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Foreign Affairs, Defence and Trade Legislation Committee


Senator Feeney, Parliamentary Secretary for Defence

Department of Defence

Mr Simon Lewis, PSM, Acting Secretary

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

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

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

Mr Brendan Sargeant, Deputy Secretary Strategy

MS Rachel Noble, First Assistant Secretary Ministerial and Executive Coordination and Communication

Air Vice Marshal Ian Smith, AM, Head Strategic Reform Organisation

Program 1.2—Navy Capabilities

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

Program 1.3—Army Capabilities

Lieutenant General David Morrison, AO, Chief of Army

Major General Angus Campbell, AM, Deputy Chief of Army

Program 1.4—Air Force Capabilities

Air Marshal Geoff Brown, AO, Chief of Air Force

Program 1.5—Intelligence Capabilities

Mr Steve Meekin—Deputy Secretary Intelligence and Security

Mr Frank Colley, Chief Security Officer

Program 1.6—Defence Support

Mr Steve Greskowiak, Acting Deputy Secretary Defence Support

Mr Mark Jenkin, Head Defence Support Operations

Mr Mark Cunliffe, PSM, Head Defence Legal

Mr John Owens, Head Infrastructure Division

Mr Mark Sweeney, Acting Head of Reform and Corporate Services

Program 1.7—Defence Science and Technology

Dr Alex Zelinsky, Chief Defence Scientist

Dr Warren Harch, Deputy Chief Defence Scientist (Information and Weapons Systems)

Program 1.8—Chief Information Officer

Mr Greg Farr, PSM, Chief Information Officer

Mr Matt Yannopoulos, Chief Technology Officer

Ms Lynwen Connick, First Assistant Secretary Information and Communications Technology Reform

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

Major General Michael Milford, Head Information and Communications Technology Operations

Mr Craig Pandy, First Assistant Secretary Human Resources Development

Program 1.9—Vice-Chief of the Defence Force

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

Air Vice-Marshal Kevin Paule, AM, Head Military Strategic Commitments

Brigadier David Creagh, Acting Commander Joint Logistics

Rear Admiral Robyn Walker, AM, Commander Joint Health Command

Air Vice-Marshal Neil Hart, Head Joint Capability Coordination

Commodore Bob Morrison, Deputy Head Cadet, Reserve and Employer Support Division

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

Program 1.10—Joint Operations Command

Program 1.11—Capability Development

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

Major General John Caligari, Head Capability Systems

Ms Rebecca Skinner, First Assistant Secretary Capability Investment and Resources

Program 1.12—Chief Finance Officer

Mr Phillip Prior, Chief Finance Officer

Mr Mike Gibson, First Assistant Secretary Resources and Analysis

Program 1.13—People Strategies and Policy

Ms Carmel McGregor, Deputy Secretary, Defence People Group

Major General Gerard Fogarty, AM, Head People Capability

Mr Richard Oliver, Head People Policy and Culture

Mr Neville Tomkins, First Assistant Secretary People Solutions

Mr Glenn Whatman, Acting Assistant Secretary Human Resources Shared Services

Program 1.14—Defence Force Superannuation Benefits

Program 1.15—Defence Force Superannuation Nominal Interest

Program 1.16—Housing Assistance

Program 1.17—Other administered items

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

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

Program 2.2—Operations supporting wider interests

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

Program 3.1—Defence contribution to national support tasks in Australia

Department of Defence—Defence Materiel Organisation

Mr Warren King, Chief Executive Officer, Defence Materiel Organisation

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

Ms Shireane McKinnie, PSM, General Manager Systems

Mr Andrew Cawley, Acting General Manager Programs

Mr David Gould, General Manager Submarines

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

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

Mr Peter Croser, Acting Program Manager, Air Warfare Destroyer

Mr Paddy Fitzpatrick, Program Manager, Amphibious Deployment and Sustainment

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

Air Vice Marshal Colin Thorne, AM, Head Aerospace Systems Division

Rear Admiral Tony Dalton, Head Helicopter Systems Division

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

Major General Grant Cavenagh, AM, Head Land Systems Division

Mr Anthony Klenthis, Head Explosives Ordnance Division

Mr Michael Aylward, Head Electronic Systems Division

Mr Steve Wearn, Chief Finance Officer, Defence Materiel Organisation

Brigadier Mike Phelps, Director General Integrated Soldier Systems

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

Program 1.1—Management of Capability Acquisition

Program 1.2—Management of Capability Sustainment

Program 1.3—Provision of Policy Advice and Management Services

Department of Veterans' Affairs

Mr Ian Campbell, PSM, Secretary

Mr Shane Carmody, Deputy President

Corporate and general matters

Mr Ian Campbell, PSM, Secretary

Mr Shane Carmody, Deputy President

Mr Wayne Penniall, National Manager, Veterans and Veterans Families Counselling Service

Ms Carolyn Spiers, Assistant Secretary/Principal Legal Adviser, Legal Services and Assurance Branch

Mr Sean Farrelly, First Assistant Secretary, Rehabilitation and Support Division

Ms Jenni Stephenson, Acting Assistant Secretary, Income Support and Grants Branch

Mr Mark Harrigan, Assistant Secretary, Rehabilitation and Entitlements Policy Branch

Mr John Sadeik, Assistant Secretary, Determination Support and Reviews Branch

Mr Neil Bayles, Assistant Secretary, Case Escalation and MRCA Review Branch

Ms Judy Daniel, First Assistant Secretary, Health and Community Services Division

Major General Liz Cosson, AM, CSC (Rtd), First Assistant Secretary, Client and Communication Division

Ms Gayle Anderson, Assistant Secretary, Service Development and Defence Relations Branch

Ms Alison Hale, Acting Assistant Secretary, Client and Communication Branch

Mr Tim Evans, Assistant Secretary, Commemorations Branch

Ms Narelle Dotta, First Assistant Secretary, Corporate Division

Mr Guy Earnshaw, Acting Assistant Secretary/Chief Finance Officer, Resources Branch

Mr Roger Winzenberg, Assistant Secretary, People Services Branch

Mr Alex Gerrick, Assistant Secretary, Parliamentary and Governance Branch

Outcome 1—Maintain and enhance the financial wellbeing and self-sufficiency of eligible persons and their dependants through access to income support, compensation, and other support services, including advice and information about entitlements

Program 1.1—Veterans' income support and allowances

Program 1.2: Veterans' disability support.

Program 1.3: Assistance to Defence widow/ers and dependants.

Program 1.4: Assistance and other compensation for veterans and dependants.

Program 1.5: Veterans' children education scheme.

Program 1.6: Military rehabilitation and compensation acts—income support and compensation

Program 1.7: Adjustments to the military rehabilitation and compensation acts liability provisions—income support and compensation.

Mr Ian Campbell, PSM, Secretary

Mr Shane Carmody, Deputy President

Mr Sean Farrelly, First Assistant Secretary, Rehabilitation and Support Division

Ms Jenni Stephenson, Acting Assistant Secretary, Income Support and Grants Branch

Mr Mark Harrigan, Assistant Secretary, Rehabilitation and Entitlements Policy Branch

Mr John Sadeik, Assistant Secretary, Determination Support and Reviews Branch

Mr Neil Bayles, Assistant Secretary, Case Escalation and MRCA Review Branch

Ms Judy Daniel, First Assistant Secretary, Health and Community Services Division

Mr John Fely, Assistant Secretary, Hospitals and Defence Home Services Branch

Major General Liz Cosson, AM, CSC (Rtd), First Assistant Secretary, Client and Communication Division

Ms Gayle Anderson, Assistant Secretary, Service Development and Defence Relations Branch

Ms Carolyn Spiers, Assistant Secretary/Principal Legal Adviser, Legal Services and Assurance Branch

Outcome 2—Maintain and enhance the physical wellbeing and quality of life of eligible persons and their dependents through health and other care services that promote early intervention, prevention and treatment, including advice and information about health service entitlements

Program 2.1—General medical consultations and services

Program 2.2: Veterans' hospital services.

Program 2.3: Veterans' pharmaceutical benefits.

Program 2.4: Veterans' community care and support.

Program 2.5: Veterans' counselling and other health services.

Program 2.6: Military rehabilitation and compensation acts—health and other care services.

Program 2.7: Adjustment to the military rehabilitation and compensation acts liability provisions—health other care services

Mr Ian Campbell, PSM, Secretary

Mr Shane Carmody, Deputy President

Mr Wayne Penniall, National Manager, Veterans and Veterans Families Counselling Service

Ms Judy Daniel, First Assistant Secretary, Health and Community Services Division

Dr Stephanie Hodson, Psychology Adviser

Ms Veronica Hancock, Assistant Secretary, Mental and Social Health

Dr Christine McPaul, Assistant Secretary, Community, Aged Care and Transport Branch

Ms Letitia Hope, Assistant Secretary, Primary Health Care Branch

Mr John Fely, Assistant Secretary, Hospitals and Defence Home Services Branch

Ms Leonie Mack, Assistant Secretary, Research and Development Branch

Mr Sean Farrelly, First Assistant Secretary, Rehabilitation and Support Division

Ms Jenni Stephenson, Acting Assistant Secretary, Income Support and Grants Branch

Ms Carolyn Spiers, Assistant Secretary/Principal Legal Adviser, Legal Services and Assurance Branch

Outcome 3—Acknowledgement and commemoration of those who served Australia and its allies in wars, conflicts and peace operations though promoting recognition of service and sacrifice, preservation of Australia's wartime heritage, and official commemorations

Program Branch 3.1—War graves and commemorations

Program 3.2: Gallipoli related activities

Mr Ian Campbell, PSM, Secretary

Mr Shane Carmody, Deputy President

Major General Liz Cosson, AM, CSC (Rtd), First Assistant Secretary, Client and Communication Division

Ms Gayle Anderson, Assistant Secretary, Service Development and Defence Relations Branch

Mr Tim Evans, Assistant Secretary, Commemorations Branch

Brigadier Chris Appleton, CSC (Rtd), Director, Office of Australian War Graves

Ms Carolyn Spiers, Assistant Secretary/Principal Legal Adviser, Legal Services and Assurance Branch

Committee met at 09:01

CHAIR ( Senator McEwen ): Good morning. I declare open this meeting of the Senate Foreign Affairs, Defence and Trade Legislation Committee. I welcome Senator the Hon. David Feeney, representing the Minister for Defence, and Chief of the Defence Force, General David Hurley. I would also like to welcome Mr Simon Lewis, acting secretary of the department, to this hearing. The committee would like to take the opportunity to congratulate the outgoing secretary, Mr Duncan Lewis, on his diplomatic appointment as ambassador to Belgium, Luxembourg, the European Union and NATO and to thank him for his assistance to the committee, especially during estimates.

Today the committee will examine the supplementary budget estimates for the Defence portfolio in the following order: the Department of Defence and Defence Materiel Organisation until 6:.30 pm today, followed by the Department of Veterans' Affairs from 7.30 pm to 11 pm. Normal procedure from past estimates will be followed, starting with opening statements and questions arising out of these statements; then topics will be considered in the order set out in the agenda. Senators should provide a written questions on notice to the secretariat by the close of business on Friday, 26 October 2012. Under standing order 26, the committee must take all evidence in public session. This includes answers to questions on notice. Officers and senators are familiar with the roles of the Senate governing estimates hearings. If you need assistance in this regard, the secretariat has copies of the rules. I particularly draw the attention of witnesses to an order of the Senate of 13 May 2009, specifying the process by which a claim of public interest immunity should be raised and which I now incorporate in Hansard.

The extract read as follows—

Public interest immunity claims

That the Senate—

(a) notes that ministers and officers have continued to refuse to provide information to Senate committees without properly raising claims of public interest immunity as required by past resolutions of the Senate;

(b) reaffirms the principles of past resolutions of the Senate by this order, to provide ministers and officers with guidance as to the proper process for raising public interest immunity claims and to consolidate those past resolutions of the Senate;

(c) orders that the following operate as an order of continuing effect:

(1) If:

(a) a Senate committee, or a senator in the course of proceedings of a committee, requests information or a document from a Commonwealth department or agency; and

(b) an officer of the department or agency to whom the request is directed believes that it may not be in the public interest to disclose the information or document to the committee, the officer shall state to the committee the ground on which the officer believes that it may not be in the public interest to disclose the information or document to the committee, and specify the harm to the public interest that could result from the disclosure of the information or document.

(2) If, after receiving the officer’s statement under paragraph (1), the committee or the senator requests the officer to refer the question of the disclosure of the information or document to a responsible minister, the officer shall refer that question to the minister.

(3) If a minister, on a reference by an officer under paragraph (2), concludes that it would not be in the public interest to disclose the information or document to the committee, the minister shall provide to the committee a statement of the ground for that conclusion, specifying the harm to the public interest that could result from the disclosure of the information or document.

(4) A minister, in a statement under paragraph (3), shall indicate whether the harm to the public interest that could result from the disclosure of the information or document to the committee could result only from the publication of the information or document by the committee, or could result, equally or in part, from the disclosure of the information or document to the committee as in camera evidence.

(5) If, after considering a statement by a minister provided under paragraph (3), the committee concludes that the statement does not sufficiently justify the withholding of the information or document from the committee, the committee shall report the matter to the Senate.

(6) A decision by a committee not to report a matter to the Senate under paragraph (5) does not prevent a senator from raising the matter in the Senate in accordance with other procedures of the Senate.

(7) A statement that information or a document is not published, or is confidential, or consists of advice to, or internal deliberations of, government, in the absence of specification of the harm to the public interest that could result from the disclosure of the information or document, is not a statement that meets the requirements of paragraph (1) or (4).

(8) If a minister concludes that a statement under paragraph (3) should more appropriately be made by the head of an agency, by reason of the independence of that agency from ministerial direction or control, the minister shall inform the committee of that conclusion and the reason for that conclusion, and shall refer the matter to the head of the agency, who shall then be required to provide a statement in accordance with paragraph (3).

(Extract, Senate Standing Orders, pp 124-125)

There are copies available. Officers that are called upon for the first time to answer a question should state their name and position for the Hansard record and witnesses should speak clearly into the microphone. Please make sure all mobile phones are silenced or turned off. The committee will adjourn for lunch between 12.30 pm and 1.30 pm and for dinner between 6.30 pm and 7.30 pm. We will take our tea-break this morning at 10.30 am; other breaks will be at 3.30 pm and 9 pm or as required. Refreshments are available at the coffee table.

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

Senator Feeney: Thank you, Chair. I will not be making an opening statement. As is our custom, we would ask that we begin with a statement from the acting secretary, Mr Simon Lewis, before moving to a statement from the Chief of the Defence Force.

CHAIR: Thank you, Mr Lewis. If you would like to commence your opening statement.

Mr Lewis : As the committee would be aware, at the request of the Prime Minister the former secretary, Mr Duncan Lewis, has been nominated as ambassador to Belgium, the European Union and Luxembourg. He will, subject to normal processes being completed, also be Australia's new ambassador to NATO. Mr Lewis is expected to take up his new post later this year. His last day in Defence was 10 October. The new secretary, Mr Dennis Richardson, will take up his duties as secretary from tomorrow, 18 October.

We noted in May that Defence would find significant savings across a portfolio, namely our Defence contribution of $5,454 billion to the government across the forward estimates, starting with $971 million in 2012-13. We have allocated those savings across the Defence enterprise. We expect to achieve these savings but, as Secretary Lewis stated in May, it remains challenging as new and unforeseen priorities emerge across the rest of the financial year. I would like to emphasise again that the savings we are pursuing will not impact on our current operations.

As you may be aware, the Minister for Defence and the Minister for Defence Materiel announced yesterday that the government has now considered the reference committee report into procurement procedures for Defence capital projects. In response, the government has agreed in full to 13 recommendations relating to realigning responsibilities in Defence, improving contestability of advice, skilling Defence, capability processes, test and evaluation and Defence industry, agreed in principle to four recommendations and agreed in part to seven recommendations. The government has not agreed to four recommendations. These recommendations are either inconsistent with the capability development reforms, have previously been considered and rejected by government or would not contribute to improving procurement outcomes.

Furthermore, the Minster for Defence and the Minister for Defence Materiel yesterday announced the next phase of reforms to Defence procurement to specifically improve reporting and accountability mechanisms. Over the 18 months the government has announced a series of reforms to strengthen procurement processes in Defence. These have included reform to project management accountability announced in May 2011, reforms to strengthen the projects of concern process announced in June 2011, reforms to support ship repair and management practices, the Rizzo report announced in July 2011, reforms in the sustainment of Australia's Collins class submarines, the Coles review announced in 2011 and reforms to the Defence capability plan announced in July 2012. Ministers have now announced the next phase of reforms to improve Defence's procurement processes, addressing strengthened project accountability and reporting, the use of managing contractors, strengthened performance assessments, extension of the early indicators and warning systems, establishment of a negotiation cell to improve commercial outcomes for Defence review of the structure and functions of divisions within DMO.

As discussed in May, Defence will reduce the number of Australian public servants in Defence by 1,000 over this and the next financial year. These reductions are being pursued through several means, including natural attrition, restricting APS recruitments to those positions which are business critical, reducing non-ongoing employee arrangements and by implementing a targeted voluntary retrenchment program. We expect that through the combination of these measures we will make the required reductions.

In relation to the strategic reform program, or SRP, we have achieved our savings targets for financial years 2009-10 and 2010-11. In 2011-12 Defence achieved $1.2204 billion, which is 97 per cent of the cost reduction target. This is a solid performance in challenging fiscal circumstances and is in addition to funds returned to government through budget initiatives, some of which are directly from SRP related expense categories. This result was determined after a move in the impact of budget management decisions unrelated to the program. In achieving this result there have been no adverse impacts to capability or safety as a result of the SRP reported to date. In 2012-13 Defence will continue with the SRP activities already underway

Defence will not resile from the SRP or reform more broadly nor renege on its commitment to the government. The cost reduction targets grow significantly and, while reform must and will proceed, all activities will be subject to review in recognition of the significant changes since the SRP commenced in 2009. The SRP will be updated to better align with the contemporary organisational policy and budgetary framework within which it must now operate. The program also needs to be integrated with broader reform activities and take advantage of opportunities they generate. The update of the SRP will be considered in the context of the 2013 white paper to ensure currency and position us better for future success. It is also important to note that the SRP is only one of several major reform activities operating in Defence, with the reform agenda also included in the Black review, the Rizzo and Coles reviews, accelerated shared services implementation, and the cultural reform which we must now implement under Pathway to Change. CDF will address Defence's implementation of Pathway to Change in his opening statement shortly.

At the last estimates, in May, the former secretary provided an update on matters relating to the review of allegations of sexual and other abuse in Defence, which was conducted by the law firm DLA Piper. Phase 1 of the review consisted of two volumes: volume 1, which contained general findings and recommendations, and volume 2, which contained individual allegations. On 10 July this year, the minister publicly released a redacted version of the volume 1 report. Volume 2, which contains 1,095 allegations from 775 people, remains with the minister on the advice of the department and has not been provided to anyone in Defence. We understand that volume 2 contains some extremely serious allegations of criminal acts and that these will need to be tested and examined as part of the second phase of the review. The government is considering how to approach this second phase, and the minister will advise Defence of the government's approach to this once a decision has been made. Defence will support whatever process the government decides upon to address the allegations raised in the review.

On the white paper, we have been working now for some months on the various assessments and studies which will underpin the document. The white paper provides us with an opportunity to address international developments since 2009 which affect our security planning and posture, including the United States rebalance to our region; our operational draw-downs in Afghanistan, East Timor and the Solomon Islands; and the impact of the global economic crisis. It will also address a number of future considerations for Defence, including force posture, force structure, reform and, of course resourcing. This work is continuing and is being informed by close collaboration with other government agencies, including PM&C, Finance, the Department of Foreign Affairs and Trade, the Treasury and the Office of National Assessments. All parts of Defence have been involved in the process. We are also, of course, working closely with the ministerial advisory group which consists of Dr Allan Hawke, Paul Rizzo and Ric Smith. Whilst we can speak today about the work that the department is undertaking on the white paper, I would make a caveat on any discussion on this topic by noting that the final content of the white paper will be a decision for the minister and the government.

I would also like to provide a brief update on Defence's leasing of property at Moorebank, New South Wales, which accommodates the Defence National Storage and Distribution Centre, or DNSDC. The lease on the Moorebank property was due to expire on 25 March 2013 but included two five-year options to renew that can be exercised at the discretion of Defence. The Sydney Intermodal Terminal Alliance, or SIMTA, represents the property owner and seeks to redevelop the site as an intermodal freight hub for import-export. SIMTA is keen for Defence to vacate the site as soon as practicable. Defence is planning to relocate the DNSDC to new facilities which would be built on Defence-owned land at West Wattle Grove, which is adjacent to the Moorebank property. This is currently the subject of an inquiry by the Public Works Committee as part of the Defence Logistics Transformation Program. The anticipated completion date for the new facility, subject to parliamentary approval, is August 2014.

On 24 September 2012, Defence exercised the first available five-year option on the lease at Moorebank, which will extend tenure at the site until March 2013. I would like to emphasise that under any circumstances Defence was always going to seek extension on the lease at Moorebank, noting that we do not yet have anywhere to move to. We have not yet commenced building the facilities at West Wattle Grove, and the DNSDC in Moorebank is our main hub to provide logistics support to the ADF both domestically and for operations overseas. Defence is prepared to vacate the Moorebank site when we have certainty about the completion date for the facilities which are proposed at West Wattle Grove, and we will have further discussions with the Sydney Intermodal Terminal Alliance on an early termination of the lease as the Defence Logistics Transformation Program is refined.

Before I conclude, I would like to record a point of clarification regarding a response to question on notice No. 1154 in the House of Representatives on the budget of the Army History Unit for financial year 2011-12. The answer that was tabled was $2.7 million. Whilst this reflects the original budget allocation to the unit, I am advised that during the course of the financial year 2011-12 additional budget of $675,000 was provided to the unit resulting in a final budget allocation of $3.375 million for 2011-12.

Finally, I would like to note that our Chief Information Officer, Mr Greg Farr, will shortly be leaving Defence after five years service. I would like to place on record my appreciation for Mr Farr's contribution to the Department of Defence and wish him the very best for the future. I anticipate that the new Chief Information Officer, Dr Peter Lawrence, will take up his duties later this year.

To conclude, CDF and I have used your recent letter and guidance from the secretariat on topics to nominate appropriate officers from the department to be here today. We have the right people on hand to respond to the committee's questions. As always, if we are unable for some reason to provide you with answers to a particular question we will endeavour to provide you with answers as soon as possible and read them into the record at the first available opportunity. That concludes my opening statement, thank you.

CHAIR: Thank you, Mr Lewis. I am sure the committee joins you in your comments about Mr Farr's contribution to Senate estimates in particular. CDF, would you like to make your opening statement, please.

Gen. Hurley : Good morning, Chair and Senators. Thank you for the opportunity to make an opening statement to the committee. I would like to use this occasion to record my condolences to the families of the six Australian soldiers who have been killed in action in Afghanistan this year.

Sergeant Blaine Diddams was a member of the Special Air Service Regiment. Sergeant Diddams was serving with a Special Operations Task Group on 2 July when he was shot and killed during a small arms engagement with insurgents.

On 29 August, three Australians were killed in an insider attack at Patrol Base Wahab in the Baluchi Valley region of Uruzgan Province. Sapper James Martin from the Second Combat Engineer Regiment, Lance Corporal Stjepan 'Rick' Milosevic and Private Robert Poate were killed when a man in an Afghan National Army uniform fired a weapon into a group of Australian soldiers.

Hours later, on the same day, Private Nathanael Gallagher and Lance Corporal Mervyn McDonald were killed in a helicopter crash in Helmand Province. The special force of soldiers from the 2nd Commando Regiment were conducting a mission with the Afghan National Security Force partners at the time of the incident.

Without exception, these men were proud diggers who volunteered to serve this country as members of the Australian Army. While Army continues to support the soldiers' families, the Australian Defence Force honours their memory through our ongoing work in Afghanistan.

I have visited Afghanistan twice since August, once immediately following the loss of the five Australian soldiers, and again last week with the Minister for Defence. Both visits reinforced my confidence in the extraordinary group of Australians who are currently serving in Afghanistan. I can report that morale is high and, apart from a brief lull in response to Commander ISAF's direction to address the insider threat, operations have been conducted at the normal tempo. These men and women are committed to our mission to train the Afghan National Army to take lead responsibility for security in Uruzgan Province and we are making good progress.

Since that last estimates hearing in May, the transition to Afghan-led security commenced on 17 July in Uruzgan Province. Our forces will move from a mentoring role at kandak or battalion level to an advising role at brigade level by the completion of this process. Throughout the year the ANA 4th Brigade has increasingly assumed greater responsibility for operations in Uruzgan to the point where last week one of the four Australian mentored infantry kandaks began independent operations without ADF advisers.

On 7 October, Australian forces formally transferred a patrol base in the Mirabad Valley to Afghan National Security Forces. The Afghan National Army's 3rd Kandak is now operating Patrol Base Wali without any Australian presence on the ground. The ADF continues to provide indirect support to the kandak in an advisory role at the brigade headquarters and the operational coordination centre in Uruzgan.

The three remaining kandaks are currently rated at effective with advisers and we expect those kandaks to be in a position to conduct independent operations by the end of the year. We will continue to develop further the two specialist kandaks, nos 4 and 5, over the next 12 months. This is the transition process at work. To use a simple analogy, it is like teaching someone to ride a bike: you have to gradually reduce your grip on the handlebars until eventually you step back and let the learner take control. Over the next 12 to 15 months, we will see the progressive handover of responsibility for security from coalition to Afghan forces in Uruzgan with the full handover of all security responsibilities at the national level by the end of 2014. These milestones will occur as the Afghan security forces demonstrate their capacity and capability to accept this responsibility. As we progress through transition, the size and structure of our own deploying task groups will also be adjusted. The 7RAR task group, which will leave Australia later this month, will be the first rotation to assume a role that is primarily advisory in nature to the Afghan National Army's 4th Brigade in the province. This is another milestone and another indication of the ANA's growing capability.

Once all the ANA 4th Brigade infantry Kandaks are operating independently we expect the majority of the Australian task group will operate from Tarin Kot but retain the capability to operate across Uruzgan as the situation requires. The Special Operations Task Group will continue to operate more broadly across Uruzgan and surrounding provinces. Our Special Operations Task Group has also been very effective in working with our Afghan and ISAF partners to build the local force's capability to disrupt and degrade insurgent networks in and around Uruzgan province. These partnered operations have successfully targeted insurgent leaders and IED facilitators. These targeted operations are supported by the ADF's detainee management framework.

