.1: Means tested income support, pension and allowances

1.2: Compensation pensions, allowances etc

1.3: Veterans’ Review Board

1.4: Defence Home Loans Scheme

1.5: Incapacity payments, non-economic lump sums … through SRCA

1.6: Administer individual merit reviews of SRCA decisions

1.7: Incapacity payments, non-economic lump sums through MRCA

1.8: Administer individual merit reviews of MRCA decisions

Mr Mark Sullivan, Secretary

Mr Ed Killesteyn, Deputy President

Mr Barry Telford, General Manager, Policy and Development

Mr Bob Solly, General Manager, Business Integrity

Mr Steven Groves, Chief Finance Officer

2.1: Arrangement for delivery of services

2.2: Counselling and referral services

2.3: Deliver medical, rehabilitation … under SRCA and related legislation

2.4: Deliver medical, rehabilitation … under MRCA.

Mr Mark Sullivan, Secretary

Mr Ed Killesteyn, Deputy President

Mr Barry Telford, General Manager, Policy and Development

Dr Graeme Killer, Principal Medical Adviser

Mr Steven Groves, Chief Finance Officer

3.1: Develop and implement commemorative initiatives

3.2: Maintain, construct and refurbish war graves and post war commemorations

3.3: Coordinate and manage the delivery of commemorative and related activities at Gallipoli.

Mr Mark Sullivan, Secretary

Mr Ed Killesteyn, Deputy President

Mr Steven Groves, Chief Finance Officer

4.1: Communication, community support …. to the veteran community and providers, including veterans' local support groups.

4.2: Advice and information to members of the defence force community … under the SRCA

4.3: Advice and information to members of the defence force community … under the MRCA.

Mr Mark Sullivan, Secretary

Mr Ed Killesteyn, Deputy President

Ms Jo Schumann, General Manager, Corporate

Mr Bob Solly, General Manager, Business Integrity

Mr Barry Telford, General Manager, Policy and Development

Ms Kim Loveday, National Manager, Parliamentary and Communication

Mr Steven Groves, Chief Finance Officer

5.1: Joint Defence/DVA projects.

Mr Mark Sullivan, Secretary

Mr Ed Killesteyn, Deputy President

Ms Jo Schumann, General Manager, Corporate

Mr Bob Solly, General Manager, Business Integrity

Mr Barry Telford, General Manager, Policy and Development

Mr Steven Groves, Chief Finance Officer

Ms Kim Loveday, National Manager, Parliamentary and Communication

Mr Mark Sullivan, Secretary

Mr Ed Killesteyn, Deputy President

Ms Jo Schumann, General Manager, Corporate

Mr Bob Solly, General Manager, Business Integrity

Mr Barry Telford, General Manager, Policy and Development

Ms Kim Loveday, National Manager, Parliamentary and Communication

Mr Steven Groves, Chief Finance Officer

Ms Carolyn Spiers, Principal Legal Adviser

CHAIR (Senator Mark Bishop) —I declare open this meeting of the Senate Standing Committee on Foreign Affairs, Defence and Trade. I welcome Senator the Hon. John Faulkner, Special Minister of State, representing the Minister for Defence; Air Chief Marshal Angus Houston, Chief of the Defence Force; Mr Nick Warner, Secretary of the Department of Defence; and officers of the Defence organisation. The committee will now consider Portfolio Additional Estimates Statements for the Department of Defence, beginning with the portfolio overview and major corporate issues. We will then move on to people, outputs and business processes.

When written questions on notice are received, the chair will state for the record the name of the senator who submitted the question. The questions will be forwarded to the department for an answer. I remind senators to provide their written questions on notice to the secretariat by close of business on Monday, 25 February. The committee has resolved that Thursday, 10 April 2008 is the return date of answers to questions taken on notice at these hearings. Please note that under standing order 26 the committee must take all evidence in public session. This includes answers to questions on notice.

Witnesses are reminded that the evidence given to the committee is 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 the Senate as a contempt. The giving of false or misleading evidence to the committee may constitute a contempt of the Senate.

The Senate, by resolution in 1999, endorsed the following test of relevance of questions at estimates hearings: Any questions going to the operations or financial positions of the departments and agencies which are seeking funds in the estimates are relevant questions for the purpose of estimates hearings.

The Senate has resolved that there are no areas in connection with the expenditure of public funds where any person has a discretion to withhold details or explanations from the parliament or its committees unless the parliament has expressly provided otherwise.

An officer of a department, or of the Commonwealth, or of a state, shall not be asked to give opinions on matters of policy. He or she 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 ground upon which the objection is taken, and the committee will determine whether it will insist on an answer, having regard to the ground which is claimed. Any claim that it would be contrary to the public interest to answer a question must be made by the minister and should be accompanied by a statement setting out the basis for the claim.

Minister, do you or does any officer wish to make an opening statement?

Senator Faulkner —I do not intend to make an opening statement, but if it would suit the committee—as I have suggested to senators informally—CDF will make an opening statement on operational issues, including Iraq, Afghanistan, East Timor and operational tempo and would be pleased to answer questions directly about that statement immediately following it. After that, the secretary of the department would also make an opening statement and deal with issues including defence reform, financial statements, Westralia and weapons security.

CHAIR —Fine. CDF, before you commence I think we should offer congratulations to you for receipt of honours in the New Year’s honours list. I am sure all members offer their congratulations.

Air Chief Marshal Houston —Thank you very much, Chair, and thank you to the members of the committee. I would like to commence by providing the committee with an assessment of our current operational tempo and presenting an update on ADF operations. This year the ADF is authorised to deploy about 3,900 personnel to nine overseas operations. This means that up to 12,000 members of the ADF will be in the operational deployment cycle in the next 12 months—working up, deployed or reconstituting. In addition, about 450 personnel are conducting mainland Australia and maritime protection operations, about 105 personnel are providing assistance to Aboriginal communities in the Northern Territory and there will also be a number of additional forces engaging in international exercises or country visits.

There is absolutely no doubt that the ADF is currently experiencing a very high level of operational tempo. That said, I am very comfortable with the way in which we are managing our varied commitments. We maintain a robust preparedness management system that is used to provide accurate and well-considered advice to government on military options and concurrency implications. Additionally, we continue to ensure that defence personnel and assets remain available to respond to our domestic and regional responsibilities should a short-notice contingency arise. We continue to sustain the equivalent of one brigade deployed on operations while also maintaining at least another battalion ready for deployment elsewhere. We also maintain other specific units at differing readiness states that can be sustained for varying lengths of time depending on their location and tasking. I think we demonstrated this readiness state last week when we successfully deployed HMAS Perth and air-landed, by C130 and C17 aircraft, 200 soldiers and their equipment to East Timor in a few hours after the request for additional support came from the East Timorese government. Of course, we also deployed a number of police as well.

Thanks in part to our rapid response, the security environment in Timor-Leste is stable. However, the situation remains tense and has the potential to deteriorate quickly. The reinforcement by the ADF and the Australian Federal Police allowed the existing UN police and security forces to expand their operating tempo and contribute to more combined operations. Following the reinforcement, we have employed a very cooperative approach with the government of Timor-Leste, particularly the Timorese security forces, and also the UN police to address the security situation. With regard to the apprehension of those responsible for the surprise attacks on President Ramos-Horta and Prime Minister Gusmao, I can confirm that the Timor-Leste government has issued a number of warrants for the arrests of suspect individuals. But I cannot provide the committee details of current operations because, obviously, we would compromise those operations if we went into extensive detail in discussing them.

It is the intention of the Timorese government that any individual found to be involved will be brought before the Timor-Leste justice system. We have previously been involved in similar apprehension operations at the request of the Timorese government. The execution of any apprehension warrant will be undertaken in consultation with the Timorese authorities and UNPOL. We would like to bring these people to justice peacefully without confrontation, and I encourage any of Reinado’s former followers to surrender to the authorities in East Timor.

That said, if any individuals choose confrontation, our soldiers are operating under strict rules of engagement which allow ISF soldiers to defend themselves and other persons whom they are assigned to protect. There has been criticism levelled at the close personal protection provided to the President and the Prime Minister. I would like to clarify the role of the ISF in Timor-Leste. The ADF contribution to close personal protection for key Timorese political figures was progressively transitioned from ADF elements to the Australian Federal Police and Timor-Leste security personnel between July and December 2006. In early December 2006, Timor-Leste security forces assumed exclusive control of close personal protection and residential security in line with the wishes of the President and the Prime Minister of Timor-Leste. Thus members of the ISF were not required to provide security for the President nor his home and were not present at the time of the shooting. You may be aware that a member of President Ramos-Horta’s security detail, Celestino Gama, was wounded in the incident in which the president was shot. I commend this member of the Timor-Leste Defence Force for his bravery in the incident.

The ISF works closely with the Timorese government and is responsive to their security requirements, but it is important to note that this is a sovereign nation which makes its own decisions regarding security. The ISF acts in support of the democratically elected government of Timor-Leste. We continue to closely monitor the situation and will do everything we can to support the Timorese government at this time. It is in Australia’s strategic interest to promote stability in Timor-Leste. The government has committed to a new long-term and comprehensive strategy of assistance, and our ongoing defence cooperation program is designed to enhance key institutions such as the military and police. Though we in defence play a very important role, our efforts in Timor-Leste are part of a whole-of-government effort, with the Australian Federal Police, DFAT, AusAID and many other agencies contributing to the overall effect.

We are also making a significant contribution to the war in Afghanistan through Operation Slipper. Our contribution includes 125 national command, liaison and embedded personnel; a reconstruction task force of almost 400; a special operations task group of 300; a 75-personnel-strong mobile control and reporting unit at Kandahar Airfield; and a force level logistic asset of approximately 60 personnel in Kandahar. In addition, Operation Slipper receives support from the RAAF AP3C aircraft and the C130 Hercules aircraft which are dual assigned to both Operation Slipper and Operation Catalyst. This month we also redeployed two CH-47 Chinook medium-lift helicopters with associated flight crew and support staff, which totals 93 personnel.

This adjustment to our force composition reflects a routine adjustment to achieve the right balance. The government yesterday announced that further adjustment to the Reconstruction Task Force is warranted to increase emphasis on the training of Afghani security forces. The provision of an operational mentoring and liaison team, or OMLT, will see us developing and mentoring an Afghan Kandak, or infantry, battalion. This adjustment will be achieved within our existing force capability; that is an authorised establishment of 1,078.

Australian forces are primarily operating in Oruzgan in southern Afghanistan, an area of significant Taliban and insurgent activity; thus our forces are engaged in dangerous work. What they are doing is vital to Afghanistan’s stability and a major contribution to the fight against terrorism. We will continually assess the level, adequacy and composition of our force in Afghanistan to ensure that our people on the ground have the necessary support, equipment and structure to meet the government’s set tasks.

Since I last briefed the committee, I have made some comments about the need for a comprehensive Afghanistan strategy to coordinate the allied efforts in the country. I can report to the committee that significant progress has been made in this regard and it is likely that international security forces in Afghanistan will be better coordinated this coming campaign season.

I turn now to Iraq. We continue to closely monitor our force in Iraq. Our Operation Catalyst commitment is currently authorised at about 1,540 personnel, although it is important to note that the actual number of deployed personnel regularly fluctuates, depending on the type of Royal Australian Navy vessel deployed and the command roles that the ADF is undertaking. Overall, I am very pleased with our progress in Iraq. Primary security responsibilities have been transferred to the Iraqi security forces, who now maintain security responsibility for all of the southern provinces following the transfer of Basra to provincial Iraqi control in December. In addition to our security and combat related tasks, ADF elements have been involved in the project management and construction of both major and minor civil development projects, including school refurbishment and construction of public recreation facilities.

I can report that significant planning is being finalised to bring home the Army personnel and equipment that comprises the Overwatch Battle Group West. This is scheduled to occur in mid-2008 and will reduce the number of personnel in Iraq by about 550. The concurrent withdrawal of the Army training team will further reduce the numbers by 65, for a total reduction of 615 personnel. As a consequence of this withdrawal, our engagement in Iraq will have a maritime and aerial surveillance focus, with a frigate provided continuously for oil-platform security and the AP3C Orion and C130 Hercules detachments to be maintained.

I am very pleased to say that the security situation in Iraq has improved significantly over the past 12 months. Just a few weeks ago, there was an incident in An Nasiviyah in which a number of people were killed, including the chief of police. Historically, this is a situation where we would have been required to provide backup and, though we were prepared to offer assistance, we were not needed and the situation was contained by the Iraqis.

Despite periodic escalations, there has been a downward trend in sectarian and other forms of violence in this period. During this period al-Qaeda has suffered significant casualties and has lost a measure of its influence in Iraq. Iraqis are increasingly opposed to al-Qaeda’s disruptive role in Iraq, as has been seen in the measures taken in Al  Anbar province to target al-Qaeda. However, al-Qaeda remains capable of mounting high-casualty attacks, despite the damage inflicted on it by Iraqi and coalition forces.

The Baghdad security plan Operation Fard Al Qanoon involved a troop surge during 2007, which has now begun to be drawn down to pre-surge levels. The pre-surge troop level of 15 brigade combat teams will be regained by about the middle of 2008. The government of Iraq and its security forces have demonstrated a high level of resolve to work alongside coalition forces. There has also been a significant growth in the capacity and capabilities of the Iraqi security forces through the provision of coalition training programs and equipment acquisitions.

This morning, on behalf of the men and women of the Australian Defence Force, I would like to express my appreciation for the condolence motion in the House of Representatives for the three soldiers we lost late last year in combat operations in Afghanistan. Today I conclude my statement by paying tribute to these soldiers. Trooper David Pearce was killed on 9 October 2007 when an IED detonated next to the vehicle he was driving in Oruzgan province. Sergeant Matthew Locke was killed on 25 October 2007. Sergeant Locke was on a patrol when he was fatally wounded by small-arms fire from Taliban extremists in the Oruzgan province. Private Luke Worsley was killed on 23 November 2007 while participating in a planned and deliberate attack by our forces against Taliban leaders and their supporters in Oruzgan province. We are immensely proud of David, Matthew and Luke. The service they gave to their country was of the highest order. Their loss continues to be deeply felt by their many friends and comrades in the defence organisation.

CHAIR —Thank you, CDF. Are there any questions arising out of the introductory remarks by CDF?

Senator FORSHAW —Chair, I do not have a question, but I would appreciate if at sometime we could get a brief update on the proposed deployment, if any, of forces into Darfur, Central African Republic. I am not sure where that is at now. The UN was developing that UN OAU force and I understood that we were going to be potentially participating in it either through ADF personnel or through AFP officers. We do not necessarily need to deal with it now, unless you can.

Air Chief Marshal Houston —I can deal with that right now. We currently have 15 people deployed in the Sudan. There are essentially nine doing headquarters staff duties in Khartoum and we have six military observers out in the southern provinces, but none of them are deployed into Darfur. At this point, we have not been directed by the government to do anything further in Sudan or, indeed, Darfur.

Senator MINCHIN —In relation to the minister’s statement on Afghanistan yesterday, could you give us a little more detail about how big the so-called and interestingly termed OMLT team is and explain to us how it is that this team can be injected while numbers remain the same? Presumably there is a reduction somewhere else in the system. Could you just explain that to us?

Air Chief Marshal Houston —The OMLT will comprise about 70 people. An OMLT is about 19 to 20 officers, senior NCOs and soldiers, who do the business of mentoring, training and developing the Afghanis, but we also need about another 50 people to enable that: communicators, transport and so on. So the total number is about 70. That 70 will be offset against one of our engineering teams in the Reconstruction Task Force. You may recall that I briefed this committee previously on the fact that the Reconstruction Task Force comprised two engineering teams. We will still retain one engineering team that can operate in a non-permissive environment. Indeed, right now they are up in the Chora Valley doing a task to build a forward operating base. So that capability will still remain, but the other team will be offset against the OMLT or, to give it its full title, the operational mentoring and liaison and team.

The net increase in the size of the RTF will be 32, so we would see the size of the RTF go to an authorised establishment of 439. We will also find other offsets for that out of some of the headquarter positions in Kabul. So it is really a rebalancing and an adjustment activity. The only change in capability terms is that we lose one of our engineering teams for that non-permissive engineering task.

Senator MINCHIN —What is that engineering team currently doing? Presumably, that activity will no longer occur. Is another force from another participating nation going to take up that activity?

Air Chief Marshal Houston —When we first arrived there, back about 18 months ago, we started with a number of engineering tasks around the town of Tarin Kowt. We went in and repaired mosques, refurbished the school, refurbished elements of the hospital and dropped wells. We did a lot of work in the community. It was all done in a fairly permissive environment. But now we are going out and doing work to establish a presence in places like the Chora Valley, which have previously been denied to us. Really, the secret to winning this operation in Oruzgan province is to establish a presence in places like the Chora Valley. The way that is done is by using our Reconstruction Task Force to go in and build a forward operating base so that the Afghanis can move in there and establish a presence to deny the area to the Taliban.

The capability is quite a sophisticated one. We have the ability to essentially employ Afghani contractors. What we are very good at is not only doing the work ourselves but also bringing in local Afghani contractors and workers to assist us with the task of constructing these sorts of facilities, which are needed to establish this presence in Oruzgan province. We are endeavouring to utilise the Afghanis to the absolute maximum extent, because obviously that creates employment, provides money into the economy and delivers a very positive effect for the government of Afghanistan. Importantly, the trade training work that we are doing will continue and there will be no interruption to that at all.

So it is really an adjustment. You might say, ‘Well, the reconstruction is very important.’ Yes, it is, but I think an even higher priority task is to train the Afghan security forces so that they can take the task over from us and establish the necessary security across the whole of Afghanistan so that they can handle these circumstances themselves. By doing that, we will eventually be able to leave them to it and return all of our forces to Australia.

Senator MINCHIN —In relation to the OMLT team, could you give us an assessment of the degree of risk they face and what sort of force protection arrangements are being made?

Air Chief Marshal Houston —I would have to say that those sorts of operations will probably be higher risk than what we have been doing up to now with the Reconstruction Task Force, but we are very focused on the force protection. The force protection will vary, depending on what the Kandak is doing. If the Kandak is operating in and around Tarin Kowt, the force protection is fairly easy to provide and, indeed, is all set up. I think the circumstances will become more demanding as the Afghani Kandaks develop a manoeuvre capability. When they start moving into the outer parts of the province, we will obviously provide force protection, but the risk will be higher because they will be further from the main operating base and there will be a need to provide a mobile force protection capability to support their operations with the Kandak.

Senator MINCHIN —In relation to force protection and risk, what, if any, sort of operational changes have been made as a result of the very sad and tragic deaths of troops that have occurred since this committee last met that you have put in place or that you are able to talk to us about?

Air Chief Marshal Houston —Yes, I think I can talk about that. I think the main threat that we face in Afghanistan is not so much the conventional threat of large numbers of Taliban coming over the hillside and mounting an attack. What has evolved in, I suppose, the last 12 months is a very lethal improvised explosive device threat. About 70 per cent of the casualties that all coalition forces are sustaining in Afghanistan come from that threat: the delivery of improvised explosive devices, either roadside IEDs or, in some cases, improvised explosives delivered by a suicide bomber or a vehicle bomb. They are the sorts of things that we have to deal with. Essentially, we are very much attuned to the fact that we have to confront that threat.

About two years ago, when it first became evident that we were dealing with an increasing threat in this particular area, both in Iraq and in Afghanistan, we set up a Counter Improvised Explosive Device Task Force here in Canberra. There are now about 30 people in that task force. They do wonderful work to analyse the threat and to come up with the different tactics, techniques and procedures that we might use to counter the threat. They provide training to all of our people before they deploy to Afghanistan and Iraq and they also assist the commanders on the spot with advice as to how to counter a specific set of circumstances. They also are very heavily involved in the development of the technology that is required.

You may be aware that certain improvised explosive devices can be countered by electronic measures. We are doing an awful lot of work with the Land Systems Division of the Defence Materiel Organisation and the DSTO to basically come up with the technology that will keep up with a threat as it evolves, because unfortunately the threat does not just stand still. The improvised explosive devices become and more sophisticated over time, so it is vitally important that we do everything we can to militate against that threat and the risk that is presented by that.

I would have to say that one of the very positive things about our deployment is the overall quality of our equipment. Our soldiers, I believe, do not want for anything. The armoured vehicles that we are using at the moment are very good for these circumstances and the Australian built Bushmaster in particular is doing very well in this environment where the threat of IEDs is a daily occurrence.

Senator MINCHIN —Can I just raise another matter—that is, the new Minister for Defence has been highly critical of what he describes as the inadequate information supplied to Australia by NATO and he was quite critical of the previous government making commitments in Afghanistan without that information. I therefore am a little surprised, in the light of those statements, by the statement yesterday—and as you have said—introducing this OMLT team and with associated risks. So presumably we do in fact have sufficient information and intelligence to allow us and for the government and Defence to make this particular adjustment to our effort in Afghanistan and, further, I would appreciate you just informing us or confirming that, when our original decision to go into Afghanistan presumably you on, behalf of Defence, felt that we had sufficient intelligence information to warrant your support for sending our troops to Afghanistan in the first place.

Air Chief Marshal Houston —Thank you for the question. It is always a pleasure coming to Senate estimates. Perhaps if I can answer it in a number of ways and I will start first of all with the circumstances as presented to our new minister when he went to the NATO Defence Ministers meeting at Vilnius. I might add that it was the first time ever that we had had an Australian Defence minister participate at that level—I think previously we had not actually been invited because we are a non-NATO member. I think the non-membership of NATO is an issue and is an issue right now. In particular, what is happening in NATO at the moment is some really good work in terms of the development of a whole country comprehensive strategy for Afghanistan. Whilst over the last 12 months we have been able to input to the development of that strategy through the arrangements that have been set up with the minister meetings in RC South we actually have not had a direct Australian input into that process.

I guess as this has been developed it became very clear that we were working at a different level from the other NATO members and perhaps I could characterise it in this way: the NATO members were all getting the drafts of the document as it was developed; we and the other participating nations—Sweden is one of them and there are a number of other participating nations who are not NATO members—got a letter from the Secretary-General of NATO, Jaap de Hoop Scheffer. It was an outline of what the document looked like and it was on less than two pages. So, as a consequence, we were not inputting directly to this document, nor were we getting access to the document to understand what was in it. Of course, we and our minister in particular believed that we had something useful to contribute. So that is the context for how this came up. It highlighted the fact that we are not getting the input into these higher level NATO documents.

Now, if we go down to the next level—and I will call this the ISAF level—the coalition arrangements in Afghanistan, we are getting access to everything we need. If we look at what happened in my time as CDF, if we go back to July 2005, decisions were made to deploy special forces into Afghanistan in 2005 and they stayed through 2006. You may recall that they went under the American command arrangements as part of Operation Enduring Freedom and of course that meant we had full access to everything.

A decision was also made at that time that we would deploy a PRT into the NATO stage 3 arrangements when they finally came into being the following year. We had about I suppose 14, 15 months to work with our partnership—our partnership being the Dutch and the other NATO countries to prepare ourselves for the deployment of the PRT, which obviously then became later the Reconstruction Task Force—and essentially we were able over a period of time to get everything that we needed. But I have to say that getting some of the documentation was difficult. We got everything we needed, and I guess NATO is not optimised to work with non-member countries. I am very satisfied with everything that we were getting at the operational level, everything that was needed to inform what we were doing in Oruzgan. Indeed, we have had people in General McNeill’s headquarters, before that General Richard’s headquarters, who were the people who actually were almost writing the campaign documentation that was required to conduct the campaign in the ISAF campaign and we also had people who were assisting the commander of RC South in writing his operational plans.

So in essence we were completely connected in at the operational level and at the lower tactical level. The problem has been the higher level NATO work, because fundamentally NATO is set up to deal with NATO members—NATO countries—not participating members such as ourselves.

Having said all of that, I think we should note that this is the first time that NATO has gone out of area, out of Europe, and it is also the first time where they have taken on board non-NATO members. So it is obviously, I think, reasonable to expect that there will be some rough points along the way. We are very hopeful that we will get full access to those important strategic documents that the minister has talked about in recent days.

Senator MINCHIN —So, to summarise, what the minister is talking about is what you would call high-level long-term strategic issues with respect to Afghanistan but at all times from your perspective, with responsibility as CDF, at an operational level you have felt you had what you needed to make recommendations to the NSC and the government with respect to deployments in Afghanistan.

Air Chief Marshal Houston —One of the difficulties has been—and I am on the public record as saying—that we need a comprehensive and whole-of-agency approach, strategy in Afghanistan. That has not existed until the development of this document in recent times. So in terms of access to General Richards concept of operations, yes, we have had access to that. I have discussed it with him. Indeed, our people were in there assisting him with the development of that plan. In fact, they had a major role in that. Similarly, with General McNeill. General McNeill does not call it a campaign plan; he calls it an op concept. He has an op concept because he wants to retain it in country so that essentially he can use that to drive the strategy for ISAF.

Again our people were vitally engaged in helping him write that document. So we have had access to all of that and it has been very easy. I guess one of the points I would also make is that, through that period, our relationships with other countries that we are very close to were very useful to us in influencing how things might be done and also in obtaining information as to what was happening at the higher NATO level.

Senator SANDY MACDONALD —I want to ask you about the plans to withdraw the task force from southern Iraq in mid-2008. What is the present role of the task force?

Air Chief Marshal Houston —Overwatch Battle Group West has a task, which is called operational overwatch. You will recall that, back in mid-2006 in Al Muthanna, we were able to hand over provincial Iraqi control or provincial security control to the Iraqis, and we were also able to do the same thing in Dhi Qar towards the end of 2006. So we have now had a period of 18 months in the case of Al Muthanna and well over a year, about 15 months, in the case of Dhi Qar where the Iraqis have been solely responsible for the security of both provinces. Our role has been to provide overwatch, which means providing backup if they run into trouble. Obviously we still engage them, we mentor them and we help them develop their capability further, because obviously you can always improve the capability that you deploy in the field on these security operations. So that has been the role.

As I said in my opening statement, we have seen very pleasing results from the security forces deployed in the two provinces. They have had a number of challenges over the last 18 months and they have always come out on top without any major support from us. We have certainly provided logistics support and we have provided advice on tactics, techniques and procedures. We have sometimes told them, ‘Perhaps if you do it this way, you might get a better outcome.’ But, in all cases, with the hard part of it—the part which requires confronting the people who are causing trouble—they have always come out on top. So it has been a very pleasing outcome. We have achieved our objectives in southern Iraq. Frankly, if you look at the two provinces, it is time to leave.

Senator SANDY MACDONALD —So we have provided both backup and mentoring—and, in effect, training? Has that been part of the equation, or has it been purely hands off in terms of the operational side of the deployment?

Air Chief Marshal Houston —There are two elements. We obviously have the Australian Army training team in location as well and, of course, they have been in place for a number of years now. They have contributed to the training of thousands and thousands of these Iraqi troops; we think we have probably influenced about 20,000 of them through the years. So a lot of the soldiers who are out there doing the business in the two provinces at the moment were influenced by us in the training cycle. As you know, we train the trainer in a lot of the work that we do. They have been performing very, very well.

As for basic training, the training part of the equation is a very methodical, very procedural way of doing business. You run people through a training course. We have been involved in all of that with our training teams. But, when we do Overwatch, the sort of mentoring/training engagement that we do is at a much higher level. We go in and we talk to them: ‘How’s it going? How did you go on this exercise? Do you need any further development in this area? Can we assist in this area?’ It is of that nature. So it is the sort of engagement that we might have in Timor, in Papua New Guinea, around the region here.

Senator SANDY MACDONALD —Do we have a plan to continue that high-level mentoring backup provision when the task force is withdrawn?

Air Chief Marshal Houston —We do not have a plan but, as forces withdraw and there is a reducing number of coalition forces in Iraq—bear in mind that the American force is drawing down, as I mentioned, to 15 combat brigade teams, which is a 25 per cent reduction in combat force level, through until the middle of the year; the British are drawing down; we are drawing down; and other members are also drawing down—looking forward through the months ahead and, indeed, the years ahead, the trick will be how you continue to engage with the Iraqis across the country.

In terms of our engagement, I think you will see us continue to be engaged in Iraq, but what we will be doing is, again, something similar to what we do around the region; we will gradually evolve into a defence cooperation program, which will probably be part of a broader engagement plan. That involves the provision of aid and assistance in niche areas. We might, for example, do some training in agriculture back here in Australia. In terms of the military side of it, we will be providing training in Australia. We will have places on the staff college for some of the officers from the Iraqi security force. We will also have some other specific projects that we might pursue with them.

Senator SANDY MACDONALD —You are saying that plans have been developed for when the withdrawal takes place—but they have not been announced yet—concerning Australia’s continuing capacity to remain engaged, but the actual direct training aspects of Iraqi security forces will not take place in Iraq but perhaps in an alternative country. Are you saying that the policy has been developed but it has not been announced yet?

Air Chief Marshal Houston —The government has decided that the Overwatch Battle Group and the training teams will come out. Essentially, we still have a number of people who are embedded in the coalition headquarters; they are remaining for the time being, but I anticipate that further downstream we will see them start to come out. Of course, we then have our security detachment, which will remain in Baghdad. As long as we have an embassy in Baghdad, the security detachment will remain. We will continue with the Defence Cooperation Program, which is already underway, whereby we bring Iraqis to Australia for a number of activities, such as staff college training, training at the higher defence college and from time to time specific niche training that is requested by the Iraqi government. So I would anticipate that will be the sort of engagement that we will have through the longer term.

As I said in the presentation at the beginning, we will also have the naval ship providing security to those two vital oil platforms, which account for about 90 per cent of Iraq’s GDP. We see that continuing for a while, because the Iraqi Navy is not as advanced as the Iraqi Army. I think it will be at least another couple of years before they are able to take on the responsibility that we have at the moment in looking after those platforms. Of course the other thing is that we have P3s deployed and they have a very good surveillance capability, which is of great value to the coalition in their operations in Iraq and right across the Arabian Gulf and into the North Arabian Sea.

Senator SANDY MACDONALD —Minister, you might hazard a guess when the government might make a comprehensive statement about what ongoing future role Australia may play to meet the vacuum that can arguably be put, that when Australia withdraws from southern Iraq there are a number of aspects of our relationship which, in the interests our commitment there over a number of years, need to be addressed, particularly in respect of the ongoing training and security arrangements.

Senator Faulkner —As you know, I am a little old-fashioned about these things. It is not my habit to hazard a guess on anything, so I will not hazard a guess in relation to the timing of a statement. But I can assure you that I am very happy to ask the Minister for Defence if he is able to give you some precise indication of the likely timing of statements in Iraq. I should say to you, though, more broadly in relation to the issue that you raise, that I do not think that I can accept or the government would accept the use of your terminology ‘vacuum’ in relation to Iraq. I can assure you that the government remains committed to a long-term partnership with the Iraqi government to help build a stable and secure Iraq. I think you have heard CDF provide evidence to the committee about ongoing commitments in relation to training. As I think you are aware, the government is exploring options for the provision of additional economic and capacity building assistance to Iraq. So I certainly take issue with your terminology of the use of ‘leaving a vacuum’ for those reasons. In relation to your request that I hazard a guess, I am sure you would appreciate that is not my habit. I am not going to break the habit of a lifetime and start hazarding guesses on these things. If you like, I will ask the Minister for Defence to give you a more precise answer to your question.

