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Foreign Affairs, Defence and Trade Legislation Committee - 29/05/2012 - Estimates - DEFENCE PORTFOLIO

DEFENCE PORTFOLIO

In Attendance

Senator Feeney, Parliamentary Secretary for Defence

Department of Defence

Mr Duncan Lewis AO, DSC, CSC, Secretary

General David Hurley AC, DSC, Chief of the Defence Force

Mr Simon Lewis PSM, Chief Operating Officer

Outcome 1—The protection and advancement of Australia’s national interests through the provision of military capabilities and promotion of security and stability

Program 1.1—Office of the Secretary and Chief of the Defence Force

Mr Brendan Sargeant, Deputy Secretary Strategy

Mr Neil Orme, First Assistant Secretary, International Policy Division

Mr Michael Shoebridge, First Assistant Secretary, Strategic Policy Division

Ms Rebecca Skinner, First Assistant Secretary Ministerial and Executive Coordination and Communication

Ms Shannon Frazer, Acting Head Strategic Reform Management Office

Mr Angus Kirkwood, Assistant Secretary Arms Control Branch

Program 1.2—Navy Capabilities

Vice Admiral Ray Griggs AM, CSC, RAN, Chief of Navy

Program 1.3—Army Capabilities

Lieutenant General David Morrison AO, Chief of Army

Program 1.4—Air Force Capabilities

Air Marshal Geoff Brown AO, Chief of Air Force

Program 1.5—Intelligence Capabilities

Mr Steve Meekin, Deputy Secretary Intelligence and Security

Mr Ian McKenzie, Director Defence Signals Directorate

Mr Frank Colley, Chief Security Officer

Program 1.6—Defence Support

Mr Mark Jenkin, Acting Deputy Secretary Defence Support

Mr Mark Cunliffe PSM, Head Defence Legal

Ms Alison Clifton, Acting Head Defence Support Operations

Mr John Owens, Head Infrastructure Division

Mr Mark Sweeney, Acting Head of Reform and Corporate Services

Program 1.7—Defence Science and Technology

Dr Alex Zelinsky, Chief Defence Scientist

Dr Ian Sare, Deputy Chief Defence Scientist (Platform and Human Systems)

Program 1.8—Chief Information Officer

Mr Greg Farr PSM, Chief Information Officer

Mr Matt Yannopoulos, Chief Technology Officer

Mr Clive Lines, First Assistant Secretary Information and Communications Technology Reform

Major General Michael Milford, Head Information and Communications Technology Operation

Mrs Anne Brown, First Assistant Secretary Information and Communications Technology Development

Program 1.9—Vice-Chief of the Defence Force

Air Marshal Mark Binskin AO, Vice Chief of the Defence Force

Air Vice Marshal Kevin Paule AM, Head Military Strategic Commitments

Commodore Mark Sackley, Director General Strategic Logistics Branch

Rear Admiral Robyn Walker AM, Commander Joint Health Command

Air Vice Marshal Neil Hart, Head Joint Capability Coordination

Brigadier William Sowry CSC, Deputy Head Cadet, Reserve and Employer Support Division

Major General Craig Orme AM, CSC, Commander Australian Defence College

Program 1.10—Joint Operations Command

Program 1.11—Capability Development

Vice Admiral Peter Jones AM, RAN, Chief Capability Development Group

Major General John Caligari, Head Capability Systems

Ms Kate Louis, Acting First Assistant Secretary Capability Investment and Resources

Program 1.12—Chief Finance Officer

Mr Phillip Prior, Chief Finance Officer

Mr Adam Culley, Acting First Assistant Secretary Resources and Analysis

Program 1.13—People Strategies and Policy

Ms Carmel McGregor, Deputy Secretary People Strategies and Policy Group

Major General Gerard Fogarty, Head People Capability

Ms Phillipa Crome, Head People Policy

Mr Craig Pandy, First Assistant Secretary Human Resources Reform

Mr Neville Tomkins, First Assistant Secretary Defence People Solutions

Program 1.14—Defence Force Superannuation Benefits

Program 1.15—Defence Force Superannuation Nominal Interest

Program 1.16—Housing Assistance

Program 1.17—Other administered items

Outcome 2—The advancement of Australia’s strategic interests through the conduct of military operations and other tasks as directed by the Government.

Program 2.1—Operations contributing to the security of the immediate neighbourhood

Program 2.2—Operations supporting wider interests

Outcome 3—Support to the Australian community and civilian authorities as requested by the Government.

Program 3.1—Defence contribution to national support tasks in Australia

Department of Defence—Defence Materiel Organisation

Mr Warren King, Chief Executive Officer, Defence Materiel Organisation

Mr Harry Dunstall, Deputy Chief Executive Officer, General Manager Commercial

Ms Shireane McKinnie PSM, General Manager Systems

Mr Andrew Cawley, Acting General Manager Programs

Air Vice Marshal Chris Deeble AM, CSC, Program Manager Collins and Wedgetail

Air Vice Marshal Kym Osley AM, CSC, Program Manager New Air Combat Capability

Mr Peter Croser, Acting Program Manager, Air Warfare Destroyer

Rear Admiral Rowan Moffitt AO, RAN, Head Future Submarine Program

Air Vice Marshal Colin Thorne AM, Head Aerospace Systems Division

Rear Admiral Mark Campbell CSC, RAN, Head Helicopter Systems Division

Rear Admiral Peter Marshall AM, RAN, Head Maritime Systems Division

Major General Grant Cavenagh AM, Head Land Systems Division

Mr Anthony Klenthis, Head Explosives Ordnance Division

Mr Michael Aylward, Head Electronic Systems Division

Mr Mark Reynolds, Head Commercial and Industry Programs

Mr Steve Wearn, Chief Finance Officer Defence Materiel Organisation

Brigadier David Shields, Director General Land Manoeuvre Systems

Brigadier Greg Downing, Director General Land Vehicle Systems

Brigadier Mike Phelps, Director General Integrated Soldier Systems

Mr Ian Donoghue, Director General Defence Disposals Agency

Outcome 1—Contributing to the preparedness of the Australian Defence Organisation through acquisition and through-life support of military equipment and supplies.

Program 1.1—Management of Capability Acquisition

Program 1.2—Management of Capability Sustainment

Program 1.3—Provision of Policy Advice and Management Services

Committee met at 9:01

CHAIR ( Senator McEwen ): Good morning everybody. Welcome back. We are still in program 1.3, Army Capabilities.

Senator FAWCETT: The minister, when he was announcing the budget, talked about a number of programs that had been deferred or cancelled. The rationale for cancelling was that either strategic circumstances had changed or new capability options had come along to supersede them. Going to the self-propelled artillery, could you tell me what strategic circumstances have changed or what new capability has replaced the requirement for the self-propelled howitzer?

Lt Gen. Morrison : The issue around strategic circumstances changing will be addressed under the white paper. The cancellation of the self-propelled howitzers was made by me, obviously in consultation with the CDF, as a result of the requirement to find money to enable the government to bring the budget back into surplus. It was done recognising that, while there was a desired capability that would be provided by SPH, that capability could be provided in another way by the procurement of additional M777s. Those M777s have been introduced into service and are currently in service with all of the artillery regiments in the Australian Army. But it was spread across the force to allow for the key requirement or the key capability that 777s have, which is allowing the guns to be digitised and to operate within a digitised battlefield management system.

Senator FAWCETT: In terms of a comparative capability, if weight of fire is your output, how many of the towed guns are required to achieve the same weight of fire as a self-propelled howitzer?

Lt Gen. Morrison : I do not have an empirical answer to that question. One of the great advantages to self-propelled guns is that they have an automatic loading system, which allows a much higher rate of fire than can be produced by a towed gun, which requires a larger crew—nine as opposed to two—and has to be reloaded manually each time a round is fired from it.

Senator FAWCETT: Where is the crossover point for NPOC, if we have a quite significantly larger crew as well as the requirement for the gun tractor, in terms of through-life costs when the towed howitzer becomes a more expensive option than the self-propelled gun?

Lt Gen. Morrison : It depends a little bit on what you determine as the life of the type of weapon system. At this stage, it would be envisaged that the M777s or the self-propelled howitzers would have a working life of somewhere around 20 years. There is certainly a crossover point during that time where it becomes more expensive in terms of net personnel costs to operate the M777s than the SPH. But that has to be offset against other matters as well such as the operation of the vehicles. Whether that was going to be more expensive in terms of operating costs, I could not answer. There is a crossover point; you are quite correct. The judgment I made, though, was that it would be a calculation that would see an amortisation, if you like, of those net personnel costs done over a 20-year period. It would be managed across defence's budget in that time frame. The real issue was that, in terms of dollars, money was already identified to be spent for the self-propelled capability inside the forward estimates period and you could make that money available back into the portfolio for the CDF and the secretary, in discussions with government, to decide what they would do with it while at the same time still having enough money to buy additional M777s so that all of the artillery units in the Australian Army would be equipped with a modern gun capable of operating in a modern battle space.

Senator FAWCETT: What level of protection is afforded to the gun crews in the towed solution compared to self-propelled?

Lt Gen. Morrison : They have armoured protection. It is armoured protection similar to that of a heavy armoured vehicle like a tank. Compared with the protection afforded to a crew operating a towed gun in the open without anything other than perhaps the individual protective armour worn the difference is quite significant.

Senator FAWCETT: Quite apart from the human cost of casualties, has defence ever calculated the costs of repatriation, rehabilitation and ongoing care of wounded soldiers?

Lt Gen. Morrison : I am sure those figures exist in the data that has been taken from our last 12 years of operations, but I do not have those figures available to me.

Senator FAWCETT: In terms of capability, are the towed howitzers able to keep up with mechanised infantry in the same way that that a self-propelled howitzer would be able to?

Lt Gen. Morrison : Provided there are semi-formed roads, yes, they would be capable, like the current guns that we have or the ones that have just been taken out of service, of being towed behind trucks with a degree of cross-country mobility. But, again, the level of mobility as compared with a self-propelled gun will be less.

Senator FAWCETT: So, in summary, would it be an accurate statement to say that the government's drive for a budget surplus has resulted in Army having to take a decision that will see a capability that is less capable, more expensive in the long term and will expose troops to greater harm than the solution that has been on the books for a number of years now and has been well thought through by defence?

Lt Gen. Morrison : I do not believe that there is any need to prevaricate in answering. The simple answer is yes. But I am sure you appreciate that nothing is simple when you are talking about the management of a very large and complex budget that is appropriated and spent relative to the nation's economy and the national budget. There were definitely decisions that I as a service chief made that were affected by the government requirement to bring the budget back into surplus. That was a decision that I made and still stand by, because in my view there was an acceptable replacement to provide for the long term indirect fire within a modern battle space as it can be envisaged over the next two decades.

Senator FAWCETT: I understand; and I accept that point. However, the fact is that, in terms of long-term value for money because of the NPOC, the self-propelled howitzer is probably cheaper for the taxpayer. That means it is the political imperative. I understand the difficulties you face in that, but I think it is appropriate to put on the record that, because of the short-term political priorities of the government, Defence has been placed in a very difficult position in terms of the choices it has had to make. Thank you.

Gen. Hurley : I think your summation overlooks some of the processes we need to go through. In one sense, the decision is akin to having to go forward on every capability decision with a MOTS solution and people saying MOTS is the solution all the time, because, for example, for the ADF, there is less risk in bringing it on board; it is a tried system and so forth. You know as well as I do that MOTS systems are often not the fit that we need for an organisation. We do have a MOTS solution that we are bringing in; it is the M777—a system we know. In terms of your point about mobility protection for forces and so forth, we are well versed, tactically, in how to employ medium artillery: how to move it, how to protect it and how to defend it. Again, we do not come into this, having bought a new gun, without any idea about how we are going to apply to the field—how you position it. Of course, you think differently, tactically, when you have towed guns as opposed to self-propelled guns, in terms of time and space of movement, positioning and so forth. There are different approaches to doing the business. Our confidence in being able to employ a towed gun is still high. The nature of the decision we had to make is, in a sense: if you had a choice and you had only so much money, where would you go? We have a choice and we only had so much money, so we went with a system that we knew, already had in place and that is tactically common to what we have done for the last 20 years.

Senator FAWCETT: CDF, I accept your comments. I have no doubt at all, in fact I am well aware, that Army is very well versed in using towed indirect fire support weapons. My point is that that lack of money is a short-term problem. In terms of the life of type, the solution you have been forced to go down is actually going to cost the taxpayer more. It obviously has been Defence's position that the towed howitzer is a better solution for Defence. Am I correct in thinking that the program started off around 2008, when tenders were lodged?

Gen. Hurley : I think it is in that order.

Senator FAWCETT: How many trips since then has Defence made to Korea to look at the option? Can you tell me how much money Defence has spent in reaching the point where its advice to government was that the self-propelled howitzer was the preferred solution?

Gen. Hurley : I think that is an irrelevant argument. For every capability decision we bring to government, if we have three or four options we will be going out to the market in all those places. If we were working self-propelled guns or towed guns, we would still be doing the same sorts of issues. It is a sunk cost. That is what it takes to get to make a decision. If we did not have that behind us, how would we ever have made the decision we have made? We have to get out—

Senator FAWCETT: It is not a criticism of Defence. I recognise that you spent that money.

Gen. Hurley : I understand that, but these are practices we need to go through.

Senator FAWCETT: But, in terms of the government making good use of taxpayers' money, that sunk cost is an unnecessary waste, and I would like to know how much Defence has spent, which is now a wasted, sunk cost, in bringing to government a clear recommendation that the self-propelled howitzer was the preferred solution.

Mr D Lewis : Mr King might be able to help.

Mr King : We have spent $11 million on the project.

Senator FAWCETT: Thank you.

Senator JOHNSTON: I would like to go back to Navy, please. I think we have got some follow-up from yesterday. Admiral, regarding the rollovers with the Juliet 3, what can you tell us about the current state of that boat?

Vice Adm. Griggs : On 27 July last year, one of the Juliet 3s, as you describe them—a jet RHIB; so it is not a propeller RHIB; it is a jet propulsion RHIB—was transferring eight members of the Defence Force Remuneration Tribunal, with two crew, from HMAS Maitland, one of our patrol boats, to HMAS Darwin. During that transfer, the RHIB shipped a large amount of water over the bow and capsized, resulting in all 10 occupants of the boat being in the water.

Senator JOHNSTON: What was the sea state at the time?

Vice Adm. Griggs : The sea state, I believe, was quite low. I think it was around sea state 3. It was not a significant factor. The significant factor was the speed at which the transfer was done. What we have discovered within the patrol boat force is that the jet RHIB, because it does not have a propeller, has less directional stability at low speeds. The frigate was doing the standard speed for a boat transfer, unaware of what we had learnt within the patrol boat force—they do not interact in this way very often—that they needed to be doing this at a higher speed. A propeller RHIB has much more control at low speed. With a jet RHIB it is effectively a big bucket that is turned in one direction or another, so it is much less responsive and you lose directional stability, which is what happened in that incident. Following the incident, Comcare put a prohibition notice in place, on 2 August—

Senator JOHNSTON: Just before we go to the prohibition notice, we have got 10 people in the water. Whereabouts did this occur?

Vice Adm. Griggs : It was off Darwin Harbour.

Senator JOHNSTON: Was it actually in the harbour or outside the harbour?

Vice Adm. Griggs : It was in the approach, as I understand. And they were subsequently recovered.

Senator JOHNSTON: How were they recovered?

Vice Adm. Griggs : By another boat.

Senator JOHNSTON: Another RHIB?

Vice Adm. Griggs : Another RHIB.

Senator JOHNSTON: From a patrol boat?

Vice Adm. Griggs : I believe it was the patrol boat's other RHIB.

Senator JOHNSTON: Was this boat adjacent to the gunwale of the frigate?

Vice Adm. Griggs : It was alongside the frigate when the incident occurred, yes.

Senator JOHNSTON: What was the speed of the frigate at the time?

Vice Adm. Griggs : It was less than eight knots, which is the normal speed that the frigates do their boat transfers at. In fact, it needed to be above eight knots.

Senator JOHNSTON: So these people fell into the water adjacent to the gunwale of a frigate doing about eight knots?

Vice Adm. Griggs : Less than eight knots. I am not sure of the exact speed.

Senator JOHNSTON: And they went out the back?

Vice Adm. Griggs : To the side.

Senator JOHNSTON: Were they all wearing life jackets?

Vice Adm. Griggs : They were.

Senator JOHNSTON: Were there any injuries?

Vice Adm. Griggs : No, I do not believe there were. There was some grazing and bruising but no injuries.

Senator JOHNSTON: So they were recovered by the second RHIB.

Vice Adm. Griggs : That's correct.

Senator JOHNSTON: And what happened to them then?

Vice Adm. Griggs : They were then taken back to Darwin and a number of them were taken to hospital for observation, just to check them out and make sure there were no issues.

Senator JOHNSTON: How old were these people?

Vice Adm. Griggs : They were mostly in their 40s and 50s, and possibly 60s—that sort of age.

Senator JOHNSTON: Goodness. So, as a result, Comcare put a prohibition notice on the Juliet 3?

Vice Adm. Griggs : They put a prohibition on 2 August, which had two conditions. One was that attaching or connecting a water-jet propelled RHIB with a boat rope and what is called a Ronston quick-release shackle to other vessels that were underway was prohibited. The second was that interaction between RHIBs and vessels which are operated by crews who are unfamiliar or not trained in the operation requirements of water-jet RHIBs was prohibited. With respect to the crew of the RHIB, the coxswain and the bowman were both appropriately trained; but the point of that one was the unfamiliarity between the operations of the frigate and the patrol boat, hence that sort of siloed approach that led to that unfamiliarity.

Senator JOHNSTON: We have been operating this particular RHIB for at least five years.

Vice Adm. Griggs : I think that is correct. It is of that order.

Senator JOHNSTON: Why are we having this problem now?

Vice Adm. Griggs : We had a couple of issues in 2010 and 2011 using this RHIB. I do not know the answer to why is it happening now.

Senator JOHNSTON: Well, we have done some modifications to it, have we not? We have built up the seats—they are higher; we have put more people on board.

Vice Adm. Griggs : Yes. The issue here is that the causal factor was not boat stability; it was the speed of the transfer. So in this instance the issue is not about the modifications causing a change in stability. But what I think we have learnt from this is that, because of those changes we have made, we need to be very careful about how we load the RHIB—where people sit. What happened in this instance was that there were too many people too far forward so, when the boat lost directional stability, it allowed the bow to go into the water and chip the water over the bow, which caused the capsize.

Senator JOHNSTON: I am led to believe the New Zealanders are having similar problems.

Vice Adm. Griggs : There was an incident on HMNZS Canterburyshortly after she was commissioned, where a sailor was killed. That was not the Juliet 3 RHIB—in fact, my understanding is that the New Zealanders replaced their previous RHIBs with the Juliet 3 following that incident.

Senator JOHNSTON: Okay. What is the status of the boats today?

Vice Adm. Griggs : Two days after the prohibition notice was issued, the fleet commander provided some very detailed guidance on the operation of jet RHIBs. That was the interim guidance, so we could continue to operate. At the same time Comcare launched an investigation into the incident. We also had two investigations. One was a maritime safety investigation, so it was done with a safety focus rather than an administrative process. That was launched. We also had an officer's inquiry into the broader aspects of the incident. In September Comcare issued an improvement notice, which had 10 things that we needed to do. They were all completed.

Senator JOHNSTON: What were the 10 things?

Vice Adm. Griggs : I will paraphrase the 10, because they are quite long: create adequate and appropriate hazard identification and risk-assessment arrangements; build into current RAN training regime information and instruction regarding the use of water-jet RHIBs and their operational interactions with other vessels; build into current RAN training regime information and instruction regarding vessel speeds; create adequate and appropriate hazard identification and risk-assessment arrangements for the transfer of civilian personnel; amend current Defence training documents operating instructions for water-jet RHIBs to prohibit the use of a ship's boat rope or tether of the bow; give detailed consideration and decide whether to develop and emergency release device on the Ronstan shackle; inspect and examine all RHIBs used by the ADF to ensure that all self-righting devices are currently fit for service and will operate when activated; give detailed consideration to, and decide on the need for, fitting the vessels with self-righting devices that automatically inflate; build into the current RAN training regime for boat crews simulated capsize training; and provide documentary evidence to Comcare that all above actions have been taken within the relevant time period—which was 100 days from 5 September.

And, as I said, Navy's response to that was passed back to Comcare in December last year.

The maritime safety inquiry was also closed out at the end of last year. Presently, the Comcare investigation is nearing completion. We are expecting to see a first cut of that for our comment next month. But the boats are operating. I have, separately, asked my capability team to look at the whole issue of these RHIBs. What we really faced here, Senator, was we had a new boat, which was contractor-provided, that looked very much like the old boat and I think we did not do a good enough introduction-into-service process for this jet RHIB when it came into service. I think that, had we done a better job of that, we would have avoided some of these issues.

Senator JOHNSTON: Can you tell me when your inquiry is going to report, or has it already reported?

Vice Adm. Griggs : Our inquiry officer has reported. I think the findings are with the fleet commander at the moment. Out of that was more direction on the use of boat ropes, so they have effectively all found the same sorts of things—the safety inquiry and the inquiry-officer's inquiry. But the inquiry officer focused more on making sure we tidy up the documentation, which also lines up with the improvement notice from Comcare.

Senator JOHNSTON: Is there not a weight issue with these boats, given the reconfiguration of them recently?

Vice Adm. Griggs : My understanding is no, but I will confirm that.

Senator JOHNSTON: The davit problem is what prompts me to say that. You are wearing your davits out on your—

Vice Adm. Griggs : No, I do not believe there is any association with that at all. The issue about weight, in my understanding, relates to the distribution of weight when we load passengers into the boat.

Senator JOHNSTON: Okay. Thank you, Chair. I am happy with that.

CHAIR: Thanks, Senator Johnston. Are there any further questions for Navy?

Senator IAN MACDONALD: Chair, can I just make an inquiry?

CHAIR: Yes, Senator.

Senator IAN MACDONALD: When we finished last night we were dealing with Indigenous soldiers. Is 1.3 the right area? Someone mentioned we should go somewhere else.

Mr D Lewis : Senator, we can do it this morning—we have General Fogarty and Carmel McGregor here. Do you have the answers, David?

Lt Gen. Morrison : I have a point, Senator. You asked last night about the regional force surveillance list—

Senator IAN MACDONALD: First of all, erroneously I was referring to what was given to me as a question on notice from Senator Eggleston. It turns out that was the wrong bit of paper.

Lt Gen. Morrison : It was still a very good question, Senator!

Senator IAN MACDONALD: Yes. Well, it was even better because it was asked by me!

CHAIR: Could I just clarify, Senator Macdonald: we have finished with Navy and now we are back to Army capability. Is that right?

Senator IAN MACDONALD: Yes, sorry Chair.

CHAIR: That's all right. We are on 1.3 and you have the call.

Senator IAN MACDONALD: Okay. It is where we finished off last night, and there was some confusion—in my mind, anyway.

Lt Gen. Morrison : If I could clarify that now, Senator, it would perhaps also give context to other questions you may have about where we are trying to increase the participation of Indigenous people in the Defence Force.

Senator IAN MACDONALD: Absolutely.

Lt Gen. Morrison : Regional force surveillance units, as you know, operate in remote areas of northern Australia. In consideration of the unique nature of the population size and its dispersion throughout their areas, there are special provisions that have been made for RFSU personnel. Some of the people who want to join our regional force surveillance units cannot meet the normal Army Reserve general conditions of entry and service. They really sit around matters of literacy, numeracy and health standards. But they are otherwise suited for the role that we want them to play and the tasks that are undertaken by the RFSUs. These members can be appointed or enlisted under special conditions into the Army Reserve Regional Force Surveillance List, which allows them to be members of the RFSU without having some of the education or health standards that apply more generally.

I should make the point here that there are Indigenous and non-Indigenous people who enter the RFSUs on this list. What we ensure is that, in order to follow these standards rigorously, but in recognition of the sparse recruiting base, we have to make different accommodation for people who do not meet all of the standards that would apply more generally in the Army Reserve and the regular Army.

Senator IAN MACDONALD: All right. I have been around that area over time and understand what you are saying. Are people on the list actually paid when they are working? What is the arrangement?

Lt Gen. Morrison : Yes, they are for all intents and purposes members of the Regional Force Surveillance Units; it is just that the selection criteria that have been applied to their entry into the service has recognised that they would not, for reasons of education or some health matters, meet the standards that apply overall, but they can enter. Once they have done that they are, as I say, for all intents and purposes, members of the Regional Force Surveillance Units, and through that the Army Reserve—and through that, the Army.

Senator IAN MACDONALD: Thanks for clarifying that for me. It was a fraction confusing. Is that a rapidly changing list, as such? Is there a big turnover in the list element? And can I ask the same question about the formal Reserve element as well, if I could say that.

Lt Gen. Morrison : I am not quite sure I understand.

Senator IAN MACDONALD: Do people join the list for a number of years or is it the experience that they come in for three weeks and that is it?

Lt Gen. Morrison : No, they enter, recognising that they do not have, let's say, numeracy or literacy skills; but they can be employed in the roles of a Regional Force Surveillance Unit soldier in every respect—so they are brought in under that selection criteria and are employed. We do run courses inside the Regional Force Surveillance Units to improve literacy and numeracy skills. But, in terms of their management, and whether they remain on a list or not, that is really not the heart of what this initiative is about—it is about giving the opportunity to serve within the ADF to people who otherwise would not meet the entry criteria.

Senator IAN MACDONALD: And a great idea, might I say—I am totally supportive of that. But I am just wondering whether there is a big turnover. Do they stay long?

Lt Gen. Morrison : One of the great advantages, particularly that we see in NORFORCE, is that the conditions of service that apply to the men and women who join are that they are able to be members of the RFSU, the Army and the ADF while still being able to enjoy the traditional lifestyle of Indigenous peoples of the areas that they live in. So they are able to live within their local communities. We have over time built up the Indigenous involvement in our regional force surveillance units. NORFORCE has certainly been very successful, 51 Far North Queensland less so, but it still makes a very important contribution in terms of giving opportunities for uniformed service to Indigenous Australians. The Pilbara Regiment, because of the geographic nature of the Pilbara, is probably less successful than 51.

I think I made the point in answer to a question that you asked several estimates ago that my judgment is that the RFSUs remain somewhat fragile. We need to recognise that there are particular conditions of service that the Indigenous men and women who join the RFSUs wish to retain—being able to stay linked with their Indigenous communities. They often want to be able to serve in the same geographic area in which they live. That meets their needs. As a result, we have been growing Indigenous participation over a number of years. NORFORCE, for example, is over two decades old. We are particularly cognisant of the cultural requirements of the Indigenous members of the RFSUs in order to retain their services.

Senator IAN MACDONALD: I understand all that. Of those on the regional force surveillance list, there are 185 in total and 122 are Indigenous. So there are 63 non-Indigenous. Can you explain how they fit into the service? Is it because of their language and literacy that they are not members of the NORFORCE reserve?

Lt Gen. Morrison : They are—that is the point. We leave the decision to the commanding officers of the RFSUs as to whether they will apply different criteria for entry into service to certain members who are then brought in on the RFSU list. Those people have the types of attributes that we want in our regional force surveillance patrol men and women and we are able to give them a career and the opportunity to gain value from their service in spite of the fact that they have not attained literacy or numeracy standards that would apply more generally to those that join the Army Reserve or the Regular Army. It is the nature of the service in these remote locations that allows us to get great value out of these men and women.

Senator IAN MACDONALD: I am not being critical. I think it is a great idea. I am very supportive. I am just trying to understand how it all works. The list given to me in a written answer to my question had officers of other ranks, then totals and then another column headed 'RFSL', which made it seem that they were not part of those. But it does not matter. I am not critical. Are the non-Indigenous people on the list, as an example, stockmen from a remote station who can spend some time but not all the time—one of the real old bushies that you sometimes meet out there? Is it that sort of person?

Lt Gen. Morrison : I do not have a clear answer to that. The advice I have received is that the criteria of numeracy, literacy or health standards do not apply to the basis of your race, so they apply equally to Indigenous and non-Indigenous people.

Senator IAN MACDONALD: As they should, in my view. I do not want to spend too much more time on this, but those on the list get the same uniform, the same training, the same pay and the same discipline, I assume, as everybody else?

Lt Gen. Morrison : That is correct. As I said, for all intents and purposes they are members of the RFSU. They are patrolmen within 51 Far North Queensland or NORFORCE or the Pilbara Regiment.

Senator IAN MACDONALD: Is it the people on the list who go to the schools in Cairns and Katherine?

Lt Gen. Morrison : The Indigenous development courses that we run, yes—but not exclusively.

Senator IAN MACDONALD: Finally, paragraph (d) of your answer to my question talks about $25.114 million available for delivery of the program. I think we established last night that this program was not being subjected to any cutbacks—

Lt Gen. Morrison : That is correct.

Senator IAN MACDONALD: —to help make up your $5 billion. But it did say that Defence will review the current program in 2012. Has that review started? Can you tell me a bit about the review?

Ms MacGregor : Senator, I might take that one, if I may. It is not actually a formal review as such, with specific terms of reference, but it is within the broader strategy of Defence's reconciliation action plan, and this program that has just been referred to is one of the many initiatives within that. One of the elements will be looking at this model, which—as you and General Morrison have indicated—has proven to be very successful, as well as the return on investment in terms of the overall employment outcomes for Defence and for other programs as well, how we could look at courses being available in other remote locations, and whether there are options around the tailoring of the course. So that is the nature of it but, as I said, it is part of a broader set of initiatives that are under review in terms of our reconciliation action plan.

Senator IAN MACDONALD: Could someone tell me—perhaps without being specific—for NORFORCE, 51 Battalion and the Pilbara Regiment, are the numbers increasing? Falling? About the same as they have always been? Is there a trend?

Lt Gen. Morrison : We have seen a general increase across the Army Reserve in their strength in the last couple of years.

Senator IAN MACDONALD: In these units?

Lt Gen. Morrison : No, applying generally. It goes to the heart of the point I made about fragility of these units. We grow them slowly. Certainly the strength in NORFORCE and in 51 has grown slowly. I can provide you with figures in detail.

Senator IAN MACDONALD: Could you?

Lt Gen. Morrison : Absolutely, but I do not have them with me at the moment.

Senator IAN MACDONALD: That is fine. Finally, there are any number of state and federal government agencies who now have ranger programs. Is there any interaction between the ranger programs—which, it seems to me, although they are varied and come from lots of different buckets of money, with a slightly different focus they are doing the same thing. Perhaps I should not insult the Reserve by saying 'the same', but they are out there with eyes and ears, looking and maintaining the law, usually in a focused area. Has there been any interaction between these three units and the very many ranger programs that seem to abound these days from state and federal governments?

Lt Gen. Morrison : I agree with Senator Feeney that the operations are complementary. I can certainly attest to the fact that the regional force surveillance units liaise closely with police in Queensland, in the Northern Territory and in Western Australia and that there is sharing of information both through the day-to-day operations of the RFSUs or when they take part in patrols that are designated under the command of NORCOM or border protection command or joint operations command. In terms of training, I am unsure, and I would have to take that on notice.

Senator Feeney: The Commonwealth has signed an MOU—and I think that this is what you were alluding to, General—with the Queensland government so that those members of the Army Reserve who are also working in agencies of the Queensland government are able to be shared. There is an MOU about sharing that human resource so that we can make sure that we manage a joint workforce. So there are arrangements in place. And when I say 'Queensland', that exists in other states as well. I am picking on Queensland because I know that you are a Queensland senator.

Senator IAN MACDONALD: I come from Northern Australia. That is good. I suspect, though, that the rangers probably would not fit into the category of Queensland government employees.

Senator Feeney: That is probably right.

Senator IAN MACDONALD: There might be fertile grounds there for interaction. I will put this final question on notice, as it may require a considered response. Is there anything that governments could do to encourage greater participation in these Defence units, on the basis that Australia needs them, firstly, and it is sometimes a form of employment in an area that is not overly endowed with employment opportunities as a general rule?

