CHAIR —We now move to consideration of particulars of proposed expenditure for the Department of Defence. I welcome again the minister, and the officers of the Department of Defence. The committee will first put questions of a general nature under the portfolio overview. We will then consider outputs and groups in numerical sequence, commencing with the Chief of the Navy. Minister, do you wish to make an opening statement?

Senator Newman —No, thank you.

CHAIR —Are there any questions of a general nature or statements the department would like to make before we start?

Mr Tonkin —I inform the committee that, unfortunately, due to an unavoidable programming issue, a number of our senior level representatives in the acquisition area are presently attending a meeting of the Australia-United States ministerial defence acquisition committee in Old Parliament House. We will endeavour to ensure that the relevant officers from those areas are here in sequence to meet the subjects as raised, but there may be a need at some points to reschedule the questions while we get the officials from the other place to here.

CHAIR —The fitness of the defence department is such that they will be able to run up the hill very quickly?

Mr Tonkin —I could not comment on that.

Senator Newman —This will check their individual readiness capabilities, won't it?

Mr Tonkin —It is a question you should raise with Mr Roche when he comes gasping in through the door!

Senator HOGG —In view of that, the first area I would like to ask some general questions on is the Defence Reform Program. I would like to thank the department for allowing Air Commodore Spence to come and brief me on Monday. That was a useful exercise; I felt that it was helpful and it does overcome some of the drudgery of some of the questions that are associated with the program. It should be noted that there is a letter from the Department of Defence, dated 7 February 2000, which gives us an update on the various Defence Reform Program tables. This morning I was kindly provided with another document—I do not know if any of my colleagues have it at this stage—table 1.2, `Market testing decisions expected for 1999-2000'. I will come to some questions on that in a few moments.

I have a general question. I note from the tables that were provided in the documentation from the Department of Defence, dated 7 February 2000, that the planned savings through the DRP, the planned reinvestment, is out to 2002-03. I think we have had this discussion during previous estimates hearings—as to where the maturity of savings and the maturity of reinvestment exist within the DRP program. Is there any clear out-period when we can say the savings from DRP will be at maturity and that there will be no more savings as such to be made, but there will be just an ongoing reinvestment program, or no new savings to be made from DRP? It is just to give us some idea as to when the process might come to some sort of culmination.

Mr Tonkin —It is difficult to give you a precise year. A number of factors play into the process. The market testing process is proceeding; the market testing elements of DRP are proceeding. There is some time lag before those are completed. The principal large ones are now in the support areas, and they are the most complex ones and will take longer to do and then it will take longer to get the full benefit from them. That is probably out to the 2002-03 period, and slightly beyond that.

A number of the savings originally envisaged—from memory, something of the order of $70 million per annum—related to base closures and rationalisations. All those issues, as ministers have said previously, are dependent upon individual government decisions. The timing of those measures is unknown at this point. It is a matter of progressing those sensibly. So there will be a lag factor. If we were to close a particular base or relocate or rationalise, it will take a couple of years after that. That puts it at about 2004-05, I would have thought.

One of the things that we have been doing is examining the viability and the robustness of our savings estimates. We need to find some substitution measures, which we have yet to identify, for those DRP initiatives which we decided would not proceed. I suspect that we will not get to the end state, if there ever is a true end state. You can get a bit philosophical. The reform program is an ongoing thing.

Senator HOGG —I have always accepted that it is an ongoing process. It is just that when we come to the out years and look at some of the estimated savings, we do not know how far beyond that new savings will be made. Even if we had a column which said, `We predict that there will be mature savings of X personnel or X million dollars and there will be X reinvestment to be made,' without necessarily being able to pin it down, it would be a help to give us some idea of the progress that is being made in the DRP.

Mr Tonkin —We will take that under consideration and talk to the minister about how he might seek to present that in the next set of tables that you get.

Senator HOGG —You spoke about the viability and the robustness of the DRP. What have you put in place to test the viability and the robustness of the DRP?

Mr Tonkin —We have put in place an organisation which is headed by Air Commodore Spence, sitting on my left. This was what was known as the DRP strategic management and reporting team. It was charged with doing a number of things. It was to examine our progress in each category of reform. It was to provide assistance to the various elements of Defence about implementation. It was to validate the savings estimates to make sure that the dollars are real. It was also to make sure that we were capturing fully all the savings that we had been achieving. There is some sort of temptation, especially on the people side, if they are redeployed from a support function to an operational function, perhaps not to count them as being part of the outcomes of DRP. So we are concerned to make sure that we do not undersell the scale of the achievement as well. They also had to look at how we could produce an improved communications program. That review has been ongoing. Outcomes of that will be considered by government some time in the near future.

Senator HOGG —The validation process is something that I am very interested in. I have asked questions about this before. If this review process has taken place, if the validation of the results is occurring, when will it be possible for this committee to be apprised of the outcome of that review?

Mr Tonkin —After it has been considered by government.

Senator HOGG —How long?

Mr Tonkin —It is difficult to predict.

Senator HOGG —Is it finished now?

Mr Tonkin —There are still some aspects of the review which are ongoing. We expect the internal process will be completed in the next few months, and then it is a matter of it being referred for ministerial consideration.

Senator HOGG —It is something, though, that should be able to be made available to this committee in the longer term?

Mr Tonkin —In the normal course of events, the further disclosure of anything that is a report to ministers is a matter for ministers. The way we are reviewing this is reflected as the tables we provide to you in the normal way are: in a series each time we come forward to you.

Senator HOGG —The tables are good. One of the things you have now got right in the whole process is tracking the savings, the reinvestment and what is happening.

Mr Tonkin —A key part of the revalidation exercise is the product of those improved tables and the confidence that the figures in those tables are robust.

Senator HOGG —I look forward to seeing the robustness being validated and being made available to this committee. The proof of the pudding, as you and I know, is really in the eating, and that will be very interesting indeed. If I can just turn for one moment to the document of 7 February that was supplied by the Department of Defence. On the second page of Table 1: Defence Reform Program Reinvestment (1997/98 to 2002/03) under `Provision for 50,000 ADF', I note that the 1999-2000 PBS figure was $45.3 million and the revised figure is $95.3 million. Does that include the $50 million that has been reinvested to achieve that figure of 50,000?

Mr Tonkin —The figure climbs across the years.

Senator HOGG —I want to get to the climbing.

Mr Tonkin —Yes, but including the variation this year. The function of the increase is a function of the degree of progress with market testing. As we have progressed—and you will see elsewhere in these tables that progress may have been made on garrison support market testing—and as those are completed, you get the application of the effect of this 50,000; that if we had not made this provision to hold the ADF at that figure then the number in that ADF would drop. So every time we get to a decision of market testing a function, there is another chunk of military personnel we could have separated from the service. Holding them in costs money, and what we are tracking in that is the progressive increase in the cost of holding the number up compared with where it might have fallen to.

Senator HOGG —But some of those are not necessarily hold-ups, are they. Some of them could be new recruits in new areas that you would not otherwise have used?

Mr Tonkin —There are two parts -

Senator HOGG —It is a combination, isn't it?

Mr Tonkin —It is a combination of people re-rolled and people leaving because their employment category is not needed and they are being replaced by new recruits.

Senator HOGG —Why this substantial jump in 2000-01? In the PBS the figure was $161 million and now it has jumped to $338 million. I can understand the $50 million and that there will be some progressive blow-out, but the figure in 2001-02 goes from $346 million up to $434 million and of course there was no out figure in the PBS in 1999-2000 but in 2002-03 it is out to $539.3 million.

Mr Tonkin —While we can check it for you, I suggest that it is again a product of the timing of the expected achievement of the major market testing. If you look at that same table, the variance between the previous figure in 2001-02 is about $95 million, which is on trend compared with the variance in 1999-2000. So we are getting achievement faster than we had previously expected in the completion of market testing in 2000-01. It is a bringing forward of achieving the final figure, the final plateau of the outcomes.

Senator HOGG —So can I assume that the figure in 2002-03, whilst it is an estimate at this stage and I accept that, is a mature estimate, or can one expect that that figure will climb again in the further outyears?

Mr Tonkin —I think it is a figure that will be subject to review as we get a better feel for when we are going to get some of these major market testings in the support area complete. So I expect that figure will change.

Senator HOGG —Thank you very much for that. If you can get me an explanation as to what is happening there -

Mr Tonkin —Yes, we will do that. We will take that on notice.

Senator HOGG —I would appreciate that. I turn now to the document which Air Commodore Spence kindly provided this morning, table 1.2. It goes to a review of the table that was in the PBS, but for some reason I do not think it was repeated in the PAES. Anyway, we now have the documentation. It looks at the market testing decisions expected for 1999-2000. The first one is 50 Wing RAAF at Amberley and the positions tested were 60. The decision was announced and it says, `Decided.' Could you refresh my memory as to what `Decided' means? What was the decision?

Mr Tonkin —We will come back to that and check it.

Senator HOGG —All right.

Mr Tonkin —My inference is that it was decided and announced. I just cannot remember the name of the company that got the work.

Senator HOGG —I am mainly interested in the 60 positions. Can someone tell me?

Mr Tonkin —We will get that.

Senator HOGG —If we can move on then. There is the naval materiel requirements data management that may not proceed. What is the basis for that not proceeding?

Mr Tonkin —Most likely it is that it did not prove to be an economically viable thing to proceed with. The scale of it is rather minute and normally we would not be going ahead with market testing of nine positions. It is just not the sort of scale that you get much efficiency and economy out of. It also may have been rolled into something more widely based inside Support Command. Again, I will get somebody to clarify that.

Senator HOGG —If we can get some clarification -

Mr Tonkin —One of those two explanations will be most likely.

Senator HOGG —Looking at the one above, the Australian Defence Force Explosive Ordnance Project, it says total positions 525, positions tested 610, and a decision expected March this year. What has caused a substantially larger number of positions to be tested?

Mr Tonkin —We will have to get you the information on that, I am sorry, Senator. I presume it is because the scale of the activity will have been refined as they have gone forward, so they are probably encompassing a bigger range of activity.

Senator HOGG —The same for the Defence Integrated Distribution System, two down. There is a substantial decrease there.

Mr Tonkin —Well, I do not know about substantial, but it is -

Senator HOGG —When you are testing, there is about 80 -

Mr Tonkin —A variance of 70 over 1,500—it is probably three per cent. Again, we will provide you with the explanation as to those variations. When you go forward with these processes, you start with an expectation of the range of positions and all the functions; as you progress you refine them slightly to get the precise level of what you are actually going to test at the end.

Senator HOGG —If I can move down to the heading `Australian Defence Force Recruiting' 89 was the total positions, and it is now 481. The comment there is: `On hold, pending completion of Operation Warden recruitment'. Can you elaborate on that for us?

Mr Tonkin —I think Major General Dunn will be able to assist you there.

Major Gen. Dunn —What is happening in the recruiting organisation at the moment is that they are increasing their efforts to ensure that we have adequate people in the pipeline to provide troops for Operation Warden. Concurrent with that, we are market testing, as you can see, the Defence Recruiting Organisation to ensure that the increased numbers that we are envisaging for particularly Army and Air Force are processed very quickly. We are holding those numbers up, so we have frozen the reduction and, indeed, have temporarily increased the number of people in the recruiting organisation.

Senator HOGG —On hold until when? It says here April, or will it be on hold longer than that?

Major Gen. Dunn —April is the target; we hope to have the processing pipeline fully up to speed by that stage and we will review it over the next month or two, so that we have guaranteed that we are in a position to continue rapid processing of all the applications that we are getting.

Senator WEST —Didn't I hear or see an announcement about one of the private sector employment agencies getting a contract to undertake Defence recruiting?

Major Gen. Dunn —That is correct. The firm Manpower have been contracted by Defence Force Recruiting to actually advertise Defence Force employment in their recruiting centres as well. The intent of this is to open up the funnel to contact more young people than we have been doing in the past to seek to interest them in a job in theADF. It is all part of the build-up of the recruiting capability to handle the increased applications that we have got at the moment for Army and Air Force.

Senator WEST —What are Manpower doing that will be different to the CSP contract, if it goes out to a contract?

Major Gen. Dunn —It is a fundamentally different arrangement. Manpower are only in the business of putting before job seekers in their centres an option of seeking employment in the ADF. Once they have identified those people, they are then passed to the recruiting organisation to conduct all of the processing. Under the CSP process, the market testing that is proposed, there is a much greater involvement of civilian contractors, particularly in the processing environment. That is, if you like, the labour intensive area, that is the area where a large number of delays occur, and that is the area where we are seeking to gain significant efficiencies. But until that market testing process is in place, we have the existing system and we have had to ramp it up. Manpower's contribution to that is additional applicants for ADF.

Senator WEST —Why only give ADF vacancies to one employment agency?

Major Gen. Dunn —We opened it to the full short-list of contenders for the market testing operation. It was going to be offered to two particular companies. One of those companies, Employment National, for reasons that I think are obvious -

Senator WEST —Beyond your control.

Major Gen. Dunn —has recently withdrawn from both that and the market testing process.

Senator WEST —Where precisely do Manpower have their services?

Major Gen. Dunn —In the south-east of Australia, mainly. That is the major recruiting area in which we wanted a lift in terms of accessing job seekers, and that is the footprint that we have now added to the normal recruiting footprint.

Senator WEST —It is not a name I am familiar with, being in regional areas.

Major Gen. Dunn —They have links nationally, but their particular focus is the south-east of Australia.

Senator WEST —So you are aiming, with this particular recruitment drive, at basically outer metropolitan people?

Major Gen. Dunn —Absolutely not. We are national, and I hope you will have seen the advertising that we have been operating over the last two months. It is very much a national campaign, but I think you would appreciate that, as the bulk of the nation's population is in the south-east corner, we have a large processing issue—potentially, or hopefully—to deal with in that area. So it satisfies us well. But I would just remind you that I said that we were offering this opportunity to two companies, and one of those has withdrawn. What we have done, because we are holding up the numbers in recruiting—which is where this line of questioning started—is that we are using our numbers in recruiting and the additional people we have temporarily put in there to counter any perceived shortfall elsewhere in the north or the west.

Senator WEST —Okay, I will leave it at that. I have probably got more in personnel on this.

Senator HOGG —I will just move back to this chart, and I will try not to take too great a time over it. With regard to the heading `Routine pathology services to be advised', do we know when a decision might be announced? Take that on notice if you can. Then there is `Non operational health services ACT, southern New South Wales—scope reduced to one region; remaining regions to be advised'. What has happened there, because it seems to me that that is a substantial change?

Major Gen. Dunn —The non-operational health services market testing is proceeding in Victoria. We are also now looking at New South Wales and the ACT.

Senator HOGG —Right. So the remaining regions to be advised are the ACT, New South Wales and Victoria? There are no other regions as well?

Senator WEST —Senator, this does not say Victoria here.

Major Gen. Dunn —We had initially envisaged that we would be able to tackle this nationally but, because of the way health care is organised in the private sector in this country, it is not possible—not to our satisfaction, anyway. Therefore, we are initially going region by region.

Senator HOGG —So that does not scrap the other regions?

Major Gen. Dunn —Absolutely not.

Senator WEST —Is the 666 the national total?

Major Gen. Dunn —That is the target.

Senator WEST —Out of how many bodies in non-operational health services?

Major Gen. Dunn —I will deal with that, if I may, when we come to group 7. We can certainly give you the full breakdown of that.

Senator HOGG —The other question goes to `Clerical and Administrative Support—South Australia'. The decision was announced in November 1999, and it says numbers are still being negotiated. When will the negotiations there be drawn to a conclusion? Do we know?

Mr Tonkin —I will just get someone to come in from the other room to answer that, Senator.

Senator HOGG —All right. The last question revolves around the last three items: `Garrison Support—Riverina and Murray Valley', `Garrison Support—South Coast of NSW '; and `Garrison Support—Western Sydney'. There are three announcement dates there but there are no remarks as to what has happened.

Mr Tonkin —Again, Mr Sharp will answer that question when he reappears, but while he is walking through the door, if we could just switch back to the first one on your list, which was F111 maintenance, the company that is the preferred tenderer is Air New Zealand. Contract negotiations are proceeding.

Senator HOGG —When is it likely to be concluded?

Mr Tonkin —Within a couple of months. And you asked the question: what happens with the 60 people involved? They are all in uniform, and they will be reallocated within Air Force to continue other aspects of that skills maintenance type activity closer to the flight line.

Senator WEST —Do we know how many Air New Zealand will be replacing them with?

Mr Tonkin —No.

Senator HOGG —Do we know if there are any skills gaps?

Mr Tonkin —Not that we are aware of.

Senator HOGG —It is just that I noticed it somewhere else through the PAES. I just thought it was a nice phrase.

Mr Tonkin —Would you mind restating your question again, please, Senator.

Senator HOGG —I wanted to know about the clerical and administrative support in South Australia and what is happening there. It is still being negotiated. When will the negotiations be completed? There are three garrison supports down the bottom which had a decision announced October 1999 and November 1999, but there is no remark or comment. It is just to get an update from the PBS.

Mr Sharp —The clerical and administrative market testing in South Australia has been completed. The successful tenderer was the in-house team. A directive, which is the in-house version of the contract, is currently being developed. The garrison support in the Riverina, Murray Valley, South Coast and Western Sydney have been completed and announced. Contract negotiations are complete on Riverina and Murray Valley and are in progress on South Coast and Western Sydney.

Senator HOGG —When will they be completed?

Mr Sharp —In the next few weeks.

Senator HOGG —That clears that table up for me. There are some questions there that you have taken on notice, and we will get the answers to those in due course. I have some more questions, and I know some colleagues have some questions on the Defence Reform Program but I note that Senator Faulkner has arrived. I believe Senator Faulkner has some general overview questions and, in the interests of Senator Faulkner's program, if we could get those general overview questions out of the way, it would be very good.

CHAIR —Senator Faulkner, if you could be as concise and as quick as Senator Schacht, it would be very good.

Senator FAULKNER —As always, Mr Chairman, I am sure I can be far more concise than Senator Schacht. I want to ask a question in relation to the Defence Industry Advisory Council. My recollection was that that was announced about 18 months ago by Minister Bishop—at that stage it was Minister Bishop's responsibility—and I wonder if someone could help me with that.

Mr Tonkin —Your recollection is correct. It was part of the defence industry policy statement.

Senator FAULKNER —Is there someone who can give me a very quick broad overview of where the advisory council is up to and what its current functions are?

Mr Tonkin —I would hope so.

Senator FAULKNER —Is the correct acronym DIAC for this? As you know, I always like to get the acronym.

Mr Tonkin —Culturally, I have a failed objective to remove them but, probably, yes.

Senator FAULKNER —I believe in going with the flow.

Mr Roche —I do not have the detailed history of the committee or council, but I do know that it met late last year, probably in early December.

Senator FAULKNER —Would that have been the first meeting of DIAC?

Mr Roche —I do not know whether -

Mr Tonkin —Yes, it was the first meeting.

Air Marshal Riding —It was the first meeting.

Senator FAULKNER —Could you be a little more precise with the date there, Mr Roche, at all?

Mr Roche —I would have to take it on notice, but I can check it fairly quickly.

Senator FAULKNER —So there is quite a time lag between announcement and first meeting? I am not suggesting that is unusual but I just wonder if someone might explain to me why that was the case.

Air Marshal Riding —There was a meeting planned to be held by the minister, the first meeting, some time before the December meeting. Due to other circumstances, that meeting was cancelled or postponed and subsequently the first meeting took place in December.

Senator FAULKNER —So how many meetings have we now had of DIAC?

Air Marshal Riding —We have had the one meeting, Senator.

Senator FAULKNER —Just the one in December 1999?

Air Marshal Riding —Yes.

Mr Roche —There is another meeting scheduled for March. I am not sure that it is actually firmly locked in, but certainly in early March there is a planned meeting of the committee.

Senator FAULKNER —Could you let me know what the current membership of DIAC is?

Mr Roche —I do not have the list of members with me but it is a fairly wide representation of what I think you might call defence industry, plus a number of other members. Again, I would have to take the exact membership on notice.

Senator FAULKNER —Mr Roche, I would like to nail this down. Let me take it back a step and see if we can work through this: when was the actual membership of DIAC announced? Can someone help me with that?

Air Marshal Riding —We do not have the information here but we can find it for you.

Mr Tonkin —Within five minutes we can have it for you.

Senator FAULKNER —Is it best to come back to it? I want to ask some questions about DIAC, if I can flag that with you, Air Marshal, and Mr Tonkin. I am happy to come back to it.

Mr Tonkin —That might be helpful, Senator, if you give us a few minutes.

Senator FAULKNER —Okay, we will come back to that. I read in the newspapers in late December last year the minister's comments about the question of Defence's involvement in the Sydney Olympic Games. I am particularly interested in this, as I am the opposition spokesperson on the Olympics. The Courier-Mail in Brisbane, in an article entitled `Moore in firing line over army games bill', outlined that the defence minister had been accused of falsely claiming that taxpayers would face a $300 million bill to cover the costs of military involvement in Olympic security. I do not know whether officers at the table are aware of the issue; we are talking about late December last year.

Air Marshal Riding —I am not aware of it.

Senator FAULKNER —Who handles these Olympic issues for Defence?

Air Marshal Riding —The Commander Australian Theatre has responsibility for Operation Gold, which is in support of the Olympic Games. We can address the financial aspects and assessments that we think are going to be applicable, if you wish.

Senator FAULKNER —But the Defence arrangements, in terms of the Defence contribution to the Games, are in part covered by the MOUs that exist. They are in place between the Commonwealth government, the New South Wales government and SOCOG. I think that is correct, isn't it, Air Marshal?

Air Marshal Riding —Yes, that is correct, Senator.

Senator FAULKNER —This does not involve, of course, any suggestion that New South Wales or SOCOG would be refunding Defence for costs occasioned by the Defence involvement—mainly an ADF involvement, as I understand it. Is that correct?

Mr Tonkin —That would depend upon the functions and services that Defence is asked to provide.

Senator FAULKNER —But they are outlined pretty well in the MOU, aren't they?

Mr Tonkin —They are, but I am questioning the generality of your statement that if it goes beyond what is presently specified then that issue would need to be addressed.

Senator FAULKNER —I understand the point that you are making, and that is a fair enough point. You are suggesting to the committee that if there is another involvement from Defence other than that that has been identified and negotiated between governments, then there would obviously be a cost impost as a result of that. Is that the point you are making?

Mr Tonkin —That is correct.

Senator FAULKNER —The point is in relation to the current Defence involvement that there is no impact to the Defence budget as a result of any changes to the funding arrangements in New South Wales. For example, if there is a cost blow-out in New South Wales, or concerns about SOCOG's revenue base and so forth, that does not actually have an impact on Defence in any way, does it?

Air Marshal Riding —We have the MOU in place and it is clear in there what the cost recovery arrangements are going to be. There are numbers against those costs. We have had no visibility of any issue in respect of SOCOG or Olympic funding that would impact on that MOU.

Senator FAULKNER —Sure, I appreciate no visibility that would impact on the MOU but visibility on this whole question of the impact of the games bill on Defence through the unfortunate publicity of December last year is what my questions go to. I appreciate the point that you make in relation to the arrangements. I just wondered, after the minister made those statements in late December, whether there was any response internally from Defence as a result.

Mr Tonkin —I am not aware of any response.

Senator FAULKNER —I ask that because federal government sources were quoted in a strong rebuff to Mr Moore. Let me quote:

But in a strong rebuff, Mr Moore has been contradicted by both the Sydney Organising Committee for the Olympic Games and Federal Government sources who said SOCOG never had to foot the bill.

We all understand that is the case. The MOU is clear. I just want to be assured that those federal government sources were not Defence sources.

Mr Tonkin —I do not believe that either the department or the Defence Force is in the habit of making those sorts of comments.

Senator FAULKNER —So I can be assured that they were not Defence sources.

Mr Tonkin —To the best of my knowledge, that is correct.

Senator FAULKNER —Given the implications of the MOU for Defence, was a copy of the MOU provided to the Minister for Defence?

Air Marshal Riding —I would have to take that on notice. I imagine that it would have been handled in the usual business way and that that would have been the case. I will check with the minister's office.

Senator FAULKNER —It would be the normal course of events, I assume, for the minister to be reasonably engaged in what is going to be a significant commitment by Defence to the Sydney Olympics and what implications that may or may not have for the Defence budget. This is an assumption I am making but I think it is a pretty reasonable one. I just wondered if that was fair.

Air Marshal Riding —All I can do is restate the situation that there are certain aspects of support to the Olympics that Defence is funding. There are other aspects of support that are being covered by the MOU on a cost recovery regime. The MOU has been constructed to reflect that.

Senator FAULKNER —I appreciate that, Air Marshal Riding, and I do not want to go into the specific elements of the Defence commitment in relation to the Olympics. Some of that is on the public record. As you know, the MOU itself is public, and I think some of this is reasonably well known. But I wondered whether a brief had gone up to Mr Moore, the Minister, after the press reports of last year. Fundamentally, Mr Moore's claim was that because of financial concerns in the Sydney Olympics, organisers had not been able to cover the rising costs of Operation Gold, which is Defence's security role during the Olympics. But the problem is, of course, that this is a matter that is a cost to the Commonwealth, not a cost to SOCOG or New South Wales. After this rather humiliating press leak last year, I just wondered whether Defence had put up to the Minister an easy-to-read brief, or something about what the MOU actually means and what the implications are for Defence, and why the Minister's statements of December last year are nonsensical. This is pretty embarrassing publicity. I just wondered whether there was a brief going from the department to the minister to try and clarify the arrangements?

Air Marshal Riding —We will find out whether a brief went to the Minister or not.

Senator FAULKNER —But you cannot tell me whether the minister was aware of the MOU prior to him making this statement.

Mr Tonkin —We will also take that on notice. I think we have already said that we would seek to see whether the minister had been provided with a copy of the MOU.

Senator FAULKNER —Perhaps I could ask the minister at the table. It did strike me as quite extraordinary that the minister would not be apprised of these rather important and quite significant financial arrangements that Defence has entered into, and the Commonwealth government more broadly has entered into, with New South Wales and SOCOG. I wondered whether you might have a view on that, Minister.

Senator Newman —No, I do not have a view on it because you did not ask me a question, apart from whether I had a view. As a private citizen I do not have a view on it. I do not know the background to this issue at all.

Senator FAULKNER —I did not ask you as a private citizen, I asked you as the minister at the table. The situation is that you have Australia's defence minister claiming that Commonwealth taxpayers would face a $300 million bill to cover the cost of military involvement in Olympic security, or possibly so, because of what was occurring in New South Wales. He has it completely wrong, and I think everyone acknowledges he has it completely wrong. The only correction that appears to be on the public record is unnamed federal government sources strongly rebuffing Mr Moore. I just do not know whether that is good enough.

Senator Newman —You have asked some questions that officials are taking on notice. I cannot supply anything more to you today.

Senator FAULKNER —Do we know if Mr Moore has subsequently communicated with either the New South Wales government or SOCOG, apologising for the statements that he made and trying to sort out the mess? Do we know if there has been any formal communication at that level?

Mr Tonkin —Senator, we have no knowledge of any, but we could take that on notice and ask the minister's office.

Senator FAULKNER —Thank you. I would appreciate the response to those particular issues.

Air Marshal Riding —May I just make the point, Senator, that we are not familiar with the content of that press release that you have there. Indeed, we are basing this whole discussion on the veracity of that press release.

Senator FAULKNER —To be fair, so that the record is accurate, it is not actually a press release; it is a press article. For Defence's benefit, Mr Chairman, I am happy to table that. There are a number of other articles of a similar nature but this had some quite significant public notoriety at the end of December—certainly in the Courier-Mail, but it was even in other lesser newspapers, Senator Hogg.

CHAIR —Senator, could you quote the date of the article?

Senator FAULKNER —It appeared in the Courier-Mail on 21 December 1999, page 15, and was headed `Moore in firing line over army games bill'. I am happy to table that so the officers are aware of it. There were a number of other articles but that one will point the officers in the right direction. If there have been any other actions undertaken to try and dig the defence minister out of this hole, to try and see if damaged relations could be repaired on this Olympics issue, if you could let us know, Mr Tonkin, I would appreciate it.

Mr Tonkin —The generality of your question, Senator, is already comprehended in our undertaking.

Senator FAULKNER —In a general sense, how is the refurbishment at Russell going at the moment? Are things going well?

Mr Tonkin —Yes. Mr Corey can give you more detail on that, if you wish.

Senator FAULKNER —A brief overview is adequate, Mr Tonkin.

Mr Tonkin —In general germs, we have completed and occupied the two new large buildings and the three buildings that have been refurbished. Driving past, you would have noticed that four of the old buildings have disappeared. The other four buildings to be demolished may be delayed slightly while we undertake the refurbishment of Campbell Park, which is also being brought up to modern standards. It is a matter of moving people from space to space in the most efficient way. We are very content with the completion of the project, its cost effectiveness and the quality of the working arrangements and working environment that have been provided.

Senator FAULKNER —I am pleased to hear it has gone well. Has the Minister for Defence indicated during the process any particular personal needs he might have in relation to accommodation?

Mr Tonkin —The minister has been exploring the opportunity of providing what is not presently provided, which is a ministerial office in the building. There presently is not a ministerial office. There was a ministerial office in the previous arrangements, so some work is being done at the moment to see what options are available to meet that requirement.

Senator FAULKNER —What sort of requirements has the minister indicated to Defence that he might have for this new office?

Mr Tonkin —I do not have that detail, but we can see if we can find that for you.

Senator FAULKNER —I would like to explore this, too, a little later on. Will we put that one on ice and come back to it?

Mr Tonkin —Mr Corey is now present.

Senator FAULKNER —Mr Corey, Mr Tonkin has just informed us, in response to a question I asked about the minister's requirements or demands in relation to a possible new office—ministerial accommodation—that this is being explored by Defence. I was interested in understanding—and I am sure the committee will be interested to hear—what the minister actually has in mind. What sorts of issues are you exploring in relation to the new ministerial accommodation?

Mr Corey —The minister has not made the request all that specific. What we are looking at is accommodation for him within the building adjacent to that of the secretary and the Chief of the Defence Force. He is also looking at the possibility of using part of the building for meetings with senior defence officials from overseas. We are developing some options for his consideration. That is about as far as it has gone to date.

Senator FAULKNER —You said he has not made it all that specific but how specific?

Mr Corey —As specific as I just gave it to you then.

Senator FAULKNER —But how has he communicated this to you?

Mr Corey —Verbally.

Senator FAULKNER —Only verbally. And as a result of that verbal communication from the minister the defence department is now exploring a range of options? Is that right?

Mr Corey —That is right.

Senator FAULKNER —Is this all being done internally?

Mr Corey —It is all being done internally. We are using some architects that are working on the project to look at the options of where we might make that accommodation available.

Senator FAULKNER —How have you tasked the architects? Has there been a written note given to the architects about what the minister might have in mind? How does this work?

Mr Corey —I had a meeting with the architects, explained what the minister had explained to me and they have gone away now and are coming back with options.

Senator FAULKNER —How big an office are we talking about?

Mr Corey —We are talking about an office that would normally be capable of providing accommodation for the minister and one or two support staff. It is similar to a band 3 executive within the organisation.

Senator FAULKNER —So it is not just the minister. It is one or two support staff. Do we mean ministerial staff?

Mr Corey —The staff of his office. We would have accommodation for his senior adviser and potentially one more person.

Senator FAULKNER —This of course is unprecedented—senior advisers and other ministerial staff having a permanent office there?

Mr Corey —Not in my time. The office accommodation I have seen for ministers and their staff over the years in Sydney, Melbourne and Canberra is similar to the sort of office space that has been provided.

Senator FAULKNER —I must admit I have seen the Minister for Defence's office. It is fair to say, and correct me if I am wrong, visiting ministers and others often used that. There was a functional purpose for it. Is that correct?

Mr Corey —That is right.

Senator FAULKNER —But this is a little different, isn't it? Where does the minister want it to be?

Mr Corey —As I explained to you, the minister's request is for it to be adjacent to the secretary and the Chief of the Defence Force.

Senator FAULKNER —About where Mr Tonkin's current office is?

Mr Corey —That is one of the potential options.

Senator QUIRKE —It is amazing what you find out here, Mr Tonkin.

Senator FAULKNER —What sort of floor space are we talking about?

Mr Tonkin —In my case, a very modest floor space.

Senator FAULKNER —In your case, Mr Tonkin, I would not even be talking about floor space. Mr Tonkin's office is one of the options. Are there any others in that space occupied currently by Defence.

Mr Corey —The space occupied by Mr Tonkin is one of the options. There are other options on the sixth floor. Mr Tonkin's office is on the fifth floor; there is an office on the sixth floor which is much the same.

Senator FAULKNER —Mr Moore wants to be on the sixth floor?

Mr Corey —No, he wants to be on the fifth floor. It is his preference to be on the fifth floor.

Senator FAULKNER —You did not tell us that before. He has made it clear that his preference is the fifth floor?

Mr Corey —I made it quite clear to you that the minister had suggested that he would like to be adjacent to the Chief of the Defence Force and the secretary. They are both on the fifth floor.

Senator FAULKNER —Then why are you looking at accommodation on the sixth floor if that is the case?

Mr Corey —There are a number of options we are trying to canvass. When we provide options to the minister on anything we do not normally give him only one option. That is common practice with ministers of both parties.

Senator Newman —And very desirable I would have thought. If you wanted my view of the matter, Senator -

Senator FAULKNER —I will let that go through to the keeper with a wry smile. The minister has requested an office over there. Has the minister requested separate offices for his two support staff members?

Mr Corey —We would normally provide office space for his staff in a similar way as we do for ministerial staff anywhere. As I say, when we were in Sydney and the Labor government was in power—and I only use that as a reference because they were when I was in Sydney in the building—we provided an office for the then minister and his staff.

Senator FAULKNER —I am sentimental about it too, Mr Corey!

Mr Corey —By normal practice, staff at a certain level are entitled to certain office space, and that is the office space that we work on. They are the options we will put to the minister. We will develop options that say, This is what's available, Minister', and he can make his judgment on it.

Senator FAULKNER —Okay, but there are two options you are looking at?

Mr Corey —Two options, yes.

Senator FAULKNER —I see. So it is an office for the Minister, and perhaps two separate, smaller offices for his support staff

Mr Corey —Yes, working space for his support staff.

Senator FAULKNER —Yes, working space for at least two ministerial staff. What else is in the design brief that you have communicated to the architects, Mr Corey?

Mr Corey —The ability to conduct meetings with senior defence officials from overseas. The options we are developing will mean we will have multi use meeting rooms that are presently in the building. We would be looking to make those into a multi use function area for whatever purpose the minister sees and for normal use within the department when it is not being used by the minister.

Senator FAULKNER —A function area?

Mr Corey —Functions to conduct meetings.

Senator FAULKNER —I know what is envisaged, Mr Corey. I know what functions the minister has in mind, but I would be really interested to hear it from you.

Mr Corey —The brief that I have given the architects is for a room that is capable of conducting a meeting of 10 to 12 people with an area off it where people can sit and have coffee and have informal conversations.

Senator FAULKNER —So the minister wants that collocated with his office?

Mr Corey —The options we are looking at do not have it collocated with his office, no.

Senator FAULKNER —Does the minister want it co-located?

Mr Corey —The minister has not indicated that he wants it co-located, no.

Senator FAULKNER —Just that he wants the space for functions?

Mr Corey —He has asked for us for options where this may be capable of being done within the Russell complex.

Senator FAULKNER —This has all been done verbally from the minister to you?

Mr Corey —It has been done verbally from the minister to the Secretary, and verbally from the minister to me, yes.

Senator FAULKNER —There is no paper trail on this?

Mr Corey —There is no paper trail at the moment.

Senator FAULKNER —What is the budget for it? Have you got an idea about what the -

Mr Corey —Part of the design brief is to understand what the cost may be, and they are to be options that we put to the minister.

Senator FAULKNER —Did you have any plans to refurbish Mr Tonkin's office?

Mr Corey —We had no plans to refurbish Mr Tonkin's office.

Senator FAULKNER —So this will be an unforeseen cost?

Mr Corey —The options we are developing for the minister do not include any refurbishment of Mr Tonkin's office in any event. If Mr Tonkin's office happens to be the solution to the minister's office space, it will be the same office, without refurbishment.

Senator FAULKNER —The final solution!

Mr Corey —The option to relocate Mr Tonkin is part of the options that we are looking at.

Senator QUIRKE —Do you feel comfortable, Mr Tonkin?

Mr Tonkin —Absolutely, Senator.

Senator FAULKNER —Do you have a feel from Mr Moore how often he wants to occupy the office over there? What sort of equipment are we looking at whacking into the defence minister's office over there?

Mr Corey —We have not got to that stage yet. The only brief we have at the moment is looking at the availability of space and what space might be available. There is no more detail than that.

Senator FAULKNER —So when do you think we might have a paper trail created for this?

Mr Corey —There will be something of a paper trail once I get the options from the architects. That will be on paper.