You will be aware that for a short period last month mentoring patrols were suspended as part of the ISAF response to an increase in insider attacks. Commander ISAF, General John Allen, issued the directive as part of a range of measures to increase force protection and mitigate the threat of insider attacks. While an element of risk will always exist, the ADF continues regular force protection reviews so that we remain agile and able to adjust the state of force protection if circumstances warrant. In this instance, the suspension gave the coalition and Afghans time to conduct an intensive biometric enrolment program and allowed the Afghan National Security Forces to undertake a re-vetting process. I am pleased to report that the conditions for resuming mentoring and patrols has been met and members of the 3RAR task group and the ANA 4th Brigade have now recommenced joint patrols in Uruzgan.

Shortly the ADF will deploy 65 Royal Australian Air Force airfield defence guards to undertake security and access control duties at the Multinational Base Tarin Kot. The deployment of Air Force personnel is planned to coincide with the withdrawal of the Slovakian Force Protection Platoon, which has provided outstanding service at the base since the formation of Combined Team Uruzgan in mid-2010. Slovakia will maintain its mentoring and advisory support to the logistics Kandaks of the 4th Brigade. We are grateful for the Slovaks' contribution and for their continued commitment to the Combined Team Uruzgan.

Every Australian who has deployed to Afghanistan over the past decade has helped to create a more stable and secure environment. Earlier this month I met with Major General Abdul Hamid, commander of the Afghan National Army's 205 Corps in Canberra. General Hamid is the former commander of the 4th Brigade in Uruzgan. It is the first time a senior ANA officer has visited Australia. Major General Hamid spoke highly of the close working relationships between the ANA and the ADF. He also spoke about the significant improvements in Uruzgan province. In his words:

A few years ago there were no schools, work or security. Now there are schools and work opportunities. People are more secure and there is a good relationship between the local people, our soldiers and the coalition forces who are helping us right now.

In relation to other operations, since my last operational update in May a two-person liaison team has deployed with the Japanese Self Defence Force in Juba, South Sudan. The Japanese Self Defence Force has deployed an engineer unit to South Sudan as part of the United Nations mission in the Republic of South Sudan. The Australian liaison team will assist communication and coordination between the Japanese contingent and relevant agencies, including the United Nations in South Sudan. While the ADF has previously worked with the Japanese in East Timor and Iraq, this deployment is characterised by a much closer working relationship.

I will turn to operations closer to home. As part of Operation RESOLUTE, the ADF's contribution to the whole-of-government border protection effort, Defence Force personnel have assisted with the establishment of offshore processing centres on Manus Island and Nauru. The ADF has completed the construction of temporary facilities on Nauru and only a small contingent remains on the island. Work is currently under way to establish similar temporary accommodation on Manus Island. I expect this task to be completed by the end of the month. Overall, we have experienced an increase in tasking of naval assets under Operation Resolute. The Navy's patrol boats force assigned to the border protection operations have responded to all tasking from Border Protection Command to intercept potential unauthorised boat arrivals. The work is difficult, dangerous and unrelenting. The men and women who are deployed on Operation Resolute do an outstanding job under intense scrutiny. Their remarkable efforts are typical of Australian Defence Force personnel.

Earlier this year, approximately 250 Australian and New Zealand defence force personnel were also deployed to Papua New Guinea to support the country's national election. The PNG government requested our assistance to provide niche capabilities to support the country's own limited resources. The combined joint task force included helicopters and fix-winged aircraft to assist in transporting election and PNGDF personnel and materials. In addition to these assets, HMAS Tarakan transported cargo in support of the New Zealand deployment. During the mission, the ADF also assisted Papua New Guinea emergency authorities to recover three deceased people from a crashed civilian helicopter near Mount Hagen.

The successful conclusion of the East Timor national elections in July marked a turning point for our operations in that country. After six years in East Timor, we are now planning the drawdown of the Australian-led International Security Assistance Force in parallel with the planned drawdown of the United Nations' mission in Timor Leste. This will occur as a staggered transition to Timor Leste authorities in close consultation and coordination with Timor Leste, the United Nations, Australia and New Zealand. While there are a number of variables influencing our time line, I would expect this drawdown to occur in the first half of 2013.

Similarly, Australia's contribution to the Regional Assistance Mission to the Solomon Islands, or RAMSI, is drawing to an end after almost 10 years. Australian personnel to deploy on Operation ANODE are primarily drawn from reservists, and they have made a lasting contribution to security in the region. Defence is currently working with RAMSI and our international partners from New Zealand, Papua New Guinea and Tonga, who make up the Combined Task Force 635, to develop a transition strategy that considers the security situation in the Solomon Islands.

Senators, in many ways, the ADF is on the verge of a major change in operational tempo. We will need to offer new challenges to maintain interest and to retain our people but, most importantly, we will need to provide an environment in the future that ensures our members have the best opportunity for a rewarding and enduring military career as we reset the ADF for the future.

As the Chief of the Defence Force, support operations will always be my highest priority after Defence people. This is closely aligned with the need to maintain ADF preparedness and sustain an effective backbone in terms of our capability. Since the budget was handed down in May, we have continued to achieve our first priority and there has been no reduction in funding to our current operations. In saying that, I also acknowledge that most funds are appropriated on a no-win, no-loss basis. To date, we have also maintained ADF preparedness at the required level for this financial year and will consider our capacity to do so in the medium term during the white paper process.

Significant savings have been made in Defence's backbone or functional areas, particularly in administrative costs such as consultancies and accountable and consumable items. It is evident that the greatest proportion, two-thirds, of the budget savings were found in our capital investment programs. Reductions have also occurred in some high-profile capability areas such as Army reserves and cadets. These reductions do not take away from the importance of these capabilities but demonstrate the breadth of reductions necessary to achieve the budget requirements.

Our cultural reform program, known as the Pathway to Change, is driving our wide-reaching reform agenda. It draws together recommendations presented in the recent culture reviews and details how these recommendations will be implemented across the Defence organisation. Of the 139 recommendations contained in the document, 33 have been completed and another 99 are in progress. The seven remaining recommendations will commence as follow-on actions as the reform program matures. The Human Rights Commissioner, Elizabeth Broderick, also made 21 additional recommendations when phase 2 of her review was tabled in August. Defence is currently finalising the implementation plan for that report as part of the Pathways to Change.

The tempo of the past six months is typical of the ADF's workload over the past 10 years. As we look to the immediate future, the ADF will maintain our commitment to overseas operations while we prepare for the summer storm season here at home so that we stand ready to assist our own.

Can I also put on the record my thanks and best wishes to the former secretary, Mr Duncan Lewis, for his efforts in his term as secretary of the department. Thank you.

CHAIR: Thank you very much, CDF. The committee joins you in expressing our condolences to the families, friends and colleagues of defence personnel whom we have recently lost.

Gen. Hurley : Thank you.

CHAIR: Senator Johnston.

Senator JOHNSTON: Secretary, I want to go to you with respect to the unfunded capital liabilities arising from the 2009 white paper. I have a recent answer to a question that says that $200 billion is the unfunded future liability. Firstly, what are we doing about it? Secondly, where is that taking us in terms of force 2030?

Mr Lewis : Senator, you said that it was in response to a question on notice?

Senator JOHNSTON: Yes.

Mr Lewis : Can you give me the question on notice?

Senator JOHNSTON: It is from 28 to 29 May 2012, question on notice No. 244, which asks:

What is the current dollar value of the 2009 Defence White Paper funded and unfunded capabilities?

The answer is:

The remaining current dollar value of unfunded capabilities in 2009 Defence White Paper is approximately $200 billion (out-turned).

The reference to that is caveated by the fact that, due to Australian dollar appreciation, the $245 billion to $275 billion out-year cost of acquisitions to 2030 is in fact $200 billion to $230 billion. You have identified the fact that $200 billion of that $230 billion, or virtually all of it, is an unfunded future liability. What are we doing about that?

Mr Lewis : Thank you. I will call on Brendan Sargeant, the Deputy Secretary, Strategy.

Mr Sargeant : When the 2009 white paper was released, it came with a funding envelope, a sort of funding line, of three per cent real to 2018-19 and 2.2 per cent real thereafter for the next 10 years. Since then, the government has made a number of decisions about its budget to have Defence make a contribution to fiscal policy through the reallocation of money from the planned Defence budget. Those decisions have been made since the 2009 budget and, in particular, the last budget, which the CDF just spoke about.

What that means is that, over time, we will, through the current white paper, look at the future capability program and make adjustments in terms of priority and phasing of the capability aspirations expressed in 2009. That process is being undertaken at the moment as part of the white paper.

Senator JOHNSTON: The new white paper?

Mr Sargeant : The new white paper.

Senator JOHNSTON: So that when ASPI says that the plans set out in 2009 are in disarray, you would have to agree with that?

Mr Sargeant : I would not say that they are in disarray. What I would say is that, as a result of fiscal pressures and changes in priority to the amount of money allocated to the defence budget, we have to look at the timing of when capabilities might be brought in. So it is really a question of ensuring that we still deliver the capabilities set out in the 2009 white paper but in a way and over a time frame that is affordable.

Senator JOHNSTON: Can you point me to any policy or other documentation or direction that indicates that there will be any upturn in funding in the immediate or medium future?

Mr Sargeant : The government's decisions on funding are set out in its budget, in the forward estimate. As part of this white paper we will be looking at what is affordable within current planned projections across the forward estimates and, then, it will be a decision for government as to how it might want to fund Defence beyond the forward estimates. That will be a decision that government will make in the context of its consideration of the white paper and its fiscal position.

Senator JOHNSTON: So we will not have a plan until the end of next year?

Mr Sargeant : We are in the process of doing a white paper at the moment. It is scheduled for release sometime next year.

Senator JOHNSTON: 'Investment is badly stalled' is ASPI's assessment of the capital account. Do you accept that?

Mr Sargeant : What I would say is that in order to support government's fiscal policy objectives, Defence has had to make a budgetary contribution. That was set out in the last budget, and as CDF said in his opening statement, top priority is support for operations. And so the sorts of savings that we have made at this stage—or, the reallocations that we have made—have been from capital, from suppliers and those sorts of expenditures. That is really done to ensure that Defence is able to continue to do the job that the government requires from it. To the extent that we need to rebase capital expenditure in the future, that will be a judgement that is developed through the white paper process.

Senator JOHNSTON: Of the plans in 2009, in terms of capital expenditure they are virtually completely all unfunded at the moment?

Mr Sargeant : I would not put it that way. Government makes its decisions about resource allocation through its budget and through the forward estimates. There are always more ideas out there than any organisation can afford. So we have a policy process through our white paper, which is the main one, of allocating priorities and deciding which ones make sense. To talk about stuff being unfunded does not, in my view, mean a lot because it just means that a government has not made a decision about a particular capability yet.

Senator JOHNSTON: Let's look at the big picture. In 2012-13 we are down to 1.56 per cent of GDP. Do you accept that number?

Mr Sargeant : Yes.

Senator JOHNSTON: Next year we go to 1.49 per cent of GDP.

Mr Sargeant : I would have to check on that, but—

Senator JOHNSTON: Can you remember when we were last at those sorts of levels of GDP investment in Defence?

Mr Sargeant : It has been a long time, but it is a more complicated story—

Senator JOHNSTON: In fact, it has been 70 years.

Mr Sargeant : Yes, I know—a long time. People use GDP as a gross measure but I think it is a bit more complicated than that because it does not take account of the level of capability that you have relative to other countries, which is not necessarily measurable by GDP. And it also does not take account of the increases in capability that you can achieve through technology for less expenditure overall. So you might argue that even though back in the seventies we were spending more than two per cent of GDP on Defence, the capability of the ADF these days is actually much higher, including in comparison to other countries that we might compare ourselves against.

Senator JOHNSTON: I am just trying to get a picture of where we are in Defence finances, which have been categorised by an independent source—ASPI—as an unsustainable mess. I am sure you are aware of those words; I use them quite often.

Mr Sargeant : Yes. The history of Defence, if you want to talk about the big management task of Defence over decades, has always been about ensuring that you have the most capable and affordable force for the money available. People will always have aspirations that are likely to exceed any available amount of money to support that. So when people say 'unsustainable' it actually does not, in my view, mean a lot. The issue then is: what makes the most sense at the time in your capability development, and what choices do you have to make within constrained funding? That has been the story for decades.

Senator JOHNSTON: I am just trying to work out what choices are being made and I am hoping that you can confirm them. I am told that:

… $2.9 billion has been redirected within the budget, predominately away from investment in new equipment, to meet key budget pressures across the department over the next four years. Areas to receive additional money include sustainment of the Collins class submarines ($709 million), information technology remediation ($550 million), Navy fleet sustainment ($270 million), estate investment ($224 million) and garrison support service ($150 million); each an area from which the Strategic Reform Program has claimed to be delivering savings. A further $404 million will go to meet cost pressures in ADF housing, along with $332 million to pay for the relocation of Army units from Moorebank to Holsworthy—a shift imposed on Defence in this year’s budget to make way for an Intermodal Transport Hub.

Do you take any issue with that description of where the money is going to adjust to this series of cuts?

Mr Sargeant : What I would say is that you have to make resource allocation decisions in the context of what you need to do and your budget availability.

Senator JOHNSTON: Sure, and they are the allocations that have been made.

Mr Sargeant : They are the ones that have been made at the moment.

Senator JOHNSTON: And to categorise and to summarise all of that:

… two quite separate things are occurring at once. On the one hand, the government has taken a wad of cash out from Defence to balance the federal budget.

So that is the 5.5. Then:

On the other, Defence has raided its capital investment budget to rebalance its internal budget. The only thing that the two actions have in common is that, in each case, it’s mostly capital investment that’s been sacrificed.

Do you have any issue with that statement and description of the current state of Defence finances?

Mr Sargeant : I would go back to CDF's opening statement where the top priority is operations and support for the current course force and, to meet those priorities, other parts of the budget need to be adjusted. Because we are talking about budgets—and they are never simply a yearly thing; it is over time—I would assume that we would readjust the budget in the future. As I said, we would use the white paper as part of the underpinning policy framework to support that.

Senator JOHNSTON: Lastly, can I put to you — and these are the words of ASPI—that:

… The decade‐long financial plan at the heart of the 2009 Defence White Paper was flawed, having been built on an incomplete understanding of the true cost of developing and delivering capability. Add to this failed reform under the SRP and a succession of ‘further savings’ and ‘efficiency dividends’, and the unthinkable has occurred; the Magic Pudding has been broken.

That is the situation we are at at the moment, is it not?

Mr Sargeant : There is a number of elements to that. We talked about the funding model which came through in the 2009 budget and the fact that had to be adjusted because of the need for government to meet its fiscal policy objectives, which are a response to the global economic crisis which was really just starting in 2009. In terms of the SRP reforms, I do not think it is reasonable to say that they have failed. The reality is that those savings were achieved through a combination of reform and rebasing of activities. Thirdly, the government has made decisions to have the Defence budget contribute to broader fiscal policy objectives. That has been done in a way to ensure that Defence is able to continue to meet its current operational commitments. I think the government has also signalled that it will use the white paper to go back and rebase and then, as I have said, core management in Defence always is ensuring that aspiration and affordability come together, and that is what this white paper process will seek to do.

Senator JOHNSTON: Can you confirm lastly, before I move on to another topic, that, of the $709 million for Collins submarine sustainment, a significant amount of money was taken from that allocation to repair the two transformers that failed in Choules?

Vice Adm. Griggs : No, that is not correct.

Senator JOHNSTON: So where has the money come from for the Choules transformer repair?

Vice Adm. Griggs : At the moment it is coming out of the Choules sustainment vote.

Senator JOHNSTON: Which is how much?

Vice Adm. Griggs : I will have to get the exact details for you.

Senator JOHNSTON: So none of the $709 million has been affected or adversely impacted upon by Choules?

Vice Adm. Griggs : Not to my understanding. I have just been advised that $10 million was transferred from CN10—the Collins sustainment vote—to Choules.

Senator JOHNSTON: How did that turn out? You could not find money anywhere else?

Vice Adm. Griggs : I will have to get the details.

Senator IAN MACDONALD: In getting the details, could you just tell us what you expect the cost would be and, as Senator Johnston said, where the money is coming from?

Vice Adm. Griggs : The cost of the Choules repair? Yes.

Senator JOHNSTON: If anyone else wants to continue on Defence finance, I am happy for them to intercede.

Senator FAWCETT: I will direct questions to Mr Lewis—or Mr Sargeant, you may want to answer this. Senator Johnston has been talking about future plans, Force 2030, the 2009 white paper. If you like, in a family analogy, that is planning for the upgrade from the Commodore to Statesman and perhaps buying the boat as well. What most families are particularly concerned about, though, when cost pressures come on, is: can they keep the Commodore they have currently got roadworthy, have it serviced, put new tyres on it. So what I would like to do is go to cost pressures on the force-in-being in Defence. Mr Lewis, I am aware that you are only recently into even your full-time role let alone your acting one, but I take it that you are familiar with the Pappas Defence audit?

Mr Lewis : Perhaps not as familiar as I need to be, but continue with your question.

Senator FAWCETT: One of the significant focuses of that audit was understanding cost drivers for Defence and particularly for the force-in-being. Mr Sargeant, would you agree with that?

Mr Sargeant : Yes.

Senator FAWCETT: Would you agree that, only been three years old, it was developed through 2008, delivered in 2009, that most of the conclusions about the underlying cost drivers in the Defence would still be valid? Would that be a reasonable assumption?

Mr Prior : That is correct.

Senator FAWCETT: The comment was made that the three per cent real growth promised for the future force was probably insufficient. Do you concur with that remark?

Mr Prior : I read the report, yes.

Senator FAWCETT: What Mr Pappas did was he also broke down the cost drivers across the portfolio. My reading was that he said that the sustainment costs for specialist military equipment needs around 3½ per cent in real growth—so this is just keeping our current Commodore serviced and new tyres. Would you agree with that figure?

Mr Prior : Yes, that was what was in the report.

Senator FAWCETT: To do the sorts of things Senator Johnston was talking about was about 4.2 per cent real growth. He then aggregates over the whole budget. Some of the other costs were lower—IT and personnel had different factors. But he aggregates and says that just to keep our Commodore serviced and on the road we need a real growth of 1.8 per cent. Do you agree with that figure?

Mr Prior : That is what was in the report, correct.

Senator FAWCETT: He then talks about real growth obviously on top of inflation, and as of 2009 Defence chose to apply a figure of 2.5 per cent as the average inflation figure.

Mr Prior : Correct.

Senator FAWCETT: Take the specialist military equipment figures. This appears in this year's budget in table 13; so this is funding allocated to DMO for Army, Navy, Air Force, just for sustainment of their equipment. This breaks it down to a very isolated component that is fairly easy to track across years. If you apply the lowest of those figures, which is your 2.5 per cent plus the 1.8 per cent—again, that is not the new boat and the Caprice; that is just keeping the Commodore on the road—do you have any idea what the funding shortfall is over the forward estimates, having applied that figure to the 2009 budget?

Mr Prior : That is an interesting question which is not easily answered. When you say 'funding shortfall', in terms of the budget in the book you are referring to, that budget allocation provides funds to achieve the various activities and various capital investments as articulated throughout that book.

Senator FAWCETT: With table 13 we are talking specifically about sustainment of equipment for Army, Navy and Air Force. The funding shortfall over the forward estimates is four and a bit billion dollars. That shortfall is according to Mr Pappas's calculations which you have just indicated that Defence still supports on his underlying assumption of cost drivers. This is not looking at Force 2030; this is looking at the cost pressures on Defence just to sustain your force. So the cutting of budgets since 2009 means that, over the forward estimates from this year's budget, the funding pressure to keep your Commodore on the road is over $4 billion that you have to try and claw back and find from other places.

If we extrapolate that same approach to the whole budget—and I accept that there will be some variation here as pieces of capability come in and out—the shortfall just to sustain your force with the budget cuts that have been applied successfully over the last three years is over $25 billion. This is not even looking at a $200 billion that Senator Johnston talks about, which is Force 2030 and buying the boat and the new group upgraded Commodore. This is keeping your existing car on the road—a $25 billion shortfall. Does that explain why, when I visit the bases, people tell me that buildings that are fenced off and not demolished are still sitting there two or three years in a row if there is no funding, why there are power outages on bases because infrastructure is not maintained, why recruits have to be shifted from buildings because heating systems fail and the Defence Support Group has no funding to replace and repair basic things like heating systems? Would it be a reasonable assumption to make that those cost pressures are driving a growing dysfunction and decay within the Defence organisation?

Mr Prior : I do not know that I am the appropriate person to answer that.

Mr Lewis : I will come in on just a couple of those elements. On the $25 billion, I took your comments to be your number, not something we have calculated.

Senator FAWCETT: No. That is using the figures that Mr Pappas derived and you have said you support his assumptions, just to be clear.

Mr Lewis : I am not sure. I was not around the department at the time that report was produced, so I cannot attest to whether or not the department has endorsed all elements of Pappas's numbers.

Senator FAWCETT: Do you know how much that report cost the department?

Mr Lewis : There are lots of reports that cost lots of the department's money without the department agreeing to every word that is in those reports. So I just do not know what was in it.

Senator FAWCETT: It was $5½ million, and if you read his actual report it says that this report involved regular review meetings with the secretary and the Chief of Defence Force; the Defence committee; the audits steering committee; the secretaries of Finance, Treasury, PM&C and the relevant ministers. The purpose of this expensive interaction was to ensure the validity of our analysis and minimise inconsistencies for other work. So I am fairly comfortable that, for its $5½ million, Defence and the ministers said they accepted the validity of his work.

Mr Lewis : That could be right.

Senator Furner: You are extrapolating from that report, pursuant to your own methodology.

Senator FAWCETT: No, I am using Mr Pappas's methodology and I am using the budget that he identified and, in fact, the 2009 budget statement also identified that there were some $30 billion—and this is the government's figure—in gaps that had to be made up: claims of either insufficient funding in previous budgets or gaps that had been identified.

Mr Lewis : In a sense we are dealing with the economic problem which is unlimited wants, limited means. I have had this conversation with this committee in past hearings. You went straight to Defence Support Group. Of course, I have a deep and abiding interest. There is no doubt that we would like to have a high level of funding to do all the things that we would like to on the Defence estate and when we have an estate which makes us the largest Commonwealth landowner in the country. We have over 26,000 buildings, mostly World War II vintage. We know that the estate maintenance liability could potentially break the Defence budget so we need to make prioritisation choices every year and we have been doing that for decades.

Senator JOHNSTON: But the point Senator Fawcett is making is that you are just going backwards at a greater and greater rate of knots.

Mr Lewis : I am not sure that we are going backwards, but we certainly have a maintenance tail, and the Auditor-General identified that in the report that he produced for the parliament last year. We are aware of that, and that forces Defence to make prioritisation choices about funding focused on capability effects and on safety. We do regard both of those as priority issues inside Defence. I am not aware of what particular bases you have been to recently, Senator Fawcett, or what buildings are condemned and are yet to be dropped to the ground, but there would be dozens of those, which we progressively get to. We have taken out quite a significant program of demolition in the last several years—I think that more than we have done in a long time was done in the last several years. But I have no doubt that that program remains incomplete. I am not aware of the outages, but again we would like to know the details, because those issues do concern us. But I do not think we resile from the point that we are in the business of having to make choices in relation to where funding goes, and sometimes that choice will be to close the building or to fence off an unsafe place because the funding is not there and it is not making a sufficiently important contribution to capability or safety to warrant it being repaired.

Senator FAWCETT: That goes to my point, though, that in this discussion we are not talking about the choices we make or what we might like to have for the future upgraded car or boat. This is about keeping the family Commodore on the road. The public would expect that, despite other cost pressures, the government would provide enough funding for the Defence organisation for maintenance to the standards that the federal and state governments have laid down around things like occupational health and safety, safety of equipment and suitable facilities for people to live in. The taxpayer—the reasonable man in the street—would expect that the government would give you enough money to do that. What I am seeing here—

Mr Lewis : I am not sure I agree with that, because I am a taxpayer defending taxpayers.

Senator FAWCETT: So you think the taxpayer thinks it is fine.

CHAIR: Senator Fawcett, let the officer answer the question.

Mr Lewis : I have spent a career looking after the interests of taxpayers, and for some of the buildings the cost of restoring buildings to an effective and operational state is just prohibitive. So it will be easier for us in a number of cases to just close down or demolish buildings and, if there are heritage constraints attached to them, to identify a future for those buildings which is beyond the Defence portfolio if it is not warranted having regard to the Defence mission. So, from a taxpayer perspective, it will not always be the case that the answer is, 'Give Defence more money in order to fix the buildings,' because in some cases costs will be prohibitive. That is the nature of our business.

Senator FAWCETT: Some of the cases I am quoting involve relatively new buildings where recruits on a currently operating recruit training centre are moved out of a building because the heating systems do not work and there is not enough money to even replace—

Mr Lewis : Is this in Western Australia?

Senator FAWCETT: No, it is not.

Senator Feeney: Senator Fawcett, are you able to tell us which facility you are talking about?

Senator FAWCETT: Yes, it is at Wagga—the RAAF recruit training centre.

Mr Lewis : If it is a relatively recent building, Senator, I would share your concern.

Senator FAWCETT: That is exactly what I am expressing here. There are a few figures that have floated around over that 2009-10 period where cost pressures have been identified. The 2009 paper talks about $30 billion, and some of the things around SRP talk about $10 billion. Could I just ask the officials from Defence something—I do not mind who takes the answer here, because again I am aware that you, Mr Lewis, were not around at that time. Were all of the known or expected cost pressures identified to government, or only those ones where Defence felt that they had a strong case that they could articulate? Was it the general sense that there were significantly more costs that were not identified to government as part of that process? I am happy for that to be taken on notice, because I think it is quite important.

Mr Lewis : We may need to make a couple of inquiries. Obviously it precedes my time in Defence.

Mr Prior : Senator, in general terms you referred to the Pappas review. The Pappas review was an audit of Defence funding. If you read through that document, it attempted to articulate a comprehensive view of Defence's financial requirements. So I think it is fair to say that that document did a reasonably good job of identifying what those cost pressures in a macro sense were. During the course of that process, Defence was fully engaged in identifying those pressures. I think it is fair to say also, though, that Defence is a very, very large organisation, as you would appreciate, and things emerge—and things have emerged since that point in time as well.