Ms McGregor : There is a big agenda. All governments have signed up to the 2.7 per cent COAG target for Indigenous representation in workforces by 2015, so it is multipronged effort. In particular in terms of Defence, the ADF would be better positioned at this point in terms of its progress towards achieving that. In broad terms, we will be implementing a number of initiatives. In addition to the RFSL, there is the Indigenous study tour and the Indigenous pre-recruitment course—these are all ADF programs. On the APF side of things, the whole-of-government programs consist of cadetship programs, programs for graduates and programs for trainees, of which Defence has had a modest intake in the last few years. We are hoping to ramp that up in 2013—although, noting the sorts of pressures on workforce in recruiting, which we touched on yesterday, we need to be mindful that we maintain and increase our Indigenous representation. There is another program around leadership for Indigenous leaders and managers at our EL1 and EL2 levels. Defence is participating in that for the first time this year. As I mentioned, the umbrella program under which we have a series of initiatives for Defence is the reconciliation action plan. All other government departments have similar arrangements in place to increase Aboriginal representation.

I mentioned yesterday when I was speaking about the review that I undertook for Defence last year that we are looking at the issues of equity and diversity more broadly. When you look at our figures on Indigenous participation, it is a clear area of focus. To that end one of the recommendations was to set up a diversity council and a diversity champion to really focus effort on these efforts. Similarly, the secretary will be part of the broader secretaries board, where these issues are front and centre.

Senator IAN MACDONALD: Plans, policies and strategies are all fine. What I was more interested in was knowing whether anyone has sat with the troops, both in a formal sense and a non-formal sense, and asked: 'How could we double the people in this unit? If we doubled the pay, would that make a difference? If we had a brighter uniform, would that make a difference? If we gave everyone a four-wheeler, would that make a difference?' I am just wondering if any thought has gone in to things that would have people in the area knocking on the door to join up.

Major Gen. Fogarty : Our Indigenous council, which includes a number of senior elders from Indigenous communities, has told us that one of the most positive things that we can do is put back into their community much more confident young people who have attended our Defence Indigenous development program. The outcome of that particular program—and it is one of our signature programs—is not necessarily people being employed in the ADF. Rather, it is about putting people back into their own communities as role models. That is what they are telling us. They want these people to come back to their community, take a leadership position and be seen by other Indigenous youth. That will then instil a desire to go onto this program in others, which then opens up opportunities for all sorts of employment, including in the ADF.

Senator IAN MACDONALD: All right. I think that I will leave that there. I will be interested to see the answers to my questions on notice. Good work.

Senator HUMPHRIES: I want to go to the LAND 17 issue and ask about the interoperability with other armies that have self-propelled artillery. I understand that the US and the UK both have such a capacity. What implications does our lack of such a capacity have for interoperability in combined arms battle groups in the future?

Lt Gen. Morrison : In some respects, the decision to equip the Army with a single fleet of artillery, the M777s, the towed howitzers, will make interoperability—particularly with the United States—clearer and more effective. The M777 is the towed gun used by the US Army and the US Marine Corps. They employ those guns using an artillery fire management system called AFATDS, which we use as well. One of the advantages of a single fleet is indeed in terms of interoperability with the United States. You are correct in saying that the US Army and the UK and many other armies use self-propelled guns. But they use a variety of self-propelled guns. When we were in the very early stages of looking at a self-propelled capability we were looking at the American gun, but it was discounted. There were options to look at a European gun or a Korean gun. But now the decision is to go with a gun that is used very widely, particularly by US forces.

Senator HUMPHRIES: Okay. This M777 is unprotected artillery. That must have some implications for the way in which our forces will be deployed in a battle group situation.

Lt Gen. Morrison : They are unprotected in that the individuals who operate the guns simply have personal body armour. But there are other means by which they can be and are protected. The guns can be fired out of pre-prepared positions that have a level of protection. We would also operate these guns with systems that are capable of identifying the types of threats to our artillery that could be posed by an adversary. By being able to locate their indirect fire assets and then being able to take action against them, we could protect our guns. Protection has to be seen in a couple of ways here. It is not that the guns in an environment in which the risk to those who are crewing the guns is so great that we could not use them effectively. We have systems around the guns. They are also able to be moved quickly in and out of action, albeit behind wheeled vehicles. I have seen that. They are much quicker than the old M198 guns that they are replacing. And they are also capable of being lifted under a Chinook helicopter. There is a degree of tactical mobility that comes with these guns. I would not want to leave you with the impression that they are only ever going to be fired from static positions where the crews are at great risk. That is not the case.

Senator HUMPHRIES: Would you say that not having a self-propelled artillery capability enhances or decreases our tactical advantage?

Lt Gen. Morrison : I would say that it will require us to operate our artillery systems in a different way, but I am confident as the Chief of Army that with the M777 fleet across the Australian Army we will still be able to provide effective and, in fact, very telling indirect fire support to our forces or other forces who are operating in coalition with us.

Senator HUMPHRIES: Were people like the head of corps of the Royal Australian Artillery consulted as part of this decision-making process not to proceed—

Lt Gen. Morrison : I spoke to all of Army's senior artillery officers as I weighed my advice to the CDF about this matter. While they, like me, were keen to see, if it could be afforded, a self-propelled capability in place in the Australian Army, they recognised that if that was not going to be possible the option of a single fleet across the Army of M777s with AFATDS and with some of the precision munitions that we are buying with that system would mean that we would be able to have a very effective indirect fire capability for the foreseeable future.

Senator HUMPHRIES: This is a question, perhaps, for Mr King. Is there any contractual exposure for defence by virtue of not proceeding with our self-propelled artillery project?

Mr King : Not in that sense. We always go to market with the proviso in our tendering process that we may not complete it, and we have not entered into contracts at this stage.

Senator HUMPHRIES: I read a tweet yesterday that the rising sun badge would no longer be worn on the grade 2 slouch hats. I read that this is because it is considered disrespectful for the rising sun badge to be facing towards the ground. Is that just a joke or is it true?

Lt Gen. Morrison : No, it is quite true. It was my decision. For some time we have had the rising sun badge on the grade 2 slouch hat. The grade 2 slouch hat is constructed in a way that its side can never actually be put up. There is no interlocking latch on the top of the hat, so it could never be worn up, showing the rising sun badge. It has always been on the underside of the brim. The only thing visible are the two clasps that hold the badge to the hat. It seemed to me to be inappropriate and I made the decision as the Chief of Army to take the badge off the hat but, of course, leave it—it is the symbol of Army—on the grade 1 slouch hat that is worn on all parades where the badge can be seen very prominently.

Senator HUMPHRIES: How long has the rising sun badge been on the underside of the grade 2 slouch hat?

Lt Gen. Morrison : Less than a decade.

Senator HUMPHRIES: And it has not occurred to anyone before that this was disrespectful to the badge?

Lt Gen. Morrison : I could not answer that, but it seemed disrespectful to me.

Senator HUMPHRIES: How much will we save by removing—

Lt Gen. Morrison : It was not a question of savings.

Senator HUMPHRIES: I accept that, but how much will we save?

Lt Gen. Morrison : I do not think we will save anything. The badges are in production. They are held in stores. There was no monetary issue around the decision that I made.

Senator HUMPHRIES: Does every soldier get a grade 1 and a grade 2 slouch hat?

Lt Gen. Morrison : Yes, they do.

Senator HUMPHRIES: So we are presumably producing half as many badges—there must be some saving.

Lt Gen. Morrison : I do not know if there has been a study done on the life of type of rising sun badges but they do last a long time. I would think that any savings that would be made because we are producing less will probably not be realised for many years.

Senator HUMPHRIES: Will the diggers respond well to this decision, do you think?

Lt Gen. Morrison : Those that I have spoken to see the logic behind my decision. I know that there have been a few people who have said that they do not agree with it. That is acceptable, of course. But it was on my shoulders to make the decision and I did.

Senator HUMPHRIES: I see that the new rule comes into effect from 1 July this year, the beginning of the new financial year. Is there any reason that it is happening at the beginning of the financial year?

Lt Gen. Morrison : No.

Senator HUMPHRIES: Thank you.

[10:00]

CHAIR: I think that is all for Army and program 1.3, so we will now go to program 1.4, Air Force capability.

Senator JOHNSTON: Can I first of all go to the electronic warfare system on the Super Hornets. The minister made an announcement on 8 May, I think it was. What are we actually getting there? We have 12 rigged for but not with Growler. Can we go through what is happening there?

Air Marshal Brown : At this stage there has been no decision to continue with Growler. What has been purchased are some long-lead items to do with the conversion. The aircraft in their current configuration have wiring and provision for conversion to G-model. The items that we have actually decided to purchase we needed to get on the end of the production line, but I will hand over to Admiral Peter Jones and he can probably answer more exactly about what is going on there.

Vice Adm. Jones : We have put out a letter of request for details for a quote for the additional items for the complete Growler capability. We anticipate that later in the year that will come back from the US Department of Defense with the full costings of the capability, and that will be presented to government for their consideration.

Senator JOHNSTON: That is an FMS?

Vice Adm. Jones : That is correct. That is the only way that you can get this capability.

Senator JOHNSTON: You have written and asked for an FMS approval for an acquisition?

Vice Adm. Jones : Yes. We have asked for the pricing and availability for the complete standard Growler set that can be fitted onto the prewired Super Hornets. You are not obliged to take up that offer, but that is the means by which you get the detailed quote and availability for those systems for government to consider.

Senator JOHNSTON: We have to notify the congress with respect to such a purchase, do we not?

Vice Adm. Jones : That is correct.

Senator JOHNSTON: DSCA, on 22 May, announced a formal request for 12 EA18G modification kits. Are you aware of that?

Vice Adm. Jones : Yes, I am.

Senator JOHNSTON: What is the time frame for all of this, and what is in or not in the budget for this?

Vice Adm. Jones : As part of the provisions in the draft DCP for 2012, there has been allowance for government to make a consideration about Growler, but that will be a decision for them. Then, depending on whether they go forward with the Growler capability or not, the DCP will be adjusted accordingly.

Senator JOHNSTON: You have made a formal request though?

Vice Adm. Jones : That is correct. We have made a letter of request for the pricing and availability of the Growler capability. If government then decides, on receipt of the pricing and availability, we will then take forward a cabinet submission. Cabinet will then decide whether they want to continue on and pursue that capability. If they do decide that they want to proceed with that capability, then the DMO will engage with the US Department of Defense and industry to finalise the acquisition of that capability.

Senator JOHNSTON: Is this a sole source acquisition?

Vice Adm. Jones : I will hand that on to Warren King.

Mr King : This is following the normal process, just to go through the process in acquiring from the US. We get price and availability data, which is a basis for us forming advice, broad budgetary consideration and schedule considerations. We then go into the formal request phase, where the congress of the United States is notified that we have made the request. We then get back formal pricing data and we then, on government's approval, activate it. It is a sole source because this capability is—

Senator JOHNSTON: An add-on.

Mr King : unique to the US. My understanding is that we are the only country outside the US to be offered this capability.

Senator JOHNSTON: What is the estimated cost?

Vice Adm. Jones : It is approximately US$1.7 billion.

Senator JOHNSTON: Have we told the minister that?

Vice Adm. Jones : Yes, we have.

Senator JOHNSTON: So the minister is aware that there is $1.7 billion coming down the pipeline for these Growler fit-outs?

Vice Adm. Jones : That is right. That is over a period of years.

Senator Feeney: If a decision is made.

Senator JOHNSTON: How many years?

Mr King : We are waiting for the formal advice back in response to our request. That is what we are waiting for inside the department, to get that formal offer which constitutes a commitment from the US, and we will use that information to advise the minister and government.

Senator JOHNSTON: We are just progressing a number of white paper projects, and this is one of them?

Vice Adm. Jones : Yes, that is right.

Senator JOHNSTON: Let us go to the Caribou replacement. We have signed the contract. This is an FMS purchase, is it not?

Air Marshal Brown : That is correct.

Senator JOHNSTON: When did we sign the contract?

Mr King : 4 May.

Senator JOHNSTON: The announcement to congress was made on 16 December, was it not?

Mr King : Just to clarify: we signed the LOA on 4 May.

Senator JOHNSTON: LOA?

Mr King : That is our agreement with the US to proceed.

Senator JOHNSTON: Have we signed anything else with them prior to that?

Mr King : No.

Senator JOHNSTON: The DSCA announced to congress on 16 December?

Mr King : Yes.

Vice Adm. Jones : The procedure, similar to Growler, is that you release a letter of request seeking pricing and availability data.

Senator JOHNSTON: What was the date of that letter?

Vice Adm. Jones : We will be able to get that very shortly for you.

Air Vice Marshal Thorne : The P and A was requested on 30 September.

Senator JOHNSTON: The RFI going to the competitor—

Air Vice Marshal Thorne : Sorry, the letter of request to the US was sent on 30 September.

Senator JOHNSTON: Good. The RFI to the competitor was dated 26 October; correct?

Air Vice Marshal Thorne : That is correct.

Senator JOHNSTON: So you had already engaged the United States before you engaged the competitor; correct?

Air Vice Marshal Thorne : That is correct.

Senator JOHNSTON: How does that happen? This is supposed to be competitive, is it not?

Mr King : The FMS procurement and commercial procurements are different processes. It is a process that we have been developing now for a few years. In the past we never even did that at all. But I would say that we have been engaging with industry and with the US for many, many years on the Caribou replacement aircraft. That is not the first time that we have had an interaction with either industry or the US on—

Senator JOHNSTON: Sure. What was the September date again, please, Air Marshal?

Air Vice Marshal Thorne : 30 September 2011 was the later request to the US FMS system.

Senator JOHNSTON: Was that the first engagement with the United States that we had?

Mr King : The first?

Senator JOHNSTON: The first contact with respect to the acquisition of this aircraft?

Mr King : No, it would not be the first engagement.

Vice Adm. Jones : Perhaps I could help here. As you are aware, this project has had a very long lineage. In fact there was a previous project, Air 5190, which was looking at the light tactical aircraft capability. Really, since about 1998, there has been engagement across the board, including with the US and including the predecessor to Airbus, when CASA was a separate company. So there has been an accumulation of data by the department dating back to 1998. DSTO did the airlift study in 2003, which you may remember. There was the capability airlift study in 2006. Also, additional data was brought forward as part of the Force Structure Review in 2008. So really, in that time and in the development of Air 5190, the predecessor to this project, we have accumulated data on both the C27 and the C295. Probably more recent and useful at the moment is that from 2007 we obtained data on the updated use of C27 when it became a part of the US Air Force infantry, and we have been gathering data from both Alenia and the US DOD and also Airbus Military on both aircraft types, and that accelerated as we put work in train to meet the requirements of Air 8000 Phase 2.

Senator JOHNSTON: Air 8000 Phase 2. The contract was signed on—what did we say the date was?

Mr King : 4 May.

Senator JOHNSTON: What sort of acquisition is this acquisition for this C27J?

Mr King : FMS.

Senator JOHNSTON: It is an FMS, but is it a sole source? Is it a rapid acquisition? Is it a covered acquisition?

Mr King : All FMS, once you have signed it, is to the government-to-government contracts.

Senator JOHNSTON: Yes, but, before we get to the FMS stage, how would you categorise the acquisition, Mr King? Is it a covered acquisition under the rules?

Mr King : No, I would not qualify it that way.

Senator JOHNSTON: We do not know?

Mr King : I will get some advice. What we did on this was that there was a long period of engagement. In the latter part of last year, we sought information from the US on the cost and so on of the US supply. We also sought information from Raytheon and Alenia. I would describe it as very much like qualifying for the Olympics. It is a formal process in which we wanted offers from all three parties that we could evaluate. There were issues about capability, which I will obviously pass to the Chief of Air Force to talk about. We sought pricing, availability and performance data in a formal response from industry, and that information was evaluated.

Senator JOHNSTON: Okay. What did we say on 30 September? Who did we write to and what did we say?

Air Vice Marshal Thorne : That 30 September date was the release of a letter of request to the US FMS system. We wrote to the US FMS system as a standard process that the embassy executes on our behalf.

Senator JOHNSTON: What did you say? Do you have a copy of the letter?

Air Vice Marshal Thorne : I do not have a copy of the letter with me, but essentially it is a covering letter with a statement of work attached to it.

Senator JOHNSTON: So you were seeking the availability of a battle-space lift aircraft. Did you specify the C27J?

Air Vice Marshal Thorne : Yes, we would, because that is the only aircraft available through the FMS system.

Senator JOHNSTON: Right.

Air Vice Marshal Thorne : In fact, to be precise, we were seeking the joint cargo aircraft version of the C27J, which is available only via FMS.

Senator JOHNSTON: When was the first pass for this aircraft?

Air Vice Marshal Thorne : This was a combined pass project, so—

Senator JOHNSTON: So there is no first pass and no second pass?

Air Vice Marshal Thorne : A combined pass in May of this year.

Senator JOHNSTON: May of this year?

Air Vice Marshal Thorne : That is correct.

Senator JOHNSTON: We are still in May. The contract was signed on 4 May. On what date, precisely, did you do the first and second passes?

Mr King : Just before; but we will check the date.

Senator JOHNSTON: It must be 1, 2 or 3 May.

Air Vice Marshal Thorne : Quite literally a couple of days before, yes.

Senator JOHNSTON: That is pretty good.

Mr King : There was a reason for that.

Senator JOHNSTON: We will come to that in a minute. Let us analyse what we are doing here. This is 1.4—how much?

Mr King : Around about $1.4 billion.

Senator JOHNSTON: $1.4 billion.

Air Marshal Brown : One of the problems we have is that there has been a significant amount of misrepresentation in the media about the various capabilities of the aircraft. If you would like, I would like to go through some of the capability differences between the two airlifters at this stage.

Senator JOHNSTON: We will do that in a minute. I just want to identify what type of acquisition—I am not really interested at this point in what the capabilities are, I am just looking at the process surrounding the $1.4 billion.

Air Marshal Brown : I would just like to point out, from an Air Force point of view, that the acquisition was exactly the same as the C17 and is similar to that process.

Senator JOHNSTON: It is the one you want.

Air Marshal Brown : That is right.

Senator JOHNSTON: On 26 October you wrote to the competitor and made a request for information.

Air Vice Marshal Thorne : That is correct. Capability Development Group, which led this, wrote to both Raytheon Australia, as a commercial representative of Alenia in Australia for the C27J, and Airbus Military, which was proffering the C295.

Senator JOHNSTON: Two competitors?

Air Vice Marshal Thorne : Correct.

Senator JOHNSTON: So we have three horses in the race: Raytheon Alenia, Airbus and FMS L-3 Alenia. Correct?

Air Vice Marshal Thorne : That is correct.

Senator JOHNSTON: Has there been a tender?

Mr King : No.

Senator JOHNSTON: Has there been an advertisement for tender?

Mr King : No.

Senator JOHNSTON: So even with respect to a sole-source acquisition there was no advertising pursuant to the rules and regulations.

Mr King : I would have to check that.

Senator JOHNSTON: You tell me: when we are doing a sole-source or rapid acquisition we still have to advertise on AusTender, do we not?

Air Marshal Brown : With respect to FMS buys, I would like to point out that it is the US government's best price. The US government has actually done a complete competition in terms of tender evaluation before this process. That is one of the advantages of FMS buys: we get pretty much the same price that the US government pays for an aircraft. That was the case with the C 17 and it was the case with the Super Hornet. It is not unusual for us to do acquisitions like this.

Senator JOHNSTON: You see, I am a little puzzled. I am focusing on the issue of price. In a press release on 11 May—I am sure you all know it—L-3 said:

The U.S. Foreign Military Sales program has an approximate contract value of $600 million and includes the supply of 10 new C-27J aircraft worth about $300 million …

That fits in with everything I have been told about the price for 10 of these aircraft.

Air Marshal Brown : That is correct.

Senator JOHNSTON: Take me through how, without a tender, without complying with the Commonwealth procurement guidelines and without complying with the Defence procurement manual, we get to, what is it, $1.45 billion?

Vice Adm. Jones : It is $1.404 billion.

Senator JOHNSTON: I will write that down. How do we get there when L-3 is telling us that these aircraft are $600 million with the spares and everything. I will go through what the spares are, because I have the RFI. We will go through it all and you can tell me where the $800 million, is it, is lying?

Air Marshal Brown : I could go through it quickly, if you would like. The mission system costs for the C27 were about $414 million.

Senator JOHNSTON: So we are buying these aircraft without a mission system and we are putting our own mission system on?

Air Marshal Brown : No, that is not correct.

Mr King : The mission system means the aircraft and its systems.

Senator JOHNSTON: What is the brand of mission system? Let us go into the detail of this; let us talk about what sort of mission system we are getting, so we have got apples and apples. What are we getting?

Air Marshal Brown : Basically the C27J is fitted out like our C130J, which is one of the real advantages of this aircraft over any competitor aircraft—the mission systems are very similar to the C130J. In fact, when the Italian air force use both aircraft they can actually swap co-pilots between the two aeroplanes.

Senator JOHNSTON: I know it is a very good aircraft and I know it is interoperable with what we have got. What is the brand of mission system that we are having, that we are paying this money for, the $400 million worth?

Air Marshal Brown : That includes the aircraft and everything that it is fitted with; I am not sure exactly what you are after here.

Senator JOHNSTON: All right. Let us go back, because we have to work our way through this.

Air Marshal Brown : For sure.

Senator JOHNSTON: $600 million includes the supply of 10 C27J aircraft worth about $300 million. I have got some documentation that says it is about 330, 340, with the missions system about 480, 490. Is that about right?

Air Vice Marshal Thorne : I can work through the breakdown of what is in the LOA. Essentially about A$400 million is the price of the aircraft, which in various correspondence is referred to as the mission system. So in this particular case it is the aircraft.

Senator JOHNSTON: So this is the Alenia C27J aircraft?

Air Vice Marshal Thorne : As equipped in the US inventory, yes.

Senator JOHNSTON: Per aircraft, how much precisely?

Mr King : That is the aircraft plus all the fitted systems to the aircraft that the US deploy.

Senator JOHNSTON: That is right, and we will come back to those, because I want to know what systems are in it. So 400—

Mr King : About 400.

Senator JOHNSTON: And what do we get for our 400? We get the aircraft, the air frame—what else do we get?

Air Marshal Brown : We get a secure radio systems, we get an EWSP system.

Senator JOHNSTON: All right. Let us start with the radio systems. What radio systems are we getting?

Air Marshal Brown : I would have to take that on notice to get you the exact designation of those systems. Maybe a way of handling this is to get you a complete breakdown of what is in the aircraft if you want to go into that sort of detail.

Senator JOHNSTON: And the prices.

Mr King : We will not get a per unit price on each item fitted to the aircraft. We will get a price for the aircraft fitted with all those systems.

Senator JOHNSTON: I want to know what the systems are—

Mr King : We can certainly give you a breakdown of what the systems are, but we will not have a line item by line item price. The US offers this as a product.

Senator JOHNSTON: So what are we paying per plane with everything on it? 400?

Mr King : We would have to double check that. I would have to double check that line item, but it was $400 million for the 10 aircraft that comprise the mission system.

Senator JOHNSTON: Right. What else above that are we getting?

Mr King : We are getting spares—support systems—

Senator JOHNSTON: How much are the spares? What are we paying for spares?

Mr King : Approximately $170 million. Support systems—

Senator JOHNSTON: What are support systems?

Air Marshal Brown : Things like simulators.

Senator JOHNSTON: How many simulators?

Air Marshal Brown : One simulator.

Senator JOHNSTON: And what is it worth?

Air Marshal Brown : Again, we will have to take that on notice.

Air Vice Marshal Thorne : Can I correct that. The simulator is in a different line. There are a series of training devices associated with that.

Senator JOHNSTON: Explain the difference to me.

Air Vice Marshal Thorne : Under the support systems it covers things like support equipment and the return and repair of items for a three-year period includes contractor logistic support and for EW support, meaning EW reprogramming and the like—

Senator JOHNSTON: How much are we paying for all that?

Air Vice Marshal Thorne : Around $76 million.

Senator JOHNSTON: Next item. We are at $646 million.

Air Vice Marshal Thorne : What we call mission systems in here, which includes material handling equipment, noting this is a cargo aircraft, ferry and those kinds of things, alternative mission equipment—things that you use on particular roles and missions. That is valued at about $23 million. Then there is training services. Initially we are going to be training our air crew and maintainers in the United States until our training system can be stood up, and that is worth $47 million. Contractor services, such as publications and general program management, is around $82 million.

Senator JOHNSTON: What was that heading again?

Air Vice Marshal Thorne : Contractor services, the management of the program—technical data et cetera.

Senator JOHNSTON: So it is the consultancy fee for the acquisition?

Air Vice Marshal Thorne : No, not the consultancy fee; it is managed by a prime systems integrator.

Senator JOHNSTON: So it is a management fee.

Air Vice Marshal Thorne : Yes, that is right.

Senator JOHNSTON: How much is it?

Air Vice Marshal Thorne : That is $82 million.

Senator JOHNSTON: And how is that worked out? What is that based on?

Air Vice Marshal Thorne : I do not know. The next item is training devices, which would include air crew trainers, part-task trainers and maintenance trainers.

Senator JOHNSTON: Isn't that the 76? Is this in addition to the 76?

Air Vice Marshal Thorne : No, I corrected that earlier on. This is in addition to that. That is $129 million.

Senator JOHNSTON: And precisely what is that for?

Air Vice Marshal Thorne : I would have to get a detailed breakdown of that, but I understand that is a full-flight air crew simulator, probably a suite of part-task trainers for training the various roles in the aircraft and some maintenance trainers. I would need to check this, but I would imagine that, consistent with our other cargo aircraft, it would probably include a loadmaster trainer as well.

Senator JOHNSTON: Loadmaster?

Air Vice Marshal Thorne : Yes. The guy in the back and the people who handle the equipment onto the aircraft need to be able to learn how to do that efficiently and safely. Then, under the FMS case, there is a further $44 million, which is the FMS service fee, which I think is calculated at about 3.8 per cent of the total FMS costs. It covers transport, freight and those sorts of things.

CHAIR: Senator Johnson, we are scheduled for a tea break at 10.30, so perhaps you could calibrate your questions to get to 10.30.

Senator JOHNSTON: I am happy to come back after 10.30, but is that the full list?

Air Vice Marshal Thorne : That is the extent of the letter of offer and acceptance, which is the US FMS version of a contract, yes.

Senator JOHNSTON: That does not come to 1.404.

Mr King : It is just like the air warfare destroyer. It is about $4.9 billion in contracts out there with industry, but the total project is an $8 billion project. The project office has all the other add-on bits. Some of those we would rather not discuss, because some of those will be subject to competition for supplies. So all projects have the basic supply costs, and then quite a big amount of money that is non-direct supply from the provision of what you could call the prime equipment and its support.

Air Marshal Brown : Senator, a good example of that is facilities. It is also in that $1.4 billion.

Senator JOHNSTON: See, facilities is something that I am really interested in. Bear in mind that we have not had a tender process, and I want to know how we are acquiring this, because I do not think we have complied with the rules or regulations, but we will come back and haggle over this after the break. This is a very large acquisition that appears to me to have been done almost on the back of an envelope.

Mr King : No.

Senator JOHNSTON: Well, I am going to go through the RFI document that I have, and the costs I have from one of the competitors, and there is several hundred million dollars difference. Now, you are telling me there is facilities?

Mr King : There is facilities, there is mission systems—

Air Marshal Brown : The facilities alone are about $180 million. That is what is allocated to that, which probably would not be in your competitors' notes.

Senator JOHNSTON: And these facilities are at Richmond?

Air Marshal Brown : Initially. But then we are having a look at—

Senator JOHNSTON: Then where is the $180 million coming?

Air Marshal Brown : Again, the $180 million is about the possibility of moving the C27s to Amberley.

Senator JOHNSTON: When?

Air Marshal Brown : Sometime in the next four to five years.

Senator JOHNSTON: Then why on Earth are we getting $180 million now?

Air Marshal Brown : That is the total project provision over the period.

Senator JOHNSTON: The chair wants to break for morning tea. I am happy to give everybody a little bit of respite.

Mr King : I don't need it. I'd like to go on!

Proceedings suspended from 10:29 to 10:48

CHAIR: Mr Lewis has a correction to give to the committee.

Mr D Lewis : I just want to correct and clarify a couple of figures that we were discussing with Senator Johnston before the break. I will get Admiral Jones to speak to the $1.7 billion figure.

Vice Adm. Jones : I will just provide a bit more amplification and context for that $1.7 billion figure that you would have seen in the congressional notification. That figure is for Growler, the EA-18G. This congressional notification is broad in scope and covers the full Growler capability. It does not oblige Australia to purchase any or all of that full $1.7 billion Growler capability quoted in the notification. Any acquisition can be adjusted to suit Australia's capability requirements and would alter the eventual cost of any purchase if it were to proceed. In practice, the amount paid is generally significantly less. It will probably be useful for the CEO of DMO to provide a little bit more amplification on that.

Mr King : The congressional notification process is not an offer process to Australia; it is a process that the US government uses to get approval from congress to release capability to another nation. So the numbers used in that are broad numbers. I do not know of any occasion where the actual offer that we get from the US is not significantly less than the congressional notification number.

Mr D Lewis : Chair, if I might, I have one other correction from Chief of Navy to a question from Senator Johnston during the last stanza.

Vice Adm. Griggs : It is more of a clarification. When we were having a discussion about the RHIB capsize, you asked me about injuries and I said they were minor in nature, mainly bruises and cuts. I was not particularly happy with that, because I was relying on memory, so I have gone away and got some more information. One of them did suffer a concussion during the process. One had a back injury which has not been an ongoing issue. One of the military members had an overextension injury and is still having some knee and arm pain. So I wanted to make sure that I did not trivialise the fact that there were injuries in the incident, but they were not of a serious nature.

CHAIR: Thank you for that correction.

Senator JOHNSTON: I think we are up to about $1.151 billion on those numbers that you have given me. What I am missing out on here? Where is the other $200 million or $300 million?

Mr King : The numbers add up to just under $1.4 billion when you add up every line item.

Senator JOHNSTON: I have $400 million for the aircraft, $170 million for—whatever that was for. Training?

Mr King : And spares.

Senator JOHNSTON: Spares, yes.

Mr King : Then we have support systems at just under $77 million. Mission systems are just under $23 million. Training is $47 million. Contractor services are $82½ million. Training devices are $130 million and 'other', which includes fees and transport, is $44 million.

Senator JOHNSTON: And then there is $180 million for the facilities.

Mr King : There are a whole range of other things after facilities. If you are seeking to make some points about competitive offers, that is the point at which you should stop, because the balance of the costs are the likely costs that we would incur for a program to support either system that we selected. So the costs that you are comparing, if that is where you are heading—one offer verses another—are really in the top line items.

Senator JOHNSTON: We have not had a contest, so I cannot really compare anything, can I?

Mr King : Can I summarise the process, because I think coming in at single points is making a disjointed proposition. For many, many years defence has engaged with possible suppliers for the Caribou replacements. A lot was learnt over that time about likely capabilities and costs. When we formally entered into the directed source procurement process we in fact engaged with three companies: FMS, Raytheon and Airbus Military. We then sought information from each of those companies. For example, as I understand it I think the Airbus proposal was some 300 plus pages.

That information was analysed. As a result of that analysis—both of capability, which I am sure the Chief of Air Force will want to talk about, and other costs associated with that capability—a decision was made that there was no reasonable prospect for the commercial offers to be competitive. We have often been accused in DMO in particular of taking industry to extreme lengths for no particular purpose. That source selection, which was formally conducted, drew the conclusion that in light of the decision we should direct source via the FMS case.

One of the reasons that we had an imperative to continue this process was the US had a very competitive, advantageous contract with their supplier and that opportunity was to lapse by the end of this year—mid-June. Therefore, the US offer, which was highly competitive, would also lapse at that point.

Senator JOHNSTON: What was the US offer?

Mr King : I just gave it to you. That is the LOA cost.

Senator JOHNSTON: So what the US were getting is precisely what we are getting?

Mr King : I do not know of any exceptions.

Senator JOHNSTON: So somehow we got wind of the fact that this program was for the chop at the end of last year—

Mr King : No, not for the chop.

Senator JOHNSTON: Well, it has been chopped.

Mr King : No, it has not been chopped.

Senator JOHNSTON: So C27J is still extant in the US Air Force consideration?

Mr King : The Department of Defense has recommended in a budget suggestion that the program be reduced, but that has not gone to congress and that is not the state at the moment.

Senator JOHNSTON: It has been listed for the chop.

Mr King : No, it has been recommended by Defense, but it has not happened yet.

Senator JOHNSTON: It has not been chopped but it is recommended that it be.

Mr King : Yes.

Senator JOHNSTON: So we are getting the contractual obligation that the US were going to use?