Senator CORMANN —On the same topic: CDF, you mentioned in your opening statement how you are pleased with our progress in Iraq. I wonder whether you would be able to expand on that a little bit in terms of where we have come from and where we are today. Also, in relation to the 500-odd personnel that are leaving from southern Iraq, what I heard you say is that they are leaving because the job is essentially done from an operational point of view. My question, following up on Senator Macdonald’s question, is: from an operational point of view, have you got any indication on the timing, in your assessment, in which the job would be done in terms of those other personnel currently deployed in Iraq?

Air Chief Marshal Houston —After we withdraw the battle group, we will have the security detachment there. Its job will continue as long as we have a security problem in Iraq and as long as we have an embassy in Iraq. So they will be there for a while. We also have some people who are embedded in the coalition headquarters and at this stage the government has indicated that those people will remain, but we are obviously looking at how things will adjust as we go forward, because, clearly, with the improving situation in Iraq, the requirements in the headquarters will change and there will probably be a bigger emphasis on reconstruction and rehabilitation and less emphasis on combat operations. So, as things change, we will adjust the number of embeds in accordance with the direction we get from government. Essentially, that is about it, other than noting again that I think the ship will be the last man standing, if you like. That will come out much further downstream, when the Iraqis have developed a reasonable naval capability. They have still got a long way to go in that regard.

Senator CORMANN —So the withdrawal was driven by operational requirements in terms of the 500 personnel in southern Iraq?

Air Chief Marshal Houston —If you have a look at the situation on the ground in Al Muthanna and Dhi Qar, the Iraqis are taking care of business. We have provincial Iraqi control in both provinces. That responsibility has been with them for 18 months in Al Muthanna. It has been with them for 15 months in Dhi Qar. By the time we get to our withdrawal time, that will be two years in Al Muthanna and over 18 months in Dhi Qar and we have not been utilised to back them up in any substantial way in that time. So I think you can see that the conditions on the ground have been established whereby we can leave them to it. Because we have influenced their training, we are very confident in their ability to handle the circumstances in those two provinces.

Senator CORMANN —So the reason they are leaving is that, in your judgement, their job is done?

Air Chief Marshal Houston —The job is done. I can see where you are coming from, but fundamentally—and at the risk of perhaps being a little bit political—and essentially, around the middle of the year, if there had been a different government sitting here in Australia at the moment, I think we would be having the same sort of conversation. We would be transitioning into something else. The Overwatch battle group job is done.

Senator TROOD —Thank you, CDF, for your usual comprehensive survey of Australian Defence Force deployments around the world. I want to go back to Afghanistan. I noticed you were fairly cautious about saying too much about the threat environment that exists in Afghanistan in the area in which Australian forces are operating. I do not want you to deal with operational activity. As you have said, that is a matter that should not be explored here, but I would be grateful if you could give us some assessment of the situation as you think it exists on the ground. I know we are moving into a new operational season, but perhaps you could just convey to the committee your sense of how much progress we might be making strategically in Afghanistan, particularly the kinds of dangers and threats to which Australian forces are being exposed—apart from the IEDs, which I note you have mentioned.

Air Chief Marshal Houston —Perhaps if I start by saying that last year we saw an increase in Taliban activity right across the southern part of Afghanistan, but particularly in our area and the adjoining provinces—in other words, the Pushtun provinces of Oruzgan, Kandahar, Helmand and Zabul. I would anticipate that this coming campaign season you will see the same level of operational activity from the Taliban. What does that mean for us? It means that we will continue to face a high threat. That means we will continue to have the risk of sustaining casualties.

In terms of how that threat will manifest, I have mentioned the IEDs, but I think we will see the Taliban using our province as a sanctuary for operations in other provinces. If you look at the geography of the province, there are areas right around the outer part of the province where there is no coalition control. So the sorts of operations that we will be involved in, our Special Operations Task Group will continue to disrupt the activities of the Taliban, focusing most particularly on the leadership and the bomb makers. We will keep them off-balance, and I think we have been very, very successful in that endeavour in the latter part of last year. That sort of operation will continue and, of course, the Reconstruction Task Force will continue their work as well.

In terms of the risks to our people, the Reconstruction Task Force when we initially put them in they worked very much in the Tarin Kowt bowl. They are now going out much further afield. As recently as yesterday they were under fire in that forward operating base that they are constructing up there. This was rocket-propelled grenade fire and some indirect fire. That is the sort of environment we are working in. We have the necessary firepower, the necessary equipment to be able to look after ourselves very well in those circumstances, and I am very happy with how we are postured. However, the point I would make here is that the risks will be higher because we are operating a lot further from home and we are operating into contested areas. In terms of the Special Operations Task Group, they will continue to operate on their mission to enhance the force protection for all of our people in Oruzgan, and I anticipate that the threat will remain much the same as it was last year.

I have already talked about the OMLT. Essentially, in regard to the OMLT, the OMLT will come into being probably around the latter half of the year—probably around September. The OMLT will go out and work with the Kandak. Depending on the level of development of the Kandak, that will determine what the level of threat is. If it is a well-developed Kandak when we take over the role, we will probably be responsible for taking them into the manoeuvre phase, which would somewhat increase the risk.

In terms of Afghanistan as a total entity, I think there are good things happening. The development of the comprehensive, whole-of-country strategy I think is a vital breakthrough. We have a very good military capability, but I think what is important is to bring together all the necessary effects that will achieve success in Afghanistan for the long term. You are not going to gain a success in Afghanistan on the basis of a military campaign alone. The military campaign is important, but as we go forward, what is important is to train sufficient Afghan national forces and national police so that we can go forward into these areas where the Taliban have been influencing the local population.

We need to clear those areas of the Taliban. We need to then go in and establish a presence in that area and hold the area. The only way that is going to be achieved is by putting properly trained and properly proficient Afghani forces into those areas, and then we need to come in behind that with the sorts of economic programs which will improve the lives of the Afghan people who live there. It needs to be a comprehensive approach. I think with the work that is going on in NATO at the moment we have got a good start to that comprehensive approach that needs to be implemented on the ground in Afghanistan.

Senator TROOD —There is clearly a debate within NATO about the extent to which some NATO countries are risk averse in their commitments to Afghanistan. The debate clearly seems to be focusing on trying to encourage some NATO countries to deploy some of their forces into the southern provinces, where the risks are clearly greater and the need, strategically, is clearly much more substantial. Can you tell the committee whether or not you have any expectation that there is likely to be a greater NATO deployment into those southern provinces, where the need is greatest in the short term as a result of the whole of country strategy?

Air Chief Marshal Houston —This was the subject of, I suppose, considerable discussion in Vilnius. I think the NATO countries all agree that there is a need for an increased level of commitment to Afghanistan. That is starting to manifest in certain ways. The Germans, for example, have increased their force levels recently. They are providing a rapid reaction force. We are also seeing positive signs from the French. I would expect to see some French activity in the southern provinces in the not too distant future. There are a number of other countries that are increasing their force levels. So let us wait and see. But certainly a number of countries have increased their force levels, and there are other countries who are considering increasing their force levels.

I think one of the areas which are of particular concern is the area of helicopters. There is a shortage of heavy lift helicopters—Chinook-type helicopters. I think we are doing the right thing in terms of assisting with meeting that shortfall. The fact that we are deploying what is, essentially, our Chinook capabilities to Afghanistan is a very significant contribution. We only have six Chinooks and we will have two of them deployed for the whole of the campaign season. The plans are to continue that into the future. Essentially, Australia is providing, I would say, 100 per cent of our available capability to Afghanistan, and it would be nice to see some of the NATO countries doing likewise.

CHAIR —Are we fighting above our weight, CDF?

Air Chief Marshal Houston —I think we are providing a substantial contribution. We are the largest non-NATO contributor, and we are the 10th largest contributor overall. I would say that, for a country of our size with a permanent Defence Force of 52,000, a contribution of over a thousand is a very significant contribution and is about right. I think when you compare us to the other contributors, with the exception of the United States and the UK, we are right up there in relative terms.

Senator TROOD —I have not finished. Chair, if I may press my questions—

CHAIR —You may for a while. Your colleagues are indicating to me as well that they want to ask questions.

Senator TROOD —I have a couple more in relation to this issue, actually. I was not quite clear whether or not the new contacts we now have with NATO were likely to lead to the assignment of an Australian ADF officer to a liaison role which had not previously been in existence. Is there now a strategic link with command that, perhaps, was not there and that is going to facilitate this closer contact that you have been developing?

Air Chief Marshal Houston —The previous government authorised a defence attache with NATO back in July 2005, when we started this particular part of our contribution to Afghanistan. So we have a defence attache who works out of Brussels and does a lot of good work in Brussels and also in Mons, where the Supreme Allied Commander, Europe’s headquarters is. Of course, it is the Supreme Allied Commander, Europe who actually runs the campaign. I guess the other thing we will be looking at is, perhaps, enhancing that capability over the next few weeks. I have not gone to government with a proposal yet, but clearly there is a need to beef up our engagement with NATO and with the Supreme Allied Commander’s headquarters. I will be going to government with a proposal to do that in the not too distant future.

Senator TROOD —When first the commitment was made to Afghanistan, was it ever the case, in your view, that the Australian government sent young people to war unconditionally with no questions asked?

Air Chief Marshal Houston —Are we talking 2001 or are we talking the current deployment?

Senator TROOD —On all of the occasions on which—

CHAIR —Senator Trood, do you have a direct reference for your remarks?

Senator TROOD —I think I mentioned the occasions on which you have been asked to consider whether or not Australian forces should be deployed to Afghanistan.

Air Chief Marshal Houston —Let me just take you through the process, if you like. When I became CDF the first thing that was on the table was a deployment to Afghanistan. The first deployment was a deployment of our Special Forces Task Group. We deployed just over 200 special forces into Oruzgan. They arrived in August-September of 2005. We did an intense amount of planning to accomplish that, but, as I stressed earlier on, that was done under Operation Enduring Freedom. Essentially, I was very happy with the arrangements that were put in place. We were really locked into the American system. We got all the enabling capabilities that we required to be able to prevail in the circumstances. As you know, we deployed there for 12 months, and we were highly successful in the task that we were sent to perform. Over the 12 months we had some people wounded, but fortunately we did not lose anybody. So I think that says that we did all the necessary work that was needed to ensure the safety of our people.

Senator TROOD —So you undertook a comprehensive assessment of the circumstances and the strategic risks involved and you made a very complete assessment of the circumstances in which Australian forces would be deployed. Is that correct?

Air Chief Marshal Houston —I believe that we did very full and complete planning for that deployment on Enduring Freedom, yes.

Senator JOHNSTON —I would like to talk about Dili. Prior to 12 February, how many ADF personnel did we have deployed in Dili?

Air Chief Marshal Houston —I will use round figures. We had around 750, and that was built around three company groups.

Senator JOHNSTON —I take it that we had a number of intelligence units deployed within that group.

Air Chief Marshal Houston —The ISF has an organic intelligence capability, yes.

Senator JOHNSTON —Who had ownership with respect to the monitoring and reporting back to you of Reinado?

Air Chief Marshal Houston —Perhaps I will take you through some facts, because I think it is important to understand how Reinado fits into things. If we go back to when we were asked to apprehend Reinado last year—

Senator JOHNSTON —You say, ‘We were asked to apprehend Reinado.’ By whom were you asked?

Air Chief Marshal Houston —I will take you through it in a complete and detailed way. I will refer to notes. It is in my head but I would prefer to get it 100 per cent right. The Reinado story: 23 May 2006, Reinado and his supporters flee the capital and go up to Maubisse and—

Senator JOHNSTON —Do we know how many supporters he had?

Air Chief Marshal Houston —At that stage he had only a small number. If you like, I will run through it and then perhaps questioning might be in order. On 16 June he was arrested by the ISF. We arrested him for his alleged part in this violence. He was then imprisoned and, on 30 August, a couple of months later, he and 55 other prisoners escaped from jail and moved down to the Same area. Moving forward, 25 February 2007, Reinado and eight accomplices raided a series of border protection posts in the west of Timor Leste, taking weapons, ammunition, radios and a quantity of ballistic vests. That was where he got his weapons.

Senator JOHNSTON —Do you know what sort of weapons he got?

Air Chief Marshal Houston —Yes, he got very good rifle—

Senator JOHNSTON —Automatic weapons.

Air Chief Marshal Houston —High-powered weapons.

Senator JOHNSTON —Styres?

Air Chief Marshal Houston —No, we can give you what that is.

Senator JOHNSTON —Automatic weapons.

Air Chief Marshal Houston —I think it was a HMPG—do we know, Peter? It is a European weapon.

Senator JOHNSTON —Automatic.

Air Chief Marshal Houston —We will come back to you on that.

Senator Faulkner —We will take that on notice.

Air Chief Marshal Houston —On 27 February 2007—so this time last year—the government of Timor Leste sent a letter to the Australian Prime Minister that requested the ISF, under the lead of the ADF, to undertake whatever security operations and measures were necessary to ensure Mr Alfredo Reinado is handed over to justice. In response, the government directed the ADF to deploy additional forces to Timor Leste in early March 2007. On 4 March, the ISF conducted a clearance of a series of buildings in Same that were believed to house Reinado and his supporters. Reinado was not apprehended during this operation, but five other armed Timorese men were killed during the operation when they posed an immediate threat to the lives of the ISF members involved. One other Timorese man was wounded.

On 18 June, a high-level meeting of the Timor Leste government chaired by President Horta decided to completely cease the apprehension operation against Reinado. This information was conveyed to the commander of the ISF on 19 June 2007, at which time a presidential declaration was released confirming the decision. On 25 July 2007, the Australian government agreed to an official request from President Horta to cease ADF apprehension operations against Alfredo Reinado and authorised the return to Australia of the apprehension task group.

On 12 October—and significantly—President Horta granted Reinado freedom of movement. That freedom of movement was carrying arms. Between July 2007 and February 2008, President Ramos-Horta led the negotiations with Reinado, with support from the Geneva based Centre for Humanitarian Dialogue. As you know, recently the East Timorese government undertook the dialogue with the petitioners, the former soldiers who were dismissed in 2006, many of whom were aligned with Ramos-Horta. Then we know about the events on 11 February.

What I want to convey to you is that we in no way were responsible for conducting any apprehension operations against Reinado. In fact, we were not empowered to do anything like that. So, if we came across him in the bush, he had freedom of movement. He had the President’s authorisation to move around the countryside with his people, carrying arms.

Senator JOHNSTON —When the raid was carried out in February 2007, how many people were killed?

Air Chief Marshal Houston —Five people were killed.

Senator JOHNSTON —Were they good guys or bad guys?

Air Chief Marshal Houston —These were members of Reinado’s band.

Senator JOHNSTON —So no-one was killed that was a part of the Border Protection Command or any of the ISF forces?

Air Chief Marshal Houston —No. These people were all armed and they were all associated with Reinado.

Senator JOHNSTON —What were they armed with?

Air Chief Marshal Houston —The same weapons that I mentioned earlier on.

Senator JOHNSTON —So they already had some and they took more?

Air Chief Marshal Houston —They had long arms. They had rifles. This is the old Portuguese fort in Same.

Senator JOHNSTON —Have we been maintaining a watching brief on this man, given our company is deployed in country?

Air Chief Marshal Houston —We basically have been very interested in what he is up to but, as I stress again, this individual and his band had the government’s authorisation to travel around the countryside as they saw fit.

Senator JOHNSTON —Be that as it may, and as difficult as the job does get, did we maintain a strong watching brief on where he was, how many there were and what his arm capability was?

CHAIR —In response to that question, CDF, I do remind you that there are government policies and cabinet decisions in this area that—you would be aware—need to be respected.

Air Chief Marshal Houston —Sure.

Senator Faulkner —I am not sure precisely what you mean by that, Chair. I am listening very carefully to the questions that Senator Johnston is asking, and I am acutely aware—and I know CDF and other witnesses at the table are always acutely aware—of matters that might lead to, if you like, issues relating to intelligence matters that obviously it would not be appropriate to canvass at this hearing. I also assume that Senator Johnston, as a member of the opposition executive, would be aware of such precedents. The evidence that CDF will provide here will take account of the constraints that I think all senators understand apply in relation to intelligence matters as they are dealt with before parliamentary committees.

Air Chief Marshal Houston —I should just stress a couple of points here. First of all, in East Timor we are dealing with a sovereign nation. That sovereign nation has its own army, the FFDTL, and its own police force, the PNTL. It is also supported by a United Nations mission. The United Nations mission is authorised by a Security Council resolution. Essentially, those police carry the jurisdiction around the countryside.

Senator JOHNSTON —But, notwithstanding that, they asked us to deal with—

Air Chief Marshal Houston —Can I finish. Essentially we, as the ISF, provide backup to the authorities that hold jurisdiction in East Timor. So essentially we only come into play when things get out of hand. It is true we maintained a watching brief on Reinado.

Senator JOHNSTON —Just before we come to that: things did get out of hand, because we were asked to deal with them.

Air Chief Marshal Houston —At what stage?

Senator JOHNSTON —In June last year we got a request to go and hunt him down and, I take it, eliminate him.

Air Chief Marshal Houston —That was back in February last year.

Senator JOHNSTON —It is not often we get too many requests like that, I would have thought.

Air Chief Marshal Houston —That is true. We did what we were asked to do, and Reinado escaped from Same. Then we were involved in a number of operations where we essentially tried to find where he was. I might add that he is a westerner. He lives in the west. He had a lot of sympathy from the local population. Essentially, that part of Timor is quite a difficult area to track down somebody like Reinado.

Proceedings suspended from 10.31 am to 10.47 am

CHAIR —We might resume proceedings. CDF, there is one thing—could you make available to the secretary a copy of your opening statement for distribution to committee members?

Air Chief Marshal Houston —Certainly.

CHAIR —And I believe you have some information to give to the committee, arising out of the last session.

Air Chief Marshal Houston —Just a couple of clarifications on the Reinado raids on the border posts. They were actually East Timorese border posts; they were not ours. They resulted in the capture of 25 Heckler & Koch 33 automatic rifles. That is a German weapon. He also captured an unknown quantity of ballistic vests, approximately 900 rounds of 5.56 millimetre ammunition and a hand-held radio. I stress again: these items were not ADF items; they were East Timorese property. Just a bit of information on the rifle—the HK33 is a 5.56 millimetre assault rifle developed in the 1960s by the Germans and is primarily for export. It is a long-barrelled weapon.

Senator JOHNSTON —Thanks, Air Chief Marshal. The question I need to ask, I think, is that we kept a detailed watching brief on this man throughout 2007 and into and up to 13 February 2008?

Air Chief Marshal Houston —That is correct.

Senator JOHNSTON —When the government changed, you delivered a brief to the new minister, did you not, on all of the issues surrounding ADF, from Iraq to Afghanistan, including Dili and East Timor?

Air Chief Marshal Houston —I delivered briefs not only to the new minister but also to the national security committee of cabinet.

Senator JOHNSTON —Very good. How many individual briefs relating to Dili did you give after June 2007 to the executive of the Australian government?

Air Chief Marshal Houston —I think that the way I would characterise them is as executive briefs. There was regular interaction with the executive, through the minister—

Senator JOHNSTON —Just define ‘regular interaction’, please.

Air Chief Marshal Houston —Regular interaction? If something was happening, daily phone calls; if something serious was happening, hour-by-hour phone calls to ministers. I would add that has not changed.

Senator JOHNSTON —This is on Dili?

Air Chief Marshal Houston —When something was happening in Dili.

Senator JOHNSTON —Yes.

Air Chief Marshal Houston —Yes, we would have frequent interaction and regular interaction—and that is the same with the old government, the new government.

Senator JOHNSTON —Sure, sure.

Air Chief Marshal Houston —It is basically my communication direct to the minister. That is the primary vehicle for passing operationally vital information. And sometimes it is delivered at three o’clock in the morning, sometimes in working hours. The point is that it happens.

Senator JOHNSTON —Let’s talk about formal written briefs on Reinado. Between Christmas 2007 and 12 February 2008, how many formal written briefs did you give the minister?

Air Chief Marshal Houston —I would have to take that on notice, but let me just say—

Senator JOHNSTON —Could you tell us today?

Air Chief Marshal Houston —I will come back to you.

Senator JOHNSTON —I would be very much obliged. Have we ever—

Air Chief Marshal Houston —All I would say is that the pattern would be exactly the same—

Senator JOHNSTON —Sure. But I would like to know how many we had.

Air Chief Marshal Houston —as it was before.

Senator JOHNSTON —On Reinado, I think it is important. I would like to know how many we had and how aware the government of the day was with respect to this man’s operations. I take it we had a lot of assets deployed above and within Dili with respect to intelligence gathering.

Air Chief Marshal Houston —Look, I am not prepared to discuss intelligence. You know that that is an area that we never discuss in detail, and on this occasion I am not prepared to get into a blow-by-blow about what sensors we had deployed and how we were maintaining a watch on this individual.

Senator Faulkner —Just on that, Senator, given your previous responsibilities, you would be aware of those longstanding conventions, which I spoke about in response to the committee chair’s intervention just before the break. But it might assist you to know that I can confirm, as I have been Acting Minister for Defence since the change of government, that I have certainly been contacted in the way CDF has described to the committee, in the absence of both CDF and the Minister for Defence when they have been overseas. In fact, VCDF has done that on a number of occasions. And I can confirm also that he woke me up on one occasion in relation to a report in East Timor.

Senator JOHNSTON —Good.

Senator Faulkner —I can also report that I have forgiven him for that!

Senator JOHNSTON —So the question was: how many written briefs to the minister were there between 25 December 2007 and 12 February 2008 on East Timor and particularly on Reinado? That is the question I would like to have answered.

Air Chief Marshal Houston —Senator, I do not want to raise your expectations but, if there was a briefing, it would be a briefing on developments in Timor. We do not write briefs on specific individuals; we write briefs on what we are doing operationally. I think I know what you are after. We will come back to you.

Senator JOHNSTON —Tell me, Chief, have we ever received a brief from a foreign country that the NSC has approved where we were sent out to—what were we sent out to do with Mr Reinado? Capture or kill him?

Air Chief Marshal Houston —I presume you are referring back to the circumstances of February-March last year. I think the word that was used was ‘apprehend’.

Senator JOHNSTON —With lethal force or without—or was that not referred to?

Air Chief Marshal Houston —In fact I can go back to the words that I gave to you earlier on. In fact, I will go back to them so that there is complete clarity. On 27 February ‘07 the government of Timor-Leste sent a letter to the Australian Prime Minister that requested the ISF, under the lead of the ADF, to undertake whatever security operations and measures necessary to ensure Mr Alfredo Reinado was handed over to justice.

Senator JOHNSTON —Can you tell me if, in your time in the ADF, you have ever been aware of the ADF receiving a brief like that from a foreign government?

Air Chief Marshal Houston —We get requests from foreign governments all time.

Senator JOHNSTON —To apprehend and bring to justice a person who has just had five of his fellows shot dead in a raid with an East Timor border station?

Air Chief Marshal Houston —No. Let me just clarify that. The raids on the border station were earlier in the piece. I will go back to the precise date—

Senator JOHNSTON —Just before February.

Air Chief Marshal Houston —25 February.

Senator JOHNSTON —That is right.

Air Chief Marshal Houston —And nobody was killed in those raids. Essentially, Reinado appeared at the border protection posts, disarmed the border protection guards and took the weapons. There was no loss of life. Nobody was injured or anything. The loss of life you refer to occurred following that request of the Australian government.

Senator JOHNSTON —You say that it is commonplace for us to get a brief from a foreign sovereign power to apprehend one of their citizens and bring them to justice?

Air Chief Marshal Houston —No. I am not in any way saying it is commonplace. What I am saying is that, from time to time, the government will get a number of requests. Just to give you an example: certain personalities in the Solomon Islands.

Senator JOHNSTON —Harold Keke?

Air Chief Marshal Houston —Yes, Harold Keke. So this has happened before.

Senator JOHNSTON —You say that the UN are deployed and we had the AFP there. But surely it was beyond their expertise, given the taking of the weapons, the vests and the ammunition?

Air Chief Marshal Houston —Let us look at the problem from the Timorese government point of view, because I think that sets the context for the request. Up until then, Reinado had been around. He had escaped from jail and he had been wandering around the western districts. Essentially, they might have had a couple of small arms but they did not have any significant firepower. After the raid on the border posts in late February, the circumstances changed dramatically. As I indicated to you, we were now talking about a band of malcontents who had a number of weapons. They had 25 automatic rifles—25 very good weapons—and 900 rounds of ammunition.

Senator JOHNSTON —You say ‘malcontents’. Is that your word or your assessment of them at that time, given Reinado has been trained in Australia?

Air Chief Marshal Houston —My assessment of them at that time. I would use the term ‘malcontents’. Reinado and his associates were causing trouble for the government of East Timor in the western districts.

Senator JOHNSTON —But they are military trained malcontents, aren’t they?

Air Chief Marshal Houston —That is correct, yes.

Senator JOHNSTON —How long was it between the events of I think 12 or 13 February, when the President was shot I think three times?

Air Chief Marshal Houston —It was 11 February.

Senator JOHNSTON —Sorry, I think you might have said 11 February. The President was shot three times in these raids. The President was sought to be shot, I take it. How long was it, from the time of the firefight surrounding that incident, before we in Australia heard of the event?

Air Chief Marshal Houston —I will have to come back to you on the precise chronology, but it was a little while because we did not have anybody in the location at the time.

Senator JOHNSTON —Had we been in the practice of providing security detachments to those two public officials?

Air Chief Marshal Houston —As I said in my opening remarks, the responsibility and the accountability for the personal protection of those two individuals was vested in East Timorese agencies. Furthermore, the static security around the President’s house—and, indeed, the Prime Minister’s house—was also vested in East Timorese agencies. In these particular circumstances of the President’s house, the static security at the time Reinado and his band turned up was being provided by the FFDTL.


Air Chief Marshal Houston —Yes, the East Timorese army. The practice was that about 15 of them would live in the grounds of the President’s house.

Senator JOHNSTON —Have we ever provided that protection?

Air Chief Marshal Houston —As I said in the brief, in the early days when the then Brigadier Slater was up there, yes, we did provide—

Senator JOHNSTON —2006?

Air Chief Marshal Houston —If we go back to when the trouble started back in May 2006, we provided close personal protection. We provided static security for both the President and the Prime Minister and their residences.

Senator JOHNSTON —And that was withdrawn at whose request?

Air Chief Marshal Houston —At the request of the Timorese authorities.

Senator MINCHIN —Can I just get your response on the record, CDF, to this allegation that was reported in the Sydney Morning Herald of 18 February. The story reads:

THE Australian military failed to send a helicopter to rescue East Timor’s Prime Minister, Xanana Gusmao, when he was hiding under bushes in the jungle during last Monday’s attacks in Dili.

Would you like to respond to that accusation and explain those circumstances?

Air Chief Marshal Houston —Thank you for the question, Senator. Essentially, the attack—or the ambush—occurred up on the hillside a short distance from the Prime Minister’s house. Again, we had nobody in situ. The first thing our people knew about it was when there was a call from one of the Prime Minister’s advisers, who called on a mobile phone to one of the officers—a liaison officer—in the headquarters. The log confirms that that call was made at 0820, some time after the ambush. Within 13 minutes of that call, two large bodies of troops had been dispatched, one to secure the—

Senator MINCHIN —Australian troops?

Air Chief Marshal Houston —Yes, Australian troops—well, ISF troops; there may have been New Zealanders involved as well. I do not distinguish between the two. New Zealanders are very resolute and reliable partners in these endeavours. Essentially, of the two groups of troops one was dispatched to the seat of government, the government buildings in the centre of Dili where the Prime Minister operates from. The other lot were sent up the hill to the site where the ambush was thought to have occurred. At that stage we did not have reliable information as to where the ambush had occurred but only that it had occurred. A helicopter was requested in that initial response, but at 0830 local—10 minutes after that initial request—there was a report that the Prime Minister was now safe.

Senator MINCHIN —The request was for evacuation, presumably, was it? It was a helicopter—

Air Chief Marshal Houston —The request was non-specific. There was no location and there was no task. It was along the lines of: ‘Could we have a helicopter?’ In reply: ‘We need to know the location.’ ‘I’ll get back to you with the location,’ was the response. But everything was overtaken by events, because at 0830 a report came into the headquarters that the Prime Minister was confirmed as safe. I am not sure when he arrived at the government buildings, but he arrived either then or shortly thereafter. At that stage there were some further reports that indicated there were armed men around the Prime Minister’s house. It became known that Mrs Gusmao, Kirsty Sword, and her kids were in the house, so the focus switched very rapidly to their safety. A helicopter was dispatched at 0852 and the helicopter appeared above the Prime Minister’s house at, I think, 0913. I have all this in my notebook, which is just behind me. We had the helicopter in the air, but I would be very quick to add that the Prime Minister’s house is located high on the hillside in very rugged terrain and he has no open areas where a helicopter could land. So the helicopter essentially flew over the top and could not land anywhere, but it provided surveillance over the top of the Prime Minister’s house. I think it was all as it should have been. Our people responded very quickly, very effectively and I am totally comfortable with how they responded, I think.

Senator JOHNSTON —Was the helicopter armed?

Air Chief Marshal Houston —No.

Senator MINCHIN —It was a Black Hawk, I presume.

Air Chief Marshal Houston —It was a Black Hawk helicopter.

Senator JOHNSTON —Unarmed?

Air Chief Marshal Houston —I will come back to you on that, but I imagine that it was unarmed.

CHAIR —Are there any further questions on the CDF’s opening statement? CDF, have you concluded your opening statement or do you have further remarks to bring to our attention?

Air Chief Marshal Houston —I will just look at my notes and confirm the time frame: Joachim Fonseca phoned at 0820 and spoke to the DFAT liaison officer Dillon Walsh; at 0830 we got a report that the Prime Minister was safe; at 0833 the ISF troops were dispatched; at 0846 there were reports of the gunmen around the PM’s house; at 0852 the ISF helicopter was tasked to fly to the PM’s house; it arrived at 0913; the UN police appeared at the location of the ambush; and at 0916 ISF infantry in the vicinity reported the situation was calm and normal movement had resumed.

CHAIR —Do you have any further comments to make in terms of your opening remarks?

Air Chief Marshal Houston —Yes, I just have one correction to make. I said in my opening statement that Trooper Pearce died on 9 October; he actually died on 8 October. So I would just correct the record on that.

CHAIR —Mr Warner, do you have an opening statement?

Mr Warner —Since my last opening statement last year, I am pleased to advise that Defence has made further significant progress towards improving its efficiency and effectiveness. We have made substantial gains in remediating our financial statements and enhancing our financial management. We have implemented a third of the fully or partially agreed Defence management review recommendations and CDF and I aim to have the remaining two thirds implemented by 1 July this year.

We are improving our people management and recruitment and retention. We are tightening and refining our weapons, munitions and explosives security policy and practices and, through our broader reform program, we are driving better performance through better business systems and processes and accountability and governance. Having said that, there is still a lot more that needs to be done.

Today I am pleased to report that we have made significant gains with our financial statements since this committee last met. When I last addressed the committee, I advised that we were progressing well with work on our financial statements but that we still faced a number of challenges in dealing with the uncertainty surrounding general stores, inventory and repairable items. Last year the ANAO signed off on our 2006-07 financial statements as true and fair, except for general stores inventory. This means we have removed uncertainty on about $2.2 billion worth of repairable items; and this has been achieved through the professionalism and the tenacity of hundreds of people in offices, bases and establishments around the country. It is a major step forward and it underscores our commitment to per cent veering with these significant issues and delivering unqualified financial statements.