Senator FAULKNER —But that will cost money. Even with where you are up to at the moment, there must be a cost to Defence in the architectural drawings and so forth?

Mr Corey —From the architects we are getting a price, with their options for the development. They will do the initial work probably as part of the overall Russell project. The architects are doing the project, they are doing the fit-out of Campbell Park, they are doing Russell. The amount of work that is involved in developing options for this is very minimal.

Senator FAULKNER —So what you are hoping is that, because the architects doing this, this will be a bit of a side deal and be absorbed?

Mr Corey —I am assuming there will be very little cost in it, yes.

Senator FAULKNER —Is that really an assumption you can make?

Mr Corey —I think it is a fairly safe assumption I can make, yes.

Senator FAULKNER —Have you checked with them?

Mr Corey —I have talked to them, yes.

Senator FAULKNER —What sort of budget have we got for the defence minister's fit-out?

Mr Corey —We will not have a budget until the options are available and then the architects will put a price on that for us.

Senator FAULKNER —Have you done any preliminary planning in relation to this?

Mr Corey —None whatsoever.

Senator FAULKNER —I am surprised to hear that. There will be, obviously, a cost implication.

Mr Corey —I assume the cost will be part of the minister's decision. Once we have outlined the options and the costs associated with each of those options, then there will be a cost that will be put on it.

Senator FAULKNER —Has the minister indicated to you—so that we understand—why he wants to do this?

Mr Corey —He has not communicated that to me, no.

Senator FAULKNER —Just told you to do it?

Mr Corey —No, I would have been communicated with both by the minister directly and by the minister through the secretary of the department.

Senator FAULKNER —Can you help us with this one, Mr Tonkin? I wonder if you might know why the minister wanted to move in this direction. I assumed that, because of the location of the office, this might be something that had exercised you.

Mr Tonkin —Not particularly. We move offices from time to time, and in my view it is totally unexceptional that a minister would wish to have an office in the department. It has been past practice; it is practice, I understand, in some other departments. The space I presently occupy is a very good place if you want to have close connections with the secretary and the CDF. I have not discussed it with the minister. My understanding is that the minister wishes to have the opportunity to be more proximate from time to time with the department and the senior defence force leadership. It seems to me an unexceptional objective.

Senator Newman —It is a very good idea too, which is why generations of ministers have done it.

Senator WEST —Does that mean you are going to get an office in Family and Community Services, Minister?

Senator Newman —I have used an office over there for four years intermittently.

Senator WEST —All the time?

Senator Newman —It is used for other purposes when I am not there.

Senator WEST —Intermittently, right.

Senator Newman —It is a very useful thing to work with the people who work for you.

Senator FAULKNER —We will not get into the political debate about whether Mr Moore's presence at Russell will be of benefit to Defence or not, but let me assure you, Minister, that at a later point, as we nail down what Mr Moore has got in mind and what the implications are, we will arrive at a debate like that. But, for today's purposes in the friendly little gathering we have got here, I just wanted to know what was happening.

Senator Newman —It is just an attempted sleaze.

Senator FAULKNER —I appreciate the information you have provided, Mr Corey.

Mr Roche —I have the membership and the terms of reference for DIAC, which I can provide to you.

Senator FAULKNER —I might just have a brief look at those.

Mr Roche —It is probably worth mentioning that all this information is on the web site. There is quite an amount of it.

Senator FAULKNER —That is good. Thanks for that. What is not on the web site, of course, but I was interested in, is the dates of meetings. Are you able to assist us with that?

Mr Roche —That is on the web site. The first meeting was on 9 December and there is a report on the web site on the outcomes of the meeting.

Senator FAULKNER —That is excellent. We will be able to keep abreast of it. When is the next meeting planned, do we know? You said March.

Mr Roche —Yes, early March. I am not sure that there is actually a firm date for it. The intention is that the council meet about three times a year.

Senator FAULKNER —I see.

Mr Roche —There are dates pencilled in at this stage for a July meeting in Melbourne and a late October meeting in Sydney.

Senator FAULKNER —Good. Can someone assist me with how DIAC is progressing these particular issues? I was informed, for example, that you are drawing on international experience in Defence Industry. Is that correct?

Mr Roche —The first meeting had a fairly broad discussion on the whole question of acquisition and acquisition reform. There was reference made to international experience, benchmarking against private sector experience and so on.

Senator FAULKNER —Has DIAC taken any steps to try and get better apprised of what is occurring overseas?

Mr Roche —I would imagine that there will in fact be reporting back to DIAC on what we are picking up from overseas. I am aware that Dr MacGibbon is conducting some inquiries overseas at the moment.

Senator FAULKNER —It is really hard to hear you, Mr Roche. It is just the acoustics, and you have a very soft voice.

Mr Roche —DIAC is not an executive council; DIAC is there to advise the minister. It draws on the experience of the members of that council so that—to the extent that they have relevant overseas experience, and some of them do—they are injecting that into the discussions. But DIAC is not taking formal decisions to do things in relation to overseas experience.

Senator FAULKNER —Has DIAC itself got a budget?

Mr Roche —Not as such, Senator.

Senator FAULKNER —What did you say about Dr MacGibbon? What was that point you made? I could not really hear it.

Mr Roche —I said that Dr MacGibbon was conducting some inquiries overseas, I understood, at the moment, in the US.

Senator FAULKNER —For DIAC?

Mr Roche —The minister did announce in the press release following the meeting of 9 December that he had commissioned two reviews, one headed up by Dr MacGibbon on general acquisition reform and one headed up by Mr David Mortimer on the subject of private finance initiatives. That was in the minister's press release dated 9 December.

Senator FAULKNER —Would it be possible to table that? I have not seen it, but that would be useful to know.

Mr Roche —I can do that, Senator.

Senator FAULKNER —As part of Dr MacGibbon's review, is he overseas?

Mr Roche —Yes. Dr MacGibbon has had a number of discussions with Defence Industry, with people in the Department of Defence, and I understand he is also making some inquiries while he is overseas.

Senator FAULKNER —Can I just go back a step. In terms of the sitting fees, travel allowance and so forth, for members of the advisory council, is that a matter for the Remuneration Tribunal or a matter for Defence?

Mr Roche —I need to check the exact details, but I do believe that members of the council are paid for travel and accommodation and I think there is a small per diem involved as well.

Senator FAULKNER —And we do not know what that is?

Mr Roche —I will find out and advise the committee.

Senator FAULKNER —Mr Roche, are you the responsible officer in defence who services the DIAC? I am not quite clear of the arrangements there.

Mr Roche —DIAC is serviced out of the Defence Acquisition Organisation and the division head responsible is Dr Graham Kearns.

Senator FAULKNER —You are a member of DIAC. That is a different status in a sense?

Mr Roche —Yes.

Senator FAULKNER —Who would go along to DIAC, take the minutes and provide the administrative support? That is all I am trying to understand.

Mr Roche —It may be on the membership list I gave you. Dr Kearns is the executive member who provides the services. There are other more junior people who are responsible for note taking and so on.

Senator FAULKNER —Dr Kearns is here as a member of the committee, the head of the industry and procurement infrastructure division.

Mr Roche —Yes. He is the executive member and responsible for the operation of the committee.

Senator FAULKNER —It does not quite say `executive member'. That was all I was keen to understand. Dr Kearns, you are, in a sense, responsible for the question of payment of per diem rates, travel allowance and all these other costs associated with members of the council? Would that be fair?

Dr Kearns —That would be fair. We are responsible for those payments, which are broadly based along SES remuneration lines.

Senator FAULKNER —Is there a per diem sitting fee paid?

Dr Kearns —I would not call it a sitting fee. There is some allowance to cover daily incidental costs in addition to transportation and accommodation costs.

Senator FAULKNER —Are you able to inform the committee what that fee is?

Dr Kearns —I will check that and provide that advice. It is an allowance and I will provide advice on that allowance.

Senator FAULKNER —Mr Tonkin is making the point it is not a per diem.

Mr Tonkin —It is a fee. It is a reimbursement of the costs, effectively.

Senator FAULKNER —If you could let us know that, I would appreciate it and also what travel allowance is paid and any other entitlement or remuneration for members of DIAC. That may be on the web site too. Is it Mr Roche?

Mr Roche —The key elements are in relation to accommodation, and travel is the only other item.

Senator WEST —Is it normal that the minister determines the per diem or does the Rem tribunal do these per diems?

Dr Kearns —In this case, we had determined a rate that was along the lines of the rates we use for the SES. We advised the minister of that and he was satisfied with that.

Senator HOGG —So are you saying that it is not based on the SES?

Dr Kearns —It is. I will confirm the actual daily allowance, but we used SES rates as our reference point for determining these rates collectively.

Senator FAULKNER —Thanks for that. Mr Moore has announced the defence acquisition reform working group and the private finance initiatives working group. Do we know who are on the various working groups? Is the membership of the working groups a subset of the members of DIAC?

Mr Roche —I do not know that members have been formally appointed to the working groups. I know that the intention is that Dr MacGibbon and Mr Mortimer both consult fairly widely with the other members of the DIAC.

Senator FAULKNER —Is there a working group?

Mr Roche —No, there is no formal membership.

Senator FAULKNER —The minister announced that the DIAC has established two working groups, one on acquisition reform and one on private finance initiatives and neither of them exist. Is that a fair summary of where we are at the moment?

Mr Roche —I do not think it is a fair summary.

Senator FAULKNER —Is there a defence acquisition reform working group?

Mr Roche —There are two people that are responsible for those reviews and the intention is that they consult quite widely with members of the council plus people outside the council. To the best of my knowledge that is happening.

Senator FAULKNER —Yes, but you have just used the terminology `reviews', Mr Roche. I am using the minister's terminology, which is `working group'. Is there a working group on defence acquisition reform in DIAC?

Mr Roche —The point I was making is that there is not a formal group as such, but it does not necessarily have to be a formal group, specifically named, to actually constitute a group that is working on the issue. The point is that Dr MacGibbon and Mr Mortimer are working on those issues with other members of the DIAC.

Senator FAULKNER —I am trying to be as fair as I can, and I am a fair person, but it does sound as if the working group is a small group of one person. It is no use using a collective noun here. It sounds as if the working group is one person in each case. Anyway, the Minister for Defence has put out a press release telling us there are two working groups, when there are not two working groups. But he has also said the working groups will report back to DIAC at its next meeting in March 2000. That will be good! How the hell is that going to happen?

Mr Roche —What I would expect to happen is that Dr MacGibbon and Mr Mortimer will both report back. On the basis of what I understand has happened to date, I would expect that what they put to the DIAC at that stage would reflect the discussions they have had with members of the DIAC.

Senator FAULKNER —Are Dr MacGibbon and Mr Mortimer on separate consultancies, or are there the same arrangements for their remuneration entitlements as for those of other members of DIAC?

Mr Roche —There is no separate consultancy to my knowledge, Senator.

Senator FAULKNER —Is there any Defence support at all for, say, Dr MacGibbon's overseas trip?

Mr Roche —There may have been some support in arranging introductions but that is about the extent of the support as I understand at this stage.

Dr Kearns —We have not been given an impost, as it were, to cover the cost of overseas travel.

Senator FAULKNER —So there is none—that is fine. I just wanted to know. I am just trying to understand what is happening here.

Mr Roche —I am sorry, I misunderstood your question. If you are asking whether there had been any financial support, the answer is -

Senator FAULKNER —I did ask if there was any financial support.

Mr Roche —No, I thought you asked had there been any Defence support for his trip. I misinterpreted it. I understood you to mean whether we were supporting him through arranging introductions and so on.

Senator FAULKNER —I am sorry, Mr Roche, we are just talking at cross-purposes. Has there been any financial commitment on the part of Defence—over and above the support that we do not yet know but that I accept Dr Kearns is going to provide to us for members of DIAC—for either Dr MacGibbon or Mr Mortimer?

Dr Kearns —No.

Senator FAULKNER —And the only support has come in terms of introductions and so forth?

Mr Roche —I imagine that there would be support from the embassy in Washington, from the defence liaison people there, to provide any necessary introductions.

Senator FAULKNER —So Dr MacGibbon, for example, will report back on defence acquisition reform to the DIAC meeting in March?

Mr Roche —That is as I understand it.

Senator FAULKNER —Is that likely to be a verbal report or a written report, do you think, or what are we expecting?

Mr Roche —I do not know what is in Dr MacGibbon's mind at this stage. I will be having some discussions with him on his return, as I will with Mr Mortimer.

Senator FAULKNER —It just seems to me a bit unfair if you have got someone like Dr MacGibbon—people around the table know him pretty well; he was a senator, as you would probably appreciate, Mr Roche—and he is preparing a report without support. Surely he has not got to tap it out himself, has he?

Mr Roche —I am certain that if he needs any secretarial assistance or anything like that to-

Senator FAULKNER —I want to find out if there is any administrative or other support for him.

Mr Roche —No ,there is none at this stage. But if he comes back from his trip-

Senator FAULKNER —That is why I asked whether it was a verbal report or a written report that he is undertaking.

Mr Roche —There have been no arrangements made for anything like that. If on his return he asks for support to prepare a report to DIAC, then we would provide that support for him.

Senator FAULKNER —Is it the same case with Mr Mortimer?

Mr Roche —Yes.

Senator FAULKNER —The same situation?

Mr Roche —There has been no request. We have not provided any support to date, to my knowledge. If Mr Mortimer asked us for some support to put his findings into a form that was useful to DIAC then we would do that.

Senator FAULKNER —So this is a pretty courageous old press release about the working groups and so forth. Are the reports likely to be made public? Everything seems to be on the web site.

Mr Roche —I would imagine that we would run the same procedure as we did with the first meeting.

Senator FAULKNER —You think that it is unlikely that the Defence Industry Council will be dealing with confidential matters then.

Mr Roche —It is unlikely that they would be dealing with classified material.

Senator FAULKNER —Are the minutes on the web site?

Mr Roche —There is a report of the meeting on the web site.

Senator FAULKNER —I see. So the web site apparently says that the DIAC secretariat will support and facilitate the work of the two reviews.

Mr Roche —Yes.

Senator FAULKNER —What have you got in mind for that?

Mr Roche —As I have not had a detailed discussion with either Mr Mortimer or Dr MacGibbon yet, Senator, I do not know to what extent they will need any support. We tend not to put very long papers to DIAC. It is more a case of discussion and so on. My instinct is that the most that would be likely is the preparation of a report. I cannot imagine it would be a very long one. I would think it would more go to higher level principals and so on as a basis to generate further discussion in DIAC.

Senator FAULKNER —Apart from allowances and other possible entitlements of members of DIAC, are there any other significant costs to Defence in terms of providing support for DIAC? What is the cost of the budget of DIAC?

Mr Roche —I think that Dr Kearns was telling me he has one person that is pretty much full-time on DIAC. That would be about the extent of any full-time commitment. Obviously, around the time of the meeting we all put some effort into briefing and the discussion. I have to say that DIAC brings very high level people in Defence Industry around the table. They are clearly making a major commitment of their time and the return to Defence has to be a multiple of the effort put in.

Senator FAULKNER —Mr Mortimer does not have a consultancy with Defence at all, of any description? This is not a question about DIAC but a broader one.

Mr Roche —He certainly does not have one with my organisation. Perhaps Mr Tonkin might know.

Mr Tonkin —I am not aware of that. We will take that on notice.

Senator FAULKNER —I am sure you would know, Mr Tonkin. There is no need to take it on notice. That is fine.

Mr Tonkin —Well, I always want to be careful and sure, Senator.

Senator FAULKNER —Mr MacGibbon does not have any such arrangement either, I assume.

Mr Tonkin —I am very sure of that.

Senator FAULKNER —All right. I suppose we will just have to try and keep across this on the web site.

Senator Newman —Your colleagues will help you.

Senator FAULKNER —They are always a tremendous assistance.

Mr Tonkin —I think I can confirm that there is no contractual arrangement.

Senator FAULKNER —Thank you. I appreciate that information. Apart from yourself, Dr Kearns, you have indicated one staff member basically dedicated to the operations of DIAC. I do not want you to identify the staff member by name but just indicate to me what level APS officer that would be.

Dr Kearns —There is a change to those arrangements but level ASO6 and executive level 1 are the ranges in which the one person who provides that support to the secretariat would be.

Senator FAULKNER —I see.

CHAIR —I feel we should proceed while your colleague plays with the web site.

Senator FAULKNER —It is working very well. I can confirm the media releases on the web site, too, Mr Roche, which might be of great relief to you. Anyway, there are no plans you know to actually establish working groups as the minister announced? It is actually going to be just the individuals, at this stage, working in those two areas?

Mr Roche —I think that the thrust of the discussion in DIAC was very much on the review, and it was pretty clear from the discussion in DIAC that the minister and DIAC were looking to the two people named to carry forward the review, so that I am frankly not putting a great deal of weight on whether or not there is a formal working group attached to them.

Senator FAULKNER —Was this possibly just a mistake in the minister's press release, do you think?

Mr Roche —I would not want to be drawn on that, Senator.

Senator FAULKNER —Okay. Fair enough.

Mr Roche —The essential point is that the reviews are happening.

Senator FAULKNER —It is possible that the minister did not understand the decisions that were taken at DIAC and someone in the minister's office in the preparation of the press release just made a hash of it. I always think, if you are looking for an explanation for a hash in Mr Moore's office, then you are going to get pretty close to it, really. That is all on that one.

CHAIR —Excuse me, Senator. We are about two minutes off breaking for lunch. The agreed time for lunch is 12 30 to 1.30, so do you want to open a new subject?

Senator FAULKNER —I have nothing I can knock over in two minutes.

CHAIR —There is nothing you could knock over in two minutes?

Senator FAULKNER —Nothing I could knock over in two minutes. The issues are far too important to be dealt with in 1[half ] minutes, I can assure you of that.

CHAIR —I agree with that.

CHAIR —In continuation, Senator Faulkner, you have a couple of questinos that you were half-way through.

Mr Roche —I can provide Senator Faulkner with some information on the payments that are made to members of the Industry Advisory Council. Defence covers their cost of travel and accommodation to SES standards and pays them $53 a day in addition which is the SES incidental rate for travel. The payment is totally travel related. There is no other payment in it.

Senator FAULKNER —Mr Tonkin previously defined that as an allowance. I think that is the correct definition.

Mr Roche —It is effectively reimbursement for travel.

Mr Tonkin —The intent is to provide them with the equivalent we would pay an SES officer for the same purpose as an allowance.

Senator FAULKNER —But that means there is no sitting fee.

Mr Roche —There is no sitting fee.

Senator FAULKNER —Or other non sitting related allowance?

Mr Roche —No.

Senator FAULKNER —Is that a fair way of describing it?

Mr Roche —It is a fair way of describing it.

Senator FAULKNER —I did notice some answers to questions on notice in volume 4 of February 2000 estimates. This is in answer to a very good question -

CHAIR —Could you give us the page number please, Senator?

Senator FAULKNER —Pages 24, 25 and 26. It is a very good question asked by Senator Hogg about some facilities at Victoria Barracks for a private function that was hosted by the defence minister. To be fair, there was a matter that required correction and Mr Sharp corrected that on 5 January. We thank him for doing so. I appreciate that, Mr Sharp. I am interested in definitions here. Is this an official or a private function? The function we are talking about is the birthday dinner for the Prime Minister at Victoria Barracks on 27 July 1999.

Mr Sharp —The function was deemed official for the purposes of the labour costs and the labour contribution by Defence.

Senator FAULKNER —If it were a private function such costs would be borne by those that were responsible for holding the function? Would that be correct? Not by Defence—that might be a better way of putting it.

Mr Sharp —In each mess there are arrangements for private functions where guests negotiate some contribution to labour, and the labour is provided on a volunteer basis.

Senator FAULKNER —But who makes the decision? This one is an official function for the purposes of staff costs, is what I think you have told us? Okay, I understand that. What I am interested in is the definitional issue of how you actually get to determine what is an official function, what is a private function and who is in fact the person who makes such a determination—if you could get me inside the process a little so I understand it a bit more.

Air Marshal Riding —In this instance, CDF determined that the event should be an official function. He saw the dinner as an opportunity to foster Defence's reputation for excellence to the highest levels of government and to showcase one of Australia's finest heritage buildings, Victoria Barracks. On that basis, he determined that it was appropriate for Defence to declare it an official function, and it proceeded on that basis.

Senator FAULKNER —At what stage of the process is that decided? In other words, is it before or after the event? You say CDF determined that. You would not want the CDF spending all his time determining what is an official function and what is a private function. Is it normally the role of CDF?

Air Marshal Riding —In this case, the minister requested the function be held. Indeed, the request from the minister was that the event should be subject to full cost recovery. The CDF decided, in agreeing to the use of Victoria Barracks, that he would declare it an official function for the purposes that I just outlined.

Senator FAULKNER —That is helpful but, in the normal course of events, that would not be the case. What you are saying to us is that, because there was ministerial level involvement in this function, it was decided by CDF. I understand that. Ordinarily, how would such a decision be made?

Air Marshal Riding —It depends on the source of the request, but it would be made by the appropriate commander responsible for that facility.

Senator FAULKNER —What was the nature of the minister's request to CDF, so I understand it?

Air Marshal Riding —He requested to hold a birthday dinner for the Prime Minister at Victoria Barracks in the event to be subject to full cost recovery. CDF supported the request and deemed the function an official function, subject to cost recovery.

Senator FAULKNER —So this obviously would occur well in advance of the function taking place, would that be right?

Air Marshal Riding —That is correct.

Senator FAULKNER —Do we know what date the minister approached CDF and what date CDF made the decision?

Air Marshal Riding —I do not know that, Senator, but I can make inquiries for you.

Senator FAULKNER —I would appreciate your taking that on notice; that would be helpful. But the key point is, if it is an official function, some costs are obviously borne by Defence. Since CDF made that decision prior to the party being held, has there been any change to the determination of its status?

Air Marshal Riding —Not by CDF, Senator.

Senator FAULKNER —Right. I assume, if not by CDF, then there has not been any change to its status.

Air Marshal Riding —None that I am aware of.

Senator FAULKNER —When CDF makes such a decision, what sort of information would he base such a decision on? What would be the normal -

Air Marshal Riding —The nature of the function, the purpose of the function and the level and importance of those people attending.

Senator FAULKNER —In fact, in terms of the attendees, the only real Defence link on the list of attendees is the minister himself, I think.

Air Marshal Riding —Unless you include the National Security Committee of Cabinet.

Senator FAULKNER —That is a bit tenuous, but I accept that. We have certain costs because it is an official function, certain costs borne by Defence and certain other costs would be reimbursed on a cost recovery basis. I think that is the way it works and I think that is outlined by Mr Sharp in the two tables.

Air Marshal Riding —I defer to Mr Sharp on that.

Senator FAULKNER —In terms of the first table on described function costs, were the total function costs of $2,045.13 paid for by attendees, effectively?

Mr Sharp —That is so.

Senator FAULKNER —And the other costs, the staff costs of $5,069.05, were borne by Defence because it was an official function.

Mr Sharp —That is correct.

Senator FAULKNER —And there are no other costs involved in terms of the hosting of this particular function?

Mr Sharp —No.

Senator FAULKNER —Is the mess hire figure of $50—and of course it is a beautiful mess, as I think those of us who have been privileged enough to visit the Victoria Barracks would know—the standard mess hire figure?

Mr Sharp —Yes, that is the standard figure for any mess.

Senator FAULKNER —For any mess anywhere?

Mr Sharp —For any officers mess, anyway.

Senator FAULKNER —And any service?

Mr Sharp —Yes.

Senator FAULKNER —Are there also standard arrangements about mess hire that might go to who can hire a mess? I assume it is reasonably limited. For example, I assume I could not hire the officers mess at Victoria Barracks. You do not have to personalise it; I was just using that as the nearest example I could come up with.

Mr Sharp —It is a matter for the discretion of the commanding officer and the president of the mess committee. The messes belong, in a sense, to the members, and messes will have different sorts of procedures about who may hire the mess for a private function. But I think it is fair to say that most people who make such an arrangement would have some connection with Defence.

Senator FAULKNER —Sure, I am not arguing that; I understand that. In this case, I assume the commanding officer and the president of the mess committee were consulted. Could you confirm that for the record?

Mr Sharp —Yes, that is the case.

Senator FAULKNER —And that obviously occurred prior to the holding of the function?

Mr Sharp —Yes.

Senator HOGG —The only thing I raised—and it was not tongue in cheek—was the issue of corkage. From what I saw, it was not mentioned in the costings. It is not an insignificant figure, and I presume quite a number of bottles of wine—good wine, probably—were consumed.

Mr Sharp —Many reputable restaurants do not charge corkage, and I would hope that that would be the case-

Senator HOGG —You do not go the restaurants I go to; they all charge. It would seem to me that if corkage is a reasonably acceptable commercial cost out there in the real world—and I do not accept your premise that many restaurants do not charge if they are BYO; and in this case it was BYO; they brought their own—then one would expect that there would have been some cost at least included in there for corkage.

CHAIR —Twice I have been to a restaurant in Hobart that did not charge me any corkage.

Senator WEST —You have been to a lot of others that do, though.

CHAIR —It was a BYO.

Senator HOGG —I would not rely on that. Anyway, I just think that that is a commercial cost, that it is a real cost out there in the world and should have been included.

Senator FAULKNER —In relation to the processes about the correction to the questions on notice which I acknowledged before, it is appropriate for the responsible department to quickly correct the error, and I acknowledge that that did occur in this instance. I assume the first question was submitted to the minister for approval and that you submitted the correction to the minister for approval too. Would that be correct?

Mr Sharp —I do not think there was any misunderstanding with this committee that the labour costs here had been borne by Defence. When I saw the draft response that had gone forward, I corrected it.

Senator FAULKNER —I just asked if the minister was involved in the correction, that was all.

Mr Sharp —No, Mr Chairman.

Senator FAULKNER —That is something that you handle at the departmental level. Okay, as I say, I acknowledge, and I think all members of the committee would, that if something like this occurs it is important to correct the record and we appreciate that that was done, so thanks for that. I have not got anything else on that.

I would like to move to the issue of the matter we dealt with here in the last estimates round which went to the question of Mr Barratt's removal as secretary of the Department of Defence. Perhaps the best thing I can do is refer to the answers to the questions on notice that the committee received. I suppose questions 1 and 4 raise this question about the way in which the CDF was informed of the government's intentions regarding his civilian counterpart in Defence, the secretary. I was rather surprised by the responses that I received on this issue. I was informed, as you can see, that there was no formal advice. In question 4, I asked:

When did the Defence minister formally indicate to the ADF that action was being taken to remove the Secretary to the Department of Defence?

RESPONSE: There was no formal advice.

Could you outline to the committee what the nature of any informal advice might have been?

Air Marshal Riding —Senator, I am not aware of any informal advice that was given to the CDF.

Senator FAULKNER —Please explain to me: is the limit of communication on this particular issue the meeting that occurred between the CDF and the secretary of the Department of Prime Minister and Cabinet? That is the only assumption I can make.

Air Marshal Riding —Was there a question there, Senator?

Senator FAULKNER —I think I asked, `Was the only communication that occurred the meeting the CDF had with the secretary of the Department of Prime Minister and Cabinet.' I am sorry if I did not phrase it correctly, but that is what I had meant to ask if I didn't.

Air Marshal Riding —That was the limit of the discussions.

Senator FAULKNER —I want to be absolutely clear about this. The Minister for Defence did not inform Defence about this at any stage?

Mr Tonkin —Senator, were you not just talking about the discussion between the secretary of Prime Minister and Cabinet?

Senator FAULKNER —Yes.

Mr Tonkin —And the CDF?

Senator FAULKNER —And the CDF, yes.

Mr Tonkin —The minister was not present at that discussion.

Senator FAULKNER —I understand the nature of the meeting, Mr Tonkin. What I am going to do is try and establish clearly that we know there is no formal communication. I mean I think this is a pretty unusual circumstance and so we are probably sailing into uncharted waters here a little. It is not a common occurrence, as you would appreciate.

I am trying to understand how the processes worked. We know that there is no formal communication. Most of the communication appeared at the time to be by press leak, and I think you would appreciate that. I have just been trying to get to the bottom of how this occurred. But there did seem to be an obvious weakness here in, perhaps, the question I asked, given that it relied on formal communication, and I felt there might be other informal communication that I ought to explore with the committee. That was the purpose of my question, Mr Tonkin.

Mr Tonkin —Thank you, Senator.

Senator FAULKNER —You do not want to ever leave a little gap between bat and pad; you never know what might happen in this business.

Mr Tonkin —That is true.

Air Marshal Riding —I can only repeat my previous answer that I am not aware of any informal communication between the Minister for Defence and the Chief of the Defence Force.

Senator FAULKNER —In relation to question 3, which is the filling of the position of Under Secretary, Defence Acquisition position, this is a position, if you like, at junior secretary level. Is `Under Secretary' correct?

Mr Tonkin —Yes.

Senator FAULKNER —I am just looking at the little name tag under Mr Roche's name. I want to be clear that I am using the right terminology for the under secretary's position. Again, I wondered whether the advice that the department provided on this issue was written or verbal advice.

Mr Tonkin —I think we would have to take that on notice just to be confident. I would not want to speculate. We will seek to find out for you promptly.

Senator FAULKNER —It is clear that Dr Hawke provided advice. It is not the content of the advice I am asking about; it is the method of communication of the advice. Do we know if this particular issue was raised in the cabinet? The reason I am asking this is that I know that Mr Roche is the under secretary, but is as close as you get, if you like, to a secretary level appointment. I think you would appreciate that, Mr Tonkin.

Mr Tonkin —It is my understanding that this particular appointment was not an appointment that falls into the categories of those that go to cabinet.

Senator FAULKNER —Okay. In relation to the fact that the appointment was made by Dr Hawke as the secretary, does that have implications for the conditions of the new occupant? By the way, Mr Roche, these are not questions about you; they are just process questions about the filling of that particular position, so I do not think you need be embarrassed by this. You probably were not. Nevertheless, I would not want you to be. Does the actual appointment by the secretary have any implications in terms of the conditions of Mr Roche or whoever fills the appointment?

Mr Tonkin —My understanding is that the appointment is by the secretary, and it is within the secretary's power to determine the nature of the conditions that apply under the delegated, devolved model of the Public Service Act.

Senator FAULKNER —Isn't it true that, at the time the report by Dr McIntosh and Mr Prescott into submarines was brought down, one of the recommendations was to get a new junior secretary or under secretary with experience in industry.

Mr Tonkin —Broadly paraphrased, that is correct.

Senator FAULKNER —I do not have it in front of me, Mr Tonkin, but in broad measure that is what was commented on.

Mr Tonkin —Yes, the broad intent was to raise the level of the occupant of the position with the implication of providing a different range of skills. The secretary then proceeded to give effect to that.

Senator FAULKNER —It was clearly the original intention of the government, wasn't it, to attract candidates from the private sector?

Mr Tonkin —I think that might have been one of the possibilities they were exploring. But, as I recall, the report did not exclude people from the public sector.

Senator FAULKNER —We are all aware of the recommendations in the report of Mr Prescott and Dr McIntosh. What is the correct name of the report?

Mr Tonkin —Something to do with the Collins submarines.

Senator FAULKNER —Yes, I know.

Mr Tonkin —It has one of those long bureaucratic names. We will find it for you.

Senator FAULKNER —What is the easiest terminology for me to use?

Mr Tonkin —Just call it the Prescott-McIntosh or McIntosh-Prescott report.

Senator FAULKNER —Okay. I just wanted to use the right terminology. Given it is a recommendation of that report, I thought it was also the original intention to have cabinet decide on that particular appointment of under secretary.

Mr Tonkin —Not to my understanding, Senator.

Senator FAULKNER —You do not think so?

Mr Tonkin —In the evidence I gave in this place last hearing, I may have said something to that effect. That was my inference as well and that was incorrect. I corrected that in correspondence with the chairman.

Senator FAULKNER —Wasn't there a proposal to go to the remuneration tribunal to make an individual determination with a private sector level package?

Mr Tonkin —I am not aware of that.

Senator FAULKNER —And you would know if that were the case, Mr Tonkin?

Mr Tonkin —I am not sure that I necessarily would know. We could take that on notice.

Senator FAULKNER —Could you take that on notice?

Mr Tonkin -Yes.

Senator FAULKNER —Just so we are clear, could you also take on notice whether it was the original intention to have a cabinet decide on the appointment. We may as well be absolutely certain about that.

Mr Tonkin -We will take that on notice as well.

Senator FAULKNER —That would be a useful way of dealing with it, thank you. If this were the case, you would have a package that would be a lot higher than the one that currently exists for the Under Secretary of Defence Acquisitions. That is why I asked the question.

Mr Tonkin —I could not comment on that.

Senator FAULKNER —Perhaps it will become clear to us when we receive the answers to the questions on notice. I do want to pursue this, but I do not know that I will necessarily pursue it at this forum now. I will wait for those responses and perhaps pursue it at a later stage. In relation to the same document in question five on -

Mr Tonkin —Which page, Senator?

Senator FAULKNER —That is the question.

Mr Tonkin —Fifteen.

Senator FAULKNER —Thank you. I have no idea why the pagination is like it is here, Mr Chairman. Perhaps you could explain that to us.

CHAIR —I would say that there would be a good explanation, but we are now on page 15.

Senator FAULKNER —My question was: when was the original draft of the new Defence intelligence arrangements press release sent from the department to the minister? In the response it said that it became apparent that further background was required. I was interested to understand how this further background actually changed the situation and, I suppose, more specifically, how it changed the proposed announcement.

Air Marshal Riding —It might be useful if you could repeat the question for Mr Brady who has arrived.

Senator FAULKNER —Thank you. Mr Brady, I was asking a question in relation to an answer to a question on notice that was provided, which is question 5 from the last round when I asked:

When was the original draft of the new Defence intelligence arrangements press release sent from the Department to the Minister?

The second sentence of the response said:

It became apparent that further background was required and that it would be premature to release before the new head of the Australian Imagery Organisation had been appointed.

I am interested in understanding more about how this further background changed the situation, or specifically how it changed the proposed announcement.

Mr Brady —That sentence really takes in, I think, two thoughts. One is the thought that some additional background was required in the press release, and that was reflected in the first part of the press release. There is a paragraph there about the circumstances and complexity of intelligence gathering in the modern world. That paragraph, as I recall, was primarily drafted by Mr White.

Senator FAULKNER —Were there substantial changes, would you say, from the press release that was eventually used to the draft that was originally provided by the former secretary?

Mr Brady —There were two sets of changes between the initial draft and the final draft. There might be a few additional, minor, wording changes. But the two principal areas of change were the addition of this paragraph at the beginning of the press release, the background paragraph, and the second set of changes related to including the names of the new appointees to the heads of the agencies.

Senator FAULKNER —Okay. I do not actually have the press release in front of me, but I will go back and look at that and we might address that at the next hearings. On what date did the former secretary advise the minister regarding the appointment of the head of the Australian Imagery Organisation? I assume it is `former secretary' here? If it is not `former secretary', read `secretary'. I think it must be former secretary.

Mr Brady —To the best of my knowledge, advice to the minister came when the press release was resubmitted to the minister shortly before it was issued.

Senator FAULKNER —Could you take the precise date on notice, Mr Brady?

Mr Brady —Yes, I can. It may be helpful to you if I explain the sequence. The appointment of the head of the Imagery Organisation was a Senior Executive Service selection process. It required the approval of the Public Service Commissioner. So the process was that the recommendation of the selection panel went to the secretary, who forwarded it on to the Public Service Commissioner.

Senator FAULKNER —That is helpful. Do you know on what date the Public Service Commissioner signed off on the recommendation?

Mr Brady —I do know the date, but I do not have it in front of me. I can say that it was some weeks after the recommendation was submitted to her. It was after Mr Barratt left Defence, or at about the same time.

Senator FAULKNER —That is helpful information, but specifically, you might take the precise date on notice.

Mr Brady —I will take that on notice.

Senator FAULKNER —Do you know on what date the appointment was made or announced?

Mr Brady —They are essentially the same.

Senator FAULKNER —Was it announced at the same time? The date that I ask about in relation to the Public Service Commissioner I assume is the critical date in terms of making the appointment. Would that be fair?

Mr Brady —Yes.

Senator FAULKNER —I think I said `made'; I should have said `announced'. Could you tell me the date on which the appointment was announced?

Mr Brady —The appointment was announced in the press release. I will get that date for you.

Senator FAULKNER —There is quite a delay here, though, isn't there, between these critical dates?

Mr Brady —Some substantial period did elapse. I would note, Senator, that at the time the people involved, other than the Public Service Commissioner, were heavily engaged, seven days a week, most of the day and night, in Timor related issues, myself and Mr White being the two principal players.

Senator FAULKNER —I am not doubting that for a moment, Mr Brady. Given that you have not actually provided the dates—and I appreciate that you will—I am making the point that I know that quite a substantial period of time elapsed. With respect to the advice to the minister from the former secretary on the appointment of the head of the Australian Imagery Organisation, that was who was finally publicly announced as the appointee, wasn't it?