Mr King : The US had a contract with an option to buy. Their capacity to continue to take up options, which, as I say, are very commercially advantageous and very advantageous to Australia, would expire in the middle of June.

Senator JOHNSTON: Where do I see all that? How do I know that what you are telling me is correct? Where is the transparency on value for money, which is what this is all about? How do I verify what you have just told me?

Mr King : I do not remember a single occasion where we have gone back to individual senators to prove something. We went through a source evaluation process—

Senator JOHNSTON: What is a source evaluation process?

Mr King : We took the data that the companies and the US gave us in response to the LOA. We evaluated that for capability.

Senator JOHNSTON: Are you calling that a competition?

Mr King : What would you call it—

Senator JOHNSTON: I can see the air marshal is nodding. You are calling that a competition pursuant to the Commonwealth procurement guidelines? Who is the contract approver for this acquisition?

Air Vice Marshal Thorne : I am the head of the Aerospace Systems Division and I am the contract approver.

Senator JOHNSTON: Are you satisfied that there has been full compliance with the Commonwealth procurement guidelines and with the defence procurement rules?

Air Vice Marshal Thorne : Yes.

Senator JOHNSTON: What type of acquisition is this? Is it a covered acquisition or is it a sole source rapid acquisition?

Air Vice Marshal Thorne : It is not a covered acquisition. Military equipment is exempt from being covered in—

Senator JOHNSTON: On what basis is it exempt, pursuant to the rules? Take me through the rules.

Mr Dunstall : The Commonwealth procurement guidelines currently—and there will be a change to the Commonwealth procurement rules on 1 July 2012—have open tenders, select tenders and direct sources.

Senator JOHNSTON: Which one of those is this?

Mr Dunstall : This is a direct source. Under the CPG there is division 2, which is the mandatory procurement procedures. They apply to covered procurements, unless there is an exemption. Defence exemptions are made through a measure—

Senator JOHNSTON: Appendix A of the Commonwealth procurement guidelines is where you find the exemption.

Mr Dunstall : They are some of the exemptions.

Senator JOHNSTON: Which exemption are you using here?

Mr Dunstall : The defence exemptions, which were made under paragraph 2.7 of the CPGs, which allow the chief executive of an agency to make a measure for, among other things, essential security reasons.

Senator JOHNSTON: What are the essential security reasons here?

Mr Dunstall : That is how the department of finance implemented chapter 15, appendix A, of the free trade agreement, which sets out all the defence exemptions from the free trade procurement rules, so they are done by reference to the federal supply code, which includes aircraft, ships, things that go bang and just about everything except clothing, which is—

Senator JOHNSTON: What is the exemption here?

Mr Dunstall : It relies on the essential security exemption for defence, which is found in chapter 1.2 of the Defence Procurement Policy Manual, which accurately records what was agreed in the free trade agreement, which is given effect to through a measure under paragraph 2.7 of the CPGs.

Senator JOHNSTON: What are the exceptional security measures that have been used to support that contention?

Mr Dunstall : This was agreed during the negotiation between Australia and the US—

Senator JOHNSTON: When?

Mr Dunstall : I was not there at the negotiations. I understand they were in 2004.

Senator JOHNSTON: You mean the treaty?

Mr Dunstall : In the treaty, that is right—the free trade agreement. At the time, in accordance with article 22.1, I think, of the free trade agreement, the parties agreed that there would be certain procurements that would be exempt from the mandatory procurement procedures on the grounds of essential security. They are listed in the free trade agreement.

Senator JOHNSTON: What are those grounds?

Mr Dunstall : As I say—

Senator JOHNSTON: You have got to satisfy me that you have qualified with the law here. This is $1.4 billion worth of acquisition. I cannot see how you can go forward, on these guidelines, with this purchase in the way that you have held this competition.

Mr Dunstall : We have complied with the CPGs. We have complied with the Financial Management and Accountability Act. We have complied with the Defence Procurement Policy Manual. We have complied with probity requirements.

Senator JOHNSTON: How have you complied with the Commonwealth procurement guidelines? Take me through, step by step, what you have done.

Mr Dunstall : In developing the acquisition strategy, the first step is: is this a covered procurement? Answer: because it is subject to one of the defence exemptions, it is not bound by division 2 of the CPGs, which are the mandatory procurement procedures, which means we are not bound to conduct an open tender process but are able to undertake a different form of process.

Senator JOHNSTON: So you have not conducted an open tender process?

Mr Dunstall : Correct.

Senator JOHNSTON: So there has been no competition.

Mr Dunstall : That is incorrect. An open tender process is not the only way of running a competitive process. The CPGs are categorised technically into three categories: open tender; select tender, which is a very, very small kind of category of procurement, which is if you down select from an EOI or, I think, if you have procured off a multiuse list and there is one other; and everything else is called direct source. Direct source does not mean sole source. Direct source means an approach to one or more potential suppliers, which is in fact the way Defence undertakes most of its major capital acquisitions, because there is not an open market for what we procure.

Senator JOHNSTON: And you say that does not require an AusTender representation, advertisement or anything of that nature?

Mr Dunstall : Correct. You have to publish open tender processes. If there is an open tender, that has to be published through AusTender. You are not required to do that—my policy people will correct me if I am wrong—if it is direct source. You do not have to advertise through AusTender.

Senator JOHNSTON: I think you do.

Mr Dunstall : I am sure my guys will send me a text. You certainly have to publish the contract, or the end result, on AusTender. There is no doubt about that. But you are not required—to the best of my belief—to publish the approach to market through AusTender, because it is not an open process.

Mr King : Senator, it is exactly the same as when we purchase Super Hornets or C17s, for example.

Senator JOHNSTON: You did not advertise that?

Mr King : We publish it once we have done it, but we do not, no. It is a direct source.

Senator JOHNSTON: Super Hornet has no real competitor, does it?

Mr King : Probably some would say it does, but we chose to go in a particular direction.

Senator JOHNSTON: Here you have done an RFI process.

Mr King : Because—

Senator JOHNSTON: Did you do an RFI with Super Hornets?

Mr King : No, we did not do it, but—

Senator JOHNSTON: No, so you have got three competitors here—

Mr King : Who we gave a real and reasonable opportunity to provide us with data on cost and capability on the offers they made. We evaluated that against the FMS data and through a properly constructed source evaluation. From that data we concluded that there was no reasonable prospect for the industry participants to make a competitive offer, taking into account cost capability and risk and all those matters—

Senator JOHNSTON: Who is 'we'?

Mr King : The source evaluation panel.

Senator JOHNSTON: Which is who? The approver?

Air Vice Marshal Thorne : I would need to check on this. I certainly signed the source evaluation report, but I think I co-signed it with my colleague from Capability Systems. I will have to get back to you with the details of who co-signed it. We had a tender evaluation board, who prepared a source evaluation report for the satisfaction of the delegate.

Senator JOHNSTON: Mr Dunstall, I am looking at annexure A to the Commonwealth Procurement Guidelines. It states: 'The Mandatory Procurement Procedures do not apply to:' and then lists several items. Which one of those items are you using.

Mr Dunstall : I am not using one of those.

Senator JOHNSTON: At all?

Mr Dunstall : No.

Senator JOHNSTON: Take me to the procurement guidelines that you are using.

Mr Dunstall : Paragraph 2.7.

Senator JOHNSTON: Who is the agency in this case.

Mr Dunstall : DMO.

Senator JOHNSTON: So the chief executive:

… for the maintenance or restoration of international peace and security; to protect human health; for the protection of essential security interests; or to protect national treasures of artistic, historic or archaeological value. Applying such measures does not diminish the responsibility of Chief Executives under section 44 of the FMA Act to promote the efficient, effective and ethical use of Commonwealth resources.

Mr Dunstall : Correct.

Senator JOHNSTON: How on earth are you using that?

Mr Dunstall : This is the Department of Finance's approach to implementing chapter 15 of the US Free Trade Agreement. At the time that they came to implement that chapter of the Free Trade Agreement into the Commonwealth procurement framework, through the Commonwealth Procurement Guidelines, they decided not to include a separate annex, like annexure A, to list all the Defence exemptions. Rather, they incorporated the provisions of article 22 of that Free Trade Agreement—

Senator JOHNSTON: Where does it say all that in here? Where does it say that in section 44?

Mr Dunstall : It does not.

Senator JOHNSTON: No. So you are saying that we are not bound by section 44?

Mr Dunstall : No, we are certainly bound by section 44, which is efficient, effective, ethical and economical use of Commonwealth resources.

Senator JOHNSTON: Are you saying that the license for you to go forward in this fashion is contained in paragraph 2.7?

Mr Dunstall : That is the mechanism by which Finance permitted the chief executive of an agency to give effect to measures that were agreed under the free trade agreement. In our case, the Defence exemptions are listed in appendix A to chapter 15 of the free trade agreement. That is the mechanism they came up with.

Senator JOHNSTON: This could not possibly help your chief executive in any shape or form in the manner you have described. The last sentence is paramount:

Applying such measures does not diminish the responsibility of Chief Executives under section 44 of the FMA Act …

Mr Dunstall : Correct. We still have to ensure that it is an efficient, effective, ethical and economical use of Commonwealth resources.

Mr King : It is two different public resources.

Senator JOHNSTON: So you are saying this acquisition is value for money?

Mr Dunstall : Correct.

Mr King : Yes. I will tell you why it is value for money, but I will also tell you of my other commitments. There is the commitment under the FMA Act for value for money. I also have a commitment to not unreasonably cause costs to industry. That has been the source of quite a number of discussions we have had here about unreasonably driving up costs for industry to participate in the provision of goods and services to Defence.

Information was gathered over a series of years about capability of the two likely platforms that could solve the needs for Australian defence. Once again, the Chief of Air Force needs to speak to this. Key performance characterises were essential for Defence. But to make sure that industry had an opportunity to make us an offer we went to RFI information. We sought and received a considerable amount of information. That information was evaluated on capability terms, on cost terms, on risk terms and, I expect, on commercial terms.

Senator JOHNSTON: Why was there a month's delay between the FMS approach and that approach to the competitors?

Mr King : I would have to take that on notice. Despite that, at least in the case of Airbus Military, we were able to get an offer in excess of 300 pages. I have the data here, the broad summary. There was no significant cost advantage for the lesser capable aircraft.

Senator JOHNSTON: I would like you to take on notice that I want you to verify that, chapter and verse, as to the cost of the aircraft, because there has been no competition and we have nothing to go with or go forward upon other than what you are telling me.

Mr King : There has been a competition. I—

Senator JOHNSTON: Not an open competition.

Mr King : No, there has not been an open competition. Mr Dunstall explained that. Like many of our Defence procurements—we are getting into two different issues—it was a directed source. It is true that we went to only three potential suppliers. We could have gone to others. That would have been quite wasteful given that we knew the capability bounds we are operating in. Having gone to three, we offered them the opportunity to provide us data on cost capability and schedule risk, which we evaluated. That was a competition. It was not a full RFT. That is a fact. From that information, given that there was no significant cost differential in the offers and that one of the capabilities was significantly greater and met essential items that Defence needed for operations, a decision was made that the prospect of the lower cost platform closing the gap in some way was not practical or viable. So, rather than waste industry's time and effort and energy we then down-selected to one supplier.

Senator JOHNSTON: Do you accept division one of the capability guidelines sets out that you must comply with the guideline that 'value for money is a core principle underpinning Australian government procurement'?

Mr King : I am not sure. I absolutely live by the notion that I have a responsibility as the chief executive of an agency to comply with the FMA Act, and I do that every day.

Senator JOHNSTON: Paragraph 4.2 of the guidelines states:

Value for money is enhanced in government procurement by:

a. encouraging competition by ensuring non-discrimination in procurement and using competitive procurement processes;

Do you believe you have done that?

Mr King : Yes.

Senator JOHNSTON: The next point is:

b. promoting the use of resources in an efficient, effective and ethical manner …

in accordance with section 44 of the FMA Act. Do you believe you have done that?

Mr King : Yes, and let me explain why. If I had driven a defence industry that relies almost exclusively on military contracts into a tender for which they had no prospect of winning I would have driven up their costs and ultimately the cost of future suppliers.

Senator JOHNSTON: Thirdly, it states:

c. making decisions in an accountable and transparent manner.

Do you believe you have complied with that?

Mr King : Yes.

Senator JOHNSTON: How is this transparent?

Mr King : It is transparent in that we have followed our normal processes on developing an acquisition strategy, on soliciting information from the market, on forming a source evaluation team, on having the appropriate officials appointed to review that information and sign off on it, and to provide that advice. There was no difference in this case than in any other case we would use. So, I do not have any problem with that whatsoever.

Air Marshal Brown : The argument at the moment is a little one-dimensional. I wonder whether it is worth going through the capability differences between the C-295 and the C-27?

Senator JOHNSTON: I am sure there are good capability differences and I am sure the aircraft you have down-selected is what you want.

Air Marshal Brown : It goes directly to the value for money argument.

Senator JOHNSTON: I don't think it goes to the process.

Air Marshal Brown : If it does not meet the capability requirement it is not value for money.

Senator JOHNSTON: You can only really determine that with an open competition, unless you are doing a desktop internal study that we cannot review, because we do not know what has activated the decision maker.

Mr King : I have to correct a 'desktop internal study'. The submission was 300 pages. I am pretty sure I sat here being criticised for demanding hundreds of pages of tenders. A 300-page submission for which we asked particular information to be provided, and which we evaluated, does not constitute a desktop study.

Senator JOHNSTON: Have you see the report on 21 May 2012 from the United States Senate Armed Services Committee dealing with counterfeit electronic parts in the Department of Defense supply chain?

Air Marshal Brown : Yes.

Senator JOHNSTON: You have seen it?

Air Marshal Brown : That is correct.

Senator JOHNSTON: You have seen that the C-27J has a significant credibility problem with respect to display units?

Air Marshal Brown : That problem has come up. It was to do with counterfeit parts. That has actually been corrected since then.

Senator JOHNSTON: We think it has been corrected. When I look at this report—

Air Marshal Brown : You will also notice that they have counterfeit parts in the C-130J, which were also—

Senator JOHNSTON: And P-8s and C-17s and a whole lot of other platforms.

Air Marshal Brown : It is an issue that is under examination at the moment. But in the C-27 it was to do with problems with the heads-up display. That has been discovered and corrected.

Senator JOHNSTON: The display units are manufactured by L3 Display Systems, a division of L3 Communications. For the C-27J, L3 Display Systems manufactures the display units for Alenia Aeronautica, a subcontractor to L3 Integrated Systems, which is a separate division of L3 Communications. In November 2010, L3 display systems learned that a memory chip used in display units was suspect counterfeit. This report goes on to itemise the fact that they did not report that. There is a significant problem in the reliability of these chips, as acquired from Hong Dark Electronic. There are something like 28,000 of these potential problems floating around with the bus adaptor units in the C-27J. Are you aware of that?

Air Marshal Brown : That is correct. The information I have from the US Air Force is that they have subsequently corrected those issues with the C-27 and there are no problems with the display units at the moment.

Senator JOHNSTON: Are we going to check that independently?

Air Marshal Brown : We have checks going on right throughout our fleet with regard to this particular issue.

Senator JOHNSTON: So it is only an FMS issue?

Air Vice Marshal Thorne : The Senate inquiry is not a definitive study of counterfeit parts. Indeed, even though it did a few probes by buying parts from China and other places to expose the extent of the problem, it is not a definitive—

Senator JOHNSTON: Have you read the report?

Air Vice Marshal Thorne : I have read the report.

Senator JOHNSTON: You would have seen that for not being definitive it has a very large component of analysis of almost 70 pages of counterfeit parts infecting the supply chain in US Defense supplies.

Air Vice Marshal Thorne : That is correct. The point I wanted to make is that that is not a complete filter of all counterfeit parts in the defence aerospace business. It is an extensive list of anecdotes. The way we manage this in aerospace is that we have certificates of compliance that are delivered with each part that attest to the fact that a particular time has been developed in accordance with the specification for both performance and process. We have sample checks of items that are delivered. On occasion we pick these things up.

If I could talk about the C-130 situation, because it is very closely related to the C-27J one you asked about. We have been alerted to that particular issue. We were alerted back in March, I think it was, to the C130-J issue. Our engineers have done an assessment of the vulnerability of that particular display, looking at failure modes and those kinds of things. The conclusion was that it was not critical to capability. Indeed, we can continue to fly with those suspect—and I should underline 'suspect'—counterfeit parts until such time as there was a failure and we could change those items out. Many of these issues are not catastrophic to capability safety or airworthiness.

Mr King : The other thing that I should add is that I had discussions with my counterpart in the US six to eight weeks. He is obviously implementing a program of enhanced oversight. We are exploring ways in which we can have closer participation in that program.

Senator JOHNSTON: What does an L3 display system do?

Air Marshal Brown : I think you are referring to the head-up display. What it does is displays altitude, air speed and altitude information in front of the pilot's eyes.

Senator JOHNSTON: This chip has a failure rate up to 27 per cent.

Air Marshal Brown : What you have to remember is that in aviation that is not the sole system that we use. Failures of heads-up displays are not an unknown occurrence. There are back-up systems within the aeroplane that the pilot can use. They can quite safely navigate, land and fly the aeroplane without the head-up display.

Senator JOHNSTON: The article says, 'L3 display systems had already installed parts with the suspected lot on more than 400 of its unit displays, including those intended for the C27J.'

Air Marshal Brown : That is correct. As I said before, the USAF found that and have replaced all those parts.

Senator JOHNSTON: It goes on: 'Failure of the memory chip could cause a display unit to show a degraded image, lose data or even go blank altogether.'

Air Marshal Brown : As I said before, there are other systems on the aeroplane that allow you to not use the heads-up display.

General Hurley : The point is that we have been made well aware of the issue and remedial action is underway. In one sense, we should be grateful that we know what is in the aeroplane we are acquiring. We do not know what is in the aeroplane that we are not acquiring.

Senator JOHNSTON: Do either of the competitors have a similar problem?

General Hurley : We do not know, because no-one has done an investigation or an inquiry. What we do know is that in this particular—

Senator JOHNSTON: Is there any data that says that they have?

General Hurley : In this particular case, we have been alerted to an issue and the issue has been addressed. That is the point of the whole system.

Senator JOHNSTON: We think that it has been addressed.

General Hurley : No. We have heard from the Chief of the US Air Force that the C27 has been addressed.

Senator JOHNSTON: This report came down last Monday.

Mr King : The report came down last Monday, but the US DOD and the services have been aware of this emerging problem for some time. They have been taking corrective action. They will continue to do so. My thought is that if America has identified this with all the surveillance regimes that they have—and they are very significant—then we probably also have those problems in other supply bases and we just do not know about it. We are very concerned about the supply chain in a global world and how we are going to control this in the future. It is a serious problem. The fact that the US were alerted to it probably explains their attention to these sorts of matters. The fact that they have not been alerted to other problems is probably not a confidence builder; it probably just points to a lack of knowledge one way or the other.

Senator JOHNSTON: I have one last matter for Air Force.

CHAIR: Before we move off this, I would like to ask a question of Air Marshall Brown before I go to Senator Fawcett. Can you put on the record the capability of the C27J? Can you explain how it complements existing aircraft, including the C130 and the C17?

Air Marshal Brown : Thank you very much for the opportunity. What I would like to do is go through a comparison of air transport capabilities between the two aircraft. The first one that I will start off with is the special operations vehicle that the C27 can carry and which the C295 cannot, our LAND 121 vehicles, the G-wagon. The C27 can carry most variants other than the ambulance. The C295 cannot. The C27 can carry the Land Rover Perentie and the C295 cannot. The C27 can carry the Land Rover six by six long range patrol vehicle and the C295 cannot. The C27 can carry the lightweight panel truck and the C295 cannot. The C27 can carry the John Deer 450c tractor and the C295 cannot. The C27 can carry the 2½ tonne forklift and the C295 cannot. The C27 can carry the bobcat series 943 with support equipment and the C295 cannot. The C295 and the C27 can carry the light 105 Hamel gun. They can both carry the ammunition loader for the Hornet. The F-18 engine on a stand can be carried by the C27. It cannot be carried by the C295. The C130 engine on a stand can be carried by the C27. It cannot be carried by the C295.

Going to some of the performance characteristics of the two aeroplanes, there is a speed differential. The long range cruise speed at 20,000 feet is 420 kilometres per hour for the C295. It is 457 kilometres per hour for the C27. That is a 13 per cent advantage in cruise speed. The service ceiling for the C295 is 25,000 feet. It is 30,000 feet for the C27. That is a 20 per cent increase. The maximum payload of the C295 is 7,740 kilograms. It is 9,540 kilograms for the C27. That is a 23 per cent advantage over the C295. The range of the C295 is 2,778 kilometres. It is 3,982 kilometres for the C27. That is a 43 per cent increase in range. The most important factors, however, are takeoff run up at maximum takeoff weight. It is 884 metres for a C295. It is 584 metres for the C27. That is a 30 per cent decrease in takeoff run up, which is very important when you are trying to get into shorter strips, with a greater payload. The landing ground roll is 420 metres versus 366 metres, which is a 12 per cent decrease in landing ground roll between the two aeroplanes. If you were to look at cabin dimensions, the maximum width is 2.7 metres for the C295. It is 3.3 metres for the C27 that is a 23 per cent advantage. The unobstructed height centreline is 1.75 metres for the C295 and 2.25 for the C27, a 28 per cent advantage. In terms of troop carrying capability, both aircraft can carry 46 troops at 120 kilograms. When you go to paratroops at 160 kilograms, the C295 can carry 34 while the C27 can carry 44. When we look at aero medical evacuation, the C295 can only carry 16 with four attendants. The C27 can carry 26. That is a 62 per cent increase. The overall volumetric capacity of the C27 is 15 per cent more.

If you were to look at the advantages in terms of essential criteria, one of the essential criteria put in the operational specification was the ability to carry the special operations vehicle. Another one was to be able to load a 7,000 kilogram vehicle. Another one was to have a 25,000 foot cruise altitude. The C295 could not comply with any of those three essential criteria. It was potentially non-compliant with three other essential criteria around fuel tank suppression. The aeroplane may have been able to be modified to meet those criteria, but it was not an off-the-shelf option. It could not conduct extended ground operations in remote locations to the same extent as the C27. That is all to do with the fact that the C27 has an auxiliary power unit. To load and unload a C295, you have to keep one of the engines running, which causes certain problems in an army's area of operations. And there was no crew or passenger oxygen provision. The aeroplane could have been modified for that, but it certainly did not come with that.

It was non-compliant with five important requirements, such as the ability to operate high and hot in 35 degrees at 6,000 feet. It did not have a full height paratroop draw. It was difficult to use it to support Army's paratroop dropping capability. And there was an important criteria to be able to evacuate at least 18 people, when it would only carry 16. The other big thing was its ability to carry a full container load. The difference between the C27 and the C295 is that the C27 can take a full height pallet. The C295 has to be downloaded.

A lot of these differences are because of the lineages of both aircraft. The C295 is fundamentally a converted passenger aircraft. Its fuselage dimensions are not much different to the Dash 8s that you travel to Sydney on a regular basis. The C27 has a lineage as a specified and specific airlifter. The volumetric capacity of the fuselage is much lower, which goes to a lot of the essential criterion. The big advantage of this aeroplane over even the C130J is that it gets us into four times as many airfields in Australia and three times as many airfields in the region as a C130. When you look at a lot of the jobs that the Air Force has to do, whether for Army or for humanitarian support, this aeroplane brings with it a lot of advantages. From a capability point of view, it has a clear advantage.

Mr D Lewis : Before we move on, with regard to C27 acquisition and Senator Johnston's line of inquiry relating to the process of down selection and competition, I want to put on record my support for the strenuous representations made by various officers at the desk with regard to the compliance with the Commonwealth Procurement Guidelines and with the FMA Act.

CHAIR: Thank you, Mr Lewis. Senator Fawcett?

Senator FAWCETT: I want to follow up on a couple of questions regarding the FMS case for the C27J. You mention it is a very good deal, but there is a time line on when that American offer expires—I am assuming the Alenia offer to America expires. What do we need to do by that date in order to secure the aircraft at that price?

Air Vice Marshal Thorne : Essentially we have done what we need to do; we have accepted the letter of offer and acceptance from the US FMS system. We are aware that, behind the scenes, the US have passed that on to L-3 and that L-3 is in the final throes of negotiation with Alenia on that contract. In fact, I am expecting that contract to be signed in the first part of this week, which would meet that deadline.

Senator FAWCETT: If the American congress approves the recommendation from the Defense department to not proceed with the C27J in their service, does that change the terms of that offer that Alenia have made to the DoD as it affects us?

Air Vice Marshal Thorne : No, that does not change that at all. In fact, one of the main things that we are getting out of the FMS system is buying power. The US were able to negotiate a very cost-effective price for the 27J. Given that that was a capability that has considerable capability edge over the competitive 295, the clear way of buying that was through FMS. There is a bit of history behind that. Originally the program was intended to be much larger than it was in the US. From recollection it was about 148 aircraft that then came down to about 78 aircraft, down to 38 aircraft and now it is only 21 aircraft. The original price, what we are calling option period 5 contract, was based very favourably on a higher volume of aircraft than has been delivered. No, that option period 5 contract, which expires, I think, on 14 or 15 June, is unchanged by the US decision.

Senator FAWCETT: One of the advantages of FMS traditionally has been that there has been a parent air force in this case who is running the through-life support around design assurance and engineering. Will the US Air Force continue to conduct that role with no additional flow-on costs to us, assuming that they cancel the program?

Air Vice Marshal Thorne : The future of the US program is still up for debate. As has already been stated, the department of the air force has put forward a recommendation to remove that as a project of record or a capability of record. There have been counters from house committees at both levels to that. The future of the capability is quite uncertain. Partly because the capability is a very small capability and was always going to be a relatively small capability in the US context, we had not put a lot of stead on that kind of support out of the US. It was always going to be a small USAF capability operated by the National Guard, which we had not relied on in the past. To some extent a lot of our planning around support for the capability had more or less assumed minimal support from the US. My reading of this would be that, if this is not a project of record in the US then the USAF is unlikely to support that. But the contractor, L-3, would continue to provide that kind of support.

Senator FAWCETT: I am sure they would. From a due diligence perspective, that is a viable outcome—that the US Congress accept the recommendation and cancel the program. But my concern is that we identify what additional cost may come through that, because if the USAF is not acting in that role as the parent air force engineering organisation then it falls on the DMO here to stand up a systems program office with that full range of capability—which I assume under a pure FMS situation, where USAF was doing that, you would not have had to stand up that cost. Has that been factored in to the potential cost for the capability?

Air Vice Marshal Thorne : I guess what I was saying to you is that yes, that has been factored in. In fact, it was always factored in. To some extent the demise of the US program is neither here nor there. We were always expecting to have to stand on our own two feet, and we have structured and costed the program accordingly.

Mr King : There may be opportunities—only 'may be', depending on which way the US program goes—for us to actually get some benefit one way or another. But we have done it, as Air Vice Marshal says, on a stand-alone basis, and there may be some benefits downstream one way or the other.

Senator FAWCETT: Either way, I am pleased to hear that you have stood up a stand-alone capability in terms of growing our engineering workforce for the future competence to avoid Rizzo's in-the-air capability. I am glad to see that base of engineers is being grown.

Senator IAN MACDONALD: I think my questions have been answered, but perhaps I could just confirm something. There were newspaper reports that the US had stopped buying them and were going to sell off the ones they had. Are those reports inaccurate?

Mr King : They have stopped procuring more aircraft at this stage, but the future of the aircraft they have is still up for Congress to decide.

Senator IAN MACDONALD: If that does transpire—that they are not buying any more and are selling what they have—would we be in the market for the second-hand ones?

Air Marshal Brown : Perhaps I can answer that. The way the US goes through its disposal process is that it has to be offered to other US government agencies first, and the US Coast Guard has certainly indicated that if they become available from the US Air Force the US Coast Guard will more than likely take up those aircraft.

Senator IAN MACDONALD: Does the Coast Guard have others of that aircraft?

Air Marshal Brown : No, but they see advantages of using the C27 in the roles.

Senator IAN MACDONALD: So the USAF would get rid of them in this scenario, but the US Coast Guard would buy them?

Air Marshal Brown : That is one thing that is being reported at the moment.

Senator IAN MACDONALD: It does not make a lot of sense—except I guess they would say they have different requirements for an aircraft.

Air Marshal Brown : I think the smaller size of the aeroplane fits with the Coast Guard role to a certain extent. That is why they have put forward a bid for them.

Senator IAN MACDONALD: The Coast Guard would not want paratroopers or howitzers on board, or that sort of thing. They would be quite different roles.

Air Marshal Brown : They often have a requirement to drop parachutists out of aircraft to effect rescues and things like that. They have C130s. This would fit fairly well with their role.

Senator IAN MACDONALD: I appreciate that it is the American Congress, not Australian, but do you have any idea of when the United States government will be making a decision? I assume the decision by the air force to stop buying them has been made. Is that correct?

Air Marshal Brown : To buy any new ones, yes.

Senator IAN MACDONALD: But do you know when the decision will be made on whether they offload what they have got?

Air Marshal Brown : I think they have a pretty tortuous political process that they have got to go through yet.

Mr King : The Air National Guard is a very heartfelt capability by states. Each state cherishes its Air National Guard presence. So our estimate is that it will be quite a protracted period before this whole matter is sorted out one way or another—whether or not excess assets, if they indeed are created, will be disposed of.

Air Marshal Brown : I think it is interesting to point out that the US Army is against cancellation of the program as well as the US Air National Guard. They actually see the aeroplane as a very useful capability. So there is a fair bit of opposition to it in the States.

Senator IAN MACDONALD: Well, it is lucky we look forward to the US as the absolute leader in all this stuff, isn't it, and follow their every footstep? Perhaps this will be where we do not.

CHAIR: Just on that issue, Air Marshal Brown, do we know whether other countries are using the C27J or have ordered it?

Air Marshal Brown : The Italians have got the aeroplane. There are about five or six other nations. I would need to get the list. I could bring that up. But it is used by other countries. It was deployed to Afghanistan recently and performed quite well.

CHAIR: So it is not just America and us that are looking at this aircraft?

Air Marshal Brown : No.

CHAIR: Are there any further questions on this particular issue? No. Are there any further questions for Air Force?

Senator JOHNSTON: Yes. What is the current situation with respect to pilot numbers?

Air Marshal Brown : Pilot numbers are pretty good throughout the Air Force. Most of the capabilities are pretty close to their constrained establishment. I actually have—I would need to check—about 29 pilots awaiting conversion at the moment.

Senator JOHNSTON: I am told that we have trained a lot of pilots up and a significant number of them are driving desks because we have not got enough planes. Is that the status?

Air Marshal Brown : I do not think so. I am actually holding over establishment in a number of units at the moment, flying them. So that is not the case. It is a nice position to be in, however, to be a little flush for pilots for once.

Senator JOHNSTON: That is fine. I just wanted to know. If we are a little flush, what have we got coming over the horizon? Why are we a little flush and what is the planning strategy so that these young men and women can have some concept—they are getting promoted, as I understand it, many of them and then they are not flying.

Air Marshal Brown : We have got a fairly disciplined approach to pilot training, so that they all get a fair bit of experience before we give them experience in other aspects of Air Force capability. At the moment, most of them would actually get converted onto an operational type, whether it is a C130J, a C17 or a Super Hornet, do a tour on that and then we would look at them for instructors course, probably. So they would go back through and do a period of instructor training and then come back to their particular type. Some of them will do a tour and then they will go into pretty critical roles and enter our air operations centre or our air mobility coordination centre. They are all roles that require pilot training.

Senator JOHNSTON: What about 34 Squadron? How many excess have you got with respect to that confined number of aircraft?

Air Marshal Brown : At the moment with 34 Squadron—I think you might have been subject to this the other day—we are probably just right on our numbers of aircraft captains. At the moment, we have enough in terms of our establishment, but occasionally you might get somebody be sick or something like that, which might limit our capability to a certain extent.

Senator JOHNSTON: Thank you for that. We are buying two JSFs soon. When are we due to pay for them?

Air Marshal Brown : I might hand over to DMO for that question.

Mr King : I will get Air Vice Marshal Osley to join me, but we have paid already for the long lead materiel items for the first two.

Senator JOHNSTON: What items were they?

Mr King : I will get Air Vice Marshal Osley to answer. There were some services and some materials needed for the production.