We are now focusing on removing the uncertainty around general stores inventory and maintaining the financial management ground we have worked so hard to gain over the past five years. We have already done a lot of work on the quantity management and legacy pricing of general stores inventory, and I am reasonably confident that our general stores inventory quantities can now be described as materially correct. That said, significant work still needs to be done on legacy pricing and we are working with ANAO on addressing this issue. That way, the ANAO has full visibility of what we are doing and how we are doing it. I expect legacy pricing will be resolved this financial year either in large part or in full.

I would now like to turn to the ongoing process of reform in Defence. At its last meeting, this committee asked that I keep it fully informed about the implementation of the Defence management review. I am pleased to report today that 16 of the 52 fully or partially agreed review recommendations have been implemented and the rest are well underway. You will recall that CDF and I agreed to implement 50 of the recommendations in full and two in part. We did not agree to implement the recommendations relating to altering the roles of the CDF and secretary under the diarchy.

CDF and I want the major elements of the review and an enhanced governance framework in place by 1 July this year. The framework will refine and improve our information and risk management, customer supplier agreements and performance reporting. The framework and the Defence management review complement our broader reform program, which, as you will remember, is guided by four themes. These are: firstly, to improve our accountability and governance; secondly, our support of our ministers and the government; thirdly our people management; and finally our business processes and systems. The defence management review had quite a bit to say about our accountability and governance and it is crucial to our reform program. Because of that I am pleased to report we have made real headway in improving accountability and governance in a number of ways.

We have integrated our strategic policy, coordination and strategy functions into one executive to better manage our business and reform program, plus the competing demands of current operational tempo and longer term policy and planning. The Strategy, Coordination and Governance Executive ensures a closer linkage between the government’s strategic direction and our business planning and performance framework. It also makes sure that various aspects of our reform program are aligned, coordinated and, most importantly, on track.

We have split the roles of the VCDF and established a new three-star position, the Chief of Joint Operations, to better balance the challenges of meeting our administrative responsibilities. We have streamlined our senior committees and tightened their focus and their outcomes. We have also finalised arrangements to improve the roles, responsibilities and accountabilities on bases and establishments so it is clear who manages and administers what in the future.

Giving first-class advice and support to our ministers and to the government is core business for all departments and agencies, and CDF and I are committed to positioning Defence as a first-class provider in this area. To that end, we have established a policy development division to improve the skills of our workforce and assist line areas in the preparation of submissions. We have delivered workshops and training programs on how to better support and brief ministers, and conducted extensive induction briefings for incoming ministers and their staff.

We have also started to make gains in our people management and recruitment and retention. As the committee knows, we cannot deliver the government’s defence and strategic agenda without a first-class workforce. We have appointed Phil Minns our new Deputy Secretary, People Strategies and Policy, in line with the defence management review recommendation. We have also clarified the boundaries between our people policy, strategies and services, so Phil and his team focus on long-term recruitment and retention issues. As part of that, I have asked Phil to review our civilian workforce training and development and career management. With Defence’s current career progression funnel and the tight skills market, I am keen to ensure we attract and retain a first-class workforce to deliver the government’s defence agenda.

In the past 12 months we have also started to make progress with our business processes and systems. We have appointed Greg Farr to the position of Chief Information Officer to drive information technology capability change so our systems are flexible and can better meet the business and operational needs of the department now and in the future.

We are also reforming our outsourcing arrangements for some services, which has delivered real efficiencies and greater effectiveness in areas such as on-base health services, where we have reduced the number of contracts from over 500 to just 11 primes and 40 individual specialists.

We are finalising a new business model which will articulate on one page what our business looks like, how it operates and the information and resources we need to manage it. By clarifying roles and responsibilities, the model will improve our accountabilities and governance and, through that, our performance.

We are continuing capability and acquisition reform, and improving our cost and schedule estimation for procurement. We are also enhancing our acquisition sustainment and industry engagement mechanisms, and defence infrastructure management.

The improvements we are making to our financial management, governance and accountability, people management and business systems and processes will make a tangible and substantial difference to the department. I am looking forward to most of those reforms being fully or partially implemented by the end of this year.

I know from previous sessions the committee is interested in weapons security, and I am pleased to advise that we have now completed the audit of our weapons, munitions and explosives security policies and practices. The first phase of the audit concentrated on the M72 rocket launchers. The second phase reviewed the status of security for all defence weapons, munitions and explosives.

The audit found that, while significant improvements had been made to our security procedures since 2000, our policies and practices needed further tightening and enhancing. The audit also recommended a stronger oversight and compliance regime. The recommendations included: introducing higher levels of physical security and access controls across weapons, munitions and storage facilities; enhancing security-checking procedures for individuals handling weapons, munitions and explosives; introducing more searches at all large-scale weapons, munitions and explosives facilities; implementing a mandatory two-person policy to prevent unsupervised access to weapons, munitions and explosives, including during disposal activities; undertaking a security validation program across all Defence weapons, munitions and explosives storage facilities; more rigorous monitoring and evaluation of the security performance of contractors with a role in managing and handling weapons, munitions and explosives; and, finally, introducing a Defence-wide security information system to monitor security management procedures and performance.

CDF and I take weapons management seriously, as you would expect, and have accepted all the audit’s recommendations, which were implemented in phases. We have introduced measures to improve the accounting and tracking of M72 rocket launchers and we are currently implementing the recommendations that address specific security weaknesses. Other improvements to policy and practice will follow.

Let me now turn, if I may, to HMAS Westralia. As advised at the last hearing, to ensure full transparency, Defence referred the matter of HMAS Westralia to the Commonwealth Ombudsman to consider conducting an own-motion investigation into allegations that Defence had forewarning about the faulty fuel lines that caused the fatal fire on 5 May 1998. Defence provided access to all relevant documentation held by the department throughout the Ombudsman’s investigation. We have also committed to providing the Ombudsman with the necessary support to enable an effective and thorough review of all relevant matters. I understand the Ombudsman aims to finalise the investigation report in late February or early March. I do not think it would be appropriate for me to comment any further on the Ombudsman’s report until it has been released.

Finally, while we have made real gains since the last hearing, the reform program in Defence has only just begun. The improvements I have outlined today mark the beginning of a much broader process of change that will be implemented in coming years. CDF and I are strongly committed to improving our efficiency and effectiveness, and that will be the focus of our reform program over 2007-08 and into the future.

CHAIR —Could we obtain a copy of your statement, Mr Warner?

Mr Warner —Sure.

Senator JOHNSTON —Can you tell us when we are likely to have total asset visibility?

Mr Warner —I am sorry—could you explain a little further what you are looking for?

Senator JOHNSTON —When are we going to know what we have?

Mr Warner —In respect of inventory?

Senator JOHNSTON —Everything—land, buildings, all property; when are we going to have that?

Mr Warner —That will emerge from the ongoing process of reform. I think it will be a number of years before we have a full understanding of the complete assets that we have.

Senator JOHNSTON —I asked this question in 2002 and was told we had it. It is on record. It is on the Hansard. And you are saying it is a number of years away still.

Mr Warner —I was not here in 2002. I am not sure what occurred then. My belief is that it will be a number of years before we have such a full understanding.

Senator JOHNSTON —You are familiar with the term ‘total asset visibility’: where the bombs are, where the rifles are, where the tanks are, where the trailers are, where the artillery pieces are, where the land is, where the bombing ranges are—all of that. We really do not know, do we?

Mr Warner —We do not have a full picture of our inventory at the moment, no.

Senator JOHNSTON —Is it too much for me to ask for a time frame on that?

Mr Warner —I will answer your question in this way as I think I did at the last Senate hearing: the defence establishment does a number of things extraordinarily well. One of those things is operations that the CDF has just outlined, and I would argue that intelligence collection and analysis is another. This establishment also though does a large number of things not as well as it should. Financial statements, as I have just gone through, is an area where five years ago this department was in a real mess. It has now substantially improved. Asset management is an area that we are working very hard on. We do not do it as well as we should do it. We do not do it as well as we are going to do it, but it is not perfect at the moment.

Senator JOHNSTON —I know we are going to do management reform and we are doing all of the good things, but what are we doing to identify each individual piece of property owned by the ADF and its location?

Mr Warner —As I went through in my opening statement, we are working hard with ANAO this year to improve, if not resolve, the problems around general stores inventory. This is going to be a process I hope that will be completed this year. It may take longer than that. There is a need for a very significant, deep-seated reform of the defence establishment. You are focusing on one area that we do not do as well as we should. But, I have to tell you, the reform of defence is a process that is going to take many more years.

Senator JOHNSTON —I agree with you that it is difficult, but every time we buy something and every time we create an inventory, aren’t we just talking about man hours to note the particular item into a software that allows us to get it back? This is not rocket science, is it?

Mr Warner —It is not rocket science, but a lot of processes in defence when it comes to governance and accountability have been neglected over the years. We do not have the procedures and the trained staff in place to do what we should be able to do.

Senator JOHNSTON —How many civilian staff do you have, Mr Warner?

Mr Warner —There are 20,000.

Senator JOHNSTON —That is an awful lot of people.

Mr Warner —It is a very big establishment. It covers a budget of, at the moment, $22 billion.

Senator JOHNSTON —It is an awful lot of ordnance that we do not know we have got.

Mr Warner —And we have never known what we have got.

Senator JOHNSTON —That does not make it any better.

Mr Warner —If you do not mind, I might ask Phillip Prior, the chief financial officer, to comment.

Mr Prior —I will try and provide some more detail and clarity. Whilst the description that we do not know where everything is may be true in the sense of having a very high-class, world-class system that I can press a button and see all those particular components and elements, I think, as the secretary said in the opening statement, the fact that the auditors have now signed off on explosive ordnance and have signed off on repairable items, it is only general stores inventory in the asset sense that is left to confirm that we have in fact got the sort of controls and understanding that you are talking about. There is a massive amount of work around manual activity that we undertake to try and gain the visibility you are talking about. But what we do not have is the appropriate systems to be able to get that visibility instantly, and it is a very inefficient process that we have to go through. The auditors, as I say, signed off some two years ago on explosive ordnance in terms of that sort of asset visibility.

Senator JOHNSTON —I want to come back to the auditor in a minute. General stores inventory—what is under that umbrella?

Mr Prior —Everything from nuts and bolts to washers, medals, bits of wire and so on.

Senator JOHNSTON —Rocket-launchers?

Mr Prior —No, rocket-launchers come under explosive ordnance, I believe. Perhaps the head of the inventory area could help us out precisely.

Senator JOHNSTON —Weapons systems?

Major Gen. Cavenagh —General stores inventory includes all of the consumable and, I suppose, what you would call field and barracks type stores that defence uses. That is separate from the repairable items: things such as an aircraft engine—something that has got to be taken out and put back into a repair loop—or an engine or a transmission. They are a separate class. Explosive ordnance is another category on top of that.

Senator JOHNSTON —So where do simulators, for instance, fit into the scheme of things? We spend a lot of money on simulators. Do we know how many we have got and where they are?

Mr Prior —Yes, we do. They fit under specialist military equipment, another asset class. The auditor has signed off on that group as well.

Senator JOHNSTON —Let us come back to general stores inventory—vehicles?

Mr Prior —No.

Senator JOHNSTON —We do not know how many vehicles we have got?

Mr Prior —No, we certainly do know how many vehicles there are. They are in a different class. General stores inventory contained the myriad smaller items.

Senator JOHNSTON —Cups, saucers, cutlery, chairs and tables?

Mr Prior —Correct—and also plastic flowers, nuts and washers.

Senator PAYNE —How many plastic flowers do you have, Mr Prior, and what do you do with them?

Mr Prior —I am sure that even this great house has plastic flowers in some part.

Senator PAYNE —Not in my office!

Senator JOHNSTON —So general stores inventory: do we have any idea how many entries we are looking at?

Major Gen. Cavenagh —Yes, we do. We have a number of active stock codes—596,033 active stock codes—with a stock on hand of a little over 132 million items.

Senator Faulkner —I am hoping, Senator, that you are not going to ask the official to go through each one of them!

Senator JOHNSTON —No.

Mr Prior —We could print out a report and give it to you.

Major Gen. Cavenagh —The value of those—what we are talking about for general stores inventory—is a little under $2 billion.

Senator JOHNSTON —How many million again?

Major Gen. Cavenagh —There are around 132 million individual items in stock.

Senator JOHNSTON —What is the bulk of those? There must be a break-up of what that is.

Mr Prior —There is indeed a break-up, and there are regular reports that are produced around those items.

Senator JOHNSTON —What are we talking about? To make up 132 million, what are we talking about? Chairs and tables?

Mr Prior —Nuts.

Major Gen. Cavenagh —Nuts, bolts, washers, small electrical clips—

Mr Prior —Wire.

Senator JOHNSTON —Have we discussed with the auditor categorising these as sundries?

Mr Prior —The category general stores inventory is, if you like another way of saying sundries—general stores inventory rather than motor vehicles, special military equipment, repairable items or any other sort of asset class. They are the vast bulk of the sundry items. As the major general said, there are very detailed classes and groupings within that 130 million.

Senator MINCHIN —What exactly is it we do not know about the general stores inventory? You have just described the numbers and the values.

Senator Faulkner —That is an interesting question, Senator—asking what we do not know!

Senator MINCHIN —I do not want to sound like Donald Rumsfeld, but what is the problem that you are now tackling?

—That we are now dealing with? From the auditor’s point of view, it is what we call legacy pricing. Many of these inventory items have been with us for many years. As you can imagine, some things are many years old and it is difficult to find the individual piece of paper that establishes how much we paid for them at some point in time. Indeed, in Defence’s history there was a point when the retention of records surrounding the acquisition cost were, in fact, let go, because there is a period of time for which you keep records and then you say, ‘I no longer need these; I’ve had clean audit opinions for seven years. I’ll let them go.’

We have been through a process over the last few years of trying to confirm the pricing of all of these individual components. The main game right now is to re-establish a valid, robust pricing for each of these items. As the secretary said in his opening statement, we are very confident that the quantities are now materially correct and we know where they are. To be able to quote those numbers means we know where they are.

CHAIR —In fact, Senator Minchin, I can recall asking you questions in question time on pricing issues associated with inventory in your former capacity as minister for finance. You always had a very detailed brief then. I am surprised that you need to ask this pricing evaluation question! Proceed, Mr Prior.

Senator JOHNSTON —How are we going to value these items and has the Audit Office agreed with your evaluation method?

Mr Prior —As the secretary said, we are working with the ANAO. We have a multipronged approach to this pricing issue. Broadly, with those items that were acquired after 2000, our view seems to be that the records are in reasonable shape. They are recent purchases in time and therefore the records seem to be available to support the pricing. Those items that were pre-2000 are more problematic. So we are approaching it on a statistical basis, as any large corporation does when they validate and confirm their asset base. We are going to statistically select a sample of inventory items and then go off and look for the records, confirm that the records are there and confirm that the bit of paper matches what is in the system.

Senator JOHNSTON —Has the Audit Office confirmed that that is acceptable practice?

Mr Prior —We have been putting papers to the Audit Office and the last time I spoke to them they were reasonably comfortable with that approach. In fact, we have got an expert statistician to work with us, and the Audit Office are directly dialoguing with our statistician. There is a lot of good understanding developing about that approach.

Senator JOHNSTON —Are you having trouble getting commitment from the Audit Office?

Mr Prior —No, not at all. I would say that the Audit Office are working extremely well with us at this time. They understand the difficulty of this particular project and how hard it is. They are offering their full support for us to attempt to do this.

Senator JOHNSTON —Have they said that, if you fulfil your expectation and outline of what you intend to do, they will give you a clean bill of health?

Mr Prior —I would never like to prejudge the ANAO and I do not think Mr McPhee would like me to do that. My expectation is that, if we complete the exercise, if we execute it, then we should be in a position where we will be able to say that we think the prices are valid.

You asked how we are going about it. Those items or purchases pre-2000 are more problematic. One approach where there are no records is to go to the Australian Bureau of Statistics and gain support from them. Another is to approach the Australian Valuation Office. Where there are items that we have purchased in recent times that are similar to an item that was purchased a long time ago, we might take the price of the most recent purchase and index it back using an appropriate price index to come up with an appropriate approximation of price for that very old item. Where there is an item that has no recent like purchase, we will go for a valuation approach and ask the Australian Valuation Office to come up with an appropriate valuation and ascribe that.

A final prong in our attack is to work with the Australian Accounting Standards Board and ask them to see if they can provide relief, if you like, as they have done in other situations. That relief would come in the form of deeming whatever it is that we have on our books as the price for these very old items as being an acceptable price. This is not unprecedented. In fact, when the Commonwealth adopted accrual accounting in the nineties, there was a provision in the accounting standards that said: that which is in your books at that time we will deem to be an appropriate and valid price. I think the classic example was that Telstra was valued in the Commonwealth books, and it was kind of an accumulated cost of Telstra. Was it really the market value? No, but it was deemed to be the value for the purposes of allowing us all to get on with it.

So we put position papers to the Audit Office, we clearly spell all this out, we seek their comment and at this stage we are all working together to try and finalise this last piece in the jigsaw.

Senator JOHNSTON —Have they said that they will accept deemed values?

Mr Prior —If the Australian Accounting Standards Board adopt that approach and give us that relief, that would just be what they would do—they would accept that. The Audit Office, at the end of the day, audit our financial statements in accordance with Australian accounting standards, so if the standards board were to provide that relief in the standards then we would be judged against that standard.

Senator JOHNSTON —Mr Warner, if that is all under control, is that the only hurdle to be traversed to get an unqualified audit certificate for the department?

Mr Warner —I think that is the same question that you put to Phillip Prior. I do not think we want to pre-empt the views of Ian McPhee and his people.

Senator JOHNSTON —I am sorry. If the reforms as proposed were successful, had been carried out and had in fact been implemented in this last financial year, are there any other matters that would have prevented you getting a clean bill of health?

Mr Warner —Senator, apparently, no—no other matters.

Senator JOHNSTON —Very good. Okay. With respect to budget cuts, the razor gang—

Senator MINCHIN —Can I just interrupt. I do want to observe as the former finance minister and someone intimately involved in the qualifications of your accounts that I do commend Defence on the extraordinary progress that has been made. While we are here to be diligent in our analysis, I think you should be commended for the work that has been done, and I think, Mr Warner, you would agree that Mr Ric Smith is owed a debt of gratitude for what he has done to bring your accounts to the point you have.

Mr Warner —Yes, certainly. Thank you.

Senator JOHNSTON —Mr Warner, budget cuts—has a razor gang been through the department?

Mr Warner —I have not seen any razor gangs roaming the corridors of the department, no.

Senator JOHNSTON —Defence has not had to cut anything—no budget constraints, no change of programs, no change in manpower, no change of expenditure on our appropriated budget?

Mr Warner —The government has announced that a two per cent efficiency dividend, a one-off, will apply to Defence in the non-operational areas.

Senator JOHNSTON —What does that mean?

Mr Warner —That means that $1.6 billion worth of Defence’s $22 billion budget will attract a two per cent efficiency dividend. From memory, that will cost us four million in the first year and 31 million next year.

Senator JOHNSTON —Million dollars?

Mr Warner —That is correct.

Senator MINCHIN —Just on that, what exactly do you understand to be the length of time in which this efficiency dividend is going to operate? I notice you have got it in your accounts here going out to 2016-17, with a sum of $149 million. It is described as a one-off two per cent. Maybe the minister can help us here: is it just for the forward estimates? What do you understand to be the period of time in which this one-off efficiency dividend is to operate?

Mr Warner —Our understanding is that it is for the forward estimates, but I will ask Phillip Prior to provide further details.

Mr Prior —We publish our documents, as you can see, across the forward estimates and beyond. The one-off efficiency dividend—I am just looking this up—certainly goes across the forward estimates.

Senator MINCHIN —But in the documentation we have received you have got it applying right through to 2016-17. Why have you done that?

Mr Prior —Until we are advised otherwise, we are providing for it on that basis.

Senator MINCHIN —So there is no clarity, as far as you are concerned, about how long this efficiency dividend is going to operate?

Mr Prior —No, the clarity we have is that it will apply across the budget and forward estimates period to 2010-11 and beyond.

Senator MINCHIN —Sorry—‘and beyond’?

Mr Prior —Which page are you on, Senator?

Senator MINCHIN —I am having trouble locating it, but there is a table here where you have got it applying right through, with a total sum of—

Mr Prior —Is it table 1.1 on page 7?

Senator MINCHIN —Yes, that is right. That is it—with a $490 million cost to Defence.

Mr Prior —That is right, across the 10 years, correct.

Senator MINCHIN —That is what I am trying to clarify, and maybe the minister can help us. What is the government’s position, as far as you understand it, as to the period in which this efficiency dividend will operate?

Senator Faulkner —I have no better or further advice than what is contained in the statement you have in front of you. I can confirm that on 18 December last year the government agreed to apply a one-off additional two per cent efficiency dividend to Australian government agencies. That included Defence over and above the current 1.25 per cent dividend. The dividend in relation to Defence applies, as the secretary has informed you, to policy and administrative areas of the Defence budget. As the secretary indicated, those areas amount to some $1.6 billion in total spending in 2008-09.

Senator MINCHIN —This seems to be an extraordinarily vague position to be in. The previous government increased the rate, as you have noted, from one to 1.25, and the incoming government has sustained that. You have provided for that only to apply over the forward estimates, as I see on this table and to terminate in 2011-12, but you have provided for the two per cent efficiency dividend on top of that to keep running right through.

Mr Prior —The two per cent is a one-off to our base. The advice from Finance to all agencies was to apply it to our base and that is why it goes—

Senator MINCHIN —You were told to apply the 1.25 per cent for the forward estimates.

Mr Prior —Correct.

Senator MINCHIN —But to apply the additional two per cent right across your 10-year program.

Mr Prior —Correct.

Senator MINCHIN —That seems extraordinary. We do not seem to know what the government’s position is from Senator Faulkner.

Senator Faulkner —I cannot give better and further advice in relation to the advice that was received from the Department of Finance and Deregulation by the Department of Defence. Obviously it is not the Department of Finance and Deregulation, as you appreciate, that is being examined at this estimates. I suggest to you when Senator Sherry was dealing with those issues yesterday at the table and when estimates for the Department of Finance and Deregulation were being examined, no doubt either he or officials at the table at that time could have given you answers to any further questions you raised. In the interests of transparency on this issue, if there are any matters which you feel are unclear—and I think the evidence that Defence officials have provided you with gave a complete answer in relation to the advices they have received from the Department of Finance and Deregulation—that you would like me to progress with Mr Tanner, I will certainly do that. I am very happy to do that.

Senator MINCHIN —Thank you, Senator Faulkner. I do not think it is unreasonable of me to be able to ask you, as a senior member of the government, what the government’s policy is. Is this two per cent efficiency dividend on top of the 1.25 per cent to apply for four years or for 10 years?

Senator Faulkner —As I have indicated to you, the only information I have is the information that has been provided by officials. Although I do not represent the Minister for Finance and Deregulation either here or more broadly in the Senate, I am very happy to confirm for you that the evidence that has been provided is accurate and I will do that for you.

Senator MINCHIN —Senator Faulkner, you sit around the cabinet table where decisions on things like this are made and I would have thought you would be able to tell this committee, and I am sure the Defence department would be pleased to know, because they are flying blind, what is the government’s policy.

Senator Faulkner —I do not think it is fair to say that they are flying blind. They have indicated they have received guidance from the Department of Finance and Deregulation, they have acted upon it and they have reported it to you what that guidance is. I have no information available that indicates that what is provided to you is not accurate, but I have said to you that I will seek it.

Senator MINCHIN —But officials of the finance department do not make policy, you do, Senator Faulkner. What is the policy? Is the efficiency dividend to apply for four years or 10 years or something in between?

Senator Faulkner —My understanding is that the information that is provided to you today by officials here that it is ongoing is accurate, but I will check that for you with the Minister for Finance and Deregulation so we are absolutely clear.

Senator MINCHIN —So subject to further advice, we should now understand the efficiency dividend, this one-off additional efficiency dividend, will apply for at least 10 years?

Senator Faulkner —That is the advice that officials have provided to you and it is the best advice I have. I will confirm that for you even though—you do appreciate, Senator, we are not dealing with the estimates for the Department of Finance and Deregulation here; this is the Department of Defence and Department of Defence officials have provided you with the information that has been provided to them and the guidance from the Department of Finance and Deregulation, which is as has been reported to you. I believe that is accurate. I have not heard any suggestion that it is not. You have raised a concern about it; I will double check with the minister for finance.

Senator MINCHIN —I would appreciate that.

Senator FAULKNER —Under the life of the previous government, if I were asking a similar question to the one that you have asked, I probably would have been told to jump in the lake—

Senator MINCHIN —Not by me!

Senator Faulkner —perhaps not in such ungenerous terms, but I certainly would not have received such an answer—but in the interests of providing for you full transparency on it, I will certainly confirm that information for you and I will do it as quickly as I can.

Senator MINCHIN —I appreciate that very much, and I do understand this is Defence estimates, but the Defence portfolio has provided for a reduction of $50 million to $60 million a year over 10 years—

Senator Faulkner —That is right, Senator.

Senator MINCHIN —and I would like to know what the policy is behind that. I am not able to get an answer, but I appreciate you are going to get me an answer. Thank you.

CHAIR —Are there any further questions?

Senator SANDY MACDONALD —Yes, if I may just follow on—

Mr Warner —Excuse me, Chair, before the senator asks his question, I was wondering if I could complete my answer to the original question from Senator Johnston, which was about the razor gang and whether it had been sighted in Defence.

CHAIR —You certainly may.

Mr Warner —I have two other points to make. Firstly, my understanding is, and this was the current government’s pre-election commitment, that the current Defence budget would remain at $22 billion with three per cent real increase through to 2016. I understand that to be the government’s policy position. Secondly, I want to say that CDF and I and the CFO have given a great deal of thought recently to whether there are not efficiencies that can be found within Defence—$22 billion is, after all, a lot of money and the budget has about doubled in the past 10 years. We believe there are significant efficiencies or savings that can be found in a range of areas and we are working on that with government to look to take it forward.

CHAIR —What areas?

Mr Warner —A range of areas: administrative duplication, travel, publications, the way we handle HR—there are a number of areas. We have not drilled down into these as yet; this is a broad feeling or understanding. I cannot provide you details at this stage.

Senator JOHNSTON —Will you provide details before they are implemented?

Mr Warner —I will provide details after the government has looked at and agreed to these savings if they do.

Senator TROOD —May I pursue this point?

CHAIR —No, wait a minute. Mr Warner was going to finish answering his question. He has now done so. I indicated that Senator Macdonald had the call first.

Senator SANDY MACDONALD —Thank you. I was going to follow on from what Senator Minchin was saying and seek an explanation from Senator Faulkner about the operation of the two per cent efficiency dividend. I noted in the ALP policy that Labor is committed to maintaining Defence spending, including a minimum annual three per cent real growth, to 2016. I wonder whether the minister might be able to provide an explanation of how you have a two per cent efficiency dividend on the non-operational components in the budget and also provide a three per cent increase in real terms. I do not know whether I am missing something, but that means giving with one hand and taking with the other.

Senator Faulkner —I do not believe so, Senator Macdonald. I think you have fairly accurately reported the government’s commitment as I understand it. Obviously, I think we would all acknowledge—and I hope that you would—that Defence, like all other government departments, must spend funds effectively and efficiently. The government is committed to maintaining Defence spending in the terms that you outlined. There are not any planned cuts for Defence, but regarding any savings that are achieved within the Defence budget, I think the approach is to reinvest those and ensure that those funds are used for the better security of the nation. I think this is a principle that no-one would argue with.

I did outline the decision in relation to the one-off, additional, two per cent efficiency dividend that I understand to be ongoing, but I am going to double-check for Senator Minchin with the minister for finance. That is the evidence that has been given by officials and I believe that to be accurate, but I will double-check that with the minister for finance to satisfy that question. This has been applied to policy and administrative areas of Defence, Senator, and the secretary of the department indicated that in terms of those areas in Defence it amounts to some $1.6 billion of expenditure in 2008-09.

The issue here is: what does this go to? My understanding is—and I think officials will correct me if I am wrong—that it goes to issues like garrison support, estate upkeep in Defence, sale and lease-back costs, and civilian employee expenses, excluding those that relate directly to capability and operational areas of the budget. It would apply to a significant proportion of DSTO’s budget and other operating costs that do not go to capability and operational areas of the budget. That is the key thing. This would be non-operational IT, travel and the like. I do not know if officials can give better information than that, but I think that is a very fair indication to you of the sorts of areas that we are talking about. This does not go, obviously, to any operational or capability areas in the budget. I think there is a general view—and I would be very surprised given the evidence you have heard from officials at the table today if Defence did not share it—that in those sorts of areas the obligations on Defence to use their funds effectively and efficiently are not different than those that apply to other departments. Obviously this only goes to a very small proportion of the very substantial budget that Defence has.

Senator SANDY MACDONALD —On a couple of points that you made, Minister, I do not think anyone would disagree with you about the expenditure of public money, particularly Defence money. Secondly, I think that the areas that you covered perhaps would have a larger budget than $1.6 billion—

Senator Faulkner —With respect, Senator, I do not believe that is right.

Senator SANDY MACDONALD —I know $1.6 billion is a small part of the budget.

Senator Faulkner —It is.

Senator SANDY MACDONALD —But the confusion that I have—and I just wonder whether there is some explanation for it—is how you can have a three per cent increase in real terms and then have, at the same time, an efficiency dividend of two per cent applied on that small non-operational aspect of the budget. Does that mean, in layman’s terms, that the real increase for that particular area, including DSTO and a number of other very important areas, is only one per cent?

Mr Warner —No. Two per cent only applies to the non-operational aspect.

Senator SANDY MACDONALD —That is what I am saying.

Mr Warner —It is not three per cent minus two per cent.

Senator SANDY MACDONALD —That question is: why isn’t it, then?

Mr Warner —The two per cent efficiency dividend does not apply to the whole of the budget; it applies to only part of the budget.

Senator SANDY MACDONALD —Yes, but the part of the budget that the two per cent efficiency dividend applies to is also a recipient, presumably, of the three per cent real increase in government funding. You are talking a tenth of two per cent.

Senator Faulkner —I think what you are saying is that the actual figure might be a very small fraction somewhere south of three per cent. I think that is what you are suggesting, Senator. The clear commitment, in terms of the government, is maintaining defence spending, including the existing annual three per cent growth through to the year 2016—I think that was the year that you mentioned. I think you have accurately reflected that. That is true. I have tried to indicate frankly to you where the impact of the efficiency dividend will be. Most reasonable people would accept that, in those areas of Defence, Defence should take a lead, as other agencies should in those important areas, and even though it is a very small proportion of the budget, I think it is a very sensible, reasonable and defensible decision of the government to apply the efficiency dividend to those policy and administrative areas, given the constraints that have been placed on other agencies.

Senator MINCHIN —I probably should note in the interests of fairness and transparency that it was actually the former government that ended Defence’s immunity from the efficiency dividend several years by ensuring that the then one per cent efficiency dividend was applied to the non-operational areas of Defence, which your government has continued but which it has upped by another two per cent. I think that should be on the record.