Mr Brady —Yes.

Senator FAULKNER —I am trying to get to the bottom of this very substantial delay. So the former secretary recommends the successful applicant and goes through the internal procedures, the Public Service Commissioner and so forth. Are you really saying to me that it is mainly Timor related events that caused the delay?

Mr Brady —I think the best thing for me to do at this stage is to give you on notice the date on which the recommendation was forwarded to the Public Service Commissioner and the date on which the Public Service Commissioner's response was received.

Senator FAULKNER —That is helpful. I appreciate that and look forward to reading that. But I want to know what the reason for the delay was, and the dates will not actually provide that for me. They will tell me precisely what the delay was, but I am asking these questions with a pretty fair idea about the time frame. I have got a pretty fair idea of what is involved here. I want to know why it took so long when, as you have just told us, the same appointment recommended by the former secretary to the minister was finally made public.

Mr Brady —I am not sure that I can add to my earlier comments on that point.

Senator FAULKNER —Who got involved in this process that produced such a delay? Why was there such a delay? Maybe you do not know, but can someone help me with this? It does not stack up, you see. That is what I am trying to grapple with.

Senator NEWMAN —I am sure the officer has given you all the help we can give you there, Senator. You are covering the ground again.

Senator FAULKNER —We are on a different issue now. The officer has been very helpful in providing those dates. But, Minister, what I am trying to get to the bottom of is the reason for the delay. Who was in the process there? I just want to know what happened. If you need to take it on notice, Mr Brady, that is fine. As I say, it just does not seem to stack up. I thought someone else might know.

Mr Brady —Senator, I do not think anyone else is in a better position than myself to know the circumstances, other than those directly engaged. There were two processes that you are referring to: the first was the process of the preparation of the draft statement and the advice to the minister; the second was the process of the appointment of the head of the new imagery organisation. In regard to the former process, a draft press release was submitted. Further work was done on that press release. It was resubmitted.

Senator FAULKNER —Yes, but this could all have been done before Mr Barrat left, couldn't it?

Mr Brady —I do not know the answer to that.

Senator FAULKNER —Okay. Thank you for the assistance you have been able to give, Mr Brady. We will no doubt have to come back to this. I ask now about the letter that was appended to Mr Barratt's affidavit. Let me identify the letter for the benefit of the department. It is a letter dated 21 January, 1999 on the Minister of Defence's letterhead, marked `Personal and Confidential'. It is a letter that went from the minister to Mr Barratt. It is an annexure to the affidavit. Mr Tonkin. I think you would be aware of the letter to which I am referring.

Mr Tonkin —I cannot bring it personally to mind, but thank you for identifying it.

Senator FAULKNER —I thought you would but fair enough. I want to go to the last page of the letter. Would it be helpful if I give you a copy?

Mr Tonkin —That would be helpful, thank you. Senator, you asked a question about what date the secretary wrote to the minister about Mr Roche's appointment. It was 3 November.

Senator FAULKNER —Thank you. We will have to wait for the photocopy. It is the last paragraph of the letter I was referring to, Mr Tonkin, which goes to the question of advice for the Minister. I actually really need the copy of the correspondence so I am sorry, I am just going to have to wait until I get it. It is the last paragraph on page 3.

Mr Tonkin —The last paragraph of the whole letter?

Senator FAULKNER —There is only one paragraph on page 3, isn't there?

Mr Tonkin —As I understand it, yes.

Senator FAULKNER —The only thing I want to focus on is the question of economic advice. Mr Moore says in this letter:

... As a member of Cabinet I am frequently asked to express my views on matters outside the portfolio including economic, business and industry issues.

He goes on to say:

It is therefore important I remain well briefed on these issues ...

and talks about two ways he would like to be briefed:

... regular (at least weekly) short written reports on major developments, supplemented by special briefs provided immediately on developments of significance (BoPs, CPI etc etc); in addition, at regular intervals (say quarterly) ...

In other words, he means he would like to be briefed in three ways, I assume, not two, but let's not be pedantic. He goes on to say:

These briefings would most appropriately be done, on a contract basis, by the Chief Economist of, for example, a merchant bank.

I was interested in following through what arrangements have been put in place to provide this information to Minister Moore.

Mr Tonkin —Following the receipt of that letter, the secretary spoke to me about the minister's requirements and we put in place some arrangements—and I will need to take this on notice, or seek some advice and get back to you, but perhaps on notice is better—from two banks or merchant banks who would provide advice to the department and therefore a copy could be provided to the minister, not separately. We contracted with two banks to provide this form of advice so that we would get the benefit, our own requirements for knowing this sort of material being reasonably similar in terms of acquisitions and all sorts of other areas. So we put in place this arrangement and the material was provided on a continuing basis.

Senator FAULKNER —Which were -

Mr Tonkin —I cannot bring to mind instantly the names of the two institutions, but we will get that.

Senator FAULKNER —I would really like to know this, Mr Tonkin. I assume it will be in the annual report somewhere, won't it?

Mr Tonkin —Subject to correction, ANZ and Deutsche Bank.

Senator FAULKNER —Thank you for that. Wouldn't I find this in the annual report?

Mr Tonkin —It is not a consultancy, it is a contractual relationship. So there is not every contract we enter into, or you would need a truck, without being silly.

Senator FAULKNER —So it is not a consultancy?

Mr Tonkin —No.

Senator FAULKNER —That is important for me to understand, because I did have a look in the annual report, as you would probably appreciate, Mr Tonkin. I could not find anything that seemed to be -

Mr Tonkin —These institutions provide this sort of advice on a fee-for-service basis.

Senator FAULKNER —I would like to understand more about these contractual arrangements if I could. ANZ and Deutsche Bank—when were they contracted?

Mr Tonkin —I will take that on notice.

Senator FAULKNER —This is something I do want to progress at today's hearing. I am happy to come back -

Mr Tonkin —We will seek advice for you and come back to you as soon as we get that advice.

Senator FAULKNER —Could I ask, please, if you could as soon as possible provide an official as I have a number of questions I want to ask about this arrangement, which, on the face of it, I find absolutely extraordinary. And it is one that I want to progress today, so if you could facilitate that I would sincerely appreciate it. I do want to come back to it today. This is far too important a matter. When you have private economic advice being provided to a minister of the Crown in areas outside his portfolio responsibilities as a result of demands that he has made of the secretary -

Senator Newman —Mr Chairman, the assumption that has just been made is just that, an assumption, a speculation by the senator that this is for the minister's private use. A minister administering a portfolio like this can have a great need for this sort of information and advice, so -

Senator FAULKNER —I see. Have you done that?

Senator Newman —I have an economic section in my department. I have economic advice that flows to me as needed.

Senator FAULKNER —I see. And are they briefing you with:

... regular (at least weekly) short written reports on major developments, supplemented by special briefs provided immediately on developments of significance (BoPs, CPI etc etc); -

Senator Newman —A lot of those matters are entirely relevant to my portfolio and I get information -

Senator FAULKNER —But are they doing that?

Senator Newman —Yes, I do get that sort of information. I am not suggesting I get every word of this, because that is the minister's drafting in his particular letter, but I do get regular information from my department on economic matters, including CPI, including effects of changes in the value of our currency as compared with other currencies, as you might imagine, because we have pensioners who come from all over the world and have pensions from other parts. So you can never rule out why a minister needs this sort of information.

Senator FAULKNER —I do not want to rule anything -

Senator Newman —But you are making an automatic assumption that this is for his private purposes, and I think that has to be struck from the record.

Senator FAULKNER —I haven't made any assumption about his private purposes at all.

Senator Newman —Yes, you have. That was in your statement just now.

Senator FAULKNER —As you have raised the issue now of Mr Moore's private interests, I think I will explore that too.

Senator Newman —No, you raised them. You raised them. Perhaps you don't know what you say.

Senator FAULKNER —I am more than happy to explore them, Minister. You have encouraged me to do so and I will.

Senator Newman —You need no encouragement. You have already put it on the record. That is what I am objecting to.

Senator FAULKNER —And I will. So I would like to do that in today's hearings as soon as possible, Mr Tonkin, because in my view -

Senator Newman —Which is what you have already said.

Senator FAULKNER —Thank you, Senator Newman—because in my view this is a very serious issue and I will come back to it.

Air Marshal Riding —Senator, could I add, in advance of the provision of that advice, that I think you will find that this advice is provided in the form of subscription newsletters that are readily available to any and all who seek them, and it is provided on a subscription basis.

Senator FAULKNER —Thank you for that, Air Marshal, because I was not aware that you were apprised of the details.

Air Marshal Riding —This material is made available on the defence department's local area network for use by all executives, to inform them of economic matters in which they have an interest.

Senator FAULKNER —Do you mean the material that Mr Moore has requested?

Air Marshal Riding —Subject to correction, because we are getting that information provided: we receive on the network -

Senator FAULKNER —I've got no doubt about that.

Air Marshal Riding —a set of economic information that is provided by subscription by these banks. That, I believe, is the nature of the way in which we have sought to meet the minister's requirements.

Senator FAULKNER —I hear what you are saying and I understand that. I have got no doubt the minister has attempted to cover himself by providing this material more broadly in the department. I have got no doubt about that. But the fact of the matter is that I know from the attachment to the affidavit that it came as a result of Minister Moore's request. I want to know what it is costing, and I want to know what it is used for. I want to know a lot more about these arrangements because, on the face of it, I think many questions are raised. I am not going any further than that at this stage. But I do not doubt for one minute that even Mr Moore is not so dumb that he would not cover himself by making sure that others in the department have got hold of the information. We will come back to that one, Mr Chairman.

May I move to another issue, Mr Chairman, in the circumstances? Mr Tonkin or Air Marshal Riding can tell us when we are in a position to bat on with the couple of issues that we have now left for later in the day. Mr Chairman, will we progress to another issue, then?

CHAIR —Yes.

Senator FAULKNER —Could I have explained to me the situation that we now face in relation to responsibility for the Collins class submarine project, as far as Defence is concerned. I understand that Rear Admiral Briggs has got an oversighting responsibility. I think that is correct and I just wanted to have that, in a general sense, explained to me. I thought Mr Roche might be able to do that.

Air Marshal Riding —Admiral Briggs has been appointed by the minister, the CDF, the Secretary and the Chief of Navy to deal with submarine matters. However, Mr Roche has project management responsibility for the acquisition.

Senator FAULKNER —Admiral Briggs is here so I suppose I could ask him. I was going to ask you, Admiral Briggs, what your actual title was but as I can read it on the nametag; that is helpful. You are the head of the submarine capability team. Is that a comparatively recent position that has evolved, or is that something you have inherited from someone else?

Rear Admiral Briggs —Senator, the position was established following the government's consideration of the McIntosh-Prescott report. My directive dates from 1 July last year.

Senator FAULKNER —I thought that was the case. Who are you directly responsible to?

Rear Admiral Briggs —I am directly responsible to the Chief of Navy. I have access to the Chief of the Defence Force, the secretary and the minister, in order to achieve my task.

Senator FAULKNER —Thanks for that. You were actually involved with the Collins project from early times, weren't you?

Rear Admiral Briggs —My involvement was somewhat distant. As the Director of the Submarine Warfare Systems Centre in the early 1980s, I wrote the required ship characteristics and they were taken into the acquisition process. From there on in I had relatively little to do with the project. I held a posting as Director of Submarine Policy in 1988 and 1989 where I would be the nominal customer, or professional customer, for the project, but I have had no direct involvement in the project itself.

Senator FAULKNER —Does that mean that you were involved in actually writing the combat specifications? As you could appreciate, I am using layman's language here. Would that be correct?

Rear Admiral Briggs —No. The sequence, the hierarchy in the documentation, is a required ship characteristic where you express in broad operational terms what it is you wish to seek, and from that you have to get down to the specifics of specification. I was involved in the first, not the second.

Senator FAULKNER —Thanks. That is helpful background for the committee and I appreciate you providing it.

CHAIR —Excuse me, Senator, but have you any more questions for Admiral Briggs?

Senator FAULKNER —I am not sure, to be honest.

CHAIR —I am wondering whether any other members of the committee have got anything for Output 5, basically. We are general, but -

Senator FAULKNER —I was going to come back to the McIntosh-Prescott report, basically, and I do not know to what extent that actually impacts upon Admiral Briggs.

CHAIR —Okay. Carry on then.

Senator FAULKNER —I wonder whether someone could give us a very quick overview of developments since the receipt of the McIntosh-Prescott report by the government. I will be happy with a very broad brush overview as I appreciate we could spend hours on this. But could you do that, just so the committee has background.

Air Marshal Riding —Senator, Admiral Briggs is the appropriate person to give that advice.

Rear Admiral Briggs —Following the government's consideration of the McIntosh-Prescott report in June last year, I was appointed and the submarine capability team was established. I was tasked with providing a report to government by 30 September with the aim of achieving a fully operational, sustainable submarine capability as quickly as possible.

That report was provided and quickly led to a cabinet submission which was processed through the Defence committee process and provided to government during October. It was considered once during October and a second time early in December. As a result of that, the government announced a decision to implement one part of the recommended strategy, to fast-track two submarines, Nos 4 and 5, to achieve a limited operational capability by the end of this year. The balance of the submission remains under consideration by government. It is anticipated it will be considered as part of the March-April Defence budget considerations

Senator FAULKNER —That is helpful and thank you for it, Rear Admiral Briggs. After the McIntosh-Prescott report, did that end Mr Prescott's involvement in the submarine project?

Rear Admiral Briggs —Speaking in the broad, Mr Prescott has subsequently been engaged as a consultant to assist the government in the measures necessary to achieve a sustainable industry base to support the submarine capability and that work is ongoing.

Senator FAULKNER —Mr Prescott is currently engaged as a consultant?

Rear Admiral Briggs —That is correct.

Senator FAULKNER —Is that a departmental consultant or a ministerial consultant?

Rear Admiral Briggs —It is a departmental consultant.

Senator FAULKNER —I see. Do you know when Mr Prescott was engaged?

Rear Admiral Briggs —I can find out the precise date. I do not have it at my fingertips.

Senator FAULKNER —I am not talking about his role in the preparation of the report. I assume that was after that task was concluded. Would that be fair to say?

Rear Admiral Briggs —That is correct. It is in the order of September-October last year.

Senator FAULKNER —And this is very much a separate consultancy?

Rear Admiral Briggs —That is correct.

Senator FAULKNER —A separate task for government?

Rear Admiral Briggs —That is correct.

Senator FAULKNER —I hear the indication that you have given about the approximate time frame and I would appreciate if you could just nail that down for us in the future. What is the dollar value of this consultancy, please?

Rear Admiral Briggs —I cannot give you a final figure on that because the consultancy is ongoing. We are meeting Mr Prescott's expenses obviously and providing a per diem rate subject to accounting by him.

Senator FAULKNER —What is the per diem rate for Mr Prescott?

Rear Admiral Briggs —I do not have that at my fingertips and I suspect there would be some commercial sensitivity to providing that but I am happy to take that on notice.

Senator FAULKNER —These things, I am afraid, are part and parcel of Senate estimates committees. This is a per diem rate paid to a government consultant. I do not think there is any commercial sensitivity or confidentiality about that. It has never been the case previously and I would appreciate it if you could provide that for us today. What sort of expenses over and above the per diem rate have been involved here?

Rear Admiral Briggs —It involves incurred expenses such as travel, accommodation and taxis.

Senator FAULKNER —Have you got an indication for me as to what has been expended to date during the life of this consultancy?

Rear Admiral Briggs —I do not have that information to hand. I will be happy to locate it.

Senator FAULKNER —Has this involved any overseas travel for Mr Prescott at all?

Rear Admiral Briggs —Yes, it has. Mr Prescott has been engaged in negotiations with a number of the parties that may be involved in providing that industry support. That did include a visit to Europe late last year.

Senator FAULKNER —Can you let us know who he has had contact with?

Rear Admiral Briggs —I would be happy to take that on notice to make sure I give you a full answer.

Senator FAULKNER —I would appreciate that information. I would like to know which countries he has visited and I would like to know what contacts have been made. I do not want to know the details of the discussions.

Rear Adm. Briggs —I can certainly provide some clarification on that. You asked who he had seen. I do not necessarily have a complete list at my fingertips of the individuals, but Mr Prescott has visited Stockholm to talk to the Celsius company, who are currently owners of 49 per cent of ASC. From there he visited Budapest. That might seem a rather strange destination, but in fact it was to meet with principals from HDW, the German submarine builder who happened to be located in Budapest. So the geography is irrelevant; it was the company he was visiting.

Senator FAULKNER —That is helpful.

Senator WEST —There are a lot of submarines on the Danube!

Senator FAULKNER —I would like to know in relation to Mr Prescott what the per diem rate is, the date of contract commencement, the expenses that have been incurred over and above salary, the details of travel and details of the formal meetings that Mr Prescott has been involved in on behalf of the government.

Rear Adm. Briggs —I would make the point against that latter request that the process is ongoing. There is a degree of sensitivity in the whole process, and I would not wish to prejudice the best outcome for the negotiations by laying out a sequence that might be useful to the commercial interests involved.

Senator FAULKNER —Who actually tasks him?

Rear Adm. Briggs —He has been tasked by the minister, who has appropriate government backing for that tasking.

Senator FAULKNER —What do you mean by `appropriate government backing'?

Rear Adm. Briggs —The matter has been considered by cabinet.

Senator FAULKNER —So he is tasked by the minister. Is there a document you can point me to that might assist me in understanding what his roles and functions are?

Rear Adm. Briggs —Mr Prescott has a negotiating directive issued under the authority of the minister. I would need to take advice as to whether that was available, given the points I have just made that these negotiations are ongoing, there are commercial sensitivities involved and it may not be in the best interest to lay them on a public table at this point.

Senator FAULKNER —I think what you are saying is that it is not public at the moment. Is that the case?

Rear Adm. Briggs —That is correct.

Senator FAULKNER —When was that provided?

Rear Adm. Briggs —That directive was part of the establishment of the consultancy, so it was provided at the same time.

Senator FAULKNER —In a more general sense, can you share with us at all what the minister's aims might be here? Is there any information you can provide to the committee?

Rear Adm. Briggs —I think I can outlay the broad national objectives. I do not think there is anything particularly secret about them. The first is to complete the six submarines; the second is to provide a sustainable industry base to support the capability, given its 25- to 30-year life; and there are a number of supporting objectives behind those to principal outcomes.

Senator FAULKNER —I have seen quite a considerable amount of press coverage of this whole shareholding issue and ASC—and no doubt you have too, Admiral Briggs. Is Mr Prescott dealing with this shareholding issue at all?

Rear Adm. Briggs —Very much so.

Senator FAULKNER —Is the Department of Finance and Administration involved with this?

Rear Adm. Briggs —Yes.

Senator FAULKNER —Could you explain to me the interface between Mr Prescott's role and DOFA's role?

Rear Adm. Briggs —The various departments involved—and there are more than DOFA—are involved in a departmental working group which I chair which manages the exchange of information between the various departments.

Senator FAULKNER —How does this relate to Mr Prescott's activities?

Rear Adm. Briggs —The two are related to the extent that, as I have indicated, Mr Prescott is conducting negotiations with the various parties and obviously forming a set of recommendations to government in the process.

Senator FAULKNER —Have you had any approaches from defence industry sources or defence industry leaders who are puzzled about Mr Prescott's role?

Rear Adm. Briggs —I did see the article that you are referring to. I felt it was particularly sourced from one industry leader—namely, Celsius Pacific, who of course have a vested interest in promoting that perspective. I am not aware that he has been approached by other industry leaders that are puzzled by what is going on.

Senator FAULKNER —Has Defence had concerns raised with it?

Rear Adm. Briggs —Not that I am aware of.

Senator FAULKNER —If it had, do you think you would be aware of them?

Rear Adm. Briggs —Possibly.

Senator FAULKNER —Regarding the visit to Europe that has been undertaken by Mr Prescott, has he been accompanied by anyone from Defence, or from outside Defence, that you are aware of?

Rear Adm. Briggs —No. He was accompanied by Mr Horobin, an industry consultant engaged by me in support of the submarine capability team. There were no departmental officers that accompanied him on that visit.

Senator FAULKNER —What is Mr Horobin's role?

Rear Adm. Briggs —In this case, to provide an interface between Mr Prescott and me and to provide support in order to maintain that flow of information.

Senator FAULKNER —Would Mr Horobin be present at all the meetings that Mr Prescott would be having?

Rear Adm. Briggs —No, I do not believe that is the case.

Senator FAULKNER —So what is his role? Is he contracted to you?

Rear Adm. Briggs —He is engaged as a consultant to the department. I run the consultancy. His role is broader than simply to accompany Mr Prescott overseas. But in this particular case, he was there to provide support to Mr Prescott and to act as an interface between Mr Prescott and me.

Senator FAULKNER —Has Mr Prescott's appointment to this consultancy been announced?

Rear Adm. Briggs —There has been no public announcement of it.

Senator FAULKNER —Why was that?

Rear Adm. Briggs —As I have indicated, there are a range of commercial sensitivities involved. It is our judgment that these discussions are best conducted in a reasonably discreet manner.

Senator FAULKNER —I am interested in the role of Mr Prescott in this whole shareholding issue. Obviously, you would have to take seriously probity concerns about this. How are you dealing with that sort of issue? I assume this is a high priority for the department—I just accept that as given. Would that be correct?

Rear Adm. Briggs —Yes. Having a sustainable industry base is an important part of having a sustainable submarine capability and, therefore, the ownership structure of ASC is an important part of that. The catalyst—which only really occurred late last year—comes from a number of European reorganisations and sales, and that initiated the process that is now under way. It is not as though the department set off to try to interfere in a commercial arrangement. Celsius, the Swedish defence company, owns Celsius Pacific, which owns Kockums Pacific, which owns 49 per cent of ASC.

Celsius initiated a round of reorganisations in Europe, which included HDW acquiring Kockums, the designer and the design subcontractor for Collins. So HDW has now acquired 100 per cent, in return for which Celsius was allowed to buy 25 per cent of HDW. So there was a mutual exchange of shares. That was followed a little later by advice that Saab is acquiring 100 per cent of Celsius. So there has been a round of acquisitions which do impact on the ownership of ASC and do bring the Commonwealth's interests to bear in the equation.

Senator FAULKNER —Did you note the commentary in the Financial Review of 28 January 2000 in an article headed `Prescott on share hunt in sub wash-up'? The second-last paragraph reads:

But government sources said the future ownership structure of the ASC was not an issue for the Defence Department, and that any investigation of shareholdings by Mr Prescott would be incidental to what was essentially an exercise in due diligence to give Cabinet confidence in Mr Moore's proposals for remedying the Collins submarines.

Does anyone know if those government sources were Defence sources?

Mr Tonkin —As a generality, you would have to say that it is always dubious to conclude, with respect to anybody who writes that sort of thing, that it can be sourced to any particular place. We could not comment -

Senator FAULKNER —No, I am not jumping to a conclusion, Mr Tonkin. I am always careful before I jump to conclusions. I am just asking whether Defence shares the view of the government sources as reported.

Rear Adm. Briggs —My answer is no, Senator. I am not aware of that source. It certainly was not from my area.

Senator FAULKNER —So you believe that the future ownership of the ASC is an issue for the defence department. I think that is what you are saying?

Rear Adm. Briggs —Having a sustainable industry is directly relevant to a sustainable submarine capability. Therefore, to the extent that ownership affects that, it is absolutely a matter of the national interest.

Senator FAULKNER —That comes from another government source, does it?

Rear Adm. Briggs —I am sorry; what comes from another source?

Senator FAULKNER —You said you were well aware -

Rear Adm. Briggs —No, I say I am not aware of where that came from. It did not come from -

Mr Roche —I think the admiral was referring to the industry source that you referred to earlier.

Senator FAULKNER —No, this identifies government sources.

Mr Roche —No, the admiral said he did not know who the government source was. I think, fairly clearly, the answer to the question is that a number of departments and ministers have an interest in the shareholding. Fairly obviously, there is a Defence interest in that. There is obviously an industry interest in it, and there is clearly a department of finance interest through the OASITO role. Treasury has an interest in it also through the Foreign Investment Review Board. So there are a number of people with an interest in it.

Senator FAULKNER —I accept what you are saying. Obviously, the department of industry does have an interest; yes, the Department of Finance and Administration clearly has an interest. Mr Prescott, of course, is representing a Defence interest—or is he representing a government interest? Could I have that clarified?

Rear Adm. Briggs —He is representing a government interest, Senator.

Senator FAULKNER —A government interest?

Rear Adm. Briggs —Correct.

Senator FAULKNER —Mr Prescott reports to government through Mr Moore?

Rear Adm. Briggs —Correct.

Senator FAULKNER —Has he provided written reports to Mr Moore?

Rear Adm. Briggs —He is in the process of providing an interim report but to date his reports have been verbal.

Senator FAULKNER —Are you expecting those reports to be made public at any stage?

Rear Adm. Briggs —They may be; I cannot say. That is speculative.

Senator FAULKNER —I appreciate that it is speculative, but I just wondered whether any consideration had been given to the appropriateness or otherwise of Mr Prescott's activities or the report on his activities being made public.

Senator QUIRKE —Is this consultancy an open-ended one or is there a definite time for when it is going to finish?

Rear Adm. Briggs —The consultancy was due to complete with the report on 31 January. That has been extended verbally because of the process of negotiation, which is not yet complete. As I say, it is my understanding that Mr Prescott is in the process of rendering an interim report in order to complete the record, if you like, in a similar time to the consultancy.

Senator QUIRKE —Presumably, when the interim report comes down, it is an interim report and not the final report, so the consultancy will continue until that final report is brought down.

Rear Adm. Briggs —That is possible. It would depend, I would suggest, on the minister and whether or not he wishes to continue the process.

Senator QUIRKE —So the decision will be made as to whether or not the contract will be extended on the basis of the interim report?

Rear Adm. Briggs —Yes—and various other circumstances.

Senator QUIRKE —What other circumstances?

Rear Adm. Briggs —What is happening in the commercial arena, whether the process is leading to what seems to be a sensible conclusion and whether we are wasting our time—those sorts of practical factors.

Senator QUIRKE —You mean the basic trail or the change of ownership and the way that is progressing or some other issue?

Rear Adm. Briggs —It all relates to the establishment of a sustainable industry capacity, so the judgments will be made against that.

Senator QUIRKE —With regard to the consultancy Mr Prescott is on, has DOFA got in as a consultant as well in respect of these changes, or has any other government agency for that matter? Obviously, DOFA would have a vested interest to see how this share swapping eventuates and what actually emerges.

Senator Newman —I think you really need to ask that of DOFA. It is a matter for DOFA's estimates.

Senator QUIRKE —I do not know that it is a matter for DOFA, Minister. I think the information is here.

Rear Adm. Briggs —I am not aware of any other consultancy involving other departments, but, as the minister indicates, that does not necessarily mean they do not exist.

Senator FAULKNER —It seems to me that Senator Quirke has raised a pretty important issue here—that is, what is the role of the asset sales task force? I must admit I am becoming more and more perplexed as to the relationship between departments. This might be straightforward, but I think it would be useful, Admiral, if you could explain to the committee how DOFA's functions and the asset sales task force and so forth fits into the work that Mr Prescott is doing on behalf of the government?

Rear Adm. Briggs —As Mr Roche has indicated, there are a number of departments' interests engaged—all of them in sum represent the government's perspective. Defence has a particular interest to see that a sustainable industry is there to support the submarine capability. Various other departments have their particular perspectives on it, and the department of finance, and Asset Sales, as you pointed out, have a particular interest. We have been meeting with all those departments at the official level endeavouring to work towards a whole of government perspective on the various issues in play here.

Mr Roche —If I can add to that, the Office of Asset Sales and Information Technology does have a key role in the sale of any government assets, and I think that you could regard the 49 per cent shareholding in the Australian Submarine Corporation as a government asset. The actual shareholder is, I think, the Minister for Industry, Science and Resources.

The process that has gone forward with most of the other government asset sales that I am aware of, notwithstanding who is the holder, is that the process is coordinated by OASITO, and advice is provided to government—perhaps primary advice provided to government—by OASITO, but with other agencies having the opportunity to put their views at the same time. The government takes a decision on the basis of that advice.

Senator FAULKNER —This is a little different, isn't it? Here you have got a consultant to the Department of Defence actually directly engaging in this shareholding issue with, one assumes, some of the major corporate players here. I am very interested in understanding what capacity Mr Prescott has to get too involved in this.

Mr Roche —I guess what I am saying to you is that at the end of the day any decisions on shareholding of ASC will be government decisions. There will be input to that government decision by a range of ministers, including particularly the Minister for Defence and the Minister for Industry, Science and Technology, and including the Minister for Finance and Administration. There will undoubtedly be others who will have a view. So it is not the case that any one person in this entire process would be the sole source of advice to government. OASITO will be providing advice to government, as will the Department of Industry, Science and Technology.

Senator FAULKNER —But we are hearing two different views, it seems to me. On the one hand we are hearing that there is an important Defence perspective in the future ownership arrangements of ASC. I think most reasonable people will accept that of course there is a Defence interest in that. I certainly acknowledge that that is the case. So we are hearing that on the one hand—and that is an important consideration, as Mr Prescott goes about his business—but on the other hand we are hearing that he has a whole of government role.

The more I have heard, the more perplexed I become about what precisely Mr Prescott's role is. I think it is a little unclear. I am not saying this is not reasonable. You have defended a role for Defence; I understand that. But sometimes we have heard about a whole of government role. I think senators on this side of the table are starting to get a little perplexed about the primary role that Mr Prescott might have. This is important, I think you would agree. I would not want this job; it is walking on eggshells, it seems to me. There is a whole range of important probity and other considerations here. This issue of Defence perspective and whole of government perspective or Defence role and whole of government role needs to be clarified for the committee because it is certainly not clear to me, as the evidence has been presented.

Mr Roche —Any advice put forward by Mr Prescott that did not take into account the government's position in terms of asset sales and return on the asset and which did not take into account a government industry position, as well as the very important Defence interests here, would not be a complete report. What I am saying is that, while I would expect that his report would encompass these other areas, I know the government will be getting further detailed advice from the perspective of those other organisations.

Senator FAULKNER —But Mr Prescott is reporting direct to the minister. That is the case. Is he keeping Defence in the loop at all?

Mr Roche —Yes, he is.

Senator FAULKNER —How is he doing that?

Mr Roche —By regular meetings.

Senator FAULKNER —Who does he hold those meetings with?

Mr Roche —He holds them with Admiral Briggs and he has had some with me too. I believe he has also met with the executive more generally. I know he has met with the secretary and the Chief of the Defence Force, and probably the Chief of Navy.

Senator FAULKNER —Do we know what he is being paid for this yet?

Rear Adm. Briggs —We are finding that out for you, Senator.

Senator FAULKNER —So what sorts of issues have been raised at the meetings that have been held with Defence that you are able to share with us?

Rear Adm. Briggs —As I have indicated, there is a range of commercially sensitive discussions. I would not want to prejudice the process that is under way. He has, I think quite effectively by being able to go and talk with the industry players, been able to bridge that gap and maintain the probity—the point you make—and not put that at risk and not have the department interfacing directly into the commercial firms involved. I guess the second point is that his standing and his experience have been of considerable use in being able to talk with those companies in a way that they understand.

Senator FAULKNER —Has he been required to submit a pecuniary interest declaration?

Rear Adm. Briggs —In engaging him, the issue of conflict of interest, if any, was discussed, and we were satisfied that there was not a conflict of interest. He had no interest in the various players that were stakeholders that were likely to be engaged in this process.

Senator FAULKNER —I hear that, but that was not what I asked. I asked was he required to submit a pecuniary interest declaration.

Rear Adm. Briggs —No. It is not commonly required of consultants to submit a pecuniary interest declaration. I think we are more concerned about a conflict of interest. It is quite a different situation with public servants.

Senator FAULKNER —I appreciate the point you make about consultants. But I also think that we have here a rather special type of consultancy, and I think you would acknowledge that, Mr Roche.

Mr Roche —I do.

Senator FAULKNER —This is something that is highly commercially sensitive.

Mr Roche —Yes.

Senator FAULKNER —That is true, isn't it?

Mr Roche —Yes, it is.

Senator FAULKNER —That is why I asked the question about the pecuniary interest declaration. I think it is an unreasonable comparison to draw with a range of other consultancies. I think this is a very different and, it sounds like, a very special type of consultancy. It sounds quite remarkable, actually.

Mr Roche —I was not involved in the appointment of Mr Prescott, but I have dealt with a very large number of consultants over the years, and I have never once sought a pecuniary interest declaration. On many occasions I have sought quite detailed assurances in relation to conflict of interest.

Senator FAULKNER —But how many of those consultants have been tripping the world dealing with shareholding issues and prospective shareholding issues with major international corporate organisations?

Mr Roche —I have dealt with consultants advising on the sale of government assets worth a lot more than the Australian Submarine Corporation.

Senator FAULKNER —Yes, but that is different, Mr Roche. Here is someone right in there representing the government's interests, or apparently representing a whole of government interest -

Mr Roche —But not in an executive fashion. He is providing advice; he is not actually taking decisions and executing -

Senator FAULKNER —He is not providing advice but he is actually meeting with them, isn't he? We don't know what he is precisely doing.

Rear Adm. Briggs —Only in order to develop that advice, Senator.

Senator HOGG —Whilst we are on this issue of the ASC, is Defence aware of any unsolicited bids in recent times for ASC?

Mr Roche —Yes, Senator.

Senator HOGG —How many—and when?

Mr Roche —I am aware of at least one. It depends on how you define a bid.

Senator HOGG —Is this post the sale of ADI? As you know, we have been involved in an inquiry into the sale of ADI, and the issue of unsolicited bids for ASC was raised during that inquiry. I am wondering, post the sale process for ADI, have there been unsolicited bids, or is Defence aware of that?

Rear Adm. Briggs —I do not believe you could describe the approach which Mr Roche and I are both referring to as an unsolicited bid. It has been more informal than that.

Mr Roche —It is an expression of interest I suppose. That would be the best way to define it. No formal bid has been received.

Senator HOGG —No, I would not expect it -

Mr Roche —It is not a formal bid and certainly not one that involves money so it is more an expression of interest.

Senator FAULKNER —Let me be absolutely clear on one point. Has Mr Prescott got an authority or is he authorised to negotiate in relation to the shareholding of ASC? Has he an authority to negotiate?

Rear Adm. Briggs —Mr Prescott has been given a negotiating directive which sets out the objectives that I have broadly given you. There are some enabling ones to those two principal ones and those have been communicated by him to the various stakeholders in the industry. He has had a number of discussions with them responding as to how they may or may not be interested in achieving those objectives with the view of being able to provide recommendations to government as to how the government should proceed.

Senator FAULKNER —But does that mean that he can negotiate?

Rear Adm. Briggs —His negotiation is purely limited to developing those options. I would not want to give the impression he is in there negotiating a sale. That is not what he is doing. He has no authority to negotiate a sale.

Senator FAULKNER —What is his negotiating directive? Can you provide more detail? I mean, how far is he authorised to go?

Rear Adm. Briggs —He is authorised to discuss with the current and the potential stakeholders how the government could achieve those objectives. The first one is the completion of the six submarines and the second is the achievement of a sustainable industry capability to support the submarines. The directive is quite bounded and quite specific in limiting him to that process.

Senator QUIRKE —Obviously, in that second criterion you have spoken about, Admiral, the sale of -

Rear Adm. Briggs —Sorry, just to follow on that. I would take it on advice but I think we can very probably table the directive so you can see there is nothing particularly sinister going on here.

Senator FAULKNER —I am sure that would be useful. I thought I asked for that earlier but if I did not I should have.

Rear Adm. Briggs —No.

Senator FAULKNER —Thank you very much.

Rear Adm. Briggs —I am sorry.

Senator QUIRKE —Does the second criterion there of developing or making sure that we have an industrial capability in Australia—I gather it is in Australia—to maintain the Collins class submarines involve the potential sale of the ASC to one of these consortia?

Rear Adm. Briggs —When you say `sale', are you referring to the the government's AIDC shareholding in ASC?

Senator QUIRKE —Yes.

Rear Adm. Briggs —That is 48.45 per cent and there is an act requiring the sale of ASC in due course. So I would envisage, yes, in the ultimate arrangement here you will see the sale of the AIDC interest in ASC.

Senator QUIRKE —In the second criterion that is laid down, obviously it is to do with the future ownership of the government shareholding in the submarine building enterprise. Is that right?

Rear Adm. Briggs —It is to do with the total industry of which the government at the moment has 48.45 per cent through its AIDC holdings.

Senator QUIRKE —Okay, let us just work that out.

Senator WEST —Following the answer to Senator Hogg that there had been expressions of interest—that was how you phrased it—how many are there?

Rear Adm. Briggs —As we indicated earlier, there has been one to our knowledge.

Senator WEST —Where are they going to? Are the expressions of interest going to Defence or are they going to OASITO?