Senator JOHNSTON: While we wait on Air Vice Marshal Osley, can come I back to the Chief of Air Force. Are you familiar with this MEAO sustainment contract, where we fly into the MEAO?

Air Marshal Brown : I do have some familiarity with it.

Senator JOHNSTON: The plane had a hard landing in Darwin the other day. Take me through what happened with that. That was the Portuguese aircraft. What has happened to it?

Air Marshal Brown : That is not an unusual occurrence. It occurs from time to time. The aeroplane was on the ground while it was inspected. To my knowledge, there were no problems with the aeroplane and it continued from there.

Senator JOHNSTON: I am told it stayed in Darwin for several weeks.

Air Marshal Brown : I might just take that on notice.

Senator JOHNSTON: There was a very hard landing, an inquiry and the plane was unserviceable. Other aircraft had to be flown to replace it.

Air Marshal Brown : I think other aeroplanes were flown in to keep the mission going, yes, but that happens sometimes. I will take it on notice on the timing.

Senator JOHNSTON: I would like to know precisely what excuse was given. I have heard it was weather. My assessment of the weather on that day was that the weather was perfect for flying. This was an exceptionally hard landing. The plane was unserviceable for some considerable period of time afterwards. There has been an investigation, and by all accounts it was concerning.

Mr D Lewis : I can give you some information about that. We will come back to you with the detail you asking for. The hard landing occurred in Darwin in February, as you described, as a result, we understand, of weather and wind, in particular. No damage to the aircraft was sustained. It was cleared to resume service on 11 April. The ATSB continues to investigate all aspects of the incident in accordance with its statutory responsibilities, which go to independent investigation of transport accidents and other safety occurrences. So, we know that as the outline facts of the matter. We will come back with further information on your other specific points.

Senator JOHNSTON: Why February to April?

Mr D Lewis : I do not know the details. I just can say that no damage was done to the aircraft.

Gen. Hurley : Maybe an aircraft was involved in the hard landing, so as a safety thing people said, 'Okay, we will do something else while we examine it.' We will check the details. It would be more a precautionary step to ensure the safety of the aircraft.

Senator JOHNSTON: Air Vice Marshall Osley, regarding the two aircraft, what are the lead items we have paid for, when are we due to pay for the balance and how is all of this going, given that we have had a deferral for two years by the minister in the budget process?

Air Vice Marshal Osley : Back in May last year we signed for the long-lead items for the low-rate initial production number six. Those are the aircraft that are going to be ordered this year and they will be delivered in 2014. We signed up with a maximum commitment of $31.8 million, which is comprised of $26 million for the airframe itself for long-lead items, and $5.8 million for the engine for long-lead items. The long-lead items include a long list of part numbers that go in to both the airframe, comprising things such as the intake duct and everything down to small nuts and washers, anything that might be required ahead of the major contract for the first two aeroplanes. The engine components comprise some of the large components and again some of the smaller bearings and that. Again, anything that is required ahead of the major contract to ensure the timeframe can be met for the first two aircraft for delivery in 2014. At the moment we are committed to about $8 million. We have already paid for the airframe components, for the long lead. At this point in time we have not been billed for anything yet on the Pratt and Whitney 135 engine long-lead items.

Senator JOHNSTON: Are those two aircraft on the production line or approaching the production line?

Air Vice Marshal Osley : Of the long-lead items $8 million of the airframe components have already been invoiced. In addition to the airframe components in long lead you also have some labour costs and also some basic tooling. Some of those components are making their way through the system. There is not yet anything you could put a stamp or an Australian flag on, so you cannot put AU1 or AU2 on something or have a photograph taken in front of anything that resembles an airframe. Some of the parts have been bolted together. Around about towards the end of this year or early next year we will actually have something that you can probably stick a flag on. The first large component will probably be the intake duct of the first Australian aircraft, AU1. That will be made at Northrop Grumman at Palmdale. That intake duct will be designated as an AU1 component. The first component in Australia will probably be the base plate of a tail fin, and that will be made at BAES probably around the September-October timeframe.

Senator FAWCETT: To follow-up on JSF, the American company Lockheed Martin has made some statements about steps they are taking to preserve the supply chain, given the draw-down on orders the US government has mandated. Here in Australia we have now seen the government decide to defer our purchase by two years. Much has been made of the opportunities for local industry to be involved with the JSF program. Can you confirm how much of that is tied to our commitment of purchasing aircraft, our time frames and what exposures they face as a result of our government's decision to defer by two years in terms of being able to sustain the costs of the tooling up and training up they did in anticipation of the work that would flow?

Air Vice Marshal Osley : Certainly Australian industry involvement is a very important part of the program and is a key focus for me as the Program Manager New Air Combat Capability. Australian industry, just in the broad, has done quite well with regard to the program. We have about 30 Australian companies that are currently involved in making parts or providing services for the Joint Strike Fighter. To date, as of today, just over $310 million in production orders have been won by Australian companies, with one per cent of the aeroplanes made. So that ratio is quite good. Currently in production we have low-rate initial production—

Senator FAWCETT: Can I clarify: is the $310 million directly related to that one per cent of aircraft or is that orders in anticipation of future aircraft that are going to be purchased?

Air Vice Marshal Osley : That is total production orders, mainly relating to aircraft that are in production at this point in time. A small portion of it is for the future. As we go through the program, in addition to the $310 million—I have not mentioned it—there are hundreds of millions of dollars worth of long-term agreements that relate to the future low-rate initial productions. Overall we are anticipating well in excess of the $1½ billion that was indicated to government previously as being a likely industry benefit for Australian industry out of the program. Probably the current estimate within the program is around the $2 billion to $3 billion mark as our target, if not a bit more than that.

Mr King : Senator, as I am sure you would be aware, the manufacturers do not manufacture for Australian supplies; they manufacture for global supply. The biggest driver on slow-down of orders is the American decision to move 179 aircraft out of the procurement period. Our adjustment for our nation is 12 aircraft slipped by two years. I have not calculated the percentage impact on Australian industry but it would be a very small impact relative to the re-baselining of the US program.

Air Vice Marshal Osley : Perhaps I could add to that. Australian industry is mainly bidding for the work that is currently in progress. We are talking about low-rate initial production IV, V andVI. Four is being built this year, V is under construction and they are doing the long lead items for VI. That is most of the business that is out there. The delay of the 12 aircraft does not affect LRIP IV, V or VI and it does not affect any low-rate initial productions for a year or two after that. At this point in time there is no impact really on the business for Australian companies arising from the delay of those 12 aircraft. Australia signed up to the Joint Strike Fighter a number of years ago. As a result we are able to bid for business as a partner nation and we received some strategic business, and in that category comes some of the work that Quickstep and other companies in Australia are doing. None of that strategic work is affected by the delay of the 12 aircraft. What is important is the overall commitment to the program, and that remains unchanged. The Minister for Defence has reiterated on a number of occasions his support for the JSF program and, as a result, our industry opportunities have not been significantly impacted.

Senator FAWCETT: The Americans, as in Lockheed Martin, have indicated that they are bringing forward some orders of parts, whether they be long lead time items, in anticipation of further orders, so in those phases V, VI and beyond, in order to keep the industry base going. They were predominantly talking about US base suppliers. Are you aware of any such forward orders in advance of government orders of the aircraft being placed with Australian companies to give them similar assistance to survive this deferment period?

Air Vice Marshal Osley : Yes. I do not want to go into great detail, because a lot of it is commercial-in-confidence, but I talk with Lockheed Martin regularly about the specific implications for various companies in Australia. As a result, we aim to try to smooth out that flow of work. We do seek to get good outcomes for Australian industry. We aim to have them gain either extra joint strike fighter business or other business in the aerospace sector. Some of that contact includes discussion with Lockheed Martin. I am also in constant discussion with Northrop Grumman, with Pratt & Whitney and with various other manufacturers to see what work can be brought forward to overcome gaps in work orders for those companies involved in the JSF. To date we have been reasonably successful. Out of those 30 companies, the majority either have been able to gain additional JSF work to cover them or have diversified into other aerospace areas and have managed to keep their business strategy going. Of course, all of them are very much focused on being in place to take advantage of the ramp up in joint strike fighter production, which is on the horizon.

Senator FAWCETT: Chief of Air Force, whilst DMO obviously is doing the procurement, one of your responsibilities as the capability manager is to make sure that all the other fundamental inputs to capability line up. I assume you have been positioning and identifying personnel in both the engineering and aircrew space to move into this project. What impact is this two-year delay having on your ability to manage the careers of your people?

Air Marshal Brown : A lot of that detailed planning is still in process. We have not actually got down to identifying people. What we have done is identify skill sets that we need. From that perspective, it has not really affected our planning.

CHAIR: Senator Kroger, have you questions?

Senator KROGER: I am interested to know what ratio of pilot training is based on simulators.

Air Marshal Brown : It depends on where it is in the pilot training system. In our high-end operations, such as F18s and C17s, there is a fair percentage of simulator training. Our more basic pilot training is a much older system and was purchased with no simulators. We hope to have a lot more simulation in our pilot training with that project, project 5418.

Senator KROGER: Has the use of training using simulators, particularly for advanced aircraft, changed over the last few years?

Air Marshal Brown : It has definitely increased. In fact, in some respects, with the more advanced types, some of the more advanced training has to go on in the simulators, because the systems are so good that it is hard to stress the pilot-machine interface in any way other than in a simulator.

Senator KROGER: I presume there is a minimum number of flying hours that have to be achieved. With the training—I appreciate that it is different at the various levels—does the way in which the programs and the training and experience are structured account for a minimum hours on simulator based training?

Air Marshal Brown : That is correct, but the actual requirements vary from aircraft to aircraft.

Senator KROGER: Can you provide a breakdown of the training?

Air Marshal Brown : I can. I will take it on notice and provide that for you.

Senator KROGER: I am interested to know how many female pilots we have.

Air Marshal Brown : I can do that as well. It is an area that we are working on a fair bit, because our percentage of female pilots is quite low. We have just started an initiative with a couple of universities. We are looking at taking women graduates from places such as Griffith University, which does a Bachelor of Aviation, and offering them an Air Force pilot course and to pay for their education up to that point. We are trying a number of methods to increase the participation rate of females in aircrew.

Senator KROGER: Could you give me a breakdown of the number of pilots you have with various years of experience as well?

Air Marshal Brown : For sure. Can I take that on notice?

Senator KROGER: That would be terrific, very helpful. Thank you.

CHAIR: There are no more questions on Air Force capability. I understand Senator Ronaldson has sought the agreement of his colleagues to ask some questions here before we go to intelligence capabilities.

Senator RONALDSON: I have some questions for the three service chiefs. Gentlemen, I understand that some or all of you have stayed behind, so I am very grateful for that. Thank you. I just want to confirm that you are all ex-officio members of the Council of the Australian War Memorial.

Air Marshal Brown : Yes.

Vice Adm. Griggs : Correct.

Lt Gen. Morrison : Yes.

Senator RONALDSON: Indeed, on 8 March were you at the meeting which elected a new chairman?

Lt Gen. Morrison : I think, from memory, I was the only service chief who was at that council meeting. The other two service chiefs were represented by their deputies.

Senator RONALDSON: That is correct, gentlemen?

Vice Adm. Griggs : That is correct.

Air Marshal Brown : That is correct.

Senator RONALDSON: Lieutenant General Morrison, you elected a new permanent chairman on that day?

Lt Gen. Morrison : That is correct.

Senator RONALDSON: Prior to that meeting, in the day or so or perhaps even the week before that meeting, did you receive a phone call suggesting a course of action for that 8 March meeting, particularly in relation to whether an interim chair should be elected?

Lt Gen. Morrison : I received a phone call, from memory, on the night before the council meeting—or it might have been the afternoon before—from Rear Admiral Ken Doolan. Matters pertaining to the election of a new chairman to replace Peter Cosgrove were discussed.

Senator RONALDSON: Did you receive any other phone calls in relation to an appropriate course of action for the next day, particularly in relation to the election of an interim chair?

Lt Gen. Morrison : I did not.

Senator RONALDSON: You did not. Not from Rear Admiral Ken Doolan but from anyone else?

Lt Gen. Morrison : No.

Senator RONALDSON: Okay.

CHAIR: Before we move to program 1.5, Mr Lewis, did you have any information you wanted to put on the record in response to questions asked earlier on, or should we do that after lunch?

Mr D Lewis : It might be an opportunity, because we have people here, to read a number of corrections, additions and so forth from last night.

CHAIR: I think we will do that now.

Mr D Lewis : We might start with the Chief of Army and then I will go to the DSG for questions about the Cairns real estate that Senator Macdonald asked about. The Chief of Air Force has some time lines with regard to the Prime Minister's plane leaving Townsville. Mr Simon Lewis from DSG also has some detail on the buildings at Cultana. I think he also has some maps of the Defence National Storage and Distribution Centre, which was a discussion we had yesterday about the Moorebank area.

Lt Gen. Morrison : I would just like for the record to correct evidence that I gave to Senator Humphries in relation to the placement of the rising sun badge on the grade 2 slouch hat. I indicated in one of my answers that there was in fact not a catch on the top of the hat that allowed you to pin the brim up. While that is the case for the older style slouch hat, which I wear, that is not the case with the current issued hat. Nonetheless, it does not change the decision I made. When both sides of the brim are worn down, we will not have a rising sun badge pointing to the ground. When it is placed up in a formal position, the rising sun badge will be worn.

CHAIR: Thank you.

Vice Adm. Griggs : Chair, I have a response for Senator Johnston regarding mine countermeasures. Would you like me to wait till he comes back?

CHAIR: No, just do it.

Vice Adm. Griggs : He asked a question about the last time that Navy did a lead-through of a minehunter vessel in Sydney Harbour and a lead-through in Jervis Bay and also at Stirling. In Sydney it was conducted in February 2012 during Exercise Mulgoga. In Jervis Bay it was conducted yesterday as part of HMAS Farncomb's work-up. For HMAS Stirling we believe it was probably 2004. That is because the minehunters do not get to Western Australia very often. He also asked when the last route survey was conducted at Stirling. My understanding is that that was in 2004 also.

CHAIR: Thank you, Admiral.

Air Marshal Brown : There was a question on the Prime Minister's aircraft departing Townsville. That departed at 2.30 pm.

Senator RONALDSON: Vice Admiral Griggs, you were not at the meeting of the War Memorial council, but did you receive any phone calls immediately prior to that meeting, in the day or so prior to the meeting?

Vice Adm. Griggs : I am not sure about a phone call, but I did have a discussion with Admiral Doolan.

Senator RONALDSON: And with anyone else?

Vice Adm. Griggs : Not that I recall.

Senator RONALDSON: You would surely recall that if you had.

Vice Adm. Griggs : My memory is the discussion with Admiral Doolan.

Senator IAN MACDONALD: Could I just follow up with the Air Chief. The Prime Minister's plane left for North America at 2.30 pm. You may not have this, but do you know what the fault was with her aircraft? Did they change aircraft or just get a part up to fix it?

Air Marshal Brown : The fault was actually with a fuel tank sensor in the auxiliary fuel system, so it was not registering that the aircraft had fuel in its auxiliary tanks. We diverted another BBJ in that was on a mission, and the part was changed out of that aircraft, which did not require the long-range tanks. That is how it continued on.

Senator IAN MACDONALD: Where was the other aircraft diverted from?

Air Marshal Brown : It was en route with the Governor-General to Dili, so that aircraft was diverted into Townsville and the part was changed.

Senator IAN MACDONALD: With the Governor-General on board?

Air Marshal Brown : It was.

Senator IAN MACDONALD: Do you know approximately what time the Governor-General's aircraft arrived?

Air Marshal Brown : I would have to check exactly on that. Maintenance operations by their very nature are a bit variable in how long they take. I think the advice we would have given to the Prime Minister would have been that we were going to try and do this as quickly as we could to try and get her on her way as soon as we could.

Senator IAN MACDONALD: Of course, as you would. It is just that when an aircraft is coming from somewhere else, as the Governor-General's plane was, Air Force would know when it was about to land, so I am just interested.

Air Marshal Brown : That is true. I do not have the exact details of where it was when the diversion was called, but the Governor-General's aircraft was airborne at the time when it was diverted. Actually, I do have it. It landed at 1 pm.

Senator IAN MACDONALD: So an hour and a half to fix it up and away we go.

Air Marshal Brown : Yes.

Senator IAN MACDONALD: And it obviously got there safely.

Air Marshal Brown : It did.

[12:10]

CHAIR: We will now move to program 1.5, Intelligence capabilities. Do any senators have questions in this area? No. I hope that is not a reflection on the intelligence capabilities of senators!

Senator Feeney: I have utter confidence in them, Chair!

[12:10]

CHAIR: We will go then to program 1.6, Defence support.

Mr D Lewis : Chair, would you like us to read in those answers of Mr Lewis before we start on this, because they relate to this program?

CHAIR: Yes, we will do that.

Mr S Lewis : There were three items. I will ask the Acting Deputy Secretary Defence Support, Mr Jenkin, to address the Cairns question and the Cultana question. I will just touch on the maps question. I started talking about the Holsworthy Moorebank issue yesterday. I think we all agreed that it would help the committee if we had just a couple of maps to help explain the piece of real estate we are talking about. We are getting those passed around now. In summary, there are two maps here. The first describes the current situation and the second the proposed developments. Once you have those in front of you we will just briefly explain. In fact, while we are waiting for those maps to be circulated, we will give you the answer to those other two questions.

Mr Jenkin : Senator Macdonald asked last night about land at Cairns, what we were holding it for and whether we had any future plans for it. I can address that question. The parcel of land in question is 6.15 hectares, part of lot 485 leased by Defence from Ports North under a 50-year lease commencing from October 2006. The land was identified in our 2005 master plan for HMAS Cairns to enable the expansion of the base and to relocate non-operational facilities away from operational space that requires water access to Trinity Inlet. Prior to our Cairns redevelopment in 2007, on-base parking was a real problem. It was limited and ad hoc and in fact potentially dangerous, with parking on Draper Street. Therefore, as part of that 2007 redevelopment, part of lot 485 was developed into a consolidated car park for base personnel. Additionally, as HMAS Cairns had no purpose-built gymnasium or sports fields, under that redevelopment we put in place a new gym and covered fitness area, again on part of lot 485. Most of the land, however, remains undeveloped. There are no current funded plans for further development, but its future use will be considered in the context of broader considerations under the Force Posture Review.

Senator IAN MACDONALD: Very, very briefly: the whole bit of the land is a 50-year lease from Ports North from October 2006?

Mr Jenkin : Correct.

Senator IAN MACDONALD: Is that a lease length that would encourage you to build permanent structures there?

Mr Jenkin : Yes, potentially, if we had a need for it and it was funded. I should say that there are some environmental constraints on part of that land. I think there is an area that is close to water, a river or creek.

Senator IAN MACDONALD: There is a drain up the centre that you could send some RHIBs in for stealth training or something! So nobody has any even elementary plans on what might happen there?

Mr Jenkin : No immediate plans on that undeveloped portion.

Senator IAN MACDONALD: It looks to me as if it would be a lovely place for fleet headquarters, actually! You could build a lovely building there! Where is the Chief of Navy? He has disappeared!

Senator Feeney: He is moving to Townsville, Senator, just as you want him to!

Senator IAN MACDONALD: This is Cairns! Thanks for that; I appreciate it.

Mr Jenkin : Do you want the answer on the Cultana question?

CHAIR: Yes.

Mr Jenkin : Senator Fawcett, I believe you asked last night about the huts under construction at upper Cultana. We do not refer to the area as 'upper Cultana', but, assuming that the question relates to the Afghan training village that we have, a training facility there at Cultana, there were 12 huts constructed in 2011. They are part of this training village and used for mission rehearsal exercises, mainly by special forces but by others as well. They are of a semipermanent nature. They are built with a soil packed construction. Twelve is the answer.

Senator FAWCETT: Who was the company contracted to do the construction?

Mr Jenkin : Spotless services managed the contract on our behalf. I am not sure who the actual builders were; I would have to find that out for you.

Senator FAWCETT: Could you take that on notice. I would be particularly interested to know whether they were a South Australian company or whether they came from interstate to do that work.

Mr Jenkin : I will find out for you.

Senator FAWCETT: And also a cost, please. By the way, that was not 'upper Cultana'; it was 'up at Cultana'.

Mr Jenkin : Okay. I was not there, Senator Fawcett, but we were wondering where Cultana Heights was and whether it was worth moving to!

Senator FAWCETT: Coming from South Australia, from Adelaide, most things are 'up'!

Mr S Lewis : Just to close that issue on the maps—

Senator IAN MACDONALD: Just before we go off Cultana, can I just ask where we are at with the leases and the negotiations with the owners in that area. Is that your—

Mr Jenkin : It is. I will ask our head of infrastructure, John Owens, who has been a lot closer to this, to answer that directly.

Mr Owens : I can report that we have made good progress on Cultana in the last 12 months or so. We now have agreement from all four Indigenous groups to the Indigenous land use agreement. That was a precondition for the state to grant us the miscellaneous lease for defence purposes. We are now waiting for the state of South Australia to ratify and agree to the ILUA as part of the miscellaneous lease for defence purposes consideration. Once we have that lease agreed by the South Australian government we will then be in a position to finalise the acquisition of the pastoral properties.

But we have not sat on our hands. We started that acquisition process in March of this year. We have had extensive negotiations with the pastoralists and we are hoping to finalise that pastoral acquisition by mid-2012. One of the landholders has written to the Special Minister of State seeking an extension of time and seeking a reconsideration of the decision to acquire his property, and that process now needs to go out in accordance with the Lands Acquisition Act.

Senator IAN MACDONALD: That is being resumed by the state government so that it can be passed on to the Department of Defence?

Mr Owens : We will acquire those properties and then we will return the pastoral leases to the state, and the state will then grant us a miscellaneous lease for defence purposes. We are in effect buying the leasehold interests of the pastoralists and then we will return those pastoral leases to the state and they will issue us a miscellaneous lease for defence purposes.

Mr S Lewis : But it will be via the Commonwealth lands act provisions.

Senator IAN MACDONALD: Okay. On notice—I am sure you would not have this—can you just tell me the costs to date of pursuing that project in terms of administrative and legal compliance, independent consultants and due diligence?

Mr Owens : I do not have the details of the costs to date, and clearly we are not at a price yet with the pastoralists, but I can give you on notice the costs of the acquisition to date.

Senator IAN MACDONALD: The administrative, legal et cetera costs, not including purchase costs at this stage.

Mr Owens : No.

Senator IAN MACDONALD: In addition to what Senator Fawcett has raised, are there plans currently in place for the establishment of permanent defence facilities in that area? If so, what are they, and do we have estimates of costs?

Mr Owens : Obviously when we take over the pastoral leases we will need to do a number of works on the leases—roads, removal of fences and putting up our own fences. Some training facilities will be put into the training area once it is complete. So there is a range of works that we will be doing once the acquisition is complete.

Senator IAN MACDONALD: No major capital works, though? Fences, I guess, are capital works.

Mr Owens : I do not know if it would meet the definition of a major capital work. I think it would be under that $15 million threshold. But I will confirm that. If it is over $15 million we will let you know, but I do not think it is.

Senator IAN MACDONALD: Will the 7RAR Battle Group have a permanent presence at that site?

Mr Owens : That is probably a question best directed to Army.

Gen. Hurley : I would doubt it, although the Chief of Army can answer. They are based at Edinburgh, and this is a training area, so they would transit back and forward to undertake training activities.

Lt Gen. Morrison : CDF is quite right; there will not be a permanent presence.

Senator FAWCETT: I have a couple of questions to follow up on in relation to the pastoralists. We have had a lot of feedback from them that this process has gone on for a long period of time. It has been very unsettling for them and for their business interests during that period. How are those factors being taken into account when you are looking at the procurement of their leases?

Mr Owens : Under the Lands Acquisition Act the pastoralists can make a claim for compensation. It is not, strictly speaking, a buy-sell; they make a claim for compensation and they put in the issues they think would affect the compensation price paid by the Commonwealth. I am not sure, but conceivably they could list that this long delay has caused effects that the Commonwealth should compensate them for, but that is in the nitty-gritty of the Lands Acquisition Act, and I would have to answer that in more detail on notice, I think.

Mr S Lewis : On the broader question, we are very sensitive to the fact that this process has taken a very long period of time—much longer than we would have wished, as well. It is now at the point that if we cannot move quickly we will actually interfere with the strategic plans in relation to the overall strategy around acquiring expansion areas. So we are keen to resolve that matter quickly. Obviously the complications with the Indigenous land agreements have created some unfortunate delays, but with the aid of a lot of key stakeholders—including, can I say, Senator Feeney—I think we are at the point where we have essentially resolved those challenges, and I am now much more optimistic that we will be able to proceed quickly. But if I were one of those pastoralists I think I would be feeling the weight of the delay and essentially the difficulty some of those would have had in disposal of their interest by virtue of this quite extended process.

Senator Feeney: In 2011 and again in 2012 I conducted meetings in Cultana with local pastoralists, accompanied by the local member as well as Defence personnel. Notwithstanding the fact that we understand and are sympathetic to what pastoralists have experienced, we have made every endeavour to talk them through it, explain it and support their own decision making. So while your point is well made, I think we have strained every sinew to try to keep this project on track while talking the implications of it through with local pastoralists.

Senator FAWCETT: And I appreciate the effort you went to in order to do that. My concern is to make sure that in this closing phase we do not drop the ball in terms of providing the support. As you have just indicated, Mr Owens, there are avenues for them to tailor their request for compensation. Are we providing any support to them so that they understand the full range of options open to them in actually making those claims?

Mr Owens : We have offered legal advice and valuation assistance for them to understand their rights under the Lands Acquisition Act under this process and also to assist them in coming to the valuation that they can then put against our valuation, if you like. So the act clearly recognises the obligation of the Commonwealth to ensure that we treat people as fairly as we can under the circumstances, and we have made those offers available.

Senator FAWCETT: And obviously, for a long period, time has been of the essence to the pastoralists and is now becoming so to Defence for your strategic reasons.

Mr Owens : It has been for a long time.

Senator FAWCETT: The ball now appears to be in the state government's court. When did they take responsibility for progress? When do you anticipate that it will be signed off by them?

Mr Owens : After the Indigenous land use agreement is registered, there is a period where claims can be made, the agreement is reviewed and submissions can be made. I think that registration period is six months. But, as we have said, we are on a dual track of also progressing the acquisition of the pastoralists' land simultaneously with the Indigenous land use agreement path. We are hopeful that the process of registering and finalising the Indigenous land use agreement will not lead to any more undue delay with the pastoralists.

Senator FAWCETT: When does that six-month period expire?

Mr Owens : I would have to confirm that. I will take that on notice. It is a six-month period after it is registered and, as it has not yet been agreed by the state government, we do not know when that period will be. Hopefully it will be soon, and then it will expire around the end of this year or early next year. But I will confirm that on notice.

Senator FAWCETT: So the six-month period does not actually kick off until the state government has signed off on it?

Mr Owens : Yes.

Senator FAWCETT: When do you anticipate that happening? How long have they had it and when do you hope that they will actually sign off on it?

Mr Owens : I will have to confirm that, but they have had it, I think, since earlier this year. We are in negotiation with them. There are a few issues that we need to resolve with them, so we are in correspondence and contact with them and have had numerous meetings with them.

Senator FAWCETT: Who is the minister responsible in the state government?

Mr Owens : I do not know. I will have to confirm that.

Mr S Lewis : We meet regularly with Andrew Fletcher, who you may know, from Defence SA. He assures us that, where needs be, he can access whatever minister is necessary, or the Premier, to help resolve these issues because, from their perspective, they view the defence interest as a key one to them. They have been very supportive.

Senator FAWCETT: Are there identified issues that you are working through with South Australia, or to your knowledge have you addressed all of their concerns?

Mr S Lewis : To my knowledge, it has all gone very well. I have heard nothing to the contrary, but I defer to Mr Owens.

Senator FAWCETT: Since earlier this year there have been no issues to work through?

Mr Owens : No, there have been a few issues—the application of Commonwealth laws over the area, how the jurisdictions would work and the extent to which the Commonwealth would be bound by things like environmental protection measures. Those are the sorts of issues that our lawyers have been working through.

Senator Feeney: These are important technical questions that are being resolved at the officials level, but I would want to put on the record that both the previous Premier, Mike Rann, and the current Premier have spoken to me as we have gone through this process. They made it plain that they are strongly supportive of defence's plan at Cultana. Of course, this is true of Defence SA as well. They stand ready to make every effort to speed and facilitate this project. So I certainly would not say we have encountered any resistance from the South Australian government—quite the reverse—notwithstanding those technical discussions happening at the officials level.

Senator FAWCETT: I accept that. My question still goes to when the last of those technical issues was resolved to the satisfaction of both the Commonwealth and South Australia. Can you give me a date for that?

Mr Owens : Not off the top of my head. We will check.

Senator FAWCETT: You can take it on notice.

Mr S Lewis : Chair, I have two maps. The current situation shows the School of Military Engineering—the plus signs are the units—and the DNSDC site, whereas the proposed development shows how the SME site becomes the Moorebank intermodal terminal site. On the other side we have the SIMTA IMT. Above that, in the pink, we have the Defence Logistics Transformation Program on the West Wattle Grove site that I referred to yesterday. If you look to the right-hand side, you can see in the orange the Moorebank units relocation site, which is where, on the Holsworthy site, the new School of Military Engineering and associated units will be constructed.

CHAIR: Thank you.

Proceedings suspended from 12:29 to 13:31

CHAIR: We will recommence. Mr Lewis has further information to put on the record, then we will go to Senator Rhiannon in program 1.6, Defence support. After that I understand coalition senators have agreed to do something in DMO. Secretary?

Mr D Lewis : Thank you, Chair. I have a couple of supplementary points from the Chief of Army and the Chief of Navy with regard to the line of questioning from Senator Ronaldson relating to the War Memorial Council meeting.

Lt Gen. Morrison : Senator Ronaldson, in answer to a question you asked me as to whether I had been contacted by anybody else to discuss matters pertaining to the War Memorial Council, I indicated no. But, on reflection and on checking, I can correct myself. I was contacted by Mr Ross Bain, Chief of Staff for Minister Snowdon, and that occurred, from the best that I can recollect, either a day or two days before the council meeting.

Senator RONALDSON: Thank you. What was the nature of that discussion?

Lt Gen. Morrison : The conversation was a brief one. He merely relayed to me that there would be three new appointees to the War Memorial Council. He did not give me the names; I did not ask. And, to the very best of my recollection, that was the only matter that was discussed.

Senator RONALDSON: During that conversation did he also relate to you that one of those new members potentially was a future chair of the memorial? Do you remember whether he said that?

Lt Gen. Morrison : Not that I recall.

Senator RONALDSON: So he just rang you to tell you there were three new appointees coming up?

Lt Gen. Morrison : That is correct.

Senator RONALDSON: Any discussion about the council meeting?

Lt Gen. Morrison : No.

Vice Adm. Griggs : My assessment this morning stands. I did not receive a phone call, as I stated, but I checked with my deputy, who did attend the meeting, and he believes on the afternoon of 7 March, which I believe was the day before the meeting, he also got a similar call to the one that the Chief of Army has just described; a very similar discussion took place, as in advising that there would be three new appointees to council.

Senator RONALDSON: That will do, I think. Did it seem strange that, just out of the blue, a day before a council meeting, that the minister's chief of staff would be telling you—because the appointments were not made until 22 March, were they?

Lt Gen. Morrison : I did not consider the approach to be unusual. I thought it was a courtesy informing an ex officio member that this was happening. I gave it no more thought. In fact, when you asked me the question before lunch I was almost certain in my mind that I had not been contacted by anyone else, but following some deliberation I went back and checked. It certainly did not weigh heavily on me.

Senator RONALDSON: Did Mr Bain indicate to you that there was likely to be an election the next day in relation to the chairmanship?

Lt Gen. Morrison : He did not. I was aware that there was going to be an election at the next meeting because I had already received, the month before, an email from General Peter Cosgrove that was sent to all council members, as I understand it, informing us that he had retired from the council.

Senator RONALDSON: So are you able to say whether Mr Bain was ringing you to out of the blue to notify you of an appointment that had not been made? Do you know whether at that stage he indicated whether they had been approved by cabinet, if that was required?

Lt Gen. Morrison : That conversation was certainly not gone into.

Senator RONALDSON: It was not gone into?

Lt Gen. Morrison : No.