Senator FAWCETT: I leave the question on notice. Could you come back to the committee and advise us if at the senior levels of Defence—I am talking service chiefs and within Defence headquarters—there were known cost pressures that Defence believed they would have to meet in coming years that were not advised to government because people felt that government would not accept the level of substantiation that they had? I am happy for you to take that on notice.

Gen. Hurley : It is a very subjective question.

Senator FAWCETT: But it is a very important question, CDF.

Gen. Hurley : What do we know that we don't tell people?

Mr Lewis : And how many service chiefs are we going back over here?

Senator FAWCETT: Back to 2009 would be fine, CDF.

Gen. Hurley : I think that is an extremely difficult question to answer.

Senator FAWCETT: I accept it is a difficult question. Give us your best shot. Can I also come to the issue of absorbed costs, if we are struggling to keep the Commodore on the road and all of a sudden we are being asked to absorb additional costs. CDF, you talked about the no-win no-loss operational supplementation. ASPI, in one of their papers looking at the budget, identified that in one year they believed close to $1 billion of costs were absorbed by the Defence portfolio, as opposed to having supplementational funding coming. I believe the threshold is around $10 million: above that you can claim no-win no-loss; below that you cannot.

Mr Prior : The existing arrangements are: below $10 million the costs of operations are absorbed within Defence and above $10 million they are funded on a no-win no-loss basis.

Senator FAWCETT: Okay. Would it be fair to say that some of your current operations are around the high nines—9.5, 9.8?

Mr Prior : Indeed. Op Resolute is the one that tends to be just a little below $10 million and sometimes it can go above $10 million.

Senator FAWCETT: I am happy for you to take this question on notice. Could you indicate the aggregation of absorbed costs this year—things like the Moorebank proposal; operations that are under that $10 million threshold; programs that have been announced as policies by government but it is then indicated that Defence would absorb that cost out of the portfolio? All that goes to Defence's ability to maintain the force in being to accepted and expected standards. Thank you.

Mr Lewis : Senator, can I just ensure we have some clarity about the question. I am perfectly clear about the part of that question that relates to operations, but there are some other bits will not be quite as clear. There is our major capital facilities program and, yes, the relocation of the School of Military Engineering has been funded in part—as you know, that is a minority part—from within the Defence portfolio. I am not sure I would regard that as absorbed funds.

Senator FAWCETT: There are a number of announcements that the minister has made, and they also appear in some things like the portfolio budget statements, where there has been a decision made that Defence will undertake or partner in a certain activity and where the statement is that this cost will be absorbed by the Defence portfolio.

Mr Prior : Perhaps I can answer that here and now. In the budget statements, I refer to page 17, where there is a listing of the source of the $5.4 billion that was articulated. So to the extent that you ask where did the funding come from the Moorebank contribution, which was articulated as something we were contributing to, that is articulated on those pages. I think that is the answer to your question.

In terms of Operation Resolute, on page 31 the budget estimate for Op Resolute is $9.5 million. Given the existing arrangement that under $10 million we absorb, that would fall into that category. I think that answers your question, but if you have anything more specific I am happy to take that on notice.

Senator FAWCETT: I am trying to understand how difficult a job Defence is facing at the moment to maintain its facilities, fund its training for people and maintain its equipment to an expected standard, given the cuts and the directed reallocations of funding that have occurred, providing you with the opportunity to tell us just what the quantum is of that issue you are dealing with. I think you are dealing with it very well in a very constrained environment, but I am inviting you to identify for us just how significant an issue that is for the department. It is not a criticism, it is an opportunity.

Mr Lewis : We understand. We will look at that and if it is simply a case of identifying where in the budget papers you find the material we will cite that and if it is more we will add to it.

Senator FAWCETT: Thank you.

Gen. Hurley : I would like to go back to the previous question because I may have misheard you, Senator. You are asking for us to list for you claims that we believe we had funding shortfalls in the department but we did not take them forward to government because we could not justify them to government?

Senator FAWCETT: That is correct.

Senator Feeney: Hang on. That is different from what I understood. You were talking about no-win, no-loss funding—

Senator FAWCETT: No, there are two separate questions. The CDF has gone back at least a couple of questions.

Gen. Hurley : I have gone back to the former one. The question stands: if you cannot substantiate the cost, why would you go forward with it? If you think you have a cost but you cannot argue it or you cannot justify it, why would you take it forward?

Senator JOHNSTON: Because you have not got the right mechanisms to report those things.

Gen. Hurley : That may not necessarily be the case. This just runs down so many rabbit holes, we will be here for the next six months.

Mr Lewis : There are a number of difficulties with the question.

Gen. Hurley : It is an open-ended question.

Mr Lewis : One of the difficulties with the question is that there would be thousands of people inside Defence who think that the highest priority is the thing they are working on, and as those things work their way up the line they are prioritised and not pursued. But I have no doubt that, depending on whom you spoke to in Defence, they would regard those as critical unfunded initiatives. But, at the highest committees of Defence and in conversation with the government, choices have to be made all through the year in relation to what we can afford to fund and on what basis. So we just need to be clear about what kind of pressure we are talking about here, because I have no doubt the pressures that emanate from the bases or the regions or individual groups and services would be a sum which would substantially exceed that which results when we report to government.

Senator FAWCETT: Okay. Mr Lewis, if I can come back to what I asked, which is that, at the level of various senior committees, service chiefs, in that period, were there discussions—you do not even have to tell me the amount—where people at that level of the organisation felt that there were cost pressures they could not identify or they could not pass on to government? I do not need to know the amount; I do not even need to know what they were. But did those discussions occur? Were the cost pressures that people felt that—

CHAIR: Senator Fawcett, I think you have reframed your question yet again. What I would suggest is that, if you have a question that the officers at the table are able to answer either now or as a question on notice, you perhaps commit it to writing in such a way that you take the subjectivity of the answer out of the question.

Senator FAWCETT: I am happy to do that, Chair.

CHAIR: Thank you.

Gen. Hurley : The question comes to the heart of honest advice from the department. The department does not tell the government honestly what it needs or put its difficulties in front of government because it does not want to expose them to government—that is what the question is saying. Our job is to say, 'Here are our problems,' and it is for government to make decisions.

Senator FAWCETT: No, it is not to do with integrity, CDF. It is about, as Senator Johnston said—

Gen. Hurley : No, not integrity; it is frank and honest advice.

Senator FAWCETT: If there are guidelines placed down by, for example, the department of finance that constrain how things are reported, if people feel that for whatever reason they cannot follow the appropriate guidelines to identify a cost, then the cost may not be reported. Now that may or may not be valid. All I am asking is: did those discussions occur?. I will put it in writing.

Senator FAULKNER: If this is about not following appropriate guidelines, I have no problem, Chair, about whatever questions are asked. But I think it is reasonable, in asking such a broad question, to try to nail down what we are actually talking about here, which is now quite conceptually different from where the question commenced. I have no problem with having full transparency on questions asked by committee members of Defence, but we do need to nail down precisely what is being asked here, because the concerns that the CDF has just expressed are reasonable. We have now moved to a process question, and I would have thought that impossible for any agency to answer, simply impossible.

Mr Lewis : My suggestion would be that maybe we could have a written question and we will take it that way, Senator. We will be as helpful as we can. But, in a sense, it was moving to have us try to track down former service chiefs who are no longer on deck to ask them questions about conversations that might have been held three or four years ago. I think if we get a written question on notice, we will be happy reflect on it.

CHAIR: Thank you. And Senator Fawcett has agreed to provide his question in writing to you so that you can deal with it in that way. I think we should take it then that other questions that might have been said to be put on notice have not been put on notice. We will wait for Senator Fawcett's written question.

Senator IAN MACDONALD: Just briefly, Mr Lewis: the Defence Subcommittee was in Wagga last Friday. Senator Furner was leading it and he may well have reported to you about the difficulty with hot water at the RAAF training base there. Perhaps you could—

Mr Lewis : I had not heard that, I am afraid.

Senator IAN MACDONALD: It was only a small incident, but it is typical of the difficulties that Senator Fawcett is talking about. The other thing in talking about the Defence Subcommittee is that we saw one of the Collins submarines on hard stand in Adelaide a couple of months back. Can you just explain to me the process for repair of that submarine, which I now think has been out of the water for—what?—three months?

Mr Lewis : I need to call in some expertise to help with that one.

CHAIR: Do we want to do this here or later?

Mr Lewis : It sounds like a—

Senator IAN MACDONALD: I suspect, and I do not want to put words in your mouth—I just want to understand—that if it is a money issue and that this submarine, which apparently—

Mr Lewis : My understanding is that there are always one or two submarines in deep maintenance in a full cycle docking process at any point in time.

Senator IAN MACDONALD: But I do not think that there is any maintenance happening; that is really the point of my question.

Mr King : If the question is, 'Is it there because we do not have money?' then no, that is not the reason.

Senator IAN MACDONALD: Then can you tell me what the process is? Why is it there? When is the work going to start? When is it going to be completed?

Mr King : Which submarine is it that you are referring to?

Senator IAN MACDONALD: It is the one that was on hard stand, with no work happening, at the Adelaide submarine base.

Mr King : A Collins—

Senator Feeney: It has a name—

Senator IAN MACDONALD: I do not have the name, but—

CHAIR: Vice Admiral Griggs, can you assist?

Vice Adm. Griggs : I believe we are talking about HMAS Collins, which is in ASC for preparatory work ahead of its full cycle docking.

Senator IAN MACDONALD: Is work actually happening on it?

Mr King : It is preparation for the full cycle docking.

Senator IAN MACDONALD: You are telling me that there is work happening?

Mr King : Very low-level work because we prepare the boat for the intensive work period, which is the full cycle docking.

Senator IAN MACDONALD: Can you tell me—on notice if you do not have it in front of you—when it was there, what work has been done to date and when the major work on the vessel, which I understand it needs to be done, will actually commence? And what are the arrangements for payment by the Department of Defence to the contractors?

Mr King : I certainly can, but if I could address that a bit later on when we come back to either DMO or Navy capability I will have all of that information for you.

Senator IAN MACDONALD: Okay. As an amateur observer it seemed to me that work was not being done because no-one could pay for it. But—

Mr King : No. It is a balance of a number of factors, but that current program is the established repair and maintenance program that we have for the whole Collins fleet. It was part of our planned induction of that particular submarine into the maintenance period—

Senator IAN MACDONALD: Okay. As I said, that was not my amateur understanding of what was happening. But perhaps later on you can give me the actual details.

Mr King : Absolutely.

Senator JOHNSTON: I have some questions on cost-saving measures for the acting secretary. I want to talk about, if you are happy to discuss it here and now, this change to the administration and delivery of medical services to personnel in the ADF.

Mr Lewis : I will just get the Vice Chief and Chief Joint Health up to the table.

Senator JOHNSTON: I note we had an audit in 2010 on the delivery and administration of medical health services in the ADF carried out by the ANAO. In that audit there is no mention of the one-stop shop contract that was tendered in August of last year. So in the intervening 12 months there was some change, some policy initiative. This is a very significant contract—I think it is a $1.3 billion contract. The first port of call is where did the concept come from to go to tender to provide the broad range of services that apparently are going to be provided as at 5 November?

Rear Adm. Walker : We started looking at the delivery of health services in around 2008 with my predecessor. There was an understanding that we had gone from three single-service health services, so under Navy, Army and Air Force. We had a Joint Health Command construct but we had a very disjointed health system with unclear lines of accountability, unclear lines of funding and unclear lines of clinical governance and policy. So when General Alexander was appointed he undertook a review of health delivery. We looked at a whole range of options. We looked at what health services we should provide on base, what health services we can effectively provide, what we should purchase from the civilian community and what training and support we needed to provide to our uniformed health providers.

Senator JOHNSTON: Who is 'we'?

Rear Adm. Walker : Joint Health Command.

Senator JOHNSTON: You produced a document with respect to that, did you?

Rear Adm. Walker : There are a number of iterations of where we got to. The concept came from a Chiefs of Service Committee paper which said to the service chiefs where we should go with health delivery.

Senator JOHNSTON: In which particular service?

Rear Adm. Walker : All three services.

Gen. Hurley : We have moved from three separate health services to one Joint Health Command.

Rear Adm. Walker : A decision was made that Joint Health Command would be solely responsible for the delivery of health services within garrison or within Australia. It would also be financially responsible and responsible for equipment procurement and medical equipment management through the DMO. We would be the capability manager for our health equipment, consumables and pharmaceuticals. Also I have technical responsibility for the delivery of health care on operations.

As part of that reform we looked at what we would deliver on base. It was decided that we would move towards what we would call a multidisciplinary primary healthcare delivery model, which means that we provide generally on base general practice services, dental services, physio, pharmaceutical, mental health and psychology services but do not provide in every location in-patient facilities and where we do provide in-patient facilities they are low acuity. We decided that we would move to only one operating theatre on base, which is at the Enoggera facility in Brisbane.

It has been a long period of reform that has come to that being the model of delivery we provide on base. We also engaged Access Economics at the time to look from a health economist perspective at what was the best model for delivering health care. That really confirmed that that was the model that we should go for.

Senator JOHNSTON: What is the date of the Access Economics report?

Rear Adm. Walker : I believe it was delivered in October 2009, but I will check that.

Senator JOHNSTON: Could you take on advice as to whether you can release that to the committee?

Rear Adm. Walker : Yes.

Senator JOHNSTON: Did it deal with schedule rates?

Rear Adm. Walker : No.

Senator JOHNSTON: It just dealt with structure?

Rear Adm. Walker : This is an economic assessment about how we should deliver health care. We then moved to, as I said, Joint Health Command, so we moved along that line. We have shut a number of facilities by remodelling how we deliver health care: going from inefficient, small facilities to larger facilities where we believe we can provide better quality health care.

Senator JOHNSTON: You had some 104 facilities?

Rear Adm. Walker : I think it was 109.

Senator JOHNSTON: Right. And what have you gone to?

Rear Adm. Walker : Again I will take that on notice and confirm that for you, but I think we are down to 79 at the moment. As part of that we looked at how we do our on-base health support and our off-base health support. For many years we have had contract arrangements because our uniformed workforce is not large enough to deal with all of the health care that we require on base, and it is also that our uniformed health force is required to deploy and provide the health support we need on operations as their primary role. So we have had many iterations of contract health support on bases. We had many hundreds of individual contracts with health providers, which was quite inefficient and with a significant contract management overload. We then moved to another situation, the situation prior to the one we are currently under, to tide us over until we moved to our full transition where we had approximately 120 contracts, a mixture of prime providers—that is, large companies providing support—we had individual contracts with individual health practitioners, and we had sessional contracts.

Under those contracts we did not have what we would call quality indicators, so there was no requirement for compliance with clinical governance, with participation in what we would call quality health care, no quality indicators about what health care should be provided and how and when. We had different management arrangements, which were quite complex. We had difficulties at times where we had multiple contractors with different contract arrangements on bases if we got into performance management or complaint management. And we also had an understanding that we could do better in how we delivered that. So commencing back in 2009, we started to look at what our next contract arrangements would be, noting that our current contracts were to expire this year.

Senator JOHNSTON: What current contracts were they?

Rear Adm. Walker : This is the 120-odd with the prime providers, with the individual contractors, with sessionalists.

Senator JOHNSTON: Who were your prime providers? Just give me a rough snapshot of who they were. Radiological services?

Rear Adm. Walker : No. This was for labour on hire, so on-hire base labour support. In radiology, optometry, we have had different arrangements that came from single service, the old model—

Senator JOHNSTON: Base by base, town by town.

Rear Adm. Walker : And often local arrangements that were MOUs, they were not contractual, some had lapsed and there were different arrangements around the country, which meant that you might have something occur in Queensland that was quite different to what you might have if you were in another state. We looked at, and if we talk particularly of on base, this the labour hire, this is the people we want—the doctors, the nurses, the physios, the people we want to support us on base—we developed a tender and we looked for either a regional provider or a national provider. We thought we would get national providers, but as part of our procurement process we wanted to give ourselves the range and go to industry and say, 'What can you provide us?'

Senator JOHNSTON: Whose idea was it to decide that a single contract, which I think is where we are at now, was the way to go?

Rear Adm. Walker : It was my decision to go to market to seek expressions for either a national provider or regional, but the decision to where we went with a national provider was the result of a very detailed approach to market, RFT evaluation and then negotiation. At the end of the day it is my decision but it was based on a procurement process that went through—I think we were the first—the non-equipment procurement assurance process. The procurement process was done according to what we would say was best practice. We went through a very detailed approach to market, evaluation and negotiation process which then made a recommendation to me, which I accepted.

Senator JOHNSTON: How many RFI participants did you have? You said you had some negotiations at the front end before you went to tender. How many participants were in that—roughly?

Rear Adm. Walker : Again, I will have to take that on notice.

Senator JOHNSTON: How many ultimate tenderers did you have?

Rear Adm. Walker : I will confirm that for you after the break, but we had what we believed was effective competition across every part of the service package.

Senator JOHNSTON: The current contract that you have got, which I think is commencing on 5 November—is that correct?

Rear Adm. Walker : We signed a contract with Medibank Health Solutions at the end of July. The transition period is now over for a number of service packages. Some have already transitioned and are in place: radiology and imaging, pathology and health hotline. We transition off-base health support on 28 October and on-base health support on 4 November.

Senator JOHNSTON: 4 November. All right. In the Audit Office report it talks about Defence expecting to realise savings in the provision of health care of around $118 million in the budget. This is 2009 to 2019—over $118 million in the 10 years of the SRP. Firstly, what are the savings to defence in this methodology?

Rear Adm. Walker : The savings came across a number of streams, particularly in our facilities space. If you have 109 facilities, some of which only support one doctor, for each of those facilities there is a facility cost and an equipment cost because you need resuscitation equipment—a defibrillator, a monitor. You need all the equipment you need to just provide health care. You need consumables—bandages, syringes, needles. In many of them, because they were isolated and away from a pharmacy, they also had what we call an imprest, where they have pharmaceutical items. What we found was that there is significant waste in that sort of approach, because you do not need a defibrillator if you are only serving 20 people. If you can provided from one facility, you still only need one defibrillator. So you are doubling up on equipment. You are increasing the wastage of consumables, because you do not use it all. But if you come out of one facility you have a higher turnover, you are only stocking one facility and you are also managing pharmaceuticals that do not go out of date because they are sitting on a shelf just in case they will be used.

So there were costs that were going to be saved in terms of facilities rationalisation, noting that we did have to do in some cases refurbish bigger facilities or rebuild facilities. There were also savings to be made in staffing. In those small facilities one doctor, one clerk to do the bookings, the appointments, but they were not always very busy. They were there because they were supporting a smaller dependency. If you bring it into a larger facility, you do not need as many staff because there are economies of scale.

There were also savings to be made in terms of policy. We looked at some of the health promotion activities. I will give you an example. We were doing testing for blood in the faeces to detect bowel cancer. We were perhaps doing that too often and not in accordance with the guidelines. That all comes at a cost, because you have equipment and you have pathology testing.

There were changes in how often we should do some of our medicals, which again meant that you had different staffing that you might need to do those. There was a broad range of savings across policy, across facilities and across the types of people that we might need to do things.

CHAIR: Thank you, Rear Admiral Walker. We will break for morning tea.

Proceedings suspended from 10:31 to 10:47

Gen. Hurley : In relation to Senator Macdonald's comments about people at RAAF Base Wagga, I think in conversation with him it was mentioned that there had been a hot-water system failure in one of the living-in accommodations potentially requiring trainees to be moved from one block to another. This did not occur. The issue was apparently addressed. No-one was moved because of lack of hot water.

Senator IAN MACDONALD: Did they get the hot water though?

Gen. Hurley : I assume they did because they did not move—otherwise they were very tough in a Wagga winter.

Senator IAN MACDONALD: This was as recent as last Friday.

Gen. Hurley : The move did not occur is what we get from the base.

Senator IAN MACDONALD: The move did not occur, but did the hot water get fixed? That is the issue.

Gen. Hurley : Yes, it did.

CHAIR: Thank you, CDF. Rear Admiral Walker have you concluded your evidence?

Rear Adm. Walker : I want to confirm that we started with 109 facilities. We are down to 76 facilities with an ultimate aim of 58 facilities. The Access Economics report was October 2009.

Senator JOHNSTON: Is it fair to say that this new contract is for garrison health services?

Rear Adm. Walker : Yes.

Senator JOHNSTON: In paragraph 23 of the ANAO report of 2010 said that they thought the real cost of delivering garrison health services was somewhere between—and this is the cause of a little consternation—$455 million and $654 million per annum. Defence's figures were down as low as $293 million. They questioned the reliability of those figures given the growth rate in the community as opposed to the cost growth rates inside Defence, which they saw as much less than the community average, which they did not accept.

I want to come back to my original question. This new contract is very interesting. I think the jury is still a little out on it, if I can be so bold. What are the savings to Defence? I then want to talk to you about the delivery of service and the maintenance of service to service personnel. What other savings to Defence do you perceive in the budget with this contract for $1.3 billion over four years?

Rear Adm. Walker : It is not really a question of savings. We know that the cost of the increase of the cost of health care in the civilian community, within the Australian community, is significantly above the CPI historically, so we know the cost of health care continues to rise as people's expectations of health care and their requirements rise. This is not about cost savings because we will still provide the full range of health care, the quality of health care. But if we can do it a little more efficiently, it means I have more money in the budget to apply to healthcare delivery and that helps to mediate some of those increases in healthcare delivery that we know occur. But it is also that, if I do it more efficiently, then I can potentially either have more staff which can reduce waiting times or I can provide different health promotion type activities.

Senator JOHNSTON: So you think it will be better.

Rear Adm. Walker : We would not be doing it if we did not think it was going to be better.

Senator JOHNSTON: That is given. How do you propose to measure and gauge whether it is in fact better?

Rear Adm. Walker : I think, as I said in my opening remarks, that in our previous contracts we have never had really any good quality key performance indicators and for me it is about the delivery of quality health care. Under the new contractual arrangements, there is a requirement for our contractors to participate in what we call clinic and governance activities, clinical reviews. This is about where we measure what health care we are providing, how we measure complaints, how we address complaints, how we look at if there are issues and about the performance. We have never had that before and we have now improved our own clinical governance regime, so it is about participation. It is a crude measurement, but it might be about waiting times, it might be about how many patients are seen. There is an expectation that this is the number of patients you will see. But it is not saying you have a 15-minute appointment only and everyone has to be shuffled through. If it is a complex case it might take an hour, but it is an expectation that we measure what our people are providing and that we have expectations of a level of service delivery.

Senator JOHNSTON: Are you looking to the contractor to provide you with the monitoring?

Rear Adm. Walker : No. We monitor the contract. We have our own clinical governance system. They will participate in that, but it is our contract to monitor and measure.

Senator JOHNSTON: How do you propose to monitor patient satisfaction with the new system?

Rear Adm. Walker : Currently we are doing a patient satisfaction survey. We have selected people who have attended health centres over, I think, a two-month period where they get an email asking them to assess and rate our service. That has the support of the services and we will repeat that in 12 months.

Senator JOHNSTON: So before and after?

Rear Adm. Walker : Not just before and after. It is a continual activity.

Senator JOHNSTON: You are aware that there is some consternation out there about the rates. What consultation did we undertake with our existing medical practitioners before we moved to this system?

Rear Adm. Walker : I would say that just the setting of rates is a decision for Medibank. We have contracted with Medibank Health Solutions to provide a service. The rates are an issue in commercial arrangements with Medibank Health Solutions and any subsequent providers.

Senator JOHNSTON: That is a substantial change to the existing relationship that you had with those providers.

Rear Adm. Walker : In the external market, yes. We wrote to all our current providers and informed them of the new arrangement that we were undertaking. We advised them how they could be in touch with Medibank Health Solutions if they wished to continue to provide services to us. We also advised Medibank Health Solutions of our current providers. Whilst we have had some current providers that we used regularly, there are many others that have just provided 'on occurrence' support.

Senator JOHNSTON: Are you aware that a large proportion of specialist services are being asked to provide those services at a substantially reduced rate by the contractor?

Rear Adm. Walker : The Commonwealth is not privy to the rates that are being offered by Medibank Health Solutions to the contractors. I understand that there are pockets and areas where there is some dissatisfaction.

Senator JOHNSTON: Some orthopaedic surgeons are being asked to do the work that they would otherwise do pursuant to the existing regime for half the cost.

Rear Adm. Walker : I would say that there is a commercial arrangement between Medibank and the providers. We have contracted Medibank Health Solutions to provide a service, and however they provide that service is a commercial decision for them. But I would say that I was advised on the weekend by a hospital in Brisbane that they in fact thought the rates were very attractive, and they thought they would very much like to participate.

Senator JOHNSTON: For Brisbane?

Rear Adm. Walker : In that area they would like to provide services. There will be differences across what we would call 'craft groups'. So there are some providers who will be happy with the rates. There will be some people who will not be happy with the rates. In the end, it is a commercial decision between Medibank and the providers.

Senator JOHNSTON: What I am worried about with respect to that commercial decision is that ADF personnel do not get the level of service that they have been enjoying to this point in time with specialist services in line with what they have received. The point is this: the contractor says to the specialist providers, anaesthetists and orthopaedic surgeons particularly, 'You need to sign this contract and get on board and be on our panel and, if you're not, you won't get any work.' The rates are in the annexure to this contract. Now, that is all very well; that is a commercial situation, as you quite rightly point out. But if very good and specialist orthopaedic surgeons, who deal with shoulders and knees, for instance, decide that the rates are unsatisfactory, the end user of those services—our soldiers, sailors and airmen—do not get the service that they should get. What are you doing about protecting that level of service?

Rear Adm. Walker : In the contract, we have very clear specifications on the qualifications, experience and competence of the people that Medibank in terms of specialists will provide. So that means everyone has to be registered as a specialist with the Australian Health Practitioner Regulation Agency, AHPRA; they have to meet the credential requirements of the specific colleges to which they belong—College of Surgeons, College of Anaesthetists, college of intensive care. They have to have that credential and they have to have evidence of recency of practice to say that they are competent and credentialled to do the type of work that we are requiring of them. There is a requirement for that. There is a requirement that with the access to those specialists there must be choice. So it cannot be that there can be only one orthopaedic surgeon. There needs to be a range of providers in the location. Clearly, though, there might be some remote areas where that choice might be limited because there is only one in the particular area. But essentially there needs to be choice and there needs to be access. So it means that they have to be close by and we have to be able to gain reasonable, prompt access for that delivery of those services. So that is the requirement that Medibank Health Solutions has agreed to provide and if we have competent and credentialed specialists, if we have a choice of provider and if we have close access and access to those services as we have contractually required, then I believe we should get the service that our people deserve and it will be the same quality of service that we are currently providing.