Rear Adm. Briggs —No, that arose out of Mr Prescott's discussion with this particular group in industry and they gave an indication to him as to how they would respond to the opportunity.

Senator WEST —So they have not lodged an expression of interest.

Rear Adm. Briggs —No. It would be wrong to give you the impression that there is a bid on the table.

Senator WEST —Can you give us some indication as to when this `expression of interest' was lodged with Mr Prescott?

Rear Adm. Briggs —Earlier this year.

Senator WEST —In Australia or outside of Australia?

Rear Adm. Briggs —In Australia.

Mr Roche —I am sorry. I missed some of the question and answer there. The fact that there was at least one expression of interest is known to all of the key players in the exercise. It is certainly known to OASITO, Defence, Admiral Briggs's team and Mr Prescott.

Senator WEST —So how well-worked are these expressions of interest going to have to be before they are regarded as bids? If you take the inverted commas away from the expressions of interest, which is the perception I get of what you are saying, how well-worked up are they going to have to be?

Mr Roche —I do not think we are looking to having worked up bids that are taken into a process. The process is still at the stage of advising government on options. That does not require finely worked-up expressions of interest or anything like that. The fact that one is there in the wings is simply through somebody getting in early precisely to say that they are interested if and when government takes a decision to open up.

Senator WEST —Okay. Thank you.

Rear Adm. Briggs —I have some of the information which Senator Faulkner sought earlier. I could read it into the record. Mr Prescott's daily rate is $3,000 whilst providing the consultancy. His task and directive from the minister was signed on 9 November last year. He has visited Sweden and met the Chief Executive Officer of Celsius, Mr Lars Josefessen. In Hungary he met with Dr Rathjens and Dr Ritterhoff. Domestic travel costs for the period of 3 November to 9 February were: accommodation, $280; car hire, $214.28; flights, $1,731.56; international travel, $10,695.20. That last figure is listed as not yet completed, so there may be some additions to that. The international accommodation costs are not included on it.

Senator HOGG —Could you just go through those costs again for us?

Rear Adm. Briggs —Domestic travel for the period of 3 November to 9 February: accommodation, $280; car hire, $214.28; flights, $1,731.56; international travel, at this point, $10,695.20. As I indicated earlier, he was asked with reference to his pecuniary interests and had no conflict with the parties involved in the process.

Senator HOGG —All right. How many days of consultancy are there that you have been charged for at $3,000 a day?

Rear Adm. Briggs —I still owe you the figure for the table. I do not have that detail.

Senator WEST —Was it a full- time consultancy so it was every day?

Rear Adm. Briggs —No, not at all.

Senator WEST —Given he has been overseas, and he appears to have been doing a fair bit of work, there would be a fair number of days.

Rear Adm. Briggs —I cannot tell you at this point. I will get back to you on notice with the number of days involved and the total cost.

Senator WEST —Is $3,000 a day the normal going rate for a consultancy like this?

Mr Roche —It is not unreasonable.

Mr Tonkin —It is not a normal rate?

Senator WEST —What is the average rate? What is the going rate?

Mr Tonkin —It very much depends on the subject matter for which you want the consultancy. I am not being smart. It is as short and wide as it is. That would not be an untypical rate for a senior consultant in any large consulting firm on any matter of significance.

Senator WEST —Who negotiated the consultancy? Was it done with the department and Mr Prescott or with the minister and Mr Prescott?

Rear Adm. Briggs —No, it was done by my team.

Senator HOGG —And approved by the minister, I assume?

Rear Adm. Briggs —Correct.

Mr Tonkin —Three thousand dollars a day is par. You could easily pay more than $3,000 a day for consultants.

Senator FAULKNER —But not for deputy secretaries, Mr Tonkin.

Mr Tonkin —Some people do it for the honour and love of the country, et cetera.

Senator WEST —In the areas I normally work in it is only about $1,000 a day for a consultancy.

Mr Tonkin —It is timing, Senator.

Senator WEST —And qualifications.

Senator FAULKNER —Was the advice to the minister on the level of payment for this consultancy generated in your organisation, Admiral?

Rear Adm. Briggs —That is correct.

Senator FAULKNER —You did not seek advice from the minister's office on what might be an appropriate level?

Rear Adm. Briggs —No. We took advice within the defence department on what was a reasonable figure, we put a budget together which we felt was likely to match the tasking and we got approval for that total amount of money involved.

Senator FAULKNER —Did you ask Mr Prescott to provide a curriculum vitae before he was appointed?

Rear Adm. Briggs —No.

Senator FAULKNER —Even though your organisation determined the level of payment for the consultancy and the entitlements of the consultancy , the actual idea that Mr Prescott be appointed came from Minister Moore, didn't it?

Rear Adm. Briggs —The decision to appoint Mr Prescott was certainly taken in concert with Minister Moore. It would be wrong to imply it was a solitary decision from his office.

Senator FAULKNER —Who came up with the idea?

Rear Adm. Briggs —I believe I probably initiated the proposal, but it was discussed and agreed at appropriate levels through the department and in the minister's office.

Senator FAULKNER —I was just interested in what particular qualifications Mr Prescott had to undertake the consultancy?

Rear Adm. Briggs —Mr Prescott had just spent a number of months going over the Collins class submarine project in great detail. He had an intimate knowledge of that and that was significant background. He was well known as an industrialist and that was a significant factor in allowing him to negotiate at the right level or to discuss at the right level with stakeholders; and he had a good experience in industry, including an involvement shipping in Australia.

Senator FAULKNER —Yes, but this is about shareholdings, isn't it?

Rear Adm. Briggs —A sustainable industry is the fundamental of what it is about.

Senator FAULKNER —Mr Prescott was Chief Executive Officer of BHP, wasn't he?

Rear Adm. Briggs —I believe that is correct.

Senator FAULKNER —Would that have been one of the elements of his background that was important?

Rear Adm. Briggs —Not per se. The experience that he gained there, including the exposure to shipping, is quite a significant benefit.

Senator FAULKNER —Did anyone think to look at what happened to BHP's share price while Mr Prescott was Chief Executive Officer of BHP?

Rear Adm. Briggs —I think we are probably all well aware of what happened to the BHP share price.

Senator FAULKNER —Could you share that with us?

Rear Adm. Briggs —It fell; I owned some of the shares.

CHAIR —And it came up again.

Senator FAULKNER —Do you know how much it fell by?

Rear Adm. Briggs —I do, but I am not sure how germane it is to the point at issue.

Senator QUIRKE —Did you strike the $3,000 a day on the basis of what Mr Prescott or Mr McIntosh were paid for the report on the Collins? Is that what they were paid for that?

Rear Adm. Briggs —It was built on the earlier consultancy, yes.

Senator QUIRKE —So that is where the figure came from?

Rear Adm. Briggs —Yes.

Senator FAULKNER —Can we come back, Mr Tonkin, to the issue of economic advice that I raised?

Mr Tonkin —Yes, Senator.

Senator FAULKNER —I was asking for details about the ANZ and Deutsche Bank contractual arrangements.

Mr Tonkin —Would you like a general -

Senator FAULKNER —That might be a sensible way of dealing with it.

Mr Tonkin —We can confirm the two companies involved are ANZ and Deutsche Bank. The ANZ arrangement is free. It is public information. It is their domestic and global market commentary, which includes articles on inflation, foreign exchange rates and that sort of stuff.

Senator FAULKNER —So there would not be a contract for that?

Mr Tonkin —There is no contract with ANZ. They just gave us access to the material that we asked for.

Senator FAULKNER —A lot of this is on the Internet, as I understand it?

Mr Tonkin —Yes. They email it to us. In the case of Deutsche Bank, they provide us with an email advice. In fact, the ANZ advice is a standard product by email. It is then retransmitted in the department and to the minister's office. We also have a contract with Deutsche Bank.

Senator FAULKNER —I am sorry, go back a step. So ANZ provides the information by email to the department?

Mr Tonkin —Yes, by email.

Senator FAULKNER —And you send it on to the minister's office?

Mr Tonkin —They are parallel streams. One email goes to the minister's office. The email comes to the department and it is then distributed inside the department to the relevant areas that make use of that advice. In the case of Deutsche Bank, we have a contract with Deutsche Bank, entered into on 5 March, for $1,500 for a 12-month period -

Senator FAULKNER —5 March -

Mr Tonkin —1999; $15,000 for a 12-month period, payable $1,250 a month in arrears. For that payment we receive -

Senator FAULKNER —I am sorry, I do not want to break in but you have given me two figures.

Mr Tonkin —It is $15,000 a year; I am just saying it is paid monthly.

Senator FAULKNER —I think you said $1,500 a year previously.

Mr Tonkin —I am sorry. We get from Deutsche Bank economic advice as well as access to their website, which gives their databank, all the analysis they do and so on. That is an information resource. They also undertook to provide four personalised briefings by senior executives of the bank to Defence and the minister as required as part of that contract. This is a general, periodic overview of the state of economic trends and such matters. That, in the broad, is the nature of the two arrangements that we have.

Senator FAULKNER —In relation to the second one, the Deutsche Bank one, is that provided by email too?

Mr Tonkin —That is my understanding, that it is provided by email as well. We also have access to the web site. We have access to the web site and the advice that comes on a periodic basis.

Senator FAULKNER —And that is provided to both the department and the minister?

Mr Tonkin —Yes.

Senator FAULKNER —I am talking now about Deutsche Bank?

Mr Tonkin —That is my understanding, yes.

Senator FAULKNER —What is the Deutsche Bank providing to the department and the minister?

Mr Tonkin —The contract with Deutsche Bank requires that they will provide—just running through the elements of the contract—four personalised briefings per year, two of which were to be delivered by Dr Stammer, who I understand is the chief economist of the bank, and the remainder to be delivered by a senior member of the Deutsche Bank staff. They are required to provide daily email of a publication called Overnight economic and market round-up -

Senator FAULKNER —Sorry; daily email of what?

Mr Tonkin —A publication called Overnight economic and market round-up—

Senator FAULKNER ——Overnight economic and market round-up—yes, I bet they are!

Mr Tonkin —Also, a weekly precis, not more than 400 words, covering, in the words of the document, `the critical global and domestic forces impacting on the economic and investment outlook in Australia, i.e. the economic hotspots of the moment', and full access to the Deutsche Bank web site. The daily material is sent directly both to the minister's office and to the department by email.

Senator FAULKNER —Who gets the four personalised briefings?

Mr Tonkin —They were to be provided both to the department and to the minister as required.

Senator FAULKNER —I am sorry, I interrupted you.

Mr Tonkin —That is it. That is the end of it. That is what the contract says.

Senator FAULKNER —So the four personalised briefings are to the minister or department as required. Have there been any in the department?

Mr Tonkin —I was certainly present, I recall, at one briefing. I am not aware of any other briefings that have been provided to date.

Senator FAULKNER —Has the minister received personalised briefings?

Mr Tonkin —That I would have to take on notice. I do not have that particular piece of information.

Senator FAULKNER —So the minister, at public expense, has two personalised briefings from Dr Stammer and two other economists from Deutsche Bank, a daily email bulletin on the overnight economic and market fluctuations -

Mr Tonkin —Or round-up. That is the title of the publication.

Senator FAULKNER —and a weekly precis. Is that in written form?

Mr Tonkin —Yes.

Senator FAULKNER —Where does that go—minister's office and department?

Mr Tonkin —And the department. This contract with the department is to provide all that advice to the two destinations.

Senator FAULKNER —But of course it would be, as I said before, Mr Tonkin. We know where this has come from. The minister put this demand to the secretary to the department. Any smart departmental secretary, in this circumstance, is going to make sure that the information goes to the department and the minister. So of course it would go to the department as well. This all came about as a result of Mr Moore's formal request to Mr Barratt, didn't it?

Mr Tonkin —It did.

Senator FAULKNER —For special briefs on this sort of material, such as the Overnight economic and market round-up—it is a long bow, isn't it? It really is a long bow. What is the purpose of this advice to the minister?

Mr Tonkin —You have before you, Senator -

Senator FAULKNER —I think you said that earlier.

Mr Tonkin —the copy of the letter that the minister sent to the secretary. In that letter—to paraphrase it—he says that as part of his responsibilities as a senior cabinet minister, when cabinet is considering these matters, this provides important background to enable him to make a full contribution in the cabinet process. That was what the minister said in his letter.

Senator FAULKNER —It starts off:

...As a member of Cabinet I am frequently asked to express my views on matters outside the portfolio including economic, business and industry issues.

Mr Moore is struggling with all the matters inside his portfolio, let alone breaking the first rule for a cabinet minister of never commenting on matters outside the portfolio.

Senator Newman —But you are, as a cabinet minister, expected to take an intelligent part in a cabinet discussion which is constantly and regularly on economic matters. You might not have had that experience, but let me just remind you that that is exactly what a cabinet minister is expected to be doing, and not just focusing on their own responsibility.

Senator FAULKNER —I think we are well aware that government would hope that Mr Moore was not proffering views. I am afraid I just jumped to the conclusion that what this is about is getting a government funded stock market analysis for the Minister for Defence. That is what it is about and we all know that is what it is about, and it is absolutely outrageous. Is Mr Moore still an active share trader?

Mr Tonkin —I cannot answer that; I do not know.

Senator FAULKNER —Don't other stock market players in the community have to rely on the media and publicly available material for their market and economic information? But not the Minister for Defence; the taxpayers can fund that.

Senator Newman —Mr Chairman, this is a desperate attempt by an opposition senator to try to make sleaze out of something which has a perfectly reasonable and proper explanation, which has been given by officials. But this senator specialises in trying to slur a person's good name.

CHAIR —Senator, you have interpreted the letter in that way. I would imagine that all ministers would get a briefing of the economic state of the nation and the world situation, as part of being in cabinet, a point on which I would agree with Senator Newman. I am not taking sides on it, but I think you have pursued it pretty well.

Senator FAULKNER —In the experience of anyone in the Department of Defence, has any previous defence minister ever demanded such an arrangement to be made?

CHAIR —I think it is a pretty tough question for the departmental officer to make comment on.

Mr Tonkin —It is very difficult to go back far enough. I can recall 25, 26 or 27 years ago when I worked in the economic analysis section of the Department of Defence. My memory is dim and distant at this point, but we did provide certain advice. I think I used to compile it and it went to the minister and other senior people. It was kept in a black folder and classified `secret' and it could have had lots of stuff in it. That, in a modest way, given that I am not an economist but rather a geographer -

Senator FAULKNER —Yes, I am sure that did happen 25 years ago, and that happens in a number of departments. My question is: have we had a situation where outside consultants have been providing advice on stock market fluctuations -

Senator Newman —Outsourcing.

Senator FAULKNER —for any previous Minister for Defence?

Mr Tonkin —I think perhaps you are misreading the nature of the advice provided. The advice, as I described it, is on the record. It goes, primarily, to economic advice and fluctuations in exchange rates and information on economic trends. It is released in Australia and overseas and is germane to our sort of business. It is not, to my understanding, a stock market report in the way that you would classically imagine it to be.

Senator FAULKNER —Do you keep an eye yourself on the emails coming through on interest rate and stock market fluctuations, or are you just too busy?

Mr Tonkin —I do not, but the people in my part of the organisation who are responsible for the Defence treasury function certainly do, as we have to manage our exchange rate exposures now on a departmental level.

Senator Newman —Prices for oil, for example, are pretty relevant to this portfolio and always have been.

Senator WEST —That was a contract. Where would it appear in the annual reports? I had thought that those sort of contracts -

Mr Tonkin —It is not a consultancy, it is a contract for the purchase of services. Presumably it would have been gazetted, as contracts are. It is not an annual report issue.

Senator WEST —So it would be in the Gazette?

Mr Tonkin —It is a contract for services, not a consultancy. Things that are in the annual report are what are defined, reasonably precisely, as a consultancy process.

Senator WEST —I am just a bit confused on occasions as to what actually the definition of `consultancy' is and what actually the definition of `contracting for a service' is, because on occasions they seem to be a bit blurred.

Mr Tonkin —We could have a long discussion as to how to define what is a contract for services and a consultant. We try to maintain the same sort of definitions year on year.

Senator WEST —So if I go and look at the Gazette for about the 5th of the 3rd last year I should find something that indicates -

Mr Tonkin —The contract was certainly let on the 5th of the 3rd, so whatever timing relates to the appearance in the relevant Gazette it should be there.

Senator WEST —Okay. Thank you.

Senator FAULKNER —The real point here is Mr Moore should dig his way out of the shambles he has made in Defence before he starts looking at these other interests and spending public money -

Senator Newman —That is an utter misreading of exactly what it was used for, and you know it. This is your silly little exercise. You have not got anywhere.

Senator FAULKNER —on this sort of information for his own private use.

Senator Newman —You are trying to put mud where none exists. You are a disgrace.

Senator FAULKNER —It is an absolutely outrageous waste of taxpayers money. But, anyway, let's get on to the next issue. It is just par for the course with this minister.

Senator Newman —This is meant to be about the Defence estimates.

Senator FAULKNER —Just par for the course.

Senator Newman —Playing the man!

CHAIR —Are there any further questions on general issues?

Senator FAULKNER —Yes, I have some.

Senator Newman —I am waiting for some questions about the defence of Australia.

Senator QUIRKE —And whose hands it is in control of, Minister.

Senator FAULKNER —I would like to understand a little about the ADI sale from a Defence perspective. That might involve Mr Roche again.

Mr Tonkin —I think so. He will be here with us momentarily.

Air Marshal Riding —Mr Chairman, while we are waiting for Mr Roche, I can provide some clarification to an earlier question. Relating to the function at Victoria Barracks, to the best of CDF's recollection, he and the minister discussed the feasibility of holding a function for the Prime Minister in the Victoria Barracks Officers Mess in the first week of June 1999. There were preliminary investigations and discussions, and CDF advised the minister that it was feasible and that it would fall into the category of an official function. This advice was provided in the week of 28 June.

Senator FAULKNER —Thanks very much.

Rear Adm. Briggs —If I could respond to a couple of the outstanding points from earlier questions; the figures I gave earlier are from our accounts in the team, not from an account from Mr Prescott—he is yet to render an account. Our records show Mr Prescott has worked for 10 days to date in the consultancy and, indeed, confirm the point that the rate is the same that was charged for the McIntosh-Prescott review.

CHAIR —Thank you, Admiral.

Senator FAULKNER —You might just take on notice, Admiral—I do not think there is any need to provide it today—in relation to the McIntosh-Prescott review, what the final costs of that consultancy were. It is not an urgent issue, but if you could take that on notice that would be helpful to the committee.

Rear Adm. Briggs —Will do.

Mr Tonkin —You might ask your question on ADI and we will see if we can help you with what we have.

Senator FAULKNER —I was wondering about the involvement of Defence in the ADI sale. I do not know whether you are aware of this, Mr Roche, but Senator Ray and I asked some questions last night in the Department of Finance and Administration estimates of OASITO—just developing an understanding of the processes that were involved. I wonder whether the committee might hear, from a Defence perspective, about the involvement of Defence in the ADI sale.

Mr Roche —I would like to be able to help but I was not involved in that personally. I have obviously had briefing on it. If you have questions on this, I think it would make more sense to get the expert. I am happy to provide some sort of overall perspective but-

Mr Tonkin —The expert is not here with us. We would have to get in touch with the department.

Senator FAULKNER —I am happy to leave it a little while and come back to it. By the way, Mr Roche, we do appreciate that you have only just come into this position. That is acknowledged. I do not want to be unreasonable about things. Never let it be said! I will ask one other general question and then I might come back when I get a call from the secretariat, Mr Chairman, if that is okay.

I would like to ask a question on the AEWACs, if I could—airborne early warning and control. My questions are pretty specific here. I was interested in the time the minister was provided with a brief on the outcome of the selection process. I know there was a very thorough process in Defence, and, at the conclusion of that process, the normal course of events is that a submission goes to the minister. My question is about the time and date of that submission going to the minister.

Air Vice Marshal Conroy —My records here show that source selection occurred on 21 July 1999. I believe that would be when the minister noted that the Defence source selection board had come to that conclusion.

Senator FAULKNER —My recollection is that this goes in the form of a submission after selection to the minister. That is basically the process, isn't it?

Air Vice Marshal Conroy —It is. The delegate of the day asks the minister to note. Once the minister has noted that the source selection is made, a press release is issued.

Senator FAULKNER —I appreciate the information you have given us, Air Vice Marshal, about the date of the source selection. Basically, it went to the minister forthwith. Is that right?

Air Vice Marshal Conroy —Yes, within a day of the delegate signing off. The delegate in this particular case was the secretary.

Senator FAULKNER —Fine; I just wanted to know what the date was when it was sent. I was interested in the time and date, and I was interested in the time and the date of the minister's approval. Can you help me with that?

Air Vice Marshal Conroy —I will have to take that on notice, but I can tell you that it was unexceptional.

Senator FAULKNER —And I am interested in the date of the press release.

Air Vice Marshal Conroy —I will take that on notice; I will get that information for you.

Senator FAULKNER —If you could provide that information, I would appreciate it. Thank you very much. Mr Tonkin, you will let us know when the relevant officer is available for that other matter?

Mr Tonkin —Yes. That might take 30 minutes or so.

Senator FAULKNER —I am confident you will still be here.

Senator HOGG —I need to return to the DRP because I have got some specific questions. Firstly, can you explain to the committee what has caused the slippage in the DRP reinvestment projects as outlined on page 26 of the additional estimates document?

Mr Tonkin —Are you talking about table 1.14 on page 27?

Senator HOGG —Yes.

Mr Tonkin —From my reading of it, it is going up, not down.

Senator HOGG —There is slippage there, as I understand it.

Mr Tonkin —The budget estimate says we plan to reinvest $447 million, and we actually propose to reinvest $548 million, which is perhaps a reverse form of slippage.

Senator HOGG —We might not be on the right page.

Mr Tonkin —Perhaps the confusion, Senator, is that, if you look at the bottom of page 26, under the $125 million in administrative savings, there is reference to slippage having been experienced in a number of projects including satellite communications.

Senator HOGG —Yes, that is the reference I am after. So what has caused the slippage there?

Mr Tonkin —More than likely, it is simply in terms of the ability to deliver the projects—the normal technical issues of getting the earned value and paying the earned value. There is quite a long list of things there, so to provide it to you precisely might be difficult, but it will be due to some slippage in the actual delivery of the equipment.

Senator HOGG —Is that reflected elsewhere in this document; that is what I am trying to find out? I have seen slippage in other parts of the document.

Mr Tonkin —Yes, it is reflected on the next page. If you look at the fourth line in table 1.14, `Unallocated $125m', it shows in the budget year that we had allocated fully the $125 million. In the additional estimates, there is $22 million there not allocated—in other words, not being spent against that $125 million, and that is the slippage.

Senator HOGG —So that is the $22 million over that range of projects?

Mr Tonkin —That range of projects, and that is then compensated for -

Senator HOGG —All right. Well, how do I relate that back -

Mr Tonkin —There is information, I am advised, on page 25. I am sorry, it does not give you any further information; it still references the same thing.

Senator HOGG —Is the slippage there accounted for anywhere in pages 14 through to about 17, when you look at the capital budget?

Mr Tonkin —My quick answer is it is not a related issue.

Senator HOGG —It is not a related issue? That is what I was trying to identify.

Mr Tonkin —No, it is not a related issue. They are a totally different set-

Senator HOGG —The slippage in the DRP investment in those areas is not a component of -

Mr Tonkin —Of the actions we took to defer projects, as explained in pages 14 and 15. Not related.

Senator HOGG —All right. I will return to that later because I have some confusion there. On page 26, there is a provision for 50,000 ADF of $50 million. It refers there to the RAAF personnel numbers at 14,038 AFS force, rather than the planned 13,250.

Mr Tonkin —Yes.

Senator HOGG —Is this part of the minister's announcement last November about the extra 555 RAAF personnel for additional combat support personnel?

Mr Tonkin —It would be linked to that because, as we needed to grow the Air Force in those areas, designated ground defence and forward deployment support, it would seem rather counter to logic that you would allow the Air Force to be reduced.

Senator HOGG —How does one link it, then? That is the problem that I have. Can you link it for me?

Mr Tonkin —In the document, no.

Senator HOGG —Otherwise, we get these figures being presented to us, we get ministerial statements, and when we try to put them together there comes a great difficulty.

Mr Tonkin —The difficulty is that the reporting that we provide you on the Defence Reform Program is extracted from the totality of the movements of defence activity. We are trying to capture the things which are directly driven by Defence Reform Program savings or reinvestment and provide a summary of those. They are extracted from the total span of information.

It is best to read the DRP stuff as a separate and special report which has its own fence around it. The way to look at the effect, if there is one, on the budget within year would be to look at the Air Force personnel aspects which come up under the relevant Air Force outputs to see whether there has been a variation to the cost expenditure in those areas.

Senator HOGG —So you cannot necessarily link the minister's statement last November about the extra 555 RAAF people and the additional Airfield Defence Squadron to what is happening within that DRP $50 million?

Mr Tonkin —No, but there are consequences which flow. We are trying to keep the Air Force numbers up so that they can grow higher, and there is separate reporting—or there will be—on the expenditure on ADF operations in East Timor.

Senator HOGG —What I am trying to get at is, if the funding for the 50,000 Australian Defence Force—the extra Air Force personnel—of $50 million is coming out of the DRP, does that bear a direct relationship to the ministerial announcement last November -

Mr Tonkin —No.

Senator HOGG —for the extra 555?

Mr Tonkin —The cost of the 555 is paid for out of the additional supplementation for East Timor. Remember, the supplementation for East Timor is in two chunks: one for the cost of deploying the force, the other for the cost of sustaining the force levels to enable you to deploy that sort of a force.

Senator HOGG —Thank you. I will now turn to page 14 of the annual report, on the DRP. Is it correct that in 1998-99 the DRP annual savings were around $301 million and $48 million in one-off savings? I presume the annual report there is correct? It is table 1, page 14.

Mr Tonkin —Yes.

Senator HOGG —Were assets sold in 1998 to achieve that one-off saving? How was the one-off saving achieved?

Mr Tonkin —It is explained by the figures just above it. In other words, there was $26 million from capital facilities—the sale of land and buildings and facilities—and $17 million from equipment and stores, which would be the reductions in inventory. So some part of it was the sale of assets.

Senator HOGG —So some part of it was the sale of assets.

Mr Tonkin —Some of those houses, or bases, we got out of, that were surplus.

Senator HOGG —What would the Defence cooperation have been, the $6million?

Mr Tonkin —What was that?

Senator HOGG —Yes.

Mr Tonkin —It was a general reduction in the level of Defence cooperation activity. We scaled back the activity across a range of areas.

Senator HOGG —So that was attributed to the DRP outcome, as opposed to somewhere else in the whole process?

Mr Tonkin —Yes. We then used that money to reinvest in capability.

Senator HOGG —Where were the savings reinvested? Do we know the value of the projects that the savings were reinvested in? Can that be directly linked?

Mr Tonkin —No. It is the problem of which molecule in the bucket of water goes where sort of thing. It just goes back into general resources and a pile of money is set aside for reinvestment. It is not possible to link a particular asset sale or measure such as Defence cooperation with a particular reinvestment. The reinvestments are spelled out in table 4, page 18.

Senator HOGG —In terms of the reinvestment, were there any changes to the DRP reinvestment program compared to the minister's statement of 11 March 1999 outlining the 1998-99 reinvestment program? Were there any significant changes?

Mr Tonkin —I will have to take that on notice just to make sure of that.

Senator HOGG —If there was a difference—and you can take this on notice—between the savings and the amount that was reinvested, can you say what happened to the money? Can you say why the difference occurred?

Mr Tonkin —We will do that.

Senator HOGG —What is the new estimate for the DRP savings for this year?

Mr Tonkin —That is in the additional estimates. The new estimate is $523 million, on table 1.11, page 24.9.

Senator HOGG —What is the difference between table 1.14 and table 1.11?

Mr Tonkin —Table 1.11 shows the sources of the resources being made available, and table 1.14 shows where those resources go in a reinvestment sense.

Senator HOGG —It seems to me, reading from table 1.11—and you can correct me here—that that is where you get the figure of $523 million at the bottom. That is a net figure, is it?

Mr Tonkin —Yes.

Senator HOGG —So, if one looks above that, one can see that there is a figure of $606 million in the revise and, coming down the page, $737 million. So the savings are impacted by these other -

Mr Tonkin —By the cost of the contracts, which are then funded. The saving is the net difference between the amount of resources previously employed in a given function and the cost of the contract. In `Administrative Support' you will see that we are reducing the cost of administrative support by $371 million, but we are engaging in garrison support contracts, and they will be reflected in that total of `Contracts Funded' of $256 million.

Senator HOGG —That $17 million—under `Unallocated' -has been a constant around there for a long time, as I understand it.

Mr Tonkin —This is where the victim is yet to be precisely defined.

Senator HOGG —There are one-off savings there of $15 million under `Capital Facilities'. What raises that $15 million?

Mr Tonkin —What was the last part of your question?

Senator HOGG —Where is the $15 million coming from in `Capital Facilities'?

Mr Tonkin —I would have to take that on notice unless somebody here can tell me.

Senator HOGG —All right. And the $4 million in `Defence Cooperation'?

Mr Tonkin —That, again, was a general reduction in the level of activity across the total expenditure of defence cooperation, which is around about $60 million or $55 million a year.

Senator HOGG —Would there be any asset sales in those capital facilities?

Mr Tonkin —Most likely, yes.

Senator HOGG —Contributing to the DRP savings there?

Mr Tonkin —Yes, remembering that DRP had a one-off target and a recurrent target.

Senator HOGG —Have all the savings for the DRP been finalised for this year yet?

Mr Tonkin —I would doubt it—as market testing proceeds. You had a discussion previously with market testing activities that are going on. There are some -

Senator HOGG —That list we saw this morning.

Mr Tonkin —Yes. So we will not know the finality of the savings that flow from those until we get to that point.

Senator HOGG —What is the expectation of the result of the market testing that is taking place?

Mr Tonkin —We do not bring to account the savings until we achieve them in this context. So the estimates of how much you save on a market test depends upon the subject area, and it ranges from 10 per cent to 40 per cent depending on the complexity of the price of the service you are going to buy and all sorts of factors.

Senator HOGG —But you must have some idea for the sake of reinvestment what you expect to achieve out of those savings.

Mr Tonkin —The savings that will occur this year towards the end of the financial year will not generate much savings in this financial year. That gives us the chance to reinvest in the following financial year. We have a predicted path of achievement. We go right back to the start of DRP and DER. Estimates were made by the various teams about what was the likely level of saving from each market tested activity, and that is summed to the anticipated $773 and the potential further $146 million in recurrent. All were based on estimates of proportions of savings. As we get through the actual reality so we modify those figures.

We had a time line of when that was to be achieved. We have taken the risk of planning reinvestments in accordance with that anticipated time line of achievement. As we get through each year, so we adjust for the level of success. We might then have to, particularly in the subsequent year, adjust for the level of reinvestment, so that if something fell short we would have to review our prospective reinvestment line.

Senator HOGG —All right. That gets back to the issue I raised this morning, looking at those mature years, that we need to know what the predicted result is going to be in those out years.

Mr Tonkin —What we settled on this morning was at least a column which said what was the mature target, irrespective of timing.

Senator HOGG —Yes, and in terms of the actual amount that is predicted to be saved and that will be reinvested, such that, as time goes on, we can test that.

Mr Tonkin —Yes. That is what we said we would strive to do.

Senator HOGG —All right. Have all the savings that will be achieved under the DRP this year been allocated to various projects, or is that an ongoing process?

Mr Tonkin —Table 1.14 goes to that question. As you can see there, in fact we have overprogrammed the reinvestment. There is $523 million and $540-odd million being reinvested. That allows for a degree of slippage in achievement in the reinvestment, and if it does not slip then we have to find it from the overall defence budget.

Senator HOGG —Right. On experience from the past years, is it expected that there will be slippage and that you would be more likely to end up back at the figure of $474 million?

Mr Tonkin —No.

Senator HOGG —Or the experience of the DRP now tells us is that you are more likely to achieve the $523 million?

Mr Tonkin —If you look at those figures, the figures that go to new investment go into the general provision for new investment, so that if one project slipped another one will pick it up. Amphibious is probably pretty confident because it relates to specific things like maintenance on Tobruk and so on. Logistics is in the same as category as new investment—if one bit slips, they will spend it on something else; there is no shortage of things to spend money on in capability related logistics. The same with the operating costs for new capabilities. Defence science, I understand, is unlikely to slip.

The provision for the 50,000 ADF is potentially variable, depending upon what is the achieved level of ADF personnel numbers, and that is a function of the ups and downs of wastage rates and recruitment. The DRP transition costs are going to be a variable number, depending upon the timing of the achievement of market testing outcomes, because the primary component of transition costs are redundancies.

Senator HOGG —All right. How many redundancies are expected, therefore, between now and the end of the year?

Mr Tonkin —I knew I should not have mentioned that word.

Senator HOGG —No, we are not looking at your office.

Mr Tonkin —I do not know; I will have to take that on notice.

Senator HOGG —All right.

Mr Tonkin —You wanted to know where the $15 million came from in capital facilities this year. It came from—I am reluctant to read this out too—North Head Barracks, $7 million; Queenscliff, $5 million; and Torrens Training Depot, which I thought was the Torrens parade ground, $3 million.

Senator HOGG —I will leave the DRP there and move on to the financial statements. I have not forgotten the capital equipment area, the capital budget; we will come back to that. If I can take you to page 31 and, under the departmental expenses, loss on sale of property, plant and equipment.

Mr Tonkin —Which page is that, Senator.

Senator HOGG —Page 31. I know it refers to a note further on.

Mr Tonkin —Oh, this is the AEs document? Sorry, yes.

Senator HOGG —Additional estimates, yes. That is referred to again in note 2 on page 42, so maybe if we go there I can ask a range of questions which apply to the expenses. There is a net loss for sale of property, plant and equipment. The budget there was $12 million and as I understand it now it is down to $863,000. Why such a substantial change in the figure?

Dr Williams —The precise details we would need to follow up if you wanted, but in general we put in an estimate at the start of the year as to what we expect to happen and that would be the original figure. Reassessment of the rate at which we are getting rid of obsolete stock, perhaps, and factors such as that, will cause that type of variation.

Senator HOGG —Could you give me a break-up of what has happened there? The reason I ask—and it is a general comment about what I have found in going through these expenses—is that there are some fairly wild swings and roundabouts which have taken place. I understand that it is the first year of accrual accounting, but I do not think it is sufficient, as I read in some footnotes here, that methodology is blamed for some of the changes, refinements et cetera. Whilst that is very good, it would help if, when the original budget is being put together, we do not have some of the major swings and roundabouts that have taken place this year.

Can I just draw your attention to one of the other ones. Under `Employee expenses, other conditions of service', $38.8 million in the budget estimate is now $209.9 million, or a change of 440 per cent. That is at the top of the page.

Mr Tonkin —More than likely that is Timor allowances.

Senator HOGG —These are the sorts of things that I would like to find out. Why has that changed so dramatically.

Dr Williams —I guess the first point would be your original comment that in getting accruals into shape there is a fair bit of evolution and learning. Perhaps to get back to your earlier point on the loss on the sale; essentially, I am advised that that is a result of assumptions about depreciation. There was an assumption about depreciation rates. We find, then, when we sell the asset that we had not depreciated it sufficiently et cetera and that causes the sorts of swings. There is no actual, if you like, physical difference; it relates to what we had assumed in relation to depreciation and what actually was the value of sales.

In terms of the conditions of service, a lot of what you see here are actually redefinitions. If I could give you one example, in the budget estimates we included the military compensation and workers compensation under `Suppliers expenses', about $135 million, which has now shifted into `Employee expenses'. That is one example of where there is a fairly significant shift in these statements, but there is actually no shift, if you like, in the underlying defence expenditure.

Senator HOGG —I thank you for that, Mr Williams, but it would be good if those sorts of explanations could be footnoted in some way if that is a substantial shift. It makes it easier for people such as myself when reading then to see them. That does not become necessarily evident as one looks through the documentation. That is the problem.

Dr Williams —Your point is taken and we can certainly look at that. One of the difficulties is that we have a period of settling down as we are refining our process for valuing assets and, as you realise, the depreciation is quite a driver. One issue that you will see reflected in the statements is the fact that when we did our budget estimates it was before the end of the financial year and as a result of that we were using an assumed opening balance for the year, rather than the actual opening balance that you will get flowing from the Defence report. So some of the shifts are merely the fact that from an accounting point of view we have revised our opening balance in terms of value of assets et cetera.

Senator HOGG —I accept that. The reason that I am raising this is that this will impact on the next set of budget figures that we get, as well as impacting on the annual report which we will finally get out of this area as well.

Mr Tonkin —Yes. One of the things we are seeking to do in the formal financial annual statements, and in the notes on those statements, is to seek to provide better explanations of these sorts of variances. I chair the audit committee and we have a similar dialogue with our accounting officials and financial officials about the reasons for the variances.