Senator RONALDSON: Could it be that Mr Bain was ringing you out of the blue to let you know about this in light of motions that were subsequently put to the council the next day, which, I understand from other sources, included a potential ballot in relation to a deputy or an interim chair?

Lt Gen. Morrison : That is not the way that I took the conversation, Senator.

Senator RONALDSON: Okay. Thank you.

CHAIR: Thank you, Senator Ronaldson. Senator Rhiannon.

Senator RHIANNON: I want to get back to the issue of the defence land that has been purchased for the Moorebank Intermodal. I understand there are some heritage structures, heritage war memorials on that land. Could you inform the committee about those, please?

Mr Simon Lewis : I might ask Mr John Owens, the Head of Infrastructure Division, to assist with that inquiry.

Mr Owens : I am not aware of any formally listed heritage items on the current School of Military Engineering site. There are a number of memorials and other things which we plan to move with the School of Military Engineering when we move it to Holsworthy. I do not think that they are formally heritage listed, however.

Senator RHIANNON: Could you take it on notice to ascertain if they are, please?

Mr Owens : Yes, I will.

Senator RHIANNON: I also wanted to ask about Aboriginal heritage on this land or any Aboriginal history.

Mr Owens : We are not aware of any Indigenous heritage issues affecting that land, to the best of my knowledge, but, again, I will confirm that on notice.

Senator RHIANNON: With regard to Indigenous issues could you also take on notice what work has been undertaken to ascertain if that is—

Mr Owens : I will do that. We normally involve a heritage environment consultant to look into these issues for us, but I will confirm that that was done for this particular project.

Senator RHIANNON: Is it the case that there could be unexploded ordnances on this land?

Mr Owens : There is always some possibility of it, Senator. We do not think the risk is very high, but, again, it is part of our normal processes, particularly when we vacate a land, that we do those sorts of surveys. But we understand that the likelihood of that is very low in this case.

Senator RHIANNON: I am not sure if you are able to answer this question, but I was trying to ascertain, because there could be a possibility of such unexploded ordnances, that that is why it is not being used for housing. Were you part of what that land could be used for? Is that part of the decision sharing that Defence may go through with the government?

Mr Owens : We are not vacating the land for our own purposes for the land to be used for some other purpose. We are vacating it for the specific purpose of the land being used by the Commonwealth government for the development of an intermodal terminal. So I am not sure if the question was phrased in that sense, if you like.

Senator RHIANNON: Maybe I will just develop that. Does the move favour Defence? Is Defence in favour of moving from Moorebank?

Mr Owens : I am not sure—it is a government decision that we are moving to make way for this terminal.

Mr Simon Lewis : Senator, maybe I could help. We did touch on some of these questions yesterday afternoon. At the end of this process, Defence will end up with a brand-new School of Military Engineering on the Holsworthy site. It does have some longer term advantages for us because it will co-locate the School of Military Engineering and other units with other units at Holsworthy, and we will achieve some significant efficiencies from that through consolidated messing, consolidated security et cetera. But, importantly, there has been a significant contribution from the Commonwealth government, funded through the nation-building fund to the tune of about $559 million.

Senator RHIANNON: So that $559.4 million is for both the move and the work to be undertaken at Holsworthy, is it?

Mr Simon Lewis : It is construction at Holsworthy to facilitate the move.

Senator RHIANNON: Thank you, Chair.

CHAIR: Thank you. Is there anything else on Moorebank?

Senator IAN MACDONALD: There is. Mr Lewis was going to go through the maps. Perhaps we can do that later.

Mr Simon Lewis : I did do that briefly before lunch, Senator. I could it in further detail.

Senator IAN MACDONALD: You did, but your explanation requires clarification. Perhaps we could come back to that.

Mr Simon Lewis : Yes.

Senator JOHNSTON: I was just wanting to go over with the DMO some LAND 17 issues. I know we did that with Chief of Army. It does not relate necessarily to the capability; it relates to the process. Can someone from the DMO help me with that? Mr Jenkin, are you familiar with this matter?

Mr Jenkin : I am not, Senator. But while we are waiting, Chair, I could answer a question from Senator Fawcett just before lunch about the Cultana construction contract. The construction costs were $3,113,044. The prime contractor for the construction was Thomas and Coffey, with Spotless Services providing the project management. Thomas and Coffey are a large Australian company. For the east village Thomas and Coffey use their own subcontractors; for the west village Thomas and Coffey source subcontractors from local Whyalla businesses.

Senator FAWCETT: Thank you.

CHAIR: Do we know where Mr King is or should we keep going?

Senator JOHNSTON: The general can help me, I am sure. General, I wanted to ask you about LAND 17. When did it first appear in the capability plan?

Major Gen. Cavenagh : I do not have the detail of when it first appeared in the capability plan. The original tender period started back in September 07.

Senator JOHNSTON: Right. How many competitors were there?

Major Gen. Cavenagh : There were two competitors for LAND 17.

Senator JOHNSTON: Mr King has just come to the table. Mr King, I am just asking about the process surrounding LAND 17. Sorry to do this to you. Another senator has got some issues that we want to discuss. How long did the tender process last?

Major Gen. Cavenagh : The RFT for the self-propelled Howitzers went from September 2007 and it closed in April 2008.

Senator JOHNSTON: And then when was the final decision made?

Major Gen. Cavenagh : The only final decision on it was that the project be cancelled.

Senator JOHNSTON: When was first pass?

Vice Adm. Jones : First pass was received on 14 February 2006.

Senator JOHNSTON: Second pass was when?

Mr King : We have not had a second pass.

Senator JOHNSTON: We did not get to second pass and that is when the project was cancelled. Okay. There had been a resolution of the process, had there not, who the winner was?

Mr King : The process does not really finish until government makes a selection.

Senator JOHNSTON: Sure. I am not asking about whether it had finished or not, I am simply saying from a process point of view from DMO's perspective the process had finished.

Mr King : I will get the general to correct me, but we had this intermediate phase where one of the original proposers chose not to give us an updated price, as I recall, and therefore invalidated their continued participation in the program. I am doing this from memory, of course. We were then looking at a number of issues: OH&S safety matters, ammunition matters, certification of other rounds and so on. We were well progressed in the process but there was still work we were doing.

Senator JOHNSTON: There was only one tenderer left. We can talk about who that tenderer is because there is no commercial-in-confidence in that, is there?

Mr King : There is not in the sense that it was Raytheon.

Senator JOHNSTON: So the K9 consortium of Samsung from South Korea was left in the process.

Mr King : As I recall, Raytheon headed the proposal.

Senator JOHNSTON: Raytheon and Samsung. This was the South Korean self-propelled artillery piece. What else was required save for government approval on the project for final approval?

Major Gen. Cavenagh : We went through an offer definition refinement period and that went through into 2010.

Senator JOHNSTON: So we got to the stage of discussing contractual terms.

Major Gen. Cavenagh : Clarifying the full extent of the offer.

Senator JOHNSTON: How long was the offer definition period?

Major Gen. Cavenagh : The offer definition went from January 2009 to March 2010.

Senator JOHNSTON: What happened after that?

Major Gen. Cavenagh : As Mr King alluded to, there were a number of issues that were still considered as risks that we wanted addressed and so there was a process we went through with the preferred tenderer to go through and mitigate those risks.

Senator JOHNSTON: Were they mitigated?

Major Gen. Cavenagh : Yes, we went through and to the satisfaction of the Commonwealth we had mitigated the issues that were involved. There were some safety issues that we were concerned about, integration of a protective weapon station and how that was going to occur, how the additional blast protection that was required was going to be included. So there was a fair bit of work that was done with Raytheon to work through those issues.

Senator JOHNSTON: When was that completed?

Major Gen. Cavenagh : I will have to check on that date.

Mr King : We will check on the date, but there was still ongoing thinking going on, as I recall, about the certification of different ammunitions and so on. I am not sure that it entirely completed this process. There was still a good deal of discussion going on, I believe, between ourselves, Army and Capability Development Group on resolving some of those matters.

Senator JOHNSTON: Back in March 2010 you have given Raytheon some information to mitigate certain things. They were done to the Commonwealth's satisfaction at what date?

Major Gen. Cavenagh : I will have to take that one on notice. I do not have that date.

Senator JOHNSTON: What were the items that required mitigation?

Major Gen. Cavenagh : They are the ones I just ran through.

Major Gen. Cavenagh : They were the ones that I just ran through. There was a range of safety issues: there was integration of a protected weapon station and some blast protection, integration of C4I, as being some of the headline issues, but there was a great deal of detail underneath that.

Senator JOHNSTON: Were they all satisfied?

Major Gen. Cavenagh : Yes, they were.

Senator JOHNSTON: But you cannot tell me the date.

Major Gen. Cavenagh : I am just checking on that one.

Senator JOHNSTON: What other issues were outstanding when the project was cancelled? What precisely was outstanding?

Mr King : Internally we were still preparing our second pass submission, I believe. We had not completed it, and we still had internal planning issues about the number of munitions that would be certified on the gun, and those sorts of items.

Senator JOHNSTON: So we got down to choosing what type of rounds would be used?

Mr King : I do not know the precise details, but we were certainly identifying how we would certify different rounds.

Senator JOHNSTON: Was this an Excalibur-capable platform?

Mr King : Prima facie I think it was.

Major Gen. Cavenagh : The issue was resolved in March 2011. Whilst all the final designs et cetera may not have been fully completed, the way ahead on all of those issues was resolved to our satisfaction.

Senator ABETZ: Were any consultative steps undertaken with the South Korean government before the cancellation of this project?

Mr King : Not to my knowledge. Others have informed me that there was a courtesy contact, but not a consultative one as I understand it.

Senator ABETZ: When was that courtesy contact made?

Mr King : It was within some hours around the budget announcement time, as a courtesy to let them know.

Senator ABETZ: By whom and to whom?

Mr King : I would have to get that for you.

Senator ABETZ: If you could take on notice the question of exactly when this so-called courtesy call was made, by whom and to whom, and, also, as much as you are able, the content of that courtesy call. Because it seems as though it was simply a call to advise them of a decision, full stop, and not to tell them that certain thought processes were underway and their input would be appreciated.

Mr King : Generally, in the formulation of a budget there are obviously huge sensitivities for a government to manage its business. So it would not be surprising if that was not done.

Senator ABETZ: Was any Foreign Affairs advice sought before that courtesy call was made?

Mr King : I will have to check on that.

Senator ABETZ: I am assuming that it was a Defence personnel individual who made the call?

Mr King : There were a number of contacts, as I recall it, but I really need to get the data. I think we used Defence attaches. I think we had a discussion with Foreign Affairs. But because of the budget impact on a number of areas we were doing a number of courtesy calls to companies and to countries that might be affected.

Mr D Lewis : That accords with my recollection. I am a bit fuzzy on it but I am fairly confident that contact was made with the Korean government prior to the announcement. I am pretty sure that that involved contact with our Department of Foreign Affairs and Trade, and perhaps embassies at both ends. Perhaps if we could come back to you with the details. But I think the thrust of your point is: was prior contact made? The answer is yes.

Senator ABETZ: If you could provide me with detailed information not only in relation to the South Korean government but also to the South Korean company. Also, was Raytheon told and were they then expected to communicate with Samsung?

Mr King : I made the contact with Raytheon. I spoke to the managing director and advised him, as a courtesy to him, in great sensitivity, that a budget announcement would be made so that he could explain to his parent company that such a decision was made. In parallel I organised with individuals—I will have to get you their names, but I am pretty sure one was the Defence attache, and of course we were working with the time zone issue—and I believe there was local contact and a contact in Korea as well. We will get the information. I certainly did not ask Raytheon to make contact on a nation-to-nation basis.

Senator ABETZ: Is any compensation likely to be payable as a result of this decision?

Mr King : Not prima facie. We enter into these tenders with a good deal of protection for the Commonwealth to make decisions in its interests. But that does not stop a company claiming compensation in these circumstances.

Senator ABETZ: Has any indication been given to you at this stage as to whether such a claim might be made.

Mr King : Not to me.

Senator ABETZ: The contract was cancelled after how many years?

Mr King : We did not have a contract. We have not been to second pass.

Senator ABETZ: All right, discussions, where clearly a lot of work had been done by the companies involved.

Mr King : Indeed.

Senator ABETZ: Over how many years?

Mr King : Three or four. Maybe a little more.

Senator ABETZ: Chances are a bit more close to five years. Is Defence at all concerned that when decisions like this are made companies, when they tender in the future, are going to jack up their prices considerably if this is the way the Australian government is going to conduct business: namely, that you can be in the preparatory phase, do a whole stack of work, and then, with 24-hours notice and no discussion, have the plug pulled on you. It makes contracting a very precarious undertaking, doesn't it?

Mr King : I would answer as the Chief Procurement Executive for Defence: of course we are very interested in not wasting industry's effort. It was quite interesting that just a couple of hours ago I was defending why we made an accelerated decision that did not impose costs unnecessarily on industry. So, clearly, in these cases you can be one or the other. We have an absolute obligation to treat industry fairly and reasonably. From our budget 92 or 93 per cent is spent on industry to provide goods and services that our defence forces need. We would never knowingly set out on a course to unreasonably create costs or distress for industry.

It is a fact that we have a complex procurement process here, and one of the tenderers pulled out. The second aspect, and we should not beat around the bush about this, is that there was significant debate inside Defence about certain aspects of this gun. It took a long time to resolve those issues to a consolidated and acceptable position. Some of these went to safety of people. So it would not surprise you that we took the time to resolve those matters in some detail, and that is what we did. The answer to your question is: of course we worry about creating costs, and for very selfish reasons. The reason is that ultimately when it is an industry that is solely dependent on defence we pay their costs. They have no other source of income. So, apart from the human or business issues of it, it is in our own interest that we do not create costs where we should not.

Senator ABETZ: But the issues you referred to were being resolved in consultation with the company?

Mr King : And some internally, because we have different agencies with views. But we were interacting with the company.

Senator ABETZ: But, look, that is the normal way that these things are dealt with. When was the decision made?

Mr King : What decision?

Senator ABETZ: To no longer proceed?

Mr King : I do not know exactly, but in the context of the budget balancing there was a small group of us in Defence who were evaluating what a balanced budget would look like. In that context this was one of the projects that were considered. I do not know exactly when we provided recommendations.

Mr D Lewis : The answer is that the decision is made by the government, upon recommendation from us. The decision was taken in the budget process, I expect during an ERC meeting, but I do not know the date.

Senator ABETZ: When were you informed of the decision?

Mr D Lewis : It would be some weeks—a few weeks—before the budget, I think. I could not be precise.

Senator ABETZ: Could you take that on notice so we have some exact—

Mr D Lewis : I do not know that even then I can be absolutely precise, but it will be a couple of weeks before the budget that the first discussions were had around this issue between CDF, the minister and me. Then of course we had to plug in to the ERC time frame. So I am not sure I can give you the actual date that the decision was taken by government.

Senator ABETZ: You should be able to tell us when you were informed of the decision. Can you take that on notice.

Mr D Lewis : Yes.

Senator ABETZ: You indicated that there were people discussing what savings might be available, but as I understand it, from time to time governments make decisions against departmental recommendations. Are you prepared to advise us as to whether this was being offered up voluntarily by the Department of Defence?

Mr D Lewis : No, I am not prepared to say that.

Senator ABETZ: No, because your previous answer nearly hinted or suggested that that was the case. I may have misheard you, but I will have a very close look at the Hansard in relation to that. That is why I wanted to clear that aspect up. Have we had any representations from the South Korean government about this decision?

Mr King : We have had no formal presentation, but I understand that we have received an unsolicited offer for supply of the gun.

Senator ABETZ: So we have been told of nothing formal, but that always begs the question as to whether there was anything informal.

Mr King : Not that I am aware of.

Senator ABETZ: There was no informal expression of concern by the South Korean government.

Mr King : Not that I am aware of. It may not have come to me.

Mr D Lewis : Not to our knowledge.

[14:03]

CHAIR: We will now go back to 1.6, Defence support.

Senator FAULKNER: I have some questions in 1.9 that will not take very long. It relates to an article in the newspapers last weekend about ADF jobs requiring sex tests. You might have seen that.

Mr D Lewis : Yes.

Senator FAULKNER: That is for the outcome 1.9 people.

Mr D Lewis : I am happy to give an answer to that now.

Senator FAULKNER: I wanted to ask very briefly about an article that appeared in the press on the weekend entitled 'ADF jobs requiring sex tests', asking if applicants for jobs with the ADF were being asked if they were 'good at sex' or if they are 'gay'. It then went to other questions, including about cheating on their partners, addiction to pornography and whether they had made a sex tape, and so on and so forth. I think committee members would understand that, depending on what sort of clearances are required, there can be some—how shall we put it?—rigorous questions. But this article did not seem to indicate that this was necessarily the case for those people who are requiring high-level clearances. So I wondered, Mr Lewis, whether you might be able to just briefly indicate to the committee, or perhaps one of your officials might be able to, whether you have had a look at this issue as a result of the publication of this article. I think if people just read it, it might concern them. I have received a number of communications from people who are concerned, and that is why I wanted to ask these questions today.

Mr D Lewis : Yes, I saw the article, and, like you, was concerned. I can tell you that the head of People Capability, Major General Gerard Fogarty, on Sunday night instructed the Director General Defence Force Recruiting to ascertain the extent of the questioning of the psychologists who are involved in recruiting induction processes. We have, by the way, taken this only through the lens—as you suggested—of being about recruiting. This is about people who are coming into the Defence Force being asked by psychologists, reportedly, these questions about their personal lives.

Senator FAULKNER: That would not necessarily be the case, would it? Might it not apply to an existing Defence employee seeking a high-level clearance?

Mr D Lewis : That is not how I read it. That is a different process. I took this to be—

Senator FAULKNER: There is no question that the article referred to 'sexually oriented questions during recruitment'. So there is no question that what you are saying is correct. But of course as people move through the Defence hierarchy clearances are required, as they should be, at higher levels. A different psychological testing is required. I think you can confirm that for us.

Mr D Lewis : That is correct. I can confirm that. That is a different process. That is to do with the security clearance process, yes. With regard to the article, we do not believe that those questions were asked as reported. We do not have any evidence at this point, but the check is ongoing. But we have no reason to believe that the questions have been asked as depicted in that news article. Irrespective of that, were it to be true it would be my view that it is inappropriate that that line of questioning be pursued. It is highly intrusive and not appropriate, in my view, to recruiting into Defence, whether it be into the ADF or into the APS.

We do, of course, at the point of recruiting, ask some personal questions of people, quite obviously. We are interested in their family circumstance, for a couple of reasons: to check that their own commitment is consistent with their family circumstance and so on, and because their family is inevitably going to be impacted by the decision they are making to join, particularly the ADF but also the APS within Defence. So a line of questioning about one's personal circumstances is quite acceptable, and I do not resile from that for a moment. But I do find that the nature of the questions as reported are inappropriate. We will continue to track this down, and I can assure you that if we were to find that questions of that nature were indeed asked then we would put a stop to that process.

Senator FAULKNER: In terms of the recruitment processes, is all the psychological testing now outsourced?

Mr D Lewis : I will ask General Fogarty to confirm that. I do not know the answer.

Major Gen. Fogarty : Yes, they are. They are outsourced to our contracted partner. The instruments that they apply are designed by us in house, though.

Senator FAULKNER: You are satisfied, General, that the instruments do not trespass into some of these areas that I have been canvassing with Mr Lewis?

Major Gen. Fogarty : Yes, I am.

Senator FAULKNER: In terms of checking this story out, effectively, unless an employee or a prospective employee or recruit were to come forward, that would depend on an interface that you have with the Manpower Group, which does this work, I think.

Major Gen. Fogarty : It does. It is an integrated capability. Our Defence Force recruiting centres are jointly staffed by our contracted partner and members of the Australian Defence Force. Like the secretary, on Sunday, having read the article, I too was concerned. I gave some direction to the Director-General of the Defence Force Recruiting Organisation. His immediate response was that this is not part of our standard questioning, but I will investigate. He came back to me and said that he can find no evidence that these types of questions have been asked in the recruiting process.

Senator FAULKNER: Is that where it now lies? Are there any ongoing inquiries? Are you satisfied that the matter has been dealt with?

Major Gen. Fogarty : The director-general has not yet asked every single interviewer but he has asked each one of the heads of our recruiting organisations and is waiting for further advice.

Senator FAULKNER: Is it possible here that there was a misunderstanding at one level, even at the level of someone involved in the media, between the nature of psychological testing that occurs when applications are made and that which occurs when there is a requirement for a very high level clearance? Is that possible in this circumstance?

Major Gen. Fogarty : That was certainly my perspective when I read the article.

Senator FAULKNER: It was certainly mine, I have to say. That was the conclusion that I jumped to. We have spoken at this committee and at other parliamentary committees about the nature of that psychological testing that some people obviously have concerns with. But there is nothing to indicate that that is the case; there might be a bit of a misunderstanding here.

Mr D Lewis : We cannot speculate as to what was in the mind of the journalist or whoever it was who reported that this had taken place. I guess what we are saying is that we cannot vouch for the veracity of the report. To our best knowledge at this point it does not appear to have any application to the recruiting process. Our checks are ongoing. We are of the view that there is no place within the parameters of the recruiting place there is no place for this line of questioning, noting that we ask some personal questions about family circumstances but not questions of the nature that were reported. If there was indeed confusion in the mind of a journalist with regard to the other matter, which is security checking for the more highly classified area of work within the department, to claim that would be speculation on my part. I do not know.

Senator FAULKNER: The difficulty comes when the Defence Force spokesman has said—and this is not inaccurate at all—'release of test items and interview questions asked of applications undergoing the ADF selection process into the public domain would potentially undermine the process' and then 'making such knowledge public would allow candidates to develop and rehearse their responses to better manage the impression they give in the assessments'. That is all fair enough, but it does not in any way assuage or negate the concerns that are addressed in the article. That is not to say that the responses from the spokesperson are not accurate. It is just that they do not debunk, if it is appropriate to debunk, what is said in terms of the substantive concern that the article addresses.

Major Gen. Fogarty : If it would suit, when we are satisfied that are inquiries into this are exhausted and we are satisfied one way or the other I would be happy to come back to you personally or back to the committee if it suits other members to let you know the result.

Senator FAULKNER: Treat it, if you can, Mr Lewis, as a question on notice. The committee would understand the flexibility in terms of timelines for such a question on notice, because obviously it may take a little more time than normal to conclude those inquiries. If you are happy to accept that as a question on notice, I am sure the committee members would be satisfied with that.

Mr D Lewis : That is fine.

Major Gen. Fogarty : I will offer one more comment in relation to the quote that you just provided. The psychological testing that is conducted at a recruiting centre includes a number of tests, including a general ability test and a mathematical ability test. Clearly if these tests were made open to any member of the public then that could skew their results. It is that particular aspect that that comment is referring to.

Senator FAULKNER: Thank you. That is very helpful advice to the committee. The point that I am making here, I suppose, is that, while the response of the spokesman is by no means inappropriate, the difficulty that you face here is that it does not actually address the allegation that has been made or the concern that the article raises. This from time to time obviously places people in a difficult position. In relation to the substantive matter, if the minds of committee members could be put at rest, even if that takes a little bit of time, that would be useful. Thank you for that.

CHAIR: Back to program 1.6, Defence Support.

Senator PARRY: This may even overlap into 1.7. It covers both areas. It is in relation to the Defence Science and Technology Organisation facility at Scottsdale in Tasmania. I understand that the staffing levels at Scottsdale are currently regarded as suboptimal. Are you able to comment on this? What are the current deficiencies at Scottsdale?

Mr D Lewis : I will get the Chief Defence Scientist to speak to this.

Dr Zelinsky : I do not believe that staffing levels are suboptimal. We currently have about 12 people there. I will give you the accurate figure. We have invested in new facilities there. That was recently announced. We are committed to working there. One of the strategies that we are adopting is a very collaborative strategy. We are working with both the CSIRO and the University of Tasmania to form a centre for food innovation. With access to the high speed network that has come through that area, we believe that the science can be networked back into the rest of the organisation and we can achieve our delivery of science to support Defence.

Senator PARRY: I am aware of the collaboration. So you are saying that staff levels are optimal, not suboptimal, at that facility? That is your assertion?

Dr Zelinsky : Yes.

Senator PARRY: Why is the focus on the new buildings at Scottsdale rather than on the ration pack and maybe the return of the contract from New Zealand to Australia and preferable to Scottsdale to leverage on local agricultural production? Do you have any comment about that at all?

Dr Zelinsky : The current facilities are outdated and do not support the work that we are trying to do, so they had to be redesigned. The laboratories were redesigned. The production facility is in good order. The laboratories that support our work and the office space are being redesigned and rebuilt.

Senator PARRY: When that is complete, though, will you need additional staff?

Dr Zelinsky : There will be capacity to bring people on. But the work will be done in a way that is driven by the science. If there is more demand, we will bring more people on.

Senator PARRY: More demand could occur if the contracts were Australian based rather than New Zealand based.

Dr Zelinsky : I do not know. That is not exactly tied to the science that we provide, which is more technical advice to Defence. I do not think that there is a direct correlation between the industry pool and the provision of science.

Senator PARRY: That is because the ration packs are not developed in Scottsdale; just the science based around the ration packs.

Dr Zelinsky : There are ration packs developed there. The special forces packs are made there. There is the potential, obviously, to leverage off that knowledge. One of the things that we will be doing is providing that technology to other partners. That is why we are working with the Centre for Food Innovation. It is dual use. We are not only doing our own things but also supporting the broader industry.

Senator PARRY: When is the ration pack contract due for renegotiation?

Dr Zelinsky : I cannot answer that question.

Senator PARRY: Could you take it on notice.

Dr Zelinsky : I will take it on notice unless someone else can answer that.

Senator PARRY: If you do not have that answer, could you also take on notice whether it is possible to ensure that reference to the local benefit criteria is applied to that ration pack and whether Scottsdale could be considered for that.

Dr Zelinsky : I will take that on notice, yes.

Senator PARRY: My final question is slightly broader but involves that facility. Is it possible to consider using AusAID funding to produce emergency rations at Scottsdale for increasingly frequent humanitarian disaster assistance as part of the contingency for those?

Mr D Lewis : That is a question for AusAID. If you are asking about capacity, we could probably answer whether we had a capacity to produce additional rations. But the decision is one for AusAID.

Senator PARRY: But you could apply to AusAID for funding.

Mr D Lewis : No. Are you talking about emergency ration packs for international distribution?

Senator PARRY: Exactly. Would the capacity be there with the new building to do that?

Mr D Lewis : We can answer that. Is there capacity to ramp up?

Dr Zelinsky : To answer that carefully, I would have to take it on notice.

Senator PARRY: Okay. Thank you. If you could consider any aspects to do with AusAID funding and how that would work, I would appreciate it.

Mr D Lewis : As I said, I do not think that that is appropriate. What AusAID does with its money is up to AusAID. That is a proposition that would need to be put to them. They would be providing their money to provide ration packs for their projects or their emergency responses. I do not think that Defence is in the business of stockpiling ration packs for AusAID use in that sense.

Senator PARRY: But you would have no objection to doing it if AusAID was willing—

Mr D Lewis : So long as the capacity was there to do it, I would have no objection.

Senator PARRY: Okay.

Dr Zelinsky : Another point that I would add is that we would not be against collaborating with them or providing IP for their mission. But I do not think that we would do it if it distracted us from what we are supposed to be doing or took us away from our jobs.

Senator RONALDSON: On behalf of the member for Gippsland, I want to ask you, Parliamentary Secretary Feeney, a number of questions in relation to Mr Murray Inwood. I know that there has been correspondence between you and the member for Gippsland and indeed a gentleman who has raised issues of concern.

Senator Feeney: This is not ringing a bell with me, Senator. Are you able to circulate that correspondence?

Senator RONALDSON: This is the Korean veteran and the debate about whether or not the gentleman should or should not have been given medals.

Senator Feeney: I see. So this is a question regarding awards and honours.

Senator RONALDSON: Yes. In the Age on 24 November 2010, Ian Munro wrote:

Official statements from the Central Army Records Office declare that ''there is no record of service in Korea'' for Mr Inwood ...

If there are no records to suggest that Mr Inwood served in Korea, how was he awarded medals in relation to service in the Korean War?

Senator Feeney: Senator, I am happy to take these questions on notice. I am not in a position to talk to his particular circumstances at the moment.

Senator RONALDSON: In your letter of 13 February, to Mr Chester, you said that 'without official documentation to prove otherwise Defence will not cancel a previously issued award'. What type of official documentation could be used to prove otherwise? Mr Inwood was entitled to wear certain medals.

Senator Feeney: Just so I understand you: this is correspondence from one person seeking that another be stripped of an award—is that right?

Senator RONALDSON: This is correspondence between you and the member for Gippsland—indeed, the last time you wrote to the member for Gippsland regarding this matter was on 13 February. I understand you have had quite considerable correspondence with Mr Chester about this matter.

Senator Feeney: I have considerable correspondence with a galaxy of people! And I am keen to make sure that I attend to each one of them diligently and precisely.

Senator RONALDSON: Well, it is an unusual matter. I am a bit surprised you cannot remember it—but, if you cannot, that is fine. If you want to take it on notice, that is okay.

Senator Feeney: Sure.

Senator RONALDSON: Can you please let me know how Defence is satisfied that Mr Inwood did indeed serve in Korea. Can you provide the committee with a copy of the records used to support this decision. Where are the records kept? And on what date were these records most recently verified in relation to Mr Inwood's service in Korea?

If I can also point out the matter of Rex Crane, which I am sure will be well known to you—the claimed POW. There was action taken by the Commonwealth against Mr Crane. Can I ask you, please, when you are taking matters on notice, that you provide me with a copy of all your correspondence with Mr Chester in relation to this matter.

Senator Feeney: With Mr Crane or with Mr Chester?

Senator RONALDSON: Not with Mr Crane—sorry, Rex Crane was an after-matter. I am referring to the matter in relation to Mr Inwood.

Senator Feeney: Okay.

Senator RONALDSON: Thank you.

Senator KROGER: I just wanted to ask about the library in Victoria Barracks, in Victoria. Are you aware whether there are any plans in relation to that library?

Mr Jenkin : I probably do not have the precise detail on that library, but certainly we have been looking at the library support that we provide around the country, as part of our overall review of support services, as you appreciate. Under the reform program we needed to look at all areas, and libraries are an obvious area we need to look at—particularly in the light of the way technology is moving and the use of library facilities. Out of that review that we have done, we have looked at the possibilities of closing some libraries, consolidating some and changing the actual arrangements for the provision of services at libraries. It has had some slight impact on some of our library staff, but the emphasis we are placing on library support is really around libraries that are required for training purposes or specific support to technical functions and the like. Those that are more generic in nature are getting a lower priority, I guess, as part of that library reform. But, as to the specific proposal for that library, I would need to get some information.

Senator KROGER: Okay. If I can just rehash: there has been a review undertaken of all libraries—

Mr Jenkin : That is correct, yes.

Senator KROGER: And has that review provided recommendations?

Mr Jenkin : Yes, it has. Those recommendations came to me, and we have taken them on board and are progressively implementing them.

Senator KROGER: Okay. Could you then take on notice the recommendations in relation to the particular library at Victoria Barracks, because I understand you have some 10,000 books there. I have had people write to me who have said that the library was scaled back last year, but it would be good to ascertain whether that is correct or not.

Mr Jenkin : Certainly.

Senator KROGER: In terms of those who use the library, is it only currently serving personnel or is it also former servicemen and women?

Mr Jenkin : It is generally available for people who have access to the base; they can go in and use the library. So that would be a range of people who have access passes for different purposes. In terms of actually withdrawing books from the library, I would think it would generally be members of the Defence Force or Defence public servants.

Senator KROGER: That would be very helpful—to know what the time frames involved are and what the plans are: to confirm whether the library is to be closed; if it is to be closed, what the plans are in relation to the books that are there; how many staff are involved and what the plans are in relation to their future employment.

Mr Jenkin : Certainly, Senator, we can get that to you.

Senator KROGER: Thank you.

Senator IAN MACDONALD: Can we now get back to the maps of Moorebank. Which is what we were calling the 'Stockland land'?

Mr S Lewis : If you look at the map that shows the current situation, that site that is 'DSNDC', in pink, is the site that I think is so described as the Stockland site. You are aware that the SIMTA consortium is linked to Stockland and Qube is now a party with Queensland Rail. Unless you wish me to, I will not go into the details of that arrangement, but all of them are focused on that parcel of land: the DSNDC site in the pink in the current-situation map.