Senator JOHNSTON: I am concerned that, whilst we might have a list of service providers that are quite competent, they are not specialists in the area of particular relevance to the ADF. Bear in mind the ANAO acknowledged that the level of medical services required for our personnel in the ADF is above that of the general community. That is a very clear statement that we need to have a higher standard of medical services for ADF personnel.

Rear Adm. Walker : I think the ANAO report actually said that we do at times provide a greater service than is provided under Medicare to the community because at times we want people to deploy and we want them fit to deploy. So in terms of clinical urgency, if someone needs a knee reconstruction and they work in a sedentary job in a civilian office, the urgency is not as high as getting a soldier back to a deployable state. So there is a difference perhaps when we would say clinical urgency but it is based on getting our people fit. It is also about what we do in terms of rehabilitating people and getting them back to a state to be fully functional in the ADF, as opposed to if you have an injury and you are in a civilian practice you may or may not need to have that addressed. So we do provide high-quality health care. At times we provide access that is greater than would be expected under a public hospital system but we use the same specialist providers that are providing health care in the civilian community. I would disagree with your assumption that under the new contract arrangements we will not have access to, as you said, the people who do the knees and the shoulders. We will have the full range of access to all those providers under the new contractual arrangements.

Senator JOHNSTON: That is exactly what I am being told is not going to happen because the provider, the contractor, requires these specialists to sign up to rates that they will not accept.

Air Marshal Binskin : I think you are being speculative here and we do need to watch out that we do not undermine Medibank's position as they negotiate their part of what will be a commercial arrangement with us. There are still a number of weeks yet for this to go.

Senator JOHNSTON: I am looking at contracts. I am looking at doctors and specialists who have been asked to sign up to contractual terms. Are you telling me that we are not even to that point?

Rear Adm. Walker : No, but what is happening is that is the negotiation for Medibank Health Solutions to work out with the contractors. They have contracted to us to provide this level of service and whatever the commercial arrangements are they are for Medibank and the provider to negotiate.

Senator JOHNSTON: I am asking you to tell me what level of oversight and control you have over those contractual relationships between the contractor and the specialist service providers, particularly orthopaedic surgeons and anaesthetists, so that you can maintain the standards and we are not getting the cheapest solution.

Rear Adm. Walker : We have a contract with Medibank Health Solutions to provide high-quality health care by credentialed, competent and clinically current providers within close access to our population and with access as we require it. Whatever is the final contractual relationship between Medibank and the providers in terms of rates is theirs to negotiate.

Senator JOHNSTON: So we have no effective control over who is on their panel?

Rear Adm. Walker : We have control over the fact that they have to be competent, credentialled, clinically current and able to provide the level of services that we want.

Senator JOHNSTON: Those words are open to having a truck driven through them, I hope you understand.

Rear Adm. Walker : Not in a clinical governance sense, no. From a medical perspective that is very clear. It is what your qualifications are under the Australian Health Practitioner Regulation Agency. It is under your credentialing by each of the colleges, be you a specialist or a general practitioner, and it is about currency of practice. That is a very clear definition that is used in every public and private health facility within Australia, so we are using the same systems and the same approach to quality that every other professional provider does.

Senator JOHNSTON: When will you be in a position to publish the contract so we can look at the terms and see what level of oversight Defence has to maintain some capacity to control the panels that are used by this contractor?

Rear Adm. Walker : I believe our contract is commercial in confidence. I would have to take that on notice about whether that could be published.

Senator JOHNSTON: Sure.

Rear Adm. Walker : But our requirement of Medibank Health Solutions is about the quality and type of health care that is provided. There is a very clear mechanism, if we are not satisfied with the quality of care or the provision of care, about how we would then manage that with our contractor, Medibank Health Solutions, as to how we will deal with that. At the very crude end of one of the terms, if Defence is unhappy with the level of service provided by an individual then we can ask that that person not continue to provide health services.

Gen. Hurley : Senator, I think the heart of the question is that you are asking Defence to second-guess the credentialing processes of the respective colleges, and we cannot do that. What we can do is demand a level of service, check against the person that they have received that accreditation and so forth, and then monitor their performance. That would be a stock standard way to do business. It is not about us guessing who are the best surgeons in the country.

Senator JOHNSTON: I am not asking you to second-guess that at all.

Gen. Hurley : I think you were implying that, though.

Senator JOHNSTON: No. What I am saying is that the schedule of rates that I have seen that accompany the contracts for the medical specialists are well below what you have been paying. The problem with that is that I can just see all of these specialists and anaesthetists that have written to me and said, 'We're not going to sign up.' That tells me that the outcome of all of this, which I think is laudable in many respects, is that we get a loss of the specialists that our people have been using because of their skill and ability, particularly with things like rotator cuff injuries. We are getting a common or garden variety of specialist that fits into the mould of the service provider, as opposed to what we have been getting in the past. All I am asking you to tell me is that you have some control over that.

Gen. Hurley : We have, because we have specified the requirements that we are seeking and we know the medical history of the ADF and the type of injuries it is required to deal with. In a sense, all the communications we get at the moment are like the ones you get in normal business: 'I am dissatisfied with what the contractor is offering. I'll go and talk to a parliamentarian to see if I can put pressure on the process.' We should not be playing in that game. We should let Medibank deliver against the contract and make judgements against their performance and against what we intend to pay them.

Senator JOHNSTON: But, if a particular medical contract or medical service provider has for very many years—10 years or more—been providing specialist services to ADF personnel at a rate that is being asked to be halved, it is clear that we are going to undermine the level of service if they do not sign on.

Gen. Hurley : Not if we do not replace him with another competent surgeon. My knees have been done by the same surgeon in Canberra for a number of years.

Senator JOHNSTON: Has he signed on?

Gen. Hurley : I do not know yet. I will await the outcome, and if I have to have my knees operated on again it may be done by him or it may be someone else.

Senator Feeney: We know how enthusiastic you are, Senator, for competitive pressure. Competition is what made America great, and we embrace it.

Rear Adm. Walker : My job is to ensure that we are getting value for money for the Commonwealth and also to maximise the amount of health care that I can deliver to our people—high-quality health care. One of the problems, and part of why we have gone down this track, is that we have not had arrangements. So, in fact, the Commonwealth has been held hostage in some circumstances to the fees that we have been paying. In some circumstances, not all—and I am not saying that we have not had good care—we have been paying what could be considered somewhat exorbitant fees because there is no arrangement and we have just paid whatever. There is no negotiation and there is no discussion; we get presented a fee. In many cases, that has been well above what would be commonplace under private health insurance arrangements or other arrangements.

We have also benchmarked against Medicare rebates, DVA rates, private health insurance rates and AMA rates—there is a broad spectrum. So I think it is incumbent upon us to use what we should to have arrangements to try to ensure that we are getting value for money and not overpaying. But it is also about understanding, and I use your example of the rotator cuff. That is garden variety shoulder surgery. For any shoulder surgeon that is bread and butter; it is not specific to the military. So we need to understand that we are not always very special. We think we are special but as to having your rotator cuff done, any competent, credentialled shoulder surgeon is able to do that surgery.

Senator JOHNSTON: Okay. What I am concerned about is that the rates you have been paying are the AMA rates, and you are taking the rates down to below the workers compensation rate in New South Wales. That is the comparison I am advised is happening, and I am concerned about that.

Rear Adm. Walker : Again, I would say that we have contracted Medibank Health Solutions to provide a service on 4 November. What their arrangements are in bringing those specialist providers to us on 4 November is theirs to negotiate, and those negotiations are ongoing.

Senator JOHNSTON: I am also concerned that there is potential for non-medical-trained personnel to refer people as patients, using the system. Have you oversighted that issue and can you tell me about it?

Rear Adm. Walker : I am not quite sure where that is coming from. Any referral to a specialist medical adviser will come from a general practitioner. We do have arrangements. In the civilian community, if you want to go to an optometrist you just go to an optometrist, and you do not need a referral. In our system, we will have a referral done by one of our nursing staff to facilitate our keeping track of that referral. But any referral to a specialist medical provider will come from a general practitioner, as is the arrangement within the civilian community.

Senator JOHNSTON: So we are getting rid of the Defence purchasing card modus of paying for such services?

Rear Adm. Walker : No. What happens, and this is one of the other great benefits of the contract, is that we now have national invoicing to us in Canberra. So I can tell you, and at Senate estimates I will be able to tell you, by the Medicare Benefits Schedule what item number, exactly how many of those we have done, how many procedures we have bought, how many X-rays we have done—all of that is invoiced by Medibank Health Solutions to us centrally in Canberra.

Senator JOHNSTON: What safeguards have you implemented with respect to the protection of medical record information for each of the service personnel who will be using the system?

Rear Adm. Walker : It is no different to the current arrangements, where we clearly abide by the Privacy Act and where we take the protection of medical-in-confidence material very seriously. What this new contract has done is that we require the health provider to provide a clinical report back to Defence—back to the referring doctor, not to Medibank Health Solutions; back to us—within three days—in some circumstances there might be others that take longer—so that we can actually provide quality health care.

In the past, under the current arrangements, many of these specialists, who provide such great service, were very tardy in providing a clinical report or a hospital discharge summary on what happened to that person. We want that within a very short period of time so that we can have it back to the treating general practitioner and so we can then ensure that any appropriate workplace restrictions, any ongoing follow-up or any management of them within a rehabilitation sense is undertaken in a timely and clinically relevant manner.

Senator JOHNSTON: Sure. I am just concerned that a non-medical person—a third party—will have access to service personnel medical records in passing them back.

Rear Adm. Walker : I do not see that that is any different to how we are doing it now. If we refer a member to a specialist orthopaedic surgeon, they write a letter and that letter will come back from their office to the treating doctor. Exactly the same thing is going to happen. If we are accessing pathology reports and radiology reports online, they come by secure, web-based portals that meet all the requirements for privacy information within terms of access.

In fact, in some ways, we may have a greater ability to monitor it because we will be able to see, particularly on any of the pathology or x-rays coming electronically, if there has been anyone accessing it inappropriately, because there will be an audit trail.

Senator JOHNSTON: Okay. Are you aware that one of the terms of the contract allows the contractor to vary the terms of the operational procedures—this is clause 3.1—without notice or consultation to that contracted medical service provider?

Rear Adm. Walker : It might surprise you that I do not know all the clauses! I would have to have 3.1 in front of me, and I am not sure in which part of the contract that is. I would have to take that on notice; I do not have that with me.

Senator JOHNSTON: I would be pleased if you would because I think that is a concern for our medicos to be signing a contract that says it can be varied after signing without their knowledge—

Rear Adm. Walker : Sorry, is that the contract from Medibank Health Solutions to the contractor?

Senator JOHNSTON: Yes.

Rear Adm. Walker : That is a measure for Medibank.

Senator JOHNSTON: It worries me that we are handing over the responsibility and not interested in or knowledgeable about or have any oversight over the contractual terms within which our personnel are receiving their medical services.

Rear Adm. Walker : We have very great oversight about the quality and the type of health care through our contract with Medibank Health Solutions. I would say that we will have far more oversight than we ever had under the current arrangements.

Senator JOHNSTON: How are you going to effect that? What mechanisms can you point to, contractually, that allow you to have full visibility and oversight of the way this contract is managed by the contractor?

Rear Adm. Walker : We have detailed contract management plans for how we will manage our contract between Defence and Medibank Health Solutions. The requirement for us is about the provision of high-quality health care in a timely and effective manner by credentialed and competent providers. Our measure is about how we measure quality of health care, the participation in our clinical governance systems and the participation in how we manage the financial aspects. As I keep saying: our requirement is for high-quality health care. If that is not provided by the contractors that Medibank Health Solutions provide then there are detailed processes by which we will deal at a local, regional and national level on how we will engage with Medibank Health Solutions to monitor that health care.

Gen. Hurley : On top of that, we will have more data available to us to make those decisions, judgements and approaches than we have ever had before.

Senator JOHNSTON: Right. This is a four-year contract?

Rear Adm. Walker : It is four years plus one plus one.

Senator JOHNSTON: Plus two one-year options?

Rear Adm. Walker : Yes.

Senator JOHNSTON: We have not done this before for our 59,000 personnel. If it does not work out and we are eight or nine months in and very unhappy, what is our remedy?

Air Marshal Binskin : That is quite hypothetical, Senator, really.

Senator JOHNSTON: Well, the terms of the contract should have set this out very clearly.

Air Marshal Binskin : Yes.

Senator JOHNSTON: What are the termination terms of the contract? What notice do we have to give? How much do we have to pay? What is the situation?

Rear Adm. Walker : Again, I do not have that detail in my brain. I will have to take that on notice.

Air Marshal Binskin : We can provide you with that, depending on the commercial-in-confidence side of it.

Senator JOHNSTON: I think it is a standard term—

Air Marshal Binskin : I am sure it is.

Senator JOHNSTON: as to the term of the contract and how each side can terminate should there be a breach or terminate at will if the services are not up to scratch.

Gen. Hurley : We will provide the information for you.

Senator JOHNSTON: Thank you.

CHAIR: Are there any other questions on this topic?

Senator EGGLESTON: I would like to ask for a clarification on what you are doing. Are you engaging Medibank to provide corporate medical GP services, who in turn will engage specialist services?

Rear Adm. Walker : We have five service packages under the contract with Medibank Health Solutions. One is external X-ray and imaging. One is external pathology. One is a health hotline, which is a 24-hour health line for members, after hours or away from a health facility. We have a contract for additional health support on-base, so this is general practitioners, physios, nurses who will work alongside our uniformed health providers and our APS health providers on our bases in our health centres. Then it is the package of the off service, which is the access to the specialist providers, the hospitals, the day surgeries and our inpatient services.

Senator EGGLESTON: What I wanted to know was: are you subcontracting out essentially the military health services?

Rear Adm. Walker : No. Our deployable health capability, so that is in Army, Navy and Air Force, any health support to operations or to exercises will come from the uniformed health providers. Our teams that are in Afghanistan now are uniformed health providers.

Senator EGGLESTON: Yes, I understood that from what you said earlier. But on the domestic bases in Australia are you using Medibank Private to provide select providers?

Rear Adm. Walker : Yes, but that is the same arrangement we have had for the last 15 years with different contractors.

Senator EGGLESTON: That clarifies it for me. That is all I wanted to know. I am not being critical, I am just seeking information.

CHAIR: Senator Johnston, are you moving to another topic now?

Senator JOHNSTON: Most of my topics now, save for DLA Piper, which I am happy to go on with, deal with Navy and Army. DLA Piper might be the only odd one out that I have and we might deal with now.

CHAIR: Sounds good. Go ahead.

Senator JOHNSTON: I am happy to ask anybody the question.

Mr Lewis : It depends what the question is. If it is in relation to the management of the DLA Piper contract, that has been facilitated through Defence Legal. Is that what your question is about?

Senator JOHNSTON: I saw in a press release recently that there was a change from 800 plausible claims to some 700. Is there something that we are not being told or you have eliminated some? What is the reason for that?

Mr Lewis : Senator, I have got the number 775 stuck in my brain. Is that still correct?

Senator JOHNSTON: I thought we had over 800 at the last estimates.

Mr Lewis : Claimants or claims?

Senator JOHNSTON: No, plausible claims.

Mr Lewis : I think the answer is 775.

Senator JOHNSTON: Okay. When was the last time we had contact with those 775?

Mr Lewis : We do not have any contact with the claimants, because the claimants are claims to the DLA Piper review—

Senator JOHNSTON: Sorry, our legal agents—when did we last communicate with them?

Mr Lewis : I think that is probably something which probably involves Mr Cunliffe.

Senator JOHNSTON: I thought it might.

Mr Lewis : Very prescient, Senator.

Mr Cunliffe : The grouping is in various categories, because those who are out of scope, the large majority have been advised. But for the others, the situation remains as it was when we last met.

Senator JOHNSTON: Sorry, just clarify for me: what does 'those within our scope' actually—

Mr Cunliffe : Senator, those who are out of scope—

Senator JOHNSTON: How do we categorise those?

Mr Cunliffe : We have not categorised them, but those who went through the processes were determined by the review team—

Senator JOHNSTON: To be implausible—

Mr Cunliffe : No, not to come within the scope of the terms of reference.

Senator JOHNSTON: How many of those were there?

Mr Cunliffe : One hundred and seventy-nine according to the advice to me.

Senator JOHNSTON: And have we told those 179 of their lack of success?

Mr Cunliffe : Of those, 128 were advised by the review directly that they were out of scope, nine were referred to the Inspector-General ADF, and I understand that eight of those inquiries have been completed. Forty-two originated as correspondence to the minister and, as I understand it, they are awaiting his instructions.

Senator JOHNSTON: Take me through each of those categories. We have got 179 who are out of scope—what does 'out of scope' actually mean?

Mr Cunliffe : I think we have explored this at a previous hearing—and I cannot remember which one it was.

Senator JOHNSTON: It has been going for quite some time. Forgive me for having a memory that cannot go back as far as it needs to.

Mr Cunliffe : I understand, I share the difficulty—and probably worse. The terms of reference which the DLA Piper people were provided with covered a range of action but had a particular character. My understanding is that numbers of people whose matters did not arise within the broad issues—it may have been, for instance, a commercial dispute or some sort of dispute of that nature—nevertheless went forward to the DLA Piper team. Then a process was set in train, which I am sure we have previously discussed, where each matter that was determined by the review team not to be within the scope, subject to which category it came in, was then shared with the Defence General Counsel. If the Defence General Counsel agreed, the process then went forward to the Ombudsman who had the final say in relation to those matters. If the Defence General Counsel considered otherwise—and there was a range of those where that was the case—they were returned to DLA, in effect, with a suggestion that they should look further or that there was an alternative view.

Senator JOHNSTON: How many were returned to DLA Piper?

Mr Cunliffe : I might have to come back to you on that. I know that I have had a figure previously but I do not know that I have a current figure today.

Senator JOHNSTON: That is fine.

Mr Cunliffe : But in a sense, the 179 were the ones that were left at the end of that process.

Senator JOHNSTON: So the 775 include those re-referrals from Defence General Counsel?

Mr Cunliffe : Many of those were then found to be within scope and they were included in the final number.

Senator JOHNSTON: Did you say that the Inspector-General conducted some inquiries—or was it the Defence Ombudsman?

Mr Cunliffe : Both, Senator. In some cases, as I said, the advice to me was that nine cases were referred to the Inspector-General ADF as being a more appropriate avenue.

Senator JOHNSTON: And he has dealt with those?

Mr Cunliffe : Eight of those have been completed according to the advice to me.

Senator JOHNSTON: And one is outstanding.

Mr Cunliffe : I gather such.

Senator JOHNSTON: And what is the result of the eight?

Mr Cunliffe : I cannot answer that. I think that is a matter that the Inspector-General would be better placed to respond on.

Senator JOHNSTON: All right. We will ask him that—if he is around somewhere. The balance is the 170-odd, I take it, given there is nine we have talked about?

Mr Cunliffe : Yes.

Senator JOHNSTON: So there is 170. Now those 170 have been written to and told they are outside scope?

Mr Cunliffe : As I mentioned, 128 were advised by the review directly that they were out of scope.

Senator JOHNSTON: When were they advised of that?

Mr Cunliffe : Each progressively.

Senator JOHNSTON: 'Progressively'?

Mr Cunliffe : I think that is right. As each matter emerged, I think there was advice to them. I will double-check that.

Senator JOHNSTON: So there is about 40-something yet to be advised? What has happened to the difference between 129, take off and nine and the 170?

Mr Cunliffe : As I understand it, they are subject to decision by the minister.

Senator JOHNSTON: Okay. Thank you.

Mr Cunliffe : I should also mention that there was also a category where the review team identified a conflict of interest or a possible perception of a conflict of interest. So 35 of those the processes indicated would be referred to the Ombudsman, assuming those individuals agreed to that, and 22 of those apparently did consent to the Ombudsman's referral, so that step happened.

Senator JOHNSTON: Just explain to me the nature of the conflict of interest?

Mr Cunliffe : I think they were matters on which one of the review team or perhaps the firm involved had previously acted. Or in the case, presumably, of Professor Pearce, a case which he may have considered in one of his previous lives most likely as Defence Ombudsman.

Senator JOHNSTON: So the mechanism was available for the review team to handball that to the Ombudsman?

Mr Cunliffe : Yes.

Senator JOHNSTON: So that was a fall-back type position?

Mr Cunliffe : Yes. Obviously it was necessary because we knew there would be some cases, as there were.

Senator JOHNSTON: Let's go back to the 775. Where are we at with them?

Mr Cunliffe : As I indicated at the outset, to my knowledge we are in no different a position than we were in May.

Senator JOHNSTON: Have told the 775—are we talking people or complaints?

Mr Cunliffe : We are talking 775 people and 1,095 allegations.

Senator JOHNSTON: Have we told them that they are within scope and that their complaints have been received and acknowledged as—what is the word?—'plausible'?

Mr Cunliffe : The minister indicated 'plausible'.

Senator JOHNSTON: Have we written and told them?

Mr Cunliffe : We have not.

Senator JOHNSTON: I'm sorry, not 'we'; has DLA Piper written and told them?

Mr Cunliffe : I do not understand that has happened in that range of cases, no.

Senator JOHNSTON: So these people made a complaint before April of last year and they do not know the outcome?

Mr Cunliffe : Again, that is not necessarily the case. As you have been advised before, the matters continued to come in until well after the identified deadline.

Senator JOHNSTON: Let's just say they did it sometime last year and they do not know whether they are on the list as plausible or not.

Mr Cunliffe : I understand that to be the case.

Senator JOHNSTON: What are we waiting on now?

Mr Cunliffe : Instructions from the minister as to the next steps.

Senator JOHNSTON: As we were in May?

Mr Cunliffe : Yes.

Mr Lewis : These are complex matters, of course. I think the minister was quoted in this morning's Australian as saying that decisions are imminent. I do not have his precise words available, but we are expecting the government decision announcement in coming weeks.

Senator JOHNSTON: Just to be a bit fair here, is there any particular reason that springs to mind at the table as to why nothing has occurred? Is there some constitutional issue, is there some difficulty as to why nothing has occurred in the past four months?

Senator Feeney: I do not think it is appropriate that we speculate. This is a matter that is before the minister and government is yet to make a decision. It does not assist and is, indeed, inappropriate for us to speculate.

Senator JOHNSTON: There is no plausible legal or other reason as to why there has been a delay; there has just been a delay?

Senator Feeney: I guess I am saying that the reasons that the government have not yet made a decision are indeed a matter for government. But I do note that the minister had some remarks in the media today on this matter. Above and beyond that, that is all we are in a position to say.

Senator JOHNSTON: Is there anything else you can tell me about the progress of this file, Mr Cunliffe?

Mr Cunliffe : Responsibility at the overarching level does not sit directly with me currently. Ms McGregor and Mr Tomkins now run what I would call the overarching coordination process. I defer to them specifically on the narrow issue. I do not think I have too much to add to that.

Senator JOHNSTON: I thank you for your assistance to this point. Ms McGregor and Mr Tomkins, what can you tell me?

Ms McGregor : Both Neville and myself have responsibility for the response unit within Defence. But as has been pointed out, this has been a fairly arms-length process because of the engagement of DLA Piper. However, I can confirm that counselling and crisis intervention support was established from the outset of the review and that remains available to existing ADF and APS personnel as well as former ADF personnel and families.

Senator JOHNSTON: This is the 775?

Ms McGregor : They have all been made aware of the availability of these services.

Senator JOHNSTON: How were they made aware of that? This is the first I have heard of this.

Ms McGregor : Details of the counselling services have been contained in various publicly available products developed by the DLA Piper review, including its website, explanatory material, automated email responses. This has been ongoing since July 2011.

Senator JOHNSTON: But no personal direct addressed mail about the availability of these services to each of the 775?

Ms McGregor : I am unaware of that. Some of the other elements that the department put in place were to raise the awareness of the support services ourselves through our own website and other Defence publications, needing to ensure that the reach was as far as possible. We do have some advice from DLA Piper as to the extent of contact. DLA Piper has reviewed its records and has confirmed that 737 of the 775 have been provided with details of counselling services. I am not quite sure how that has occurred.

Of the 38 people that DLA Piper cannot confirm as having received or accessed information, four said they did not want to be contacted, four had no contact details, six were anonymous, six were referred by third parties and the review recommended that one person be contacted in phase 2 regarding the matter. The remaining 17 raised allegations in the media and therefore DLA Piper is not aware of them separately lodging complaints directly with the review. That is the extent of what we know. Given the breakdown of that, one presumes there has been contact, but I am not quite sure of the mechanism.

Senator JOHNSTON: What about the utilisation of our services? Have we been able to track and cross refer and correlate the 775 to the utilisation of the advertised services?

Ms McGregor : We do not know who the 775 are. We do have some information. As I say, we are unaware of the identity of most of the complainants. Access was provided and also extended through DVA. Through the support services we manage we are aware that eight calls have gone to our employee assistance program. They identified as DLA Piper. Eight calls went to DCO. They identified themselves as DLA Piper related matters. There were two calls to the ADF or our support line.

Senator JOHNSTON: Did they identify themselves as DLA Piper?

Ms McGregor : Yes.

Senator JOHNSTON: So 18 all up.

Ms McGregor : Yes.

Senator JOHNSTON: All right. Just explain this to me. What is the title of your group?

Ms McGregor : The Defence People Group.

Senator JOHNSTON: Sorry. I mean the specific group that is dealing with the DLA Piper issue that you are in.

Ms McGregor : The Organisational Support Unit.

Senator JOHNSTON: You have endeavoured to keep that at arm's length from DLA Piper. Why precisely have you done that? I think I have a fair idea, but for the record could you tell me that.

Mr Tomkins : We set up the organisational response unit to prepare the organisation for the government's announcement on phase 2. As part of that, we acknowledge that the welfare and safety of all of the individuals concerned with relation to volume 1 of DLA Piper is paramount. Through this process, we have put in quite exhaustive arrangements to ensure that, whether they be complainants or suspected individuals, they have support arrangements within Defence and elsewhere.

Senator JOHNSTON: When was your group stood up?

Ms McGregor : May this year, I think.

Mr Tomkins : It has probably been in place now for about three to four months.