Senator FAULKNER —The only issue is I have indicated I will absolutely confirm that the evidence that officials have given and that I have given in relation to the ongoing nature of the additional efficiency dividend is accurate. That is my understanding. It is officials’ understanding, but we will confirm that precisely for you.

Mr Warner —Could I just add one final point of clarification on this. The two per cent efficiency dividend applies to exactly the same areas in Defence as the 1.25 per cent efficiency dividend which has been in place for the past decade or more.

Senator TROOD —Mr Warner, I have a question that occurred to me in relation to an observation you made a moment ago in response to Senator Minchin. You were talking about possible efficiencies that you had identified in discussions. I wanted to clarify whether or not they were in addition to any efficiencies which might be attributable to the management review which is being undertaken. Have you found further areas of possible efficiency within the department?

Mr Warner —I guess all these things are, in one respect, linked. We are looking across the Defence enterprise for reform to ensure that we do our work more efficiently and effectively. In doing that, we have also begun to look in detail at activities to see whether we can find savings within various activities. It has sort of grown out of that process, but it has been a specific exercise that we have undertaken in the last few months.

Senator TROOD —Is this a formal process of review that you have established within the department?

Mr Warner —It is a process of review that is being undertaken in the department, yes.

Senator TROOD —I wonder whether you would provide us with the details of the 16 items in the Proust review that you have actually completed and those which remain to be completed.

Mr Warner —Sure.

Senator TROOD —You do not need to do it now.

Mr Warner —It will only take a minute, if you are happy to spend a minute doing it.

Senator TROOD —I am happier for you to provide that in writing, on a table of some kind.

Mr Warner —We will do it in writing.

Senator JOHNSTON —Secretary, you have two ministers and two parliamentary secretaries in your department. How many DLOs have you allocated across to those four offices?

Mr Warner —I do not have that answer in my head. Let me see if we have the answer here.

Mr Jennings —For the Minister for Defence’s office, there are two DLOs; there is one for the Minister for Defence Science and Personnel; and there are one each for the parliamentary secretaries.

Senator Faulkner —Can I add to that answer and say that that conforms with the general guidance. I think Senator Minchin may have been present when we spoke about this in the estimates committee for another department. I said earlier in the week, and believe it to be true, it is consistent with the approach that was taken in terms of numbers of DLOs for cabinet ministers, non-cabinet ministers and parliamentary secretaries during the life of the previous government.

Senator JOHNSTON —What is the security clearance situation with respect to office staff across those four offices?

Mr Warner —I believe all relevant security clearances have been issued.

Senator JOHNSTON —When were they issued?

Mr Warner —You want the timing of each staff member?

Senator JOHNSTON —I would like to know the gap between when they were functioning within the office and looking at, using and participating in running the policy side of the department, and when they were uncleared.

Mr Jennings —No ministerial staffer that was uncleared would have had access to classified material. In the very early days of the government assuming power, a number of members of Defence staff were seconded temporarily to ministers’ offices to carry the gap. As staff were recruited by the ministers and the parliamentary secretaries, they underwent clearance processes, which were often done very quickly in order to facilitate the requirements of ministers. But no uncleared staff would have had access to classified material.

Senator JOHNSTON —You say ‘would have’. What mechanism do we have to ensure that, at every given point, every staffer within the minister’s office has the appropriate clearance?

Mr Jennings —That is a fairly detailed question and I think it would be better for me to refer it to the relevant area of the department. That is Mr Merchant.

Mr Merchant —Security clearances for ministerial staff are basically divided into two categories. The majority of the security clearance requirements are handled by the Department of Finance and Administration. Defence handles those security clearance requirements that relate to the higher level security clearances, particularly members of staff requiring top secret clearances. There is consultation between Defence, ministers’ staffs and parliamentary secretaries about the type of information that various members of ministerial staff will need to access, and then there is an agreed position on what level of security clearance each individual will require.

Senator JOHNSTON —What happened after 24 November in terms of the ministerial staff? Do you know, with respect to each person?

Mr Merchant —As Mr Jennings has said, there was a period where the department provided a bridging capability by supplying officers from the department with the appropriate security clearances to ensure that only people with appropriate security clearances were handling classified material. Then, as staff were recruited permanently into those offices, Defence and Finance worked very quickly to give a high priority to processing the security clearance requirements so that staff could then take up their responsibilities with the appropriate clearances.

Senator JOHNSTON —But the clearances were not contemporaneous with the staff taking up their responsibilities.

Mr Warner —In that case, the staff would not have received classified information.

Senator JOHNSTON —Who is overseeing that within the office?

Mr Warner —It is being overseen by the department.

Senator JOHNSTON —So there is a department official in the minister’s office, from the inauguration of the minister’s office, making sure that nobody is accessing departmental classified material—full time?

Mr Warner —No, not full time.

Senator JOHNSTON —Well, how do we know that? Staff get put on, they start on Monday and the clearances are obtained, not Monday, not often Tuesday, not even that week.

Mr Jennings —In each of the offices—or, in this case, in the senior minister’s office—the DLOs also fulfil the function of unit security officers. In those immediate few days after the election result, it was the responsibility of those officers to ensure that classified material was handled appropriately.

Senator Faulkner —Senator, there would also be, I can assure you, internal arrangements within ministerial offices that ensure that these matters are being handled appropriately. You may be interested to know that an examination of the ministerial and parliamentary services section of the Department of Finance and Deregulation yesterday was able to provide that committee with the statistics—again perhaps the only senator here who was present may well have been Senator Minchin—in relation to how those clearances had been progressed; given, as you understand, there is a significant time frame involved. We worked very hard to try and ensure, obviously, that chiefs of staff get those clearances as soon as possible. The normal waiting period can be around 14 weeks. It is a substantial period of time, so there are special arrangements that need to be made and some of those have been outlined to you. We also tried to ensure that, particularly for chiefs of staff, those time frames have been significantly reduced. I might commend the Hansard of yesterday’s hearing to you, which might assist you in outlining some of those broad areas.

Senator JOHNSTON —Thank you, Minister. Mr Merchant, if we can come back to the situation: what mechanism do you have for us to be assured and confident that all staff within the four offices were suitably cleared when they participated and fulfilled their responsibilities within that office?

Mr Merchant —As I said, we were satisfied that the arrangements that were put in place as a bridging capability through the provision of suitably cleared departmental officers provided the ministers and the parliamentary secretaries adequately for their support requirements

Senator JOHNSTON —So they told you that it was all okay?

Mr Merchant —As I said, we were satisfied with those bridging arrangements that they provided an adequate mechanism for the handling of material in accordance with security provisions applying to that material. We also, as I said, then worked very quickly to give a high priority to the security clearance of new staff that were recruited. I might say that at all times we received very positive cooperation from ministers and parliamentary secretaries, who, from my observation, were acutely conscious of their responsibilities to protect classified material.

Senator JOHNSTON —I take that as a given, quite frankly. But what I am interested in is the basis of a security audit. I want to know when each individual was employed. I do not want to know their name and I do not want to know where they came from; I want to know when they were employed, what their function in the office was and then the date of their formal clearance.

Senator Faulkner —Are you are talking here about departmental liaison officers, which is where your questioning began, or are you talking about staff employed under the MOPS act. It is not clear to me now—

Senator JOHNSTON —MOPS staff. Obviously the DLOs would have been cleared.

Senator Faulkner —Well, that was your first question, so obviously you did not think it was necessarily obvious. It was not clear to me that you are now talking about MOPS staff.

Senator JOHNSTON —Let me clarify. MOPS staff. What mechanisms do we have in place with respect to the date and time of responsibilities being assumed by MOPS staff within ministerial offices and cross-referenced with their formal clearance? What I want to know is: when did they start and start to get paid to expend responsibilities and when were they formally cleared? What mechanisms do we have to cross-check that, other than hearsay?

Senator Faulkner —Senator, we do need to draw a line under this. The issue of the engagement of MOPS staff is actually not a matter for the Department of Defence.

Senator JOHNSTON —Security is.

Senator Faulkner —I am not going to the security elements of your question; I am going—

Senator JOHNSTON —Well, I am.

Senator Faulkner —But there are two elements to your question.

Senator JOHNSTON —I am really only interested in the security element.

Senator Faulkner —You may be, but I am going to the issue you raised about engagement of MOPS staff. I am making absolutely clear, and I am sure you appreciate, that those are not matters that the Department of Defence would be able to provide evidence on. Obviously they are matters that are formalised through ministerial and parliamentary services in the Department of Finance and Deregulation. All I am saying to you is that it is perfectly reasonable for you to progress questions to me or officials at the table here about matters that properly fall within the responsibilities of Defence, but some elements of your question I am sure you appreciate cannot be answered by officials and they necessarily will only be able to comment on those areas where there is a direct involvement and, let me say, actual responsibility for defence, which goes to some elements only of your question.

Senator JOHNSTON —So, Mr Merchant, you are responsible for security inside the ministerial offices.

Mr Merchant —My responsibility was to ensure that there were people in those offices who had the appropriate security clearances to handle the material that Defence was providing to those offices. And at all times I was satisfied that that was in place.

Senator JOHNSTON —And you were satisfied because the DLOs told you.

Mr Merchant —Yes, and that we provided departmental officers as that bridging capability who had the appropriate security clearances.

Senator JOHNSTON —I am not worried about the departmental officers; they are fine. But there were not just departmental officers there from day one, were there?

Mr Jennings —Yes, there were, Senator.

Senator JOHNSTON —So there were no staff retained whatsoever other than departmental officers on day one.

Senator Faulkner —There were arrangements put in place after the new ministry was sworn in with departments for temporary staff—we can provide this information for you precisely in relation to the ministers in the Defence portfolio. Let me assure you that arrangements were put in place. I am sure you understand that, when governments change, obviously, governments have their own internal processes, as ministers and parliamentary secretaries do, for the appointment of staff. They are not all immediately appointed from day one. Obviously, ministers were encouraged by the then Secretary of the Department of the Prime Minister and Cabinet, Dr Shergold—who was generous in providing assistance across agencies, including Defence, to ministers—to ensure in the transition period that they were able to draw on the resources of departments in addition to, if necessary, the formal departmental liaison officer allocation, which is provided in the terms that have been indicated to you. So that did occur in certainly most, if not in all, ministerial offices because of the transition period and because of the stringent procedures that have been put in place in relation to the appointment of staff.

You would also be aware, of course, that during the life of the previous government there were very significant numbers of senior staff who did not have the relevant security clearances. I would commend to you again evidence at previous Senate estimates committees—not in this department, but in the ministerial and parliamentary services area of the then Department of Finance. I canvassed some of these issues yesterday to provide the information I could to the senators in the Finance and Public Administration Committee in relation to what has occurred since the current government was sworn in. I think you will see, if you examine that evidence, that a very major effort has been put in not only in the area of security clearances but also in the area of police records checks.

Senator JOHNSTON —Mr Merchant, is there any practical, formal process where you reconcile the date of commencement of employment with the date of security clearance inside the ministers’ offices?

Mr Merchant —We are advised of the security clearance outcome when it is conducted by Finance and Deregulation. We obviously know the outcome of our clearance process for the higher level security clearances that we process ourselves. They are formally advised to the individuals. It is at that time that they start to undertake responsibility for the handling of classified material.

Senator JOHNSTON —But at that time they are already employed within the office, aren’t they?

Senator Faulkner —If you are suggesting, Senator, that the security clearance issue precedes the engagement of staff, no, it does not. I think that might be what you are suggesting. No, it does not.

Senator JOHNSTON —It is the obvious thing I am suggesting.

Senator Faulkner —It would be, as I am sure you would appreciate, unworkable if it did. Just so you are clear, the sort of time lag generally for these clearances to be provided has been around 14 weeks. That obviously leads to a very difficult situation, particularly in certain offices dealing with highly classified material. I can say to you that it puts a substantial burden on the ministers themselves. I can assure you of that personally, because of the experiences I have had during this transition period. What has been done is to try to ensure that, particularly with senior staff and those with particular responsibilities in those ministerial offices which are handling highly classified material, the provision of clearances and security assessments have been undertaken as quickly as possible. That stands in stark contrast to what occurred previously, when often there was no attempt to get a security clearance at all.

Senator JOHNSTON —I thank you, Minister, for that contribution. I do appreciate you helping me with that. Mr Merchant, is there any formal process whereby you reconcile the date of the security clearance with the date of the commencement of responsibilities?

Mr Merchant —The key issue for us is the responsibility for them handling classified material.

Senator JOHNSTON —That was not the question. The question is, ‘Is there any formal process whereby you reconcile the date of security clearance with the date of commencement of responsibility?’

Mr Merchant —Our focus is on the handling of classified material not occurring until the relevant security clearance is in place. As I said repeatedly, we provided appropriately cleared departmental officers to bridge that gap and give us that assurance. Once people have an appropriate level of security clearance, the departmental officers can be withdrawn, and the ministerial staff can start to take responsibility for the handling of the classified material.

Senator JOHNSTON —Am I to take it that you are not concerned with the security implications of people employed within the defence minister’s office prior—

Senator Faulkner —Certainly not, Senator. You certainly should not take the stringent procedures that have been applied during this transition period and the strong emphasis on both the need for security clearances, which I don’t believe was reflected during the whole of the life of the previous government—and the public record shows that—

Senator JOHNSTON —It takes us no further.

Senator Faulkner —I am responding to your question, which—

Senator JOHNSTON —No, you are not. You are just commentating on the previous government—which is your prerogative. But you are just wasting our time, Minister.

Senator Faulkner —No. As a matter of fact, I am trying to indicate to you how seriously the new government does treat this process.

Senator JOHNSTON —Well, there should be a formal process, shouldn’t there?

Senator Faulkner —There is a formal process.

Senator JOHNSTON —What is it?

Senator Faulkner —What you are suggesting is that—

Senator JOHNSTON —What is the formal process?

Senator Faulkner —As soon as a ministerial staffer is engaged, Senator, the security clearance and police records check process begins. We have tried to ensure, in areas where either very senior staff in ministers’ officers—chiefs of staff, particularly—or where a staffer is required to handle classified or sensitive material, that those clearance procedures are dealt with as quickly as possible. But, you must appreciate, it has to be thorough. It does take time. In some cases, Senator, to give you a time frame, if this assists you, the normal time frame is somewhere around the period of 14 weeks. What has been able to be done, in certain circumstances, to facilitate the provision of such clearances, which will facilitate the operations within ministers’ offices, is that the time has been reduced in some cases to two weeks. If you are suggesting that the security clearance process should commence before the engagement of staff, that is not realistic and it doesn’t happen. The government has a very strong record in treating this extremely seriously through the transition period, understanding the sensitivity of the material that is being dealt with in ministers’ offices. From personal experience dealing with classified or highly classified material, it has meant, in my own case, having to handle quite a deal of it myself, until these processes have progressed through. It is an issue which we have taken very seriously, as I think you can see from the evidence I have outlined to you.

Senator JOHNSTON —So are you suggesting that in certain circumstances for up to two weeks people were employed in ministerial offices in positions before they received their security clearance?

Senator Faulkner —The officials can outline to you the procedures in relation to this. Not only are clearances provided but, as I understand it, and officials can confirm, because the period—

CHAIR —Minister, we might take that advice from officials and you after lunch.

Senator Faulkner —I am never going to argue against the lunch break.

Proceedings suspended from 12.30 pm to 1.31 pm

CHAIR —The committee will resume its deliberations on estimates. I believe CDF and the minister have some advice to give to the committee.

Air Chief Marshal Houston —I just wanted to complete the picture on Timor. I talked about the helicopter being overhead. I understand the helicopter was armed with twin MAG 58 machine guns, door guns on either side, and also contained therein was a section of infantry who were also armed. So they would have been able to put down a reasonable amount of firepower if that had been required.

CHAIR —If necessary. Thank you, CDF. Minister.

Senator Faulkner —I have asked for advice on the issue in relation to the efficiency dividend and I will share that with the committee when it is forthcoming. I just indicate that I have done that and I hope to have it available—and we might have to let Senator Minchin know—but I will come back to the committee on that.

CHAIR —Thank you, Minister.

Senator JOHNSTON —Just to finish off, Mr Warner, if I can, the question of security clearances. As you are aware, a lot of contractors, in order to complete our treaty obligations and the ITARs conditions with which we receive foreign weapons IP, if you like, have to go through a formal process of securing all of their staff. Indeed, there have been a number of applications to equal opportunity tribunals and whatever so that we can have particular citizenship qualifications met for security reasons. With respect to ministerial officers, we do not appear to have any formal comparable process. Is that not a true statement?

Mr Warner —We have formal processes that are strong and robust for the granting of security clearances for ministerial staff.

Senator JOHNSTON —An auditable process?

Mr Warner —Yes, Senator, of course.

Senator JOHNSTON —So we have documents that we can see and reconcile as to when people were in offices and when they were cleared?

Mr Warner —It is a strong and robust process, and I am confident it worked, and worked well, on this occasion.

Senator JOHNSTON —Forgive me if I am not satisfied with the words ‘strong and robust’. I asked about an auditable process. I want documents and I want to be able to look at them and satisfy myself as an independent auditor that people in ministerial offices who are using classified material have been cleared. Is there such a process?

Mr Warner —As has been made clear by others this morning, some of the information that you are asking for is not the purview of, does not belong to, Defence. It belongs to the Department of Finance and Deregulation. I cannot answer for them. I can provide information on areas where Defence has responsibility.

Senator JOHNSTON —We will believe from that what we will.

Senator CORMANN —Mr Warner, in your opening statement you made reference to efficiency improvements in the provision of on-base health services. I want to ask you some questions about the provision of health services to the families of ADF personnel and their children. I refer you to a commitment by Mr Rudd and Mr Fitzgibbon during a visit to the electorate of Herbert in Queensland on 12 November 2007 where they committed that in government they would provide $33.1 million to extend free basic health care to spouses and children of ADF members by funding 12 defence family healthcare clinics. Referring back to table 1.1, which we talked about earlier, I can see a reference to the SAS trust fund contribution of $10 million, which was also a pre-election commitment, but I cannot see any reference at all to the $33.1 million by way of additional funding provided to Defence. Have you been provided with any additional funding by the government for that commitment?

Mr Warner —This was, as you say, an election commitment by the current government. That is an issue that is before government at the moment.

Senator CORMANN —After the announcement on 12 November in Townsville essentially committing to a Defence family healthcare clinic at Lavarack Barracks in Townsville and another one at Robertson Barracks in Darwin, nine days later a series of simultaneous commitments were made for the RAAF Base Amberley in Cairns and for RAAF Base Edinburgh at Elizabeth North in South Australia. All were promised that they would be among the first defence family healthcare facilities. Has there been any work in your department in relation to addressing that commitment?

Mr Warner —Yes, we are looking at the government’s pre-election commitments in respect of health care for ADF members’ families.

Senator CORMANN —So no funding has been committed so far?

Mr Warner —That is my understanding, yes. I will just get confirmation.

Mr Bowles —Yes, that is correct. It is before government at the moment.

Senator CORMANN —So no funding has been provided by the government to the department so far?

Mr Warner —It is currently before the government through the normal budgetary process.

Senator CORMANN —So no funding has been provided so far?

Senator Faulkner —I do not know you would expect it to, given you have been informed how this issue is being progressed. I think you would acknowledge—I am sure all committee members would—that access to health care is fundamental to ADF families. We know that. The government is determined to address these problems. I can assure you that the government is working on these issues right now. You have heard that this work is well underway and you would expect relevant funding commitments to be made at the appropriate stage of the political cycle.

Senator CORMANN —Okay, so work is well underway. No funding has yet been provided, but we do know that six out of the 12 are going to be among the first, and those are the bases in the federal electorates of Herbert, Solomon, Blair, Leichhardt, and Wakefield in South Australia and Queensland. Are there any plans for, or has there been any work done in the department in relation to, similar services in Western Australia, New South Wales or Victoria?

Mr Warner —We are doing work on the scope of the program that the government might put in place. That goes to advice to the government, and I am not going there.

Senator CORMANN —So at this stage you have not made any decisions in relation to the specific locations of the additional six?

Senator Faulkner —Such decisions, anyway, would be a matter for government. You have heard the secretary indicate that scoping work is being undertaken in the department. You are right to say that, prior to the election, the then opposition committed to progressively extend basic medical and basic dental care to the spouses and children of ADF personnel—that is right. It is right to say that obviously there was a focus given to remote base locations and regional centres, as you are aware. This is something that I would hope all members and senators would get behind. There are serious issues with lack of access to health care for many ADF families. This is a real issue. I do not consider it a partisan issue; it is a reality. It is not just a question of access; it is a question of the costs that are borne by ADF families in these circumstances. I know this from the time many, many years ago when I was defence personnel minister. This is exacerbated, as I am sure you would appreciate, in remote locations. This work is underway in the department, as you have heard, and it is extremely important work. I hope that all senators share those views.

Senator CORMANN —It is very important work indeed, so can we expect that at the next budget estimates there will be an additional allocation of $33.1 million to the department for this purpose? Can the department take on notice whether there is any further information they can provide us concerning the planning and the identification of further sites.

Senator Faulkner —Good try, Senator! I do not blame you for asking that question. But you understand that you are unlikely to hear much about this in advance of the budget processes that the secretary has spoken about. Your views, at least, are now there clearly on the public record in the Hansard. But I am afraid I am probably no different from other ministers in previous administrations, be they Labor or non-Labor: to speculate on the sort of questions you have asked would lead to a very short life as a minister, indeed.

Senator NETTLE —I have some follow-on questions from your opening statement. You gave an indication of this, but I was looking for an actual figure for the number of ADF members that will remain in Iraq after the withdrawal of troops that you outlined this morning.

Air Chief Marshal Houston —You have to look at it in terms of Operation Catalyst. We had 1,560 people on Operation Catalyst. With the drawdown, it will be just under 1,000 committed to operation catalyst, and some of those people will be in Iraq. That will be the people at the headquarters, the people in the SECDET and, I guess, the people on the Navy ship that works within Iraqi territorial waters and some embeds—these officers and senior NCOs who are embedded within the coalition headquarters infrastructure.

Senator NETTLE —I think you mentioned them earlier. Are there 95 personnel in multinational force headquarters—is that right? I can not remember where I got that figure from.

Air Chief Marshal Houston —In Iraq or—

Senator NETTLE —In Iraq, yes.

Air Chief Marshal Houston —Let me just check. I did not actually give a number in the statement but I have another document here, which I will be able to use to inform you how many we have there. The total number of people we have in headquarters in Baghdad is currently about an establishment of 179. That includes our people on the headquarters and embedded personnel.

Senator NETTLE —Do you have an idea of how many are embedded?

Air Chief Marshal Houston —We have an establishment of just over 100, but that also includes the people who are embedded in CTF158, which is the naval headquarters that runs the maritime operation to secure the two oil platforms. If you take that out, we are probably looking at somewhere in the order of 50 people embedded in Iraq—and I say about 50.

Senator NETTLE —Will there be any change to those embedded people?

Air Chief Marshal Houston —The direction I have had from government is essentially that the embeds will continue at the moment, but clearly as we go further downstream and the headquarters structures change—and they will change as the mission transitions from what was essentially a combat type of operation to one that is more focused on reconstruction, rehabilitation and rebuilding the institutions—then clearly the positions in the various headquarters, departments and so on that are doing all the work, will change over time. What I am saying is that some of the positions will probably not be required.

Senator NETTLE —Those people are involved in the planning for US-led operations—is that correct?

Air Chief Marshal Houston —We have a large number of embedded people. I mentioned some of them. Some of them are involved in the higher level multinational headquarters—Petraeus’s headquarters. Others are in the core headquarters and others are down south in the multinational south-eastern headquarters in Basra. We also have a number of people who are doing other jobs in and around Baghdad. For example, we do have people in the department of defence in Baghdad and we have others who do jobs that are involved with functions other than with the support of combat operations—in fact rather a large number of them are doing things other than the support of combat operations.

Senator NETTLE —In answer to Senator Cormann, who I think was asking about how long people would be in Iraq, you said ‘a while’. I wonder if you could quantify that any more. Just recently John McCain said 100 years, so I was wondering if you would like to quantify a while more specifically.

Air Chief Marshal Houston —I think the minister indicated this morning that Australia’s commitment to Iraq would continue for the long term. We are talking about going from where we are now to something much smaller and much more focused as we go through a period of transition over the months and the years ahead so that we might end up with a very small number of people in Iraq. I would see that, until the security issues are finally resolved, there would be a continuing need for the security detachment to support our embassy staff as they perform their diplomatic functions in Baghdad and elsewhere.

I could see that the transition, as I said this morning, in defence terms—let me just concentrate on defence terms. Initially we were doing a lot of training in Iraq. What we will see in the future is training that we do in Australia for select Iraqi people who come here to take advantage of the training that is on offer from us. It will be very similar to the defence cooperation programs that we run with nations in this region. We have, as I think you are probably aware, a very extensive defence cooperation program. Iraq would be one of the nations that will be included in that program.

Senator NETTLE —I think this is a series of questions that Senator Faulkner used to ask when he was over this side about the number of casualties for Iraqis. I do not know to whom this is addressed, but has there been any change in policy in terms of being able to get figures of Iraqi casualties now with the new government?

Air Chief Marshal Houston —I will just go to that for a while. There are three different surveys. There is the Iraq Family Health Survey, which is the most recent one that has come up. That covers the period March 2003 through to June 2006—and indeed all three studies cover that period. They have done an extensive survey of households; in fact five times the number of households that we use for the Johns Hopkins University study. They have used a very similar methodology to the Johns Hopkins University study and, by going to many more houses across all of the provinces of Iraq—they covered the 18 provinces of Iraq—they came up with an assessment that the figure of civilian casualties was in the order of 151,000. They did, however, concede that the figure could be anywhere from 104,000 to 223,000, so 151,000 was the figure that they assessed as being the most likely figure.

There was also the Johns Hopkins University study, which was done in 2006. It used a similar methodology to this most recent study, the Iraq Family Health Survey, but it did not use as many households and it was also focused on the areas of Iraq where there had been the heaviest level of violence. As you will recall, because I think you asked me a question similar to this in the past, they assessed a figure of 601,027.

There was also another study that was done and that was the Iraq Body Count, which came up with a figure of 47,668. Most recently, there has been a US congressional report called Measuring Stability and Security in Iraq. That report notes a declining trend in civilian deaths since December 2006. I think you would be aware that the level of sectarian violence has dropped quite dramatically and, as a consequence of the surge and the truce that was implemented by Moqtada al-Sadr for militia such as Jaish al-Mahdi and also some of the positive developments in places like Anbar, we have seen a dramatic drop in civilian deaths over the last 14 months.

Senator NETTLE —Which of those figures would ADF consider to be more accurate?

Air Chief Marshal Houston —This latest study has only recently come out, but I would note that the methodology used has been more complete than, for example, the Johns Hopkins University study. I take note of the US congressional report, which I would totally agree with in that there has been a substantial trend in the right direction in terms of civilian deaths since December 2006. That is directly associated with the surge operations by the Americans.

Senator NETTLE —I think I might have asked you before about whether you have a figure for Iraqis killed or injured by ADF. Do you have a figure for that?

Air Chief Marshal Houston —If we take the period post the war—I will come back to you; I will take that on notice—I think I could count the figures on one hand. You would know that we have had a couple of incidents where people have come through road blocks and so on. I will come back to you with the precise number.

Senator NETTLE —That is fine.

Senator TROOD —CDF, does the figure of 150,000 casualties in the household survey you referred to include deaths, or is it just injuries?

Air Chief Marshal Houston —I think we are talking deaths.

Senator TROOD —So ‘casualties’ is ‘deaths’ here.

Air Chief Marshal Houston —Yes.

Senator Faulkner —That is certainly my understanding. There is a very broad range of these, from the lowest figure, of course, in the Iraq body count through to both the Lancet and Johns Hopkins surveys—a very large range.

Senator TROOD —I appreciate that. CDF, do you have statistics in relation to not only casualties but injuries?

Air Chief Marshal Houston —No, I do not believe I have that with me at the moment but I could certainly take that on notice and we could provide you with a more complete report on this if you would like us to pursue it.

Senator TROOD —Perhaps in relation to that survey that you regard as having the greatest integrity. Thank you.

Air Chief Marshal Houston —The congressional report? I did not actually give an opinion on the other three, except that I think the methodology is more complete in the most recent one than in the previous one.

Senator TROOD —I understood you to be saying that and I understood you also to be saying that that is likely to yield a more accurate figure.

Air Chief Marshal Houston —I would agree with that.

Senator TROOD —Just in relation to that, if there are injuries attached to that survey perhaps you could provide those.

Air Chief Marshal Houston —Okay.

Senator NETTLE —How many IED attacks—or ‘incidents’ may be a better way to describe them—have there been on Australians?

Air Chief Marshal Houston —I would like to come back to you on that. In the recent past we have had a lot more IED attacks than we had when we first deployed into Afghanistan. I think in the last six months of last year there were a lot of attacks on us. There are also a lot of attacks which we disrupt before they occur. We find a lot of IEDs as we go about our business and of course we make those devices safe. I will come back to you on all of that.

Senator NETTLE —Thank you. I wanted to ask about friendly fire incidents as well—any of those?

Air Chief Marshal Houston —Sorry; you would like?

Senator NETTLE —Just a number for them—that is all.

Air Chief Marshal Houston —In which place?

Senator NETTLE —In Iraq. I am sticking with Iraq first and then I will go to Afghanistan.

Air Chief Marshal Houston —I guess it depends what you mean by a friendly fire incident. If you are talking about the combat environment where we have got people out manoeuvring, if we have a look at the Overwatch Battle Group, I do not believe we have had any friendly fire incidents at all. However, you would know that in the past I have reported a couple of incidents where we have had an exchange of fire when somebody has basically failed to adhere to warning signs or a requirement to stop at a checkpoint and so on. I think we have had a couple of those, but I would like to come back to you with the precise figures.

Senator NETTLE —Thank you. You might have to take this on notice too: how many engagements with hostile forces have you had?

Air Chief Marshal Houston —In what period and in which theatre?

Senator NETTLE —In Iraq.

Air Chief Marshal Houston —During the war, post the war or when?

Senator NETTLE —Probably post.

Air Chief Marshal Houston —Post war—okay, we can do that.

Senator NETTLE —Can you say whether those engagements were initiated by Australians or others?

Air Chief Marshal Houston —I think just about every one of them was initiated by somebody else, but I will come back to you on that.

Senator NETTLE —Thanks. What is the total cost of the Iraq operation, Operation Catalyst, since the war?

Air Chief Marshal Houston —The total approved expenditure for Operation Catalyst from 16 July 2003 through to financial year 2006-07 was $1.5 billion—in fact, $1,560.7 million.

Senator NETTLE —I note that the revised estimate for Operation Catalyst is now $486 million, an increase of $112 million. Can you explain the increase?

Air Chief Marshal Houston —Our current approved funding for the period 2007-08 to 2009-10 is another $598 million, which will bring the total approved funding for Operation Catalyst for the period starting 16 July 2003 to $2,158.7 million.

Senator NETTLE —I thought there was an increase of $112 million. I just wanted to get the explanation for that increase—or is that just part of the ongoing outlay of the forward estimates?

Air Chief Marshal Houston —You are referring to the additional estimates statement.

Senator NETTLE —That is right.

Air Chief Marshal Houston —I will let our financial expert take you through the detail of that.