Mr Owens : Senator, the three parties that made up the Sydney Intermodal Terminal Alliance—which is SIMTA—are Stockland, Qube and Queensland Rail. Stockland has divested itself of its interest in the SIMTA consortium and it is now owned by Qube Logistics and Queensland Rail.

Senator IAN MACDONALD: So what interest is that to yours? I mean, thank you for the information; I am grateful to have it, but I just want to know where—

Mr S Lewis : If we go back to the conversation, if you recall, when we were talking about the east and west sides of Moorebank Road—

Senator IAN MACDONALD: Yes. The new bit yesterday—the new bit for me, anyway—was the excision of the 10 hectares.

Mr S Lewis : That is an option that we are looking at in relation to this site—the pink site on the map.

Senator IAN MACDONALD: Yes, but anything this consortium can do depends upon when and for how long you exercise your two options, currently, for the lease of that land.

Mr S Lewis : That is right.

Senator IAN MACDONALD: And that is under discussion, you are telling me?

Mr S Lewis : Yes.

Senator IAN MACDONALD: Okay. But I take it from what you are saying to me that you are trying to facilitate the early release of 10 hectares of that so that Qube and Queensland Rail can do their thing—whatever it is, which I suspect doesn't have any interest to you—

Mr S Lewis : Well, it does, because that land is part of what is currently the DSNDC site. So there are quite detailed conversations being held right now, and they are being led by the Commander Joint Logistics, Air Vice Marshal Marg Staib. She would be much better placed than I to talk to you about the exact status of that.

Senator IAN MACDONALD: But does the 10 hectares have any assets on it, or is it just vacant land?

Mr S Lewis : Yes, it does: warehouses and—

Mr D Lewis : I was down there a couple of months ago, and I walked around that areas. If you have a look at that pink rectangular piece of land there, it is the bottom left-hand corner where this 10 hectares is being contemplated for excision. And in that area there are a couple, as I recall, of quite substantial warehouses which have materiel in them.

Senator IAN MACDONALD: So that is the area you have marked 'SIMTA IMT'? In this proposed development it is the light green-coloured—

Mr S Lewis : Yes, the light green—but only a portion of that.

Mr D Lewis : It is only a portion.

Senator IAN MACDONALD: The southern portion of that.

Mr D Lewis : If you go back to the pink rectangle, the bottom-left corner of that is an area where they are looking at some excision. It is to do with the widening of the road for the intermodal transport and also some sort of rail access coming in from the bottom end of that pink piece of land.

Senator IAN MACDONALD: Let me be frank. I have been talking around the subject, because I do not know anything about the proponents or what they are doing—and you are the Department of Defence, but you are a part of the Commonwealth government. Over the road from you the Commonwealth government is going to set up a government business enterprise to deal with an intermodal going into Port Botany. On the pink piece of land, the Stockland land, a private enterprise group is trying to do the same thing. Now—

Mr S Lewis : It is not the same thing, Senator; that is the whole point.

Senator IAN MACDONALD: Well, are you sufficiently aware to tell me the difference?

Mr S Lewis : I think you are probably better off relying on the evidence of others rather than me. But, suffice to say, if you look at the geography on the map, you see that you can get much longer trains into that parcel of land with the Moorebank intermodal terminal—much longer. So, when you think about long-term intermodal transport challenges in Sydney, east-west and north-south, this facility here provides a better long-term solution.

Senator IAN MACDONALD: Which facility are you saying? The blue land?

Mr S Lewis : Yes, the blue land on the current map—because of its length. The studies that have been done for the finance department, in conjunction with the infrastructure department, have demonstrated that that provides a much better long-term solution to some of the significant transport problems that are faced by Sydney. I think there has been some significant material already released in relation to that study by the finance department, but I do not have those details ready to hand.

Senator IAN MACDONALD: Okay. I am sure Defence would not do this, but some might say the Commonwealth would dally on the Stockland land, which you currently have an effective long-term—

Mr S Lewis : We will not dally, Senator.

Senator IAN MACDONALD: But only to protect the other part of the Commonwealth government's business activity across the road.

Mr S Lewis : No, we will not dally.

Senator IAN MACDONALD: If you are told to by your masters you will.

Mr S Lewis : Senator, we will not dally, because we will look after the Defence interests. From our perspective, we need to have regard to two interests if we deal with the transition parcel of land—the 10 hectares. One is the continued operation of the DNSDC and the other, as I mentioned yesterday, is that we are continuing to have Army students living, working and studying on the SME site across the road. So we do need to be careful about the operation of a 24/7 lit, noisy site directly opposite the road. So we will need to actually understand how that works. We have received some proposals from the consortium, which we are looking at and which I think we responded to very recently. But if we can identify a way to facilitate the transition solution: terrific. If we can move off the site completely, and be off the site by the end of 2014, as per the Defence Logistics Transformation Program, so much the better.

Senator IAN MACDONALD: Thank you. But, if you are a conspiracy theorist, and if the Commander-in-Chief, say, said to you, 'Look, don't get off that site because that will set up a competitor to—

Mr S Lewis : I think we are under an obligation to act reasonably, Senator.

Senator IAN MACDONALD: I am delighted to hear that!

Mr S Lewis : In all that we do.

Senator IAN MACDONALD: I am sure the department does that but, what I am saying is, if the supreme authority—whoever it is, and I won't name it—put hurdles in your way so you could not proceed speedily—

Mr S Lewis : No-one has asked us to act unreasonably, Senator.

Senator IAN MACDONALD: I am sure they haven't yet. All right. Well, I am delighted to hear all that. Let's leave well enough alone and commit while I am behind. I just want to briefly go to the St Hilliers defence contracts—the training estates in Queensland and Victoria. The $170 million Defence construction projects have been resumed—is that correct?

Mr Owens : Defence has five contracts with St Hilliers Construction Pty Ltd at four Defence sites: in Wide Bay and Greenback in Queensland, and in Bandiana and Watsonia in Victoria. Following discussions, as you are aware, on 16 May, St Hilliers Construction appointed voluntary administrators and work was suspended at the four Defence sites. But we have had discussions with the administrators and St Hilliers staff returned to all Defence sites on 21 May.

Senator IAN MACDONALD: Are you satisfied that they can complete the $170 million worth of capital projects?

Mr Owens : We are working with the administrators. At this stage we have every reason to believe that they can complete it. All subcontractors on defence sites have been paid all moneys due. We are working with the administrators, and at this point we are confident that they can do their work, but it is obviously something that we need to watch.

Senator IAN MACDONALD: You anticipated my next question. The subcontractors have been paid?

Mr Owens : To the best of our knowledge, yes.

Senator IAN MACDONALD: Your ability to manage that, of course, is not open—

Mr Owens : In accordance with our contract, St Hilliers are required to provide statutory declarations to us that subcontractors have been paid before we pay them, and we have received that evidence. So, to the best of our knowledge, they have been paid.

Senator IAN MACDONALD: They are not in liquidation; they are under administration, so different rules come in. Anyhow, you are clearly keeping an eye on the plight of the subcontractors, for whom you feel a moral if not a legal obligation.

Mr Owens : Very much so. We are watching closely and we have a range of measures in place to ensure that subcontractors are paid.

Senator IAN MACDONALD: Will the delays because of the collapse of St Hilliers have any impact on the operational readiness of the force?

Mr Owens : I do not think so. As you saw, it was a matter of a couple of weeks. Construction contracts being what they are, we can generally make up that time. So we are reasonably confident there will be no operational impact at this point.

Senator IAN MACDONALD: Going back to Moorebank, the orange section of the proposed development in the south-west corner of the map is where you tell me the new school of engineering site is to be. Is that correct?

Mr S Lewis : Yes.

Senator IAN MACDONALD: Does it currently have buildings on it? This little map seems to suggest it might have.

Mr Owens : Yes, that site has a range of units on it at the moment, including 17 Construction Squadron. Part of the works is to build new facilities for them. We are planning to move the 21 Construction Squadron to Amberley as a separate project. There is going to be an interim facility in Holsworthy while we move the other project through approvals processes.

Senator IAN MACDONALD: I understand Holsworthy is going to be the subject of some mining exploration. Can you tell me about that? There are proposals by AGL to get exploration licences across an area that includes that ranges from Picton to the Holsworthy military training area.

Mr Owens : Yes, I can confirm that we have had approaches from AGL for coal seam gas exploration at Holsworthy. Under the Lands Acquisition Act, the Minister for Finance and Deregulation, I think delegated to the Special Minister of State, holds the delegation for approving that. But we work with the department of finance on those issues. At this stage we have expressed reservations about whether we could support coal seam gas exploration on Holsworthy training area. It does pose a number of challenges for us. But we are working with the department of finance on that issue.

Senator IAN MACDONALD: Who has the final say on that? You said it is the Special Minister of State.

Mr Owens : The delegations under the Lands Acquisition Act are held within the department of finance. Our concerns on Holsworthy are on operational grounds—the needs of the training area and also the risk of unexploded ordnance in the area. So at this stage we would find it difficult to support such exploration at Holsworthy training area.

Senator IAN MACDONALD: It might be helpful in assisting you with your electricity costs if you had a direct source to some gas.

Senator Feeney: And a lake of oil!

Mr D Lewis : It might be hard to train there.

Senator IAN MACDONALD: I think we said yesterday, Mr Lewis, that berth 10 in Townsville was on track, on time and ready to go.

Mr S Lewis : We did.

Senator IAN MACDONALD: We do not need to wait?

Mr S Lewis : Berth 10A is due for completion by June 2013, ahead of the introduction into service of the LHD in 2014.

Senator IAN MACDONALD: Well, Minister, I again say: remember me when the official opening comes around!

Senator Feeney: We'll both be there, Senator!

Senator IAN MACDONALD: Can you tell me about a proposal, as I understand it, by Carnegie Wave Energy for a wave energy facility at Garden Island in Western Australia?

Mr Owens : I am vaguely aware of that proposal. I do not have a brief with me at the moment, but my recollection is that we have a memorandum of understanding with Carnegie Energy to conduct some experimentation on wave energy in the vicinity of HMAS Stirling in Western Australia. I understand that has been in place for a couple of years, but I do not have any more details on it at the moment—although I note that the Chief of Navy has just joined us.

Senator IAN MACDONALD: It is a fascinating concept.

Vice Adm. Griggs : I would just like to back up what the head of infrastructure just said. Carnegie Wave Energy Limited proposes to trial a commercial-scale wave power generator system called the CETO system in state waters adjacent to Stirling. Both Navy and Defence support groups support the project. A draft licence has been developed by the Defence Support Group and has been exchanged with Carnegie for review and discussion, and exchange and joint signature of that licence is expected by the end of June 2012. You may recall that on 1 May Carnegie released an announcement relating to government funding grants depicting the generation site on HMAS Stirling. The proposed system will generate clean renewable electric power to supplement the supply to HMAS Stirling, offering Defence the opportunity to reduce carbon emissions from the site and potentially return any excess power to the grid. At present DSG has completed an evaluation of the proposal to determine the project's tangible and intangible benefits and compliance with relevant Defence policy. DSG has completed the site selection review and has endorsed the proposed abandoned sand quarry site adjacent to the helicopter support facility on the island. In terms of way ahead, as I said, the licence agreement is expected to be realised by the end of June. That is where it sits at the moment.

Senator IAN MACDONALD: That is very interesting. So Defence or Navy are not particularly involved in the project, apart from giving permits and making sure the surrounds are secure et cetera?

Vice Adm. Griggs : And being the recipients of any energy generated.

Senator IAN MACDONALD: Is it proposed that you would be the sole customer?

Vice Adm. Griggs : It is a trial, so I think the intent would be that they use the Stirling facility on a trial basis. But, as I said, I understand that there is potential for any excess power to go back to the grid. But I am not fully across this. That is just my brief.

Senator IAN MACDONALD: Thank you. What you have given us is very useful. If there is anything else someone could tell me about, then perhaps you could take that on notice. Ancillary to that, as I asked for Lavarack Army Base yesterday, could you give me an indication of what the energy costs are at that particular naval base, just so that we can perhaps see how useful the wave power would be? I am very excited about wave power, I might say. I am not sure that it operates anywhere else in Australia at the moment, but if Navy is going to be part of the first stages then that is going to be great.

Vice Adm. Griggs : I will take that on notice, Senator.

Senator IAN MACDONALD: I was going to ask about Point Cook, although you did give me some answers to questions on notice there. Just briefly: have we progressed with the appointment of a contractor to start the remediation process at Point Cook? Has the tender process been completed?

Mr Owens : I can confirm that we have received five tenders and we have sought further clarification from three shortlisted tenderers. The trouble with contamination projects, of course, is that you do not know what you do not know and it is a very inexact sort of science. We found that our estimate was not something that industry supported, so the costs we are getting in at this point seem to be more than our estimates. We are going to work through those issues and see what we need to do, but we are hopeful of engaging a contractor by the end of June this year—that is, next month.

Senator IAN MACDONALD: Your estimate was the $27.3 million?

Mr Owens : That is right. That was our estimate. But, as you will appreciate, with decontamination projects estimates are very difficult to arrive at because of the nature of the contaminants and the nature of the works required, so we are going to work through with our shortlisted tenderers to come up with a way ahead. We hope to do that by the end of next month, June.

Senator IAN MACDONALD: How urgent is that work?

Mr Owens : It is urgent enough for us to want to get on with it quickly. There are a number of contaminations, a very large amount of contaminant in that region. Our concern, of course, is that it might spread off the property, so it is urgent, so we need to get on with it and get it cleaned up.

Senator IAN MACDONALD: A creditable goal, but remember that you are part of a group that has to save $5 billion over the next four years. If, for example—it is 'only' $27 million—it happens to double, are you going to be able to afford to do that? What is the priority: money or urgency for the contaminated site?

Mr Owens : The price estimates we have got from our shortlisted tenderers are around 20 per cent more than our estimates; they are not double. We need to work through that and understand the basis for their pricing and come to a position on price. We might need to go back to government to seek a funding approval. But, given that I think there is something like 950,000 litres of contaminant in the area, the area is subject to erosion from Port Phillip Bay, and there is potential for it to leach off site, it is something that is urgent and important, and we will be seeking to come to a way ahead on that as soon as we can.

Senator IAN MACDONALD: I would imagine that any contract for that sort of work would have to be a 'cost plus': 'This is what we think it's going to cost, but, if it turns out to be worse than we think, you'll have to pay.'

Mr Owens : Contamination is very difficult because it is under the ground; we do not know what it is. We need to work with the contractors to get the best outcome from a value-for-money perspective for the Commonwealth but also meeting our environmental management obligations.

Senator IAN MACDONALD: Moving on, because time is limited—thank you for that; we will keep an eye on that—I understand that at Pearce Air Force base we cannot drink the water, so we have paid in excess of $650,000 since 2007 for bottled water. Is that correct? Do we need bottled water for Pearce?

Mr Jenkin : Certainly we have been paying for bottled water at Pearce for some number of years. I am not sure of the exact value, but it may well be of that order.

Senator IAN MACDONALD: I am quoting a newspaper report, which is not always the best—

Mr Jenkin : I can confirm the actual amount. I will get that.

Senator IAN MACDONALD: $650,000 is correct?

Mr Jenkin : No, I said I will confirm that, sorry. I will confirm that amount shortly.

Senator IAN MACDONALD: I understand you have been doing that since March 2007, which of course is five years ago, because it was found that the 70-year-old drinking water system was contaminated.

Mr Jenkin : That is correct. Generally speaking, inground infrastructure is an area that we have to address seriously right across our estate. In terms of Pearce, the redevelopment project that we have had in recent times has partially addressed that. There is potable water available on the base now but not in every building, so a decision has been made that, until we have every building safe with potable water, we will continue with the bottled water regime. But we are progressively addressing that inground infrastructure shortcoming at Pearce.

Senator IAN MACDONALD: If I were to make the comment that five years seems to be a long time without water, you would say, 'We've been addressing it and we're almost to a solution'?

Mr Jenkin : Almost finished, yes.

Senator IAN MACDONALD: I will answer my own questions! On the Swartz Barracks in Toowoomba, the Army Aviation Training Centre: can someone update me on the future of the Swartz Barracks at Oakey?

Mr Owens : From a facilities perspective, I am not aware of any major issues there.

Mr D Lewis : If you put your question, Senator, we will see if we can answer it.

Senator IAN MACDONALD: Is the basic aviation training being relocated from Oakey to the Joint Helicopter School at Albatross? Tell me no; I would be delighted to hear that.

Lt Gen. Morrison : Under the helicopter advanced training initiative there is a relocation of some training effort between Nowra and Oakey, but from my perspective Oakey will remain as the base where we conduct our collective training for our junior pilots and for our aircrew men and women prior to their placement in our aviation regiment, so there are no plans that I have for Oakey to be closed.

Senator IAN MACDONALD: That is good news—well, I suppose it depends on your perspective, doesn't it? The member for that seat will not agree with me. The Air 9000 Phase 7 Helicopter Aircrew Training System—will that be at Oakey or at Albatross?

Lt Gen. Morrison : That is the HATS project that I spoke about. At this stage there will be training undertaken at an individual level in a joint training establishment having both Air Force and Navy personnel in it for our individual pilots, and then Army will train collectively at Oakey to complete the training that we need to give to our pilots and our aircrew before they go to regimental placements.

Senator IAN MACDONALD: Was that a sort of yes? Was it Oakey or Albatross?

Lt Gen. Morrison : It is both.

Senator IAN MACDONALD: Okay, I think I understand. There are no implications for the 400-odd personnel who are employed at the training centre at Oakey, or will some of them be going down to Albatross?

Rear Adm. Campbell : There will be some personnel that will be part of the move down to Albatross as a result of Air 9000 Phase 7, but we are still scoping out that. As Chief of Army has said, there is a fair bit of work to do. A lot of his training will continue at Swartz Barracks. There will be some parts of the training going to Albatross but not all.

Senator FAWCETT: Could I just follow up on this move under the HATS program. Given that we previously had a joint helicopter training school here in Canberra which then was split asunder for a whole range of reasons—continuity, capability manager, reducing the number of postings for people, the costs associated with that, costs on families et cetera—what is the business case that has driven this move to co-locate training at Albatross?

Rear Adm. Campbell : In the project it was decided to join all the training back together again in one spot. The government chose to do that at Albatross. The business case is based on joining it all together and then a number of years of operation. It is a robust business case.

Senator IAN MACDONALD: What are the arrangements with the Singaporean air force at Oakey?

Mr Jenkin : What precisely are you asking about? Certainly the Singaporeans do use Oakey, as they use other facilities.

Mr S Lewis : We have a formal agreement with the Singaporeans to use the facilities. I do not know the precise name of it.

Mr D Lewis : There is an MOU. We have somewhere the date that it is due for renewal. There has been quite a bit of discussion with the Singaporeans about its continuation. That is not to cast any doubt on the continuation. It is something that will go ahead, I expect.

Senator IAN MACDONALD: Reports are suggesting that there are ongoing discussions to extend Singaporean use.

Mr D Lewis : That is true. They have been very positive discussions, I might say.

Senator IAN MACDONALD: I was asking for the details. You are suggesting to me that it is too early to publicly—

Mr D Lewis : I will just see if we can define the precise dates, because there were two MOUs—one with Pearce and one with Oakey—and I cannot remember which one is coming up first.

Senator IAN MACDONALD: I am really interested in whether the Singaporeans are bringing in any facilities or are going to build any facilities at Oakey for their own purposes which might have some use for us.

Mr S Lewis : They have already got a pretty flash facility up there. I am not aware of any proposals to extend it.

Mr Jenkin : That is correct. They have hangars for their super pumas, which they use up there. They do have facilities designed for their helicopters.

Senator IAN MACDONALD: I am rapidly running out of time and will have to put some questions on notice. But my final questions relate to—unfortunately Senator Ludlam is not here—US forces in the Northern Territory and in Western Australia, which I think is a good idea, for what it is worth. You did answer question on notice 25 from the last estimates, but I am interested in any potential cost to the Australian military or the Australian taxpayer from the deployment into Darwin. Does there need to be any additional departmental investment into Darwin as a result of the US personnel coming? Does your Australia-US acquisition cross-servicing agreement arrangement provide for refurbishment? I am asking these all at once and hopefully you might be able to encompass them in an answer in a couple of minutes. You see the general tenor of my questions. What is it going to cost us? Will it be anything? What is the US going to put in to it? What increases might we expect in tangible infrastructure? Further, I am told that aircraft carriers are required to anchor off Stirling, which suggest that there might be substantial upgrades needed if it were to accommodate aircraft carriers more permanently in Fleet Base West. My question is: are there plans to upgrade facilities at Stirling to accommodate US vessels? If so, what is the arrangement cost et cetera and what will the United States be contributing and what will we be putting in?

Mr Jenkin : I might start the answer to that question, but I will not complete it, I am sure. In terms of the US Marine Corps 200 or 250 that we have in place in the north currently—although they are overseas briefly at the moment—they are accommodated within existing resources at Robertson Barracks, they are using our existing training areas in the Northern Territory and they are quite satisfied with what we are offering them. They do consume our resources through our garrison services contracts, and we do recover for that—we bill them for that—but we have not had to put in place any significant investment to accommodate that level of activity. Obviously, as it progressively expands to 2½ thousand or potentially more, that is something we need to plan for, in terms of being able to accommodate that. We are doing that planning now, looking at what our options are in terms of better use of our existing estate.

Senator IAN MACDONALD: That is the bit I was getting at, but you are saying it is a bit early to be asking any specific questions; you are just talking and trying to understand what it is all about?

Mr D Lewis : Yes. The deployment of US forces to Australia will be funded by the United States—that is the deployment here—and other costs will be paid under existing legal, financial and logistic arrangements which have been longstanding. The US Marine Corps has advised us that it intends to pay for costs that it incurs during its initial rotation, which is as Mr Jenkin explained. We are working closely with the US Marine Corps on funding arrangements to support this and then, as you say, discovering through that process how that funding line might continue into the future. We will use the experience gained during this rotation to better understand the costs and issues associated with long-term rotations, and we will advise government in due course. We are really not there at this stage. I can go to the other end, which is the bit about the facilities at Stirling.

Air Marshal Binskin : I can keep going with that. Stirling and Cocos Islands are potential areas that will go into the future, but there has been no discussion on that at the moment. But, as you know, the carrier battle groups do visit Stirling at the moment. They come through on periodic visits.

Senator IAN MACDONALD: Yes, but they park offshore.

Air Marshal Binskin : It is a big ship. I will hand to Chief of Navy, but on the force posture review side of it there are no plans for Stirling or Cocos at the moment under that initiative. We are continuing with the normal—

Senator IAN MACDONALD: Under the initiative involving the United States?

Air Marshal Binskin : The force posture review part of it. At the moment we are only looking at detail in the Marines in Darwin and the Northern Territory and the US Air Force deployments. The future potentials of Stirling and Cocos Island are ones that we will look at into the future.

Vice Adm. Griggs : My understanding is that the channel is simply not deep enough to get an American carrier into Cockburn Sound. It is just not physically possible to get a carrier in there.

Senator IAN MACDONALD: You will get the LHDs in, will you? They are a different size, I appreciate.

Vice Adm. Griggs : They are a different size. That is why the carriers anchor where they do in Gage Roads.

Senator IAN MACDONALD: I guess you can always dredge anything to any depth, but you are telling me that there are no discussions about any greater facilities at this particular time.

Vice Adm. Griggs : No.

Senator IAN MACDONALD: Again I make it clear that, as an individual Australian, I think it is all good stuff, but I am interested in any arrangements that might be made, any costs, what development might happen, if it does. You are saying, as I understand everybody: nothing just at the moment.

Air Marshal Binskin : No, and, as the secretary said, if there is infrastructure investment for all this then the US are looking to pick up those costs associated with their parts of the deployment.

Senator IAN MACDONALD: Thank you, gentlemen. I will put some other questions on notice.

Mr Owens : Senator, I have some clarification from a question you asked earlier about the units that have been moved from Holsworthy to accommodate the new units coming from Moorebank. The 21st Construction Regiment will be moved. Cadet units, including the Training Ship Kanimbla, the 22nd and 29th Australian Army Cadet unit and the Australian Army Cadet band, will also be moved from that site at Holsworthy to make way, and we will build new facilities for those. Seventeen Construction Squadron will be moved on a temporary basis pending a plan to move to Amberley, and we will progress that Amberley project through separate channels.

Senator IAN MACDONALD: That is good news. I was going to ask about them later in the program at the appropriate time. I think we established yesterday that the money for shifting those units, including, particularly, cadets, will not come out of your regular budget but will be out of part of the special allocation by the finance minister for these things, which are facilitated by Finance's desire to run a transport business on the site over the road.

Mr Owens : Yes. We have a complex agreement with Finance on how these things are funded, but, broadly, that is right.

Senator IAN MACDONALD: I do not want you to tell me at sometime in the future, 'We can't pay money for cadets because we have spent all of our money shifting the Holsworthy cadets to a brand-new premises.'

Mr Owens : It is all part of the project.

Senator IAN MACDONALD: Thanks.

[15:10]

CHAIR: That concludes program 1.6. We will now move to program 1.7, Defence science and technology. Senator Fawcett.

Senator FAWCETT: Dr Zelinsky, welcome and congratulations on your appointment. I have a couple of questions regarding the two broad streams of work that DSTO undertakes. I am assuming that the stream which is in more direct support to procurement and operations is largely unchallenged by any budget pressures. In relation to the stream which is more DSTO's enabling research work, particularly collaboration through things like TTCP, are you under any budget pressures in those areas in terms of program funding, the number of personnel that you can put into that kind of work or participation in collaborative programs?

Dr Zelinsky : Our efforts are broadly split into those four areas—supporting operations, sustaining our current capabilities, supporting procurement and future-proofing defence. We do have a number of NPPs that were funded out of the 2009 white paper. Those NPPs are at their peak and they will actually tail off over the next couple of years, so there will be less work done in future-proofing.

Senator FAWCETT: Just to clarify, the funding that is identified in the 2009 white paper was actually delivered at the level you were expecting in this budget?

Dr Zelinsky : Yes, there were some new investments made in those areas. Some areas we are still building up in one of those NPPs, such as cybersecurity. We are still building up that area.

Senator FAWCETT: Just quickly, do you have a vision, as the new Chief Defence Scientist, as to how you will balance those demands between support to the current force and that future-proofing in the coming years?

Dr Zelinsky : I am very fortunate I have inherited a world-class R&D organisation. It has been well shepherded and well led by the previous chief defence scientists. It is well integrated into our defence support and national security areas. So I think the main part for me going forward is to make sure that the DSTO lines up behind the next white paper, which is actually being formulated now. You heard over the last day or so talk of the new white paper being redrafted. We will clearly have some input to that over what we believe are the science and technology drivers for the future. Likewise we will be informed by the pulls and the drive where the strategy is changing, a shift in focus, and we will appropriately line up. Clearly you heard about some of the big procurements that are going ahead; we will be lining up behind those procurements. There is going to be a change in operations, so we will probably be doing less of that. We will also be thinking about sustainment of current capabilities as well as also, again, readjusting our future-proofing capability. So it is really an alignment aspect and maintaining that strong connection back into defence and national security needs.

Senator FAWCETT: Do you have a specific aspirational goal in terms of engagement with programs such as TTCP or other direct MOUs that we have with partner nations?

Dr Zelinsky : One of the things we will need to do—and it is austere times—is look to collaborate more with others not only internationally but also domestically with the higher education area as well as other research institutes. That kind of work of leveraging other people's capabilities and working in partnership will become more important.

Senator FAWCETT: So a part of that partnership will actually involve contracting with tertiary institutions here in Australia to do work? I am aware of the group ECIC in Adelaide, who you partner with. They facilitate some of those relationships, but models in other countries see a lot more proactive engagement of tertiary institutions, particularly in the States. Much of their funding comes from the defence space, which provides additional capacity and breadth to your equivalents in other countries. Do you have any view of developing DSTO's relationships with tertiary institutions down those paths?

Dr Zelinsky : Certainly Australia does not have an agency for doing that as they do in the US. A lot of the work that our universities do in the defence space is unclassified, so there is a need to align up with national needs around defence, and DSTO has been created and funded to do that. However, we do not have the mortgage on all the best people and all the best capabilities in the nation, so our challenge is to link up those capabilities, potentially doing early-stage work in the unclassified space and then, as the work becomes more interesting, it moves into that restricted space. We would then seek to bring it into DSTO and then work with it in an appropriate fashion.

Senator FAWCETT: So I will take that as a no—that you do not have a plan to change fundamentally the nature of your engagement with the universities across a range of work once it gets to the classified level.

Dr Zelinsky : We are considering models that university people could actually work with in the restricted space. You would have to get them brought into the fold of getting an appropriate security clearance. We are thinking about doing that in a number of areas. There is a change in that sense.

Senator FAWCETT: Perhaps I could ask you to provide on notice some details of that for the committee.

Dr Zelinsky : Yes, I would be happy to do so.

CHAIR: I think that concludes program 1.7, so we will move to program 1.8: Chief Information Officer.

Senator LUDLAM: I have some questions about Defence's involvement in the cyber white paper, such as it might be.

Mr D Lewis : Chair, while we are waiting for Mr Sargeant to come and answer that question, I have an answer for Senator Macdonald on the question he asked about Oakey and the Singaporeans. It is late this year that the renewal of the memorandum of agreement between us is to be renewed. Negotiations are successfully progressing to that end. That is the Oakey contract that is up at the end of this year.

Senator LUDLAM: Mine is just a general overview question, really: the degree to which Defence is participating in the development of the cyber white paper.

Mr Sargeant : Defence has had quite a lot of participation in the development through the strategic policy group, which I am in charge of, in Strategic Policy Division, drawing on the resources of the intelligence group.

Senator LUDLAM: I understand that it does not have formal working group status as such, but are you Defence's representative on that group?

Mr Sargeant : No. It is handled at a lower level by the head of Strategic Policy Division.

Senator LUDLAM: It may seem as though I am going to change the subject, but we might keep you here, if it is appropriate. I want to get a sense of how this relates to the announcement subsequent to the AUSMIN talks in September of last year when it was announced that the ANZUS treaty would now extend into cyberspace. I have a couple of questions about what that means in practice. Is that part of the focus of your representation or your office's work on the white paper?

Mr Sargeant : Cyber is an emerging domain of activity and it is an area where there are potential threats and we need to develop the capacity to understand and protect against those threats.

Senator LUDLAM: My understanding is that, given that we have brought this domain into the ANZUS treaty—

Mr Sargeant : I would not describe it like that. The ANZUS treaty is a treaty that governs the alliance relationship between the United States and Australia, and the alliance has evolved in terms of what happens under it over the 60 years that it has been in operation. As strategic circumstances change, as new challenges emerge, the alliance adapts to deal with them in a way that is congruent with the interests of both Australia and the United States. In that context, cyber as an emerging domain as a result of technology over the last 20 years comes within the purview of our mutual security interests.

Mr D Lewis : To go back to your earlier question about the nexus between the cyber white paper and the inclusion of cyber as a consideration coming out of the AUSMIN talks, they are different issues. Essentially the cyber white paper—and I am speaking on behalf of the department of the Prime Minister only because I was there at the inception of this, but your question is better directed now, for currency, to them—is about our whole-of-nation preparedness for what is a cyber reality. It goes from what I describe as covered government systems right through to your own personal computer in your home, local industry, local councils, local government and so on. So it is a whole-of-community thing, as opposed to the issues that were addressed in the AUSMIN discussion, which are really about the issue of government covered systems and how in fact we would regard cyber in the defence space between the two countries, the United States and Australia. So I am sorry, but there is a significant difference between those two things. The cyber white paper was, as you know, widely consulted on in a community sense; the other one is more what I would describe as defence-to-defence or government-to-government business between the United States and Australia.

Senator LUDLAM: That is helpful. We have pursued the Department of the Prime Minister and Cabinet about how that is rolling out.

Mr D Lewis : I am sure.

Senator LUDLAM: I will just read you a quote here and you can tell me if my understanding is correct:

Mindful of our longstanding defense relationship and the 1951 Security Treaty between Australia, New Zealand, and the United States of America (ANZUS Treaty), our Governments share the view that, in the event of a cyber attack that threatens the territorial integrity, political independence or security of either of our nations, Australia and the United States would consult together and determine appropriate options to address the threat.