Senator FAULKNER —You share my concerns, Mr Tonkin.

Mr Tonkin —The result is that if you look at the annual report, and the notes in the annual report on the financial statements, you will see reasonably comprehensive explanations of these sorts of perturbations.

Senator FAULKNER —Yes, I understand. That is in the annual report and this is not the annual report that I have before me, unfortunately.

Dr Williams —What I could do, if you like, is give a general fairly high level run-through of what the significant changes are.

Senator HOGG —Could you? I look down at operating lease rentals and that has gone from $46 million, roughly, to $93 million. Could you take us through the significant items?

Dr Williams —Perhaps if I look at it at the very highest level and just see the sorts of effects-

Senator HOGG —Yes.

Dr Williams —Essentially, what we have in these additional estimates is that the price of our outputs has gone up by a total of about $741 million. We have also had a very slight reduction in our expected revenue by about $7 million. Offsetting that was a reduction in the equity injection of about $591 million.

Senator HOGG —I am sorry. How much?

Dr Williams —It was $591 million in the equity injection. The net result, if you like, of those three effects was to cause a need for an increase in the defence budget of $157 million. That does not reflect a real increase. That is really taking account of payback from the previous year and a range of other measures. It is not a change to the government's zero growth. The $157 million and the additional funds provided in the appropriations comprise two components. One component is $73 million for capital use charge. The capital use charge is largely again, as I mentioned before, because, in going from the budget estimate to now, we are now able to actually get a true opening statement for the year—the opening balance position—rather than the budget which was based on an estimate. As a result of that, things like the value of our assets have been adjusted. We have revalued some, we have identified better figures for others and, as a result of that, the total value of our assets has gone up and the capital use charge with it. That is $73 million. The balance of the $157 million—$84 million—is a series of variations which you can pick up in table 1.3 on page 9. You will see a range of factors.

Senator HOGG —Just wait a minute; I see it.

Dr Williams —That is about $84 million, which is a series of adjustments and the largest one is a payback of money brought forward from the previous year. There is a range of adjustments to things where we have a no-win, no-loss arrangement on funding, compensation and other types of things. You have the explanation there of that. That really gives us, as I say, $157 million of additional funds. The capital use charge is $73 million and these measures make a total of $84 million.

Within the defence budget there is also a fairly significant shift in which we have taken largely from the capital budget and put into the operating area. I can run you through, in broad terms, the figures there. Essentially, you will see a shift in the capital budget in cash terms of about $750 million. That is a reduction in the size of the capital budget. You can pick that up if you go to the capital budget which is on page 37.

Senator HOGG —Yes, I hear that. We will come back to that issue.

Dr Williams —All right. There are a number of factors that contribute to that total amount. There has been a real reduction in the expenditure planned for this year on major equipment and that is about $380 million, so that is a real effect. We have shifted that amount of money out of major equipment. There was also a reduction in the major facilities area of the order of $75 million and, again, that is a real effect. The other significant factor that contributes to that $757 million is actually a reclassification. At the budget time, we had some $300 million to $330 million which was classified as assets. We are now defining that as inventory. It really comes about because of some of the differences between the way we manage internally our capital budget and the external accounting requirements. You can see that again, if you go to the statements, the capital budget will have a figure for inventory. You will see a fairly significant shift from about $649 million to $982 million.

That is simply a redefinition. The real effects, as I say, are a reduction in major equipment and facilities, the former by about $380 million. There are a few other minor factors. Of the areas where we put that additional funding internally to the budget, employee expenses are the most significant and that is $359 million in cash. Again, I can give you some broad details of the cause of that.

Senator HOGG —Where do I find that $359 million?

Dr Williams —If we deal in cash for the moment, you will see similar things reflected in the operations -

Senator HOGG —We are back to cash now?

Dr Williams —I can give you cash and we can look at the whole operating statement impact. If you go to the cash flow statement on table 2.5, you can see there, if you look at employee expenses, a figure of $4,404 million going up to $4,763 million. That increase is additional money essentially taken from the investment area and put into employee expenses.

Senator HOGG —What would those employee expenses be?

Dr Williams —A range of factors. One of the factors is the pay rise that was applied both to military and civil personnel. We are not fully supplemented.

Senator HOGG —Can I put this in a shorthand way and you correct me if I am not spot on. In a shorthand way you are saying the reduction in the capital budget area has gone into employee expenses, not in totality, but to a substantial extent, to the tune of $359 million.

Dr Williams —Yes. To clarify, I mentioned the reclassification of assets to inventory. You will see that, of course, picked up in the increase in inventory and the drop in assets. That really is just an accounting exercise. The real effect is the $400 million or $450 million from major equipment and facilities that has gone largely as you say into employees and some of it into increased suppliers expenses. The suppliers expenses are a range of factors. Loosely speaking, you can argue that that is significantly the 1 Brigade readiness and some increased expenditure on that. As for the employees expenses, as I say, I can give you a range of measures. The pay rise is one.

Senator HOGG —Could you detail those for me, please, without getting down to the minutiae?

Dr Williams —Without getting down to precise detail I can run through the broad figures.

Senator HOGG —Take it on notice.

Dr Williams —I can give you the general indication now. I am dealing here with the big elements, rather than with the very minor variations. I am trying to cover here the big blocks. Essentially there has been an increase in the cost of Australian Defence Force personnel of about $73 million, and an increase in the civilian personnel of about $68 million. Those costs come about from a range of factors, largely the pay rise. There is also some readjustment of the numbers. There was an assumption in the budget that we provisioned for a certain number of people but assumed, based on historical experience, we would probably underachieve because of recruiting factors. We have found as the year has progressed that has not transpired, so we have had to put money back in, to match what probably should have been provisioned in the budget. There is an element of that increase which is a more realistic assessment of the costs of the people that we assumed we would have.

Senator HOGG —So what about those extra 555 Royal Australian Air Force? Are they in that?

Dr Williams —No. The numbers there are in the Timor appropriation so the 3,000 additional for Army and the additional Air Force personnel related to Timor are all covered through the ad hoc appropriation. So the figures here are purely the base Australian Defence Force and civilian work force prior to Timor.

Senator HOGG —That is $141 million for pay rise and readjustment?

Dr Williams —Yes. We have also had, as I mentioned earlier, a shift of about $135 million for military workers compensation which was classified in the budget as suppliers expenses. That has now been moved across, probably more appropriately, under employee expenses. Again, that part of the money is just a shift. We have also got $47 million for housing. A fair component of that, I understand, is for housing singles off base, et cetera. We have a range of other conditions of service—about $18 million or so there. There was also a slight provision for redundancies, et cetera. So that gives a broad break-up.

Senator HOGG —That is about up to $323 million, roughly.

Dr Williams —Yes. There are various other minor adjustments to conditions of service, and the like.

Senator HOGG —So if I look at those various notes to the accounts where I tried to find the explanation for the swings and the roundabouts in what I saw in the base figures, the explanations that you have just given me will somehow find their way into those notes. Is that correct?

Dr Williams —To some extent. If you go output by output you will find the sorts of explanations I have given are presented in many cases on an output basis. My own view would be that is probably not a useful way to do it because some of these factors obviously run across all outputs. It may well be that we need to look at providing a summary explanation up front. There was an attempt to do it in the earlier pages. If you read some of the introductory sections you will find there is a broad summary, but perhaps not in the detail I have just given.

Senator HOGG —You mentioned the outputs tables. When I went to the output tables and tried to relate the variations there to what was actually happening, I found great difficulty.

Dr Williams —The difficulty with the outputs is that on top of the factors I have outlined, which are obviously spread across outputs, for example, a bit of personnel goes to each output, -

Senator HOGG —Yes, I understand that.

Dr Williams —there are other complications. We are continuing to revise our attribution rules, for example. In other words, if you take a particular activity, a judgment has to be made as to how much of that applies to one output versus another. I will give you an example. At the time of the budget we classified a fair portion of communications and IT against Output 1, Command of Operations, and yet clearly it is something which relates to a number of the outputs. So a judgment has been made in developing the additional estimates that that figure of $100 million or so, and you will see it under Output 1, has now been spread across all the outputs to more accurately reflect what that money is really contributing to. As I said, that is one of the difficulties, that some of those factors have caused various ups and downs. I think the explanation I have given of the overview is a better exposition of where Defence has actually moved in progressing to this additional estimate.

Senator HOGG —Accepting that, that is not presented anywhere throughout the additional estimates statements.

Dr Williams —At the front you will find some explanation of the 1 Brigade, the readiness factor, which accounts for the suppliers increase.

Senator HOGG —But there is no consolidated place where this can be found.

Dr Williams —In terms of dollars for the variations you can see in the statements, and perhaps I have just fleshed out a little bit the explanation, the explanation at the front is broad in terms of talking of personnel. As I say, that is supported by the financial statements. Some of the explanation is given in more detail as you work through the outputs.

Senator HOGG —Can I just return to the notes on the tables, pages 42 and 43, et cetera. If one looks at page 43 and looks at note3, `Sales of goods and services,' `Other,' that accounts for a change of $29.7 million. There is no explanation of that as to what `Other' is. Do we know what `Other' is, for example? Is there some way that we can find out what `Other' incorporates?

Dr Williams —As I say, to some extent some of those items are picked up as you go through the outputs. If you could bear with me for a moment I will see if we have got anything in terms of the details. Look, at this stage it would be better to take that particular one on notice.

Senator HOGG —There are going to be a number of these that you will need to take on notice because if you look at the next couple of lines down, there is `Other revenues from independent sources,' which is very good, and then it has just got `Other', a very descriptive term. It is one that I find very helpful to use when one is at odds as to what to call something. Call it `Other.' It seems `Other' does very well in the Defence budget. Those are the sorts of things that would be helpful for clarification. I take it that that has been taken on notice.

Dr Williams —We can take those two examples on notice.

Senator HOGG —Yes, down to military benefits. Under `administered expenses' on the same page, just beneath the double line, there is a substantial shift.

Dr Williams —Under the `administered', essentially there is a range of actuarial estimates of what the cost will be, what our liabilities are. There is also a fairly clear indication of what comes in. Basically, we have with government a no-win, no-loss basis: whatever the actual cost of payments is, comes through. Given that it is actuarially based—it depends on the movement of personnel, et cetera—there can be shifts, and that is what you are seeing there: just a difference between our actuarial predictions and what transpired.

Senator HOGG —Is there a note somewhere that tells me that?

Dr Williams —There probably is not here, no.

Senator HOGG —That type of thing would make for easier reading of the document. The `extraordinary item' at the bottom of the page relates to ADI. Could you elaborate on that for us. The figures are $413 million, $318 million and variation $95.2 million.

Dr Williams —The administered statements include, on our balance sheet, an assumption that we were a part owner or shareholder of ADI. With the sale of ADI we no longer have that interest in the company. We also had a particular loan of $60 million which we were planning to receive back, and again that is reflected in our statements. That part of the sale has now been waived and what you are seeing in that line is a combination of the loss of our interest in the company that no longer we are a shareholder of and the $60 million loan. So that is captured in those numbers.

Senator HOGG —The loss of your interest in the company, in effect, and a $60 million loan?

Dr Williams —Yes.

Senator HOGG —Does that mean your interest in the company was worth of the order of $258 million?

Dr Williams —I am not sure what figure you are referring to.

Senator HOGG —The $318.509 million, which is the revised estimate-

Dr Williams —Yes.

Senator HOGG —and the loan which you are writing off, which is $60 million, as I understand it -

Dr Williams —I have just been given a figure here of $93 million for the loan, plus capitalised interest.

Senator HOGG —Could you break those figures down for me. Take it on notice and give them to me, please.

Dr Williams —Yes, I will take that on notice.

Senator HOGG —I think you have answered the questions in respect of note 5 on the next page, page 44. I am now a little perplexed, though, because you said some of the $380 million had been for a pay rise and other readjustments, yet when I look to the first part of note 5 I find that there is a decrease.

Dr Williams —The figures on note 5 relate to accrual expenses. The figures I was referring to at the front were cash.

Senator HOGG —You have given me cash?

Dr Williams —Yes. So there is a difference in those figures.

Senator HOGG —So, on an accrued basis, whilst you have paid increased cash expenses in terms of the pay rise to employees, there has been an overall decrease. One would assume that is because of a reduced number of people in the military. The provision for annual leave, in note 5, is substantially up, is it?

Dr Williams —Yes. What we are representing here is what we believe in accrual terms is our liability. So there will be an estimate taken here—and again it is done on the basis of estimates—of the amount of outstanding leave. The figure there will reflect what has been the shift from the budget to what is now the case. If you do the arithmetic you will find variations if, for example, each person had on average about a week's more leave than you expected—in other words, if people were taking leave at a slower rate.

Senator HOGG —Down the bottom, in the provision for military workers compensation there seems to be a substantial rise as well of 26 per cent. It is in note 5.

Dr Williams —I have mentioned that there was a $135 million figure which had been shifted across from suppliers' expenses. I think the major element of that should be that figure.

Senator HOGG —That is only $33 million according to that.

Dr Williams —It is $135 million. The $33 million you are referring to just above is the long service leave.

Senator HOGG —No, the provision for military workers compensation has gone in the budget-

Dr Williams —It has gone from 722 to 907.

Senator HOGG —It has gone from $129 million to $162.8 million, an increase of $33.574 million.

Dr Williams —We have a figure that is current and then non-current down the bottom. You are looking at the current figure.

Senator HOGG —Yes, correct.

Dr Williams —Below that is the non-current, so it is slightly longer term, and these are actuarially based figures.

Senator HOGG —I see.

Dr Williams —The current is essentially that which will come up in the next year. That is our estimate of the accrual expenses or liabilities.

Senator HOGG —That has jumped quite substantially.

Dr Williams —Yes.

Senator HOGG —Why is that?

Dr Williams —I mentioned before there was a transfer, a redefinition, across from some suppliers' expenses into—I am sorry, that may not be right. I am advised that the figures that we see here are essentially the result of just having done a revision of our actuarial assessment for the future. The shifts there are purely because, at the budget time, we had a particular set of assumptions about what our liabilities would be. We have revised the actuarial figures and that is the reason for the variation.

Senator HOGG —Is this something we are going to experience on an annual basis at this time?

Dr Williams —Certainly, while we are still settling down with accrual accounting, I think there will be an element of that as we are getting our assets valued. There is also, in terms of assets, a three-year recycle, so there will be assets increasing and decreasing in value. In these sorts of areas, of necessity this has to be based on actuarial estimates, so there will be some instability on an ongoing basis.

Senator HOGG —Going to page 45, note 7 'Receivables' shows that the current estimate for goods and services is down 33 per cent and the sale of land, buildings and infrastructure is down 86 per cent. What brought about the changes in those two items?

Dr Williams —In terms of the sale of land and buildings, at the budget time we had an estimate of the facilities that we planned to sell. The rate of achievement of some will be slower than expected, which will account for the reduced income.

Senator HOGG —That is in the current estimate. If you go down to non-current, you have a substantial increase in the figure.

Dr Williams —Again, that would be consistent with the slowing up. If what we are doing is failing to achieve as quickly as expected rather than things just not happening, then you would expect to see a shift from what we expected in the short term to the long term.

Senator HOGG —I can accept that, but then if you look at the non-current it has not gone up as much as the current has gone down.

Dr Williams —I accept that but, as I said, there are other factors. On top of that will be our estimate of what the value will be. There will be some items that we are adding or moving, et cetera, so it is not simply that there is shifting. There is a timing factor and there is also an overall program of achievement that we expect.

Senator HOGG —The only other one I wanted to ask questions about concerned the two loans. What are the two loans in `Current' under `Receivables'?

Dr Williams —We can get back to you on that, Senator. I do not have the information with me.

Senator HOGG —That is fine. You have given me a reasonable explanation there. On page 8, it says that the total capital use charge has gone up by $83.6 million. Did you give me a figure on that before?

Dr Williams —Capital use charge has gone up by about $73 million. If you look at the bottom of page 8, the second last number is $72.9 million.

Senator HOGG —It is the second last number. I was trying to relate what you had given me before. Right: that is net. I looked at the wrong spot.

Dr Williams —That is based simply on 12 per cent of what our net assets are and shifts in the opening balance, for example. As I said, the budget was based on preliminary estimates. We now have updated figures given the end of the financial year. So the shifts there are reflected in the capital use charge, plus shifts in the assets were introduced during the year as we role out assets and the like, depending on their values or reductions, or increases in values.

Senator HOGG —Are you able to identify where the major pressures are occurring currently in the defence budget? Are they in wages, capital equipment?

Dr Williams —What you would see from here is a reflection that the increase in employee expenses and cash flow indicates that that is an area where there is pressure for increases. That can be seen largely in the fact that the personnel pay rises, for example, are not fully supplemented. We have supplementation around about the CPI—not quite—and any additional amount has to be borne by the defence budget. That is what you are seeing with the pressure there. Obviously, in removing some funds from the investment program to provide an offset, that has provided a short-term pressure on the investment program in the current year.

Senator HOGG —So that will be a pressure point for the year to come?

Dr Williams —Certainly, there are obviously issues in managing the reduced expenditure and the investment program in this year, yes.

Senator HOGG —How does that link in then to the DRP and the savings that you will get out of the DRP?

Dr Williams —Superimposed on all of this—let us take major equipment, for example—you would find in the DRP a figure for the amount of funds that have been able to be reallocated to major equipment. Had the DRP not been introduced, then the current investment program would have been lower by that amount than what we now have.

Senator HOGG —That has been very helpful, Dr Williams. That takes care of all the questions that I had so far in that area.

Senator WEST —What are the predictions for next year and the rest of the budget outyears of the DRP savings and one-off savings?

Dr Williams —I might refer that to Mr Tonkin.

Mr Tonkin —We provide those on an annual basis in the annual portfolio budget measures statement, so the predictions are as presently expressed in table 1.3, page 14 of the budget.

Senator WEST —So they have not changed.

Mr Tonkin —We have not updated them. We will update them in the next budget run-up.

Senator WEST —So therefore none of those savings have been earmarked for reinvestment yet.

Mr Tonkin —As I said in answer to your previous question, we actually have programmed them, because in table 1.4, page 15, of the same document you will see a rising level of reinvestment.

Senator QUIRKE —First, did I hear it right before that the department had an exposure to ADI of $93 million and that that money has been written off?

Dr Williams —Yes, I will get back and perhaps also clarify Senator Hogg's earlier question. If you go to page 43, the extraordinary item, you referred earlier, Senator Hogg, to the $95.2 million. That is a combination of loans to ADI of $93 million and capitalised interest of $2.2 million.

Senator QUIRKE —So all of the money for the sale of this particular asset which has gone into federal coffers is not going to be incoming to you; your cheque is not in the mail?

Dr Williams —There are, I understand, still some negotiations with Finance over the $33 million figure and that is yet to be finally resolved.

Senator QUIRKE —What is the $33 million for?

Dr Williams —That is part of the $93 million.

Senator QUIRKE —You get 30c in the dollar?

Mr Richards —The $33 million loan was provided by Defence to the then ADI when it was in our hands to do some remediation work at St Mary's. The $60 million loan refers to the setting up of ADI, and it is a moot point whether that is a loan we provided from Defence or whether it is a whole of government line.

Senator QUIRKE —When you say it is a moot point, I gather that Treasury is keeping the money, moot point or otherwise.

Mr Richards —The normal practice with asset sales is that the proceeds from those sales go to consolidated revenue.

Senator QUIRKE —If I sell my house, I think the Commonwealth Bank might want the mortgage back. But it is up to you how you set your affairs in place. I do not think they would be interested in moot points; I think they would want the money and they would want it up-front.

Mr Richards —We are getting the balance of the $33 million loan back, as I understand, from Finance out of the sale proceeds, but whether the $60 million loan came from Defence or whole of government, as I said, I am not qualified to speak on that but my understanding was that it was more a whole of government loan.

Senator QUIRKE —There is mention in this document—I am fairly naive about these things, as I have not been around that long-

CHAIR —Have a look in the mirror.

Senator QUIRKE —Chairman, you should not laugh at these sorts of things. Can somebody take me through what the Defence white book is, and what projects get listed in there and how?

Mr Roche —There are in fact a few books around Defence. There are a green book, a pink book and a white book and there may even be other books.

Senator QUIRKE —I have not heard about the green book but the white book I have heard about.

Mr Roche —The green book is on the estate side. The pink book is essentially projects under examination and under development. When they receive some form of ministerial or government approval and become formal projects, they move into the white book. All the projects in the white book have some level of government approval to be there.

Senator QUIRKE —So in there I would find all of the capital expenditure for how many years to come?

Mr Roche —It would go beyond the five-year period. It would include all projects, and expenditure for the life of the project. So you might even have some projects which run for seven, eight, 10 years. That would all be in the white book.

Senator QUIRKE —Are they projects that have already started? Are they projects that are already contracted out?

Mr Roche —No, basically because you get into the white book at the stage where you get a government or a ministerial approval. At the stage that it goes into the white book, in fact, you would not have been to contract; you probably would not have been even to tender. So that the process of getting bids, assessing bids, making recommendations as to source selection and entering into contract all happen after the entry to the white book.

Senator QUIRKE —So the capital budget for this year would probably be at the beginning of the white book?

Mr Roche —The capital budget for this year would be a one-year slice from the white book which would include projects already in contract and under way. Some would involve deliveries and so on. It would include some that are not yet to contract, where we are expecting to get contract in and pay money this year. It would include others where they are to contract and no deliveries have taken place, but there would be some expenditure in the first year.

Mr Tonkin —If you look at page 14, you can see the capital in the white book also includes foreign capital, plant and buildings et cetera. So it is a total.

Senator QUIRKE —The evidence that was given before by Dr Williams indicated that there was a capital to recurrent switch this year of something—I think I wrote down here $380 million—and then a further $75 million from some other source. I presume that is off white book projects out of this year's budget, is that right?

Mr Tonkin —Again, table 1.7 on page 14, gives you the impact on the white book projects.

Senator QUIRKE —While I am flicking to that particular page, in essence that is what I am being told, though, is it not, that, in fact, there is something like $455 million that has been transferred out of the white book into recurrent expenditure?

Mr Tonkin —I think you will find that the $380 million in round numbers came out of the white book. The balance came out of other capital.

Senator QUIRKE —Okay, so it is only $380 million that is out of the white book?

Mr Tonkin —Yes.

Senator QUIRKE —Right. Is that a normal practice. Is the budget balanced each year by raiding the capital account or is that something special this time?

Mr Tonkin —It depends on what the nature of the cost pressures are inside the overall defence budget and what aspects of expenditure are more potentially variable. As Dr Williams explained, if you have a cost pressure in your payroll component, it is rather hard in a very short period to vary that cost pressure. Even if you decide to have fewer people, it does take time and it does cost money to reduce your work force. On the other hand, if you have flexibilities in other areas, you can slow up expenditure on maintenance, minor capital, equipment and stores. Or in the case of projects not yet to contract, you can take judgments as to how you will best expend the total envelope of money available to Defence to maximise the sorts of outcomes. You will have noticed in the last year that we have had a fair degree of pressure on our current activities versus our investment because of the demands of preparing for Timor and so on. You make a series of judgments as to what is the best way to accommodate your cost pressures.

Senator QUIRKE —So from the $380 million, an amount was used for unusual staffing pressures such as income supplementation over and above what you get in the form of CPI supplementation from Treasury.

Mr Tonkin —Yes. To summarise it, the way the process has worked—and it has worked now for a number of years—is that departments and the Defence Force are supplemented for the impact on wages of the underlying rate of inflation. Let us take, for rough measure, that that is 1.5 per cent. We have negotiated and implemented a pay rise for the ADF of 3.5 per cent per annum. The staff on the civilian side are presently voting on the same offer. The difference between 1.5 and 3.5 has to be found out of the defence budget by increased efficiencies or offsets.

Senator QUIRKE —How much of this $380 million went into that area and how much went to Timor? You hinted a minute ago that Timor was also a component for this.

Mr Tonkin —The cost of bringing -

Senator QUIRKE —I would like the precise figures, so you can take it on notice if you want.

Mr Tonkin —We will take it on notice. Just to give you the broader brush, one of the costs of Timor was bringing to readiness the 1st Brigade. The cost of bringing 1 Brigade to a higher state of readiness spanned the 1998-99 and 1999-2000 financial years. I think the cost in this financial year was about $70 million. That cost had to be offset elsewhere in Defence; it was not a cost attributable to the then cost of deploying to Timor and sustaining the force. So there was a `get it up to readiness', which is a Defence liability; then, using the force elsewhere was what the additional funding for Timor was for. That $70 million had to come out of other areas, out of logistics, so we just changed the relative priorities inside logistics support and so on to do that.

Senator QUIRKE —We have a few other issues on that, though we will just go to Senator Faulkner in a minute who wants to return to something that had been arranged. But, so I do not forget this, while you are taking things on notice with respect to that can you also give me the figure of how much of this $380 million is going to be once off and how much of it will be a commitment in the outyears? In other words, you have shifted $380 million from the capital account into recurrent. How much of that will be recurrent next year, or will most of it simply be a recurrent expenditure for this financial year only? I am happy to put that on notice.

Mr Tonkin —I will take that on notice.

CHAIR —We are running this to help Mr Richards, who has come up especially to answer questions on ADI and can then leave us, not necessarily Senator Faulkner.

Dr Williams —Can I help with a couple of questions that Senator Hogg raised, or would it be better to wait until he comes back?

Senator FAULKNER —In case he has some follow through, Dr Williams, and it might be worth waiting until he gets here.

Mr Tonkin —Just before Senator Faulkner starts, he had one question he asked Admiral Briggs, which was the cost of the Prescott-McIntosh report. The answer is $95,397.65.

Senator FAULKNER —Thanks for that, Mr Tonkin, I appreciate you responding and responding so quickly. In the fullness of time, if you could take on notice disaggregating that.

Mr Tonkin —Certainly.

Senator FAULKNER —Thanks. I wanted to ask some questions about the ADI sale. In the first instance, perhaps I could ask Mr Roche to confirm that the ADI sale was handled by OASITO?

Mr Roche —To the best of my knowledge it was.

Mr Richards —Yes, OASITO led the sale, as per normal.

Senator FAULKNER —Mr Richards, thanks very much for that. By way of background, it might be helpful for you to know that last night a couple of senators did canvass some issues in relation to the ADI sale with OASITO in the Department of Finance and Administration estimates hearings. Some other related issues arise from that which I want to touch on briefly. I thought it might be useful for you to know that that had occurred last night. While I appreciate that the sale is, as you have confirmed, handled by OASITO, I just wondered if we could have you outline very briefly the role that the Department of Defence played in the sale process.

Mr Richards —Certainly, Senator. Defence was a member of the sale team. I think it is normal practice that when a GBE is for sale, a sale team is formed, led by OASITO. A bunch of advisers are appointed and the portfolio department is represented, and Defence was represented by me on the sale team.

Senator FAULKNER —So you were the representative; that is good to know. Normally, in a sale team like that, there is just the one Defence representative; is that how it works?

Mr Richards —One or two. I had a support staff as well. It was not just me.

Senator FAULKNER —We canvassed the issue that one of the prospective bidders or tenderers, SECA, pulled out before the close of the tender. That left basically two main bidders. Not only was this a matter which we canvassed last night at a parliamentary committee hearing, but this is something about which there has been quite a substantial amount of press coverage, as you would be aware. Was there disappointment at the Defence level about the fact that SECA had pulled out, leaving just two main bidders?

Mr Richards —We do not confirm or deny any speculation as to who the prospective bidders were for ADI, whether any pulled out or not. I cannot address that question. All I can say is that Defence believes, in the final analysis, that we got a very good price and package for the sale of ADI.

Senator FAULKNER —Fair enough; I appreciate that information. As you would be aware, Mr Richards, there was a lot of press coverage about this. I read some evidence from SECA to a parliamentary committee that they were originally a bidder, so I do not know that we would describe this as a state secret. Anyway, I appreciate that you would prefer not to be drawn on it. Mr Richards, be that as it may, we also heard at the OASITO estimates hearings last night that neither OASITO nor Minister Fahey tried to resurrect any bids. As I understand it, that clearly is the normal process. Can I be assured that Defence did not try to resurrect any bids?

Mr Richards —The Department of Defence did not try to resurrect any bids, Senator.

Senator FAULKNER —And you would not try to resurrect any bids?

Mr Richards —We would not as officials. We are under the direction and guidance of OASITO. They are leading the sale.

Senator FAULKNER —I am not surprised to hear what you say. We know that OASITO, Minister Fahey and the Department of Defence did not try to resurrect any bids. I suppose we had better close off the chink of light that that leaves, Mr Richards. When you used the terminology `Department of Defence' I assume I can take it that that also includes the ADF?

Mr Richards —I would have to take that on notice. I would assume so. I was the sole point of contact for the sale, and as far as I know the ADF were not involved to that extent. But I would have to take that on notice.

Senator FAULKNER —I was hoping you could be quite definitive about that.

Mr Richards —I can be definitive in that in my position as team leader for the Department of Defence, including the ADF, I had no knowledge of that.

Senator FAULKNER —I got a view from OASITO and the department of finance last night that was helpful, but explain to me from a departmental perspective why you do not get into this business in a bidding process. We do know in this case. The two main tenderers are on the public record. There were originally quite a number of contenders, but it came down to three and it is well know in the public arena that SECA withdrew. That is a matter of public record. If no-one else did so, certainly SECA put it on the public record themselves at a parliamentary committee hearing. But why don't departments in this sort of instance get into resurrecting bids? I think I understand why, but it would be useful to the committee for you to put that on the table.

Mr Richards —The sale is led by OASITO. OASITO appoints a business adviser, a merchant banker, to be the focal point of all those commercial arrangements. All that work—the scoping studies, trying to drum up support for the sale and getting the widest field possible—is done by the business adviser through OASITO. We, as Defence, would not take part in that process.

Mr Roche —I think Mr Richards is simply saying that on this occasion it was not our call. But there have been other occasions in my experience where it has been appropriate to try to maintain a very competitive field through to the end. I do not know the background to this case. I do not know whether or not there was any point in keeping anyone in the field. All I know is that in past dealings I have encouraged tenderers I believed were competitive to stay in the field.

Senator FAULKNER —Is there a difference between staying in and being resurrected? It is a very serious question, Mr Roche.

Mr Roche —It is not one I can help you with, I am afraid, because I really do not know the circumstances in this case.

Senator FAULKNER —You have just mentioned that you have had this experience. Can I have some examples?

Mr Roche —The experience would be when somebody says to an evaluation team that they are going to pull out; that they believe they are not competitive or have lost it and want to cut their losses. In some circumstances I have encouraged people not to make that decision and to stay in.

Senator FAULKNER —Can you provide me with a specific example in this circumstance?

Mr Roche —I do not think it would be appropriate to give you the facts of the case.

Senator FAULKNER —Given the evidence we had last night of OASITO, I think there would be a great deal of interest from the Department of Finance and Administration if this was the case. I cannot say that the process is not encouraged, because the position of the department of finance is much stronger than that. Can I recommend, Mr Roche, that you look at the Hansard of last night's DOFA hearings? I found this issue quite interesting myself, and I think you might too. The only other thing I have to check with you, Mr Richards, is whether you can assure me that the Minister for Defence was not involved in resurrecting any bids.

Mr Richards —I did not attend any meetings, so I will have to take it on notice.

Senator FAULKNER —You do not have any knowledge about that particular matter?

Mr Richards —I said that I will have to take it on notice.

Senator FAULKNER —I hear that you would like to take it on notice. Can I be assisted here as to whether the Minister for Defence was involved in resurrecting the SECA bid? Is there someone at the table who can assist me with this? I may as well make pretty clear and absolutely straightforward what information I am seeking.

Senator Newman —I have been advised that the minister was not involved in any attempt to revive any bid, if that helps the committee.

Senator FAULKNER —That does help, I think. I just missed the last part of what you said. The minister was not involved -

Senator Newman —In any attempt to revive any bid.

Senator FAULKNER —Thank you. I appreciate that. Is there anyone available who can let me know whether the minister met some of the consortium partners from Sweden at any stage during the bidding process?

Senator Newman —I will have to take that on notice.

Senator FAULKNER —Thank you. Could I ask if you could take on notice in relation to this matter—I am particularly interested in Celsius and any related companies—whether the Minister for Defence or members of the minister's staff had any meetings with those corporate entities during the bidding process for the ADI sale and, if so, when they took place?

Senator Newman —I will take that on notice.

Senator FAULKNER —Thank you very much. Given the evidence that we had earlier today in estimates, could I also be assured that Mr Prescott did not have any role in relation to this?

Mr Richards —The sale?

Senator FAULKNER —No. Let us be clear about this Mr Richards. I am asking a follow-on question from what I asked you in relation to the Department of Defence and the Minister for Defence. Can I also be assured -only because of the evidence we received earlier in the day—that Mr Prescott did not have any role in relation to this? Sorry, Mr Richards, you were not here, but I am sure one of your colleagues can bring you up to speed on the evidence about the work Mr Prescott was undertaking. I appreciate that the recent consultancy is in a different timeframe, but we also know that Mr Prescott was engaged in other activities in relation to the report on the submarine project and so I would like the same assurance about Mr Prescott. I do not know if it can be provided now.

Mr Richards —To my knowledge Mr Prescott had no involvement in the ADI sale, but could I take it on notice just to be completely sure?

Senator FAULKNER —Thank you. I have a couple of other questions that arise, as I mentioned to you, from questions on notice and answers that were provided at the last estimates round. Is it appropriate to deal with those now?

CHAIR —If you would like to clean up your little bit and your colleagues are happy with that, that is good.

Senator FAULKNER —I go to question 16. This is a question, Mr Tonkin, which I raised about informing the committee why Mr Barratt was chosen to be promoted from Secretary to the Department of Primary Industries and Energy to Secretary to the Department of Defence. The answer indicates that the promotion and appointment of Public Service department heads is not the responsibility of the Minister for Defence . I suppose that is accurate as far as it goes. Is it true that a portfolio minister is invariably consulted in regard to appointments to agencies within their portfolio? Of course, this is also the case in relation to appointment as secretary to a department. That is just par for the course, isn't it?

Mr Tonkin —I could not give you a definitive answer. You said ministers are `invariably' consulted—I think that was the word you used. This would be a matter, I believe, which is in the purview of the Department of the Prime Minister and Cabinet. My inference would be that it would be coordinated in that way.

Senator FAULKNER —Isn't it true that Minister McLachlan formally met with Mr Barratt before he was appointed as secretary?

Mr Tonkin —I do not know the answer to that question. We could endeavour to find out.

Senator FAULKNER —I believe it is the case but if you would take it on notice, I would appreciate that. I also ask whether you are aware that Minister McLachlan knew that Mr Barratt was supported for the position by both the Prime Minister and the Secretary to the Department of the Prime Minister and Cabinet .

Mr Tonkin —Again, I will take that on notice.

Senator FAULKNER —Thank you. Isn't it true that the then Minister for Defence indicated to the Secretary to the Department of the Prime Minister and Cabinet that he was happy for Mr Barratt's appointment to proceed?

Mr Tonkin —I will take it on notice.

Senator FAULKNER —I ask those questions in the context of the response to my question No 16—the rather inadequate response that promotion and appointment of Public Service departmental heads is not the responsibility of the Minister for Defence. I asked a question, No 17 on page 5 of the booklet, about what the minister did to ensure that relations between himself and the department and the ADF were not damaged in any way by the unfortunate leaking of this newspaper story. The response was:

Communication between Ministers and their Departments and advice provided ... has ... been treated as confidential.

Hence an answer could not be provided. I thought that was drawing a long bow here, given the leaking that had taken place. Sometimes, genuinely enough, things fall into the category of confidential, but when something has been splashed on the front page of a major national daily newspaper it is a long bow. So can I receive an assurance at this committee that the minister was not involved, was not an integral part of the leaking process?

Mr Tonkin —I do not think that is something that the officers at the table can assist you with.

Senator FAULKNER —Perhaps the minister could assist me with that one.

Senator Newman —I am not in a position to give you that response. I can refer your question to the minister.

Senator FAULKNER —I thought you would provide a much firmer answer than that, Senator Newman. I am interested in your response and I will take that issue no further. I move to question 18 on page 6 of the compilation. I asked whether the minister or the minister's office contacted the Department of Defence to try and stop a staff briefing on the reform of the defence headquarters. The response I received indicated the minister was not aware of briefings or meetings being either postponed or delayed. Can I be assured that there was no attempt by the minister or the minister's office to draw out the time frame for holding such a staff briefing on the reform of the defence headquarters?

Mr Tonkin —Senator, as I believe I answered on the record at the last hearings, I was not aware of it—in fact, I was surprised at the question itself. There was a program to do the briefing on the establishment of the headquarters, which took place on the timetable that we had proposed.

Senator FAULKNER —So I can be assured that there was not some sort of filibuster or delaying mechanism put in place by the minister, specifically designed to hold up such a briefing until after the departure of the former secretary, Mr Barratt?