Mr Wearn —There are actually four elements that make up the variation between the budget estimate and the revised estimate. Just running through them: there was an amount of roughly—I will just round off—$12.4 million for the ScanEagle UAV; there was $69 million for force protection of the Bushmaster vehicles; there was about $15.2 million for some equipment with regard to electronic countermeasures; and as part of the reconciliation with the department of finance under the no win, no loss there was a $15.6 million rollover from the previous financial year.

Senator NETTLE —Is $83.9 million the estimate for next financial year?

Mr Wearn —That is correct.

Senator NETTLE —Is that realistic, given the number of forces that will remain in Iraq?

Mr Wearn —It is based on the current arrangements.

Senator NETTLE —We were talking about the OMLT this morning. Can you describe in what circumstances the OMLT or the additional troops would engage in combat.

Air Chief Marshal Houston —The OMLT initially will, as a new Kandak comes into the province, probably come out of the training environment. Obviously there is a need to walk before you run, so initially they will do fairly simple, straightforward things, but as soon as they are starting to do things in a province, there will be the potential for combat operations, as you refer to. Clearly, once they are into the province, the Taliban would endeavour to target them in whatever way they see fit. Probably the greatest potential for combat operations is when they start manoeuvring and moving into the contested areas where their job is to go in, clear the area and then hold the area that they have moved into. In holding an area they are likely to be challenged by the Taliban. I think that would be the area where the greatest risks would prevail.

Senator NETTLE —Are you talking about Australian troops not the people they are training?

Air Chief Marshal Houston —They will be embedded within the Afghan Battalion. As such, they will take the same risks as the Afghans they are working with.

Senator NETTLE —So the change in troops for Afghanistan would involve less reconstruction and more combat. Would that the accurate?

Air Chief Marshal Houston —One of the things I should highlight is, first of all, construction. The capability we have there at the moment is very good. It gives us two teams which can work in two different locations at the same time. What we are going to is a capability where we can go to only one place at a time, but at the same time we have developed a very good knowledge of the capability of the local Afghan community and their ability to assist with the construction operations that we will be conducting. I would anticipate there will be a fair bit of work that is a subcontracted to those Afghan contracts and workers we work with. In terms of the question you asked about whether there is likely to be more combat, I think there will be occasions when the OMLTs, as part of that Afghan Kandak, will be involved in combat operations. That will be when they are in the more outlying areas and their presence is challenged by the Taliban.

Senator NETTLE —What kinds of weapons will the OMLTs be using?

Air Chief Marshall Houston —They will be equipped like our Australian soldiers are right now. They will carry the same sorts of weapons and will be equipped in much the same way. We will provide them with protected mobility. That means they will probably have some Bushmasters deployed with them in the Kandak. They will also have access to offensive air support, aeromedical evacuation and so on. As part of the force protection measures we put in place, we will ensure that those sorts of capabilities are available to the Kandak and to our people when they go into the more dangerous part of their operations.

Senator NETTLE —So essentially the same kind of equipment and weapons as normal Australian soldiers?

Air Chief Marshal Houston —Absolutely, yes.

Senator NETTLE —Would you agree with the views of the former Supreme Allied Commander of NATO who said a few weeks ago that NATO is not winning the war in Afghanistan?

Air Chief Marshal Houston —Was that General John Craddock?

Senator NETTLE —No, it was General James L Jones.

Air Chief Marshal Houston —Jim Jones was the previous SACEUR and he has recently done a bit of a study of what is going on. I think what he is referring to is the concerns that were expressed last year that, while the coalition is winning the war on the ground tactically and strategically, we are not making as much progress as we might. That is all tied up with the comments I made earlier on about the need for a comprehensive strategy that includes all relevant elements, both military and civilian, to attack the problems on the ground in Afghanistan. For example, you need all of the military elements that we have deployed at the moment but you also need to have the right sort of aid policies, you need to build the institutions, you need to deal with a narco-economy and you need to come up with an alternative economy that gives the people of Afghanistan hope for the future. All of those things need to be wrapped up into one integrated strategy. I think until that is done we tread water, because you might win tactically on the ground but what you are seeking to do is bring all of the people of Afghanistan to the side of the government so that they see no other alternative than to go with that government because it will provide them with hope for the future and will improve their lives for the better.

Senator NETTLE —I note that the Afghanistan Study Group has been calling for the approach in Iraq and Afghanistan to be ‘decoupled’. Is that an assessment that you would agree with?

Air Chief Marshal Houston —Sorry—could you give me some more context?

Senator NETTLE —It is the Afghanistan Study Group that has recently done a report and they have been calling for Iraq and Afghanistan to be decoupled, or separated.

Air Chief Marshal Houston —Yes, that is an assessment I would share, in terms of them being two different problems.

Senator NETTLE —What implications will that have for our forces? Is it correct that the headquarters in Iraq is the central headquarters for Afghanistan as well? What implications would that decoupling have for the joint headquarters?

Air Chief Marshal Houston —Essentially I do not see that necessarily applying to our command and control arrangements. We have in place arrangements whereby the Chief of Joint Operations, who works direct to me, works direct to Commander JTF633, who is located in Baghdad. Beneath the commander in Baghdad, we have a one-star officer who is responsible for, broadly, our operations in Iraq and the Gulf and another one-star officer who is responsible for the operations in Afghanistan. So, to a large extent, our execution is decoupled already. The only capabilities that are common to both Iraq and Afghanistan are the C130s, and potentially the P3s and the command and control and logistic support arrangements. We take everything in through one location in the Gulf and then we push it out into the two theatres.

Senator NETTLE —I wanted to ask about the Air Force Control and Reporting Centre that is based in Kandahar and whether a part of its role is directing US aircraft.

Air Chief Marshal Houston —Yes. The Control and Reporting Unit provides a very important function at Kandahar. It controls all the aircraft that transit through southern Afghanistan. It also has contact with all the civilian aircraft that go over the top. You may be aware of airlines like Qantas flying over the top of Afghanistan at the moment. They contact those aircraft as well. Any aircraft or any uninhabited air vehicle that is operating in that part of southern Afghanistan has to work with our Control and Reporting Unit.

Senator NETTLE —Do you have casualty figures for Afghanistan? In the same way we were going through for Iraq, do you have comparable figures for Afghanistan?

Air Chief Marshal Houston —I don’t have anything on Afghanistan, and I don’t believe anything is available along the lines of the studies that I mentioned to you in regard to Iraq.

Senator NETTLE —You may want to take this question about the number of engagements with the Taliban on notice. How many engagements have the ADF had with the Taliban?

Air Chief Marshal Houston —I can take that on notice. I will say that that is a very large number, and it would help if you could tell me exactly what you have in mind, because we have IED attacks, we have indirect fire attacks, we have instances where we are attacked with small arms fire, and so on. Do you want all of that?

Senator NETTLE —It would be useful if you can separate them out. Are there any friendly fire incidents from Afghanistan?

Air Chief Marshal Houston —Thankfully, I do not believe so. I will take it on notice.

Senator NETTLE —I note the recent comments of the defence minister about the drug eradication programs in Afghanistan. Does Defence have any involvement in those?

Air Chief Marshal Houston —No, we do not have any direct involvement, but some of the people involved in drug eradication come into the province and conduct their activities in areas close to where we are. At the moment, it is an Afghani responsibility, and the British are the coalition partner who is vitally involved in that work.

Senator NETTLE —With regard to the question you were taking on notice about engagements with the Taliban, can you give us a sense of the time frame in which they occurred? That would be handy as well. I now have three questions about Timor, which you were talking about before. I have asked some of this before, but I wanted to get an update on what contact the ADF had, if any, with Reinado over the last two months?

Air Chief Marshal Houston —I can do that. I will come back to you. When you say contact, do you mean any form of contact—phone calls or we come across him?

Senator NETTLE —I asked these before. I would like to know the last time the ADF had contact with Reinado.

Air Chief Marshal Houston —In the week before.

Senator NETTLE —In relation to Xanana Gusmao and Jose Ramos-Horta, is the ADF at a point of being able to have a view on the debate about whether it was an attempted assassination or a botched kidnapping? Are you in a position to comment on that?

Air Chief Marshal Houston —I think we need to be very careful, because the investigation by the UN police is still underway. Until that is complete, I would not like to complicate the circumstances or undermine that investigation.

Senator NETTLE —This is a general question that I have asked before, in relation to climate change: has the ADF done any work on the implications for defence and security from climate change?

CHAIR —We have an agenda item that relates to business arising out of the statements by CDF and the secretary. We need to limit the conversation to that. There is nothing wrong with discussing climate change at the appropriate time.

Senator NETTLE —I know we were going to talk about the white paper beforehand, so maybe just with regards to the white paper I can ask: are the security dimensions of climate change going to be taken into account in preparing the new white paper?

Air Chief Marshal Houston —We will look at everything that is strategically relevant to the security of our nation into the future. So obviously we will be looking at climate change, yes.

Senator TROOD —Mr Warner, I have some questions about the proposed white paper. Could you give the committee an account of the intentions with regard to the preparation of the white paper?

Mr Warner —There is not too much I can tell you about the white paper at this stage. There has been a lot of media speculation about the white paper—what might be in it, who might write it—but there has not yet been a government announcement on the white paper. What I think I can say to you—and probably I can say no more than this—is that, as you know, the last white paper was in 2000, eight years ago, and a lot has changed in the world, in Australia’s strategic circumstances, in the past eight years. Climate change is one of those things, but Iraq, Afghanistan, further interventions in our neighbourhood and the continuing rise of India and China are others. Quite obviously our strategic environment has changed considerably. So I think, we think, the government thinks, that it is time for a new white paper. That white paper, I expect, will firstly examine the strategic environment, as CDF has just said, and then will look at what capability mix Australia requires to handle any threats in our region or more broadly right through to 2030.

Senator TROOD —How long will it be before an announcement is made about the progress of the white paper in relation to who might be preparing it, the range of issues that are going to be explored beyond the advice the secretary has provided et cetera?

Senator Faulkner —That is obviously a question for the Minister for Defence, Mr Fitzgibbon. I am expecting an announcement soon, but I cannot provide you with any better information than that. But it will be in the comparatively near future.

Senator TROOD —Do I take it the white paper is going to be written within the department rather than being outsourced in some fashion?

Mr Warner —Certainly my expectation is that it will be written by the department, within the department.

Senator TROOD —By a group of people within the department?

Mr Warner —It is a very big task and I think it would take more than one person.

Senator TROOD —So your expectation is that it will explore the strategic environment and it will also feed into capability development. Is that the intention?

Mr Warner —That is right. As I said, we will look at what mix of capability we need to defend Australia and to project military power.

Senator TROOD —That seems a logical thing to be doing and I applaud that direction. Can I ask you then how it is that the minister seems to think that we need to spend $25 billion on a new submarine program without the advantage of the strategic assessment which might justify the expenditure?

Mr Warner —I am not aware of that statement.

Senator TROOD —There are numerous newspaper reports referring to this expenditure. In one, for example, on 27 December last year, the minister said that he had ordered the planning of a new generation of submarines that will replace the existing Collins fleet. He speculated perhaps $25 billion over 20 years. I do not have anything against submarines, I have to tell you, for those navy people in the room—particularly those who might be submariners. In fact, I see a great deal of strategic virtue in them. If one of the things that defence white papers do is provide an instruction into capability development, I cannot see how one should be making commitments or expectations of $25 billion in expenditure prior to that kind of assessment being provided.

Mr Warner —Like you, I am very favourably disposed to submarines too. I am not aware of those comments or newspaper reports. I can simply repeat that the white paper will look at the strategic environment and will look at what weapons systems Australia needs. No decisions have been made on those issues that you have raised, as far as I am aware, by the government so far.

Senator TROOD —Would you agree with me that perhaps a decision by the minister, or indeed the department, to progress the investigation of a $25 billion acquisition program prior to the provision of a strategic assessment might be, in some respects at least, ill-advised?

Mr Warner —You might just repeat that question for me, Senator. It seemed to have a few curly bits to it.

Senator TROOD —I thought it was reasonably straightforward.

Senator Faulkner —I am quite sure, Senator, that Mr Warner probably will not agree with your assessment. Mr Warner might care to comment himself, but I think obviously with a defence white paper we look at a more rigorous assessment of the connections between strategic objectives, force planning and capability priorities. Obviously, that is the case, and I suspect that answers your question.

Senator TROOD —I agree with that, actually. At least you and I, on this particular subject, are at one.

Senator Faulkner —I agree with you on a number of things, Senator, don’t I? We might vote different ways—

Senator TROOD —Sadly, you do not often make that known more widely.

Senator Faulkner —But, you see, it is only when you are right!

Senator FORSHAW —I have a point of clarification. It is obvious that Senator Trood is referring to either a media report or some other article, which is fair enough—he is entitled to do that—but it seems that nobody else is aware of the precise content of it. I am not sure whether you would like to provide it to the witness.

CHAIR —Senator Trood, you are referring to newspaper article. Are you referring to a report or a direct quote that the minister made?

Senator TROOD —I am referring to reports of the minister’s comments on this matter. I think that they are widely understood, widely known in the room, so I do not think I need to provide further evidence of it. The point is that your government has made an argument that the Howard government, in particular, was ill-disciplined and incoherent in the way in which it developed its capability plan. This seems to me, if it is accurate—and I have no reason to doubt that it is not—to be an example of a high degree of perhaps even irresponsibility in developing a capability plan, if it depends on the nature of the strategic threat environment. The secretary has told us that that strategic threat environment will be one of the things canvassed in the white paper, as it should be. I look forward to the white paper in that context. I agree with you that the white paper should feed into capability development. The point I am making is that the minister is being irresponsible if he is setting the department on the course of a $25 billion expenditure without the advantage of strategic assessment.

Senator Faulkner —I do not accept what you say. I am not aware of the fact that the government has committed any funds in the area that you have highlighted as a result of the press reports. I do not have them in front of me but I completely accept that you have accurately reflected them and their content to the committee. But, to my knowledge—and I have checked this with officials—there are no funding commitments in this area. Perhaps one of the witnesses might confirm the situation in relation to that, and I will come back to the substantive point.

Air Chief Marshal Houston —I believe we probably spent a small amount of money in terms of initiating some studies, but I would call the studies scoping studies to come to grips with the challenges of mounting, I suppose, a case for what our requirement is. I think we need to define what the requirement for future submarines might be. Clearly the work that is done here will feed into the white paper process. There is no initiative on the part of government in terms of spending any money on this before the white paper. All of the work that we are doing in a large number of areas—submarines, air combat—will feed into the white paper process. Out of that white paper process will come, I guess, a force structure that the government decides to go into the future with. I am sure that force structure will include the very important capability of submarines.

Senator Faulkner —Senator, I can give you an absolute assurance that the minister, Mr Fitzgibbon, is absolutely determined to get our strategy and planning right and to make sure that decisions that the government takes are based on sound strategic guidance—which, again, is a perspective that I know is very much front and centre in the minister’s mind and that I think many would share.

Mr Warner —If I could add to that, just to put this in perspective, I think we have probably spent some tens of thousands of dollars over the last year or two on, as CDF has described it, a scoping study in respect of future submarine capability and needs.

Senator TROOD —That suggests to me that judgements have been made that we are going to need submarine capability into the future, as well we will. I do not disagree with that possibility. What I am concerned about is the discipline of this process, which is precisely what the government is arguing was absent from the discipline in the way in which the Howard government undertook these matters. But I do not want to delay the committee any further. Perhaps, Minister, you might just advise the Minister for Defence that he ought to be more disciplined in the way in which he approaches these matters.

Senator Faulkner —I said I agreed with you on a lot of things, Senator, but here we have an example of something that I do not agree with you on. I will not be so advising the Minister for Defence. I am happy to draw his attention to your comments and indicate to him that I did not share your views in this regard. As I said, I think you have heard about the objectives of the government here. I believe that this new defence white paper is going to ensure that Australia’s defence capability requirements are achievable and disciplined—to use your word—by our long-term strategic priorities. In other words, long-term strategic priorities are critical here, and I can assure you that short-term political imperatives are not a priority.

CHAIR —Thank you, Minister. CDF, did you have something to say?

Air Chief Marshal Houston —I was just going to say—just to complete the loop here, I suppose—that one of the very real considerations here is the fact that the Collins class submarines will start being retired in 2025. If we are to replace the submarine capability we need to do some preliminary work right now. We cannot wait. We need to understand what is involved with potentially building and acquiring new submarines sometime in the future. So there is a need to do some preliminary work—some scoping work—so that when we get to the white paper we have actually done a lot of the necessary enabling work to make the right sort of judgements that will be required during that process.

CHAIR —And I must say, CDF, I would have presumed that it was part of your routine long-term planning under any government of any persuasion. My memory of Minister Fitzgibbon’s comments in the press in late December was to that effect. Thank you for closing the loop, CDF. Sorry, Senator; are you finished?

Senator TROOD —Perhaps the minister would convey my personal views to the minister?

Senator Faulkner —I am going to encourage Mr Fitzgibbon to read the Hansard.

Senator TROOD —Thank you.

Air Chief Marshal Houston —Can I close the loop on another matter? Earlier today Senator Johnston questioned me about formal correspondence with government on Timor Leste between 25 December 2007 and 12 February 2008. I would note that this was a period when, for about two or three weeks, we were not doing as much work as we would normally do because most of our people were trying to get a well-earned break, but there are a total of 39 documents that are relevant. The breakdown is as follows. The minister’s daily operations update, two of those addressed matters concerning Timor. The minister’s ADF weekly op summary, Timor was addressed five times. In terms of the DIO morning briefs, Timor was addressed 23 times—that is a document produced specifically for the minister. There were four other intelligence briefs and there were four ministerial submissions providing advice to government on matters to do with Timor. Finally, there was a cabinet submission that was led by DFAT which covered matters to do with Timor in some detail. So there are a total of 39 documents.

Senator ADAMS —I would like to address an issue that I have been following for the last two years—that is, drugs and alcohol in the workplace. Do you have the correct people for that?

Senator Faulkner —Yes, we will help you with that.

Senator ADAMS —Thank you. This is an issue I have been pursuing—Ms Parr has been the representative from the department for previous sessions—and it is about drugs and alcohol in the workplace, which are becoming more and more of a problem in workforce safety, performance and productivity. By way of introduction to this, I am very keen on the Defence Force parliamentary program and as part of one of my visits I was at Albatross. We were given a briefing and it came to light that the Navy personnel at Albatross came under the Defence drug and alcohol policy but the contractors and civilians did not. Over the past two years I have been asking the department if they could look at the tenders for the Defence contractors and see if there is any way that all people or personnel working on the Defence bases come under some type of drug and alcohol policy. At each estimates Ms Parr has filled me in on where they have got to with the contracts, and as contracts are not taken up all at once or they are applied for at different times, I would like to ask: the changes last time were to the ACT contract, and that had been extended to Western Australia, central and northern New South Wales, southern Queensland, South Australia, south-west Sydney, Sydney Central, Riverina, Murray Valley and the central northern part of New South Wales. These maintenance contracts all included a policy on drug and alcohol testing. The Northern Territory, the Kimberley and North Queensland contracts are due to come up, so I am wondering where we are at with the policy.

Mr Bowles —We are continuing to roll out the clauses in the particular contracts. We have done all now, bar the North Queensland contract, for both garrison and contract maintenance. That is underway as we speak. Tasmania is the other one, and we are progressing on that one as we move forward with the rolling program.

Senator ADAMS —Have you had any obstructions to this program or problems with the policy being inserted in the contracts?

Mr Bowles —I have had no problems.

Senator ADAMS —That is certainly a change from 18 months ago when there was great concern about even having it included. Do you have any statistics on any drug and alcohol problems in these workplaces?

Mr Bowles —I do not have any with me. What I can say is that as people are found, they are immediately dealt with. The usual process is they are removed as a contractor from the particular arrangement, whether it is garrison support or maintenance contracting.

Senator ADAMS —Right, so they are removed from the workplace?

Mr Warner —That is correct.

Senator ADAMS —Has random testing throughout the bases been applied? How do you work it? What are the processes used?

Air Chief Marshal Houston —Is this with regard to ADF people or contractors?

Senator ADAMS —It is really both.

Air Chief Marshal Houston —Perhaps I can address the ADF people. The program that has been in place for a number of years now continues. Essentially, it is random and we continue to test a substantial number of the ADF workplaces on an annual basis. If you require it, we can provide you with details of the number of people who have been tested and the number of people who have tested positive. Pleasingly, the numbers are pretty good when you compare them to community standards.

Senator ADAMS —Are the contractors tested in a different way? How do they organise themselves?

Mr Bowles —It is not a process of random testing, although some contractors do that. The general process is that if there is a suspicion that someone is under the influence of drugs or alcohol, they are tested. If they are found to be in possession of or under the influence, they are removed from the workplace.

Senator ADAMS —As these drugs become more and more sophisticated, it is very difficult to ascertain if someone is under the influence of drugs. This is why random testing has become more prolific. We have had an airports bill that has just been passed and anyone on the precinct of an airport—whether they be contractors, cleaners, pilots, aircrew, baggage handlers—can be randomly tested. Can you see this coming through with these contracts?

Mr Bowles —We do continually monitor what is happening in the broader workforce. It is not something that we have moved on at this particular point. As you could appreciate, these contracts come up. As I have said before, we have now done 10 out of the 12 garrison and contract maintenance arrangements. As we look at those, we look at what are the contemporary arrangements and we will then test whatever is happening in the broader workforce issues. At this point, most of the work has been around if someone is found either in possession of or under the influence, we have not moved at this point to random testing—although, as I understand it, some companies do random testing of their own volition anyhow.

Senator ADAMS —This question is on recruitment. I have been at another estimates hearing and I am very interested in the gap year and its funding. Is that going to continue?

Air Chief Marshal Houston —The gap year is continuing in exactly the same form under the new government and it continues to give us very pleasing results. Again, I could give you the statistics, but we are getting a lot of interest from the young people of Australia and we are filling nearly all the billets.

Senator ADAMS —I have read the Navy, the Army and the Air Force news, so I was aware of that. I was just concerned about whether the funding was going to continue under this government.

Air Chief Marshal Houston —The funding is in place at the moment and I do not expect it to change.

Senator ADAMS —I think it is a wonderful program.

Senator SANDY MACDONALD —I have some more questions, but not in the policy overview.

[2.46 pm]

CHAIR —We are coming to a conclusion on policy overview. Dr Gumley and your officers, we might move now to capability development and the Defence Materiel Organisation, outcome 1.

Senator JOHNSTON —Dr Gumley, on 29 January, the minister was reported widely as having said that ‘fixing the problems of acquisition was a key priority’. Since 24 November, what has changed with respect to the way you do your business? What has happened to live out the key priority status that the minister has afforded and said to the public that he is going to give to acquisitions? Have we got more reviews? Have we got more people? What has happened?

Air Chief Marshal Houston —If I could just say a few words here. There has been a lot of commentary about the acquisition process. There are a number of projects that have been highlighted as being in trouble.

Senator JOHNSTON —I was hoping to talk about them all.

Air Chief Marshal Houston —All of those projects are pre-Kinnaird. All of those projects were initiated before Dr Gumley’s time. I would like to put it on the record that since the Kinnaird process was implemented and we started working in the much more definitive way of doing business with a chief of capability development and a CEO of the DMO, who are both properly empowered, and with the two-pass process that Kinnaird involves, we have had much greater success with our projects. I think it is important to say that, because there are a lot of good people out there in the DMO. There are a lot of good people in capability development, who are doing a wonderful job for Australia. I want to go on the record as saying that most of our issues are with the legacy projects that came from a different way of doing business in the past and perhaps a way of turning requirements into equipment that did not always work very well, because we were probably overly ambitious and did not resort to the military or civilian off-the-shelf approach which we much prefer in the modern era.

Senator JOHNSTON —That is why I asked the question, because I would be hopeful that the minister would have made that distinction. Are we going to see changes to the two-pass system? Is that foreshadowed? Are we going to see Kinnaird abandoned? I think we have come a long way and I think you and I are at one on this. The point is that the minister has rather indiscriminately taken a piece out of the DMO and I want to get to the bottom of what exactly that is all about.

Senator Faulkner —It might be best if I deal with that because it is a question about the minister ‘taking a piece out of the DMO’. Let me commence my comments by saying that I endorse the views that CDF has put to the committee. I think they were both accurate and fair—very fair in the circumstances. I also think they warranted being said to the committee. But I think, if we look at the picture, most would acknowledge that there are several projects that face considerable cost or schedule challenges. I think members of this committee are well aware of what they are and of those challenges. We should acknowledge that. We should acknowledge that in the past those projects have not been managed as well as they should have been. I think we all know that that is the case.

It is also true to say that the majority of those projects are, to use the words of CDF, legacy projects which do predate the reforms that you mentioned in your question, Senator Johnston, and that includes of course the introduction of the two-pass system for government approvals of major acquisition projects. It is also true to say, I think, that many of the legacy projects in fact are also developmental or involve leading-edge technologies, and obviously military forces around the world have been challenged by the high technical risks and cost schedule uncertainty that have been associated with such projects.

I mainly take issue, Senator, with your comments about the minister, which are not fair and reasonable, and I say to you, so you are aware and other committee members are aware, that the government is committed to working with Defence and industry to resolve the outstanding issues associated with these legacy projects. Of course, we have an absolute obligation—again, I am sure committee members would acknowledge this—to ensure that the ADF receives the highest quality equipment. That is an obligation that this government has and it is an obligation that previous governments have had.

Senator JOHNSTON —I thank you, Minister. I think it would have been much more helpful if the tone and wisdom and understanding that you have disclosed were used by the minister, because all he has done is set the hares running so that everybody thinks the DMO is presiding over a shambles.

Senator Faulkner —I do not think your interpretation is right. I think your interpretation, as I have indicated to you, is, frankly, wrong. You and I just have a different point of view in relation to that.

Senator JOHNSTON —I am looking at two articles here, which I will table.

Senator Faulkner —By all means, but I can assure you of the commitment of the defence minister and the government in this area.

Senator JOHNSTON —I am pleased to hear that and I hope the media pick up on what you have said, because all they have been writing about is billion-dollar blow-outs and the $1.4 billion upgrade of the Navy’s four guided missile frigates ‘which has been bungled to such an extent that the ships are incapable of going to war’. Where do they get that from?

Senator Faulkner —But it does not alter the fact that what I have indicated is that there are real issues with projects, and I said that earlier. You know what they are; I know what they are. We can go through them—and I am sure you will go through them with Dr Gumley and his officials—and you may care to go through them with CDF, Mr Warner and others. But clearly there are serious cost and schedule challenges in a range of projects. It is not a matter of sweeping this under the carpet. This is a fact of life and anybody who has attended this committee for a period of time would know that it is a fact of life. I do not intend to sweep that under the carpet and I know my colleague, Mr Fitzgibbon, who is the minister for defence, has not and will not sweep it under the carpet.

Senator MINCHIN —Can I just raise an issue with you. Just yesterday Mr Fitzgibbon, in talking about DMO and the projects still in train, said: ‘I am still surprised. It is much worse than I had ever imagined. It is a real nightmare and we have inherited it.’ What are we meant to interpret by those remarks? Do you agree with those remarks? Has your government inherited a nightmare or not? What is the situation from your perspective?

Senator Faulkner —I commend to you the exploration of these projects and you can make your own assessment about—

Senator MINCHIN —I want to know if you agree with him that it is a nightmare.

Senator Faulkner —I have no problems with any of the statements that the minister for defence has made in relation to theses issues.

Senator MINCHIN —That contradicts what you just said. You just agreed with CDF.

Senator Faulkner —The suggestion that the minister for defence in some way was undermining the current work of DMO or Dr Gumley, if that is the insinuation or suggestion, is not right. That is not right. But what is true are the concerns, and frankly they are very serious concerns, with a range of legacy projects. Let us not mix the two of these issues up. Let us be absolutely clear that there are projects—we know what they are, you know what they are and it is a matter of public record—where there are very major concerns about costs, about scheduling and about a range of issues. But I think there is also an acknowledgment—and it is certainly one that I have publicly made prior to the election when I became a minister in the new government and which you would be aware of—of the efforts and the work of DMO to address these concerns. I can assure you that my colleague the Minister for Defence also draws that distinction.

Senator JOHNSTON —He has not said so though.

Senator Faulkner —He has drawn that distinction.

Senator JOHNSTON —Where?

Senator MINCHIN —I welcome your choice of words but I put it to you that to say it is a real nightmare and we have inherited it does cast unfortunate, quite unfair aspersions upon the DMO. But I welcome your apology for what he has done.

Senator Faulkner —Oh, come on. Through a range of projects I think you are going to find that there are quite a few nightmares.

Senator MINCHIN —You are reflecting now on the DMO and the management of all these projects.

Senator Faulkner —I will say again: the legacy projects that have been identified represent a major challenge to this government and to Defence. It is a major challenge and we cannot have a situation where the nature of that challenge is ignored or swept under the carpet. The government and I are saying that this does not mean that there is a lack of acknowledgment in any way, shape or form about the improvements that have been made and the efforts of Dr Gumley and his staff and the other senior officials in Defence to address these issues. That does not alter the fact that a range of projects represent major concerns which are well known in the public arena and well known to members of this committee. That is the situation and I am surprised that you do not acknowledge it yourself. Let us just deal with the—

Senator MINCHIN —I welcome your statements, but the wild and irresponsible statements by Mr Fitzgibbon, whom you represent here, were clearly and nakedly political but at the expense of the DMO, which are just road kill, and he is playing politics with this.

Senator Faulkner —He is talking about these legacy projects; you know that.

Senator MINCHIN —I ask you to tell him to be much more specific in his remarks.

Senator Faulkner —I am not going to tell him. I am assuring you that that is the situation.

Senator MINCHIN —Instead of these broad sweeping statements—

Senator Faulkner —He will because I am going to send him a copy. I assure you that Mr Fitzgibbon’s comments are directed to those legacy projects.

CHAIR —While you are all aware of Minister Fitzgibbon’s comments and we are all very appreciative of the explanation given by the minister at the table, because what he said is entirely accurate and he repeated, indeed, the comments made by CDF—

Senator Faulkner —Thank you.

CHAIR —I suggest, senators from the opposition, that there is some serious work to be done on these projects. Having made the opening points, it might be appropriate to proceed.

Senator JOHNSTON —It is a very important point that I want to make. The minister has said that this is to do with legacy projects. The Australian of 30 January quotes the Prime Minister as saying that, in terms of Defence procurement, this is ‘a massive rolling policy failure’. So it is not just the minister; it is the Prime Minister heaping derision upon procurement. Does the minister at the table agree with what the Prime Minister has said?

Senator Faulkner —Do I agree with what the Prime Minister has said?

Senator JOHNSTON —Yes.

CHAIR —You might repeat what the Prime Minister said and provide the reference.

Senator JOHNSTON —The Prime Minister is quoted in the Australian of 30 January 2008 as describing Defence procurement as ‘a massive rolling policy failure’. Do you agree with that?

Senator Faulkner —Yes, I do. And I have said so. Not only has the Prime Minister said so; I have certainly said so.

Senator JOHNSTON —Right.

Senator Faulkner —I want to be clear on this. I do not want you to misunderstand. I think you would understand that I would not make comments outside my own area of portfolio responsibility. I am certainly one senator in this parliament who has made quite a number of contributions, including—I would not say countless speeches in the Senate—

Senator ROBERT RAY —Quality speeches.