So that extends the terms whereby we notionally come to each other's aid if we are under attack—as Prime Minister Howard invoked in 2001, I think for the first time—into the domain of a cyber attack.

Mr D Lewis :    I might just correct you there with regard to the wording of the ANZUS treaty. The ANZUS treaty commits the parties to consult, as I recall, if they consider themselves to be threatened. I would seek confirmation of that, but it does not say that we will come to one another's assistance in that sense.

Senator LUDLAM: Indeed.

Mr D Lewis : It is an agreement to consult in the event that that happens.

Senator LUDLAM: Yes, and that language is matched here by what I just put to you.

Mr D Lewis : Yes. That is why those words, I think you will find, are quite carefully chosen.

Senator LUDLAM: Indeed. It is not an automatic invocation that we will assist each other, but nonetheless it brings the domain of cyberspace into the realms whereby the treaty and its obligations would be invoked.

Mr Sargeant : No, what it recognises is that threats can emerge from cyberspace which may threaten national security, and there may be some circumstances where it might be useful or important to consult under the treaty arrangements.

Senator LUDLAM: I think we are in furious agreement. I do not think we are at odds here.

Mr Sargeant : It does not change the ANZUS treaty; it just recognises that circumstances change and that reality changes as well.

Senator LUDLAM: To me it reads as though it is acknowledging a threat of military attack or some kind of conventional attack. We should not ignore the threat of an attack in the online environment. There are threats there as well.

Mr Sargeant : Yes, it recognises that in the cyber domain there are a whole range of potential threats, including threats to the military forces.

Senator LUDLAM: Subsequent to the announcement, can you tell us what defence is doing or has had to do to implement that new understanding of the treaty, if anything?

Mr Sargeant : We have, as you know, quite a close relationship with the United States that extends across many areas. So what that announcement did was recognise that we have cooperation in the cyberdomain. That continues in defence but, as the secretary says, it is part of a broader recognition in government of the significance of this new domain.

Senator LUDLAM: Has that cooperation changed at all? The direction of the question is: what has happened since then? What have you had to do differently, if anything at all, subsequent to that announcement?

Mr D Lewis : I do not think you could put your finger on any particular actions, instrumentalities, institutions or arrangements that have been put in place that directly relate to that outcome from the AUSMIN discussion. But, suffice it to say, as Mr Sargeant said, we have a very longstanding relationship, certainly in the intelligence area, with the United States. It really is an extension of that program that is giving life, if you like, to the issue of working bilaterally around the cyberthreat issue. What I am saying is that most of the arrangements are extant and it has only been a requirement to adjust the agenda or change the topic that is being discussed and so forth. I do not think you could actually say that there is a whole new architecture or arrangement. There is a particular group—I think it is called the Ottawa 5. This might have come up with PM&C.

Senator LUDLAM: What is it called?

Mr D Lewis : I think it is called Ottawa 5. It is a group of five nations that are now meeting to talk about cyber things. It involves Prime Minister and Cabinet and maybe ANAO, but it is not something that defence has a lead in.

Senator LUDLAM: Is there a clear and shared definition in the agreement or the MOU of what the threshold is when a cyberattack actually compromises territorial integrity and security? A cyberattack can be anything from what is apparently going on in Iran with this flame worm or virus or whatever it is to a teenager in a bedroom. What is the threshold in this context for an attack?

Mr Sargeant : I am not aware that we think about it in terms of a particular threshold. It is one of those areas where, in a sense, you do not know what something is until after it has happened. I have not seen any work around thresholds in that sense.

Senator LUDLAM: So we have signed on to an MOU without an understanding of what would cause it to be invoked?

Mr Sargeant : The basis of our cooperation is a recognition that this is an emerging domain and a domain that we do not fully understand because it is developing all the time. It recognises that we share very close technology and intelligence links with the United States which express those shared interests in cybersecurity. We as a country have an interest in the development of international norms to promote a reliant and safe cyberspace. In that context, there is an emerging conversation which is expressed in that MOU which is really about trying to understand and express those interests and develop responses to them, with the aim of making it a safe, reliant and trusted domain.

Senator LUDLAM: But we do not have a definition of what would cause the agreement to be invoked?

Mr D Lewis : As you pointed out a little while ago, there is a correlation or a relationship between the original ANZUS wording and the wording of this—

Senator LUDLAM: 'Consult together.'

Mr D Lewis : Yes, consulting. I think if you have a look at the original ANZUS Treaty, again there is no definition of what constitutes a threshold. It says, 'if a party feels threatened'. So the definition is around the feeling: do you perceive that you are threatened? If you do and in your own mind that was a threat that was sufficiently grave to trigger the invocation of consultation, then you would do it. But I think you would agree that it would be very problematic to list thresholds of where cyber might or might not be considered a threat. I think the best way to look at it is through the lens of the original ANZUS agreement, which quite clearly does not lay down thresholds but says, 'If any party feels threatened, perceives that they are threatened, then they can go to invocation of the consultation process.'

CHAIR: Last question, Senator Ludlam.

Senator LUDLAM: Thank you very much, Chair. I might bump a couple in on notice, in writing, after we are done, because I still have a few more, but was Defence consulted about the decision to prevent the Huawei company being involved in the National Broadband Network?

Mr Meekin : Defence has provided advice. We provide advice to other government departments. The nature of that advice that we provide is often very sensitive. We certainly take no part in the decision making and the letting of contracts.

Senator LUDLAM: Understood, and I was not going to ask you to provide the advice, but you did advise. Just on notice—I think we are going to a break—does ADF use satellite systems operated by Optus SingTel, which Huawei has a close relationship with?

CHAIR: You are taking that on notice. We will have a tea break now.

Proceedings suspended from 15:31 to 15:49

CHAIR: We will now resume the hearing.

Mr D Lewis : Chair, we have got a couple of corrections and additions to read into the record. Also, we seek your indulgence for Carmel McGregor from the People Strategies and Policy Group to leave at five for some other parliamentary business she has to attend to. We would be much obliged if any questions for PSP could be asked before five.

CHAIR: Thank you, Mr Lewis. We are planning to go to DMO by five, so that should be fine.

Gen. Hurley : Chair, would you mind if I left by about 5.30? I need to get back to my office to make some international phone calls.

CHAIR: That is fine.

Dr Zelinsky : Chair, in relation to the question from Senator Parry on the number of staff at DSTO Scottsdale, there are 16 permanent staff, including 12 scientists, two administrative support and two chefs. In addition, there are five science and technology contract positions and seven part-time contract positions involving food preparation and processing in the freeze dried production facility. Recruitment is underway for a joint DSTO-University of Tasmania professor of food science. This person will spend half their time at the Scottsdale site.

Mr Owens : In response to some questions raised by Senator Fawcett with relation to Cultana, I can confirm that the Premier of South Australia, Mr Weatherill, is the responsible minister. You asked about when we were finished the technical details. The last technical details finalised between the state and federal governments were those in relation to the application of state legislation on the Cultana expansion area. A final Commonwealth response was sent to the state government on 24 April this year, after which the state submitted its brief to the Premier to commence the cabinet process, and we understand that the South Australian cabinet will look at that soon. I should also clarify that the six months I mentioned between signing and registration of the Indigenous land use agreement is not a mandatory or statutory period but is the recommended period from the National Native Title Tribunal.

Also, in response to questions raised by Senator Rhiannon with respect to heritage at Moorebank, I can confirm that Defence did engage heritage consultants and a preliminary Aboriginal and European heritage assessment was conducted by Navin Officer Heritage Consultants, with input from Eric Martin and Associates, in November 2010. The assessment aimed to inform the options development process and the broader project feasibility evaluation of the intermodal terminal at Moorebank and addressed both the European component and the Indigenous heritage issues. Field survey analyses were undertaken in 2010 and included Aboriginal field surveys with interested Aboriginal community representatives. The assessment identified a number of European and Aboriginal sites within the study area but none were identified as significant within a Commonwealth heritage list context. Management of European heritage items or issues that are at Moorebank and will be moved to Holsworthy will be the responsibility of Defence, and any residual European or Aboriginal heritage issues on the site will be managed by the Moorebank project office, established within the department of finance, and then the government business enterprise that will operate the IMT on that site.

[15:54]

CHAIR: Thanks, Mr Owen. We will now go to program 1.9, Vice Chief of the Defence Force. Senator Fawcett?

Senator FAWCETT: Air Marshal Binskin, welcome. I am conscious that this question may well flow to other parts within both your group and others. The various inquiries into defence procurement over the years, particularly the current Senate inquiry into defence procurement, have highlighted that identification and management of risk is a key element to success in defence procurement. Defence released in 2008 a T&E roadmap and one of the opening paragraphs in that says that the fundamental purpose of T&E is to identify areas of risk to be reduced or eliminated, which is a very good statement. What I am concerned about, and, Secretary, I cannot quite remember your words yesterday but it was something along the lines of plans without dollars are not plans at all. I think it came from a predecessor of yours, Sir Arthur Tange. What I am keen to understand is how the T&E roadmap has been developed since 2008, what resources have been applied to it, particularly within the construct of the FIC, so looking at your individual personnel aspects, how many people do you have long course trained in terms of test and evaluation from the whole of Defence perspective as well as facilities, procedures, command and management, all of your FIC elements, and particularly in the light of the current environment where people are saying it is mainly MOTS, COTS or FMS and therefore we do not need some of those skills. As the MRTT program highlighted, the application of Defence personnel with long course training in developmental test and evaluation is a vital element to keep ADF programs on track. With that background, could you talk to me about what has happened to the 2008 roadmap for T&E.

Air Marshal Binskin : Thank you for the question, Senator, but I will actually pass that to Chief Capability Development Group.

Senator FAWCETT: I thought you might.

Air Marshal Binskin : He can answer those questions but I can take the more strategic questions on risk if you want to talk about that later on.

Vice Adm. Jones : The Australian Defence Test and Evaluation Office falls in Capital Development Group and some of the outputs from that roadmap are evidenced in some of the reforms we have done in a ADTEO. That was formed, as you may be aware, in 2007 and it has particularly over last two years been ramping up quite significantly the amount of work that it has done. Of interest is that it has been doing work at various parts of the capability spectrum. To give you a feel, it has been doing not only some of the trials and evaluation work but it now does the test concept documentation that goes into the capability proposals that go forward to government. We made this determination that the best people to do the TCD were the experts. That has been a real improvement in terms of how they are making sure that the TCDs provide the right level of criteria and are of sufficient quality that when we get to the point where the project is being delivered and we do the trials and evaluation, it is a much better quality.

Senator FAWCETT: Can I just stop you there. You said the best people to do TCDs are experts. I am aware that ADTEO has its origins in the old D-trials, who were largely facilitators of ADF resources to support, for example, DSTO trials. What individual training do people have there and what regulatory framework do they have for them to be considered experts in T&E?

Vice Adm. Jones : I can provide the exact details of their training subsequent to this, but the organisation itself is certified and I can provide the details of its certification to you.

Senator FAWCETT: Certified by?

Vice Adm. Jones : The Australian standard. I will provide the details there and the international certification that they are certified to. We will provide that detail shortly. That is an important thing not only in terms of their performance but the use of their data internationally with our allies and also to be able to, if you like, analyse the data we get from in particular US, UK and Canada. With some trials we share the trials facilities, particularly in the Five Nations. An example of that is some of the signature work that we do. There was a recent trial where one of the facilities was only in Canada, so we did that aspect of the trial in Canada but it was part of an overall trial. To give you an idea of some of the trials we are doing that help shape the capability, in 2012 we did a trial in the Barrier Reef with remote vehicles for Sea 1180, the offshore combatant vessel capability. The point there was that we were trying to do a trial of remote vehicles to help inform what the capability choices are so that very early on, pre first pass, we were trying to understand the options and where the technology is for that capability then going forward. On the other extreme, the ADTEO are supervising the trials on boots, which were covered off last night.

Senator FAWCETT: Can you clarify for me: is there a regulatory and policy type role to influence both the services and DMO and even other parts of CDG around the level of resource thrown at T&E? From your wording, it almost sounds as though they are rolling up their sleeves, going out and physically doing the trials. Could you just clarify what their role is?

Vice Adm. Jones : It is probably all of those. For example, they lead the T&E policy for the department. They are responsible for the defence instruction on capability acceptance into operational service. They are responsible for the defence instruction on the defence T&E policy. They are also responsible for the defence instruction on policy and procedures for the implementation of defence trials. So they have that policy remit. I guess part of this is the fact that they are not a large organisation. I think the benefit is that they not only are a policy area but have practical experience of doing trials and also now setting up projects for success, in terms of doing the test documentation that goes forward to government.

Senator FAWCETT: If they have a policy role for the department, do they then have any kind of an oversight or audit function within individual services as equipment transitions into service or with DMO to ensure that appropriate levels of T&E, appropriate resourcing and appropriate numbers and qualifications of people are actually applied to the task?

Vice Adm. Jones : Perhaps I can give an example. For example, a defence trial was recently done in respect of some of the network systems that Chief of Army had to consider for acceptance into service, so they were part of that independent, objective trial of the network force so that the Chief of Army could decide whether it met IOR introduction into operational service—did it actually meet the milestones that he had to consider as capability manager? They are certainly used as a tool of the capability managers to make those determinations, noting that there are also other trials organisations. In particular, the Australian Navy has RANTEAA for Chief of Navy's acceptance, but they work very, very closely together and they work in a joint capacity with some trials as well, where it makes sense to do so.

Senator FAWCETT: Do you see them in the same guise as a regulator who sets the standard for defence, or do they set a broad policy that DMO, the remainder of CDG and services are free to implement to whatever extent they wish?

Air Marshal Binskin : It is iterative. It depends on the capability. I obviously know the aviation side far more than the others. To answer, I think, your concern: a few years ago we were making capability development decisions that had long-term implications for resourcing for the testing side of it—in fact, like test pilots, test engineers and all that. The decisions were being made without adequate resourcing being put into the project in that long-term planning. I can tell you now that we are putting things in place to stop that happening. From a flight test point of view, we are making sure that that is rolled in right upfront as the project starts to progress through first pass.

Senator FAWCETT: I have some questions, Chief of Air Force, around flight tests specifically later, but I am actually concerned from a whole-of-ADF perspective, because, as we look across a number of programs, it is actually the lack of appropriately competent and qualified people to identify risk early that has led to the conspiracy of optimism and things falling off the rails. The wording in the 2008 paper is great. What I am interested to see is what resources are following that plan, and how is that being implemented? I am happy to put more on notice if that is easier for you.

Air Marshal Binskin : I think it would be easier for us to take your concerns on notice because it will be quite a long response. I think the one other thing that has changed since 2008 is the fact that the capability managers have a lot more ownership of the problem as they go through now. The capability managers are on board a lot earlier in understanding the resourcing of this and what planning is required from a force point of view to bring that capability into service, and they are accountable for that.

Senator FAWCETT: Do the capability managers look to CEG for guidance in terms of what level of training their people should have if the capability manager is going to run, for example, an OT&E program as part of the acceptance into service, or is that something they essentially do out of—

Vice Adm. Jones : A lot of that is laid out in those relevant defence instructions that I talked about. The services also contributed to their development. I think probably the other bit which is worthy of note is that we have been working quite hard in the last 18 months to ensure that when we acquire equipment from overseas, particularly from the US, particularly under an FMS arrangement, we have provision in there for the exchange of test evaluation data. That not only gives us the ability to get data which sometimes has been done in quite elaborate ranges that we could not emulate here but also allows us to better understand the capability and saves us from trying to do those tests and evaluations here. As I said, in some cases you actually could not do it because you do not have those facilities. We have signed recently a partnering arrangement with the US to that end and also we signed a similar arrangement which had to do with data from electronic warfare in the air environment. That should be of great benefit for us. That also gives us much greater understanding of the sort of data and the sort of performance that we can expect from our systems, and that is part of the maturing, if you like, of our T&E capability.

Senator FAWCETT: I am happy to take that information on notice or, depending on the chair—I guess it may be Senator Stephens who makes that decision—a briefing to the committee on your implementation plans and development would be welcome.

Vice Adm. Jones : Yes, certainly.

Senator IAN MACDONALD: I just want to ask a few questions about cadets, some about exercises and some about honours and awards, starting with cadets. A constituent who is a senior officer in the RAN cadets has reported to me that he is paid a maximum of 48 days per year. This contrasts, apparently, with the Reserve personnel, who have 120 days service a year. This guy reported to me that, by April, he had served his 48 days, which means he is going to work the balance of the calendar year for zilch. Is there any provision for extending the 48-day limitation?

Brig. Sowry : The limit for funding for cadet forces allowance is generally set at 48 days, but there is a discretion available to the individual commanders of the cadet organisations within Army, Navy and Air Force to assess each case on its benefits.

Senator IAN MACDONALD: So they can exceed the 48 days?

Brig. Sowry : In the right circumstances.

Senator IAN MACDONALD: It is not just a ministerial declaration that 48 days is it? I think that is how it comes under the act.

Brig. Sowry : Within the pay and conditions manual it is set out as being an upper limit of 48 days. It is actually quite a generous allowance to support volunteers in the service they provide. In order for the services to manage a budget they do have to put an established limit on it, but it is not so set in concrete that they cannot assess individual circumstances on a case-by-case basis.

Senator IAN MACDONALD: Is it correct that Defence Force cadet staff do not get tax exemptions for their payments, which apparently go to Reserve personnel?

Brig. Sowry : Correct. Cadet force allowance is a taxable allowance.

Senator IAN MACDONALD: And that has long been the practice, has it?

Brig. Sowry : Correct.

Senator IAN MACDONALD: What was the perceived need that the Air Force Cadets sought to address by creating the i-safe card? There is a minute dated 19 April 2012 that details the creation of an AAFC i-safe card that has been designed to encourage cadets to be confident in vocalising their safety concerns to their peers and instructors. The minute makes specific reference to cadets not being punished for incorrect or inappropriate use of the card.

Brig. Sowry : It was just a good occupational health and safety practice adopted by or directed by the DG Cadets Air Force to ensure there was broader awareness of any individual responsibilities of the Air Force Cadets, to ensure that it was about awareness rather than being punitive in nature, so that they had a ready reference card of the things they should be doing and their responsibilities, and indeed it was consistent with the broader safety practices that were being adopted by Air Force at the time.

Senator IAN MACDONALD: There has not been any increase in particular incidents that brought it on?

Brig. Sowry : Not that I am aware of. If anything, it has assisted in ensuring that incidents are kept to a minimum.

Air Marshal Brown : It is not dissimilar to one we use right throughout Air Force, which is a card that anybody that sees a practice can actually invoke. It was a carry-on from our normal practice in Air Force.

Senator IAN MACDONALD: So nothing particular, just good procedures in place in advance. Have the service chiefs given consideration to the recommendations of the 2008 ADFC review regarding the creation of a separate category of cadet for adult cadets, in order to preserve their contribution whilst limiting the potential for any unusual behaviours? As I understand it, any adult over 18 looking after minors needs some sort of certification in the wider world. Does that apply in relation to senior cadets—that is, those in the 18 to 22 category who, by their very position, are looking after, mentoring, supporting, younger cadets but without the civilian certification?

Brig. Sowry : That does apply. In essence, as soon as a cadet becomes 18 they need to have the same checks in place when they are working unsupervised with fellow cadets. If they are in a position of responsibility, supervising other cadets, and there is not another cadet staff member present, they would need to have those checks. In the Northern Territory, for example—it varies from state to state—the criminal check needs to occur at the age of 15.

Senator IAN MACDONALD: So that does apply with senior cadets.

Brig. Sowry : It does.

Senator IAN MACDONALD: That is good to hear. Can I just go to Amberley. Thank you for the answers in writing to my questions on notice about that. Can anyone give me an update since the answers to questions on notice, which are only fairly recent? Has funding been allocated for the maintenance and refurbishment of the existing RAAF cadet accommodations at Amberley?

Air Marshal Binskin : We will get Defence Support Group to come and answer that.

Mr Jenkin : You are talking about the cadet facilities at Amberley. The current state of the buildings, we recognised, was not adequate, so we were looking at the opportunity to develop a multiuser depot under the approved RAAF Base Amberley redevelopment stage 3. Following further development and delivery of that project, issues arising from design, construction, and contamination concerns meant that expected savings we were looking at to fund that were not realised, so we did not put that proposal forward. What we are doing now as an interim solution is putting in place demountable buildings adjacent to the existing cadet facilities. They are expected to be ready for occupation in time for the next major cadet activity. For cadet functions that remain in the current facilities, minor improvements, including repainting, are scheduled to occur through Defence's reactive maintenance program. So we have an interim solution. We are looking, though, and planning for a longer-term solution, which will potentially involve a multi-user depot.

Senator IAN MACDONALD: And are you involving the cadet service in those long-term solutions?

Mr Jenkin : As part of that consideration we will certainly be talking with users, not just the cadets but reserve units et cetera—other users of that multi-user facility.

Senator IAN MACDONALD: I don't suppose you could tell me the proposed location for the demountables you are suggesting as a temporary solution?

Mr Jenkin : All I have here is that they are adjacent to the existing cadet facilities.

Senator IAN MACDONALD: Is specific funding allocated for that project?

Mr Jenkin : Certainly for the demountables, yes. We are doing that right now; we are in the process of putting that in place. As far as the more permanent solution goes, we are developing that proposal. Of course, that project is yet to be approved, so we have to work through our normal processes to fund that and get its approval.

Senator IAN MACDONALD: Thanks for that. Time is very pressing, but perhaps I could just move briefly on to honours. This might be a question for the minister. Can you provide me on notice with any detail as to the process that was undertaken to determine the eligibility of Delta Company 6 RAR for the Republic of Vietnam medal? I am just interested in the process that was undertaken. As you know, this has been an issue that has long interested a number of people.

Senator Feeney: You want to know the origins of how it is we come to be providing awards from the Republic of Vietnam?

Senator IAN MACDONALD: I want to know how Delta Company received the award—which was well deserved, and I think everyone applauds. But others may also feel that perhaps they were entitled. So I am asking about the process that was embarked upon for that awarding, so that others might be able to possibly pursue that.

Senator Feeney: Sure. I am happy to do that.

Senator IAN MACDONALD: I have a further question on the Ubon medal. I know that is also of interest to people. Again, this might be a question for you, Minister. I think it was your 20007 election policy that the recommendations of the Defence Honours and Awards Appeals Tribunal would be put into effect by the government. Your policies suggested that. Can you tell me whether or not the government intends to accept the recommendation of the tribunal to award RAAF personnel who served at Ubon with the Vietnam Logistics and Support medal?

Senator Feeney: Really all I am able to say about that on the record—and I am happy to talk to you about this privately, perhaps—is that the matter is before the government and we are yet to make a decision.

Senator IAN MACDONALD: In some correspondence you had written to a constituent, you apparently said you were required to consult with the Chief of the Defence Force before accepting the recommendations. Do I take it from that that you have already done that, and the process has moved on?

Senator Feeney: The matter is still before government, and a final decision has not yet been made.

Senator IAN MACDONALD: I was going to say that if you are saying you are waiting for the Chief of the Defence Force—

Senator Feeney: I should mention it to him now!

Senator IAN MACDONALD: No, I was just going to suggest to you that if you thought that you were required to do that to give me the reference that says that you are required to do that. My understanding is that you do not have to. It would probably be good practice to do it.

Senator Feeney: It is not a requirement.

Senator IAN MACDONALD: It is not a requirement, which is what you might have suggested to someone else. I want to now turn to the Iraq government medal, which I understand is offered by the Iraqi government to others. I am told that it has been offered to United States servicemen who served in Iraq. Has any such offer been made to the Australian government that you are aware of, Minister?

Senator Feeney: Not that I am aware of. I will need to check that before I allow that to be a definitive answer on record.

Senator IAN MACDONALD: It is an offer from the government awarding the medal, which is the Iraq government. Could you take on notice whether it has been offered to United States servicemen. If it has but has not been offered to Australian servicemen, you might institute some diplomatic diplomatic inquiries as to perhaps whether we in Australia should be expecting that or not.

Senator Feeney: I would be happy to find out the particulars as to what the status of the award is regarding Australian service personnel and I will advise you of what course if any we are minded to take.

Senator IAN MACDONALD: Okay. Thank you very much for that. I have some other questions that I will put on notice. I have seen newspaper reports that the Australian Navy is contemplating exercises with China and Indonesia.

Senator Feeney: It undertakes them regularly. But that is a matter for—

Senator IAN MACDONALD: With China?

Senator Feeney: Yes.

General Hurley : Yes, we have exercised with China.

Senator IAN MACDONALD: More than once?

Air Marshall Binskin : More than one. HMAS Ballarat is up there at the moment or on its way back.

Mr D Lewis : It is in Korea now but it was there about a week ago.

Senator Feeney: There are maritime joint exercises undertaken on an annual basis with Indonesia.

Senator IAN MACDONALD: And these involve the People's Liberation Army, the Americans, the Indonesians and Australians?

Vice Adm. Griggs : I do not think that we have done a four-way exercise. The activity with the Chinese is roughly every two years. It is just an Australia-China activity.

Senator IAN MACDONALD: Is it just a visit or is it—

Vice Adm. Griggs : It is a visit and a passage exercise.

Senator IAN MACDONALD: What do you mean by 'passage exercise'?

Vice Adm. Griggs : We will generally at the end of the visit sail with a unit from the PLA navy, having in the port visit had planning discussions about the activity. They will sail together and conduct the activity. It may run for six to eight hours. Then the ship will proceed on its way.

Senator IAN MACDONALD: Okay. It is not in the line of what we understand as a Talisman Sabre type exercise.

Vice Adm. Griggs : No. It is a low level activity focusing predominantly on communication, drills and search and rescue. We have conducted live fire activity with the PLA navy.

Senator Feeney: It is certainly our policy to foster military to military relationships between us and the People's Republic of China.

Senator IAN MACDONALD: And Indonesia?

Senator Feeney: Of course.

Senator IAN MACDONALD: And the United States.

Senator Feeney: And the United States.

Senator IAN MACDONALD: Are they all in the same vein, though? They are different levels of—

General Hurley : They are at all different levels.

Vice Adm. Griggs : We have similar activities throughout the region, from North Asia through South-East Asia and South Asia.

Senator IAN MACDONALD: With Korea, Japan, Vietnam—

Vice Adm. Griggs : Korea, Japan, Thailand, Malaysia, Singapore, Indonesia, India, Pakistan and so on.

Senator IAN MACDONALD: I have some other questions, but I will put them on notice.

Senator FAWCETT: I have run out of time to ask the Chief of Air Force about an update on the flight test review. If he could roll that in to the same brief from the capability development group, that would be useful.

Air Marshall Binskin : We will add that in.

[16.25]

CHAIR: I understand that there are no questions for program 1.10, joint operations command. We will go to program 1.11, capability development.

Senator FAWCETT: I want to come back to Defence Procurement and the current Senate inquiry. One of the comments that we frequently receive is about the need for Defence to engage with industry more proactively right up front. The feedback from Defence has been contextualised by push back in terms of probity, with Defence saying that that is a real issue. I was wondering if you could talk to me about RPD&E and the process that Defence and industry go through to select a general manager of RPD&E.

Vice Adm. Jones : The RPD&E program operates under the capability development group. The general manager can be drawn from any partner company or could be a Defence individual. In the history of RPD&E, which was established in 2005, we have had one person who has come from Defence. The remainder have been drawn from industry. Heather Layton is the current general manager. She comes from BAE.

Senator FAWCETT: Do you have any concerns at all in terms of probity, given the fact that various companies are coming together with Defence to talk about technology, IP and other things.

Vice Adm. Jones : Not at all. We have quite a well-founded relationship agreement that governs the way in which RPD&E operates. One of the issues that the general manager has to manage is how you bring people together to look at projects. I have mandated that all pre second pass projects have to have completed a quick look. That is something that I initiated earlier this year. That will roll its way through. My expectation is that somewhere between a dozen and 20 projects a year will do that quick look. We need to manage what that means in terms of the post budget adjustment that we have given to RPD&E to make. But essentially what we are looking at is projects setting up a project initiation and review board and getting their scope confirmed. That is then the ideal opportunity to engage industry.

The thing that we have found so far in the quick looks is that it is an ideal opportunity to get industry to look at projects in terms of what is possible and what some of the issues are that we need to be aware of in terms of risk. They also look at some of the schedule issues and where some of the technology is going. To give you an example, we did one for LAND 400. We had Thales and BAE—potentially two players who would be involved later down the track as competitors—in the one quick look team. They were able to provide advice to the LAND 400 project on the sorts of issues that they need to be aware of. I am not concerned at all about that. In fact, I really encourage industry to be involved.

One of the things that we have learnt, though, is that the composition of the team involved in quick looks is important. What you do not want is business development people from the companies. You actually want their technical experts in there. That is something that we have learnt and something that the general manager is mindful of as she composes the team for each of these quick looks.

Senator FAWCETT: You mentioned having to possibly review that in the light of the budget. Is RPD&E under budget pressure after this most recent budget?

Vice Adm. Jones : That is correct. RPD&E is funded from project development funds. That has been reduced from $40 million to $25 million. We are in the throes now of confirming RPD&E's budget. But, as I have emphasised to the general manager and also to some companies, the role that they play—in particular in providing that insight into projects early on—is of fundamental importance to us.

Senator FAWCETT: What are the criteria you use to select the limited number of projects that you apply that resource to?

Vice Adm. Jones : A lot of that is purely based on schedule and when projects are due to come forward for first-pass consideration. One other thing we now look at in a much more formalised way in the project initiation review board meeting—which I chair, and which also includes the capability manager, the chief defence scientist, the CEO of DMO and the head of strategy there—is exactly what the scope is, what the key things are that they have to do going forward to get first pass and their longer term passage to government. One of the key things we want to look at is the risk issues and what the insights are we need to get from industry so that we can provide to the project team some clear guidance about what we really expect to see when they come back with their proposal.

Senator FAWCETT: Can I ask that the general manager of RPD&E and you or whoever is appropriate to supervise them, so to speak, and come to the committee to provide a brief?

Vice Adm. Jones : May I suggest that there may be a benefit, if the senators would like, in visiting the RPD&E facility. The benefit we have found when people visit is that they get a sense of the organisation but also speak to the staff which are drawn from a large number of industry players just to see that you have a range of people from those companies—SMEs, large and prime—all working together on tasks.

Senator FAWCETT: The quarterly accountability reports were announced back in May 2011 and the first report was due in October 2011. I have not seen any report delivered or mention of it; can you tell me what has happened to the quarterly accountability reports?

Vice Adm. Jones : If I understand rightly, this is the DCP highlight and the early indicators and warnings report; is that what you are referring to?

Senator FAWCETT: It is the one that was announced by the minister back in May of 2011 and the sense given at the time was that it was going to be an accountability report about the progress of the capital equipment program running through CDG and DMO.

Vice Adm. Jones : I will take that on notice and we will look to see if we are talking about the same report.

Senator FAWCETT: If you could, that would be great.

Vice Adm. Jones : To go back to the earlier point about ADTEO, the ADTEO is certified by ISO 9001, and they achieved that certification in 2010.

Senator FAWCETT: But that is a process certification and not certification in terms of competence. It does not prove that someone is competent in their job. ISO 9001 just says that you have a process and you do the same thing the same way every time. It is quite a different certification. Do you have any certification in terms of competence in the job?

Vice Adm. Jones : What we can provide to you is the various professional qualifications of the staff. That might be useful to you.

Senator FAWCETT: Do you have mandated training requirements or qualification requirements for the role?

Vice Adm. Jones : Yes, we do. We can provide that to you.

Senator Feeney: If you are referring to a press release, we might have a copy of it. It might help us identify the quarterly accountability report you are referring to.

Senator FAWCETT: It was from Stephen Smith and Jason Clare as part of the SRP initiative announcement on 6 May.

Senator Feeney: Of 2012?

Senator FAWCETT: 2011.

CHAIR: That concludes program 1.11. I understand there are no questions under program 1.12—Chief Finance Officer. We will go to program 1.13—People Strategies and Policy.

Senator HUMPHRIES: I have a couple of questions about the strategies that defence is employing to retain personnel following the expected withdrawal from Afghanistan in 2014 and the wind-down of operations in Timor and the Solomons. My impression is that considerable weight is attached by serving members to the opportunity to serve in overseas theatres. It seems to me that there may be a retention issue when those theatres are no longer operational. Has thought been given to this and, if so, what strategies are being developed?