Mr Tonkin —Given that I thought that the briefing was undertaken—we were there—Mr Barratt was there at the briefing.

Senator FAULKNER —Yes, that is right. The tactic was actually stopped, wasn't it, because the secretary booked the National Convention Centre. And there was a deposit paid, wasn't there?

Mr Tonkin —There would have been in the normal course of events, I presume, a deposit paid.

Senator FAULKNER —There was. In the normal course of events, even though they were not very normal events, a deposit was paid.

Mr Tonkin —As I say, Senator, to the best of my knowledge there was no attempt, direction or anything else by the minister to not proceed with that briefing or with the arrangements which that briefing addressed.

Senator FAULKNER —Isn't it true that the minister's agreement was not secured on this particular matter until the last day before the deposit at the National Convention Centre would have been forfeited?

Mr Tonkin —You are asking about very specific timing. I will have to take that on notice.

Senator FAULKNER —Thank you very much. I will leave the questions in response. They are the only questions I have arising out of the questions on notice. I look forward to the answers.

Mr Roche —I have a response to one of Senator Faulkner's earlier questions to Air Vice Marshal Conroy about AEW&C. He has given me the timetable for the source selection board and notification to the minister. The source selection board for AEW&C met on 23 June 1999, and again on 16 July 1999. It was scheduled as a two-day consideration. The delegate notified the minister on 19 July 1999. The minister noted the selection on 20 July 1999. The selection was announced by media release and press conference on 21 July 1999.

Senator FAULKNER —So this went to the minister on 19 July?

Mr Roche —Yes.

Senator FAULKNER —Do we know what time?

Mr Roche —I am afraid our filing system is not as precise as that.

Senator FAULKNER —How did it get there? This seems to be an amazingly quick turnaround. What I am interested in here is the level of ministerial scrutiny. What is the value of this particular project for Defence? An expenditure of how much money?

Air Vice Marshal Conroy —In excess of $2 billion, Senator. We have not conducted contract negotiations yet. Our position is in excess of $2 billion.

Senator FAULKNER —But we are talking billions?

Air Vice Marshal Conroy —Yes.

Senator FAULKNER —A couple of billion. I do not want you to be any more specific than that. We are talking about a couple of billion dollars. This hits the minister's desk on 19 July—this is why I am asking what time of day. I am really interested to hear how much consideration Minister Moore gives to $2 billion projects.

Mr Roche —I will let Air Vice Marshal Conroy respond to that, Senator, but I would have to say that as far as I am concerned, now being responsible for the Defence Acquisition Organisation, that I would consider myself derelict in my duty if the first the minister heard of a $2 billion contract was the recommendation of the source selection board. I would intend to keep him fully briefed on the progress of that project, and there are a number of projects where we are providing him right now with reporting. I would hope that what he got on 19 or 20 July was no surprise.

Senator FAULKNER —When did the source selection process end?

Mr Roche —On 16 July.

Senator FAULKNER —On 16 July. Can we have confirmed whether there were any briefings on this issue for the minister between 16 July and 19 July?

Mr Roche —The point I am making, and again I will ask Air Vice Marshal Conroy to respond, is that there should have been briefings before that on the way in which the outcome was coming. These things do not emerge suddenly in a blinding flash of light on one day.

Senator FAULKNER —No, but the point is, Mr Roche, you were not there, and I appreciate that, but let me assure you that everybody knows this was turned around in a matter of hours. The minister could not have read, probably, let alone seriously considered, such an important $2 billion submission. That is the point I am making. It is a political point, I suppose, in one sense, and the dates that have been provided to me confirm it, but the reason I ask for times here is because I actually want to nail down how many minutes the minister had this submission for the expenditure of $2 billion in front of him and how quickly he was able to move and how thorough were his assessment and examination of the matters before him. That is why I have actually on this occasion been so petty. I am not normally petty but on this occasion I was petty and I asked for the actual time of the transmission of the submission. This was done by fax, was it not?

Air Vice Marshal Conroy —That might be a question you could direct to the minister's office, on when the correspondence was received, Senator. A session of briefings were held with the minister on the issues, on the characteristics of the various contenders—without breaching the confidentiality of the tender evaluation process—on our risk management strategies and how we planned to handle risks in this particular process, because that is a concern for everyone. So a series of briefings had been held well before the source selection event.

Senator FAULKNER —Anyway, let us be clear on the timetable. Can you tell me what happened on 19 July?

Air Vice Marshal Conroy —A ministerial submission was sent from the secretary of the department to the minister asking him to note the source selection.

Senator FAULKNER —How did that go? Did that go by hand, or was that faxed? All I am asking for is the method of communication.

Air Vice Marshal Conroy —It was passed from the secretary's office to the minister's office.

Senator FAULKNER —Yes, but how? It wasn't by carrier pigeon, obviously. You are not sure of that, Mr Tonkin?

Mr Tonkin —It is an extra methodology we should explore!

Senator FAULKNER —I am not necessarily suggesting it. It might get off the ground earlier than the AEW&Cs, though!

Mr Roche —Senator, we understand what you are seeking and we will see if the files reflect the timing of it. We will take it on notice and provide you with an answer.

Senator FAULKNER —On 19 July the ministerial submission went from the secretary to the minister, the minister ticked off on this by 20 July, and the public announcement is 21 July.

Air Vice Marshal Conroy —Yes, we have a document that has the minister's signature on it dated 20 July. The precise minute at which he signed it would be something that perhaps his staff might know, but not us.

Senator FAULKNER —I understand the point you are making, Air Vice-Marshal, and it is not an unreasonable point. But on this one I think there might be a facsimile record, which means that we can really nail it down. I really would like to know how much attention Mr Moore gave to this important submission. I am sure Australians would be relieved to know that he dealt with a $2 billion project in just something less than 24 hours.

Senator Newman —After weeks and months of briefings.

Senator FAULKNER —We will go to that, the number of briefings, Minister.This one, I promise you, we will explore.

Senator Newman —Oh, that will be thrilling.

Senator FAULKNER —We will find out how much the minister did know about it. And I think, Minister, even you will be appalled by the lack of attention to detail that we have got here. But in the first instance, Minister, you might flag with Minister Moore that I intend to go through in some detail the background of the briefings he received in this because I intend to expose the lack of attention to detail of the minister on this issue. But on this one, Air Vice-Marshal, could you look at those times if the transmission was by fax. If you can assist us, I would appreciate it; if you can't, well, we will be addressing it at another meeting anyway. Thank you very much.

CHAIR —Dr Williams.

Dr Williams —Can I respond to a couple of matters that have been raised earlier and get those dealt with. There were a few outstanding points, Senator Hogg, that you raised. Turning to page 43 of the additional estimates document, you had a question about the two `Other' categories. First of all, if I could clarify the numbers. Essentially, what appears to be a significant drop in one and an increase in the other is simply a mapping exercise. In other words, we have shifted from one area to the other. So, there is not a significant actual shift, it is just a redefinition between the two. You will see that there is about a $31 million shift. In fact, the numbers are broadly cancelled. The actual real variations are quite small. The items included in there are a range of things such as rental income from some properties, et cetera, and some cost recovery proceeds from the UN. It is those kinds of activities that are picked up in those `Other' columns. As I say, in that case there has not actually been a real variation of any significance at all.

You also raised a question on page 45 about a figure here. We have `Other loans' that have risen from $318,000 up to $12 million. It is about the middle of page 45. Essentially, it would appear that the budget estimate did not properly cater for what should have been included. If you go back to the financial statements for the previous year in the Defence report, the figure there was of the order of $12 million. So, in that case the variation is merely the additional estimates picking up the figure that should have been included at the start of the year and was not properly catered for.

Senator HOGG —Thanks very much. I would like to turn now to pages 14, 15, 16 and 17. I do not want to spend too much time on this because I have a number of other issues that obviously we have not even started to address yet. Looking at table 1.6 and then at table 1.7, table 1.6 describes a change to the specialist military equipment from $3,030.9 million to $2,274.7 million. That is a drop of $756.2 million. Yet when one looks at the deferred projects, I presume they come under that category of specialist military equipment. There is a drop of 378.7, which leaves 377.5.

Dr Williams —Senator, that was picked up in the explanation earlier that there are a couple of elements. The other significant component of the amount that you see in table 1.6 is the figure I quoted of $330 million or thereabouts, which has been shifted. It was previously classified as specialist military equipment but is now classified as inventory. You can see that reflected in the financial statements. If you go to the cash flow statement on page 35, you can see there that the figure for inventory has risen from 649 to 982, which is essentially a reclassification. That is for inventory under cash used.

Senator HOGG —Yes.

Dr Williams —That is a reclassification. Part of the drop that you see under specialist military equipment in table 1.6 is simply a reclassification. There are a few small variations but the balance of it is largely what you see in table 1.7, which is what I referred to before as the drop in the white book expenditure.

Senator HOGG —That is the $330 million that has come out of capital equipment and gone into the general budget.

Dr Williams —Yes.

Senator HOGG —If that $330 million is a reclassification, what is it a reclassification of?

Dr Williams —Items of inventory-

Senator HOGG —Such as? What were the items? Give me an example of an item of inventory.

Dr Williams —They are things like ammunition, for example. It is a range of small items.

Senator HOGG —Can you take that on notice and give me a break-up of what that $330 million is?

Dr Williams —We could certainly give you a description of what it would be. It would largely be support command items: spares and ammunition—a range of things of that nature. There is a range of items, largely consumable spares of a range of sorts across support command, but we can give you a break-up if you want.

Senator HOGG —If you could give me a break-up of that $330 million that would be very helpful indeed. Before I proceed to some further questions, I know Senator Faulkner has just one further question.

Senator FAULKNER —Then I promise to leave. This is a question I asked in Department of the Prime Minister and Cabinet estimates also. I wondered, since we last met as an estimates committee, whether you would be able to give us any more information about the costs to the department in relation to Mr Barratt's removal. There may have been no change but I wanted to ask that on my way out the door.

Mr Tonkin —I do not believe there has been any change since last we met. That is my understanding. No-one rushing forward to correct me would indicate that my understanding is probably correct.

Senator HOGG —So you will give us a breakdown of that $330 million. Can I just go back to table 1.7 so I can understand that? That is the total of the amount that has been taken out of capital expenditure, is that correct? Are they the only projects or are there other projects as well that are not listed? In other words, have we only seen the big ticket items?

Dr Williams —Mr Roche might be able to give more detail, but my understanding was that this was prepared as a representative amount and presumably that would be managed through the year. I would defer to Mr Roche on that.

Mr Roche —Those project numbers are representative; they are not necessarily what the financial outcome will be. A considerable amount of movement goes on with all projects during the year.

Senator HOGG —I accept that. I am just trying to nail down the figure of $378.7 million. I am wondering if the figures you have there are indicative of those projects and those projects alone, and there are no other projects. What I am interested in is that we have the top 20 projects listed, and then I presume—I have not counted the number here -

Mr Roche —I myself have not actually checked whether it adds -

Senator HOGG —I am not worried about that at the moment. I am just worried about what it applies to. The Anzac ship project, the new submarines, all of these things are then listed. This is where I had a difficulty in trying to figure out what the actual variations in the programs are. If you get out the PBS and read the descriptions in it, and you read the descriptions of what you have there, it seems that some people have played nicely with the computer screen in front of them and tried to do a cut and paste job which, at the end of the day, does not make a terrible amount of sense. It does not necessarily explain what impact the various reductions that are listed in table 1.7 will have on the various projects. The description statements that appear, commencing with the Anzac ship project at page 14 and going through to the end at page 17, do very little to identify what the variations are, the cost of the variations and how the variations to those projects will be dealt with in the forthcoming year. I can go through and give you my fairly detailed analysis, project by project, but I thought you might have some shorthand version at your disposal which would overcome the need to do that.

Mr Roche —I regret that I do not have a shorthand version.

Senator HOGG —I regret that you do not have one, too.

Mr Tonkin —I think it is a valid criticism.

Mr Roche —It is. Your criticism is valid.

Senator HOGG —I am glad my criticism is valid. It makes very difficult reading when we are dealing with such big dollars.

Air Marshal Riding —If you wish, we can pursue each one of those projects and have the appropriate officer come in and give you an encapsulated version of what the implications of that are. We can do that.

Senator HOGG —Air Marshal, rather than doing that, can we do two things. Firstly, would you take my question on notice and give me a dedicated response to the issue that I raised. Secondly, it would be advantageous if the officer in your department who is going to compile the response came to see me beforehand so that I could outline some of the difficulties, That might assist the officer in responding. It does not have to take a lengthy time, because I have already been through and made an analysis. If that can be done it will be very helpful.

Air Marshal Riding —That can be done. We will do it, Senator.

Senator HOGG —Have the savings been used as a contingency fund in some way?

Mr Tonkin —No.

Mr Watters —Contingency on capital projects is programmed at the end of the project.

Senator WEST —These savings are being used elsewhere though, aren't they?

Mr Tonkin —In the broader defence budget.

Mr Roche —That has already been discussed.

Senator WEST —That is almost like using it as a contingency fund, isn't it?

Mr Tonkin —No. Contingency is there for a defined reason in a contract, for unforeseen and emergent issues. What we see here is what we see every year—the need to balance cost pressures within the two artificial bounds of the beginning and end of the financial year with ongoing activities. So essentially you have to adjust and juggle, if you like, to get the best outcome for the dollars you have got.

Senator WEST —Peter paying Paul.

Mr Tonkin —It is a matter of timing.

Senator WEST —Timing; I see.

Senator HOGG —You sound like a golfer.

Mr Tonkin —If you saw my golf, Senator, you would not think that.

Senator HOGG —That makes two of us. I return to table 1.6. In essence, what we have just discussed takes care of the specialist equipment. Land and buildings—there is a $180.9 million drop there. What is that brought about by?

Dr Williams —If I could return to your earlier question, I might be able to give you a bit of a break-up. Let me give you the following broad figures: if we look at our total inventories, I will give you the variation; we are looking at three categories. Explosive ordnance has increased by $183 million; fuel has increased by -

Senator HOGG —Explosive ordnance has increased by $183 million. Why is that?

Dr Williams —There were a range of actions during the year. One of the most significant was the increased readiness of 1 Brigade, so there was an increased rate of effort. What we are looking at here is largely a reclassification. So we are picking up what we referred to earlier—the $330 million. So, in a sense, a fair proportion of this is not a real effect; it is merely a reclassification. If I can run through the numbers, keeping them to the rounded million: explosive ordnance, $183 million; fuel, about $131 million; and the third category, general stores and spares, about $79 million. The total of that is $393 million. The major part of that is the effect that I referred to in terms of the reclassification that you pick up. But there will also be a slight variation because of things like the consumption. That also reflects variations in consumption during the year, because we are talking here of our net assets. So there is a difference between what we bought and what we have consumed. There is also an issue now in the additional estimates in that we are using as our opening balance the actuals from last year rather than estimated, so there could be slight shifts. But the major component of that would be this reclassification that I referred to.

Senator HOGG —All right. What about the -

Dr Williams —Getting on to your question on table 1.6, there are a few factors at play here. Let me see if I can run through them. You really need to look at the land and buildings and also the other equipment and infrastructure. If you total the two, you will find that the numbers are roughly the same. So in those two categories there has not been a significant shift. But there has been a shift between them. First of all, there was a real drop of $75 million, which I mentioned earlier in the green book. That is the major facility program. That contributes to part of the drop in land and buildings. There is also a reclassification, again as we are refining our accrual processes, so somewhere between $50 million and $100 million has been reclassified—previously classified as land and buildings, now as infrastructure. As you will appreciate, there is always some greyness in what constitutes the building and what is the infrastructure.

Senator HOGG —Could you give us on notice some idea of what has been reclassified, just so that we get a flavour of what is happening? Otherwise we are just seeing raw figures. I do not want to take up time today.

Dr Williams —We certainly need to take that one on notice to give you that level of detail. Another aspect is that we also have an expensing of items. In other words, if you have a project for major facilities some of the funds expended there will actually be on an asset, some of it will be on design work and other studies and the like which should be expensed rather than included on the capital budget here. Some of the effect in the drop under land and buildings is that we have expensed some of the items that were previously listed as being expenditure, so they will appear on the operating statement. You will then see the converse of some of that being reflected in the other equipment. As I say, the items reclassified shift in, and that is why you get an increase in the second item, the other equipment and infrastructure.

Senator HOGG —All right. If you can give me a bit more detail in that area that would be helpful indeed. The last one, software and other intangibles—whilst we are there we should not leave it out.

Dr Williams —Again, you will find that in preparing the budget some of the estimates, as we were moving into accruals, were somewhat approximate and we have refined some of it. Some of the opening balance issues have changed in terms of our assessments. We can give you a break-up of that.

Senator HOGG —All right. Accepting that general explanation, which I think is not unreasonable on this occasion, one could expect when we get to the next budget that we will not see, as I said earlier, the same swings and roundabouts. We will still see them, but not of the same magnitude.

Dr Williams —There should be, over time, a steadying of the defence budget, et cetera, as we get more adjusted to accruals and as assets and other things become more stable, but there would still continue to be some shifts. For example, if you look at our inventory, you would expect there always to be some obsolescent inventory, just by the nature of defence business; you would expect some reclassification in the value of assets. Given the value of military equipment being fairly dependent upon what else exists in the region, its value can shift fairly dramatically as new technologies come in. So there would continue to be some shifting, but one would hope it would become less over time.

Senator HOGG —My final question before I leave those pages 14 to 17: could I find out if there are any projects there that have been cancelled as a result?

Mr Roche —There has been some press speculation about this. The short answer is that no projects have been cancelled.

Senator HOGG —No projects have been cancelled at all?

Mr Roche —Yes.

Senator HOGG —So all of those projects there have gone to contract?

Mr Watters —No, there are some there that have not yet gone to contract.

Senator HOGG —That will be identified in the answer on notice that you people give me which shows the variations and why the variations took place?

Mr Watters —We can explain reasons why those variations have occurred, yes.

Senator HOGG —What is the total value currently of white book projects? Do we have that?

Mr Watters —In terms of annual spend, it is just over about $2.4 billion.

Senator HOGG —What about the pink book?

Mr Watters —The pink book ramps up from about $30 million next year to about $500 million by the end of the FYDP—in other words, there is a wedge of money there for new projects to commence.

Senator HOGG —There are a couple of other questions and then we will finish with this section. They relate to pages 18 to 21. I had the same difficulty looking at the descriptions on pages 18, 19 and 20 and trying to go from the PBS to work out where the variations were. Again, without taking the time this evening, it would be helpful if you could identify the variations in those various projects for me and what has caused the variations in the projects.

For example, again, someone did a cut and paste. I believe it was a poorly done cut and paste and some things might have been left in that should have not been left in and things that should have been included have not been included and so on. I am referring to the descriptions on page 18 which commence `Enoggera Army Barracks, Rationalisation of Catering Services—Brisbane, Queensland' and go to the top of page 19 which reads, `RAAF Colleges Development—Location to be Advised'. And if you start again at the bottom of the page, it reads, `Lavarack Barracks Redevelopment Stage 2—Townsville, Queensland', and go across to the bottom of page 20 which reads, 'Russell Redevelopment—Canberra, ACT'. And I do not include your office, Mr Tonkin. Could you give me the analysis of the variation there, rather than go through it. It might well be that going from the PBS—and this is the thing—some of the projects might have been completed. Some of them might well have slipped, but there is no indication that they have slipped. Perhaps that could be addressed as well.

The only other issue is that I understand that the secretary, in a speech last week, estimated the total cost of replacing major defence equipment or dealing with block obsolescence over the next 10 to 15 years will be in the order of $80 billion to $100 billion. Has the department undertaken any work that suggests that this figure is correct?

Air Marshal Riding —I cannot speak about the actual number that was quoted but it is fair to say that the ADF does face significant obsolescence problems over the next 20 to 25 years. There are going to be very significant capabilities that will need to be upgraded or enhanced by new technology and new systems, purely because the life of current systems is ageing. There is a very significant investment program required if the ADF is to maintain relevant capabilities into this century.

Senator HOGG —I accept that, but this was apparently the speech made last week by the secretary of the department using figures in the order of $80 billion to $100 billion. I do not think those figures have been used previously.

Mr Tonkin —Could you just give us a broader context for those figures; do you have a small slice of what he said there?

Senator HOGG —No, I do not have a small slice of what he said. I do not have that with me.

Mr Tonkin —You mentioned a period or something in your first statement.

Senator HOGG —Over the next 10 to 15 years.

Mr Tonkin —That we would have to incur that. We could check this but it might be that he is referring to the whole-of-life costs for the capabilities that we will have to enter into.

Air Marshal Riding —Alternatively, if you realise that we spend in the order of between $2.5 billion and $3 billion per year on major capital equipment, you are talking in the order of 25 to 30 years of expenditure.

Senator HOGG —Has the department actually undertaken any workload to try to pin down what the figure might be? I am not asking you -

Mr Tonkin —We do undertake extensive work on what our future capital program is, and included in that is the estimated future operating and personnel costs of those new capabilities coming into service. That is part of our long-term capability development replacement program which enables us to make those sorts of estimates to look at what is the life and type of existing pieces of equipment and then to predict the replacement time frame and cost. Some of these cost estimates are fairly ballpark in nature. If you are talking about replacement of an aircraft or something in 10 years time, you are talking in a band of costs which is driven by how the industry moves and by the nature of the capability you want to acquire. You are not going to get anywhere near splendid precision in this business, but we do active and detailed extensive work in this area.

Senator HOGG —Would it be fair to assume that, whilst there is nothing concrete in place, there is at least an approach as to how to deal with the huge problem of block obsolescence that is going to be coming in the future? Is there some sort of planning in stage?

Air Marshal Riding —One of the inevitabilities of operating military equipment is that it will become obsolescent. Depending on the upgrade process and the continuing maintenance process, the life of type and the planned withdrawal date of that equipment will vary. Some work was done a few years ago which indicated that a number of aircraft types, in particular, would run out of life in the 2015-2020 timeframe. I am talking here about the F111, the F18 and the P3. But that is a very broad, generalised assessments which varies depending on those factors which I just outlined. These things can be managed and are managed, and we work through a very rigorous planning process to manage the equipment so that we avoid block obsolescence where a number of types will become obsolete and require replacement at the same time. There are certainly pressures in that regard as far as our current equipment is concerned but, as I said, depending on continuing work, assessment of fatigue and assessment of the viability of the aircraft systems against possible threat, all of these factors will become firmer as time passes and we will be able to develop a program which is affordable.

Senator HOGG —Thank you. I have no further questions on the overview.

Dr Williams —I may be able to give you some more information on that question you asked in relation to Table 1.6. I have a little detail here and can give you a break-up. I will just run through the major contributors with regard to those three categories you asked about on page 14, the land and buildings, other equipment and infrastructure, and software and other intangibles. First of all, to confirm, land and buildings, the factors that caused the variation there are the $75 million that I referred to that we had taken out of the facilities major investment and the amount of $32 million -which I again referred to—which was for the capital items that should have been expensed. They now have gone as expenses rather than in the capital budget. The final balance was the reclassification of a range of items from land and buildings to other equipment and infrastructure.

Moving on then to other equipment and infrastructure, obviously part of it was that reclassification. The other components were then some funds that were incorrectly categorised into suppliers expenses in the information systems group. That was an amount of $43 million, and there were some funds that had previously been expensed that actually should have been under the capital budget which have been reversed.

The third category, software and other intangibles, essentially relates to a range of the information systems in Defence—particularly Project ROMAN, which supports our accrual budget management and in-year reporting; PMKEYS, which is our personnel management system; and DEFCARE. There was an amount of funds brought forward to move those along to try to improve our systems and to get more speedily into our accrual accounting processes.

Senator WEST —How much has this accrual accounting process cost you?

Dr Williams —Are you referring to Project ROMAN?

Senator WEST —How much has accrual accounting cost you.

Dr Williams —I think it would be difficult to come up with a single figure, because it is obviously part of the effort of the people in my division in an ongoing basis. People previously working on cash are now working on accruals, et cetera. On the particular system costs, for Project Roman we have a figure—for all phases—eventually building to about $40 million to provide a comprehensive information system. Part of that would have been required just to keep our financial management systems up to date anyway, and in doing that we can accommodate accruals. We have completed a couple of phases: phase 1 is largely complete and phase 2 is due to roll out shortly. That is roughly $10 million each.

Senator WEST —What about in staff time and overtime?

Dr Williams —The difficulty is in trying to isolate what is accrual accounting versus other work. We are doing business differently; there is really no simple way of tracking how much of a person's time was as a consequence of accrual accounting. It really is not a simple figure to provide.

Senator HOGG —That ends my questions but I understand Senator West has some questions.

Senator WEST —I have some general questions on East Timor. At page 7 we see some figures on the cost of the operation for this financial year and a couple of out years, with a breakdown for this year. Since this was published, has there been any alteration to those figures?

Dr Williams —At this stage the ad hoc appropriation has been set. We do not, as yet, have the final achievement for the rest of the year so we do not have a clear indication. At the moment we have some amounts that have already been reconciled—it is a relatively small amount of the total appropriation. We are reconciling on a monthly basis and will have a picture by the end of the year. Our view is that at this stage we do not expect to exceed the amount.

Senator WEST —At the last hearings we touched on breaking down those categories. Is it possible to give a more detailed breakdown than just the three categories that we have got?

Dr Williams —What sort of level of breakdown are you looking for, Senator?

Senator WEST —I do not want it down to the last dollar, but deployment, for example, covers a fairly wide range of things that you do. What is included in deployment?

Dr Williams —I can perhaps give you a bit of a break-up of the basis for the cost estimate. The figure was around $860 million, including capital use charge for the ad hoc appropriation. I will give you broad categories initially. Personnel costs were about $130 million of that—this is an estimate, of course—and operating costs, about $133 million. This is for force generation, I should emphasise. It brings our total force generation cost to $269 million. If I then go over to the deployment part of it: deployment costs for personnel were $248 million, deployment costs for operating were $226 million and the investment costs for deployment were $99 million. With capital use charges and other minor accrual adjustments, that brings up $590 million. Just summarising: the two components were force generation at $269 million to $270 million and the total deployment cost of $590 million.

Senator HOGG —Would you just go through those figures again.

Dr Williams —To start at the top: $860 million is the total, which is split into two buckets.

Senator HOGG —I understand that.

Dr Williams —Mobilisation is $270 million and there is $590 million for deployment. Within deployment, our estimate of the personnel costs was $248 million for personnel, $226 million for operating and about $100 million for investment, and there is then capital use charge and some accrued personnel entitlements making up the balance.

Senator WEST —I had capital use charge for those ones making it the complete $590 million. That adds up the figures somewhat better.

Dr Williams —Then, just confirming: on the force generation there is $129 million or $130 million, roughly, for personnel, $134 million for operating and again about $6 million for capital use charge and other accrued personnel expenses.

Senator WEST —Can you explain why the cost of the operation for East Timor increases to $1.066 billion in 2000-2001 when we are reducing our commitment?

Dr Williams —There are a few factors. One is that the force generation will take some time to build up. We are recruiting and increasing the numbers to build up to the 3,000 additional in Army and the additional Air Force number. That is one factor. The other is that there is a part year effect in the current year. It did not start on 1 July. The current year started a bit later. It is the fact that we are building up on the mobilisation side and the first few months of this financial year were not included.

Senator WEST —Do you think you can give us a breakdown of the costs of raising two new battalions and the extra RAAF personnel?

Dr Williams —Essentially that is what is reflected in the force generation costs that I gave you. The $270 million approximately is the amount there in the current year.

Senator WEST —That is all associated with the costs of raising the two new battalions.

Dr Williams —It is the expenditure estimated in the current year for all the force generation which is largely the battalions, the air force component and the equipment et cetera. Those are the additional costs for those activities.

Senator WEST —What have you budgeted for them for the out years.

Dr Williams —Let me see if I can give you a very broad estimate.

Senator WEST —Not too broad.

Dr Williams —I stress that the figures we have now were estimates initially. We will refine these as we come forward for the budget statements. But the figures at the moment that I have here for total force generation are: $470 million in 2001, $431 million in the following year of 01-02 and $376 million in 02-03. Clearly, as we move out it, that depends on the duration of the activity and whether this activity were to come to an end or we maintain it, for example. If we maintain those extra units that will be an ongoing cost.

Senator WEST —Do the costs of raising 1 Brigade in East Timor appear in the budget somewhere?

Dr Williams —You probably won't find that as a separate number.

Senator WEST —No. That was the problem I was having in getting this to add up.

Dr Williams —I will give you the numbers from memory and then I can check them for you. My recollection of the figures for the raising the readiness were about $240 million total cost. Again, trusting my memory -

Senator WEST —Well, rather than think and trust your memory, take it on notice.

Dr Williams —I will check the figures and get back to you. We will do that fairly shortly. You will see where I referred to some of the suppliers' expenses in the additional estimates that some of the increases there are a result of that activity. Whilst there is not a single figure identified, I can give you that. But it is reflected in the overall changes and shifts and suppliers' expenses, for example.

Senator WEST —I want to know what it cost to get 1 Brigade there and what it is going to cost it keep there?

Dr Williams —Let me go back. My understanding was you were referring to increased readiness of 1 Brigade. Are you referring to the cost of deploying the brigade to Timor?

Senator WEST —The first.

Dr Williams —There were two activities. Before Timor, there was a decision to raise the readiness of 1 Brigade. The costs I have just given you, and I will confirm those, relate to that. That was taken largely from a relocation of DRP savings. The second factor, the other figures I have given you on Timor for the deployment and for the force generation, are amounts specifically related to deployment of forces and the expansion of the force to deal with Timor. I can check the figures for you. We are talking about an estimate of about $238 million total cost. I think that figure was covered at the last supplementary hearing. The figure for the 1999-2000 year is about $135 million

Senator WEST —Can I ask what the figures for the East Timor operation costs in 2001-2002 and 2002-2003 are predicated on? Will Defence be supplemented for the cost of the operation in the budget in the out years?

Dr Williams —At this stage one of the issues for consideration in the coming budget is the supplementation for the current year and our estimates for forward estimates would seek to incorporate the flow-on beyond that. That would be an issue for government in the context of the next budget.

Senator WEST —I am interested in knowing what the costs are predicated on; how do you arrive at those?

Mr Tonkin —The estimates are based on a commitment to—I never get the abbreviation right—the United Nations event, the recruitment of 1,500 personnel.

Senator WEST —With respect to the final cost of raising 1st Brigade, I think you were going to give me those figures, or you have given me those figures. With respect to the ongoing costs to the budget of maintaining the brigade at the readiness level once it returns from East Timor, what are they going to be?

Dr Williams —I do not think we would have figures. Largely, the costs of increasing the readiness is in building up stocks, et cetera, and there is an initial cost.

Senator WEST —Maintenance of readiness.

Dr Williams —The maintenance of it would be, to some extent, lost, I would suggest, in the Timor costings and our general costings. It would be fairly difficult to get a simple isolation of that figure.

Senator WEST —So you are not going to be able to identify what the cost of maintenance of the increased readiness is?

Dr Williams —It would be difficult, I would suggest. We could try.

Senator WEST —Could you have a look at it, please. Has Defence been supplemented for the East Timor costs for this financial year yet?

Dr Williams —Yes.

Senator WEST —Do you have expectations as to what your supplementation for the costs of that operation will be in the financial year 2000-01?

Mr Tonkin —We have estimates, which will again go into the budget process, remembering that forward estimates are just that—estimates. The scale of it will be part of the budget process.

Senator WEST —What I am aiming at is: there is also the government's East Timor levy. I am wondering whether the amount that is raised from that will be adequate to cover your supplementation needs.

Mr Tonkin —That is a question that you ought to address to Treasury rather than to us.

Senator WEST —So you have no idea?

Mr Tonkin —We do not raise taxes, Senator.

Senator WEST —You spend them.

Senator HOGG —You get the money though.

Senator WEST —You get the money. Is it going to give you enough money?

Mr Tonkin —We have developed estimates of what the cost is and that is part of the budgetary process.

Senator WEST —The reason I am asking is that the Prime Minister stated last year that the defence budget would absorb the difference between the cost of the East Timor operation and what the levy raises. I am wanting to know what you think the difference is.

Dr Williams —The estimate I can give you at this stage, but subject obviously to further consideration, is of the order of $1 billion. Senator Hogg may have mentioned that figure for the next year.

Mr Tonkin —The estimate we have prepared is our estimate of what is the net additional cost to Defence for which Defence will be supplemented. That is our expectation.

Senator WEST —And will that supplementation just be the East Timor levy?

Mr Tonkin —Again, it is not a matter for Defence as to how that supplementation is funded by government. Our obligation is to define what the net additional cost is of the Timor deployment and the cost of maintaining the rotation of forces ,et cetera, and it begins and ends there. We calculate that number, in consultation with central agencies, and we are funded for it.

Senator WEST —If you do not get the supplementation that you need to cover your costs, where are the—

Mr Tonkin —That is purely speculative, Senator.

Senator WEST —Defence has not done any work on looking at where that might come from?

Mr Tonkin —No, we have not done any work as to how we would fund the cost of the Timor deployment if it was not funded because that is pure speculation.

Senator WEST —I am not speculating that you will not be funded, but I am not sure whether it will be funded to an adequate level. That is what I am trying to -

Mr Tonkin —Our best understanding is that the estimate that was developed in consultation with other departments is the net additional cost, and our expectation is that the Defence budget will be supplemented to that amount.

Senator WEST —Okay. How much was it?

Mr Tonkin —Whatever Dr Williams says it is for this year.

Dr Williams —The amount for the current year is $860 million. Our current estimate of the budget year 2000-2001 is around the $1 billion mark.

Senator WEST —Okay. Has there been any substantial loss of equipment, or equipment that has needed to be replaced because it was not up to scratch for this operation?

Mr Tonkin —We will find the relevant command authority.

CHAIR —While that is going on, and to save time, I have a letter here to Mr Prescott from Minister Moore dated 29 October, a letter given for tabling by Mr Roche. It is so ordered.

Major Gen. Keating —Your questions were: what has been happening on the equipment front? Are there any damages? Are there things that need to be replaced? How would that be undertaken.

Senator WEST —I am wanting to know if there has been a substantial loss of equipment. I want to know if there is any equipment that needs to be replaced because it was not up to scratch for the needs of the East Timor operation. I would like a list and an indicative cost.

Major Gen. Keating —That is a pretty big question, as you would understand. Let me make a few remarks which may help you. Certainly, some equipment has been subjected to stresses in East Timor that are going to increase the wear and tear on it. Even a simple thing like cleaning some of the equipment that we are bringing back from East Timor is subjecting that equipment to wear and tear which will necessitate it being refurbished when it gets back to Australia.

Senator WEST —Is that because the equipment is not up to scratch, or it is just general wear and tear because of the use.

Major Gen. Keating —It is essentially because of the wear and tear that the equipment has been put to. And particularly in the quarantine process where we are needing to clean the equipment to the standard required by the quarantine authorities, we are finding that some equipment is being subjected to more than fair wear and tear in that process too.

Senator WEST —What is the quarantine process they are requiring you to undertake.

Major Gen. Keating —It is a very thorough cleaning process. Apparently, in East Timor there is just about every sort of undesirable thing that we don't want to come back to Australia. That necessitates a lengthy and thorough cleaning of everything using high pressure hoses, scrubbing, and replacing things that might already be impregnated with nasties. For example, there are the rubber seals. Even high pressure hosing takes paint off vehicles, those sorts of things.

Senator WEST —Have you worked out what that type of quarantine compliance is going to cost? It is obviously an unexpected cost.

Major Gen. Keating —We have some idea for some of the types of equipment, yes.

Senator WEST —Was there a substantial loss of equipment up there.

Major Gen. Keating —Loss as in not being able to find it again?

Senator WEST —Yes, not being able to find it, and going completely US and having to be ditched.

Major Gen. Keating —No. There have been a couple of items lost that I am aware of, but we haven't lost anything in particular.

Senator WEST —Will there be equipment that needs to be replaced because of this, because of the additional stresses and strains that it was required to undertake.

Major Gen. Keating —I think the answer to that is yes.

Senator WEST —Do you have any idea at this stage what that equipment is?

Major Gen. Keating —We have a rough idea. To take an example, if we talk about vehicles and the extra wear and tear that has been put on the vehicles because of, firstly, the service and, secondly, the cleaning regime to get it back, when these vehicles get back to Australia we are going to have to have a refurbishment process to put all those seals and door seals and paint and whatever back on the vehicle before they reach the standards we want.

Senator WEST —That is what I am trying to get a handle on. With respect to that additional work and finance that may well be required to get equipment back to full operating capacity, is that work and finance that you would not have expected to have had to expend? I am trying to get some idea of what it entails and what the actual money side of it is as well.

Major Gen. Keating —I think that is why I raised the question of the cleaning regime, because obviously we have a refurbishment process for all sorts of equipment, even if it remains in Australia.

Senator WEST —You might like to take that on notice and come back with some more details.