Senator Faulkner —Thank you, Senator Ray. I appreciate that adjective being applied to my speeches. But I have certainly made a number of speeches about these issues. I have certainly acknowledged that these legacy projects—

Senator JOHNSTON —‘Massive rolling policy failure’—no legacy projects involved at all. This is about the whole thing.

Senator Faulkner —There has been, and I acknowledged publicly prior to the election and would acknowledge again in similar terms to those that CDF has indicated to this committee that those issues are being addressed. That legacy is being dealt with now by a new government, which has to obviously deal with those issues. We are dealing with them and it is a major challenge for us. Hence the comments that have been made by not only the Prime Minister but also the Minister for Defence which I personally believe, certainly as the representative of the Minister for Defence at this committee, are fair, reasonable and accurate.

Senator JOHNSTON —So a ‘massive rolling policy failure’ relates in your view only to legacy projects?

Senator Faulkner —I have tried as best I can to outline the view of the government. I think I have put it fairly and squarely before the committee. I do not think I want to interpret my remarks any more. I think they are clear. I think those concerns are real. I think in very short order—perhaps in just a matter of minutes—we are going to go to a lot of those projects. I suspect that, after examination of those projects by this committee, you may well come to the same view yourself.

Senator JOHNSTON —Very good.

Senator MINCHIN —Could I just clarify, Senator Faulkner, that you do agree with CDF that the projects over which there is, legitimately, concern were those that predated the Kinnaird reforms.

Senator Faulkner —I have myself focused on those projects. I have spoken about them in the parliament. I have asked questions about them in this committee. In each and every case in relation to the ones that I have spoken about, they do predate the Kinnaird reforms. I commend to you, Senator—now that you are the shadow minister for defence—the speeches I have made on these issues in the last six months of the last calendar year in the Senate.

Senator MINCHIN —If I cannot get to sleep, Senator Faulkner, I assure you I will read them!

Senator Faulkner —Now you are in opposition, Senator, you have plenty of time on your hands. I commend my speeches on these issues to you.

Senator MINCHIN —On my next sleepless night I will read them!

Senator JOHNSTON —On Monday the 18th we had an announcement from the minister that there will be a review of Australia’s air combat capability. The review is to be conducted in two stages. The first stage will assess the requirements for 2010 to 2015, the feasibility of retaining the F111, a comparative analysis of aircraft available to fill any gap and the status of plans to acquire the Super Hornet. This committee is to report, I think, on 14 April. What is the cost being incurred by the Australian taxpayer with respect to the acquisition of Super Hornets whilst the government considers the decision? Where are we at with that? I believe fuel tanks have been ordered.

Air Chief Marshal Houston —We are a little bit down the track with the Super Hornet. It is probably very hard to put a precise figure on where we at right now on how much money has been expended without going into a detailed look at our records.

Senator JOHNSTON —Let me just glean from that that we are incurring costs, as we sit here now, with respect to that acquisition?

Air Chief Marshal Houston —The manner in which these things are done is that the costs are incurred at particular milestones. Certainly there has been some expenditure, and I will get Dr Gumley to cover anything else. But, essentially, we have incurred some expenditure.

Senator JOHNSTON —So do we have a binding contract with the provider of that aircraft?

Air Chief Marshal Houston —I will get Dr Gumley to go through the detail of that, but the aircraft is being bought under the foreign military sales arrangements. We have an agreement under that with the US government. But I will get Dr Gumley to go through that in some detail.

Senator MINCHIN —Before you do that, could I just ask the minister exactly what the government’s position is on this matter of the Super Hornets. On 30 October 2007 Mr Fitzgibbon, as the then shadow minister for defence, said:

The Howard government has committed us to both the JSF and the Super Hornet and we accept that they will be part of our ... capability mix.

Then, yesterday, Mr Fitzgibbon said:

... if the advice comes to me from the review that the Super Hornet is not up to job, I would have no hesitation in cancelling it—

entirely contradicting the statement of 30 October. Could you just clarify the position, Senator Faulkner. Is the government now in a position where it is saying that it is open to it to, and that if necessary it will, cancel this contract, or does the statement of 30 October reflect the actual position of the new Labor government?

Senator Faulkner —My understanding at this stage is that this issue is being considered as part of the air combat capability review. The future of the Super Hornets is being considered as part of the air combat capability review.

Senator MINCHIN —So the statement, made on behalf of the then Labor opposition on 30 October, ‘We will accept the Super Hornet as part of our air capability mix,’ no longer stands, and it is open to your government, as was said by Mr Fitzgibbon yesterday, for you to cancel this contract. We just want to clarify, before we go any further with this, the position of your government. Is it open to your government, and is it your stated and clear position that you are willing to cancel this contract if this review you have set up so finds?

Senator Faulkner —I will ask CDF in a moment to speak about the air combat capability review, but I think you would be aware that it is a two-stage process. Are you aware that it is a two-stage process?

Senator MINCHIN —Yes, I have heard that statement two or three times.

Senator Faulkner —The first stage is going to assess four things: Australia’s air combat capability requirements in the period 2010 to 2015, the feasibility of retaining the F111 aircraft in service beyond 2010, a comparative analysis of aircraft available to fill any gap that may be left by the withdrawal of the F111 and the status of plans to acquire the FA18 super hornet. I believe that that report is to be provided by the end of April, but I would like to check with officials that I have got the right date.

Air Chief Marshal Houston —The first of the four things that the minister mentioned will come to government sooner than that for their consideration. Then later the second half of the review will come, and the deadline for that is the end of April.

Senator Faulkner —So it will be earlier than the end of April.

Senator MINCHIN —I understand that. I have read the thing several times. Mine is a simple yes or no question, as a prelude to further questioning on this review. Is it the government’s position, that as a premise or a prelude to this air capability review, that it is open to the government to cancel the Super Hornets? If it is open to the government, is it not the case that that completely contradicts Mr Fitzgibbons statement of 30 October? Do you accept that to be the case?

Senator Faulkner —All I can say to you—

Senator MINCHIN —It is a yes or no question, Senator.

Senator Faulkner —You would like me to provide a yes or no answer, as I have so often done at Senate estimates, but you often find that ministers do not respond precisely in the terms that you would like them to.

Senator MINCHIN —That is surprising!

Senator Faulkner —You make sure that that draft press release you have up there in the office is not issued, because I am not going to necessarily provide you an answer in the form that you want. But I will certainly provide you with an answer. The answer is this: in the first part of the air combat capability review, the status of the plans to acquire the FA18 Super Hornet will be reported on to government and government will make a decision within that early time frame.

Senator MINCHIN —I put it to you that that is a complete non-answer. So all we can do is operate on the basis of Mr Fitzgibbon’s statement as of yesterday that the Labor Party has changed its position and it is now open to it to cancel this contract. We will proceed on that basis.

Senator Faulkner —Senator, proceed as you wish. If I were you I would take account of the statements that the defence minister makes on these issues. You can also take account of evidence that is provided by me and officials at the table. It is quite clear what the government’s intentions are there. I cannot outline them any more clearly. This is in the public arena, and it will be a matter reviewed in the first stage of our review on air combat capability. Decisions will be made by government within a very short time frame.

Senator JOHNSTON —After all of that, what is it going to cost us in May to cancel the Super Hornet contract?

Dr Gumley —The Super Hornet contract is a foreign military sales contract—

Senator JOHNSTON —So we are paying the American government directly, aren’t we?

Dr Gumley —We pay the American government, who in turn place a contract on Boeing. The American government already have a series of contracts on Boeing for the production of Super Hornets for the United States Navy. Any purchase by Australia would be considered as a contract change proposal to the longer term contracts. We get the same unit prices as the US government. I know of no way of getting better prices than the US government, particularly in the home market; therefore I am confident that the price we are paying for the aircraft is as good as Australia is going to get. We have the contract with the United States government. They in turn have to do something called ‘definitisation’ of that contract with Boeing. That is a process they are going through at the moment. From talking with my contemporaries over there, I know that that is something that is going to happen in the next month or two, and it is just a standard contract change proposal—as we would say in our jargon—that they have to do with the United States Navy. However, our contract with the US government already commits us to pay for long-lead items and commits us to something called ‘termination liability’, which I guess in Australian jargon we would call a cancellation fee.

Senator JOHNSTON —How much?

Dr Gumley —That fee is continuing to grow because, obviously, the longer you get into the program the more aircraft are being built.

Senator JOHNSTON —How much? Let’s take 1 May.

Dr Gumley —The termination liability as of 1 May expected to be about $400 million.

Senator JOHNSTON —What is the rate of growth of that $400 million? $10 million a month? $20 million a month?

Dr Gumley —No, it would be more than that. You can almost work it out on a monthly basis as the cost starts getting built into the aircraft, because Boeing have to place their contracts on their suppliers. So I think it would be a pretty lineal build-up of termination liability as the aircraft get more and more built and more and more subassemblies start coming together.

Senator JOHNSTON —I have great faith in your capacity to have planned for this. Can you tell us what you think it is going to be in May? How much are we up for, please?

Dr Gumley —I think we are working in the order of $80 million to $100 million each month that goes by.

Senator JOHNSTON —The second stage looks at trends in the Asia-Pacific air power until 2045, which suggest to me that we are now also reviewing the JSF plan. Is anyone going to tell me that is wrong?

Air Chief Marshal Houston —I think the second part of the review is a full review of the strategic circumstances out to 2045—looking at what is likely to happen in our near region and the broader region and essentially at what the developments in air combat technology are likely to be through the next 40 years. So essentially that will all be looked at and then there will obviously be a comparison of the various pieces of equipment that are available within an air combat system. I would stress very much at this stage that what we are talking about in the modern area is air combat systems—system on system, not platform on platform. I think a lot of the commentary out there in the broader community tends to focus far too much on the simplistic notion of aircraft on aircraft rather than on the need to consider all the complexities of a modern air combat system.

Senator JOHNSTON —The minister’s press release says:

The review will also examine the case for and against acquiring the F-22.

That tells me the JSF is in the firing line.

Air Chief Marshal Houston —Everything is on the table—yes. But what I would say is that, if you are thinking F22 versus JSF, I think that is the wrong way to think about it because fundamentally the two aircraft do completely different jobs. One is a genuine multirole capability that can cover all aspects of air combat, including the very important area of maritime strike and indeed all other strike requirements that we have. The other one is a capability that is optimised for control of the air. It is an air dominance aircraft. So, if you went for the F22 and you had nothing else, you would be deficient in strike capability. You would have a wonderful air dominance capability but you would not have any strike capability.

Senator JOHNSTON —And JSF is your preferred option?

Air Chief Marshal Houston —I do not think it is an either/or. We need to look at all options, and that is what the government intends to do. What we have here is a very complex subject, a very complex set of plans and some very difficult technology to get your head around. At the end of the day, I think what the government is doing is essentially reviewing all aspects of those plans, all aspects of the concepts that they have to grapple with. I think they are trying to get an understanding of the technology that is available, the technology that might be needed for the strategic circumstances we are likely to face in the future. I would say that, as we come up with the outcome from this review, they will be better informed about our needs and what the requirements will be in the air combat arena into the future. Obviously this review, like other reviews, will feed into the white paper process, where everything is on the table.

Senator MINCHIN —Minister, the CDF has just indicated that, as he understands it, the government’s position is that everything is on the table. I would like to ask you the same question with respect to the JSF as I asked with the Super Hornet: does that mean that it is the government’s policy and premise for this air capability review that it is open to the government to cancel arrangements with respect to the JSF and not proceed with the purchase of the JSF?

Senator Faulkner —I cannot give you any better information than what is contained in the terms of reference for part B of the review, which indicates this is in part e:

2. The review team will report on …

e. the status of plans to acquire the Joint Strike Fighter (JSF) and the status of the JSF project, including:

i) the implications of the F/A-18 Super Hornet acquisition for the planned JSF acquisition;

ii) options to achieve an all-JSF fleet should that prove desirable, including advice on the optimum numbers of aircraft in the context of the overall air combat system; and

iii) an assessment of complementary options, including unmanned aerial combat vehicles …

I can give you no better information than to indicate to you that those are the terms of reference for the second part—or, if you like, part B—of the review of Australia’s air combat capability.

Senator MINCHIN —For those of us here, the clear and obvious conclusion from those terms of reference, the reference to the F22 and the CDF’s remarks are that it is open to the government as a consequence of this review to cease all further processes for the acquisition of the JSF. Should we proceed on that basis or not?

Senator Faulkner —I am not in a position—

Senator MINCHIN —Come on!

Senator Faulkner —wait a minute—at this hearing to second-guess the outcomes of the review of Australia’s air combat capability. I know you have been inviting me to do so. I am in this instance happy to ask the Minister for Defence, Mr Fitzgibbon, if there is anything he might care to add. But as the Minister representing the Minister for Defence at this committee, obviously without portfolio responsibility for these matters, I am simply not courageous enough to go beyond the information that I have available to me. But I will ask Minister Fitzgibbon if there is anything he can add to the answer I have given, which does indicate to you what the processes are, what the terms of reference are, what the timing is in relation to the review of Australia’s air combat capability and how that interfaces with the issue of the Joint Strike Fighter.

Senator MINCHIN —Thank you, Senator Faulkner, for that non-answer. When you do contact Mr Fitzgibbon you might ask him whether his statement of 30 October—to the effect: ‘The Howard government has committed us to both the JSF and the Super Hornet and we accept that they will be part of our air capability mix’—still stands, or is it now the case, from reading the terms of reference and based on what the CDF has said, that that statement no longer has any veracity and it is now open to the government to cease any further steps to acquire the JSF? That is what we want to know and I am amazed you cannot give us an answer to that.

Senator Faulkner —Senator, I have actually given you an answer; it is just that you do not like the answer that I have given you. But you are so persuasive, Senator, that I am also happy to ask Mr Fitzgibbon if he cares to respond to the second question that you have just asked.

Senator MINCHIN —Thank you, Senator Faulkner. On the basis that it does seem clear to all of us that it is indeed the case that it is open to the government to find that it is no longer going to pursue the JSF, I wonder if Dr Gumley could indicate how much has been spent on the JSF and the consequences of not proceeding with the JSF.

Dr Gumley —I can talk about the money spent. As you know, we committed US$150 million, plus our own project costs, which run at about $20 million a year. Compared with a purchase, if we go ahead with $10 billion, $12 billion or $14 billion, that is a very appropriate amount of money to be spent. It is just like the Kinnaird process, which says that you spend money derisking projects between first and second pass. We are doing that, just like we have done on the ships and the other projects we are looking at. So I am quite happy with the project costs and the amount of money that we are spending on derisking. The derisking of the project, as we have it at the moment, is a standard first or second pass step. It is looking at the cost, the capability and the schedule. I would see this review as part of that derisking process.

Senator MINCHIN —Thank you, Dr Gumley. Do you have any idea how much the Australian private industry has committed to the JSF so far, in approximate terms, in its investment in this project?

Dr Gumley —I do not have that figure with me. I will get that during the break and get back to you.

Senator MINCHIN —I appreciate that.

Senator JOHNSTON —All of this review appears predicated on one interesting point—that is, that when we are examining the case for and against the acquisition of the F22 someone somewhere, with the power and authority over the Pacific, has said, ‘You can have it.’ Can anyone assist me? The last I heard was that the Japanese have asked for it, the Israelis have asked for it and we have asked for it, and everyone has been told ‘No.’ What is new?

Dr Gumley —The US would have to pass an amendment through to congress for the F22 to be releasable to a foreign country.

Senator MINCHIN —Could I just add to that. Does anyone at the table generally believe that there is any prospect of the United States changing its position on this and, if not, why on earth are we even examining the case for and against the F22?

Senator JOHNSTON —Absolutely.

Senator MINCHIN —Nobody has a view on that?

Senator JOHNSTON —The silence is deafening.

Air Chief Marshal Houston —Perhaps I could respond to that. Essentially, I think the government wants to have a look at the F22 and, if there is an overwhelming case to perhaps procure the F22, then there might be a need to approach the Americans on the basis of a requirement for that particular aircraft. They are the sorts of circumstances where there might be a need to go forward. It is slightly different from saying: ‘Would we be able to get the F22 if there was a compelling case to get the F22?’ I think that is different from the circumstances when the question was asked last time, which was basically: ‘Would we be able to get the F22 if this air combat capability review came out with an outcome that there was a requirement for the F22?’ I think circumstances would be different. In those circumstances, an approach might be made again.

Senator MINCHIN —Can I just query you about the capacity to properly analyse and come to conclusions about the case for and against the F22 in what is about a six-week inquiry?

Air Chief Marshal Houston —I think you know, Senator, that over the years we have been maintaining a watching brief on a number of platforms. We were looking at the F22 when I became the Chief of Air Force just under seven years ago and we have continued to maintain a watching brief on it. Indeed, we have one exchange pilot who is converting to the F22 at about this time; if he has not started, he is about to start an exchange posting on the F22. So we know a fair bit about the F22, we know an awful lot about the JSF and we also know an awful lot about the Super Hornet. We have another exchange pilot who I would characterise as the top gun on the FA18: he is the lead instructor on air-to-air training at the US Navy’s training squadron and he has got a large number of hours on the Super Hornet. So we know the relative capabilities in a very practical way. We have also had DSTO involved in tracking these capabilities. We have got a lot of knowledge in this particular arena.

Senator MINCHIN —I appreciate you informing us that you already have a lot of knowledge of the two aircraft. Isn’t it on the basis of that knowledge that Defence recommended to the former government that Australia should acquire the JSF, not the F22, even if the F22 were to be made available?

Air Chief Marshal Houston —I think it comes back to a question of whether you go for one multi-role platform to satisfy all your needs or whether you go for a mix. If you bought some F22s you would probably end up with some F35s, so there is probably an option there that you could look at, which would be a mix of F22s and F35s. That is what the new government wants us to have a look at. Nobody is suggesting, as I said earlier on, F22 or F35. Rather, it might be some F35s and some F22s: a mix similar to the mix we have had for years with the F111 and the FA18. All of these things will be looked at in the context of the air combat capability review. At the end of the day, this is, as you know, a very complex area, and the new government wants to come to grips with all of the issues that are involved with this very, very expensive procurement in coming up with a new air combat capability.

Senator MINCHIN —I just want to clarify that Defence previously did recommend the JSF ahead of the F22.

Air Chief Marshal Houston —Yes, and I do not walk away from that, because fundamentally those recommendations were made way back in 2002. We are six years on from there now and I think we know an awful lot more about all of the capabilities that are at play here. We are about to embark on a white paper process; all of this will feed into the white paper process and decisions will be made at the appropriate time. As the minister said, decisions will need to be made in regard to how we handle the period from 2010 to 2015, given the fact, as Dr Gumley said, that the Super Hornet is in process now and each month we spend more dollars on that particular acquisition.

Proceedings suspended from 3.35 pm to 3.51 pm

CHAIR —I think, CDF, you have some further advice to give to us.

Air Chief Marshal Houston —I would like to cover the question of IED attacks against Australians in Iraq and Afghanistan. To start with Iraq, official records identify that there have been eight incidents were IEDs have been detonated against ADF targets. We have had no fatalities but we have had 15 casualties. They range from minor to very seriously ill. In Afghanistan, regrettably, we have had one person killed and one dog killed. Obviously, the fatality was Trooper Pearce and the explosive detection dog was a dog called Razz. We have had nine other casualties, again ranging from minor to very seriously ill. This figure does not include the incident which claimed the life of Sergeant Russell in 2002 when his vehicle struck a landmine, which we do not regard as an IED.

It is important to know the ADF explosive ordnance disposal personnel operating in Afghanistan have responded to and safely disarmed many more IEDs. For example, the second RTF rotation successfully dealt with approximately a dozen IED incidents. The current RTF rotation has dealt with a similar number of IED’s. Additionally, there have been instances where ADF personnel, embedded with coalition forces or other agencies, were subjected to IED attacks. The counter IED task force has no record of any Australian casualties resulting from these attacks. Examples include the UN headquarters bombing in Iraq in 2003 where an Australian Army officer was serving on the staff, an attack on a US convoy involving an Australian Army NCO in Iraq in 2007, a similar attack in Iraq in 2003 involving an Australian Army junior officer and an attack on a Dutch convoy in 2007 which also involved an Australian Army captain. That is the complete answer to that question.

CHAIR —Thank you, CDF. Minister, do you have something to advise the committee?

Senator Faulkner —If it would suit the committee, I wonder whether I could come back and provide more information on the issue of the efficiency dividend.

CHAIR —That would suit the committee.

Senator Faulkner —I am pleased to say that the evidence that the officials and I gave earlier in relation to the ongoing nature of this efficiency dividend was, in fact, correct. An estimates memorandum, numbered 2008/03, was sent by Finance to all agencies on 16 January 2008 requesting that all applicable agencies with departmental appropriations reflect the government’s one-off two per cent efficiency dividend in their estimates. The efficiency dividend only applies, as was earlier mentioned, to a portion of Defence’s departmental funding. I will come back to that in a moment.

Agencies are required to apply a one-off two per cent efficiency dividend to their adjusted departmental estimates for 2008-09. The impact of this one-off efficiency dividend would be reflected in all forward years, as was mentioned earlier in the hearings—that is, the one-off two per cent efficiency dividend is a reduction to agencies ongoing departmental based funding. In line with the one-off two per cent reduction in 2008-09 and later years, agencies are required to apply a pro rata efficiency dividend of 0.46 per cent to their adjusted departmental estimates for the financial year 2007-08. I can say specifically in relation to the Department of Defence that the government has decided that the efficiency dividend continues to apply to a specified range of civilian and non-operational activities and that the government does not have that decision under review. In 2008-09, on current estimates, the efficiency dividend will apply to only 11 per cent of funding. I indicate that the annualised figure—and this is critical—would be approximately $2.4 billion. I think both the secretary and I indicated a figure of $1.6 billion. The annualised figure would be $2.4 billion. I want to ensure that figure is recorded in the Hansard.

I conclude this statement by indicating that the part-year effect of the efficiency dividend in 2007-08 is a saving of $100 million across all agencies. This will be achieved by applying a reduction of 0.46 per cent across the current 2007-08 departmental base for the efficiency dividend. I suspect Senator Minchin is now going to ask me for a dictionary definition of ‘one-off,’ which might be the nub of this, I suspect. I am happy to provide that clarification for the benefit of the committee.

Senator MINCHIN —I have a couple of questions on that. Senator Faulkner did anticipate my question, which may be rhetorical, as to how a one-off efficiency dividend becomes ongoing—that is, permanent. I am not sure that there is any correlation between ‘one-off’ and ‘ongoing’. I do not know if you have an explanation for that but, if you do, we would welcome it. I would also like to confirm that, in the light of what Senator Faulkner has told us, that means that Defence will have, applying to those areas that you discussed, a three-and-a-quarter per cent efficient dividend through to and including 2011-12, and then the ongoing efficiency dividend of three per cent. I assume the standard one per cent efficiency dividend will continue to apply. So we will have three-and-a-quarter per cent to 2011-12 and from then on three per cent applying to this component of the Defence budget. Is that correct?

Senator Faulkner —I will ask Mr Prior to give you the technical response—better from an expert like him than from me—but I understand the other efficiency dividend is effectively compounded, as opposed to the two per cent efficiency dividend. But I will also leave Mr Prior to deal with your curly question of the definition of ‘one-off’.

Senator MINCHIN —I thought you might evade that, Senator Faulkner!

Senator Faulkner —Perhaps ‘one-off, ongoing or permanent’ might be a slightly better description—I am not sure—but Mr Prior knows far more about these things than I do. I am very pleased about that.

Mr Prior —‘One-off ongoing’ is a reduction in our baseline in the first year by that percentage, and that is then a permanent reduction for ever more in that baseline. For example: if our funding were $100 and we had two per cent taken, it would reduce to $98 and it would stay at $98 for ever more. That is the language we use in government finances, as opposed to the other efficiency dividends which compound—that is, two per cent from $100 is two dollars in the first year; then next year your base is $98, you apply two per cent to the $98 and lose a bit more; then you take that forward and so it compounds over time. The ‘one-off’ language was to distinguish the two approaches to, dare I say, make it clear.

Senator Faulkner —Senator, I am shocked that you, as a former finance minister, did not know that!

Senator MINCHIN —I do understand what you are saying, and that is in contradiction to what is in fact the effect of the ongoing 1¼ per cent—then to be one per cent—efficiency dividend, which is and will continue to be compounding.

Mr Prior —Yes. As you can see in the tables you referred to before, we have displayed the two per cent effect in perpetuity. The next line that you were referring to is the 0.25 per cent; it is not the full 1¼ per cent. The one per cent was built into our base some years ago. The government at the time only applied the 0.25 per cent across the forward estimates. That was the decision at that time. So your analysis of one per cent ongoing compounded and two per cent flat, or simple, and a quarter per cent at this stage ceases in the 2010-11 year.

Senator JOHNSTON —Chief, can I come back to this review of Australia’s air combat capability. You have set out that we are looking at the F22. The wording on the minister’s release is:

The review will also examine the case for and against acquiring the F-22.

Quite apart from being very, very presumptuous in the context of what the Americans have already said, why on earth would we inquire and review the case for and against acquiring something that to this point in time we have been told we cannot acquire? Is there some change here that puts that into a proper context? If there is, I think the committee should be aware of it.

Air Chief Marshal Houston —I think you know the whole business of air combat capability has been an area of very vigorous debate over the last few years. There are many proponents of the F22 out there in our community. I guess what we are looking at here is the capability of the F22, given the concerns that have been raised by some of those people. When you look at the environment out into the future, it is vitally important that we know everything we can about that environment, because we are likely to see the proliferation of highly capable air combat aircraft around the region for years to come. So this is a vital capability.

At the end of the day, given all the different views out there in the community, some of them very well informed and some of them not so well informed, there is a need to have a look at our plans and do a due diligence on this whole area. I think it is a very reasonable thing for a new government to do: assess the strategic environment that we are likely to have and what our capability requirements might be well into the future.

Dr Gumley —There are two practical issues of the F22 that the committee might be aware of. The first is that it would require legislative amendment in the US. The second is that it would be a large sum of money to make an exportable version of that aircraft. As you took at the cost-benefit analysis, you have to factor both those into the equation.

Senator MINCHIN —I just want to ask whether this review team is required to report on the cost implications of any recommendations it makes?

Air Chief Marshal Houston —Absolutely yes. Let’s face it; the F22 is very expensive.

Senator MINCHIN —Twice the cost per unit of the JSF?

Air Chief Marshal Houston —In all probability, yes. On top of that, there is a requirement to make it exportable which probably means several billion dollars more for an exportable aircraft. These are some of the realities that the review will be looking at.

CHAIR —Are the additional costs involved in making the platform exportable because it would be customised for Australian demands?

Air Chief Marshal Houston —It would need to be in a form that protected the technology that is fielded in the F22.

Senator JOHNSTON —Dr Gumley, you are on the review panel I am pleased to see. On the situation with respect to these aircraft, I see that we are shopping around because we have no confidence in what has been done to this point. That is the clear inference from this inquiry.

Dr Gumley —I do not think that is correct, Senator. I think we have a lot of confidence in the work that has been done in the last couple of years.

Senator JOHNSTON —The inquiry is reviewing—everything is on the table. We have already canvassed there the $400 million plus several million per month or per day, whatever, with respect to the Super Hornets. We are also looking at the case for and against F22, and I trust it is F22A. We are also looking at what other aircraft we might use. I hope we are putting Super Hornets into that mix. Can you confirm that the Super Hornet will be a part of the review?

Air Chief Marshal Houston —I might take that. The first part of the review will obviously look at the Super Hornet. Essentially, the review will be conducted in two stages. The fourth part of that is the status of plans to acquire the FA18 Super Hornet and also a comparative analysis of aircraft available to fill any gap that may be left by the withdrawal of the F111. So the Super Hornet is very much in the initial part of the review.

Senator JOHNSTON —At the second stage?

Air Chief Marshal Houston —I will read the second stage, part b, straight out the terms of reference:

... the status of plans to acquire the Joint Strike Fighter (JSF) and the status of the JSF project, including:

i) the implications of the F/A-18 Super Hornet acquisition for the planned JSF acquisition ...

So the Super Hornet is going to be there in the first part and the second part.

Senator JOHNSTON —Very good, thank you. I have no further questions on this.

Senator MINCHIN —I wonder whether, in the light of this review, you could brief us on the current status of the F111 and indicate to us whether there have been in the last 12 months serious issues raised with respect to the operational capacity of that aircraft, given the age of the aircraft?

Senator JOHNSTON —And particularly with reference to the F15 structural failure recently.

Air Chief Marshal Houston —First of all, the F15 in the United States—this is the F15C, I believe, the air defence version of the F15—suffered a very serious structural failure. I will not go into that in detail. But in terms of the F111, essentially after the decision was made by the last government, we are in the process of running down the F111 capability. The F111Gs have been retired from service and right now we have, I think, about 18 F111s remaining. Essentially we have also been running down the support capability. So everything we are doing is focused on withdrawing the aircraft from service in 2010 in line with the government decision that was taken the year before last. That is the status of the program at the moment.

Senator MINCHIN —And that remains the case—you have not put those processes on hold, have you?

Air Chief Marshal Houston —No, the process continues. It is probably important to get an early decision, hence the need to do part 1 of the air combat capability review in a timely manner, because some of the workforce in the F111 are required to transition to support the Super Hornet and obviously there is a need to train air crews and so on and so forth. So we have not got there yet, but there is a critical point. We probably are almost beyond the point of no return in terms of the F111 capability. It would take a huge investment to turn it around and resurrect it so that it could cover the whole of the period we are talking about. Let us talk in terms of JSF. First JSF squadron is due to get that initial operational capability 2015 or 2016. So we are looking at a capability that has to cover the period to 2015. In order for the F111 to do that, there would have to be considerable investment in enabling it to do that. I would also add that the F111 increasingly does not fit into the modern air combat environment that we see out there in the region. I know this is a point of great debate, but the fact remains that it is very much a product of the sixties and seventies. It is a fast aircraft; it has a large radar cross section; it does not manoeuvre particularly well; and it would have to be escorted by other aircraft to get through to the target.

One of the things about that Four Corners program that really did not come over terribly well was the fact that if you are going into a contested environment you would have to have a fighter escort. You can compare that to a capability like the Super Hornet, which has not only hard kill capabilities but also electronic attack capabilities. It has a capacity to go through a defended area and it can deal with the threats using modern systems and modern technology. A capability like that connects into our system. It is ideally suited to being in a networked air combat system.

As I said very early in the debate we have had today, what is important is a capability that fits into an air combat system which enables you to have very good situational awareness about everything around you. The modern aircraft are fifth generation aircraft, and aircraft like the Super Hornet are optimised for those sorts of conditions. In answer to your question—I have been a bit long-winded—the F111 is probably at the point of no return in terms of resurrecting it, without spending a huge amount of money.

Senator MINCHIN —Finally on this, there have been numerous reports suggesting that defence did not support the acquisition of Super Hornets as the interim capability. That is not my understanding. Could you confirm that defence does, and did at the time, support the acquisition of Super Hornets as the interim capability?