Senator JOHNSTON: Do you know the exact date in May?

Mr Tomkins : Yes. We had a small team of two individuals initially in order to start thinking about the support arrangements that need to be put in place. We then proceeded with the appointment of a one-star, Brigadier Mark Holmes. From that point onwards we have been able to build the team and start preparing for phase 2. If I can just take a moment, I will come back to the exact date of Brigadier Mark Holmes's—

Ms McGregor : It was 24 July. That was when Brigadier Holmes was appointed.

Senator JOHNSTON: How many are in your team?

Mr Tomkins : At this moment we have eight individuals: four from the Australian Defence Force and four APS members.

Senator JOHNSTON: A brigadier and three others?

Mr Tomkins : That is correct.

Senator JOHNSTON: What are the ranks of the three others.

Mr Tomkins : I can come back to that. It is about the O4/O5 level.

Senator JOHNSTON: What does that mean?

Gen. Hurley : Major or lieutenant colonel.

Senator JOHNSTON: Okay. Forgive me for not knowing that. What have you been doing since July?

Mr Tomkins : We have focused very much on what support arrangements can be put in place for the individuals concerned, whether they be complainants or alleged perpetrators. We have also been turning our mind to how Defence can best support the decisions of government as part of phase 2, and we have also been liaising with the Department of Veterans' Affairs and other stakeholders to ensure that all the arrangements can be secured ready for the government's announcement.

Senator JOHNSTON: Has there been any specific cost for this group?

Mr Tomkins : The coverage that we have as part of the organisational response unit is staffing of up to 12 individuals. We have eight on board at the moment. When we know what the government's decision or the minister's response to phase 2 is going to be, we will gear up as appropriate.

Senator JOHNSTON: Thank you for that. Mr Cunliffe, have we had any advance on the $10 million we have spent on DLA Piper to this point?

Mr Cunliffe : As at 10 October, I can give you a figure which is just short of $10½ million: $10,490,893.68.

Senator JOHNSTON: So we have added $490,000 since May.

Mr Cunliffe : I cannot remember exactly what the number was at that point.

Senator JOHNSTON: I thought it was around 10.

Mr Cunliffe : It was around 10. I think that is right. But, yes, that would be the case. There is continuing work and there is continuing demand for matters and I guess there is also inevitably, as in all bills, some delay in the matters being finalised and forwarded to us.

Senator JOHNSTON: What sort of continuing work have they been doing?

Mr Cunliffe : They continue, for instance, to update us on further contact. They continue to follow up with people who contact them. They continue to provide assistance to us when we have queries and requests and indeed with preparation for this meeting, so the details, for instance, of the provision of advice to individuals is something which we obviously need to rely on them to provide. We cannot do it ourselves. I would get you a breakdown of exactly what is coming in that period if you wished.

Senator JOHNSTON: I really would appreciate that, thank you. It seems these costs are running at an extremely high rate, but that is another matter. I would appreciate a breakdown. Chair, I have no further questions on this subject and but I believe other members of the committee do.

CHAIR: Senator Eggleston, are you on the same matter or should I go to Senator Humphries first?

Senator EGGLESTON: It is the same matter, the opening statement.

CHAIR: Senator Humphries?

Senator HUMPHRIES: I am on the opening statement as well.

CHAIR: We will go to Senator Eggleston, on the opening statement.

Senator EGGLESTON: As a general question, General Hurley, over the last few estimates I have asked some questions about defence services in the Pilbara and I understood that you were taking a group up to that area. I wondered if you had done that and what your thoughts were.

Gen. Hurley : We were planning to take the chiefs of staff committee up to the Pilbara area next month, about 12 November. I have decided to take them down to Perth as a whole. The vice chief will continue up to the Pilbara region to engage up there but in Perth we will engage with industry business leadership that is involved in the Pilbara region and that then links in with the AUSMIN, the Australia-US Ministerial Consultations meeting, which is on the next day. Firstly, for one reason it was getting particularly practically difficult to get me and others in the right place to do both activities. Secondly, there was some cost involved with going to the Pilbara that, frankly, I did not want to pay to use service aircraft to access airfields and so forth, so I have split the task and got the vice chief to go up there. We will relook at it but it really conflicted with a number of activities that came up that week.

Senator EGGLESTON: Thank you. I thought you had already gone and that is why I asked the question.

Gen. Hurley : It is just about on the cusp.

Senator EGGLESTON: Okay. Thank you.

Senator HUMPHRIES: At the time of the budget and again today Mr Lewis affirmed the government's intention to cut out about 1,000 public service positions from Defence in the course of this and the next few financial years. I understand from the last estimates that there was a workforce review of civilian positions across the whole of Defence that had been convened to determine where those cuts would fall. Can you update us on the progress of that review? Has it finalised its report?

Mr Lewis : I believe you would be referring to the shared services review that was conducted by Air Vice Marshal Plenty and Mr Steve Grzeskowiak. That report was in relation to further shared service opportunities inside Defence and it identified ways in which we could accelerate reform particularly in the fields of HR, non-equipment procurement and, lastly, ICT.

Senator HUMPHRIES: I am not entirely sure that was the issue that was being raised with me. I was raising it in the context of the published table in the budget documents which referred to a number of positions being cut in the Defence Materiel Organisation and Mr King told me at the time that the figures were notional because there was work going on across the budget to determine where the thousand positions, the ones that the government had identified would go, would actually fall. So if it is the shared services review that identifies the thousand positions, then that is what I want to hear about it. If it is not, I want to hear about what Mr King referred to. He spoke of a team:

… that is actually looking at our work demands across all of Defence. The final allocation of the civilian Defence cuts would be dependent on priorities and needs …

Mr Lewis : Yes, we are talking about the same thing.

Ms McGregor : Senator, your question is about the thousand and how we are managing to get that reduction?

Senator HUMPHRIES: Yes.

Ms McGregor : Since the budget and when we knew about that number, the activities we have undertaken have been a slowing down of recruitment, so there have been more stringent approval processes and really getting to the heart of the criticality of those positions and whether they could be delayed or rejigged. We were also hoping that natural attrition would take up a lot of this, but it has not changed markedly. So we have instigated a targeted voluntary redundancy process, which I think Mr Lewis mentioned in his opening statement.

So, at this point in time, our numbers are coming down and we have offered around 243 VRs. That figure will still move because, under the requirements of the Fair Work arrangements, you cannot target individuals and you are actually asking for the identification of positions that could be done away with. So that process has taken some time to identify. After having sought expressions of interest from people, we are now matching the process to see which positions and people can be moved away. We are tracking our staffing figures very assiduously and, depending on how much contraction is able to be achieved, that is what will determine the scale of the VRs. But we would not anticipate that it would be more than 400 or something like that.

Senator HUMPHRIES: So, of the thousand targeted positions, how many have actually been achieved to date?

Ms McGregor : It is not all going to be voluntary redundancies, so perhaps I can give you where we are in terms of the latest staffing figures. As at our pay period 5—

Mr Lewis : While Carmel is looking for those figures, I will just to repeat that the thousand will be achieved through a combination of natural attrition, redeployments to other roles, slowing down of recruitment and VRs. So it is those four elements that we will use.

Senator HUMPHRIES: To other roles outside Defence?

Mr Lewis : Yes.

Ms McGregor : I just want to clarify that the thousand is over two years. We are trying to come down to a figure of 21,195, and we are currently at around 22,150. But that moves every day. We take stock every fortnight as to what needs to happen in terms of how far will need to go with VRs. So we still have a way to go to get down to that figure.

Senator HUMPHRIES: Perhaps you could take on notice to tell me how far you are down that pathway, from where you started to where you are going and what point you have reached. That would be useful. You mentioned that there are 243 VRs on offer at the moment. Have any involuntary redundancies been initiated?

Ms McGregor : No, and we do not anticipate that.

Senator HUMPHRIES: Has the process that Mr King referred to as a 'workforce review of civilian positions across the whole of Defence' actually got underway, or was that a byword for the shared services review?

Mr Lewis : That was the report to which I referred when I thought I understood where your line of questioning was going. That work was completed, and we used that as a basis for a decision by the Defence committee in relation to accelerating the shared services reform. That led to the four key initiatives in shared services that I mentioned before.

Senator HUMPHRIES: When was that work completed?

Mr Lewis : It is underway now.

Mr King : Senator, do you mean the review that was conducted?

Senator HUMPHRIES: I am asking about the review you referred to last time around, Mr King. I am told that this is the shared services review.

Mr King : The review was done—

Senator HUMPHRIES: I want to know when was that work completed.

Mr King : The review was done and it recommended acceleration of shared services in four key domains. The implementation of the accelerated shared services work in each of those four domains is underway right now. One of those is HR consolidation under the Dep. Sec. DP, and if you want to know about HR, I am sure that Ms McGregor will talk to you about it.

Senator HUMPHRIES: What I want to know is when was that shared services review completed?

Ms McGregor : The review that identified where we could harvest some positions from in shared services was completed around August. That was also a part of this process of trying to downsize, to look in areas where we were already pursuing other efficiencies. So we are trying to work towards a target of reduction in the Defence People Group, but it is one strand of the whole process where we are looking at the voluntary redundancies and hoping to find them where we were asked to make reductions. Does that clarify it, Senator?

Senator HUMPHRIES: It does somewhat, yes.

Mr Lewis : Just on timing, I am advised the report was completed at the end of June and considered by the Defence committee in July.

Senator HUMPHRIES: Thank you very much. You have mentioned, Mr Lewis, or was it you, Ms McGregor, that there have been some lower numbers of natural attrition churning through the department than had been expected.

Ms McGregor : It is about seven per cent.

Senator HUMPHRIES: When we last spoke about this, I was focused particularly on numbers in DMO. As you recall, Mr King, the budget papers show that there will be a substantial reduction in numbers of civilian staff in DMO, but notionally, or on paper, it shows an increase in the number of uniforms coming in to the DMO ranks. That was expressed to be a notional idea. Where do we stand today with the table on page 143 of the PBS?

Mr King : I am just getting the numbers for you; I may have to provide them a little later today. The result of that review in broad terms was DMO was not subjected to the full notional reduction that was foreshadowed in the PBS. The review team did a complete study of the defence workforce, obviously including DMO, and reallocated or specifically allocated workforce reductions to areas such as shared services. Part of that process foreshadowed civilian employment reduction in DMO. I will get you that number, but it was a significant reduction to the number that I had to find efficiencies for. From my point of view, as a very selfish point of view, that was a good outcome.

Senator HUMPHRIES: I would like to know, as per that table, the estimated number of workforce figures for each of those services.

Mr King : I will have that to you shortly.

Senator HUMPHRIES: Fine. Thank you.

Senator KROGER: I would like to direct a couple of questions to you, General Hurley, in relation to your opening statement. You touched on RAMSI and the Solomon Islands. Can you give us some details: how many reservists do we still have based in the Solomon Islands?

Gen. Hurley : It is about 80. The number varies depending on the constitution of that organisation—it depends on who is providing how many platoons: PNG, Tonga, Australia and New Zealand—so the mix changes over time.

Senator KROGER: I understand from your statement that we are in the transition stage now. When do you believe we will be at a stage where we will have had full withdrawal of troops? Is there a date, or is that still a work in progress?

Gen. Hurley : We have not really formally entered a transition process yet, but we know that by about this time next year we will have ceased operations there. We are really deeply into the planning process now as to how we extract ourselves.

Senator KROGER: Sorry, I took it from your statement that we had started to draw down—

Gen. Hurley : In the sense that we are discussing with the different countries and departments and so forth about how this might occur. My apologies if I misled you.

Senator KROGER: No, I misunderstood. In relation to Nauru and establishing the temporary facilities there, how many Defence personnel have been involved in that process?

Gen. Hurley : Between the two islands it has been in the order of 250 to 300. It varies as to which stage of construction we are in, but no more than 300 on the two locations.

Senator KROGER: Over what period of time, again—could you remind me?

Gen. Hurley : In August—I will just get a date for you. I will come back to that, but as soon as the decision was made to open them we were there within a week. Essentially, we are off Nauru now. There would be a few people there, running a water system. We will complete the work on Manus Island by the end of this month and those people will be extracted. So it is probably over a two-and-a-bit-month period where that work has gone on.

Senator KROGER: You do not believe that there will be any role for the ADF to have anybody on either of those islands in the future?

Gen. Hurley : We are working with DIAC to reduce any requirement for the ADF to continue to man facilities there when their contracts cut in. We were really there constructing a bit of interim management of some of the life support systems until the contracts were in place.

Senator KROGER: Could you provide a breakdown of the level and rank of the 250 or so personnel that have been involved there—you do not need to do it now—and where they were from? Where they were deployed from?

Gen. Hurley : Yes, I could.

Senator KROGER: As I said, I do not need that now. In terms of the cost of it, I presume that you have a budgeted figure for what this has cost the ADF?

Gen. Hurley : It cost $10.1 million.

Senator KROGER: Do you absorb that cost? Does the ADF absorb that cost in the budget—going back to the earlier discussion—or is that cost directed elsewhere, for instance to DIAC?

Gen. Hurley : No, we absorb that cost.

Senator KROGER: So all those costs are absorbed? As are the costs in relation to any request to intercept boats?

Gen. Hurley : That is correct.

Senator KROGER: Do you keep a separate figure of those operations—what the costs are for those operations?

Gen. Hurley : Yes, there would be a cost under the conduct of op resolute on an annual basis.

Senator KROGER: Do you have a specific cost for the last financial year to date? Since the middle of the year; since July?

Gen. Hurley : It is in the order of $9.5 million. That would have been to the end of last financial year because we were not doing the Manus and Nauru. So this financial year we will have to add those to whatever the costs are for the operation issue.

Senator KROGER: Sorry, could you repeat that?

Gen. Hurley : It was $9.5 million for last financial year, which was your question. And then any costs accrued for Manus and Nauru will be in this financial year so we will just need to wait until the end of the financial year to see the total cost of running those operations.

Senator KROGER: But that cost does not include the deployment of any of our vessels to intercept boats?

Gen. Hurley : The $9.5 million did, for the last financial year—yes.

Senator KROGER: It does.

Gen. Hurley : Sorry—just from 24 August to 17 September to Nauru—

Senator KROGER: So it is—

Gen. Hurley : On 24 August we deployed to Nauru and on 17 September we deployed to Manus Island.

Senator KROGER: Thank you. If I could just touch on Afghanistan very briefly? You touched on it in your opening statement, General, in relation to the ISAF commander's announcement to suspend joint operations for a brief time. You mentioned that that was back up and running again and that we were working together with the Afghan forces. Is that correct?

Gen. Hurley : Correct.

Senator KROGER: I noted that in your opening statement you talked about providing an opportunity for revetting. What did you mean by that?

Gen. Hurley : In conjunction with the government of Afghanistan and the Afghan National Army, for example, there was a process of going back through documentation that supported the recruitment of people in the ANA and also introducing new standards for recruitment into the ANA in this particular case. So it was complete biometric enrolment, because that had not been completed, and introduction of new recruitment vetting processes and revetting people who were in the armed forces under the previous vetting system.

Senator KROGER: Complete biometric determinations, if you like, of all those who are currently recruited, or for new ones?

Gen. Hurley : Correct—all those currently serving.

Senator KROGER: For those currently serving, though, you are talking about a lot of people.

Gen. Hurley : We certainly are.

Senator KROGER: Well over 100,000, I would have thought.

Gen. Hurley : It is a very simple process. There is a piece of electronic machinery which gathers the biometric data we are looking for in in terms of eyes, fingerprints and so forth, and it is a matter of standing in front of a person, going through those processes, documenting it and so forth.

Senator KROGER: How many personnel were scanned?

Gen. Hurley : In our province, for example, all the members of the 4th Brigade, which is about 3,000 or so people.

Senator KROGER: Very good. In Uruzgan province, as you have said, it is back to so-called normal operating practices in terms of the way in which they are working together.

Gen. Hurley : Correct.

Senator KROGER: That is all I have on that. Thanks.

CHAIR: Thank you, Senator Kroger. Senator Macdonald, are your questions still in the opening statements?

Senator IAN MACDONALD: Yes, thank you. With Mr Duncan Lewis's departure, will this booklet be reprinted? It is a great little booklet—congratulations. It is the first time I have seen it. How often is it printed?

Senator Feeney: Annually.

Mr Lewis : It is an annual book, isn't it? I imagine it would be printed on an annual basis.

CHAIR: Senator Macdonald, can you just explain what it is for Hansard.

Senator IAN MACDONALD: It is called Defence Fast Facts 2012—a little booklet with lots of very interesting information in it. I am just wondering if it will have to be reprinted with a new—

Mr Lewis : If we did that every time there was a significant position change in Defence, we would be reissuing the document quite regularly.

Senator Feeney: There would be 10 editions a year rather than one.

Senator IAN MACDONALD: That is what I was worried about.

Mr Lewis : Our budget does not extend quite that far. I imagine we will just maintain our regular cycle.

Senator IAN MACDONALD: Fair enough. That is the answer I was seeking, but well done to whoever does it. The real reason I raised it is that a colleague—I will not name her—has pointed out that the description of Gallipoli Barracks as being in the electorate of Brisbane is incorrect, and the correct designation should be the electorate of Ryan. I know the local member is very proud of the Enoggera Barracks in her electorate, so perhaps—

Mr Lewis : Thank you, Senator. I appreciate that.

Senator IAN MACDONALD: There is another question I want to touch on. I noticed media reports of a recent report on the social impacts of the American marines coming to Darwin. There were some, I thought, quite outrageous allegations made when this proposal was first raised, and I wonder if you could just briefly relate to me what the report was and what it actually said.

Mr Lewis : I am aware of the report. I am not sure I would be able to relay much detail about that for you right now, but I might call one of my colleagues to the table who might be able to give you a little bit more detail in relation to the report. It was quite a favourable one, really.

Senator IAN MACDONALD: The media report suggests that Defence Force Posture Review boss Major General Michael Krause was involved.

Mr Lewis : I might see if I can get someone to come to the table and help us with that.

Air Marshal Binskin : Sorry, Senator. Could you repeat the question.

Senator IAN MACDONALD: There is a news report saying that a review was conducted to stem claims that the decision to base a company of 250 marines at the Royal Australian Army Barracks at Robertson this year was done in secret. There were allegations made at the time that all sorts of social implications—I think rape and venereal disease were mentioned—

Senator Feeney: That question was asked in a previous estimates hearing.

Senator IAN MACDONALD: Yes. I am just wondering what this report says and what it is.

Air Marshal Binskin : The report you are talking about is a social and economic assessment of the marine corps rotations—not basing, so 'basing' is an incorrect term; they just rotate through on a six-monthly basis—and whether there was consultation. The initial assessments were developed in close consultation with Defence, federal government agencies, the Northern Territory government, key stakeholders from the community and interest groups in the Northern Territory.

Senator IAN MACDONALD: There were allegations that there would be all sorts of problems. I am wondering what this review said about that.

Gen. Hurley : The report was released on 4 October. It is available on our website. The initial social and economic impact assessments are an early step in our process to ensure the government understands the community's views and expectations. As the vice chief said, they were done in close consultation with the relevant authorities and stakeholders. The social assessment found that social impacts associated with the 2012-13 US Marine Corps rotations were minimal or even negligible. There was no impact on demand for housing, infrastructure or social services. There was negligible impact on the environment. The initial rotation went without incident, and we expect that standard of behaviour to continue in the future. The marine corps have a range of policies and procedures which help, guide and enforce professional appropriate conduct both on and off duty. So, in terms of the interaction of the marines who deployed into the community, I think, as we said this morning, there were two tickets for speeding and that is about it.

Senator IAN MACDONALD: Thank you very much for that.


CHAIR: If there are no further questions on the opening statements and no questions on outcome 1 program 1.1, we will go to program 1.2, Navy capabilities. Senator Johnston, did you have some questions here?

Senator JOHNSTON: Yes. With respect to Choules, can you give us an update on where we are at with the two transformers, their repair and the ventilation surrounding those transformer rooms, which I think is fundamentally the problem with them?

Vice Adm. Griggs : Would you like me to start with answering your question from earlier today about the transfer of the $10 million?

Senator JOHNSTON: Sure.

Vice Adm. Griggs : We have regular fleet screenings of all the different product lines with the DMO for our sustainment funding. We identified in March this year—before the budget—around $14 million, about 0.5 per cent of the overall sustainment budget for Navy, we wanted to put aside for unforeseen contingencies. We placed that into the submarine sustainment bucket, because that was at the time, prior to the budget, our highest priority in terms of funding pressure. We, of course, got additional money in the budget for submarines. When the Choules incident happened, we did not know what the ultimate repair bill was going to be. We made a provision of $10 million and we transferred that from the submarine sustainment into Choules.

Senator JOHNSTON: Okay.

Vice Adm. Griggs : In terms of Choules, I know that Mr King is very keen to tell you a bit of a story about this issue. There are some very important things we need to get across. It is probably best if Mr King starts off, because a lot of it is technical and I am not going to try and chance my hand at that.

Mr King : I prepared some material, some charts, in anticipation of this. Do you mind if I show the charts. It would make it easier to explain.

CHAIR: Do they need electronic—

Mr King : No, I had them printed so that I could bring them up. The reason I want to go through this is that in order to understand the problem you need to understand the technology. It will not take quite as long as this but it all starts in 1831 when—

CHAIR: We do go to lunch at 12.30, Mr King!

Mr King : Michael Faraday discovered something that actually changed the world. We would not have all this technology without him. What he discovered in simple terms was that, if you move a conductor through a magnetic field, you get a voltage; and, if you put a voltage on a conductor, you get a magnetic field while it is changing. That is the basis of all generation of power, electric motors and transformers. That is why I need to explain this problem. A way a transformer works—and I have a very simple case here—is that you induct a voltage on the primary side, which creates a magnetic field, and that magnetic field generates an output on the secondary side. I am sure that you are as amazed as I am when you see a city and wonder how all that energy gets in. If you look at it, you see a couple of relatively quite small powerlines and yet all the energy that that city uses comes down those powerlines.

There were some experiments to find out other ways to distribute power to cities, including water systems. Some lifts in New York, for example, were using water power. There is also a thing called DC electricity, which is direct current. But the way they found that they could distribute energy with low losses and a high current or a high energy was by very high voltage. This same application of electricity and distribution is what applies in the Choules. The higher the voltage that you create, the less current that has to flow. An analogy for those who may not be engineers is that voltage is a bit like pressure and current is a bit like water flow. So the higher the voltage you make, the less current you have to have; and the less current you have to have, the less energy you lose.

What you do—and you see this in the powerlines and in the ship—is generate very high voltage and distribute that to the city. You then transform it down to a lower voltage and use it. The reason that you have to transform it down is that at those very high voltages it is a very risky business. So the towers that we have that distribute electricity around our cities, for example, are all about keeping the wires away from each other and away from people. If you try to put that voltage in your house, you would walk in the door and be electrocuted. So we have these transformers to step it down to a safe working level. In Choules it is 6.6-kilovolts on the primary side and 2.2-kilovolts on the secondary side. So it is a step down. Broadly speaking, with a transformer, energy in equals energy out. In the electrical world—once again, broadly speaking—voltage times current is the energy, so if you step down the voltage you step up the current on the output side. There are some losses in that—you get magnetic losses through hysteresis and you get circulating currents called eddy currents. But, broadly speaking, that is right: energy in equals energy out.

In Choules, not only do we have transformers for the propulsion system—this is called a single phase—we actually have three-phase transformers. I have to do this little bit because it will explain some of the problems we have encountered. On the secondary, not only do we have three-phase but we have two different types of three-phase: a star three-phase and a delta three-phase. The important thing from that is that in the winding of a star three-phase the current is higher than the current in a delta three-phase. Hopefully, that will show you the relevance. This would all be fine, except that you have to put insulation around those wires because if you do not they will short-circuit and, of course, you will not get the effect that you want.

Looking at the next one, I have extracted this from a scientific paper; I should actually recognise the author but I do not have the name here. Broadly speaking, transformers are designed with a certain life and what happens is they have a series of events. Those events can be heat stressing, they can be voltage or current stressing or they could be mechanical stressing. Each time you get a stressing event you get certain incidents and insulation stress. At some point in the life of a transformer—it might be five years, it might be 50, depending on the life of the transformer—eventually you get a failure where the insulation breaks down, and when the insulation has broken down you get a short-circuit and the transformer fails. Going to the next one, you can see here that this transformer has had a series of incidents. It is still working okay until at some point, when that insulation has deteriorated sufficiently, it breaks.

I want to point out just what we are looking at here. We are actually looking at two different types of transformers using two different applications. One is the propulsion transformers. As I said, they are a three-phase transformer and there are two of them in each arrangement. That is done for a very clever reason: they actually phase shift each of those 7½ degrees, which gives you 15 degrees total phase shift. By doing that you get reduced harmonics. That means that some of the filtering that you would normally have to put in the ship you do not have to put in. Siemens are the producers of this. It is a Siemens proprietary system used in commercial shipping. The one we are talking about there is marked in red—that is where our failed one is.

We also have power distribution transformers, which are used to distribute normal power around the ship. I am just giving you here a sense of where these are located in the ship. I will explain how that operates. We have diesel generators up forward generating the power. Those power supplies could be interconnected at that place, so if we had one diesel down we could still connect power. It goes through a switchboard. It then goes back to the double transformers—I am showing the propulsion transformers here, and the one in red is the one that catastrophically failed. What you see back there is that, with this design, once one side or the other of the propulsion transformers has failed you are down to one system of propulsion—you cannot cross-connect. That steps it down to the 2.2 kV, it goes through the converters and then drives the propulsion pod.

We had the failure on that starboard transformer. It is catastrophic. I will now show you the transformer itself to give you a sense of scale. These are about 6½ tonnes, 2.2 metres in length, 2.1 metres roughly in height and about two metres in depth.

Going back to what has happened here, when we went to buy the ship we conducted all the tests and trials and we had a report on the ship from the UK about how the ship stood up, from its previous history and so on. We conducted trials at that time. We used an independent agent to help us with that assessment of the ship, and that included the assessment of these devices. Before we came back to Australia we did another series of checks of the modifications that we did in the UK and, because there had been a history of heat in that compartment, we added a class mod which was to increase the cooling into that compartment where this transformer is located.