Air Marshal Riding —As the units return to Australia, they will be doing a full assessment of what is needed to be done. They will make rectification bids through the budgetary process to have that equipment rectified. It will come through in the normal process. We would not be able to give you anything as a response to a question on notice for a few months at least because of the fact that this process has to be gone through by the units concerned.

Senator HOGG —Would you be able to provide it at the supplementary estimates in May?

Air Marshal Riding —Probably not, Senator. The troops will be going on at least a month's leave when they get home, maybe two months leave. We are not expecting the units to be reconstituted until a May-June time frame. We can give you what we have in May but I am not sure that the task will be complete.

Senator WEST —And we will be back here in early June.

Senator HOGG —Can you take it on notice then that if you can supply it to us in May, you will. We understand the explanation that you have just given us. If you are not in the position to do it, then it will be at the earliest possible time available to you. Can I go back to a question which Senator West was asking before about the figure for next year, $1.066 billion. I understand the levy is going to raise $900 million, according to what the Prime Minister says. Where is the difference between the $1.066 billion and the $900 million coming from?

Dr Williams —Again, I go back to Mr Tonkin's comments: the issue of where the money comes from is not really a Defence issue. We have put forward our estimate, and we are continuing to refine the figures to put to government -

Senator HOGG —But I understood that it was Defence's responsibility to find that money out of your own budget. Is that not the case?

Mr Tonkin —The additional cost directly related to Timor, the deployment force sustainment, is what we are being supplemented for.

Senator HOGG —For next year, the forward year, not this year. I understand this year has been supplemented. I understand the Timor levy is going to raise about $900 million, and the figure here is $1.066 billion. I am just trying to find out—

Dr Williams —The issue is for government in terms of its funding and it will be looked at in the budget. We will put forward the estimate and my assumption has been that it would not be limited purely to the levy—that the government would look at that supplementation as an issue. So from our point of view, it is not a matter that I can really comment on.

Senator HOGG —I understand that the Prime Minister has said in parliament that Defence would have to absorb the cost that is not covered by the moneys raised by the East Timor levy, for example—and I have been through the figures. So you are saying Defence does not have to absorb the difference?

Dr Williams —At this stage Defence is putting forward to government its submission based on what our current estimates are. Our assumption is that will be treated in toto. I was not aware there was a particular distinction between the source of funds. But that is an issue for the government.

Senator HOGG —So the Prime Minister was saying you will have to absorb, and you are hoping beyond all hope to succeed when you put a submission in that says, `We don't have to absorb. Please supplement us and make up that difference'? There is a difference of view. Is that it?

Air Marshal Riding —I think we should take that question on notice.

Senator HOGG —All right, would you take that question on notice. An early response to that would clarify that position for us and would be most welcome. Thank you very much.

CHAIR —Before we break, could I just report progress. I understand we have finished portfolio overview and major corporate issues. I thank the department for being so helpful and quick today in proceeding to that area.

CHAIR —Thank you.

Group 2—Navy

CHAIR —I welcome the Chief of the Navy. Are there any questions?

Senator HOGG —Perhaps Dr Williams will be able to respond to this. It is a comment that goes to most of the tables. I will just quote you an example: 3.3.2 and the explanations that follow. I have found some difficulty in trying to relate the comments that followed back to the tables, back to the front of the book. There seems to be no relationship to what appears up front.

Dr Williams —Perhaps I could comment and then hand over to my colleagues who might be able to give some of the details. The comment I would make that applies to all of these output tables is that they are really dominated, by and large, by the overall effects that I outlined before, which is a shift from capital into personnel, largely, and some suppliers. On top of that, there is a range of adjustments we have made to our attribution rules which are not real effects, but just shifting. There is also the impact of the revised opening balance. As I said before, when the budget was prepared, it was based on an opening balance. It was an estimate because it was before the end of the year. In the additional estimates we have revised our opening balance. So you get things like depreciation and other amounts that can be quite different. The difficulty, I guess, in looking at the presentation is that, by the time you put all of those factors together and attribute to outputs, the dominant factors are these global effects. I suspect that the best thing is perhaps to get the output managers to comment on any particular variations that are unique to that output. I just make the comment that the rest of the changes are largely these broad overriding factors.

Senator HOGG —I do not know what the answer is myself at this stage. I just raise it as a-

Vice Adm. Shackleton —Do you want to go through this table, for instance?

Senator HOGG —No, I do not want to go through any particular table at length. It is just that I wanted to make a general comment that I had difficulties in looking at the explanation for the variation to the output 3 price, plus $28 million, and then trying to relate that back to other parts of the PAES. That was the difficulty. It is to get a consolidated view, and that is using the parts in isolation. That is the difficulty. It may mean a lot to the individual groups or the individual outputs, but when you are looking at it from where I sit, you have some difficulty interpreting the data.

Dr Williams —If I can make an observation, one of the difficulties is that an attempt has been made in the explanations to try to account for the full variations, or at least reasonably close to it. The difficulty with that is that you get quite complicated accounting aspects. You get a repetition quite often from output to output. It may well be better to perhaps focus more up front on the broad issues and then comment here only on the particular variations that are real and unique to that output.

Senator HOGG —Yes, I think you may be getting close to the way in which to describe the difficulty that I am having.

Dr Williams —The issue then, of course, is that you would find that the variations would not account for the total differences in the table because most of them would be driven by the overall effects. But if that were treated adequately up front, perhaps that would be better.

Senator HOGG —Thanks very much. Moving on to specific questions, has the HMAS Perth already been decommissioned?

Vice Adm. Shackleton —It has.

Senator HOGG —When do the others end their service life?

Vice Adm. Shackleton —The Hobart will be decommissioned in May this year and Brisbane will be decommissioned next year—probably about the same time frame, but the exact month and day is yet to be determined.

Senator HOGG —Without holding you too much to a specific time, it will be May next year or thereabouts?

Vice Adm. Shackleton —Yes.

Senator HOGG —What does the Navy intend to do with those two vessels once they are decommissioned?

Vice Adm. Shackleton —With Brisbane, the last one, we have a process that we are going through to look at whether it would be appropriate to make it available to the Maritime Museum in Sydney.

Senator HOGG —That is the Brisbane?

Vice Adm. Shackleton —That is the Brisbane, and the Hobart will be disposed of in the normal course. I know that the City of Hobart is interested in taking the ship down there and using it as a museum. They have not actually made a formal approach yet, and the cost of doing that may make the city think about it.

Senator HOGG —Just what would be the cost, in ballpark figures?

Vice Adm. Shackleton —It is a bit hard to say, but the cost of restoration, the cost of maintenance and keeping it in good order would—and I really would not like to guess—but it would not be cheap. They would have to find a way to fund that.

Senator HOGG —It would exceed the -

Vice Adm. Shackleton —Scrap value?

Senator HOGG —Yes.

Vice Adm. Shackleton —Yes.

Senator HOGG —Thanks very much for those answers. In respect of the Kidd class destroyers, has the Navy sent personnel over to the US to investigate leasing or buying some of them, or have I asked that before?

Vice Adm. Shackleton —Yes, we looked at that last time. There are two parts to this. The Navy sent an exploratory team to the US.

Senator HOGG —Of how many?

Vice Adm. Shackleton —Of three people.

Senator HOGG —Who were they?

Vice Adm. Shackleton —That was the Deputy Chief of Navy, the Director-General Maritime Development and the Director-General Surplus Warfare Systems A. They took an exploratory look at those ships to decide whether those ships had any remaining life should Defence choose to move down a track where they were considered for acquisition. The outcome of that work was considered in the department and provided to the capability people, which is where the responsibility now lies for developing that as a concept. Fundamentally, I guess the government has three opportunities: one is to buy new ships, another is to buy second-hand ships and the other is to buy no ships at all. The reality is that that will all be considered in the context of the development of the white paper.

Senator HOGG —So you are saying to me that, whilst we had this group go over on an exploratory trip, they have come back, they have put together a report and that report has gone nowhere at this stage?

Vice Adm. Shackleton —It is an internal departmental report.

Senator HOGG —It is an internal departmental report. It has not gone to the minister's office?

Vice Adm. Shackleton —No.

Senator HOGG —And it will be the subject of further discussion within the department -

Vice Adm. Shackleton —Yes.

Senator HOGG —to determine then what the priorities of the department are before being sent on to the minister?

Vice Adm. Shackleton —Yes.

Senator HOGG —What did they actually do in the assessment? I think there were three vessels, were there not?

Vice Adm. Shackleton —There are four vessels in the class and they are all now retired and in a state of preservation with the US Navy.

Senator HOGG —I thought one, though, was not really a contender because of its state.

Vice Adm. Shackleton —One is certainly in a less good state than the other three.

Senator HOGG —That is why I said `three'.

Vice Adm. Shackleton —Yes. There are four ships, but three are really only -

Senator HOGG —Only three are really up for contention, as I understood it on the last occasion.

Vice Adm. Shackleton —Yes.

Senator HOGG —What did they actually do?

Vice Adm. Shackleton —They spoke with the appropriate authorities in the USN. They inspected the ships as best as they were able and they discussed issues associated with configuration changes to the ship should those ships be acquired by ourselves and essentially conducted an exploratory visit to establish whether we should consider that particular proposition any further at all. Our experience with the LPAs has taught us to be very cautious.

Senator HOGG —I was going to say I can understand that.

Vice Adm. Shackleton —I thought you might. We wanted to get a feel for what the rough order of cost might be should those ships be capable of being purchased by ourselves.

Senator HOGG —Is that rough order of cost available?

Vice Adm. Shackleton —It is very rough.

Senator HOGG —All right. I understand it is rough.

Air Marshal Riding —There is no costing yet. That will be determined from the study that we have currently under way in the capability staff that is looking at a range of options the department has to examine, flesh out and present to the minister in the context of the white paper and the future development of service to that fleet.

Vice Adm. Shackleton —That goes to underscore in part the process where exploratory work was done. It has been handed to Air Marshal Riding's staff who will now take carriage of this and integrate it with all the other work that has to be done in terms of preparing options and the consideration ultimately of the white paper and decisions to be taken on that.

Senator HOGG —What about the state of the three craft? Did they look at the state of all three craft? Did they consider getting the fourth?

Vice Adm. Shackleton —Yes, they did.

Senator HOGG —Is there any indication of the state of those three craft that they looked at?

Vice Adm. Shackleton —Yes, there is. The general view is that the ships are in quite good condition. The point I would make is that these ships were, in US terms, a tier 1 ship, which meant that money was spent on their maintenance and they were kept current for capability. Preservation of metal, decks, mechanicals, electronics and so on and so forth received some priority in the US.

Senator HOGG —Was an assessment made of the modifications that would be needed to make them operable within our Navy?

Vice Adm. Shackleton —Yes. There was an assessment that said if a decision was made to proceed with this—and I emphasise that there is no decision to proceed with it—we would like to bring the ships all to the same configuration for the purposes of maintenance, training and operation. Again, the orders of cost for that are highly approximate and at this stage would not be regarded as budget quality.

Senator HOGG —We will not see anything emerge on those three vessels until the white paper; is that right?

Air Marshal Riding —That is correct, Senator. The action that we have in train is a detailed examination of those ships. I might introduce Admiral Ritchie who is the head of capability systems and capability staff to indicate to you the scope of the study that he is currently undertaking.

Senator HOGG —Yes, that would be most interesting.

Rear Adm. Ritchie —The study is really in three parts. The first part is to argue the case for an air warfare capability in the Australian Defence Force in any case. As you rightly pointed out earlier, the DDGs paid off. That sort of capability is really no longer with us. We need to, in the context of the white paper, have a discussion as to whether Australia and the Australian Defence Force need to have an air warfare capability of this particular magnitude.

The second part of the study is to look at options for gaining that capability were it to be agreed in the context of the white paper that we needed it. We are looking at four options there. The first is the option of the Kidds, which you have addressed. The other three options are all new built ships which would be built in this country to designs that are currently under construction in three European countries—the Netherlands, Spain and Germany. The third part of the study is to investigate the anti-ship missile defence upgrade that becomes necessary in the existing Anzac class of ship as a result of the decision not to proceed with the war fighting improvement program, which we dealt with last time this committee met.

Senator HOGG —Just refresh my memory. What is the life of these if we do purchase them?

Rear Adm. Ritchie —They are 18 years old now. We expect that we could extend their service life to about 40 years. By the time we get them, you could end up with 20 years more service.

Senator HOGG —What is the time delay from a decision to their actual delivery?

Rear Adm. Ritchie —The earliest we could possibly get them would be in about 2002.

Senator HOGG —I have one further question on this. What was the cost of the trip for the officials of the defence department to go? You can take that on notice if you do not have it.

Vice Adm. Shackleton —It was the cost of a couple of plane tickets and accommodation.

Senator HOGG —All right. If you can give me the costing details. One would assume that that was approved by the minister.

Vice Adm. Shackleton —No. Those travels were in my delegation to approve, and that is what I did.

Senator HOGG —Excellent. Thank you.

Senator QUIRKE —As I understand it, you are looking at three of the Kidd class destroyers. What sort of ballpark figure are we looking at?

Air Marshal Riding —We are unable at this stage to provide a meaningful figure against the cost of those ships. We have this study under way to look at the condition of them and what it would take to bring them to a fit-to-fight standard to sail away. Until we have done that study, we cannot put a number on it. I would be very reluctant to hazard a guess at this stage. That is why we are doing the study—to find out what the implications are of this particular option so it can be stacked up against other options.

Senator QUIRKE —These ships have all been mothballed for some years. Is that right?

Vice Adm. Shackleton —No. The last one was retired from service in September last year. The two others that are in reasonable condition were retired between one and three years prior to that.

Senator QUIRKE —So these things are somewhat similar to the USS Ingersoll that was paid off by the United States Navy about a year or two ago?

Vice Adm. Shackleton —Yes. They're a large hull with a double end twin rail missile launcher, a pretty advanced combat system and radar suite and digital sonars. It carries two helicopters. It has a considerable command and control capability, and it has significant potential for further growth.

Senator QUIRKE —And about 10,000 tonne.

Vice Adm. Shackleton —They are about 9,500 tonne, yes.

Senator HOGG —I now move on to the Fremantle patrol boats. At the last estimates hearing it was indicated that the life of type extension had been postponed while private financing options for replacing the fleet were being assessed. Has that been progressed any further?

Air Marshal Riding —That is still being progressed, Senator. Defence Acquisitions has carriage of that project. Mr Roche can address the exact state of play there.

Mr Roche —A decision has not been taken to proceed with the new building or not to proceed with the life of type extension on the existing Fremantles. We are currently in the process of developing an appropriate RFT.

Senator HOGG —When would you expect the RFT to go out?

Mr Roche —Within the next two months.

Senator HOGG —I do not want the date down to 19 February or something.

Mr Roche —It is in the final stages of development.

Senator HOGG —So there is a replacement in the wings for this?

Mr Roche —Yes.

Senator HOGG —In respect of the current operations, what is the cost of running the patrol boats? Can you give us a current figure on that? Can you provide a breakdown of personnel costs, running costs and the costs of maintaining the patrol boat bases and so on? Do you have a breakdown of costings?

Mr Wallace —The costs for operating the patrol boats is summarised on page 60. It is the revised price under output 4. Admittedly, it brings in all of the departmental overheads attributable to this output action, as they are to all outputs. In a sense, that summarises the full costs of the organisation's efforts in supporting the activities of the patrol boats. For the specific patrol boat crew numbers and things of that sort, I would have to get extra detail, and I am not sure how much you are after.

Senator HOGG —I am after a breakdown of the personnel costs, running costs and the cost of maintaining the patrol boat bases and so on. You can take it on notice.

Vice Adm. Shackleton —There is an average number that we can find.

Senator HOGG —For the operational costs, yes.

Vice Adm. Shackleton —We will take that on notice.

Senator HOGG —That is what I said. Take it on notice. I am quite happy for you to do that. How many personnel are serving as part of the patrol boat force?

Vice Adm. Shackleton —We would have to check that. It varies on a daily basis. Are you talking about the average yearly number?

Senator HOGG —Yes.

Vice Adm. Shackleton —We will have to get back to you.

Senator HOGG —I understand. Apart from coastal surveillance, what defence or military tasks does the patrol boat force undertake?

Vice Adm. Shackleton —We send patrol boats as far away as the Philippines. They participate in exercises in the South China Sea and the South-East Asian arena. They undertake surveillance operations as far away as the Solomons, Vanuatu and the like, and they provide support activities to major fleet units in training exercises and so on. They do representational work. They are part of defence's commitment to participation in regional influence and getting together with our neighbours. They do more than the illegal immigration program.

Senator HOGG —On page 60 of the additional estimates statements, there is an explanation of a variation to output 4. The first dot point talks about increases in the price of this output. There was a revaluation of the Fremantle class boats, up $9 million. How did that occur? I was surprised, because when I looked at the PBS last time I noted that it was stated that the age of these vessels and their systems is degrading their operational effectiveness against increasingly sophisticated peace time threats and is affecting their maintenance and reliability. I do not want to use words to characterise how one would normally think of something in that state, but to find it gets upgraded by $9 million -

Mr Wallace —The $9 million is a variation in the depreciation provision, which is a reflection of the fact that they have been revalued upwards. This is simply part of the revaluation on a three-yearly cycle of the defence assets. The 15 patrol boats had a change in overall net value from $54 million to $72 million, and the revaluation process takes a range of factors into account, including changes in technology, the amount you might have to outlay to acquire a vessel of similar capability and general material state. That is the product of that valuation process. You reset the starting point every three years under the current defence revaluation approach. From time to time those values are reset so that you can then start the depreciation clock again.

Senator HOGG —Thank you for that. I understand that. I wish to return to the life of these patrol boats. It seems that there will be no life extension.

Vice Adm. Shackleton —That is correct.

Senator HOGG —When will their life come to an end?

Vice Adm. Shackleton —We are talking about these ships retiring between later this year and about 2004. But we will manage that in accordance with the availability of spares and the ability of the boats to continue to run.

Senator HOGG —Would some of those that would have been retired early be given an extension of life by a refit to keep them operational?

Vice Adm. Shackleton —Our normal maintenance cycle will keep those boats running. The lifetime extension was designed with the intention of literally extending their life.

Senator HOGG —That would have been a major extension?

Vice Adm. Shackleton —Yes.

Senator HOGG —So will additional costs be incurred?

Vice Adm. Shackleton —These boats will be operated with their normal maintenance costs. We would not be expecting to expend additional funds over and above those for the purposes of doing any extra special maintenance for the purpose of extending their lives.

Senator WEST —Without doing any special maintenance you can extend their life? You have said that the life of the first ones would be expired at the end of this year. What, with normal maintenance, will be their life expectancy?

Vice Adm. Shackleton —It is difficult to be finite. If you continue to maintain the boats and they do not suffer catastrophic failure, you can make them run on for a time until you reach that point. We get to the stage at which the cost of maintenance starts to overtake the real value of the boat in terms of what it is doing. It will be geared to the introduction into service of the replacement craft that we are talking about.

Senator WEST —You said that you were not going to undertake any additional maintenance; you were just going to keep doing their routine maintenance?

Vice Adm. Shackleton —That would be the intention.

Senator WEST —That is the intention, but you may on occasions have to do extensive maintenance to keep it going?

Vice Adm. Shackleton —It would depend upon the nature of the issue.

Senator WEST —How long do you think you can keep them going for?

Vice Adm. Shackleton —I could say, `How long is a piece of string?', but that would not give you the answer. It depends on the life of the diesels, the propeller shafts and the mechanical parts of the boat. These boats are not particularly sophisticated in terms of their operation. They could continue to go for a reasonable period. I could say three years, but it could be four. We will have to judge it and take care of these things to make sure that we get maximum life and value for money from them.

Senator WEST —I am trying to find out how you will keep them going until you have the replacements up and running and how much that will cost you.

Vice Adm. Shackleton —That would cost the normal maintenance fees. We would continue to provide the normal maintenance for these boats. That will continue until the boat either suffers a catastrophic failure, at which time it does not become worth our time and effort to repair it, or until the new boats are available.

Senator QUIRKE —Will part of this regime of extending the life of the boats involve simply withdrawing them progressively from service and not using them as much?

Vice Adm. Shackleton —It could be, but not necessarily. It depends upon their rates of effort and operational requirements.

Air Marshal Riding —I was just making the point that the Fremantles that they are currently running, if we were going to do a life of type extension, would have to be kept running while they were serially life extended, and our view is that the provision of the new vessels in lieu of a life of type extension will see the new boat in the water at about the same time as we would see a life of type extended. So the boats were going to have to be kept going anyway. They are suffering from the old-equipment syndrome of increasing maintenance as they approach the end of their life, but that was what we were going to have to deal with anyway, regardless of which solution we follow.

Mr Roche —The current estimate is for the lead boat to be delivered in mid-2002 and then for the remaining boats to follow quite quickly.

Vice Adm. Shackleton —So we would gear the departure of the old ones so as to have a phased uptake of the new ones.

Senator HOGG —Without trying to get into too much detail of the new, are we looking at a replacement from within Australia for the new vessel, or are we looking at a range of options outside of Australia as well?

Mr Roche —We are looking at a wide range of options, but I think that you would have to say that Australian industry would likely be very, very competitive on this one, and we have identified a number of potential tenderers already.

Vice Adm. Shackleton —You asked some questions earlier about the cost of the patrol boats. Would this be a good time for me to tell you what we have found out?

Senator HOGG —Yes, as good a time as any.

Vice Adm. Shackleton —The cost of output 4, as you can see in the budget estimate, was $252.7.million. That is made up of a capital usage charge of $27.5 million; personnel cost of $26.2 million; a cost to the Navy of $112 million; cost to the support command of the Navy, $28.6 million; training of $1.5 million; defence acquisition organisation of $1.2 million; science and technology, $1.7 million; defence estate of $14.7 million; corporate information of $4.2 million; and corporate support, $32.8 million.

Senator HOGG —Is that break-up available for other outputs as well? Dr Williams?

Dr Williams —We could give you some break-up by outputs.

Senator HOGG —Like that? Not now, but -

Dr Williams —If you go to page 12 of the summary, it depends how much more you want than that.

Senator HOGG —Right, yes, I am with you now. Last year, Admiral Shackleton announced that the Navy would be undergoing significant structural reforms. Could you please inform the committee of what the structure will be, when and how it will be implemented and when it will be completed by?

Vice Adm. Shackleton —The Navy will commence, and in some respects has already commenced, changing to a new structural design, and it will commence formally on 13 March this year. All organisational structures are to be in place by 1 July, which matches up with the financial year's budgetary requirements, and I would expect a significant element of our change program to be well advanced by the end of this calendar year.

The changes to the Navy are that we will form an organisation called Systems Command, which will incorporate personnel and training, naval systems—that is, software systems and hardware systems—certification and safety, and a C4I element, which is focused on engineering and operational support of our in-service C4I systems. Coupled with that, there will be seven force element groups created, and six of these already exist in one form or another, but their form, function, responsibilities and structure will be much more formalised than it was in the past. Support Commander Australia and Support Command Navy will not undergo any organisational change, but the lines of responsibility of the class logistics organisation within Support Command Navy will be modified to make those class logistics officers responsible to the force element groups.

The force element group managers will be responsible to myself for capability management and capability development activities, and they will be responsible simultaneously to the maritime commander for the delivery of capability which meets his operational needs, and, at the same time, the Navy training command will be absorbed into the systems command.

Senator HOGG —What made the restructure necessary, what will be the benefits and what is the cost to the Navy?

Vice Adm. Shackleton —The cost first. We intend to deal with this in the normal posting cycle. We intend to make any changes to where our people are located part of the normal movement cycle that the Navy goes through. We are doing that for several reasons. One is to keep the costs within our normal operating cost profile, and, secondly, to try to minimise the disruption on people who will need to move from one organisation to another. I also wanted to make use of existing IT infrastructure and existing facilities. So I think that the costs are quite manageable within our existing allocations.

Senator HOGG —Do you have a figure on the costs?

Vice Adm. Shackleton —As I say, I am going to do that within the existing posting cycle, so I am not expecting to pay any more money than I am paying at the moment. The reason for doing this is that we analysed the Navy from the perspective of running the Navy as a system, and we found, when we did that assessment—we thought there were better ways of doing this. We also felt that we needed to improve the way in which we connected up authority, accountability and responsibility and achieve the role clarity that you need to have in a complex organisation where, at times, responsibility and authority can become diffuse, and we thought there were opportunities to put that back in place in a way that was more clearly identifiable to other people.

There was also the importance of using this as a catalyst to review the whole way that the Navy goes about doing its business, to take advantage of the talents that we have in our people, to give them a better chance to be able to use them, and for the Navy to gain the benefit from it. So it is predominantly based around the alignment of authority, accountability and responsibility. The force element groups are on line in relation to my responsibilities for defence outputs, and the encapsulating organisations cocoon that structure in a way that makes it all come together.

Senator HOGG —Who was responsible for coming up with the structure, and who will manage the implementation of the structure, and how long will it take?

Vice Adm. Shackleton —The process started essentially on the day that I took command of the Navy. I brought about 100 people together to talk about the Navy and its future. The outcome of that weekend was to put together a team of about five people who had a mandate to bring a proposal for a redesign of the Navy back to myself and my senior staff in October last year. They were to go and talk to all members in the Navy, or as many as they could find who had a chance to talk to them; they were to talk to Army and Air Force; they were to talk to private enterprise and gain an understanding of what is best practice in terms of a large, complex organisation which is highly dependent upon technology and people and, obviously, operates from a limited resource base. That was brought back to me and my admirals in October. We had to negotiate and discuss and make some compromises to what was being proposed by the team. That outcome was shared with about 250 people from all across the Navy from some of the most junior to the most senior. More work was done that weekend to reshape it. I then put a proposition through the defence executive to the CDF and the secretary and, through those, to the minister, who endorsed this in December. I made the public announcement of this reshaping in December at the naval symposium. We are now reaching the end of a deliberate cooling-off period where the people who I am going to make responsible for implementing this have been working at it. We will be regrouping as a group of senior leaders Wednesday, Thursday, Friday next week with the intention of clarifying any outstanding issues, making sure that everybody understands what is required and making sure that we all understand that this is a team effort and not the efforts of one individual.

In terms of oversight of implementation—I have a project team in place which will look at all the activities of this particular change program. I am conscious that change programs often fail because they are not oversighted and deliverables are not insisted upon. We are going to redefine the time scales for when things need to be done by, and we will allocate the who by what by when as a consequence of that final workshop that we will hold next week.

Senator HOGG —Just broadly, who is in the project team?

Vice Adm. Shackleton —There is a captain, a commander, a warrant officer and a lieutenant commander. But there are people in different parts of the organisation who have their own responsibilities to ensure that their own organisations are in harmony and synchronised with where the rest of the Navy is trying to go. So people who operate and work in the different parts of their own organisations will be held accountable by me for bringing their organisation into line with where the Navy is going.

Senator HOGG —Just as a matter of interest, how does this restructure fit in with the Defence reform program?

Vice Adm. Shackleton —Actually, I think it suits it quite well, because the Defence reform program introduced the notion more clearly of defence outputs. It introduced the notion of groups with responsibilities. One of those things that is a distinct intention of this Navy change is to provide greater opportunities for interaction by Navy with those groups to ensure that Navy understands what they can do for it and where Navy needs to be served better by those other groups, for instance.

Senator HOGG —When budget estimates are on, we will not be in a position to get a full report by that stage of its implementation, will we?

Vice Adm. Shackleton —Certainly we will have to make some changes to the group reporting processes and structures, and we will try to do the best we can to show where we started from and where we are going to get to. And as Mr Tonkin says, we will not have got very far by then. So yes, we will probably have to talk about it a lot.

Senator HOGG —So when we get to budget estimates, there will be a need for a bit of a detailed explanation?

Vice Adm. Shackleton —I would certainly hope we give progress reports, yes.

Senator HOGG —Thanks. Next is the Jervis Bay. What are the annual costs of the Jervis Bay?

Mr Wallace —The charter costs are $11.2 million per annum. One-off modification costs are approximately $430,000 for the catamaran.

Senator HOGG —Does the Navy have any intention of purchasing outright the vessel at the end of the lease?

Vice Adm. Shackleton —Not at this stage.

Senator HOGG —When does the lease end?

Vice Adm. Shackleton —It is a two-year lease. So that will be May next year, I think.

Senator HOGG —At what stage would Navy need to make a decision? What is the sort of lead time there?

Vice Adm. Shackleton —I think we would have to go into some consideration as to what the operational requirement was. By then Manoora will have completed sea trials and be fully operational, and we will have to assess where the Kanimbla is in terms of her interim refit time, and we will have to look and see what the operational circumstances are as to whether we would want to continue or extend with that. It would also depend, I suppose, upon the way in which the operation in East Timor evolves. It provides an excellent service of a high-speed heavy lift or medium lift ferry. And we would have to decide, as a consequence of all of that, whether we wanted to extend it, or not.

Senator CALVERT —Have you had any inquiries or interest from other nations' navies about your experiences with the Jervis Bay?

Vice Adm. Shackleton —Yes, we have. In fact, I think it was Monday this week when there was a US delegation in Tasmania looking at Incat and talking to them about the various aspects of catamaran operations. There is a particular senior officer in the US Navy who has a charter to think about different things, and he has a view of using catamarans in a more, can I say, warlike manner. That is a highly exploratory process. But there are clearly options, just looking at the way Incat intends to develop those ships. For instance, by taking out the diesels and replacing them with gas turbines you can make the ship go 70 knots, which is very reasonable. And if you have to go long distances and you want to carry a lot of freight, then that is a pretty significant capability.

So I think my view is that we have not finished learning about what this particular ship can do yet, and I think our notion would be that if we can find a way of exploiting it further, we will.

Senator CALVERT —Are you satisfied with the operation so far and what you want to do and what you want to achieve?

Vice Adm. Shackleton —Yes. It has definitely been worth the money.

Senator CALVERT —Was Navy and/or Air Force able to provide protection for that fast moving vessel when it was going to East Timor?

Vice Adm. Shackleton —Certainly it is very thin skinned. The hull and the superstructure would not stop any explosives or bullets, so you would not want to take that ship into a place where you had a significant threat without having significant protection of your own.

Senator CALVERT —Did the Jervis Bay have protection when it was going to Timor?

Vice Adm. Shackleton —Yes. Our ships were operating in the area, and we knew where the Jervis Bay was going to be, and we could route the ship where we chose to make sure that there was no threat from shore fire, for instance.

Senator CALVERT —One of the problems that seems to have surfaced with the commercial craft design has been the restriction placed on the sort of weather it can handle. Did the Jervis Bay, in its operations, encounter any large swells or rough weather that may have restricted its operation somewhat?

Vice Adm. Shackleton —Not that I am aware of; not that anybody has reported to me. I know that the people who drive it think it is terrific going out fast. And, of course, as you have seen in the pictures, it is quite an interesting looking ship. It makes people pay attention.

Senator CALVERT —I saw it being loaded in Darwin. I was quite interested in it.

Vice Adm. Shackleton —The thing that we have had to take note of, though, is that the deck on this particular one can only take a particular loading strength, and we have had to be very careful where we have asked Army to drive its trucks and trailers to make sure that we spread the load properly on the deck without damaging the cargo deck of the ship. But other than that, and building a ramp to allow the ship to unload shore to shore and ship to shore in Dili, the ship has worked perfectly fine.

Senator CALVERT —I guess everybody should be commended for the way in which they adapted a commercial vessel to that situation in such a quick time.

Vice Adm. Shackleton —And also, I think, the way that Incat were able to respond in the time that they did. Just going back to a previous question about extending the lease—we do have three options for that lease to either 12 or 24 months. We have a price in US dollars for that, because that is the way it works, and we need to give them 180 days' notice.

Senator WEST —The superstructure of the whole vessel is made of aluminium, is it not?

Vice Adm. Shackleton —Yes.

Senator WEST —Given what happened to the Sheffield off the Falklands, is that a concern?

Vice Adm. Shackleton —It certainly would be if you were going to operate these vessels in a place where you thought that you were going to take the kind of damage that Sheffield did. She was not built as a warship; she was built as a commercial ferry. So weight, hull strength, speed and endurance are pretty significant factors. They are built to different design standards than warships.

Senator WEST —But the support vessels that you would have to run with her—you said that you had support vessels there running into Dili.

Vice Adm. Shackleton —Yes.

Senator WEST —She can obviously go a hell of a lot faster than any of them, so that must provide you with some logistical problems in having your support vessel and protection vessel at all times with her?

Vice Adm. Shackleton —You may not choose to do it that way. You may rely upon the ship's speed, in fact, to avoid people who may wish to cause it harm. You may operate the ship in between a barrier of warships where the ferry effectively goes down the middle with the warships on the outside. There is more than one way to do this.

Senator WEST —But it is a major consideration, is it not?

Vice Adm. Shackleton —It would depend on your operational circumstances and the amount of risk that you were prepared to take. I might say that this would be an all-arms issue in terms of the Air Force and the Navy working together and, as you would expect, the Army, as we got a bit closer to the beach, would be interested too.

Senator QUIRKE —The $11.2 million lease—does that include all mechanical services and all the rest of it, or is that just simply the lease fee for the ships in?

Vice Adm. Shackleton —My advice is that there is maintenance of another quarter of a million.

Senator QUIRKE —A quarter of a million? And that is provided by Incat, is it?

Vice Adm. Shackleton —We are going to have to dock the ship in about April or May this year, I think—I am not quite sure whether we are going to do that yet—which is required under the lease arrangements with Incat.

Senator QUIRKE —You have been using it, as we saw, a fair bit with the deployment in East Timor. Has that made any difference to the lease arrangements?

Vice Adm. Shackleton —No.

CHAIR —Senator Hogg?

Senator HOGG —Just moving on to the Collins class—and we might be covering a little bit of ground that was covered earlier—can you give the committee an update with what is occurring with the Collins class submarines following the cabinet decision of last December?

Vice Adm. Shackleton —The Collins itself has had some augmentation equipment fitted. She has just finished with a battery change out. We will start trials shortly. We have taken delivery of a number of propellers—one American and one European—and we are trialing those to see what impact that makes on the signature of the vessel. We have fitted Collins with a number of different mechanical shapes, I guess you would call them, to improve water flow over the hull and we have seen a significant improvement in the performance of the diesels since we last spoke to this committee. So overall the program is moving ahead. We expect to get two submarines by the end of this year that will be operationally capable.

Senator HOGG —Aside from moneys that have been allocated to the upgrades of the two boats, is there an annual operating budget for the normal running costs that are being incurred with the boats being at sea and, if so, what is the amount?

Vice Adm. Shackleton —The amount would be within table 3.5.1, but recognising that a number of those costs would still be—and you will have the same trouble reading that table, I guess, as you had with the others—

Senator HOGG —I think with due respect to you, Dr Williams, in every table you look at it, it is just the same broad descriptors, and it is very hard to understand what is happening.

Mr Wallace —Perhaps if I could add some information for the senator? You were talking about the operation of the LPAs, I presume? Submarines. My apologies.

Senator HOGG —Submarines. I am just trying to find those that are in operation, if there is an operational budget for them, and just what that amount is. I cannot recall whether it has been in a PBS or in additional estimates that I have been able to find an operational budget for those submarines.

Vice Adm. Shackleton —The best break out that we could do at the moment is again on page 12, which shows you that overall for Output 5 there is a total of just over $1 billion broken up into the different elements. To break it down further than that would produce a pretty significant amount of information.

Senator HOGG —All right.

Vice Adm. Shackleton —The major operational component of that in terms of operating costs would be attributable to the Navy, which is at 459.7.

Senator HOGG —All right, if that is the major operational cost, can you give me some idea—if not now, take it on notice—what a break-up, a broad break-up, of that would be?

Vice Adm. Shackleton —Yes. I think you would find in the end that it is lumped into categories. We can see what we can do.

Senator HOGG —See what you can do. That is all I can ask.

Vice Adm. Shackleton —Okay.

Senator HOGG —Have the submarines that are operational been used in any operations or provided assistance in any operations to date? I am not asking you to divulge anything that might be—

Vice Adm. Shackleton —No. We have had two submarines participate in the fleet exercise Kakadu in the north, and those two submarines deployed to Singapore and participated in a local exercise area. They are still not ready for what we call real operations. So, no, they have not participated in those activities. We are planning to send a boat to RIMPAC later this year as part of the ongoing trials and assessment program, but what is important is to do this in a staged way that has a significant reality factor about how long some of these things take to get done.

Senator HOGG —When do you believe that they will be ready for real operations?

Vice Adm. Shackleton —We are working to the plan that says by the end of this year—

Senator HOGG —The end of this year?

Vice Adm. Shackleton —We will have two submarines that are capable of doing what the Oberons can do.

Senator HOGG —All right. If I can just skip through a few pages of the PAEs—the additional estimates—and take you to page 57, the second last dot point down the bottom of the page, `Decrease in price of this output includes' and the first dot point there, `Reduction to reflect a redirection in Support Command for ship repair activity to enable support for increased preparedness to Army (-$30m).' Can you tell me what that means?