Air Chief Marshal Houston —I will not breach cabinet confidence. I do not think it would be appropriate for me to do so, but let me just say that there is 100 per cent support for the Super Hornet in the Defence Force at the moment. It is an awesome capability. It is very much a modern capability. I could run through the sorts of capabilities it provides for us, but I think it provides a good capability for the Defence Force in our present circumstances. I think if you were to go to Amberley or Williamtown and talk to the people that operate the aircraft you would find that they are 100 per cent behind it.

Dr Gumley —Could I just answer a question that the senators put earlier? I do not have the investment of Australian companies into the JSF program, but I do have the fact that 24 Australian companies have won work of approximately $160 million to date, with another $130 million under negotiation at the moment, directly for the low-rate initial production phase of the aircraft.

Air Chief Marshal Houston —I saw something on the TV the other night—in fact , I saw it in the middle of the night on the internet, when I got back from what I was doing—which was a description of the Super Hornet which I would strongly disagree with.

CHAIR —I saw that too.

Air Chief Marshal Houston —I would like to put on the record that the Super Hornet is a very good capability. It is a capability that is genuinely better than anything around at the moment, other than an F22 or an F35. It is generation 4.5. It has an incredible ability to network into an air combat system, as I have already mentioned. It has a very advanced radar. Its radar is very similar to the radar that is fielded in both the F22 and the F35, and it has some awesome characteristics that make it very useful not only in the air-to-air role, but also in all of the roles that it performs.

This aircraft is more than a match for the Sukhoi aircraft that are out there in the region. This would give us an ability to maintain a very large capability edge over the Sukhoi capabilities that are being fielded in and around the region at the moment. Importantly, it is a multirole aircraft that not only performs very well in the air-to-air environment but also can meet all of our strike capabilities, including the vital maritime strike area. I could go on a fair bit about that but I think it is important to put on the record that this a very good capability. There is nothing better in the region at the moment and this would give us a very sharp edge over the other capabilities that are fielded in the region at the moment.

CHAIR —Thank you for that, CDF. I too saw that extract on the ABC the other evening and noted the choice of language. I think it referred to the Super Hornet as a ‘dog of a plane’ or something to that effect. I remember hearing it at the time and thinking it was a rather remarkable comment from such a former senior member of the armed forces.

Senator JOHNSTON —Can we move on to FFGs please. There is a $1.4 billion upgrade of the Navy’s four guided missile frigates which has been ‘bungled to such an extent that the ships are incapable of going to war’. That is from the Australian of 30 January 2008. Can you tell me whether that is in fact the case?

Dr Gumley —The FFG program has continued to develop since we last discussed it, although I am not sure if it was at this committee; it might have been at the other one. I would like to invite Warren King to give you an update on the program.

Mr King —The FFG program has made remarkable progress in its core combat system and sensor capabilities during what we all recognise as a troubled program. It has basically four areas left which we and the Navy recognise have to be addressed: the ESM system, the integrated logistics support in certain areas and the towed array sonar.

Senator JOHNSTON —Who is the contract with for the ESM?

Mr King —The prime contract is held by Thales, formerly ADI. The ESM core system is provided by Rafael, but our contract is with Thales.

Senator JOHNSTON —And this is integrating that system with other systems?

Mr King —With the whole combat system. As you would appreciate, a ship is a complex integration. There are areas which need further work to bring the ship up to full capability.

Senator JOHNSTON —So this is Sydney?

Mr KingSydney is one of the ships. There are four FFGs being fitted with the upgrade.

Senator JOHNSTON —And none of them are functional?

Mr King —I am sorry?

Senator JOHNSTON —And none of them are fully integrated?

Mr King —None of them are fully functioning at a state acceptable to the Navy at this stage; that is correct.

Senator JOHNSTON —So we are starting to go through it with Sydney. Where are we up to with Sydney? I hope we are doing Sydney first and then trying to replicate across. Are we?

Mr King —In fact we are using all three platforms now. We are putting in place a plan to attack each of the issues that we need to address to get it all to the Navy’s satisfaction. I think the most troubling one is ESM and we are giving it the most focus. But we are working with the Navy to use all three platforms that are currently in a position to be able to have this work done.

Senator JOHNSTON —ESM is evolved Sea Sparrow?

Mr King —No, sorry; it is electronic surveillance measures. This is the system that detects potentially hostile transmissions from ships or missiles—threats—and gives forewarning to the ship’s company about potential threats and all the environment around those. It is obviously a very important part of the ship.

CHAIR —It is a primary detection device, isn’t it?

Mr King —It is certainly primary detection. It is a very major detection without a doubt. Radar might well be considered primary detection, but it is an important part of the integrated system, without a doubt.

CHAIR —You would not want to go into conflict without it, would you?

Mr King —Certainly the Chief of Navy thinks that is the case. It would probably be wrong of me to disagree with him.

Senator JOHNSTON —What is the time frame on this?

Mr King —The contract has, under the contract terms, until December 2009 to complete the ships. What we are literally looking at at the moment are the completion programs for each of these.

Senator JOHNSTON —That is the revised contract, is it not?

Mr King —That is the revised contract; that is correct.

Senator JOHNSTON —Right, thank you.

Mr King —In the ESM it does get very complex—it is not a simple pass/fail criteria; there is a range of performance specifications that you have to meet to meet the requirements. For example, the system has to be able to accurately detect up to a million pulses per second. What happens in that environment is that both the system itself and the systems that you use to test it are quite complex. Getting that baselined and accurate requires a lot of coordination and trials programs to be actually certain what result you are getting. One of the complications, of course, is that in the modern environment there are a lot more transmissions around than there used to be. So, for example, ships now use a lot more transmissions for crews to be able to communicate with their families than they may have done 10 years ago. You have a lot of transmission systems on board that can interfere with your detection system and also you have the normal environment. So testing becomes quite problematic. For example, if you are trying to test in Sydney Harbour then the background transmissions make that quite difficult.

Senator JOHNSTON —And the top of the gulf, I would imagine. It would be the same story.

Mr King —Certainly. What we are putting in place now—and have been putting in place but are really driving home with a focus now—is a trials program in conjunction with the prime contractor and with the Navy and the Navy’s test unit agreeing all the standards for that test. We have pointed out to Thales the deficiencies that testing to date has indicated to us. They have put in place with their subcontractor a number of fixes. They have found deficiencies in the antennae, some of the hardware and the software—so you could say that they have found deficiencies in a number of areas. In recent meetings with the prime contractor they have expressed an 80 per cent confidence of being able to meet all the test criteria.

Senator JOHNSTON —By when?

Mr King —The contractual requirement is by November.

Senator JOHNSTON —November 2008 or November 2009?

Mr King —That is 2008. In my very recent discussions, and by that I mean yesterday, I suggested—or in fact demanded from the prime contractor—that we have a no-go position by the middle of the year. The reason that is important is that we have developed a contingency plan to introduce, if this system does not work, a second system that could be installed and take the place of the system if this one fails.

Senator JOHNSTON —Where has this system been implemented previously and where is it currently functional?

Mr King —I understand it is used in the Indian navy and the Repulbic of Singapore Navy, but I do not have details. It is claimed that it is functional there. But I do not have any details of how effective that is.

Senator JOHNSTON —This is the revised contract. We have obviously had to reconsider our position, given the failure to meet the contractual terms. What comfort has the taxpayer had with respect to the breach of the contract? Have we enforced the penalty clauses?

Mr King —There are penalty clauses associated if they do not meet the successful performance requirements. All I can say is that we will enforce them, as we are with other projects where they are deficient.

Senator JOHNSTON —In 2006 we signed a release to ADI-Thales to release them from liquidated damages.

Mr King —That was associated with the program to that point.

Senator JOHNSTON —How far over schedule are we?

Mr King —In the revised agreement we are not over schedule. We are clearly over schedule from the original prime contract.

Senator JOHNSTON —And the original specification was for when?

Mr King —It was originally 2006.

Senator JOHNSTON —So we are two years late?

Mr King —That is correct.

Senator JOHNSTON —Who is bearing the cost of that?

Mr King —Thales bear the costs of that.

Senator JOHNSTON —Tell me how they are going to bear it. Are we not paying them until we get it fixed?

Mr King —We do not pay them until the ships work.

Senator JOHNSTON —There is a problem in that, isn’t there? If they have other work then they can no longer give us priority. What do we have to protect the taxpayer to see that the job is done, that they fix it and that it is on time this time?

Mr King —We have the contract provisions. I do not know that we can say any more about that other than that we have put in place a deed of agreement. Some of those issues were triggered by us because we chose to go from six ships to four ships—by ‘us’ I mean Defence or the government. We went from six ships to four ships. We also had some issues with the ship itself that we were not aware of which caused problems for then ADI, now Thales. We have re-baselined the contract. They now have to deliver in accordance with that contract.

Senator JOHNSTON —So you think this will be repaired and all systems will be functional by November of this year?

Mr King —I did not say that.

Senator JOHNSTON —Give me the comfort that you want to give me.

Mr King —Maybe I should give you my background. I have been around almost long enough, in fact long enough to build these ships, as some would reflect. I certainly do not profess to be any miracle worker. What I profess to understand is the process of trying to integrate and the complexity involved. What I am offering is a program that I believe as a reasonable program against a contractor we have had struck. What I am asking—in fact one could say demanding—of Thales is an acceleration of that program because of the operational needs of the Navy, that they come up with a properly structured test program that we all agree to with the support of the Navy, and by the middle of this year we make a decision whether this system has a high probability of meeting the contractual requirements or whether we will implement obviously both our contractual remedies and in parallel with that a risk mitigation program to introduce another ESM system.

Senator HOGG —Just on the alternative system, is it an off-the-shelf system, so to speak, or is it something that will be subject to major modification?

Mr King —It is an existing system. But because I have been around long enough I never say it is off the shelf and there are no problems. In fact, the very thing I flogged the gentleman on my left with yesterday was that I want a complete risk assessment of the alternative system. The fact is we often, with the best intentions of delivering the best capability we can for the taxpayer and for the military, rush into decisions hopeful that the alternative will not carry any of the risks of the current system. Now the current one has taken many years to get to the position it is in and you learn an awful lot about your ship and your transmissions and your reflections and everything else in that process. It would be remiss of us to just quickly embark on an alternative program without the diligence that we would put into the second pass process, if you like, of the original decision—not that we had that. So that is the rigour I want in it. So, no, I cannot promise that it will work, Senator Johnston. What I can promise is that we will follow the program and we will make the critical decisions when we have to and we will make them with the best information we can put together so that we do not embark on another program that perhaps has a consequence of failure.

Senator JOHNSTON —I am happy with that. Can we go on to another subject? Obviously we want to talk about Wedgetail. We want to talk about air warfare destroyers and amphibious ships. But the subject I did want to talk about was the contract with General Dynamics—I think it is 2057 or something like that.

Dr Gumley —Might it be 2072?

Senator JOHNSTON —Yes, that is it.

Dr Gumley —JP2072. This is the contract which has been cancelled.

Senator JOHNSTON —We have cancelled it, have we?

Ms McKinnie —We did cancel the JP2072 contract with General Dynamics last year.

Senator JOHNSTON —What was the cost of that cancellation?

Ms McKinnie —At the time of cancellation we paid the contractor A$12 million. We had received Can$9 million from the contractor in liquidated damages and we are currently in the process of calculating those additional claims that we will put on the contractor associated with the termination.

Senator MINCHIN —Have you relet the contract to acquire this capability?

Ms McKinnie —We still require the capability. We are currently finalising an alternate acquisition strategy that will allow us to deliver urgent capability to Army as quickly as possible as well as achieve as many of the objectives that we originally had in the project in as short a time frame as we possibly can.

Senator MINCHIN —Does that mean you have decided to reopen the tender to supply this capability, or will you simply go to other tenderers for the original contract?

Ms McKinnie —Our original strategy was to engage a prime system integrator, which was General Dynamics. Our alternative strategy, which we are now just finalising, will most likely have the DMO performing the prime system integrator role and acquiring equipment from various suppliers.

Senator JOHNSTON —That is the battle space communications system.

Ms McKinnie —That is right.

Senator JOHNSTON —And that was from General Dynamics.

Ms McKinnie —That is right.

Senator JOHNSTON —What about JP2047, the wide area communications network replacement?

Ms McKinnie —That is not mine.

Senator JOHNSTON —Do we have any problems with that, Dr Gumley?

Vice Adm. Tripovich —I do not think we have any problems with that—unless you have a particular point that we can answer.

Senator JOHNSTON —So that is on time, on budget. That is all I need.

Ms McKinnie —That project is managed by the CIO.

Vice Adm. Tripovich —The chief information officer.

Senator JOHNSTON —The next one is air warfare destroyers. Let us deal with that.

Mr King —I am also the program manager for that.

Senator JOHNSTON —Where are we up to on that?

Mr King —We went through a second pass in June of last year. We let a contract with ASC and Raytheon in October last year. We are still operating out of the temporary systems centre in Adelaide. We have stood up the alliance management team with the CEO, Mr John Gallagher. The program management board has been established—I am the chairman of that board—and the principles council that sits over the top of that has been established.

We have about 250 people engaged on that program in Adelaide—professional people—and we have also engaged Navantia, the platform system designer, and they have commenced the design Australianisation elements for us. The decision for the Aegis contract, which was our long-lead item, was made in 2005. That is well on track and delivering on schedule—in fact, a little bit ahead of schedule. The next long pole on the tent was the facilities, the common-user facility in Adelaide to build the ships. That is well under way. About 75 per cent of the piling has been done on that site. The South Australian government has now committed, as I understand it, up to $320 million to build that facility.

The final bit of the facility build at this time is ASC facilities. They are adding about $100 million of facilities opposite or the other side of the common-user facility and they are well under way as well. So I think for the early start of the program it is very promising. I guess, as the program manager, my attention to the team is that we use every day as passionately today as we think about the day before delivery. I have seen no sign yet that there is anything of major concern. These are complex and large projects, but there is nothing to date that we have seen that we did not anticipate. I think we are well established for it to be a successful national program.

Senator JOHNSTON —On time, on budget. Is it a maturity score that we do for risk assessing projects?

Mr King —Yes, it meets our maturity score. But ‘on time, on budget’ is a cavalier statement at this stage of the program, let me say. Perhaps I should disclose to you my attitude to this. We expected, for example, what they call a third-party transfer to transfer some data to Navantia from the US in December. We did not get that third-party transfer—I think we expected it on 15 December. I flagged the schedule for the program amber on that date, which seems a bit silly to a lot of people, given that we have eight years to deliver it.

Senator JOHNSTON —It does not seem silly to us.

Mr King —Me either, by the way. That focused everybody’s intention including mine. We were able to engage more passionately, should I say, with the US. The transfer came through in the early part of January and I believe, given that, we can relook at that amber and we are probably back into the green space. But certainly every day we are taking it very seriously.

Senator JOHNSTON —Can we go to Wedgetail, project Air 5077? Last time I looked at this project, we had an open-ended two-year delay to integrate the systems that we had put into this aircraft. Where are we at now?

Air Vice Marshal Deeble —We are currently in the developmental test and evaluation phase. We are confronting a number of technical issues on the program at the moment relating to the radar performance and the ESM system. The corollary to that is that mission computing and other elements are also impacted by the subsystem maturity. We are aiming at going into formal acceptance testing in the middle of this year, but the DT&E phase that we are currently in will be critical to characterising the issues and the technical risk that we have to the program.

Senator JOHNSTON —Is Boeing underwriting that?

Air Vice Marshal Deeble —Yes, they are. Boeing have declared significant losses on this program. They are currently in a reprogramming phase, taking account of some of the delays we have experienced in the most recent past, predominantly relating to the maturity of the radar and the ESM system. They are committed. They have changed their organisation. They have applied significant new resources to the program at the executive level and also at the working level. Similarly we have a very strong commitment from Northrop Grumman to continue to develop the radar. They similarly have declared forward losses on the program and they are working hard, again having made changes to their organisation and applying additional resources to the program.

With regard to BAE, there have been some issues with the performance in relation to the development of the electronic support measures. They have recently reconfirmed their commitment to the program. They are likely to similarly demonstrate that through forward losses, which they may be declaring. Again, there will be changes to their organisation and a recommitment of new resources. So across the program, Boeing, as the prime system integrator, and the subcontractors have demonstrated commitment by significant application of new resources to the program.

Senator JOHNSTON —When, do you anticipate, will we be able to receive this aircraft into service?

Air Vice Marshal Deeble —We anticipate at this point that Boeing are still going to be pushing hard for March 2009 delivery of the aircraft, which is critical to our starting training. We see that there is technical risk to the program and that there is potential for further delays. I will be going across to Seattle in the States in the next week and will be working with them on the risks as we perceive them. So I think it would be a little premature for me to predict exactly where that is going to sit.

Senator JOHNSTON —But we are hopeful about March next year?

Mr King —I am the general manager who sits over this domain now and I have been working with Chris. It is very important that we get our contractual rights, as we have pointed out, but it does remain imperative that the companies remain committed to programs. We need these capabilities.

Senator JOHNSTON —I think I might have said that myself today.

Mr King —We need both of those. I have expressed my concern to the CEO about meeting that schedule; I have made no secret of that.

Senator MINCHIN —The CEO of Boeing?

Mr King —No, the CEO of DMO. And I have said the same to Boeing. The point I am making is that the CEO of DMO has written to Boeing, asking them to confirm their ability to meet that schedule. I will not talk about commitment; I feel confident that they are committed. There is a separate question of whether they can really make that schedule, given the technical challenges.

Senator MINCHIN —Other countries have ordered this 737 platform for AWAC, have they not?

Mr King —That is correct.

Senator MINCHIN —Are the other customers suffering the same problems?

Air Vice Marshal Deeble —The Wedgetail program is the lead program for the AEW&C for the Boeing company. While there are some technical differences between the Wedgetail capability, the Peace Eagle program for Turkey and the EX program for Korea, we are the lead program. So getting us right is critical to the success of the other AEW&C programs.

Senator TROOD —Where are the risks that you now see?

Air Vice Marshal Deeble —As for the key risks, the radar is the primary sensor. It is very similar to what you were discussing with the air warfare destroyer. It is the eyes of the aircraft in the main. The key issue for us is getting the detection range and being able to confirm that across the operations of the radar, so that is a significant issue. Northrop Grumman is the contractor that is providing that. It is a first-of-type multirole electronically scanned array, so there are a number of issues that we are confronting as we work through what is a first-of-type capability. The installed performance is an issue. We are sticking this on a 737 variant and we are working through issues there as well. There are some effects associated with the aircraft that go together with the radar to give us that performance. Electronic support measures is another area. Again it is in a similar respect to the air warfare destroyer. They provide another means of being able to look at the electromagnetic spectrum around the aircraft to be able to detect emissions from other aircraft, potential threats, and to be able to fuse those together with the data provided for the radar to get a coherent situational awareness of what is happening in the battle space. That is critical to the AEW&C being able to perform its primary role, which is command and control of other assets, other ADF and potentially coalition assets, and to be able to assign in a battle space management context those assets to defeat threats or to perform their primary role.

Senator JOHNSTON —Thank you very much, Air Vice Marshal. I want to go to Navy now with respect to amphibious ships, the Armidales and submarines. Firstly, I just want to know, as to amphibious ships, where we are up to. Have we signed a contract with Navantia? I would like to know the savings that we anticipate by having Navantia do the work.

Mr King —The LHD project comes under me as well. The savings?

Senator JOHNSTON —It was a tendered project.

Mr King —Yes, it was.

Senator JOHNSTON —We went with an offshore builder?

Mr King —The prime contractor for it is Tenix.

Senator JOHNSTON —Sorry, but Navantia is building the hull, isn’t it?

Mr King —Navantia is building the hull.

Senator JOHNSTON —In Spain?

Mr King —In Spain.

Senator JOHNSTON —We went there because of what sort of saving?

Mr King —When we went to industry for the tenders for the LHD, we actually let industry provide us a range of options—that is to Defence or to government—for the optimised mix of onshore activity and offshore activity and to meet the schedule for delivery. So each tenderer was able to offer a range of options, including full onshore type of build. The option that offered the best value for money, delivery time, risk management and so on was the one tendered by Tenix with Navantia building the hulls. The main super structure, the island part, is built in Australia. It is brought together in Australia and the high-tech part if you like, the systems supply and integration, is done in Australia. So the core platform is built in Spain by Navantia.

Dr Gumley —Senator, there would have been many, many millions—hundreds of millions—of dollars in savings.

Senator JOHNSTON —That is good for the record. Do we have a maturity score on this project?

Mr King —Not off the top of my head, but we certainly met the maturity score to get to second pass. This comes down to it being a bit like the AWD, because you have proven systems. The platform is built by Navantia and the system by Saab has been used before. AWD is very much the same. You had a platform that has been built before, an Aegis as a combat system. Using core existing capability gets you a long way up into your maturity score. Of course, we had a well developed contractual basis for both offers before we went to second pass. So we are in that right, correct place.

Senator JOHNSTON —So there is nothing as of now that the committee should be aware of with respect to that project.

Mr King —None that I am aware of, no.

Senator JOHNSTON —It is not amber?

Mr King —No, it is not amber. In fact, the BPE for Spain—their equivalent launch is in Spain in March.

Senator MINCHIN —Could you just confirm that from your perspective you are, to use a phrase, relaxed and comfortable about the acquisition of Tenix by BAE with respect to this project?

Mr King —I might flick that to the CEO as a general thing. As the group manager for that, I am always aware and anxious about the impact of acquisition and what that means for the ongoing management and culture of the company. The same could be said for ASC, should that be sold—because you do not just rely on the contract. If you do that you are destined to fail. You do rely on what is driving the companies, the attitude of the companies and the people managing and driving them. So my view is to be alert—but I would pass to the CEO.

Dr Gumley —Yes, I am comfortable with the BAE takeover of Tenix. BAE is a company of great pedigree. They have a reach-back ability to the UK for skilled engineers and professionals as needed. Inevitably there will be some cultural impact, of course, but if you look at all the people who could have bought Tenix, this is one of the better outcomes we could have got.

Senator MINCHIN —What do you understand to be the way in which this is going to operate? Is Tenix effectively going to continue but as a subsidiary of BAE?

Dr Gumley —My understanding is that the Tenix marine business will be run pretty much as BAE marine in Australia. There is not a lot of cross-fertilisation or synergies or whatever they use in merger and acquisition land, where they crash things together and spit out hundreds of people. That is not going to happen in this area. You never quite know what happens with senior management, but everyone else, I think, has a real job to do and they have to get on with it.

Senator MINCHIN —Presumably the relationship between BAE and Navantia is going to be critically important to the success of the project. Are there any issues there that we should know about?

Dr Gumley —There have been issues in the past; on the other hand, in other areas, they cooperate. I think you might be aware that the European military defence industry chops and changes at regular intervals. One minute people are partners and the next minute they are competitors and it moves around a bit. But, with enough effort from us as a customer, I am sure that everyone will see it the same way. I need to stress that too. The customer has a very strong role to play in modifying industry behaviour to ensure we get the capabilities we want. We just talked about Wedgetail a moment ago. The intricacies of having three of the world’s biggest players in Boeing, Northrop Grumman and BAE all involved with that project—they requires a lot of leadership from us to try and make it happen. So we are certainly putting a lot of commercial imperative into these relationships.

Senator JOHNSTON —I go to the fuel problems with the Armidale. Have we resolved all of those and how are they going?

Rear Adm. Robinson —We are on top of the fuel problem. The boats are all operational and meeting the requirements that Chief of Navy needs and that are set out in the contract we have with DMS, who operates for them. In the longer term, we still have to complete some trials to make sure that we know exactly what we should do to modify the fuel system for a lasting solution, if you like.

Senator JOHNSTON —Do we actually know what the problem is?

Rear Adm. Robinson —We think there are several strands to the problem.

Senator JOHNSTON —I think that might be a no!

Rear Adm. Robinson —It is a high-performance diesel engine, which has a higher specification for fuel, so there is an issue there with the fuel being delivered to the engine. The vessel is aluminium and we have not operated aluminium before in that way, so there may be an issue with fuel and condensation—the water condensing out of the fuel. There is perhaps an issue with the system of purifiers. All of these put together mean that we have to test it. DSTO are involved, helping us with the prime contractor, and Austal, who is the manufacturer, to get on top of it. So we have worked out a solution now where, by bypassing one of the purifiers, we can achieve the operating solution. So we are just trying to get on top of that. It is basically physics, obviously, but we just have to put all the strands together. So we have an active program to pursue that.

Senator JOHNSTON —What are the contingent costs for the taxpayer in all of this?

Rear Adm. Robinson —We have not got to that stage. Austal, the manufacturer, has stumped up some of the costs.

Senator JOHNSTON —What, for the after sales service?

Rear Adm. Robinson —That is right, for some of that. Inevitably, there may be some changes that we decide we need and want to put in place, which we would obviously pay for. But, by and large, we just want to resolve the issue. We have not got to the point of deciding who is paying.

Senator JOHNSTON —We have 14 of these vessels across the north of Australia.

Rear Adm. Robinson —That is correct.

Senator JOHNSTON —And they have all been operating now for probably six months, some of them for more than a year. What is the operational capacity of them and how are they performing?

Vice Adm. Shalders —We have 14. The last of the class, Glenelg, will be commissioned this coming weekend. The operational effect of the ships is outstanding. We are very happy with the performance we are getting from all 14 ships. We now have 14 patrol boats and 21 crews. The last crew has just qualified, so we are fully into the multicrewing regime and the boats are meeting our requirements.

Senator MINCHIN —Are there any restrictions on their operations as a result of the problems we have just discussed?

Vice Adm. Shalders —No, there are not.

Senator JOHNSTON —I turn to submarines. I believe that we have inaugurated and tested the new combat system into Waller very recently. Can we have a report on that, please?

Dr Gumley —The project is going very well. I will let the admiral speak to that again, but it is on time and budget.

Rear Adm. Robinson —The combat system, together with the new heavyweight torpedo—they go hand in hand—were installed in Waller in 2006. They were tested at sea trials and testing last year, including firing up to 40 of the weapons. We expect to put the submarine system to Chief of Navy in mid-March for what we call initial operation release. We are confident about that. We have had good results to date. Once we achieve that milestone, that submarine will go off to an exercise in the Pacific later this year, where they will undertake some further firings, if you like.

Senator JOHNSTON —That is RIMPAC?

Rear Adm. Robinson —That is RIMPAC. Both these projects are on budget. They have been an outstanding success in terms of our cooperation with the US to achieve a solution and we are now starting to install in the rest of the submarine fleet.

Senator JOHNSTON —That is good to hear. When will we have completed cycling the other five boats through?

Rear Adm. Robinson —It will take us through until 2012, and that is because we have to tie this in with the docking schedule for the submarines. But the second submarine, HMAS Farncomb, will be out in July this year with the systems fitted and HMAS Dechaineux will be out at the end of this year and go to testing next year with an even more advanced version of the combat system. Then we will take the last three between 2009 and 2012, as we cycle them through a docking program.

Dr Gumley —The clever thing to do here is to stay in sync with the US. That means that we pay a portion of the total development cost but we get the benefit and we also get the excellent technological reach-back we need to make the program successful.

Senator JOHNSTON —What class of US submarine is this system in—Los Angeles class?

Rear Adm. Robinson —This combat system in various variance is in all their submarine classes. So they have a program that we are in step with. Every two years there is a new technical version release. So the US has up to four different base lines at any point in time in their fleet. But it is at sea, and one of the undertakings we had was that we would not put it at sea in our submarines until it had been at sea in an US submarine.

Senator JOHNSTON —Which class of submarine had it been to sea in?

Rear Adm. Robinson —It has been to sea, in my understanding, in Los Angeles class, and Virginia class has a version.

CHAIR —Why does it matter which country puts it to sea first?

Rear Adm. Robinson —It is just part of our risk reduction. We are a junior partner in the development, but one of the arrangements was that the US would take it to sea first in their submarine. That is just, perhaps, an arrangement we made to help reduce the risk and I think it has worked so far.

Senator JOHNSTON —Lastly, and before we go to issues that I want to ask you about that are not travelling well—and I want you to tell me which once they are—let us turn to the old chestnut: Super Seasprites. Where are we at with that? Who has the happy job of telling us about that?

Dr Gumley —Senator, after you have finished with your questions, I would be very happy to offer some lessons learnt, if that would be useful.

Senator JOHNSTON —I would love to hear about the lessons learnt. Major General, I see you have stepped up to the plate. You look very keen and ready to tell us: where are we at with the Super Seasprites?

Major Gen. Fraser —The government made a decision in the middle of last year to continue with the Seasprite program subject to successful negotiations for further work that was required. The aircraft have not yet returned to flying status, having been suspended in April 2006 for a flight control issue that we were concerned about. Some flight testing has been conducted in the US on the remaining Seasprite that is with Kaman at their factory there and we are now reviewing the report that was completed late last year. We are now reviewing the status of that particular flight control system development that they have worked on. But that will only bring it up to a suitable standard to let us start test flying with our test crews, which we anticipate we might be able to do by the middle of this year. But there remain a large number of other issues yet to be resolved with Kaman.

Senator JOHNSTON —I would love you to tell me what they are.

Major Gen. Fraser —It is quite a long list, as you would appreciate.

Senator JOHNSTON —It is what we are here for.

Major Gen. Fraser —The first issue is that the whole purpose of purchasing the aircraft in the first place was the tactical system. It is state of the art and it still remains a very highly capable tactical system. The difficulty is trying to integrate it into a 35-year-old helicopter. Kaman was not able to do this in the first place to achieve the original schedule of 2001-02, which is when the aircraft were to be introduced. The problems associated were in two parts: one which is in the airframe and this flight control system issue and a number of issues to get it suitable so it could be flown at sea; and the other was the tactical system. The tactical system’s current problems are that, when it went for test over an extended period of time over the last two years, we were not able to achieve a suitable standard to bring it into service. So Kaman was asked to address some issues, which they have gone back and done a lot of work on. We have now asked them and required them to run through a full testing of that system. That has not yet been initiated and the Commonwealth is not yet comfortable that we have reached the level of maturity to be able to enter that test program—that is, the conditions to enter that test program, that software.

Senator JOHNSTON —Why not?

Major Gen. Fraser —There are two major issues with it. The first is that the capacity of the computer system—the pace at which the computer system works is not contractually compliant. We require that to be improved.

Senator JOHNSTON —So that computer system speed is in the contract.

Major Gen. Fraser —Yes, it is. The second one is the spare capacity of that computing system. Kaman acknowledge that it does not meet contract. The difficulty we are trying to ascertain is what the practical constraints or what the practical outcomes or practical results are: what does that actually mean when you go and fly the helicopter? They are very difficult issues to quantify unless we get the aircraft flying. Because we still have problems with the flight control system, we do not have it yet mature enough to get the aircraft flying and test it, and those issues remains unresolved.

Senator JOHNSTON —It can only be resolved once the aircraft is cleared for flight.

Major Gen. Fraser —Kaman has a particular position. The Commonwealth has an alternative view, of course—an assessment as to what those conditions are or the suitability to bring it into service and whether it meets contract or not. My belief and the project’s belief is that we need to get the aircraft flying to truly quantify whether they are genuine impact issues or not. But our assessment at the moment is that it does not meet contract requirements and requires further work.

Senator JOHNSTON —How would you categorise the relationship between the contractor and the customer?

Major Gen. Fraser —Kaman and the Commonwealth, I think, have tried for many years to try and bring this aircraft into service. Perhaps the reason we are at this current point is that, over many years of both parties trying to find ways to introduce this very complex system into service, both sides have made concessions and worked their ways around particular issues, trying to find the best way possible to bring the aircraft into service.