When we returned to Australia and the Choules had set out to sea for this mission, we had this failure. The ship came back and we immediately brought out Siemens to Australia to help us with the investigation, and AMP who are the class management group in the UK, who are resident here now, to assess what had happened. It was clear that we had had a major burndown in that transformer, that it had shorted out, arced out. It had not caused burning, because part of the design of these is that they do not burn. That is part of the safety feature. When we conducted those trials, we obviously did the right thing and had the manufacturer conduct electrical trials of all the other transformers and they came up with a clear bill of health, as they had previously back in the UK.

At this point I need to explain a little bit of the structure here. Instead of having wires like I showed in that theory diagram, there are actually plates round and round, a bit like a tinfoil plates, because they carry a very large current. What you are seeing there is actually the outside; we are looking at a cylinder nearly two metres high, enclosed, and in it is a primary circuit. Sitting inside that cylinder in two stacks are the secondary circuits. The lower one is the delta and the higher one is the star winding.

We had to get a repair mechanism to remove the transformer from the ship, and you saw where it was, and the easiest way to get out of the ship, as it turned out, was to create an access hole in the ship at that point. Obviously it was very heavy so we needed to get it managed well to remove it. When we disassembled it, we found deep in the assembly—inside, in the secondary windings between the lower and the upper, between the delta and the star winding—that it had short-circuited. It took us some time, obviously, to get that transformer out.

By the way, when we had the initial problem, the first thing we did was to go back to the UK and say, 'Have you got any similar problems?' They came back to us, saying that all their readings were okay and all of their transformers were okay.

Senator IAN MACDONALD: And they have never had a problem on any other similar ship?

Mr King : No transformer failures, no. There have been some transformer failures in some commercial ships that use a similar transformer, but no failures in the same class of ship as ours.

We had done what they call 'borescope' work. We put in a camera and looked inside, but not in this very difficult spot. So when we got that transformer out and pulled it apart and were able to see where the physical damage was—it had arced over—we then went and did borescope inspections at that same spot in our other transformers, and what we have found there is ageing. We have now gone back to the UK again saying, 'We need you to look at your transformers now in this same place.' The first opportunity that a ship is available is Bahrain on the 25th and 26th, and the UK and Siemens and a person from our team who is very familiar with this problem are going out to look exactly in that spot in the ship. This is the last bit of technology I will bore you with. This is a transformer that is deteriorating that has not failed. This is a borescope image of this transformer. It may not be a borescope, sorry—that may have been another one we have taken out. That is the bottom end of the higher secondary winding. Those rings around the bottom are actually installation caps. What you are trying to avoid is arc-over between one winding to the next. You can see what has happened there is that installation cap has deteriorated, which would mean that in certain circumstances that transformer could arc over.

Then we ask ourselves, 'What are the things that can lead to creating this problem?' We had DSTO involved and a lot of other specialists, including Siemens. A couple of things can. You can have, as I talked about before, voltage and current, you can have temperature, and you can have physical stresses. So when you first start up these transformers they are put under enormous physical stress to move with that generation of the magnetic field. It is not conclusive at this stage, but we are looking at a couple of things. Why are we getting this damage? Interestingly, why is it happening on the inner core more than the outer core? Temperature of the compartment is being pointed to, but actually embedded in the transformer is a temperature monitor that triggers if the transformer gets to be over temperature, and that has never triggered. Is it physical stresses that have caused this and what would cause them?

That is really where our review is. I think we have learned a lot. I think a summary of the situation is that we did all the checks you could responsibly do when we bought Choules, we have gone through all the certification checks since we have owned Choules, we have certainly run into a serious problem with this transformer and we are not yet at the end of the path of knowing what has caused the problem.

CHAIR: Mr King, we are going to break for lunch. Please continue your comments after lunch.

Gen. Hurley : I would just make the committee aware that Chief of Army is departing at 4.30, so if we could get to Army before that that would be very useful.

Senator JOHNSTON: I have some very quick questions on the cost of SPH. That is what I want to talk to Chief of Army about.

Proceedings suspended from 12:33 to 13:31

CHAIR: We will resume proceedings. Were there any answers or anything that you wanted to put on the record, Mr Lewis?

Mr Lewis : Yes.

Rear Adm. Walker : Just in response to the question on the number of participants and tenderers in the RFI and the RFT: Defence conducted an industry briefing on 22 February 2011, and this is commonly referred to as the 'Defence Health Services request for information'. According to our records, 27 entities attended the industry briefing and 23 entities responded to the RFI by the closing time on 4 April 2011.

The request for tender for the ADF Health Services was released to market on 24 August 2011 and 19 tenders were received by tender close. Following the screening of offers for compliance, four offers were found to be noncompliant and therefore excluded from further evaluation and 15 tenders were admitted for detailed evaluation.

CHAIR: Any more? Mr Prior.

Mr Prior : Senator Johnston, you referred to a question on notice that we had put to you and which identified with regard to the Defence 2009 white paper that there were approximately $200 billion-$230 billion funding required out to 2030.

Within that answer there was language of 'unfunded capabilities'. To make it clear what that means: it means that we have not received the appropriation for those sums of money for the white paper. That is not unusual, of course, because all Commonwealth agencies are funded on an annual basis for their appropriations. It is an unfortunate choice of word, 'unfunded'. It should have been 'unappropriated' to be clear. But in terms of budget planning, the sums of money involved are well and truly within our budget plan that goes out to 2030. But we are not appropriated for those activities as yet. And that is normal—if that helps.

Senator JOHNSTON: Where do I find the budget plan?

Mr Prior : You will find it in our PBS, and that has been the practice for many, many years now across a number of different governments, that the budget plans are articulated in the portfolio budget statements. That is the normal course.

Senator JOHNSTON: That plan will go to 2030?

Mr Prior : No. As you will see in those PBSs, Senator, they go for the budget year and the three forward estimates. If you recall, in the 2009-10 budget process we articulated the totality of those dollars, and that is where the original $245 billion to $275 billion came from: it was an articulation of the costs across those years out to 2030. But there is no articulation on a year-by-year basis. That is government policy. It has been the case for many years.

Mr Lewis : That is it.

CHAIR: Mr King, have you finished your presentation on Choules?

Mr King : Just to finish off the last minute or two, I will just make a point again which I think I have probably made. Just to be clear, though, one of the secondaries is star and one is delta. In a delta winding there is lower current. In a star winding there is a higher current in the winding. The failure that we are seeing and the breakdown is in the star windings at the moment. I will just point out there again that the secondary is a sheet, not a wire. You can see the sheets in that illustration there. Between each sheet is some insulation. So it is the arcing over from one sheet to another that causes the breakdown of the transformer.

Senator JOHNSTON: All right. Did we see Captain Wardell's letter to Mr Smith of Ships Projects Acquisition and Resourcing in the Disposals Services Authority, dated 6 February 2011, wherein he outlines some 21 issues with respect to RFA Largs Bay, as it was?

Mr King : I believe so. I would need to see the letter, but I believe we have it.

Senator JOHNSTON: I have a copy.

Vice Adm. Griggs : Is this the ship's engineer?

Senator JOHNSTON: I think he is the engineer, with the RFA. In the first paragraph—this is against No. 1—you will see that the captain, who I think is an RFA engineer, says that the vessel is:

Unable to maintain full speed due to overheating of propulsion motors and transformers. DEFREP ME01-11 refers.

The lack of natural ventilation in the transformer rooms is a constant cause for concern. The fan coil units … fitted to cool the rooms cannot cope when the ship is operating at higher speeds, especially when in higher sea temperature conditions. Any loss of supplies to the FCU's will result in the transformers overheating. A natural vent would funnel the hot air out of the rooms and the FCU's could then become a secondary means of cooling.

The running of equipment at near maximum temperatures on a regular basis will likely cause the early failure of the motors and transformers.

So, Admiral, what were we doing when this failed?

Vice Adm. Griggs : The ship was on passage up the New South Wales coast. I believe it was around one in the morning. It was doing nothing other than steaming, and I believe it was at about 13 knots, which is not maximum speed.

Senator JOHNSTON: Sea Training Group were on board?

Vice Adm. Griggs : I would have to check on that. There was certainly no activity going on at that time.

Senator JOHNSTON: I am advised that Sea Training Group were on board and conducting evolutions and ordered the shutdown of the generators in a crash situation.

Vice Adm. Griggs : Not at one in the morning. They would not be.

Senator JOHNSTON: All right. I am advised that a Fleet Auxiliary officer was on board and advised against doing this.

Vice Adm. Griggs : There were no RFA personnel on board when the failure occurred.

Senator JOHNSTON: Have we conducted an inquiry into this?

Vice Adm. Griggs : We have.

Senator JOHNSTON: What are the results of the inquiry?

Vice Adm. Griggs : I do not have it yet. It is still coming.

Senator JOHNSTON: When did we have the hearing, and how many witnesses gave evidence?

Vice Adm. Griggs : It was an inquiry by one of my commodores. I do not know how many people he has spoken to. It is an extensive number. It has been going on since early August, I think.

Senator JOHNSTON: Early August, and we do not have the results yet.

Vice Adm. Griggs : No, because it is not just what happened; it is how we are managing the ship, whether we are managing it in accordance with the RFA direction and that sort of issue.

Senator JOHNSTON: Was there a directive with respect to the overheating of the FCUs and the operation of the vessel at full speed?

Vice Adm. Griggs : I think that was the trouble.

Mr King : Just to update this letter, as a result of issues raised about heating in this compartment, a class-wide modification was developed for additional ventilation cooling in those compartments, and we fitted that before we took delivery of the ship.

Senator JOHNSTON: You fitted that before you took delivery?

Mr King : Yes.

Senator JOHNSTON: What monitoring did you have of the temperature inside the FCUs at the time of this failure.

Mr King : The more important thing is: what is the temperature of the transformer? And there is an embedded sensor in the transformer, and it never triggered.

Senator JOHNSTON: A malfunction?

Mr King : No. There is a design ambient temperature that you want in the room around the transformer. Then there is a temperature above which the transformer in it should not exceed. There is an embedded thermocouple, an embedded temperature sensor, in each transformer so that, if a transformer core gets above the design temperature, the transformer shuts down.

Senator JOHNSTON: Is that what happened here?

Mr King : No.

Senator JOHNSTON: This had an arc over due to some form of stress, which we presume was heat?

Mr King : No. I need to go back to where we are because we do not know the conclusion yet. It could be voltage, it could be current, it could be heat, it could be physical stress.

Senator JOHNSTON: So there may be some design feature in these transformers that is inadequate in terms of their operational capability?

Mr King : There are a number of things that it could be. That is one of the options. There are also manufacturing defects. There are a range of things. We are going through them logically to determine what it is. But one thing, for example, is that we are seeing physical damage on the insulation of the capping, and we are trying to understand why that physical damage is there.

Senator JOHNSTON: It looks like heat damage to me.

Mr King : I have other images. I do not know whether I have one here that could show you absolute cracks. What is more likely, or a possible explanation, if I could just point it out to you, is around this bit here. This point here is a pressure point. It is possible that some cracking occurred around here and then—and we are just postulating this—because we have got this dense magnetic core in here, or an iron core that does the magnetic conduction, we are getting some sort of magnetic contraction delaminating this. That is actually not showing signs of real heat; that is showing signs of physical stress.

Senator JOHNSTON: If I can take you to item 2 on this bit of correspondence, which I will table, it states: 'The issue regarding the discharge of combustion products in the engine exhaust, cooling water discharge overboard continues. The problem appears to be worse on the start-up of the V12 engines when the load demand is high. Ship's staffs are managing the problem in sensitive ports and it is understood that RF.sub.D have a new exhaust design solution for the first RP.' Is that problem extant on our Choules?

Mr King : Not as written here. I know that we did something in regard to this. I need to get some information, which I have to do shortly. Just to be clear: the RFA are a very professional organisation that manage their ships very professionally. This is still one man's view. It is not necessarily a class view, or not necessarily the RFA's view. And whilst that is not to discredit the officer at all, it still remains his view about what the issues are and what should be done. What we complied with were the class solutions to the matters.

Senator JOHNSTON: Sure. Did you see this correspondence before we began to operate the vessel?

Mr King : Yes.

Senator JOHNSTON: And what did we do about these issues?

Mr King : We checked it. The UK were very good with us in the sale. They declared the materiel state of the vessel, the maintenance state of the vessel. We were given full access to the crew. We were given access to reports such as this. We checked all of that data. We had the independent check done with the assistance of a contractor. We then went through the list of class modifications that dealt with the matters as the class wanted to deal with them—many of them aligned with what this officer thought; not all of them did. The class took different actions on some, but we implemented those before we handed the ship over to the Chief of Navy.

Senator JOHNSTON: Let us go to No. 14, second paragraph. It says:

2 deck alleyways and mess areas suffer from strong Diesel Fuel odours which require further investigation. Additionally the Hospital and POSA Office can suffer from exhaust fumes when there is a strong wind from directly astern.

Mr King : I would have to take that one on notice. Whether or not there was a solution embedded for that or whether that is just a design feature of the ship, I do not know.

Vice Adm. Griggs : I certainly have not had any reports while we have been operating it along those lines, none that have come to me.

Senator JOHNSTON: We have not been operating it very long, have we?

Vice Adm. Griggs : We operated it for several months. We operated from November through to the incident in June.

Senator JOHNSTON: Seven months in fact.

Vice Adm. Griggs : Yes, and it did sail halfway around the world in that time.

Senator JOHNSTON: On the last page you will see that Captain Wardell nominates his six concerns in order of precedence. The first:

a) Failures of the Main ER intake shutdown vents - this is a significant safety issue.

What have we done about that?

Mr King : Can I short circuit that in a sense and say that I will get an answer to each of those and come back to you shortly. I do not know the answer to each line item of that.

Senator JOHNSTON: Very good. Tobruk was recently in Townsville. I happened to be in Townsville when I looked out on the horizon and at the end of the channel, some three or four nautical miles way, there was Tobruk anchored on the end of the channel. The manager of the port there said that it had blown a gearbox or a clutch.

Vice Adm. Griggs : It was a clutch defect.

Senator JOHNSTON: How long was it out of service and what has to be done to repair it?

Vice Adm. Griggs : The clutch defect was rectified in three or four days. The ship remained in anchor and was able to conduct its programed exercise—Exercise Sea Lion—from it position at anchor. So it achieved about 90 per cent of the objectives of the exercise. The only thing that did not occur was the actual transit from the ship over the beach and landing vehicles via the watercraft. But one of the primary aims of that was to get the 2nd Battalion vehicle drivers qualified in working off the back end of Tobruk off the ramp, and that was achieved while we were waiting for parts for the clutch.

Senator JOHNSTON: So we had to fly the parts up?

Vice Adm. Griggs : And the ship came back alongside and the defect was rectified.

Senator JOHNSTON: How did we get back alongside?

Vice Adm. Griggs : It came back on one engine with tug assistance.

Senator JOHNSTON: So the tug had to tow it in and tow it out?

Vice Adm. Griggs : It did not tow it, it assisted it in.

Senator JOHNSTON: And did we put contractors on board to do the repairs?

Vice Adm. Griggs : Yes.

Senator JOHNSTON: I do want to get to Success and see how that is coming along, but can we talk about Rizzo and where Rizzo is at, who is on the team and what direction Rizzo is taking?

Vice Adm. Griggs : Certainly.

Senator JOHNSTON: Mr Rizzo will forgive me for using his name in the way that we do, but it has become common parlance that—

Vice Adm. Griggs : I think he is getting used to it.

Senator JOHNSTON: I am sure he is.

Vice Adm. Griggs : Broadly, the program is on track. One of the big issues with the Rizzo program is people understanding the scale of what we are attempting to do—the scale of the systemic issues that he identified, as you know, go back 10 or 15 years, and we are trying to rebuild that. I know we have discussed here before, particularly with Senator Fawcett, the issue of where do you get the people to rebuild. That remains probably my single biggest challenge. The way that we are running the program, Mr King and I—we run it together—is through a program board and every couple of months we report to an implementation board, which is chaired by Mr Rizzo. So that keeps the focus on the program. We have six main project streams that are running. We have done some very good work in understanding cost of ownership. You will recall in his report that he talks about the 'bathtub curve' in cost for ageing platforms. I think we have a much deeper understanding of that than we ever have had—I think that is a fair thing to say. That has allowed us to do some preliminary work in trying to forecast future sustainment needs for some of our ageing platforms.

The big challenge with the Rizzo program, of course, is that, as he identified in his report but did not quantify, it was going to require more resources both from a human perspective and also in sustainment funding. We are still working through the quantification of that, and we will shortly be taking that to the Defence committee with our initial thoughts to see how we take that forward and how we get to the point where we want to be.

On 1 July we implemented the Seaworthiness Management System. I was appointed by the CDF and the Secretary as the Defence Seaworthiness Authority in a manner similar to the Chief of Air Force who, of course is the Defence Airworthiness Authority. That system is now nascent, but it is up and running. You may recall that in 2010 my predecessor instituted seaworthiness boards. What did not happen at that time, of course, was that no infrastructure was put in around those boards, so they operated freelance, if you like.

What we have done now is to make them an integral part of the Seaworthiness Management System, and their primary role is to assure me that that Seaworthiness Management System is working as it should. We had a particularly challenging board in April when we did the seaworthiness board for HMAS Success, which as you know had been alongside for a significant length of time. That board went very, very well, mainly through the efforts of Admiral Marshall and the fleet commander, Rear Admiral Barrett. I think I have said in the past that one of the reasons I put Admiral Barrett, as an aviator, into the fleet commander's job was because of his inherent understanding of the airworthiness system. He has brought that knowledge to the fleet and developed some very good approaches to the seaworthiness board process. We got some very good results from that board in what I consider to be challenging circumstances.

Senator JOHNSTON: A good answer, thank you very much. Let us just go back to the team: who is the team that is managing the 24 recommendations in the report of July 2011?

Vice Adm. Griggs : The actual day-to-day management is managed by the Director General Technical Seaworthiness, which is Commodore Mark Purcell. He reports directly to the Head Naval Engineering, Admiral Uzzell. You will recall that that was one of the recommendations in Mr Rizzo's report, to appoint a Head Naval Engineering.

Senator JOHNSTON: I am sorry, what was the naval engineers name? Admiral?

Vice Adm. Griggs : Uzzell.

Senator JOHNSTON: Uzzell. Thank you. How big is the Commodore's team?

Vice Adm. Griggs : It does go up and down. I think that between the DMO and Navy we have 36 APS and uniformed personnel and also a variable number of contractors, depending on the tasks that we are using them for at that time.

Senator JOHNSTON: And what are they actually called? The 36 are called what?

Vice Adm. Griggs : They are the Rizzo Reform Program team.

Senator JOHNSTON: The Rizzo Reform Program team. Have you given them specific functional objectives and an outline of what they are supposed to do?

Vice Adm. Griggs : Yes. There are six main projects, or streams of work, to group up the 24 recommendations. There is a small program management office to manage the six streams and then those personnel are divided up into those six streams of work.

Senator JOHNSTON: What are the six streams?

Vice Adm. Griggs : One is on seaworthiness culture. One is on lifecycle management. One is on capability management. One is on rebuilding engineering. The final one is the through life cost of ownership issue that I mentioned earlier.

Senator JOHNSTON: Do you count the PMO as one of the streams?

Vice Adm. Griggs : No, the PMO is above the six streams.

Senator JOHNSTON: What is the last one? I have got only five.

Vice Adm. Griggs : Integrated risk management is the last one, sorry.

Senator JOHNSTON: What is the threshold qualification or requirements for your 36 team members?

Vice Adm. Griggs : We have tried to have a mix of engineering and more generalist people. One of the biggest traps we could fall into in this program is to think that this is all about engineering. It is actually all about capability management writ large. One of the things I did at the end of last year was pull out 10 lieutenant commander-major level officers who were bound for the staff course at Weston Creek. That was not the most popular move, but I wanted to get a range of skill sets from a bunch of high-performing officers who were about to do the staff course onto the Rizzo team.

Senator JOHNSTON: You stopped them going to staff college and you put them onto the Rizzo team? I bet they were pretty happy about that!

Vice Adm. Griggs : I would be lying if I said they were initially, but we managed them very carefully.

Senator JOHNSTON: It is very important, isn't it?

Vice Adm. Griggs : That was my point.

Senator JOHNSTON: I do not criticise you for that move. I think this is really important.

Vice Adm. Griggs : We had logisticians, aviators, warfare officers—right across the spectrum. I promised them two things: one that, in terms of their promotion prospects at the midyear promotion board, they would be treated by the board as if they were at the staff course, so they would not be marked down, if you like—

Senator JOHNSTON: No detriment.

Vice Adm. Griggs : and also that they would have first call to do staff course next year. I think nine out of the 10 are going to do that and one wants to stay in the Rizzo program because of what he is getting out of it at the moment.

Senator JOHNSTON: Of the 24 recommendations in your six streams, give me the time frame when you see we will have moved towards getting the show on the road and the benchmark and threshold issues you see as indicative of success in terms of the rebuilding that Rizzo has ordained.

Vice Adm. Griggs : I have all 24 here. I am happy to go through them if you wish.

Senator JOHNSTON: I think it is important. If you want to tell us about it, I am happy to be entertained and I think the committee would like to too. Given what caused Rizzo, I think we need to surveil that.

Vice Adm. Griggs : I am quite happy to do that. I think the first thing is that in the final analysis it will take longer to tie off all the loose ends in these recommendations than was first envisaged. I think we are talking really about towards the end of 2014 for the last one. That really is the final completion. We are already seeing significant change happening both at the waterfront and the relationship between the DMO and Navy, for example, and the relationship between our systems program officers and the force commands. Those sorts of things are already happening now. Recommendation 10 was about refocusing fleet command on the importance of sustainment and the raise, train and sustain aspects of that. That refocusing in my view has already occurred. Admiral Barrett was part of that and it was part of the strategic position we took to put him in there. But the full implementation of all the changes and all the organisational changes that will flow from that will take a couple of years to bed in and, in some cases, to fill the additional positions that we have created, because you cannot just add water and get the sorts of people you need when you have a shortage of technical personnel in the first place.

Senator JOHNSTON: I am surprised you talk about 2014, given the long lead time to get those technical personnel in the nature of engineers, diesel technicians et cetera.

Vice Adm. Griggs : That is specifically about that recommendation. If you are talking about workforce recovery of the technical workforce, I think we are talking much longer.

Senator JOHNSTON: What do you see that as? I am interested to know that date—a rough estimate.

Vice Adm. Griggs : As a rough estimate I think we are talking 2018 to 2020. Of course, that depends on a whole bunch of other economic parameters, as you are aware.

Senator JOHNSTON: I do not think there is any need to go through it, because I think you are going to tell me virtually the same thing on many of the different recommendations and as you work through them. What is the cost you have set aside for this program and have you funded and costed out into that 2018-2020 period as to investing in getting the skills back into Navy?

Vice Adm. Griggs : So far we have $23.6 million for the difference project work to date.

Senator JOHNSTON: On those six headings?

Vice Adm. Griggs : Yes. In the budget you will have noticed that there was, in addition to fleet sustainment, additional funding there was additional funding for the Rizzo program. At the moment through the forward estimates there is $25 million a year allocated to support the Rizzo program. Some of that will be project work, but the majority of that as time goes on as the project work completes will be to provide the contractor support that we will need because we just physically will not be able to grow the people quickly enough. So we have tried to adjust to the reality that we are just not going to be able to—say we need 55 more naval engineers, it is going to take six or seven years to grow that sort of workforce.

Senator JOHNSTON: That brings me to your contingency plans, given you have five new ships coming on in the period of time that you have mentioned—2018 to 2020. What is the plan with respect to the technical engineering capability that they are going to need?

Vice Adm. Griggs : I think we are mixing issues here. From a Rizzo perspective, that is less of a problem. From a technical workforce perspective, if you compare Kanimbla, Manoora,Tobruk versus the LHDs and Choules, the growth is only 14 technical people in the platform themselves and most of those at a very junior level, which is actually where we are quite healthy at the moment. The real issue is in the systems program offices, the force groups and the headquarters level where you need the more experienced engineers. One of the ways we are going to try to get around that in the short term is the way we do the support and sustainment methodology for some of these new classes of ship. Mr King can talk to that in more detail. We are trying to reduce the Commonwealth core, if you like, of that wherever we can to reflect the reality of the people that are available and use the contractor support to achieve the same outcome.

Senator JOHNSTON: Okay, let's talk about Success. Where are we at with Success. I see Cantabria is coming out for 12 months, I think next year.

Vice Adm. Griggs : It arrives in February. It starts its journey home in November.

Senator JOHNSTON: So, what is that?

Vice Adm. Griggs : About a nine-month deployment in Australian waters.

Senator JOHNSTON: Where are we at with Success?

Vice Adm. Griggs : Today she is alongside in Sydney. She has been threatening to sail for several days. They are trying to fix an air-conditioning defect at the moment. She will sail as soon as she is able and that could be as early as tonight, though it might not be.

Senator JOHNSTON: How far is she going to go?

Vice Adm. Griggs : I think her program takes her down to Hobart in the next week or so.

Senator JOHNSTON: We have spent $130 million on Success in the last three years, have we not?

Rear Adm. Marshall : In the last three years, 1 July 2009 to 30 June 2012, we spent $98.17 million.

Senator JOHNSTON: I stand corrected. How would we describe the seaworthiness of this vessel?

Vice Adm. Griggs : Seaworthiness? She is seaworthy. She would not be operating if she was not seaworthy. As I have described her in the past, she is old and fragile.

Senator JOHNSTON: Old and fragile yet seaworthy?

Vice Adm. Griggs : Yes, there is no contradiction there. The reason she is fragile is that, unlike most other ships, she did not have a midlife upgrade. She is a victim of the same underresourcing the LPAs and Tobrukwere, so we should not be surprised that we get similar problems occurring. What we have been able to do in the last couple of years is invest in trying to make up some of those shortfalls.

Senator JOHNSTON: How is it that Cantabria is coming out for eight months?

Vice Adm. Griggs : In what respect, Senator?

Senator JOHNSTON: Are they out here just because it is a good place to visit, or are they doing work for us?

Vice Adm. Griggs : There are a number of reasons. Firstly, from a Spanish perspective, they are very keen to do a long long-range deployment, so this is a good thing from their perspective. From our perspective, the platform system commonality between Cantabria, the AWD and the LHD is quite significant and one of the main aims from our perspective is to get as many of the first crew of the first LHD and first AWD, particularly the technical side, to see in Cantabria while she is out here to get exposure, experience and familiarity with some of that equipment that is common to these three classes of ship. She will also of course provide a tanker option for us over the course of 2013 particularly when Success is in her next extended maintenance period.