Mr Wallace —You were discussing this earlier in the day with Mr Tonkin. This is in relation to the impacts in other areas of the budget from picking up the increased preparedness earlier in the year. That is essentially what that reflects.

Senator HOGG —So can we put that into simple English? Does it mean that money is being directed away from ship repair into increased preparedness for the Army?

Mr Wallace —That is correct, Senator.

Senator HOGG —So what ship would not be repaired as a result of that?

Vice Adm. Shackleton —That would be determined—

Senator HOGG —So there would be a ship that would be—

Mr Tonkin —Or could be aspects of a range of a vessel's maintenance. It is a reduction in the amount of money spent in support command on naval maintenance going to Army preparedness.

Senator HOGG —No, I accept all of that.

Mr Tonkin —It might not be a specific thing; it could be a range of adjustments that have been made.

Vice Adm. Shackleton —The information I have here says that there was a $3 million reduction to Anzac support, one and a half million reduction to DDG support, $8.5 million FFGs, $5 million from the Army's logistics organisation and $10 million in general material support across the Navy, which adds up to $28 million.

Senator HOGG —Thank you very much. If I can take you to page 62.

Vice Adm. Shackleton —While we are doing that, I have just been advised of the cost of submarines. Would it be appropriate to tell you what that is now?

Senator HOGG —Yes.

Vice Adm. Shackleton —I will read out the cost of the Collins class. Some $223 million is attributable to Navy; $515 million, capital uses charge; $52 million, Support Command, Navy; $1.2 million, training; $28.3 million, Personnel Executive; and $28.3 million, acquisition.

Senator HOGG —Sorry, what was that last one?

Vice Adm. Shackleton —There was $28.3 million for the Defence Acquisition Organisation; $21.8 million for science and technology; $19 million for the Defence Estate Organisation; $5 million for corporate information; and $12 million for Defence Corporate Support.

Senator HOGG —Thank you. Can I take you now to page 62? Just under table 3.5.1 there is an explanation. There are increases and decreases in the price of this output and there is a dot point referring to the Collins class submarine. The only difference is that the three words at the end change. That is the sort of notation that becomes very confusing. I draw to your attention the fact that, if there are changes such as that, those types of explanations do very little to assist people such as me in reading the PAES or the PBS.

Mr Tonkin —It would have been of more assistance if it stated: Collins class submarines accelerated depreciation, $36 million; Collins class submarines lower capital use charge, $15 million. The rest is just accounting type words. That is the best I can do.

Senator HOGG —We are filling a book with words. How many more trees are we going to chop down? Your guess is as good as mine. Can I take you to page 71 and Output 9? The second dot point at the top of the page states `management fees for the Landing Platform Amphibious (LPA) capability (+$11m)'. What are the fees for? Are those fees on top of extra fees that have already been paid? It seems to be a pretty hefty amount.

Vice Adm. Shackleton —These are management fees associated with the additional work being undertaken to bring the LPAs online for which the dockyard, Forgacs, has rendered a fee. Defence is discussing that fee, and the $11 million is the part that Defence believes it is accountable for.

Senator HOGG —What was the original fee?

Vice Adm. Shackleton —I think the original fee provided by Forgacs was in the order of $40 million.

Senator HOGG —Forty million dollars?

Vice Adm. Shackleton —That has been negotiated down to that figure which Defence believes is a reasonable number.

Senator HOGG —That seems to be a fairly extensive increase.

Vice Adm. Shackleton —It depends on how in some respects Forgacs has been doing its billing. It is related to the various increases and changes that we have seen in the LPA project. This is an outcome of all of that work.

Mr Wallace —This is the provision in this year for payments that would be made against that requirement.

Senator HOGG —Thank you very much. That finishes group 3, Navy, and outputs 3, 4, 5, 7, 8 and 9. It may be that, when I go through my notes, there are a couple of questions that I need to put on notice. There are some general questions for each program that I want to put on notice.

CHAIR —Would you like to identify them now?

Senator HOGG —They are the cost of implementing accrual accounting and the new tax system. I do not know whether that goes across individual outputs or whether it goes to Dr Williams.

Mr Tonkin —We will have a look at them.

Senator HOGG —You have a look at them. You will understand that we just want the answers. I will put those on notice. I warn you that there may be other questions that need to go on notice.

Senator CALVERT —I had a question that I thought I would be able to ask at about 3 o'clock this afternoon. I do not know whether it comes under output 3 or 7. You may recall that at the last estimates I raised the question of the Kidd class destroyers with you. What brought it home to me was that yesterday the Hobart was in Hobart. I believe my colleague Senator Hogg asked why it could not stay there. I think there is a proposal for a group of people called Bringing Hobart Home to jack it up, fill it up with cement and leave it there. How does the Vampire operate at Darling Harbour? Is it the Vampire on Darling Harbour?

Vice Adm. Shackleton —Yes, it is.

Senator CALVERT —Who keeps that afloat?

Vice Adm. Shackleton —That is maintained by the Maritime Museum. From what I am told, it is Australia's largest crowd drawing exhibit in terms of museums, which is not bad.

Senator CALVERT —I think that is what some people in Hobart thought they could do with the Hobart. I understand your comment is that that would not be a possibility financially.

Vice Adm. Shackleton —I have to admit that I am not totally across what we are going to do with the Hobart when she is decommissioned. We are obviously able and willing to explore issues. But the cost of taking a ship like that back to a position where you can allow the public to come on board is not inconsiderable. When we did this before with the Swan and the Derwent when we were considering this for Western Australia, the cost for a ship like that turned out to be quite expensive. It became more cost effective to make it a dive wreck.

Senator CALVERT —I am sure you would have had a request from Michael Hodgman and others about the vessel?

Vice Adm. Shackleton —Oh, yes.

Senator CALVERT —This brings to the fore the fact that the Perth is the only one of the DGGs left now or it will be, will it not?

Vice Adm. Shackleton —Brisbane will be the only one left after the Hobart.

Senator CALVERT —Sorry. I do not know whether you had a chance to see the article in the Asia-Pacific Defence Reporter last month by A. W. Grazebrook. He comments on the sorts of things that I mentioned last time. He comments on the fact that the Navy, and the Air Force to a certain extent, need air warfare destroyers or frigates capable of repelling air attack. With AWACs coming on board down the track, Australia must be capable of providing the protection that those sorts of slow-moving aircraft need. He concludes by saying that, with three years having been wasted, the matter is now urgent. Do you have an update on the thinking in Navy about perhaps replacing them with those three Kidds, plus one sick Kidd, destroyers?

Rear Adm. Ritchie —I think it goes back to earlier on when I tried to explain the way we are approaching the problem, when the question was asked about the studies. A. W. Grazebrook and all others aside, the first thing that the department has to do is make up its own mind about the need for an air warfare capability. Then it has to fit that particular need into the context of the white paper so that it can be discussed with government and either agreed or disagreed. Supposing that it is agreed, I think the next question is one of timing, and it is timing that might be dependent on the degree of threat that you feel and the amount of money you have. So the outcome of that might be: do you want to have this capability now or as soon as possible, or can you afford to wait a couple of years?

Senator CALVERT —It would be more than a couple of years, wouldn't it, surely?

Rear Adm. Ritchie —It would be five or six years, yes, and I think that the answer to that question dictates whether you go with a second-hand ship, such as the Kidd, or whether you do a new build, such as the three European models that I spoke of earlier. So I think that is the sort of thought process you have to go through. First of all, you have to decide, in the context of the white paper: do we need and can we afford this capability? Having made that sort of decision at government level, you then decide, well, when do we want it? How long can we afford to wait for it? You then look at the options that you have to fulfil either the near-term or the medium-term, if you like, requirement.

Senator CALVERT —I am sorry I did not hear your explanation of the European model. Is that something that is on the drawing boards or something that is built?

Rear Adm. Ritchie —They are on the drawing board, the three Europeans, yes. They are more than on the drawing board; they are on the stocks.

Senator CALVERT —At least with the Kidds, you know that they work, don't you?

Rear Adm. Ritchie —I know that they used to work, yes.

Senator CALVERT —Even though they are 20 years old, they can provide what you need, and given that our DDGs are going out, that sort of reduces your radar. Are there any proposals to move the radar from the DDGs onto something else to provide you with that outer protection that you need?

Rear Adm. Ritchie —No, there is no other platform in the RN that can take all the systems that are in the DDG.

Senator CALVERT —So there is going to be some sort of hiatus, isn't there?

Rear Adm. Ritchie —There is, but there is also the FFG upgrade program. The FFG fires the same missile that the DDG fires in their warfare environment. It is less capable in its command and control and its radar aspects. But it is not as if the capability is disappearing altogether, but it is a lesser capability than exists in the DDG.

Senator CALVERT —So just how serious is this capability of having air warfare destroyers? We talked about the AEW&Cs and being able to protect them and reducing the need for fighter aircraft and refuellers and all the things that go with it. Perhaps Air Marshal Riding will have an opinion on that.

Air Marshal Riding —The air warfare problem at sea is a very complex one, and the assets that we would put out to sea will be expensive. The ships are expensive, and the people we put in them are expensive, and the fuel we put in them, if they are tankers, make a big bang if they blow. There is a need to provide a layered defence capability against the air threat, if there is indeed an air threat. If you do not have a comprehensive capability to defend those ships, then it limits the options that you can provide for the employment of those ships under various different circumstances. What this study will do in part, in informing the white paper, is the degree to which the white paper drafting will propose to government what scale and scope we need in our service air warfare capabilities. It will be a combination variously of surveillance and control assets and weapons systems. That will, depending on the circumstances, involve Air Force, Navy and Army. So, as I said, it is a very complex question. The scale and scope of the capability that you have will dictate the options that you can provide under varying different threats that the government may choose to deal with.

Senator CALVERT —I have spent some time—something like since 1988—on the Public Works Committee. I am well aware that preparations have been made in the north of Australia, with the Army in particular, but even so, things happen quickly, and I think East Timor proves that you have to have a capability to move quickly. We heard that our Navy very quickly brought the Jervis Bay and provided something. I suppose you are looking for the best technology you can get, but both the over-horizon radar and the Collins class submarines have not been a roaring success; they have been rather expensive, and I just wonder: do we take the tried-and-true model in the interim before we start trying to go to something like the European model, the BMWs of the sea? They might be on the drawing boards or they might be in the water, but it has been put to me that this deal of the three Kidd class destroyers plus one for spare parts, with their radar capabilities and the ability they have to provide air warfare defence capabilities, and the fact that the Americans would probably bring it up to—is it 3A or 3? What are the Greeks doing? Have they decided to take up the option?

Vice Adm. Shackleton —No. The Greeks have now withdrawn their interest in these ships. I think the 3A you were talking about is maybe the spy radar version, which is on ships which are not the Kidds; it is on a different class of ships. The combat system in the Kidds has properties similar to those that are found in the Ticonderoga class and the other Aegis cruisers. I think the issue, though, really is, as Air Marshal Riding has said, we really have to find out what the options are and find out what the costs of those options might be and balance those against our strategic circumstances as we see them.

From my perspective as Chief of Navy, all I am really concerned about is the capability. There is no doubt that the DDGs have been very good ships for us, and it is not just the missile system that allows you to have what we call an air warfare capability; it is a very powerful 3D radar that allows you to conduct air space control to be able to provide precise information to fighter aircraft that the ship might be controlling in its own defence and in the defence of other people, for instance, or other units. So that is actually quite a significant capability, and the FFGs are, frankly, not as good as the DDGs are at doing that, and the Anzacs are certainly not that good. So I think this is in fact a timely point, I suppose, in the continuum of strategic development for us, because we have to consider this as part of where we go from here. AWACs will provide part of it, but probably not all of it. The fighters will provide part of it, but not all of it. It is the context of working in a joint force with predominantly Navy and Air Force to get the kind of combat results that we want, and it is that mix and match that becomes the overall driver of this.

Senator CALVERT —Where would the Kidd class destroyer fit in now if you were to cruise up Sydney Harbour next week? Would they slot into that overall scene that you are talking about?

Vice Adm. Shackleton —They would. Their technology is more advanced than what we have on the DDGs and FFGs, but it is not a generational change. We would have no difficulty operating that ship.

Senator CALVERT —You can operate them with fewer numbers than are currently on board, I believe.

Vice Adm. Shackleton —We think that there are ways of operating those ships with fewer people than the Americans do, but they are still, nonetheless, reasonably large in ships companies.

Senator CALVERT —Is it possible to give us a ballpark figure of the sort of money that it would cost for the option of taking the Kidds, or is that confidential?

Air Marshal Riding —No, we do not have that information. The team that is undertaking the study that Adm. Ritchie spoke of before will, as a result of their examination of the vessels, be able to come up with a pretty good estimate of the cost, but we—

Senator CALVERT —So it is certainly under active consideration.

Air Marshal Riding —It is under consideration as part of the study which is looking at the three options or four issues that Admiral Ritchie spoke of before.

Senator CALVERT —Thanks for that information. I appreciate it.

CHAIR —Thank you very much, Vice Admiral Shackleton. Thank you for being so patient. If there are no further questions for the Navy, I will call Lieutenant General. Hickling, the Chief of the Army.

[8.50 p.m.]

Group 3—Army

Senator WEST —While Lieutenant General. Hickling is coming, can I make a comment because I want to ask questions from the annual report. I am not sure whether my annual report is going to stand up till the end of tonight's estimates. Have you had complaints about the standard? I see that the admiral has his bound separately.

Mr Tonkin —There were some production deficiencies in some models.

Senator WEST —I think so, and I think the models that went to the Parliamentary Library were one.

CHAIR —Vice Admiral Shackleton, I would get out while the going is good!

Mr Tonkin —I am sure that I could probably find you one of mine which is in a similar condition.

Senator WEST —That is it. People have multiple copies because of the defects.

Mr Tonkin —We hope this was a one-off production failing.

Senator WEST —Could you just take on notice the registration of the complaint that it is falling to pieces. That is a complaint that the Library has had and a few other bodies such as that which actually do have to keep the things. We can pitch ours at the end of the year and find the material on your web site as we get more computer literate.

Mr Tonkin —You do not keep this for posterity?

Senator WEST —No, I am sorry, Mr Tonkin. I know it has disappointed you markedly.

Air Marshal Riding —We will send out the opening instructions also. There are techniques that you can use that we would be happy to pass on to the library.

Senator WEST —As I said earlier today, the KISS principle please—maybe not for the library, but certainly for us.

CHAIR —We are now dealing with outputs 10, 11, 12 and 15.

Senator WEST —I start at page 202 of the annual report, which talks about a combined arms training centre—the Special Forces Training Centre under the Army Aviation Training Centre having been established. Can you please provide the committee with a little more detail on the centres, their purpose and the costs in setting them up, please?

Lt Gen. Hickling —Certainly. I can give you a very brief description of their purpose. The intention was to reduce the number of training institutions being run by the Army to a sensible minimum to try to improve the efficiency of our training operation. Therefore, the combined arms training centre seeks to combine the activities of what used to be the Infantry School, the School of Artillery, the School of Military Engineering and the School of Armour. Those schools are in the process of being co-located at Puckapunyal in Victoria. They will be part of an ongoing attempt to derive efficiencies from the operation of our training centre. The Army Aviation Training Centre is slightly different. That just renames the Aviation School at Oakey. The school remains at Oakey and the training centre is simply a change of name, although ultimately the intention is to include the Australian Defence Force helicopter school with that school at Oakey to give it its name.

Senator WEST —Where is the Australian Defence Force helicopter school?

Lt Gen. Hickling —It is currently located at Fairbairn here in Canberra.

Senator WEST —Do they go down to Wagga at all?

Lt Gen. Hickling —They fly at Wagga occasionally, but they are actually based here in Canberra.

Senator WEST —So what about the Special Forces Training Centre?

Lt Gen. Hickling —The Special Forces Training Centre is intended to relieve the Special Air Services Regiment, which until recently conducted all of the individual training as well as the collective training for our special forces folk over in Western Australia. With the conversion of the 4th Battalion, Royal Australian Regiment in Holsworthy to a commando regiment which is an ongoing project, the individual training load has increased. So rather than burden the Special Air Services Regiment, which is a very busy unit, with additional individual training, we have established a special forces training centre at Singleton to do all of the basic training for the Special Air Services Regiment and the two commando regiments.

Senator WEST —What will happen to the training that is done over in Western Australia? Will it have any reduction in training?

Lt Gen. Hickling —There will be a reduction in training in Western Australia in terms of doing their basic introductory individual training, that is, converting them to SAS specialisations. Obviously, there will be ongoing training, which the unit has to do to maintain its level of readiness which, as I am sure you are aware, is very high.

Senator WEST —Staff implications?

Lt Gen. Hickling —I will take those on notice, if I may. We will get you the figures for the staff operating costs and the various other costs on notice, if we may.

Senator WEST —Thank you very much. Oakey is just a name change and at some later stage the Australian Defence Force helicopter training will go there?

Lt Gen. Hickling —That is the intention. We are looking at where to do all of that at present, but the intention is to co-locate the Australian Defence Force helicopter training and the helicopter training which is undertaken at Oakey so again we reduce the cost of operations to a sensible minimum.

Senator WEST —So the Australian Defence Force is a triservice thing, is it not?

Lt Gen. Hickling —Yes, it is. We actually train Navy and Army helicopter pilots—basic training—at the Australian Defence Force helicopter school.

Senator WEST —Any idea when that decision is going to be made?

Lt Gen. Hickling —No, but it will happen in the next year or so. It is under study at present. I cannot give you an exact date on that. I could find you one on notice if you want.

Senator WEST —Okay. I am thinking in terms of this budget or next budget. You can take it on notice.

Mr Tonkin —The decisions, as you would appreciate, for base relocations are ultimately matters for ministers and governments. So it is matter of the options being presented, the costs being reviewed, et cetera. So it would be speculative to predict which financial year.

Lt Gen. Hickling —It is very unlikely to be this one.

Senator WEST —On page 201 of the annual report there is an admission. It states:

... it should be noted that, in order to have sufficient resources to achieve directed joint and combined activities, it is sometimes necessary to reduce the standard of enabling exercises. This practice impacts negatively on the Army's ability to conduct effective land operations in the medium to long term.

That is just over halfway down that page. What exercises are being referred to here?

Lt Gen. Hickling —I will have to take the names of the exercises and the details on notice.

Senator WEST —I would like to know how many people were involved and from what unit.

Lt Gen. Hickling —Sure.

Senator WEST —I am interested in what you know to be the negative impacts in the medium and long term that you talk about.

Lt Gen. Hickling —Essentially, here we are talking about redirecting resources to high priority, high readiness activities which are necessary to support deployment, such as those to East Timor. In order to do that, of course, we have had to take resources away from other areas to enable that to happen because resources are finite. That is where the impact is felt. It is essentially in the lower readiness elements of the Army that we find the impact arising. In many cases that will be in reserve formations and units.

Senator WEST —Does that mean that their readiness levels actually decrease, or are they so low anyway that—

Lt Gen. Hickling —They are at a fairly low level of readiness in any case, but this certainly does not help us. The reserve does contribute to our operations, providing individuals in places such as Timor and Bougainville. They are there now. Obviously, the less training that those people get, the more difficult it is for us to train them up to the appropriate standard before they can be deployed. So you have to pay for it one way or the other, and that is the point that is being made in the report.

Senator WEST —Given the publicity in recent times and the talk of an added emphasis on increased use of reserves, this strikes me as somewhat eroding your efforts to get that level up to an area where you would actually be able to deploy them on more overseas, peacekeeping and perhaps interesting or active—

Lt Gen. Hickling —It has a number of negative impacts, but when you are faced with a short notice imperative, you have to redirect resources to where they are needed. This is not a decision that was taken lightly, let me assure you.

Senator WEST —How long will it take to correct that?

Lt Gen. Hickling —We have a remediation program in place. The speed at which we can achieve that will depend very much on the resources available to us.

Senator WEST —And that goes back to the supplementation of those issues that we talked about earlier?

Lt Gen. Hickling —That is true, yes.

Senator WEST —So you do have remedial action prepared but you do not have the resources?

Lt Gen. Hickling —We have already committed some resources to remediation of reserve units who had to contribute to the higher readiness required. Some of that is in place, but by no means does that mean all. To complete it, we will essentially be reliant on resource availability.

Senator WEST —Are you able to give some indication of how much you have been able to get so far to remedy the shortfall?

Mr Lush —I think it would be preferable to take that question on notice so we can more directly answer the question. I can quote some figures to you, but that might not be particularly helpful. On your earlier observation about exercises, I refer you to appendix D of the annual report, which is in the darker element in the middle of the book. Appendix D starts at page 58. It has a comprehensive list of exercises. Towards the end of that—in fact, on page 69—it talks about exercises cancelled or postponed. It is in that area that we have just been discussing the implications for readiness and so forth. We can answer that a little more specifically.

Senator WEST —This is obviously a 1 July cut-off date.

Mr Lush —That is right.

Senator WEST —We are now well over six months beyond this.

Mr Lush —Would you like us to address this financial year element?

Senator WEST —I would like details on what previously happened. I would also like to be brought up to date. I also want any information on the action that is being taken.

Mr Lush —Yes, we can do that.

Senator WEST —I am conscious of the time. Page 201 also says:

All Restructuring the Army trial activities will be completed by December 1999. The outcomes will be evaluated in early 2000 to develop recommendations for the outline structure, doctrine and range of capabilities required for the enhanced combat force.

Can you briefly outline for the committee what trials have been conducted under the RTA?

Lt Gen. Hickling —I can. Very briefly, we conducted a series of trials in the 1 Brigade last year culminating in Exercise Phoenix in Northern Australia. The focus of trials then shifted to a series of computer simulated war games which were conducted at Puckapunyal late last year in what was called a headline experiment. All of those trials and exercises were aimed at providing us with the outputs for our Restructuring the Army report which we intend to provide to the government in April this year.

Senator WEST —Have the RTA and other exercises then been affected by bringing the 1 Brigade to 28 days and also the raising of the two new battalions? Has the RTA been affected in any way by that?

Lt Gen. Hickling —We have had to adjust our plans for the RTA process, but that may have happened in any case, because the RTA process, as you are probably aware, was an outgrowth of the old Army in the 21st century, the A21 studies. It is evolving into a program of continuous modernisation which we have embarked upon. We think that the Army will have to continue to evolve well into the 21st century because the nature of warfare and the challenges facing us brought about by new technology will cause us to continue to evolve. We see the RTA process evolving into this continuous modernisation program which will be ongoing for some years. There have been changes, but some of those changes would have happened in any case as we learnt more about what it was we were doing.

Senator WEST —How much have you evolved away from the original RTA? Are you able to give a brief outline of the original concept of the RTA?

Lt Gen. Hickling —The original concept was the Army of the 21st century which called for a series of integrated task forces which would be designed specifically to operate around the north of Australia. Those task forces were, to a very large extent, designed for defensive and almost, I won't call it static, very much positional operations in defence of Australia. As we have evolved through the RTA trials process and the other trials we have been doing, we have moved towards a much more mobile construct. We think that the enhanced combat force we will field in about 2010 will be based around a series of brigade sized manoeuvre formations that will be capable of performing part of a joint task force to conduct operations both in Australia and offshore as required. So the focus is moving away. The detail of that should be in the RTA trials report which will be coming out in April.

Senator WEST —What has been the impact of this on 7 Task Force? Is it still called 7 Task Force?

Lt Gen. Hickling —No. I renamed it the 7th Brigade last year.

Senator WEST —It has had more name changes than—

Lt Gen. Hickling —It has. The 7th Brigade of course is a very old brigade. It has been around for many years. It underwent a short change of name from the 7th Brigade to the 7th Task Force. It is back to being called the 7th Brigade. That is because `task force' denotes a grouping of capabilities to undertake a particular mission. A brigade, on the other hand, connotes a formation of units who are more or less permanently commanded and grouped together. So the brigade gives a connotation of permanency, if you like, which is what I wanted to achieve.

Senator WEST —On page 202 it states:

Sustainability issues connected with the expansion of the Ready Deployment Force are still being analysed.

Are you able to provide us with any additional information on this topic or advise us when the analysis will be completed?

Lt Gen. Hickling —When we expanded the RDF, which was the business of bringing the 1st Brigade to 28 days notice to move, we did draw down on some of our stocks which were intended to provide for sustainability of operations. At the time that report was written, we were still coming to grips with precisely what this involved. The operation in East Timor of course has intervened since this report was written. I would say that that statement is probably still true today, because we are still, to some extent, analysing what the effects of that operation will be.

Senator WEST —From a different base?

Lt Gen. Hickling —Yes.

Senator WEST —Do you have any idea when that analysis is going to be completed?

Lt Gen. Hickling —It is ongoing. I am not sure we are ever going to reach an absolutely static position on it, but we are becoming better informed as we look into the problem.

Senator WEST —But at some stage you must keep looking at your analyses, making decisions and reacting to those analyses. You just do not keep analysing and taking no action.

Lt Gen. Hickling —Sustainment involves a good deal of risk management. We cannot afford to have everything we could conceivably need for, say, a long-term war fighting operation on hand all the time. As the situation changes, you try to adjust your sustainment stocks to reflect what you anticipate your needs to be. It is necessarily an ongoing and iterative process. At any one time your situation will change. I realise that I am not giving you a definitive answer. It is almost impossible to find a definitive answer to this question.

Senator WEST —I am interested to know what the sustainability issues were to get the deployment force expanded. I am also interested in knowing what the sustainability issues were that were associated with getting the boys and girls to East Timor and keeping the people in Bougainville as well. Maybe you can take that on notice.

Lt Gen. Hickling —I think we will give you a written response to that, if we may.

Senator WEST —Yes, that would be fine. I would like to turn to the common induction training and the quality of soldier it is turning out. I know that it incorporated both the initial recruit training and initial employment training in this sort of course previously, and it is common for reserves and permanents. Can you remind me how much shorter it is?

Lt Gen. Hickling —The original recruit course was in the order of 12 weeks or so. The existing recruit course is reduced to about 45 days; so six and a half weeks. We approached that problem very carefully, and almost none of the military training in the original 12-week course was removed. A large amount of time which had been devoted to extraneous activities has been taken out. They get less leave in the six and a half weeks than they used to get in the 12 weeks.

Senator WEST —They did not get much in 12 weeks.

Lt Gen. Hickling —They get less now.

Senator WEST —What are they getting now?

Lt Gen. Hickling —I cannot answer the question immediately. I can find out for you, if you want to know. They get some, but they do not get as much. And there was, for example, a duties week in the 12-week course, which meant they were basically doing duties around the camp—washing dishes and dixie bashing and so forth. They do not do that any more because it does not contribute to their military training. So there is very little in the way of direct military training which was removed from the longer course, and the course has been compressed considerably to make it 45 days long, because 45 days, we thought, was the maximum amount of time we could expect a reservist to devote to his recruit training, and it also was the minimum amount of time we thought we could get a training outcome from a full-time soldier.

Senator WEST —What feedback are you getting from units as to the quality of soldiers they are receiving under this system?

Lt Gen. Hickling —It is mixed. Some claim that the soldiers arrive with less experience; and that is true, because obviously the course is nowhere near as long. I am also having feedback from commanding officers that the people that they are getting are still of very high quality, very keen and well motivated. So I would have to say most of the feedback I have been getting is positive. I am talking here about the regular units. From the reserve units, almost universally the feedback has been that the product is a huge improvement on what was coming out of the previous 16-day course. And you would have to expect that to be true.

Senator WEST —Going from 16 to 45 days, I would hope there would be a big improvement.

Lt Gen. Hickling —That is exactly why we did it.

Senator WEST —Is the feedback that you are getting about the concerns in some units coming from particular branches of the army more than others? Some might have a longer period in their employment training, where they actually get a few more skills knocked into them and a bit more of the culture absorbed than in some other areas.

Lt Gen. Hickling —I would have to say I have not noticed a vast difference. I am pretty well hearing the same story across all corps of the army, but I would have to say that most of the feedback I am getting is very positive. The soldiers that they are getting as a result of the training system we are putting in place now are good soldiers. There is a good deal of conservatism in the army, of course, and particularly among our senior NCOs.

Senator WEST —We would never say that you are a conservative organisation, would we?

Lt Gen. Hickling —I do not think I can answer that question—not safely, anyway. But there is a good deal of conservatism, particularly among the more experienced soldiers and senior NCOs. And, naturally, they would view with some suspicion the product of a training system that is different from their own. But I think it is fair to say that we are winning those over as they see the result and product. And the result has been evident, because most of the young soldiers that you would have seen in East Timor one way or the other would have been products of this system.

Senator WEST —Were your East Timor contingents the ones who did the 45-day induction?

Lt Gen. Hickling —The junior soldiers would all have done the 45-day course. So probably the corporals and up would have been products of the previous course.

Senator WEST —So the lack of dixie bashing training has not affected their ability to actually maintain their readiness in terms of being able to undertake the preparation of their food and keeping a bed and eating utensils clean and hygienic?

Lt Gen. Hickling —Not noticeably.

Senator WEST —We have to have one bit of light relief for you. We notice that, in a 10 January edition of the Australian Defence Force News, the Army is requesting a supply of can openers for the next two years, with the option to extend the arrangement for a further 12-month period. Is that how they go about dixie bashing? Give them a can opener and some cans and send them out; is that it?

Lt Gen. Hickling —I might ask the support commander to address that particular issue to tell you what it is about.

Major Gen. Haddad —I am not familiar with that article, but I assume it is can openers for ration packs, as Mr Tonkin referred to.

Senator WEST —I can actually give you a CAT number, that is, CATR008/99. It is on page 2 of the Australian Defence Force News, a defence tender update, 10 January 2000.

Major Gen. Haddad —Thank you, Senator, but I still do not know what the facilities are.

Senator WEST —The closing date for the tender was 28 January, and Victoria Barracks in Melbourne were handling it.

Major Gen. Haddad —I would like to take that one on notice, if I may.

Senator WEST —You certainly may. We are interested to know the value of that and the average number of can openers that are used by the army. Is this like the condoms—when we asked the question about the supply of those? Is this for the whole of the Australian Defence Force or just army?

Major Gen. Haddad —These are for ration packs. There is one of these can openers in every ration pack—a one-day ration pack. Clearly, we have large numbers of those ration packs in our inventory.

Senator WEST —You have not gone to using ring-pulls?

Major Gen. Haddad —There are some ring-pull cans in the ration pack. But there are other cans that, because of preservation needs, are required to be opened with a can opener. So that comes as part of the kit issued to the soldier each day in this pack—and other members of the Defence Force who use army ration packs.

Senator WEST —So does Army do all of the ration packs, and you are the single service provider for the two other services?

Major Gen. Haddad —Yes. There is only one form of ration pack used by the Australian Defence Force, and army is a major user, but there is only one manager of that particular product.

Senator WEST —Thank you. I will leave that there. That is all I have for army. Thank you.

Group 4—Air Force

Senator WEST —I would like to ask Royal Australian Air Force to outline the extent of the impact of the recent refuelling problem.

Senator QUIRKE —I wonder if we could have the extent of the impact on the Royal Australian Air Force of the recent fuel contamination problems given to us.

Air Marshal McCormack —We had a couple of Caribou with a contractor who used some contaminated fuel. That meant that those engines had to be cleaned and set up again, but that was the only contact that we had with contaminated fuel.

Senator QUIRKE —What actions did the Royal Australian Air Force take to undertake to check the aircraft?

Air Marshal McCormack —We in fact stripped the engines down and made sure that there was no damage to it and then just put it back together and used proper fuel.

Senator QUIRKE —Did you have to put in new fuel lines and all of that?

Air Marshal McCormack —No, just cleaned them out.

Senator WEST —How does that affect the warranties that might be on your engines or parts of your engines?

Air Marshal McCormack —I do not believe it would affect it at all, because the contractor had done it; we had not done it.

Senator WEST —The contractor that maintains your—

Air Marshal McCormack —The contractor that maintains the engine had put the fuel in it. So it was his problem.

Senator QUIRKE —Where you got the fuel from?

Air Marshal McCormack —We didn't. As I said, they were at a contractor's plant, and he used it.

Senator QUIRKE —So there is no cost to the Royal Australian Air Force?

Air Marshal McCormack —Yes, in manpower, because we had to pull the engines off to strip them.

Senator QUIRKE —Can you tell us what those costs are? You might want to take that on notice. I do not know.

Air Marshal McCormack —It would be almost impossible because it was taken off in the field.

Senator QUIRKE —Presumably you will be knocking on Mobil's door, or are you joining the Slater and Gordon queue?

Air Marshal McCormack —I think that my approach would be that, with the amount of problem it was, it would be more of a problem to go and knock on Mobil's door than to actually worry about it.

Senator QUIRKE —You are probably right. I understand that the Royal Australian Air Force PC3 Orion fleet has decided to attack my home city of Adelaide. There was a recent episode when something dropped off one of the aircraft and demolished a kid's bedroom and a couple of things like that. I wonder if you could tell us what caused the accident and, indeed, what remedial work has been taken to make sure that my home city is not bombed again. You can do what you like with Victoria and Melbourne but leave Adelaide alone.

Air Marshal McCormack —Senator, one of the sonar buoys that was placed on the aircraft—and they are outside the pressure compartment -had broken clips that actually hold the sonar buoy in and as the aircraft went to height, the air that was trapped inside the section that the sonar buoy was in expanded and blew the sonar buoy out. It was, shall we say, a maintenance error but we have really looked at the processes now to make sure that it does not -

Senator QUIRKE —So that is actually kept in there with a vacuum?

Air Marshal McCormack —No, they have plastic clips that actually hold them in and the clip was broken and dropped out.

Senator QUIRKE —Has the family who suffered this damage been compensated? What was the cost of that?

Air Marshal McCormack —It cost us about $3,000 for a new bedroom suite plus fixing up the roof. We put them up in a hotel until things were fixed up and, in fact, they have been invited out to Edinburgh to have a short ride in a PC3 to see what it is really like.

Senator QUIRKE —I think that sounds lovely. Have there been any other incidents like this, or is this the only one?

Air Marshal McCormack —That is the only one that we have heard of.

Senator QUIRKE —On page 110 of the additional estimates portfolio budget statements, it shows that the Royal Australian Air Force will actually keep an extra 910 permanent forces compared to what was originally estimated in the budget. Does this figure include the extra 555 persons announced as part of the East Timor operation by the minister in late November of last year?

Air Marshal McCormack —No. The 555 are additional.

Senator QUIRKE —They are in addition to it?

Air Marshal McCormack —Yes.

Senator QUIRKE —What is the reason for the change in the estimates for the rest of the increased personnel?

Air Marshal McCormack —We forecast where we are going to be—and remember we are on a draw down—and depending on recruiting rates and exit rates, sometimes we just don't get it exactly right.

Senator QUIRKE —So what you are telling me is that this is a snapshot part of the way through the year.

Air Marshal McCormack —Yes.

Senator QUIRKE —There is an extra nine civilian positions based with the Royal Australian Air Force. I wonder if you could tell us a bit about that—what their levels are going to be and what duties they will undertake.

Mr Veitch —Senator, I have not got the exact detail here. I could get that for you but, essentially, what the increase in civilian staff relates to is the civilianisation program: as we civilianise some military positions, by necessity we increase the civilian personnel numbers. But I could get the classification numbers for you.

Senator QUIRKE —Turning now to the sale of the C130E aircraft, we noticed that there is a forecast gain of $19 million on the sale of this fleet of aircraft. I wonder if you can tell us who the potential buyers are?

Air Marshal McCormack —It was a trade-in with Lockheed.

Senator QUIRKE —That is what I thought.

Air Marshal McCormack —The manufacturer of the J model. As a trade-in we were going to trade seven back to Lockheed.

Senator QUIRKE —And how many are you selling?

Air Marshal McCormack —The seven.

Senator QUIRKE —All seven?

Air Marshal McCormack —The seven will go back to Lockheed and the other five will be used either as training aids or in museums, or things like that.

Senator QUIRKE —And when will this transaction be complete?

Air Marshal McCormack —We expect to start trading them back in about May this year.

Senator QUIRKE —Can you tell us if it is true that a group of Royal Australian Air Force personnel recently went to the United States to train at a fighter school but were unable to partake in the training because the fighter school did not have insurance coverage for them?

Air Marshal McCormack —I do not know anything about that.

Senator QUIRKE —I gather it is comprehensive insurance, not third party fire and theft, or whatever. So you do not know anything about that?

Air Marshal McCormack —No, I have not heard it.

Senator QUIRKE —It is a report that has come to us, so probably the best thing is that if anybody does know anything about it, let us know.

Air Marshal McCormack —I will take that on notice.

Senator QUIRKE —Yes, fine. That finishes the Air Force.

Air Marshal McCormack —Thank you.

CHAIR —No further questions for the chief of the Air Force. Thank you very much, Air Marshal. I call the Commander Australian Theatre, Command of Operations, Output 1, Air Vice Marshal Robert Treloar.

[9.28 p.m.]