Gen. Hurley : Let me introduce the issue in a general sense and then we can go to the other end of the table. It certainly is a very significant topic and I can assure you it is one that we have turned our minds to. If you look to what lies ahead for the ADF, barring what we have not seen or what may be around the corner that we do not know about, we will complete the operation in the Solomon Islands by the end of next year. There are obviously discussions with the East Timorese government, the United Nations, our own government and the New Zealanders. That will be pretty much wound down by the end of the year, I would say. In Afghanistan we will step down from the end of this year, over the next couple of years, to whatever form it will take in 2014.

So you are right—there will be a significant decrease over the next two years in the operational tempo of the ADF. That does bring with it challenges. We went through a similar thing in the 1970s after Vietnam and we need to ensure that we construct both an employment environment and an offer, in a sense, to our workforce that both attracts and retains people. We also need to create the professional experience both in terms of professional development and training challenges and opportunities for people that will again attract them and entice them to remain in an organisation that appears to them and appeals to them as being vibrant, forward-looking, challenging and rewarding. So all those things need to be put in place. Frankly, as we go into the white paper process, what that workforce plan looks like will be a very important outcome of the white paper into the future, because we need people to preserve the capability, to man the capability and to provide for our future. So it is a very important issue to us.

Senator HUMPHRIES: Did the other end of the table want to add anything to that?

Major Gen. Fogarty : The only thing I would add is that we have been tracking our people's attitudes to various components of the defence employment offer, which is a broad term that essentially means the tangible and intangible components of what we offer our members—what they value most and how their attitudes change over time. We have started a body of work to look at how their attitudes might change when we come out of Afghanistan. We do this on a quarterly basis. It is an attitudinal research project. I think we have a very good handle on which components of the defence employment offer we are seeing attitudes change in. The challenge for us in the future is to be able to develop some flexibility in how we deliver those components and to do that in a far more targeted way than we do at the moment. We are working on that as a specific project.

Senator HUMPHRIES: You said that the attitudinal survey is done quarterly among serving members. Is this information collated and made available or published?

Major Gen. Fogarty : We have a human resource metrics system where we produce this material on a quarterly basis. It tracks where the trends are heading. It is a stratified sample of our membership that we do on a quarterly basis. We do not routinely publish for an external audience. We use it to adjust our policies and our initiatives to try to motivate retention behaviour.

Senator HUMPHRIES: You say that you survey serving members of the Defence Force, but do you also conduct discharge interviews that plug in to the reasons that people leave the Defence Force, other than for compulsory retirement at a certain age?

Major Gen. Fogarty : Yes, we do. All people who are leaving the organisation are interviewed by their chain of command. The single services consolidate that information and use it in our people committees to inform adjustments to our benefits and our initiatives. We have a formal survey that we ask people who are leaving the organisation to do. The take-up rate for that is very poor. We have been working on that for some time, with not much success.

Senator HUMPHRIES: Would that suggest people are leaving somewhat disgruntled and are not interested in talking further to the service, or are they just too busy getting on with their lives?

Ms McGregor : That would apply for most exit surveys from organisations. It is not really a good predictor of much at the point when people are leaving. They have made their choice and they are disengaged. As Major General Fogarty said there is a formal process in terms of when the individual intends to leave—that there is a remedy possible. But at the point of exit there is not much that you can glean.

Senator HUMPHRIES: I assume you do not publish the information available from those discharge interviews. But can you give some indication of how many people who do the surveys attribute their discharge to a failed service or core category or transfer application?

Major Gen. Fogarty : I cannot answer that specifically. The top 10 reasons that people leave the organisation have not changed significantly over the past five years. The top three reasons, generally, are: a desire to stay in the same place; a desire to spend less time away from their families, but couched around a work/life balance answer; and the third is about career management issues generally. What you have stated there is generally captured under the career management issue. It might be that they did not get the posting they were after or it could be that they had an issue with their superior and did not get a job opportunity or access to a course. It could be a range of things. But those three have stayed static for the past five years.

Senator XENOPHON: I have some questions for the inspector-general. Is he available?

Gen. Hurley : He is not here.

Senator XENOPHON: They are interrelated to questions about the medical services provided within the ADF. Can you help me with that?

Gen. Hurley : The commander Joint Health Command.

Senator XENOPHON: Has the inspector-general gone, for the propose of estimates?

Gen. Hurley : He may well have. And Joint Health Command comes under the vice-chief, so we are in a different space. You might want to put your questions to us and we will see what we can do about answering them. If we cannot provide a satisfactory answer we can take them on notice. I am not sure we have the deep expertise here that you seek. The Director-General of Health Services was in a previous group, as was the Inspector-General.

Senator XENOPHON: Was the inspector-general called earlier?

Gen. Hurley : He was in 1.1, under the office of the secretary.

Mr D Lewis : He was here yesterday when we did that part of it.

Senator XENOPHON: I was given to understand that he was here today. Perhaps I can put some of these questions on notice, or you may be able to assist me to some degree. I have some concerns about the way the ADF carries out its medical services. On notice could you set out how much the ADF spends on medical services, in particular medical staff, on military bases and ships—and training programs for those medical staff?

Gen. Hurley : Are you talking about contractors, staff, military staff—

Senator XENOPHON: Contracted staff. And what are the benchmarks or standards the ADF uses when recruiting medical staff. I understand you have a contracting agency that does that. I have a general question about what systems are in place to ensure that the integrity of a patient's file at a Defence medical facility is maintained. What protocols are there to ensure that a medical file is maintained in a way that is—

Gen. Hurley : Is it a privacy issue?

Senator XENOPHON: Not just privacy, but to ensure that the entire file is maintained under the same standards that would apply in a public or private hospital. I have some concerns about how these files are maintained or not maintained, in some cases, for instance, to ensure that no notes are removed from the file. Also, an issue that has been brought to my attention concerns the mechanisms that are in place to ensure the transcript of a statement is accurate when a complainant makes the statement to the inspector-general. General Hurley, the information I have received from some constituents is that statements were provided as a result of an investigation and parts of the statement were either inaudible or had a number of inaccuracies. There were large gaps in the statement and there was no attempt to fill those gaps in or correct them prior to a final report being provided. I wonder whether you would consider, as a general principle, without referring to a specific case, whether you would be concerned about that.

Gen. Hurley : Well, I would be. I will pass the question on to the IG and see what the practice is and if there have been any issues or complaints.

Senator XENOPHON: I suggest that some of these constituents thought that if that is how unsatisfactory the processes were their confidence in the process was shaken. What opportunities is a participant given to review and make any necessary corrections to a transcript? Is there a protocol with respect to that? In other words, is there a standard process and how do you deal with that?

Referring to the announcement of 16 September 2011 by the Hon. Warren Snowdon regarding a request for tender of on-base ADF health services, how many on-base ADF health services have been outsourced to date and how many on-base ADF health services is the department planning to outsource? I am not sure if the department can indicate what plans it has in relation to outsourcing or further outsourcing on-base health services.

Mr D Lewis : I do not know the answer off the top of my head. We will have to take all of this on notice.

Gen. Hurley : There is pretty much a nationwide approach to this. We will get all of that detail for you about the health contractors.

Senator XENOPHON: Also on notice, regarding claims of medical negligence and claims against ADF by their personnel, are there any statistics kept for the last four to five years on notices of claims about complaints about treatment that could be the subject of a medical negligence claim? That would not just include proceedings that have been issued, because in many cases a notice of claim could be given and it could be resolved prior to proceedings being issued or any judgment being entered into. So, if you could give me details of the sorts of claims and any payouts that have been made with respect to allegations of medical negligence or inadequate treatment, that would be appreciated.

One issue that has been brought to my attention that concerns me is relating to whether defence medical doctors—those that treat our service men and women—have a provider number as a matter of course. Is there a protocol that requires that they have a provider number in terms of their provision of medical services to personnel? I do not know if you can answer that.

Mr D Lewis : We do not know the answer to that.

Air Marshal Binskin : If you give us a full list, we will be able to give you a detailed response to each of your questions. Some of those are medical. Some of them are going into the IGADF's area.

Senator XENOPHON: Yes, I know, and the two are melded together, in a sense.

Air Marshal Binskin : Yes, so if you give us those we will be able to provide you with all the answers.

Senator XENOPHON: Is there a policy as to whether medical practitioners that provide treatment for defence personnel have a provider number?

Air Marshal Binskin : We will give you an answer on that.

Senator XENOPHON: In the context of that, the Royal Australian College of General Practitioners, for instance, have a provider number system and you have to pass certain exams and the like to get that. There is a certain benchmark. You do not have to be a member of the fellowship, as I understand it, but there are exams and criteria that they set. Further, what are the essential education and practical experience criteria a person requires to become a senior medical adviser in the ADF, to have that designation?

Air Marshal Binskin : We will take all those on notice.

Senator XENOPHON: At next estimates, I am sure I will be here in the right space for the inspector general.

Gen. Hurley : The inspector-general is 1.1 and Joint Health Command is 1.9, under the vice chief.

Senator XENOPHON: Thank you very much.

CHAIR: There being no further questions in that program and, I understand, no questions in 1.14, 1.15, 1.16 and 1.17, that deals with outcome 1.

Mr D Lewis : If it helps senators—particularly senators that are new to the committee—before an estimates hearing they could perhaps contact our secretariat just to identify the areas that they are interested in so that they can be directed as to which part of the department those officers are positioned in. We would be happy to help in that regard.

Senator Feeney: As is my office, I should say.

[16:52]

CHAIR: We now move to outcome 2. We are trying to finish this outcome by 5.20. Senator Ludlam.

Senator LUDLAM: I have questions on detainee management in Afghanistan and a couple of follow-ups on detainee management in Iraq that I think I touched on last session. I also have questions on special ops activities in Africa. I will start with detainee management. Are there specific and overarching policy documents in place for monitoring persons held in Australian custody at Tarin Kowt and then transferred to US, UK or ANSF custody? Maybe you could just talk us through what those documents or protocols are.

Gen. Hurley : There are protocols put in place and they are determined through the ISAF chain of command and specific arrangements that we have in place that govern the transition and transfer of personnel to the particular location just outside Kabul.

Senator LUDLAM: Can you be a bit more specific about where that is?

Gen. Hurley : In Bagram.

Senator LUDLAM: Fine. Our procedure for the management of detainees was reviewed fairly recently. Is that correct?

Gen. Hurley : It is continually updated.

Senator LUDLAM: Is it true to say that, as of last November, there was a fairly substantial review?

Gen. Hurley : That may have been the case but, again, as I say, it is fairly regularly reviewed to ensure that our processes and so forth are in place. I think you are right, though: there was a major review of it last year.

Senator LUDLAM: The reason I picked on that date is that the defence minister noted it in a statement on 24 November. So that was subsequent to our decision to suspend transfers to Afghan custody last July.

Gen. Hurley : This was in relation to the UNAMA report that came out. We took that as an opportunity to make sure that, again, all our settings were appropriate in terms of both our own facility and the Afghan facilities and of the governance that sits over our arrangements for transfers and so forth, and inspection regimes.

Senator LUDLAM: What is the nature of the facilities? And have we upgraded, or are we upgrading, temporary or holding facilities at Tarin Kowt in advance of transfer of people to Bagram?

Gen. Hurley : We have what is known as the initial screening facility in Tarin Kowt, which is a purpose built facility.

Senator LUDLAM: How long can people stay there?

Gen. Hurley : It varies. Normally it is for 96 hours, and there are possibilities of extensions for another 96 hours and then another 96 hours. Those delegations are at various levels, and that is really determined by whether the person is fit to travel or their intelligence value—that we believe they should be retained there for further interrogation on the interrogation program.

Senator LUDLAM: Is there a maximum number of period extensions? Or can that just roll as long as people feel it is necessary?

Gen. Hurley : No. There is a maximum number of three.

Senator LUDLAM: Three lots of 96?

Gen. Hurley : Yes.

Senator LUDLAM: Subsequent to that, people are automatically transferred to Bagram or released. There is no other—

Gen. Hurley : They will not be automatically transferred to Bagram unless there is a purpose to do so—one that has been identified in that process.

Senator LUDLAM: Otherwise released?

Gen. Hurley : Otherwise released.

Senator LUDLAM: If it is possible, are you able to table the documents that I referred to at the outset—the policy that guides our people there in detainee management?

Gen. Hurley : I will look at that and let you know.

Senator LUDLAM: I just want to know what its status is—what do I call it, how do I refer to it? Can you identify that for us now?

Gen. Hurley : I do not have a title for it in my mind, and neither can I see one. That is why I have been flicking through the pages. But I will get it back to you as soon as I can.

Senator Feeney: I think the minister has made several statements in the House regarding detainee management, which I refer you to, if you have not seen those already.

Senator LUDLAM: That is partly what I am riffing off. But I do not believe the minister has ever provided to the parliament the guiding protocols. Is that protocol or that policy document applicable to SOTG and to our forces operating in Kandahar? Or is it specific to detainee management at Tarin Kowt?

Gen. Hurley : It covers our detainee management process overall, so it will look at what applies in different provinces.

Senator LUDLAM: In the minister's statement of 24 November 2011, he noted that the Australian government had undertaken extensive consultation. He listed a range of entities, including ISAF, the International Committee of the Red Cross and a number of Afghan NGOs and commissions. Could you provide us with details of the nature of those consultations and precisely with whom they were conducted?

Gen. Hurley : I will take that on notice, Senator, but we can do that.

Senator LUDLAM: That would be appreciated. I wonder if you can tell us what monitoring and management systems are in place for interrogators—that is, while people are there at the facility that you have just identified for us. What are your feedbacks and your safety net, if you will? How confident are you that our protocols for interrogations there are being effectively implemented and followed?

Gen. Hurley : It ranges from the physical arrangements put in place to the conduct of audit and documentation reviews and so forth. Within the physical arrangements there are CCTV cameras and specific arrangements put in place for the monitoring of that. That is real time—24/7—with double cameras, so if there are failures there are protocols for what happens if the cameras stop. All those sorts of things are in place. For example, if we become aware during an interrogation that a CCTV camera fails to operate, for whatever reason, the protocol is to stop the interrogation until that can be covered. It goes all the way through those processes to an external audit we conduct a couple of times a year to review paperwork processes, documentation, film and so forth to make sure that those interrogation processes are conducted properly.

Senator LUDLAM: Thank you, CDF. While an interrogation is taking place, is there a minimum ranking of officer that would need to be either physically present or observing the proceedings on CCTV?

Gen. Hurley : It is more about qualifications of the personnel to conduct the interrogation, but I will check that fine point.

Senator LUDLAM: If you could—the ranking and/or qualifications, if you would prefer.

Gen. Hurley : Yes.

Senator LUDLAM: This practice obviously also occurred in Iraq, so I am going to take us back a bit. Can you describe for us what happened to an individual by the name of Tanik Mahmud. You are probably aware—

Gen. Hurley : Senator, I could not. We would have to take that on notice.

Senator LUDLAM: Are you aware of the individual I am referring to?

Gen. Hurley : No, I am not.

Senator LUDLAM: I will provide you with some detail. He was captured by 20 Australian SAS troops and one US soldier on 11 April.

Gen. Hurley : Okay, I am with you now.

Senator LUDLAM: I raised this but only very briefly over a short time in the last session. Do you have a statement or anything that you want to provide us with before I put a couple of specific questions to you? I just want to know how he died and what occurred.

Gen. Hurley : Senator, I believe a UK inquiry was conducted into this which determined how he died and so forth, so I have got really nothing more to add to what is already on the public record.

Senator LUDLAM: Was there ever an Australian inquiry or ever an Australian investigation?

Gen. Hurley : I do not think we were responsible for him, other than at the initial point of capture, and I think we have been through this before in terms of the detaining authority and so forth, so I have got nothing more to say than what I might have in the past.

Senator LUDLAM: We have, only in general terms. So as far as you are concerned he was handed off to British troops or British authorities and his death occurred after we had released custody over him?

Gen. Hurley : My recollection is that he was transferred by UK Chinook to a base in Iraq and some time during that point, from embarkation to a later point, he died.

Senator LUDLAM: He died during the flight?

Gen. Hurley : I do not know if it was during the flight. I cannot recall all the details, I am sorry.

Senator LUDLAM: I am presuming he was not dead when he was put onto the aircraft. Perhaps this will need to be taken on notice: can you identify at what point he was legally released from Australian custody?

Gen. Hurley : He was never in Australian custody; he was in US custody.

Senator LUDLAM: Okay. This is where we got to before. Could I also ask you whether it is your understanding that all parties would be jointly responsible, under the Geneva convention, for his death, as per the tripartite agreement between the US, the UK and Australia dated 23 March 2003. If that does not apply, why would it not apply?

Gen. Hurley : I think the interpretation of that agreement and the mechanisms that were put in place made the US the—

Senator LUDLAM: Custodial authority.

Gen. Hurley : Custodial authority, and that was the case in that particular incident.

Senator LUDLAM: All I would ask by way of follow-up, CDF, is whether there was any subsequent investigation by Defence, I guess giving rise to your confidence in answering these questions so simply today.

Gen. Hurley : I will take that on notice.

Senator LUDLAM: My last question—again, I raised this really briefly I think in February—relates to Defence's response to reports in Fairfax newspapers on 13 March that Australian SAS troopers are or were involved in covert operations in Africa. Are you able to provide us with any illumination as to whether Australian troops are on the ground in Africa?

Gen. Hurley : Australian special forces have participated in assisting our posts in a number of countries in Africa in looking at their plans for extraction in response to in extremis activities.

Senator LUDLAM: Can you be a bit more specific about which countries?

Gen. Hurley : I think it has been in Kenya. I will not do it off the top of my head—I will get back to you with a list of countries.

Senator LUDLAM: If you could get back to us with a list of countries and a name of the operations, whether these are advisory or whether these are combat roles.

Gen. Hurley : These are advisory teams.

Senator LUDLAM: I am interested to know what precautions or advice Defence has taken from in-house or external lawyers regarding the legality or otherwise of SAS's activities in Africa.

Gen. Hurley : I can provide you with that, Senator.

Senator LUDLAM: Thank you. I will leave it there. I might come back later, if there is time, but thank you for your answers to those.

Senator SINGH: General Hurley, last year in estimates I asked questions on notice relating to cluster munitions. I received the answers to those. Specifically, I asked about how many joint operations, directly or indirectly, involving cluster munitions, the ADF had participated in in the last five years. The answer I received was that cluster munitions have 'not to our knowledge been used by other countries in areas of operations in which the ADF has been deployed over the last five years, including Afghanistan'. My first question is: has there been any change in that from October to now?

Gen. Hurley : No.

Senator SINGH: Following from that, and in your answer, is the issue of stockpiling and that the Convention on Cluster Munitions, which Australia is in the process of ratifying—I think it is in the Senate at the moment—prohibits stockpiling. In relation to that you refer to section 72.42 of the Criminal Code Amendment (Cluster Munitions Prohibition) Bill 2010 which provides that certain acts by foreign military personnel of countries that are not party to the convention are not offences against section 72.38 of the bill when the act is done in connection with the use of a base, foreign aircraft or foreign ship on Australian territory. My question therefore is: do you anticipate that provision being used in any sense in the future? Specifically, I suppose, I am thinking of the planned Marine Air-Ground Task Force and whether or not they may carry any cluster munitions in transit on Australian territory.

Air Marshal Binskin : Senator, none of our ranges in Australia permit the use of cluster munitions. The last time we used cluster munitions was way back during a test—which would have been in your questions we have answered here before—which was carried out by ARDU at Woomera many years ago. But our ranges do not permit the use of cluster weapons, so you would not see the US Marines using cluster weapons in Australia.

Senator SINGH: Not using, but in transit—which is allowed in the convention.

Air Marshal Binskin : It is allowed, but I do not envisage that at the moment.

Gen. Hurley : No, and the US is well aware of our position on this.

Air Marshal Binskin : That is right.

Senator SINGH: So you do not see them being transported through Australian territory on the way to Afghanistan or somewhere else?

Air Marshal Binskin : Not at the moment. I do not believe they are using them in Afghanistan. I do not believe they are being used in current operations.

Senator SINGH: Okay, thank you.

CHAIR: Thank you, Senator Singh. Senator Rhiannon?

Senator RHIANNON: Thank you, Madam Chair. A statement made by foreign minister, Mr Carr, indicates that the ADF will deliver $11.7 million of the Overseas Development Assistance eligible expenditure in 2012-13. Can you confirm that this is the full amount of aid money going to the ADF in 2012-13?

Mr D Lewis : Senator, I am sorry: the question is not quite understood here.

Senator RHIANNON: I am talking about aid money and a statement that Mr Carr, the foreign minister, made in the context of the budget that ADF will deliver $11.7 million in aid programs in 2012-13. I am trying to confirm that this is the full amount of aid money going to ADF in 2012-13.

Senator Feeney: Senator, is this defence spending that has been designated as ODA or is this a transfer between AusAID and Defence?

Senator RHIANNON: That is what my questions will go on to, but it is what is called 'ODA eligible expenditure' that the ADF is given. That is how Mr Carr sets it out and is in the other documents I have received. So I want to establish the full amount and then go on to understand how it is spent.

Mr D Lewis : Senator, it is an unusual question. I am not familiar with the sum of money and I am not quite sure why we would be taking aid money. I understand ODA eligibility. If we could take that question on notice, and maybe have a look at the provenance of Minister Carr's comment, then we will be able to give you an answer. But I am not familiar with that sum of money off the top of my head.

Senator RHIANNON: Well, leaving the sums of money aside for the moment, can you detail which projects in Afghanistan the 2012 budget that you have been allocated go to? I am happy for you to take that on notice, because what I was after is the new projects that are planned, which ones are ongoing and which ones you have finalised.

Mr D Lewis : Okay. This is Provincial Reconstruction Team work, I understand.

Gen. Hurley : Yes, we can do that.

Senator RHIANNON: That was also one of my questions: are all your aid programs conducted by PRT under Operation Slipper?

Gen. Hurley : If you are saying all our aid programs—

Mr D Lewis : The ADF based ones, yes.

Gen. Hurley : AusAID manages some PRT projects as well.

Senator RHIANNON: I just wanted to establish that all your projects, the ADF projects that you undertake with ODA money, are all conducted by PRT, Provincial Reconstruction Team.

Senator Feeney: In Afghanistan.

Gen. Hurley : We do not necessarily have separate aid projects, Senator. We might assist in the delivery or implementation or construction of some of the projects, but we just have to untangle that in relation to ODA eligible funds—because we are primarily assisting the PRT to do its work through some engineer planning and force protection, but the actual management of the projects is an AusAID responsibility within the PRT.

Senator RHIANNON: This is what I really wanted to clarify. Looking back on previous estimates, you have supplied information about ADF projects, like the trade training centre at Tarin Kowt Boys School, Tarin Kowt Hospital—and the number of projects goes on and on. And they are listed as ADF projects.

Gen. Hurley : That is right, but things have changed in Afghanistan from the early days, when the ADF may have initiated projects because there was no other vehicle for them to be done, to the development of the PRT refinement of its processes and transitioning of responsibility. So I think it just reflects a change in the mechanism by which some parts have been initiated and undertaken over time. So, if there is any confusion there, I think that explains why things have changed.

Senator RHIANNON: So you are actually saying the ADF does not do any of these projects itself with this money? Mr Carr—and I am sure this is accurate information—has identified that the 'ADF will deliver $11.7 million in aid programs'.

Gen. Hurley : Senator, I understand what you are saying, but we would need to know where and what those aid programs were to help answer your question.

Senator RHIANNON: There is nobody here who can answer that? It is such a lot of money, and I thought we would have been able to clear this up.

Gen. Hurley : No, I cannot.

Senator RHIANNON: I understand ADF provides protection for AusAID officials and projects in areas considered dangerous, such as Oruzgan. Will these aid projects continue in Oruzgan or will aid be withdrawn as the military is withdrawn?

Gen. Hurley : There will be coordination with AusAID in the Oruzgan province as we begin the transition process, to allow them to continue to implement projects. There will become a time, though, when we will stop managing those projects from Oruzgan and will more than likely be managing them from Kabul—and there will be a change of focus in the way that Australian aid and development assistance is delivered in Afghanistan to a more national focus than a provincial focus.

Senator RHIANNON: In response to that question you just said the ADF manages projects. I take that to mean you do manage these aid projects.

Gen. Hurley : No, AusAID manages the projects. If I said that, I confused you. We provide the force protection. As we transition we will interact with AusAID through the PRT for the delivery of projects but, as I say, they will transition from a provincial focus to a national focus over time.

Senator RHIANNON: Does the ADF ever contract out security for AusAID workers to private operators?

Gen. Hurley : Not that I am aware of.

Senator RHIANNON: Do you need to take that on notice?

Gen. Hurley : I will take it on notice, but I am pretty sure it does not happen.

Senator RHIANNON: Of the aid programs that ADF delivered—because, from the material that I have it seems very clear that you have delivered aid projects—how much was spent directly on the projects and how much was absorbed into net additional costs of ADF personnel support and associated costs?

Gen. Hurley : We could give you the costs, but all those activities in support of the operation would be under the no-win no-loss arrangements for the operation. But we will get a breakdown of what we have done over time. To just go back to your previous question: I am certain that we do not hire security contractors to provide force protection for the PRT.

Senator RHIANNON: Thank you. Just to clarify that question I asked: I was after the ADF expenditure by aid project, to understand how much goes on the actual project and how much is absorbed into additional costs. Could you take that on notice, please?

Gen. Hurley : Certainly.

Senator RHIANNON: To clarify, from going back to what I asked—I think you took it on notice, but I just want to be—

Mr D Lewis : Senator, if I may just try to assist with your line of inquiry here. I think as General Hurley said, in the very early days of our presence in Oruzgan the Department of Defence, and the ADF in particular, would have been delivering some projects that you might describe as aid—that is, doing some work in Oruzgan that was being done by Defence because we were the only vehicle by which that aid project could be delivered. As the CDF has said, through time there has become an increasing ability for AusAID to deliver more clearly straight aid programs into Oruzgan. Some of that has been done with Defence assistance, Defence support or a Defence security umbrella being put over the top of it. But I think it will be quite difficult, while we will give it our best shot, to actually identify in those early projects how much money was spent on each of the projects and then to try and attribute the kinds of things you are talking about—the Defence cost of involvement and so on. I think that would be near impossible, based on our current accounting processes, mainly because it is—

Loud music from an e-device in the audience having interrupted proceedings

Gen. Hurley : My goodness!

Senator Feeney: Is that Chief of Army trying to steal centre stage!

Gen. Hurley : Senator, I am sorry, I have been quite put off here. I will just try and recover myself.

Senator RHIANNON: Yes, I think we have to start again! I understand your point—

Gen. Hurley : I know where you are going with this, and the ODA eligibility and so forth of money is well understood, but I cannot recall any time when Defence expenditure has been considered to be ODA eligible in this case. But let us check and we will see if we can come back with some clarity for you.

Senator RHIANNON: Thank you. I am pursuing this because I heard you say 'it was in the early days'. But from the estimates of June last year—probably this very time and place a year ago—it was said 'the ADF is expected to spend $13.8 million in ODA eligible expenditure in 2011-12.' So the amounts are still coming through, in your own data, and ODA eligible expenditure, I think to the general public, means that it is aid money being spent by ADF.

Senator Feeney: Senator, you may have said this already—if so, I apologise—but can you cite the publication you are drawing that from?

Senator RHIANNON: It is a summary of the estimates, so Foreign Affairs, Defence and Trade Legislation Committee Estimates, Senate, 2 June 2011, page 86.

Senator Feeney: Thank you.

Mr Sargeant : ODA is a way of categorising expenditure and it means that some activity that Defence undertakes as, for example, the Federal Police might undertake in countries, can be categorised as expenditure under the aid program for reporting. What that means is that some activity that Defence undertakes in Afghanistan is categorised as ODA eligible, meaning that the government can count as part of its overall aid expenditure. We will identify those elements of the activities in Afghanistan that meet that criterion and respond to you.

Senator Feeney: Surely the point is that if it ultimately was not counted towards ODA then that is the end of it.

Mr D Lewis : What I can assure you, Senator, is that no ODA money is being spent on the Defence organisation, if that is the thrust of your question. There is no suggestion of that. The ODA money may well be used as part of payment for the delivery of a project that the ADF may be working on but it is not in any way coming towards the benefit, if you like, of the Australian Defence Force. I want to put that on the record. But we will get some answers for you.

Senator RHIANNON: Thank you. I am trying. to clarify what that money is spent on. Does the International Security Assistance Force undertake an evaluation of ADF administered development projects?

Gen. Hurley : What do you define as ADF assisted development projects?

Senator RHIANNON: ADF development projects. We have obviously got a bit of confusion about do you or don't you.

Gen. Hurley : Again there has been an evolution in terms of the capacity of both the Afghan government and I think the international agencies that support it to assist in the oversight of delivery of aid projects through the provincial reconstruction teams, so, yes, there are external visits conducted and assessments. They may not be directed through to the ADF, though; they are more in the PRT chain.

Senator RHIANNON: Are any of these evaluations public?

Gen. Hurley : Not that I am aware of, Senator. I do not know.

Senator RHIANNON: Can you take that on notice, please?

Gen. Hurley : Yes.

Senator RHIANNON: I would like to clarify the $11 million. The question remains, if the ADF are not doing aid projects now, what is the ADF getting the $11 million for from AusAID this year that is spelt out in Mr Carr's statement?

Mr D Lewis : We are not receiving money from AusAID.

Senator RHIANNON: Take AusAID out of the question and go back to ODA eligible expenditure.

Senator Feeney: It is different to AusAID money. It is Defence money that is eligible by government to be counted as ODA. So it need never pass through AusAID's coffers to be counted for ODA.

Senator RHIANNON: I will move on. The Afghan warlord Matiullah Khan in the Sydney Morning Herald of 29 October 2010 said members of his private army were training in Australia. Is that still occurring?

Gen. Hurley : He is not a warlord, he is the chief of the provincial police. Second, we do not train any of his personnel or other personnel in Australia.

Senator RHIANNON: It has been reported that he and his army charge NATO associated cargo trucks $1,200 to travel along one of the highways and $800 for small ones. Has the ADF paid money to Matiullah Khan or any of his associates for these trips?

Gen. Hurley : Not to my knowledge, no.

Senator RHIANNON: Could you take that on notice, please?

Gen. Hurley : I will do that.

Senator RHIANNON: It has also been reported in the Age of 8 August 2010 that ADF personnel have been fighting alongside Mr Khan's men, who wear Australian flags as badges on their uniforms. Have any ADF personnel been in battle with his troops?

Senator Feeney: With the Afghan National Police?

Senator RHIANNON: Other people describe them differently. So the answer is yes, I take it from that?

Gen. Hurley : We work alongside the Afghan National Police at the present time within Oruzgan province, yes.

Senator RHIANNON: With Mr Matiullah Khan?

Gen. Hurley : He is the chief of the provincial police. So if his police are out and require assistance or are part of an operation then yes, we will be working alongside them.

CHAIR: That concludes questions in outcome 2.

Mr D Lewis : I wonder if I might just read a very quick answer to a question that was asked by Senator Kroger with regard to female pilots in the Air Force. Senator Kroger asked: how many female pilots are there, including in percentage terms, in the Royal Australian Air Force? The answer is there are 20 female pilots in the Royal Australian Air Force, which represents 2.71 per cent of the pilot workforce.

CHAIR: Thank you. I am aware that CDF and the secretary need to leave at 5.30. Thank you very much for your attendance today and for your assistance to the committee.

Mr Jenkin : I have a couple of answers from earlier. Senator Macdonald asked earlier today about the cost of providing bottled water at RAAF Pearce. Defence spent $130,000 in the last financial year, 2010-11, on bottled water. As I said, we have been addressing that, so I would hope that cost will soon evaporate, if you will pardon the pun. Senator Kroger asked about the library at Victoria Barracks, Melbourne. That was closed on Monday, 28 May. The collection has been transferred to RAAF Williams at Laverton, from where it will be dispersed. The majority of those books will go to other defence libraries around Australia and DSTO libraries. Some will be stored centrally in a warehouse if they are not readily accessed and some will go to Navy, Army and Air Force history units for their preservation and use.

CHAIR: Thank you. We will move to outcome 3, program 3.1—Defence contribution to national support tasks in Australia. Senator Humphries?

Senator HUMPHRIES: In light of the time, I will put my questions on notice.

CHAIR: So we have dealt with outcome 3. We will move to DMO.