Senator JOHNSTON: Is it costing us anything?

Vice Adm. Griggs : $14 million, approximately.

Senator JOHNSTON: So we have a contract with Armada—

Vice Adm. Griggs : We have a memorandum of agreement and we have a project agreement which is yet to be signed but will be signed very shortly.

Senator JOHNSTON: I am not at all critical of this; I think this is a very positive move. I think you said $14 million—

Vice Adm. Griggs : Approximately $14 million.

Senator JOHNSTON: Is that over and above the cost of operation?

Vice Adm. Griggs : It effectively reflects their cost of operation for coming out here.

Senator JOHNSTON: So that is the full extent of the cost that we are incurring for the eight months?

Vice Adm. Griggs : Yes. There is a maintenance period that they are conducting right now, I think, which we are funding a significant portion of, because it is in preparation for them to come out. Then there are the operating costs, and things like that.

Senator JOHNSTON: How much are we spending on that?

Vice Adm. Griggs : On that particular activity? I would have to get back to you with the detail, but that is all wrapped into the $14 million.

Senator JOHNSTON: It is all in the $14 million?

Vice Adm. Griggs : Yes, absolutely. The $14 million is total cost.

Senator IAN MACDONALD: Can you just give us details of what the $14 million is comprised?

Vice Adm. Griggs : We can do that.

Senator JOHNSTON: I take it that we would not need, or be wanting, to do this if Success was fully operational and reliable and not fragile?

Vice Adm. Griggs : I think the training side would still be a significant benefit for us in terms of preparation for LHD and AWD.

Senator JOHNSTON: Okay.

Senator IAN MACDONALD: What is the crewing on this ship when it comes?

Vice Adm. Griggs : Cantabria?


Vice Adm. Griggs : The crew is around 130. It will be Spanish crew. We will have a small liaison team on board.

Senator IAN MACDONALD: What does that mean?

Vice Adm. Griggs : Two or three people to help them.

Senator IAN MACDONALD: So what is the training element then if we have only got two or three people on board?

Vice Adm. Griggs : No, two or three people in a liaison sense permanently and we will have trainees coming on and off throughout the nine months.

Senator IAN MACDONALD: Is it an LHD?

Vice Adm. Griggs : No, it is a tanker, an ALR.

Senator JOHNSTON: So what are the planned operational exercises? What are we going to use our $14 million to do? Where are we going and what are we going to do with it?

Vice Adm. Griggs : She will be participating in all the standard training activities that Success would otherwise be doing.

Senator JOHNSTON: So the Anzacs and Adelaides?

Vice Adm. Griggs : Absolutely. She will also be participating in Talisman Sabre. That will also provide the Spanish crew with the opportunity to work with the Americans as well. So it will be actually quite a busy year leading up to the International Fleet Review and, of course, Cantabria will be the Spanish representative of the Spanish navy at the fleet review. Either side of the fleet review we have a major exercise and Cantabria will be participating in both of those and, of course, tanker assets, when you have got about 40 ships coming, become pretty important because what we want to do is fuel all the ships participating before they come into Sydney rather than trying to do that in Sydney Harbour.

Senator JOHNSTON: So what do we do after Cantabria goes home? Success will be operational and Sirius will be operational. The key issue here—and it has always been thus—is that a fleet of two does not guarantee you one. So we will have times, through the life of any sort of fleet which only has two ships in it, when both ships are in maintenance no matter how good your planning is. It is occasionally that one of those ships will have a longer refit period—it might be six months—and the other one will still have to do intermediate maintenance so there will be periods of time when both will be in scheduled maintenance.

Senator JOHNSTON: I am told when you flick the rudder over fully on Sirius the motor stalls.

Vice Adm. Griggs : I have no knowledge of that. I know we have this discussion regularly.

Senator JOHNSTON: Has anybody got any knowledge of that or is that just idle scuttlebutt that has no merit whatsoever?

Rear Adm. Marshall : With a ship like this and with the propulsion system that Sirius has, flicking the rudder hard over is not an operation that you should be performing because the load that puts on the engine becomes quite extreme. So if the engine stalls it means that the engine is running at low speed, or should be running at low speed anyway, but it is not an operation you would want to perform in the ordinary course of events for that ship. You may need to in difficult navigation piloting circumstances but it is not something you should be doing and it is not within the design parameters of that type of platform.

Senator JOHNSTON: But if there were extraordinary circumstances where the manoeuvring requirements suggested that such a manoeuvre was required we have a problem?

Rear Adm. Marshall : I am an engineer and Chief of Navy is a navigator and he might wish to comment. From an engineer's perspective if you are in that sort of a circumstance ideally you would like to have tugs on station.

Senator JOHNSTON: Sometimes we do not and things happen. I would be worried that this vessel has got some form of problem.

Vice Adm. Griggs : I have not had it represented to me in any way, shape or form that this is a routine operational hazard. As Admiral Marshall said, that particular circumstance is outside the design intent. One of the things that has come out of our approach to seaworthiness is similar to this, that we have a system where we are starting to develop statements of operating intent for each of our classes of ship. We have never had that in the past. We have not got to Sirius but that sort of document within a seaworthiness management system covers off on those sorts of situations.

Senator JOHNSTON: Have we ever had the problem with Sirius?

Vice Adm. Griggs : I cannot recall an incident. I will get back to you on that one.

Senator JOHNSTON: Okay. What about the baffling inside the main tanks when they are not full in terms of the pressurisation of the fluid washing around inside? We are light on for baffles, I am told, and there has been some damage to the hold.

Rear Adm. Marshall : That is not an issue that I am aware of, but Sirius was procured as a commercial bulk fuel cargo ship. She has been designed as such. The webs inside the main cargo tanks are quite substantial, but if you get to particular fuel levels in tanks then the possibility of sloshing is not unreasonable. But we have a ship that is designed for exactly that purpose, and therefore it complies with international standards for that. The ship is in class with Lloyd's Register, and they have provisions for that sort of thing.

Senator JOHNSTON: Have we ever had a problem with Sirius with relation to sloshing?

Rear Adm. Marshall : Not that I am aware of.

Senator IAN MACDONALD: Could I just quickly interpose while we are still on ships. I am not sure if this was asked before, but with the Choules it is not possible just to take out the transformer and put in a new one?

Mr King : Yes, it is, but the detail is a little bit more extensive than that.

Senator IAN MACDONALD: Is that what we are doing?

Mr King : That is what we are doing.

Senator IAN MACDONALD: Okay. Do you go and buy them off the shelf?

Mr King : Yes, we have ordered all of them and they are being produced in Germany. The first one is either here or soon to be here.

Vice Adm. Griggs : Next week. They are not off the shelf, Senator.

Mr King : No, they are manufactured.

Vice Adm. Griggs : They have to be manufactured. They are designed for a particular ship.

Senator IAN MACDONALD: But there are lots of these ships around the world. The RFA had a few of these, didn't they? How many did they have?

Mr King : Three others.

Vice Adm. Griggs : But they do not have them on the shelf.

Senator IAN MACDONALD: Okay. What do they cost each?

Mr King : Just under $1 million, I think.

Senator IAN MACDONALD: Per transformer?

Mr King : That is right.

Senator IAN MACDONALD: We are replacing one and getting some in reserve, are we?

Mr King : No, we are looking at the premature ageing of the other five as well. In view of this problem, we are going to order new transformers for each position.

Senator IAN MACDONALD: Are we going to replace the five transformers?

Mr King : Eventually.

Vice Adm. Griggs : The decision that we have not yet made is the timing of that. The inspection of the other British Royal Fleet Auxiliary Bay class ships is a fairly pivotal piece of information for us to help us make the decision about whether we need to do that change-out before the ship goes back to sea or go back to sea with the new transformer in and then change out the other ones at a later date. Until we get that information from the British, I am not really in a position to make that final decision in consultation.

Senator IAN MACDONALD: So consequently no-one can tell me when the ship is going to be repaired and when it is going to be back at sea.

Vice Adm. Griggs : On our current plan, which is based purely on the replacement of the failed transformer, we would be back to sea in the new year.

Senator IAN MACDONALD: You mean January, do you?

Vice Adm. Griggs : Yes, in January. Should we be in a position where we feel that we must change out the remainder before we go back to sea, we are probably talking into April.

Senator IAN MACDONALD: And that is at $1 million per transformer. What is the cost of taking it out?

Vice Adm. Griggs : The total cost is around $9½ million.

Mr King : If we do it all, it will be around $9 million or $10 million.

Senator IAN MACDONALD: You have allowed for that in your budget somewhere?

Vice Adm. Griggs : That was actually part of the $10 million that Senator Johnston was talking about earlier.

Senator IAN MACDONALD: That came out of the submarine?

Vice Adm. Griggs : It was parked in the submarine and it came out.

Senator IAN MACDONALD: I am sure you have told us this before but, just for my peace of mind, what ships do we have to do civil emergencies over the coming cyclone season?

Vice Adm. Griggs : From 1 November we will have Tobruk and the Australian Defence Vessel Ocean Shield, which arrived in country in June. That will flow through till towards the end of February, when Tobruk must go into a scheduled maintenance period. Depending on whether Choulescomes out in January or April, we will either have Choules and Ocean Shield from February on or we will just have Ocean Shield.

Senator IAN MACDONALD: Are we getting a New Zealand ship across, as I read somewhere?

Vice Adm. Griggs : The Canterbury is also available. I do not have the exact data on when she is available during the cyclone season, but we do have an arrangement with the New Zealanders about sharing her use if we need to.

Senator IAN MACDONALD: Is Choules in dry dock?

Vice Adm. Griggs : No, it is alongside, at Fleet Base East on Garden Island.

Senator IAN MACDONALD: Does it have to be dry-docked to do this work?

Vice Adm. Griggs : Not for this work.

Mr King : No, it is above the waterline. The transformers are accessible through the outer hull.

Senator IAN MACDONALD: Digressing 180 degrees, is the dry dock at Garden Island the only big dry dock we have in Australia?

Vice Adm. Griggs : It is the biggest graving dock we have in Australia. There is a graving dock in Brisbane, the Cairncross, and there is a graving dock down at Williamstown. I do not think there is another one.

Mr King : But it is not the only way we dock ships, Senator.

Senator IAN MACDONALD: Yes, I know. I was really more curious about whether you are aware of a new dry dock being built in Port Moresby by an Australian in an Australian enclave.

Senator Feeney: It is not on the same scale as Garden Island.

Senator IAN MACDONALD: It is, it is bigger—it will take Panamax ships. I just wondered whether the Navy is looking at that. Perchance you might need it sometime in the future up north.

Vice Adm. Griggs : We will investigate, Senator.

Senator HUMPHRIES: I have a couple of follow-up questions. One is on Choules. I do not think you have answered this question but if you have just tell me. When we received Choules from the British were there specifications or guidelines for operation of the transformers in particular or the ship in general which at any stage have been exceeded or violated in the way in which we have operated the ship or components of it?

Vice Adm. Griggs : There are standard operating procedures for the operation of the ship. One of the reasons we had RFA personnel with the ship for the first six months was to help us operate the ship in a proper way. I am not aware of violations. I am aware that we did a number of things more frequently than the RFA would have done in the early life of the ship because we were training up a brand-new crew. And, of course, there is the difference between the RFA model where they have a small number very experienced engineers, many of whom have been in the class of ship since its inception, versus our model where we have a larger number of people who we also need to continually train and qualify. So there is a slightly different emphasis in the way that we operate. There is more of a frequency issue rather than doing things the wrong way, if you know what I mean.

Senator HUMPHRIES: I know what you mean. I am just responding to suggestions that we have operated the Choules in very different ways to the ways in which the British operated it.

Vice Adm. Griggs : We have operated it in a frequency perspective a bit more than the RFA have done when they are in steady state. But the analysis that I have been advised of is that, when they are in their basic training periods, what we are doing is not dissimilar to that. I would just suggest that the length of our training period is probably a bit longer.

Senator HUMPHRIES: Okay. Going to the Cantabria, who actually has command and control of that vessel when it is here?

Vice Adm. Griggs : The Spanish will obviously retain national command of the vessel, with a Spanish commanding officer, but the ship will be passed formally under the operational control of our fleet commander. What we have is an agreed set of circumstances where we can employ the ship, an agreed set of circumstances where we cannot employ the ship and a third list of things that we need to go back to Madrid and discuss at the time. So we have thought through all the different scenarios and we are very comfortable with what we have come up with.

Senator HUMPHRIES: We have done this before, presumably with other nations.

Vice Adm. Griggs : Not to this extent. This is quite groundbreaking in many ways.

Senator HUMPHRIES: Just a couple of questions on the Armidale class patrol boats. We were told last time that they were being rested to some extent for the rest of this year because of the indications of wear and tear. The intensity of use had sort of damaged the vessels. The intention was to deploy them at a rate of about 3,100 days per year until January next year. Are we still on that rate of deployment?

Vice Adm. Griggs : Yes. I would not characterise it as 'resting'. I would characterise it as providing additional maintenance opportunity to correct some systemic issues. That was the primary reason that we needed that additional maintenance time, and we have been progressing that over the course of the year. In the last couple of months, we have started to see an improvement in numbers and stability of those vessels when they are force assigned. That has been a pleasing sign. I think the program we put in place earlier in the year is starting to bite. We are now at the point where, from here towards January, we will start to step up towards 3,400 days availability, and then from the middle of next year we hope to be back to 3,500 days. We are in that phase now where we start to step up.

Senator HUMPHRIES: So, apart from that element, would you say that they were fully operational at this point in time? Is there anything you would not do with them by virtue of the problems you have had with them at this point in time?

Vice Adm. Griggs : There is one vessel, the Armidale itself, which has an operating restriction at the moment to what we call the top of sea state 4, which is actually the design limit for unrestricted operations of the class anyway. That was due to the cracking issue which got some coverage earlier in the year. She is working out of Darwin, doing crew training and certification. Normally, we would have a boat doing that anyway. We have just got her doing it at the moment because of that operating restriction.

Senator HUMPHRIES: Thank you.

CHAIR: Are there any further questions on Navy?

Senator FAWCETT: Yes. If we could go to the Collins on Navy. I would particularly like to talk about the US tactical command and control subsystem, the AN/BYG-1—commonly known as the combat system, so I will use that term. I am conscious that this has been the subject of a number of questions on notice, and there have been some extensive answers given—and I thank you for that. But, at $528 million to be partners in the APB program, it is a reasonably significant commitment and it is important that we actually understand the outcomes that we are achieving from that.

Because I noticed many of the answers talk about targets, aspirations and aims but do not actually detail some outcomes, I would like to start by confirming some facts, if I could. The 2003 industry brief, in terms of the needs for the development of this system, under the command decisions aids have at the top of their list high-density contact management. Is that correct?

Air Vice Marshal Deeble : Could you repeat the question, please, Senator?

Senator FAWCETT: In a 2003 industry brief, which is where the US came out and briefed our industry on how they could be involved in the program, at the top of their list of needs—that is, the aims and aspirations of the development program under command decision aids area—was the fact that they needed to develop the capacity for high-density contact management.

Air Vice Marshal Deeble : I cannot confirm that Senator, but I will take that on notice.

Senator FAWCETT: In 2010, after a number of years of development, the US Navy conducted some operational tests and evaluation and concluded that the iteration APB-07 was not effective in supporting operator situational awareness nor contact management in areas of high-contact density. Are you aware of the report?

Air Vice Marshal Deeble : Yes, I am aware of the report, and I understand that that was identified in the DOT&E report. It is true to say though that the prioritisation of work to go into any advanced process to build the software or tech insertion the hardware associated with that system is prioritised. We play a role in that prioritisation, and that has not been given a high priority for APBs in the past.

From an operational perspective, the AN/BYG-1 is meeting our needs as a combat system from an operational perspective, and I will let Chief of Navy respond in that particular regard. I believe that from a Navy operational perspective that they are satisfied with its current performance. That is why it has not been afforded a higher priority with regard to software upgrades through that advanced-process-of-build process.

Senator FAWCETT: Okay. Can you just compare for me—and I am conscious that you may need to take this on notice—in terms of that multiple target-tracking capability—and again, I do not need specific figures because they are probably classified—the Oberon's capacity in that regard with the Collins; would it be fair to say that they are equivalent in order of magnitude?

Air Vice Marshal Deeble : I do not believe that it would be true to say that they are equivalent. I believe that there are a number of factors that would make AN/BYG-1 more advanced than the Oberon class at that point in time. I cannot get into the specifics because that would be highly classified, but there are a number of aspects that you would need to be able to look at to make that comparison.

Senator FAWCETT: Is it still largely a manual process rather than an automatic process for multiple target tracking?

Air Vice Marshal Deeble : I am working in the sustainment side. I think I would have to ask the Chief of Navy what that would involve from an operational perspective.

Vice Adm. Griggs : And I would take that on notice.

Senator FAWCETT: Likewise, if you could, on notice if you need to, just tell me if it would be a true statement that the number of targets that could be tracked by Collins would be on par with the number that could be tracked by Oberon?

Vice Adm. Griggs : I will, but I would certainly say that the Collins combat system is far superior to what we had in the Oberon. On that particular piece of data: I will get that for you, but I think it is important to note that not only are our operators happy with the combat system but so are the US Navy, which operates the same combat system on their operational boats around the world.

Senator FAWCETT: I guess that goes to my next question: can you just confirm that Australian industry has in fact designed algorithms that go to the issue of high-contact density management, which have been trialled on Collins and have been successful? And can you confirm that the US Navy have in fact come and viewed those and said that they would be a significant enhancement that they would be keen to have?

Air Vice Marshal Deeble : I can confirm that Acacia Systems, who have worked through the Oberon into the Collins class, are experts in this field and have offered products into that area. Again, they have been offered into the APB process—the advanced-process-of-build process—but again, they are prioritised; so the joint program office looks at what the operational need is and prioritises those accordingly. So while Acacia has made offers in that regard, they have not been taken up at this point in time.

We still continue to work with Acacia. There is more work that needs to be done for this priority. We are trying to increase the range of options that are looked at through our engagement with the US Navy to open up these other priority areas for us. But at this point in time they have not been mated into the APB build. But we are trialling Acacia based systems on the Collins class at this point in time.

Senator FAWCETT: If you could take a notice and just let me know if the US Navy have viewed it—that is my understanding from a number of sources, not just Acacia but from other companies which have sought to bid into the APB process.

Air Vice Marshal Deeble : I can confirm that Acacia has been viewed by the US Navy, yes.

Senator FAWCETT: The questions on notice which have come back to us talk about the Submarine Tactical Requirements Group being a key structural enabler for the Navy to inject its requirements into the APB and provide comment and feedback. Has the Australian Navy provided any requests for changes to the APB through that mechanism?

Vice Adm. Griggs : I am not sure of the exact detail, but we do have a command-qualified officer who sits on that group. I can get that information.

Senator FAWCETT: Do you know if the officer who sits on that group has ever been personally briefed by Australian industry as to the capabilities that Australian industry can offer and that the US industry and underwater combat centre have not managed to deliver at this point in time?

Vice Adm. Griggs : I would have to check that detail.

Senator FAWCETT: That is fine. I am happy to take that on notice. Question on notice 203 noted that the TAA that is required for Australian industry to access the APB program has lapsed. When did that lapse?

Air Vice Marshal Deeble : I would need to look at the specific date, which I have in my pack. I will get that for you in a minute. That TAA is being actively worked and is with the State Department at this point in time. We regularly engage with the other US Navy agencies that are responsible for pushing that through. We know that it is in the State Department at this point in time, and we expect that to be broken free soon. Off the top of my head—I will confirm it in a second—I believe that that TAA lapsed at the end of 2011.

Senator FAWCETT: Okay. I guess the more pertinent question is: why did it lapse?

Air Vice Marshal Deeble : There are a number of reasons why those TAAs may lapse. We understand that from a US perspective there were aspects of that TAA that they sought to have modified both in the State Department and in the US Navy. It took us some time to work through those issues with them, and that resulted in that TAA lapsing.

Senator FAWCETT: Can I take it from that that your contention would be that it was not an oversight but that there were reasons that could not be resolved prior to it lapsing?

Air Vice Marshal Deeble : That is correct. We had actioned and commenced the work associated with that in advance. We had been trying to get that through to avoid it lapsing, but we could not break those issues free out of the State Department and also within the US Navy.

Senator FAWCETT: Okay. The questions on notice also indicate that Defence believe that a greater engagement and support through Defence-funded R&D would assist Australian industry and went on to say that Defence is currently reviewing the potential to tailor things like the CTD, CTDE and DFCTC to better position Australian industry to bid into the APB process. Could you give us an update on where you are at with those.

Air Vice Marshal Deeble : The issue there, to put that into context, is that many of the US companies are funded through R&D programs in the US.

Senator FAWCETT: Yes, I am aware of that.

Air Vice Marshal Deeble : That allows their technology readiness levels to increase to the point where they are at a higher technology readiness level to be incorporated through the APB process. We do not use, and have not historically used, that form of funding. There is no US money that we can bring per se to fund Australian industry. We believe that through the CTD program, RPD&E and some of those others that you mention we can better leverage Australian industry and bring them up to higher technology readiness levels. That work is ongoing at the moment. We are engaging with DSTO, who pay actively into the CTD and some of the RPD&E work. We have a DSTO body outposted, involved in the APB selection process, and we are using them to, again, access and understand the priorities for future APB builds. We will bring that back to Australia and use that to invigorate the RPD&E, CTD and other related processes. It is early days in that at this point in time, but that is the clear intent. Bringing industry along and giving them a leg up is going to be an important part of that equation to make them more competitive in that APB process.

Senator FAWCETT: The feedback we have had from multiple industry participants is that TRLs are not the key issue for them—the key issue is IP—and that, under the American system, the American government funds the R&D and therefore the American government owns the IP, and the requirement of the APB program is that all IP has to be laid on the table and shared, but then any subsequent work may be tendered out to anyone. So, under the American system, companies are willing to do that because they have been paid for the R&D anyway and the IP belongs to the government. In Australia, the prime reason industry are telling me that they cannot engage in that process is that they have funded the R&D, the IP is theirs and to lay it on the table commercially is just not viable. Defence has indicated that they are keen—and referring to question 202—you said, the target is for Australian companies to be able to compete for inclusion in the joint development process on the same basis as US companies. Combining that with the fact that Defence has made combat systems support a priority industry capability, does that indicate that you would consider going down a path of funding research so the IP issue is taken care of? That is what industry is telling us is the barrier, not the TRLs.

Air Vice Marshal Deeble : Under the armaments cooperation program MOU, any of the IP that is developed is jointly shared between both our governments when it is brought into that environment. What it does mean is that each of the countries is allowed to then utilise that without charges associated with it. There are some limitations in the way in which IP is brought into space. I think the issue of the protection of IP and commercial advantage associated with our companies is an issue that will require additional work by us.

Senator FAWCETT: From their perspective which, irrespective of that, is the key issue preventing them preventing some of the systems that have been trialled and proven to work here into that program because there is no protection of their IP. I would be happy for you to take on notice a plan, if you like, to see how we move forward in that area to make it actually possible for industry to compete.

Secondly, SEA 1439, Phase 4A—have they ever proposed an Australian submarine capability for them? If so, what happened to it?

Air Vice Marshal Deeble : Senator, I would have to take that question on notice.

Senator FAWCETT: In respect of the Foreign Affairs, Defence and Trade procurement report, which I notice the government has just responded to with support in principle of a recommendation which went to transparency of alternative views through the system, have there been any recommendations from any level of management with either a SEA 1439 Phase 4A, or SEA 1000 that Australia should withdraw from the APB program? And, again, I am happy to take that on notice.

Air Vice Marshal Deeble : I will take that on notice, Senator.

Senator IAN MACDONALD: The Queensland government is now talking about dredging the Cairns Inlet. Is the Navy in any way involved in any discussions or talks or design or anything else with the Queensland government insofar as the prospective dredging of the inlet, adjacent, as you know, to HMAS Cairns?

Vice Adm. Griggs : I would have to check the detail for you. I know we have regular dialogue with the port authority but I am not across any detail about dredging.

Senator IAN MACDONALD: You would be aware, Admiral, that in Cairns, as in many other places, there is a great keenness from locals to increase their naval presence. There is clearly some merit in the Cairns approach to this but it has always been a bit constrained by the issue of what size ships you can get in there. But I understand the Queensland government is looking seriously at that more from a cruise liner point of view than a defence one, but I am sure that—

Vice Adm. Griggs : From a defence perspective, it is less about the depth and dredging and more about available wharf space.

Senator IAN MACDONALD: Is that a fact?

Vice Adm. Griggs : It is.

Senator IAN MACDONALD: So you can take the LHDs in there and turn them around easily?

Vice Adm. Griggs : Not easily, Senator.

Senator IAN MACDONALD: What would you need to do to turn them around easily? Would you need to dredge a bit over towards the—

Vice Adm. Griggs : I would have to check the dimensions of the swinging basin off the berth. It would be challenging. I will get the details of whether it is feasible or not.

Senator IAN MACDONALD: I only raise that because of course they are thinking of getting cruise liners that are far bigger than the LHDs, and if they can turn them around—

Vice Adm. Griggs : If they can turn them around, they can turn a LHD around.

Senator IAN MACDONALD: Anyhow, I look forward to getting your response on notice, thanks.

CHAIR: Thank you, Senator Macdonald. Before I go back to Senator Johnston, I would remind committee members that we do finish examination of Defence, including DMO, at 6.30 pm. The Chief of Army has to go at 4.30 pm. So you might want to bear that in mind when you are allocating time amongst yourselves. Senator Johnston.

Senator JOHNSTON: Can I go to submarines. I see our submarine team is at the table. Welcome, Mr Gould to Senate estimates.

Mr Gould : Thank you, Senator.

Senator JOHNSTON: Mr King, in May 2011 last year, you and I discussed the cost of sustainment of Collins. We noted that the cost had gone to $443 million—an $80 million jump. You gave me the 2014 figure of $360 million. I challenged you on that, and Dr Watt told me it was actually $367.7 million. I said that you could not be serious and that it would be something like double that. In question on notice 195 you confirmed that the 2014-15 figure is in fact $560.7 million. What concerns me is that it does not appear that we have any real knowledge of where these costs are going for this force element group for the submarine enterprise.

Mr King : I disagree, Senator. I think we do know. Of course, we have put in place a new ISSC contract.

Senator JOHNSTON: Sure. But these numbers are 165 per cent out.

Mr King : I am sorry. I am just struggling to relate the ones that we are trying to compare. Can we go back to that?