Senator JOHNSTON —Is that where we are at today? Are we still working towards that objective?

Major Gen. Fraser —That is certainly the cooperative approach that has been attempted. But because we have not been able to get genuine agreement on it—because, for example, we have not come to agreements on the computing system and the tactical system—that has made the working relationship difficult. That has certainly strained it.

Senator JOHNSTON —How are we addressing that?

Major Gen. Fraser —The Kaman executive team came out in the last two weeks. They have been visiting Australia and they have stated their views—and I think they met many members of government as well as other areas. They did the rounds trying to seek support to bring the aircraft into service. Part of the problem is that the contract was struck for it to enter service in 2001-02.

Senator JOHNSTON —It is a very old contract.

Major Gen. Fraser —So it was a 1997 contract. Had we been able to meet the contract time, had they met their obligations and introduced the aircraft into service, we would have these 35-year-old airframe issues. There are issues of crash worthiness, the aircraft on which it flies and the controllability of the aircraft. Our contemporary standards have moved on since that period of time. When we take the issues that we have identified through accidents that we have had—the Sea King and the Black Hawk accidents—whilst they are not contracted for that, now we and those that we are asking to operate the aircraft have different expectations than we would have had had we made schedule in 2001-02. Clearly, they are not in the contract but they are difficult issues for us to confront.

Senator JOHNSTON —How are we addressing that? I know it is a 1997 contract and I know that today it would be totally inappropriate in terms of the capability to be delivered. But what are we doing about that? Are we sitting down and redrawing a contract? Have we got a third party involved who can objectively be the grease between the two parties here? Or are we just going to junk this $1 billion?

Major Gen. Fraser —No. The government made the decision in the middle of last year to proceed, subject to suitable negotiations, and that is certainly what we have been trying to do and we have been trying to find ways to bring the aircraft into service. We still remain committed to finding ways to do that.

Senator JOHNSTON —The capability acquired with this aircraft is very good and takes our Anzac frigates into something else, doesn’t it?

Major Gen. Fraser —It does.

Senator JOHNSTON —Two Penguin missiles, a surface sonar and relatively high-speed helicopter deployment: these are all very good things for our vessel, aren’t they?

Major Gen. Fraser —Yes. The radar sensor and its ability to extend that envelope of protection to the ship is important, but we need, first of all, to meet the contract and bring it up to expectations. We fully expect that, when we get the aircraft flying, given our history to this point we will identify additional issues with that tactical system that will require rectification. So that drives a schedule issue as to how long it may take us—and our expectation as to how long it may take us—to bring the aircraft into service.

Senator JOHNSTON —Let me come back to my original question. It seems to me that this is a very unhappy relationship for any number of reasons. We have had unhappy relationships with Bushmaster and we have had unhappy relationships with a whole host of projects over the years. What are we as the customer doing to mitigate this unhappy situation?

Major Gen. Fraser —At the senior executive level I think the relationship is actually quite strong. The difficulty on both sides, on the contractor side and on the Commonwealth side, is that those parties are doing the best for their particular organisations as to what they believe their obligations are. Therefore, the issue for us as senior executives is to find ways to meet our obligations and to introduce a capability for Navy that they do need. I think we have quite a reasonable working relationship at that level.

There are many issues to confront and work through. So we have identified first of all that the flight control system needed work done. That work has been done and we have that test report. So we will now address whether that meets our requirements and whether we can move ahead with the further modifications to bring it up to somewhere close to contemporary standards at least, in addition to whatever their contract part is, to bring some confidence to the aircraft and to the program. Given the uncertainty about it, its suspension from flying in April 2006, the considerable adverse media that it has suffered as a result of all of the reviews and all of the issues associated with it, it suffers from a lack of confidence. Therefore, to be able to bring it into service effectively and to meet our obligations of duty of care and safety we need to demonstrate a level of rigour that is probably above what we would normally have to demonstrate and apply. We have had discussions with the contractor about how we might do that. Of course the difficulty is that they have stated that they have run at a loss. It is a commercial difficulty for them and their business, so there is clearly strong friction when it comes to how we might achieve that.

Senator JOHNSTON —Dr Gumley, we have been down this path on numerous occasions. What are we doing about this? I understand we have an old contract and we have a contractor who has spent a lot of money on it and has not a lot to show for it in terms of profit. We want the capability. What is the way forward here? I do not even dare ask when we are likely to see the capability.

Dr Gumley —I would be very surprised if we saw the capability inside three years. Would you agree with that, Major General?

Major Gen. Fraser —Correct. The current best result that we would expect is 2011.

Dr Gumley —And it would require a substantial sum of money. What I am observing—and I am not intimately involved in the program myself, but I am observing the behaviours of the parties—is that the company has made a substantial loss. They are cutting their burn rate as much as they dare, while still being partly engaged. The way to remotivate them is a fairly large cheque—and that is a question that the government of the day has got to make: whether that cheque is worthwhile paying, or not.

CHAIR —What order of magnitude, Dr Gumley?

Dr Gumley —That is a commercial matter, and I would not want to give away the Commonwealth’s position.

CHAIR —I understand that. We had this identical discussion last May or June. I left those discussions under the impression that the government of the day had authorised you to go off and have contract negotiations. There was a team going off to the US to do that in July or August. You thought it might take a month or so—and the ballpark figure we discussed was A$40 million to A$60 million to resolve the two issues. We now come forward to February-March, and I am hearing you now say, ‘Heaps of money, three years and minimum requirement over here for acceptance is really above contemporary safety and flying standards that you would accept in other modern contracts’. That is a qualitatively different position being outlined to us now than I understood last May or June.

Dr Gumley —I genuinely expected in winter last year that we would get there for a figure round about the $40 million to $50 million. It will be considerably higher than that, I suspect now.

Senator JOHNSTON —In the scheme of things, $40 million or $50 million, I mean, we have just talked about a couple of hundred million dollars for FFGs. I do not want to talk about numbers, because I see the commerciality of this, and it is not right to go there. But, I am not convinced that we are throwing our heart and soul into, firstly, addressing the contractual problem. Obviously, if they do live up to the contract, we are still not going to be happy. It is an old contract.

Major General Fraser —Correct.

Senator JOHNSTON —Surely the starting point is, ‘We get a contemporary contract that everybody can agree about where we need to be at the end of the contract.

Major General Fraser —The work that we have done since the decision to proceed is to quantify what we need to do to bring the aircraft into service: what is that work and what are our expectations? Then, we need to identify those parts that are within contract and those parts that are outside of contract. We are still not able to finalise that work and those discussions on what it is that truly needs to be completed.

Senator JOHNSTON —And they will not accept what you say needs to be completed.

Major General Fraser —Correct. The other important part, as the Commodore indicates, for any future work, is to make sure that it is within contemporary contractual requirements—not extension of the old contract as well in the conditions, so at least we can protect any further investment that we are making with them.

Senator JOHNSTON —But that is the same problem we have had since 1997. Even if you go down the path of a modern, contemporary contract, and you identify the things that can be done and the things that need to be attended to in terms of technical standards and insertion, you are still putting modern motor into a very, very old frame, aren’t you: the old FJ analogy. Even if you have the most modern contract to contemporary standards, the huge funding suggested by Dr Gumley, the timelines suggested of three years plus—if the government agrees to all those things—is it capable of being realised by putting it all into that frame that is now 30 or 40 plus years old.

Major General Fraser —That remains to be solved. We do not have an agreed position as to whether that is possible. There is high risk that we are not able to meet contemporary standards, no matter what work we do to this aircraft. There is some risk at this point: that is yet to be solved.

CHAIR —Is that really the fundamental issue to be resolved before anything else goes forward?

Major Gen. Fraser —Yes, it is. Can I just clarify something on your read-back of my comments about what level of safety and standards we have. We have a level of safety and standards across all of our fleets. That is a given. The point I was trying to make is that in order to bring this aircraft into service we have to meet those standards but also be perceived—even beyond not necessarily having to do it—as being able to identify an issue, go to the contractor and to say, ‘We have an issue; this is what we are going to do about it,’ and be perceived to be going beyond what is actually required in the contract or contemporary standards. It does not mean that we have to achieve a higher level of standards through the contracting.

CHAIR —This has been, probably, the most forthright discussion we have had on this—we have probably had eight or nine discussions over the last five years. It is a very forthright discussion. I now have a slightly different picture to what I had before. Why wasn’t this discussion held with us in these terms last May or June? Major General Fraser now tells us the fundamental issue is that, no matter where we want to go, it has got to fit into the old frame. That really is the fundamental issue to be resolved. Why are we now suddenly aware of this sometime between June last year and February this year?

Dr Gumley —I thought we had discussed the crashworthiness cert on several previous occasions.

CHAIR —We have. Perhaps I misunderstood, but I am hearing you say now that the issues to be identified and resolved are of such an order of magnitude now that it is going to require many, many years and significant extra sums. That had not been my impression as of May or June last year.

Major General Fraser —I think the advice that was provided to the committee last year was that it was going to take 29 months and up to $50 million to rectify the flight control system issues—essentially a three-year program. That still stands. But what we are not able to truly quantify is, once we start flying the aircraft and we have got the tactical system working, what other issues are yet to be solved to bring the aircraft into an operational capability. There are a number of things that are yet unresolved and still remain to be controlled.

Senator JOHNSTON —Have we explored the possibility of appointing a third party to work between the parties to try and get to the bottom of these things?

Major General Fraser —We have discussed that. Certainly it is an option that we will continue to look at.

Senator JOHNSTON —I know. The clock is ticking. I would like to see the capability online before the capability was due to expire.

Major General Fraser —I fully understand the need to bring this aircraft, or to get a capability for Navy, into service. But I am not going to do that and I will not take those risks that are unreasonable risks for those who fly and operate the aircraft. So I am going to need to be fully satisfied, in order to bring them into service, that we have fully addressed them. I have not yet met my obligations in the Defence Materiel Organisation to do that for our troops.

Senator JOHNSTON —We do not expect anything less of you.

Major General Fraser —That is why we are at that point where we are not able to come to a genuine answer.

Senator MINCHIN —Can I just raise the issue of termination. The minister has indicated that the government might well terminate this contract. He is certainly considering terminating it. Could the committee be briefed on what that would mean—what would be the written-off cost invested in this project to date, what exposure the Australian government would have to a suit for breach of contract by the contractor and what then might be the approximate cost of going out into the market and buying, perhaps, the off-the-shelf capability that we still presumably require.

Senator Faulkner —I am not sure how much of that can be canvassed at the committee, but I will ask officials to provide what advice can be—which I think is a reasonable way of dealing with your question. I think some elements of that simply should not be properly dealt with, and I think you would appreciate this. We do not need to go through the ancient history of these issues. You could probably ask Dr Nelson for some background on some of the issues that you have raised, given his own history with this particular project. But what I will do is to ask officials to provide what information we can in answer to your question. Some of this is simply off limits. Is that in your bailiwick, Dr Gumley?

Dr Gumley —Yes, Minister. This would affect the Commonwealth’s position if our various negotiating approaches were put into the public domain at this stage.

Senator MINCHIN —Yes. I do not want you to risk that.

Dr Gumley —I am not sure of the ministerial protocols, but, if our Defence minister was so minded and gave permission for a private briefing or something like that, that might be possible. I would recommend not putting it in the public domain.

Senator MINCHIN —I am happy with that. We can presume there is a substantial sunk cost already to be written off. The Commonwealth may well be exposed to a suit for breach of contract, and presumably there is a substantial cost then in addition in finding alternative capability.

Senator Faulkner —The difficulty in asking questions like that, which contain the presumptions they do, is that those issues remain, I think properly, unaddressed by officials. I merely make that comment in relation to the question you ask with the presumptions and qualifications it contains—I think you are aware of that. I think Dr Gumley’s response to you in the circumstance and my own caution on this is appropriate.

Senator MINCHIN —Yes. I am happy not to push it. I might seek a private briefing.

Senator Faulkner —I am happy to take that up with the Minister for Defence. I do not know what his likely response to that will be. I do not know how this was handled in similar circumstances during the life of the previous government. It is certainly something I will take up with Mr Fitzgibbon and ask him to give some consideration to. Obviously, as you would appreciate, if any such briefing were to occur, it would require the strictest confidentiality provisions.

Senator MINCHIN —Sure. I understand that.

Senator Faulkner —However, I will take that up with Mr Fitzgibbon.

Senator MINCHIN —Thank you, Minister.

Senator JOHNSTON —Dr Gumley, the last question I am tempted to ask you, because you evaluate your projects—and you have about $55 billion on the go at the moment?

Dr Gumley —It is a bit over $60 billion at the moment.

Senator JOHNSTON —What are your five worst performing projects and which ones are they, if we have not touched on them already?

Dr Gumley —That is a leading question.

Senator JOHNSTON —I ask leading questions.

Senator Faulkner —You should not, Senator, if that is the case! I am surprised that you would do such a thing. You have not defined the criteria you might apply to ‘worst performing’.

Senator MINCHIN —Dr Gumley knows what we mean.

Senator Faulkner —I think you may know more about the question you asked about Seasprights than you are letting on, too, to be honest. I let that go through to the keeper, so I thought you should have returned the compliment.

Senator JOHNSTON —What are your five most concerning projects, given all of the criteria that you apply as to risk management?

Dr Gumley —Seaspright is at the top of the list.

Senator JOHNSTON —Good. That is easily answered—we have been through that.

Dr Gumley —I am worried about the FFG upgrade and we have dealt with that today.

Senator JOHNSTON —Yes.

Dr Gumley —I am worried about the digital Vigilair project, the ground control for the Air Force. It is a software integration project which is many years late.

Senator JOHNSTON —How many dollars? What is the reference of that project?

Dr Gumley —We have done Wedgetail, which is fourth on my list. Wedgetail has the characteristics of any large-scale integration project where you are lead customer. The implication is that I suspect the capability to be delivered will have to be brought up to full capability over a number of years. That is not necessarily a disaster when that happens. There was a lot of criticism of the Collins submarines but, after three or four years of hard work to bring them up to speed from 70 per cent capability to 100 per cent, we ended up with one of the best submarines in the world. I suspect—and this is just a prediction—that Wedgetails are going to have characteristics of that because you have any number of systems to be integrated. That also has to be tied in with the ability of the users or the operators to come up to top skill level with those projects. They bring their capability up as operators at the same time as a platform is lifting. I think Wedgetail is in that sort of area. There is another development project, the radars for the Anzac frigates, the ASMD project, which is highly developmental.

Senator JOHNSTON —Is that SEA1448?

Dr Gumley —Yes.

Senator JOHNSTON —What is the Vigilair reference? Air what?

Air Chief Marshal Houston —5333.

Senator Faulkner —Senator, I think you would appreciate that if such a question had been asked during the life of the previous government, I do not think a minister at the table would have allowed an answer to be provided by an official.

Senator JOHNSTON —Why not?

Senator Faulkner —You had best ask your colleagues about that, but in the interests of transparency this has been—

Senator JOHNSTON —I have asked the question previously and was given an answer in front of my own minister. I wanted the 20 and I was offered the provision of them.

Senator Faulkner —Well, the point stands, but in the interests of transparency—

Senator JOHNSTON —We are grateful for the answer.

Senator Faulkner —I am grateful that you are grateful.

Dr Gumley —And you will notice a common theme. They are all systems integration projects.

Senator JOHNSTON —Thank you, Dr Gumley, and thank you, Chief, and all of your officials today who answered my questions.

CHAIR —While we are doing particular projects, we might get a status report on the brake problem in the M113s.

Dr Gumley —Fixed. The M113 was a project that was in difficulty but which has been recovered thanks to some fantastic work by hardworking teams of people in both the DMO and the contractors. I am pleased to report that the project is back on track again.

CHAIR —The final one I want to talk about is the ARH, the armed reconnaissance helicopter. You had better bring back Major General Fraser, I suppose.

Dr Gumley —We will get the latest update from Major General Fraser.

Major Gen. Fraser —Ten aircraft have now been accepted. The project has gained significant momentum over the last six to eight months. Twenty-two personnel have now been trained and we have flown a bit over 2,400 hours. The project is in dispute for the through-life support contract and the disagreement between the company and ourselves on what level should be paid for the through-life support work. That is currently under negotiation and continuing this week. We are expecting an outcome by the end of March as a result of those negotiations.

CHAIR —How many more have to be delivered?

Major Gen. Fraser —A total fleet of 22, so there are 12 aircraft to come. We expect the 11th aircraft will be accepted within this next week.

CHAIR —When you say that 10 were accepted, can you be more explicit in what that means?

Major Gen. Fraser —Certainly. The aircraft are able to fly by day and the weapons systems have all been fired. There is some work yet to be done to achieve full certification. I might have given you a previous example, I think, of the Hellfire and how effective that has been. There is some regression work to be done on the 30-millimetre cannon; it is an excellent weapon, but there is still some work to be done to reach full certification of those systems. We have not achieved initial operational capability and for that we stopped payment to the contractor in the middle of last year. That payment has not yet been resumed and so it is quite an impost on the company.

CHAIR —Are they continuing to work without payment?

Major Gen. Fraser —Significantly, and continuing to deliver the aircraft to us. For example, we accepted the simulator in December last year, so they are meeting their obligations well in continuing to produce and deliver equipment to us. We have also accepted four of the ground training devices, for example, since that stop payment, but it is hurting them and that is why we are in negotiation to try to finalise this quickly.

CHAIR —What do we think is the current forecast time delay before all 22 are both accepted and meet performance standards?

Major Gen. Fraser —You might recall, Senator, from previous discussions that the training that was initially to be done in France before they came to Australia ended up being two years behind schedule. That two years has essentially flowed right through the program, so it is about a two-year delay that we see throughout the program—at least to achieve initial operational capability for the first squadron. There is just a chance that we might be able to recover some of that schedule for the full capability—the 22 aircraft for the full regiment capability—by some of the initiatives we are taking with lead-in skills training. We sent some crews across to France and they trained two for us last year, which was a great benefit to us. The French equivalent of DMO, called DGA, has been outstanding in addressing our technical issues to bring the aircraft into service.

Senator TROOD —I am interested in the Bushmasters upgrade capability, the protective work that has been going on. Has that been completed?

Mr Sharp —Can you state the question again, please.

Senator TROOD —The protective upgrades on the Bushmasters—$69 million I think it is in the budget.

Mr Sharp —A range of upgrades have been completed with Bushmaster for operations. The level of protection is being enhanced through rapid acquisition of an additional 72 protected weapon stations, 116 fire explosion suppression systems and 116 purpose-designed spall liners to protect inhabitants of the vehicles.

Senator TROOD —Has that been completed?

Mr Sharp —No, it has not; it is under way.

Senator TROOD —Is it on time?

Mr Sharp —Yes, it is.

Senator TROOD —There is some good news here, is there not, about the export of Bushmasters?

Mr Sharp —Yes, there is.

Senator TROOD —Perhaps you could give the committee some good news on this subject.

Mr Sharp —Since the recovery of the Bushmasters contract after the initial splutter in 1999, Thales have been doing well with the first phase of the delivery of the vehicles. The initial one was for 299 vehicles and then upgraded to 300. Since then we have added an enhanced land force requirement, which will bring the total up to 723 vehicles under enhanced land force plus phase 3 of Overlander. So the vehicles will be used to fill some of the capacity for phase 3 of the Overlander vehicles, which is another project. So, in all, the production is going well at ADI and it ensures that they have their order book full for a couple of years and they are also producing capability for the ADF. So that is going well and is on schedule.

Senator TROOD —So that covers the export dimensions?

Mr Sharp —No. There was a potential for Thales to expand overseas in two areas. One was successful and one is undergoing negotiations. I am not aware of those details, but certainly there were 25 vehicles that were for the Dutch armed forces. We allowed our production vehicles to go to that sale and in compensation we were given 26 vehicles back. That brought the 299 up to 300, at no cost to us, of course.

CHAIR —I have one final question for you, Dr Gumley. You will recall discussions at the JCPAA on the joint proposal between yourselves and ANAO for agreement on the guidelines for the top 30 projects. Can we have a status report on those negotiations?

Dr Gumley —Negotiations have been successful. We have a scope of work. We are working cooperatively with the Audit Office. I think we are doing a smaller number this first year to test the system; I think it is eight or nine audits to test the system. The issue for the Audit Office is that it is not just a matter of being like a traditional performance audit; it is a matter of them coming in and evaluating our underlying systems, how we measure the goodness of capability and those sorts of systems. There is a joint group going to the US and the UK next month to look at the way the British and the Americans do their equivalent audits and it has been a good cooperative program led by general manager Jane Wolfe in DMO, who is doing a good job working with the audit office.

CHAIR —So this issue is now resolved both in principle and in substance?

Dr Gumley —There is a little bit of detail still to work out, but it is not in any way confrontational; it is very much cooperative. The Auditor-General will be the auditor and will determine what he wants to find, but we are doing our best to work with the needs and wants expressed by the Auditor.

Senator Faulkner —Senator, you might be interested in evidence provided by the Auditor-General himself during examination of the estimates of the Department of the Prime Minister and Cabinet, who canvassed these issues from the perspective of the ANAO. I think that is complementary evidence to that being provided by Dr Gumley. I commend it to you.

CHAIR —That was this week?

Senator Faulkner —Indeed.

CHAIR —I will dig that out. Thank you for that. That means, I presume—and this is now subject to cabinet decision of the new government on the funding for the million dollars per annum coming forward in the May budget—that we have a system to identify the top 30 projects now going forward.

Senator Faulkner —Ms Wolfe will assist you on that.

Ms Wolfe —We have agreed an initial approach to deal with four projects between now and the end of February. Work is underway on the third project this week, and next week the last of those four projects will be finalised. We will then use the feedback from those four projects to assess the template that we agreed with the National Audit Office and put before JCPAA, finetune it a bit and do five more projects with the ANAO. We are looking to have the report on those nine projects through the normal process by the end of October and in parallel, as Dr Gumley said, meet with our UK and US counterparts to see if there are any other ways to finetune the approach.

CHAIR —That is good news.

Senator HOGG —So the information will not be available for the budget estimates this year but will be available at the additional estimates? Is that the way to read that?

Ms Wolfe —At this stage, yes.

Dr Gumley —It is going to settle down to be an enduring annual cycle. In a couple of years from now, you will be getting 30 projects running. We still have a little bit of work to do on working out how to refresh the top 30—

Ms Wolfe —We do.

Dr Gumley —and the criteria for what drops in and what drops out. I remember the concerns that you expressed at a previous committee meeting.

CHAIR —Once they are in, I think the committee wanted them to stay in.

Ms Wolfe —That is correct, and that is one of the things the UK might be able to help us with, given they have got a 25-year history of what is in and what is out of their annual process.

CHAIR —And the definition of a project was an issue. We used the example of the AWDs or the LHDs, where we have spent many billions and they really comprise a whole heap of subprojects.

Ms Wolfe —Yes.

Senator HOGG —And will what you produce be in a readable format for members of the committee? So many of these reports become so complex that no-one can understand them.

Ms Wolfe —We are looking to model them on the UK approach, which is a template so that you can find the same information for every project in the same place, and then a short, very readable summation at the beginning of each year’s report.

Senator HOGG —And it is not something that is going to change with time?

Ms Wolfe —No.

Senator HOGG —It is something that should be reasonably static.

Ms Wolfe —That is right. You will be able to follow a project year by year.

CHAIR —I suppose it is too early to say whether a decision has been made about where you are going to publish the information—annual report or these or a separate document.

Ms Wolfe —That has yet to be agreed with ANAO.

Dr Gumley —It is an ANAO document; it will really be their decision.

Ms Wolfe —After we do the first four and we know what it is starting to look like, that will be part of the process of finalising the report and then publishing it in line with the ANAO’s usual publication cycle.

CHAIR —So it will be an ANAO document?

Ms Wolfe —Yes, or in line with that.

CHAIR —Are there further questions from members of the committee?

Senator SANDY MACDONALD —On this rogue satellite that is flying around the world: are we in the loop and do we have any idea where it is going to land?

Air Chief Marshal Houston —We certainly are in the loop. We do not have the lead on this; Emergency Management Australia leads the Australian response. All agencies in government are working closely with EMA and we are postured for whatever might be required if any part of it comes down in Australia. The main concern is the hydrazine that the satellite is carrying. I understand that is the major reason it is required to be shot down. We are in a loop and I am very comfortable with where we sit at the moment.

Senator SANDY MACDONALD —Dr Gumley, can you give a report on the C17 delivery?

Dr Gumley —The C17 program has been stunningly successful. The aircraft are already being used in operations by the CDF and his team. We are fitting out the C17s with a final bit of their electronic protection kit over in the US. I think we are in a good position.

Senator SANDY MACDONALD —It is on time and on budget?

Dr Gumley —It is on time and on budget.

Senator SANDY MACDONALD —That is early, isn’t it?

Dr Gumley —Yes, it is early. We do not actually do very much talking about early projects, do we? But there have been a few.

Senator SANDY MACDONALD —I would just like to say that I gave you a bit of help there, Dr Gumley.

Senator Faulkner —We nevertheless do a lot of talking, Senator.

Senator SANDY MACDONALD —I was worried you were not going to take up the opportunity, Dr Gumley. I do have two very brief questions to the CDF. One concerns the Reserve rotation to the Solomon Islands.

Air Chief Marshal Houston —What would you like to know?

Senator SANDY MACDONALD —Was it successful?

Air Chief Marshal Houston —Absolutely.

Senator SANDY MACDONALD —Is there another Reserve rotation planned?

Air Chief Marshal Houston —We have now had four rotations to the Solomon Islands. It has been a company-level deployment and we will continue it into the future as long as we are in the Solomon Islands. It has been a raging success; they have done very well. It has really helped us through this period of very high operational tempo where we have had a lot of concurrency issues, so I am absolutely delighted with how it has gone.

Senator SANDY MACDONALD —Thank you, CDF. The final question I have revolves around cadet policy. I am delighted that the ALP said in their election manifesto that a vibrant and well-equipped cadet program will continue. I am tempted to ask the minister at the table what he means by that. I am pleased it is regarded as vibrant and well equipped, but I am interested to know whether there is a commitment to maintain the Cadet Enhancement Program and the $100 million expanding cadets initiative that was announced in the budget last year.

Senator Faulkner —I am not clear on what the question is.

Senator SANDY MACDONALD —I would like to have your reaffirmation of the importance of the cadet program and an understanding from you that there needs to be a continued focus on what is regarded as a very important aspect of recruiting, in view of the large number of former cadets who are at ADFA and in general enlistment. It seems a very effective way to spend money in terms of focusing community involvement on the defence forces. I think over the years it has been a wasted opportunity not because there has not been a large amount of goodwill extended to cadets and their management but just because it is quite a problematic field. There are some opportunities that should be developed and expanded, I am sure.

Senator Faulkner —Thank you, Senator. I think I can say to you that the views that you have expressed about the critical importance of cadets in relation to recruitment is right; that is of course the case. My understanding is that there are also measures to ensure that it is being used to encourage and enhance Indigenous recruitment to the ADF, which is of course also a positive step.

This is quite vital. It is quite critical in terms of recruitment. In a broader sense, the government remains committed to the commitments it made prior to the election. I can assure you that I can give you a positive response in relation to that broad approach by the government. Perhaps CDF or another witness may care to respond more fulsomely in relation to the significance of cadets. If you are satisfied with my response we can leave it there but if you need any more information we can provide it.

Senator SANDY MACDONALD —I am happy with your response. I just think it is important to keep it on the radar, and I have done that today.

Senator Faulkner —Its significance and importance, as you have noted, is accepted.

CHAIR —I have some good news and some bad news. We are just waiting for Senator Allison to arrive, although we did advise her office some 15 minutes ago—

Senator Faulkner —Is that the good news or the bad news?

CHAIR —The good news and the bad news is coming. I am advised that Senator Allison simply wishes to ask questions about channel deepening, FA18s, health and vaccination and cluster munitions. Apart from that, we are done. So, we will go to Senator Trood and then we are done.

Senator Faulkner —Let us be clear. Does that mean we can tell officials and officers who are not in those areas that they can be excused?

CHAIR —Correct. Officials in the area of channel deepening, FA18s, health and vaccinations, and cluster munitions should remain, subject to what Senator Trood—

Senator TROOD —I have very quick questions. One of them is for you, minister. There is a clause in your party’s policy offering the prospect of greater and more effective oversight of the major defence acquisition program. I wonder if you are aware of whether the minister has turned his mind to how that parliamentary oversight might take place?

Senator Faulkner —I think that is something I would prefer to allow the Minister for Defence to respond to. Can I say this, however: the government is very strongly committed to the accountability mechanisms of the parliament. We are committed to more transparency in relation to these processes and we are committed to a greater role for the parliament. I think you know my own commitment to Senate accountability processes. I have not changed my view about the significance of the forum in which we are sitting at the moment. I think this particular forum—the Senate estimates process—is the best accountability mechanism that the federal parliament has. I think many parliamentarians would share that view. I did not change my view in 1996, when I went from this side of the table to the other side. And I certainly have not changed my view having seen a new government elected.

I happen to believe, Senator, very genuinely, that these mechanisms are critically important, not only for oppositions—because primarily, as you understand, the Senate estimates forum is an opposition or non-government forum. They are also important for governments, important for officials and important for ADF personnel. I acknowledge that and I believe others are very acutely aware of that on this side of the table too. So I certainly reinforce that very strongly. But I do believe on this occasion it is appropriate for the Minister for Defence to speak about that commitment and it is not for me, representing him in the Senate, to do that on his behalf. I am sure you understand why I say that. I do say that in the clear context and understanding that the government has a real and genuine commitment to accountability and transparency, which I believe you will see very clearly as this parliament progresses.

Senator TROOD —Thank you for that assurance, Minister. I look forward to seeing that come forward. One other matter, which is rather parochial, but as a Queenslander I feel obliged to explore—the $26 million for the relocation of the Amberley State School. Can anybody speak to me about that, please?

Mr Warner —We can answer your questions on that, yes.

Senator TROOD —Thank you. I am particularly interested in knowing whether or not the money has been transferred, and whether or not Defence retains any discretion over the location of the new school.

Mr Owens —The money has not been transferred as yet, and the location of the school is a matter for the Queensland state government—but we are in negotiation with the Queensland government. Martin, would you like to add anything to that?

Mr Bowles —Sorry, I missed the question.

Mr Warner —Senator, that is the answer to the question.

Senator TROOD —My understanding is that there is very substantial controversy over this matter—in particular, the desire of the Queensland government to relocate the school to a place which will not serve Defence families, whose interests are most at risk as a consequence of the need to relocate the school. I am just wondering whether or not you are aware of that controversy and whether or not you propose to intervene in the matter.

Mr Warner —We understand that there is a debate and a discussion going on about the location of the school and that some people are happy and some people are unhappy, but this is not a question that can be answered by Defence. Where the Queensland government put their schools is an issue for them.

Senator TROOD —Okay. Thanks.

CHAIR —The secretariat has been advised by Senator Allison’s office that the questions she wished to ask she will now put on notice.

Senator Faulkner —That is undoubtedly the good news!

CHAIR —That is the good news, and that is the only news. I thank CDF and the secretary and their officers for attending today. The committee will be suspended until 7.30 pm, when it will resume for Veterans’ Affairs.

Proceedings suspended from 5.53 pm to 7.32 pm

 [7.32 pm]