Senator JOHNSTON: You gave me the figure in Senate estimates in May 2011. You said the 2014-15 figure for the sustainment of Collins would be $360 million, and Dr Watt actually specified $367.7 million. I challenged you on that and said it will be something double that. In answer to question on notice this month, 195, it is confirmed that the figure is $560.7 million—165 per cent above the figure you offered me.

Mr King : I am just wondering what figure I quoted. I am just not sure of the number that I provided to you and on what basis. I would need to check that.

Senator JOHNSTON: Sure. Let me help you with that. In question No. 192 we talk about sustainment costs and in 2004-15 you note that they are $560.7 million. You then add the operating costs of $187.7 million, a major capital investment program of $31.2 million, a total cost of sustainment of $779.61 million, depreciation of $140 million and then we add some sundries in like Cole et cetera, and we are very close to $1 billion. That is where those numbers come from.

Mr King : That is a question on notice?

Senator JOHNSTON: That is a question on notice 192.

Mr King : I am not sure what number we are talking about when I provided you advice in May 2011. I would have to check that.

Vice Adm. Griggs : I am just trying to work out whether we are talking purely sustainment, or are we talking operating sustainment—

Senator JOHNSTON: That is why I have gone through those numbers—purely sustainment. The figure that was offered to me by the DMO, through Mr King, was $360 million for the sustainment of Collins in May 2011.

Mr King : For the year 2014-15.

Senator JOHNSTON: For the year 2014-15. And I said to you, it will be something like double that. We had quite a discussion as to who was right and who was wrong. What really worries me is that I think I was much closer to the mark, and I am sitting over on this side of the lake with virtually no information.

Mr King : Yes, but I want to not concede that just yet, Senator. I want to have a look at what I said.

Senator JOHNSTON: I am happy to have you go back and look at those figures because it is in the Hansard.

Mr King : I would have to look at it, and I do not know what the basis of my answer was.

Air Vice Marshal Deeble : I can provide some explanation for differences. In May 2011, our budget for 2014-15, I believe, was as the CEO said. In that intervening period, in May of this year, our budget for the 2014-15 time frame was adjusted in the order $709 million across the four-year period. The most recent amount of sustainment money reflects what has gone forward in the May 2012 budget and includes those additional moneys that have been assigned to the Collins class. Those additional moneys take account of the in-service support contract that we have with ASC, obsolescence treatments, additional spares and other elements. In May 2011 that was not our approved budget at that point in time, and we have been working over that intervening period to be able to better characterise what the true logistic costs of ownership are. So the differences that you are seeing are what was approved in May 2011 versus what is approved now and is required to sustain the Collins class.

Senator JOHNSTON: It was effectively a meaningless figure. It might have been approved, but it was meaningless in terms of the history, because over the past four years you have averaged $250 million in payments just to ASC alone. In question 197 you have told me that the in-service support contract is actually going to increase from that $254 million figure to $264 million per annum to ASC.

Air Vice Marshal Deeble : There are a number of reasons why that is the case. Clearly, in the in-service support contract we are contracting for what is required to sustain the Collins class. Inherent in that is some increased cost. We have greater fidelity in the integrated master schedule and we have a clear understanding of when boats need to go in. We are working very closely with ASC about what actual maintenance activity needs to be conducted in those times.

We also have, through things like the Service Life Evaluation Program, an increasingly clear understanding of what is required to address obsolescence of our critical systems for the Collins class. We are trying to reflect that in the budget as being what is required to sustain the capability.

Mr King : Can I just go to the broader question, which I am sure I put on record before. Mr Coles has found what we expected: there has been a chronic underinvestment in Collins class for most of the last decade.

Senator JOHNSTON: I have been saying that for a number of years, but you have been giving me figures that indicate—

Mr King : No, Senator, I have never varied from my view on that. I am sure that is the tone and the nature of the evidence that I have given to this committee.

Senator JOHNSTON: All right.

Mr King : The fact is that we now have that ISSC contract in place and we know with much more certainty now. Under the previous arrangement, which was entered into under the TLSA, we were contracting with an entity that simply charged us time and materials. Now we have a proper contractual base to bring the submarines back to the right level of maintenance so that we have the operational effect that the country needs.

Senator JOHNSTON: So the cost of negotiating that contract with ASC was that it took something like four years and cost us $4.2 million—I think those are the figures you have been giving me on questions on notice?

Mr King : I do not—

Senator JOHNSTON: $3.1 million for you and $1.1 million for them.

Mr King : Sure.

Senator JOHNSTON: The former Chief of Navy said that a 2½-year full cycle docking for a Collins class is not unusual. Do you know what our current goal is for a full cycle docking, in terms of months?

Air Vice Marshal Deeble : The current full cycle docking is sitting somewhere between 34 to 36 months. It is a function of the work scope required for each boat. Our goal over the next few years is to reduce that to two years. We currently run an eight-year operating period, with a three-year full cycle docking. Our intention by 2020 is to be sitting with a 10-year operating period and two-year full cycle docking, but there is significant work that needs to be done in guaranteeing technical integrity and work in the maintenance program to be able to achieve those outcomes.

The ISSC provides us with the vehicle for being able to work with ASC, as the platform system integrator, to be able then to better optimise that. Quite clearly, there are a number of areas where we have been inefficient in the past. The ISSC hopes to address those inefficiencies through the transition period, and by the financial year 2014-15 to have moved into a mature ISSC with the right basis for being able to conduct that work and further optimise the maintenance program over time.

Currently, we are sitting at 34 to 36 months; we hope, probably within the Collins FCD, to start to reduce that closer to 2½, and over the following years through various FCDs and initiatives that we will reduce that to two years. Two years is our long-term goal, and the Coles review has identified two years as being reasonable for a submarine of the Collins class complexity.

Senator JOHNSTON: With the comparison between full cycle docking for conventionally powered submarines, when we were in Germany—some committee members here went to Germany this year in May—we were told 10 months for a full cycle docking for a 212.

Vice Adm. Griggs : It is a much smaller submarine.

Mr King : We have been doing benchmarking and that data is coming together. As the agent for the Navy, we have been working with ASC very hard to pull down to that two-year mark—and we think and we agree with Mr Coles, two years. I think that Mr Coles says that this cannot be used as an excuse, but we have often thought that some of the design features of Collins, some of the distances and the durations over which we use it, are so much different from a lot of the European uses and a lot of other European designs. We think we are getting close to the point now where we can, if you like, normalise all those different drivers and what it is like, whereas, a smaller, less widely used submarine might be about 12 months—and I have certainly heard that information from others. We are thinking that Collins with its complexity and its usage is probably more like two years and that is certainly a great reduction on what we are having to do at the moment and that is certainly what we will be driving towards.

Senator JOHNSTON: I am aware of some of these European submarines which are the comparable conventionally powered submarine. There is the German 212 deploying for consistently continuous 240-odd days in a long-range deployment down into the Med., the Portuguese 214 to the US and return, Italians to the US and return, the Dutch are off Somalia—all conventionally powered submarines that allegedly have less range than our boat.

Dechaineux had motor issues in Singapore in May 2011 in the middle of a five-power exercise that was, to say the least, extremely embarrassing, Farncomb had a Freon leak in Singapore in October 2011. HMAS Farncomb had a flood in Hawaii during RIMPAC. The day that we complete some of these operations and exercises without having a welcoming party of a vast array of technicians waiting for us when we tie up, is the day that I really look forward to. Can someone tell me what happened to Farncombat RIMPAC?

Vice Adm. Griggs : Senator, can I just give you a snapshot of what has happened with our three submarines that have been operating since the last estimates. There have been 163 days at sea, 23,716 nautical miles—

Senator JOHNSTON: Let me note that down. We have asked that question and you did not know the nautical miles.

Vice Adm. Griggs : 23,716—and the earth has a circumference of 21,600. The three boats between them have conducted 13 programmed exercises. They fired 16 torpedoes, one warshot which resulted in the sinking of the former US tanker during RIMPAC, and 15 exercise shots. We have qualified 25 new personnel and we have only lost 28 days in that period against planned Materiel Ready Days. I think that is a pretty reasonable six months of activity.

Senator JOHNSTON: How many unit ready days did you say that you have achieved?

Vice Adm. Griggs : What I said was that we had only lost 28 Materiel Ready Days against our planned MRDs over that period.

Senator JOHNSTON: What were your planned MRDs and what did you achieve?

Vice Adm. Griggs : As you know, we do not discuss the detail of that.

Senator JOHNSTON: The rest of those numbers are pretty pointless if I do not know those figures.

Vice Adm. Griggs : They are not pointless at all, Senator. This is a good story.

Gen. Hurley : I think that Navy can do their work. They have just demonstrated that during the last six months three of their submarines have done exactly that.

Mr King : Can I make the other point, Senator. You referred to three failures, significant as they are. Other nations do not wear their heart on their sleeve on these matters and I can absolutely bet, although I do not know any single one of those platforms, that they had issues.

Senator JOHNSTON: But other nations are not paying $1 billion a year.

Mr King : We do not actually know fully, but we have already addressed the issue, and our absolute desire—certainly my absolute desire, as it is for the Chief of Navy—is to pull down the cost of operating Collins. But we cannot take away what previous generations did, and there is only one way to solve this problem and that is to face up to it and get it done.

Senator JOHNSTON: Great. Now can we follow up on what happened to Farncomb at RIMPAC?

Vice Adm. Griggs : Certainly.

Senator JOHNSTON: Periscope depth, flood—

Vice Adm. Griggs : She was at periscope depth, snorting at the time. The defect was a split hose in the weight compensation system. The weight compensation system moves water in and out of the boat to maintain trim weather at depth or at periscope depth. There is a panel next to the control panel in the control room. Due to what was happening at the time a number of simultaneous processes occurred. One of the processes that occurred in the control room monitoring system was to order the pumping out of water from the on-board ballast tank back to the sea.

Another process was in train that had closed the whole valve, so when the water was pumped out from the ballast tank it went through the hose to the closed hole valves and obviously overpressurised and then split the hose. I was down in the compartment on Thursday last week. I had a good look at it and it is very clear to me what happened there. It was a minor incident. What we then did was take a little extra time—going back to our discussion regarding Rizzo and seaworthiness—and we did not just fly in a new hose and replace it and send the boat back to sea. We really wanted to understand what had led to that particular set of circumstances which had never occurred in the life of the Collins class.

Senator JOHNSTON: And what did?

Vice Adm. Griggs : It was a multiple process issue. What we had done was issue some instructions about when the operator is to do things more in a sequence rather than in parallel.

Senator JOHNSTON: What was the ingress rate? It was in the engine room, was it not?

Vice Adm. Griggs : No, it was in the auxiliary machinery space.

Senator JOHNSTON: And what was the ingress rate of water flow?

Vice Adm. Griggs : I do not know in terms of tonnes per minute or PSI or anything like that. But it did not trip the sensors under the deck plate in that compartment. It was actually a small event.

Senator JOHNSTON: But it prevented diving.

Vice Adm. Griggs : It caused a defect in the low compensation system and you obviously do not want to do that.

Senator JOHNSTON: Thank you for that. With respect to these costs, Air Vice Marshal, you gave a presentation to the Australian Business Defence Industry unit on 13 July. You produced two graphs. The second is the one I am interested in. It suggests that at the moment we are paying twice what we should be for material ready days. I am sure you are familiar with this slide. You got down to 2015-16 and we come down from about 600 to something like 450 for the cost of material ready days. Is that correct?

Air Vice Marshal Deeble : The graphs that were in that presentation relate specifically to the goals that we are setting for reductions in costs associated with the Collins class over time. That will be achieved through a number of different measures—an optimised maintenance program, moving to that 10-year operating cycle in two-year FCD, the work that we are doing in the supply support space, the efficiencies that we hope to gain through the work that we are doing with ASC.

We are trying to set some benchmarks that we hope to achieve over time and that graph is an attempt to try and show where we hope to drive down our costs. The hump that you see in those costs specifically relates to the work that we need to do to remediate the system as it stands and we are looking at where we will gain the efficiencies over time. We are trying to articulate where we are today, what the cost of remediation is and where we hope to be in the longer term in being able to drive down those costs. That is what that graph is attempting to say. The hump of remediation is where we are setting our sights in terms of long-term cost of ownership.

Senator JOHNSTON: What is the cost the hump?

Air Vice Marshal Deeble : The cost of the hump at the moment is reflected in the money that we have sought from government.

Senator JOHNSTON: The $706 million.

Air Vice Marshal Deeble : At this point in time, that is correct. There is additional moneys that we have in the outyears that go out for the 10-year financial period. We hope to gain significant efficiencies in that period of time. We are trying to quantify that logistic cost of ownership and the efficiencies that we will gain through the various mechanisms of the ISSC, the additional work associated with supply, support et cetera.

Senator JOHNSTON: Very good.

Air Vice Marshal Deeble : So at this point in time we are setting those goals. The Coles review is helping us refine where we need to set the benchmarks over time and helping us better prioritise the work we are doing to gain those efficiencies over time.

Senator JOHNSTON: Just before you leave that, you said there is money in the outyears out to 10 years. Where do I find that from a parliamentary perspective? I have got four years. Where do I get the 10 and how much is it?

Air Vice Marshal Deeble : It is effectively covered in Defence's 10-year budget. I would need to refer to Mr Prior.

Mr Lewis : As the CFO indicated earlier, we published the budget year and the three years that follow.

Senator JOHNSTON: We have only published four years of the 10 years.

Mr Lewis : That is as usual.

Senator JOHNSTON: How much is the total 10-year allowance for this remediation? What sum of money are we talking about?

Air Vice Marshal Deeble : The total sum of money is in excess of $1 billion across the 10-year period. The point about the final years is the efficiencies that need to be gained.

Senator JOHNSTON: We are running at something like $650 million a year, are we not? In your graph for 2012-13 I think the figure must be about $600 million.

Air Vice Marshal Deeble : In the 2012-13 time frame the sustainment budget CN10 is running at $499 million.

Senator JOHNSTON: And it goes up. For 2012-13 it is $506 million. That was in answer to a question on notice No. 194. And $561 million in 2013-14.

Air Vice Marshal Deeble : There have been some adjustments to the budget in the order of the difference between the $499 million I have just given you and the $605 million for 2013-14, and in 2014-15 it is up to $640 million currently.

Senator JOHNSTON: So we need to ask the question again to get the new numbers.

Mr Lewis : We will take it on notice.

Senator JOHNSTON: I am fine with that. Where are we up to with Mr Coles? What about the second tranche of Mr Coles's report?

Mr King : It has been completed. The key observations and recommendations in that are well under way, in particular the ISSC.

Senator JOHNSTON: Seventeen people in ASC and finance have seen it. It has been on your desk, Mr King?

Mr King : It has been on mine and others.

Senator JOHNSTON: Is it likely for public release?

Mr King : It is under consideration for release. There was a lot of detailed work done. It is a very thick report. The data that allowed Mr Coles to confirm his observations and recommendations is potentially highly sensitive and so, if there is a version released, it would be redacted in those areas.

Senator JOHNSTON: So you would prefer that I not discuss material ready days as an international comparison?

Mr King : In public forum, yes. I am very happy to brief you privately.

Senator JOHNSTON: I am going to allow someone else to ask some questions. We might come back to submarines.

Gen. Hurley : On the Farncomb again, I cannot leave this subject without saying we should actually acknowledge the successes when they occur. Farncombwas on a five-month tour. Apart from the issue we talked about off Hawaii, it did a very successful tour. She is just on her way home now. We went out to sea with her the other day. I was speaking to a journalist—and I hope there were a number of journalists because I do not want to finger him—who had written an article about the performance of Farncomb, the access he was given, the reporting from the crew about their tour and so forth and he said he could not get it printed. No-one wants a good story about Collins. I think we should just recognise sterling effort when it is performed.

Senator JOHNSTON: I could not agree more. Indeed, I have given a personal description of the good work that Wallerdid when I was on board.

Gen. Hurley : Thank you, Senator. We enjoy receiving that.

Senator JOHNSTON: All I am worried about is, as you well know, the annual cost of what is probably our best deterrent capability.

Gen. Hurley : I think it is a good question.

CHAIR: Thank you, CDF. We will stop there and allow Senator Ludlam to pose some questions.

Vice Adm. Griggs : Chair, could I clarify a couple of earlier points for Senator Johnston?

CHAIR: Yes, if you are quick.

Vice Adm. Griggs : On the issue about Sirius's rudder, when the ship is above 10 knots it only uses 20 degrees of wheel; it only uses the full rudder at lower speeds, where that issue is much less likely to occur. There have been no reported problems of baffles or sloshing. On the issue regarding the Sea Training Group on board Choules, they were not on board at the time of the failure.

CHAIR: Thank you, Vice Admiral. We will now go to Senator Ludlam, whose questions may or may not necessarily be for Navy but will certainly deal with the opening statements. That will be until 3.30 and then we will go to the tea break.

Senator LUDLAM: Thank you, Chair, and I thank the committee and the witnesses for their indulgence in allowing us to backtrack a little because I was not available earlier. I have some general questions about the Chief's statement, but while we have the naval folk at the table I might start with submarines.

During the last estimates the $214 million study and analysis of future submarine capability was discussed. There was not a lot of information there at the time, although the Foreign Affairs, Defence and Trade Committee was briefed in camera some months ago now on the progress on that study. Could you provide us with whatever you are able to put on the table in an open session about where that study is up to?

Vice Adm. Griggs : I will get Admiral Moffitt to discuss that.

Rear Adm. Moffitt : It is not a single study, Senator, it is a fairly massive raft of studies which fundamentally occupy about six different groups. I will go through each group, and I can go into each group in more detail as you wish.

Senator LUDLAM: In the interests of time and also because I have held things up I might ask you to table whatever you are able to for the committee rather than going through each of the six groups in detail. I think I know what you are referring to. Could you provide us with some of that material in writing?

Rear Adm. Moffitt : I am happy to do that. I will take your question on notice and provide you with a brief.

Senator LUDLAM: That would be much appreciated. I will keep these questions reasonably high level and then I will move on. I am interested to know whether the study or the tranche or package of studies will be available prior to the release of the 2013 defence white paper.

Rear Adm. Moffitt : We will obviously be progressing through them. They will not all be completed—we are going to be doing studies related to the Future Submarine Program for some years.

Senator LUDLAM: So what would you anticipate would be in the public domain at the time of the release of the 2013 defence white paper?

Rear Adm. Moffitt : The reports of the studies themselves are released if they are releasable; some of them are into classified technologies and of course will not be releasable. Whether or not they are released is a matter for the minister. The reports that we will have completed by the time of the 2013 white paper will be provided to the minister and it will be up to him whether he decides to release them or not.

Senator LUDLAM: Okay. I am going to come to the question of the drafting of the white paper in a moment but I am interested to know the degree of collaboration or the degree to which you are in contact with that other process. Is there any formal or informal exchange of information?

Rear Adm. Moffitt : Yes, there is. When the white paper writing team require information that is sensibly sourced from me, that is what they are doing. That has been the case also with the Force Structure Review process.

Senator LUDLAM: Before we move on, can you provide us with, at the very high level, the six different tranches of this work?

Rear Adm. Moffitt : Yes. There are four options sets, as we have outlined and as was announced by the minister and the Prime Minister on 3 May, and there is work going on in each of those. The first relates to the military off-the-shelf options set and we have at the moment ongoing analysis of the responses to requests for information to each of those companies that produce those submarines. That is in progress now and coming fairly close to the end. We have work in progress in respect of combat system, and the range of submarine combat systems available either through US sources, which is the one that we have at the moment, or commercial sources, which is the other six submarine combat system vendors. Those requests for information are out with the vendors now and will be analysed. That leads us to an examination of the second option set, which is the off-the-shelf submarines that might be modified with our selection of combat system. The combat system work feeds information that allows us to complete work on the option set No. 2. Option set No. 3, is an evolved off-the-shelf submarine, including Collins. There is work we are in the process of negotiating at the moment to have a series of studies done into that suite of options. For the fourth option set, which would be a new design, we will be establishing a team to do that work. We are working towards doing that and we are in the process of doing that now. That work will not be completed by the time of the white paper, neither will the option 3 suite of work be completed by the time of the white paper.

The report is in on the so-called 'spesify' or land based engineering development propulsion system development facility and is being analysed to develop options that will feed into a first pass consideration by government. The final—if I count correctly, that is the sixth—and sixth set of work is a fairly complex and diverse set of studies being done on our behalf either by or through the Defence Science and Technology Organisation and covers quite a wide range of technologies, the detail of which I am more than happy to provide you in my written answer.

Senator LUDLAM: That is much appreciated. So we have four different options and then we have got a study into compact systems specifically and the DSTO work that makes up your six. Thank you. Would you describe yourself, without giving anything secret away, as being on budget and on time as far as where you hoped to be by this time in the schedule?

Rear Adm. Moffitt : I would say we are not doing too badly.

Senator LUDLAM: 'Not doing too badly'? All right.

Senator Feeney: That is forensic accounting terminology!

Senator LUDLAM: Yes, it is! Nothing to report. Thank you very much. I will leave that there on submarines.

Senator Johnston made some comments before relating to the savings that have been made to healthcare facilities within the ADF. I wanted to briefly return to that topic. The 2009 independent Dunt review made 52 recommendations for drastic improvements that needed to be made within the ADF to better accommodate the mental health needs of soldiers and veterans, and the 2010 ADF mental health study found that nearly one quarter of the ADF population—22 per cent, or thereabouts—experienced a mental disorder in the previous 12 months. This issue, I guess, has been given sharper relevance by Major General Cantwell's remarkable account of his military career. Could you tell us what safeguards are in place to ensure that the cuts that are occurring will not impact on the service provided with troops who are needing assistance with those sorts of illnesses?

Rear Adm. Walker : There are no cuts to the delivery of mental health services. There is no change to the delivery of mental health services. In fact, under the Dunt review a significant amount of additional money has been provided, which is then continuing in the outer years of our budget to provide mental health care services.

Senator LUDLAM: Okay. We might be traversing ground that Senator Johnston already covered. So you can confidently say that, of the savings and the cuts that have been imposed in this current budget cycle across the forward estimates, these mental health services for returned service people have been completely quarantined from those? I am not trying to put words in your mouth; that is what I think you said.

Air Marshal Binskin : The focus is still there on mental health. If anything, there has been an increased focus in the last couple of years on that. They are not 'returned servicemen', your term;—

Senator LUDLAM: It is across the board.

Air Marshal Binskin : they are still serving members. Dunt did highlight that there were some cracks in the system; we have filled in those cracks and we are trying to make it a seamless system. Then as our soldiers, airmen, women, sailors then transition into a DVA system we are making sure that is a seamless transition right across the board. Also, importantly, with the mental health space, we are taking into account the needs of the families in all this. So there has been a far greater focus on this in the last couple of years. We do not intend reducing that.

Senator LUDLAM: Good. Thank you for that. I want to go to the Afghanistan drawdown. Again, I suspect this was probably raised in earlier lines of questioning. I am just interested in a basic update, I guess, as to the posture that has been adopted by our conventional forces—we will leave the special operations folk until later—as far as withdrawing from Afghanistan goes.

Gen. Hurley : Just for context again, Senator, you will be aware that the NATO summit in Lisbon in 2010 determined a four-year course with the government of the Islamic Republic of Afghanistan for transition from an ISAF-led operation to restoration of Afghanistan's sovereignty for responsibility for its own internal and external security. That transition process was to occur in a number of tranches of provinces and districts, whereby ISAF, NATO and the government of Afghanistan would determine which provinces and/or districts were ready to transition. Each of those tranches would vary in size and number of provinces and districts depending on availability and the performance of the Afghan National Security Forces. There have now been determined to be five tranches. The first three have been commenced and entered into.

Our forces operating with the 4th Brigade in Uruzgan province entered into tranche 3, and that for us commenced on 17 July. That included all the districts within Uruzgan province. As that process has moved forward, we have been, of course, adhering to the ISAF campaign plan about how transition occurs, and that means adapting the model by which we deliver assistance, training, mentoring and advisory functions to the ANA in particular. Within the 4th Brigade, just to remind people, there are six kandaks plus the brigade headquarters. Four of those kandaks, or battalions, are pure infantry battalions. Of the other two, one is a combat support battalion, which is primarily artillery and engineers, and the other is combat service support, which is your logistics. We have been mentoring all of those units over the last number of years. Of the four infantry battalions, one has been declared to be capable of conducting independent operations; that is the 3rd Kandak in the Mirabad Valley. On 7 October we formally stepped back from providing advisers.

Senator LUDLAM: Does that mean we have withdrawn Australian forces from the forward operating bases in that valley?

Gen. Hurley : That is correct.

Senator LUDLAM: So we have nobody there?

Gen. Hurley : That is correct. Patrol Base Wali was the last patrol base we were occupying with them, and on 7 October there was a parade there and we ceased supporting them.

Senator LUDLAM: So the patrol bases still exist but they are now occupied by ANSF entirely?

Gen. Hurley : That is correct. Currently we are out in three other patrol bases or forward operating bases with the other three kandaks. As they are deemed ready under the ISAF system, we will step back from those. We will continue to do work on the 4th and 5th Kandaks, which are the two specialist kandaks, because they were raised later than the others and their specialist nature means they take longer to evolve into effective units. We also continue to advise at the brigade level in Tarin Kot and also what is known as the OCCP, which is where we pull together the security forces, the governor, the national police and the NDS. So that process is working its way through now and, as we have said before, it will take us 12 to 18 months to step through that tranche 3 transition process.

Senator LUDLAM: If everything goes according to plan—you have mentioned ISAF timetables there a couple of times—can you provide us with an estimate of when all Australian forces would be withdrawn from the forward operating bases?

Gen. Hurley : By the end of this year.

Senator LUDLAM: So we will then be maintaining a presence in Tarin Kot and Kandahar and a small number of personnel in Kabul.

Gen. Hurley : We will be in Kabul, Kandahar and Tarin Kot—still in Uruzgan. You referred to special forces and so forth. We will still have those other assets operating.

Senator LUDLAM: We will get to those. So that withdraws a number of people. Does that mean our physical presence is withdrawing, or will we just have larger numbers of people based in Tarin Kot for the time being?

Gen. Hurley : Over time the numbers will change, but there are ups and downs in this over the next 12 months. As you may have read in my opening statement, we will send 65 Air Force personnel out to take over security responsibilities at the base. That will add to the number.

Senator LUDLAM: Is that because our colleagues from—I forget where it was now—

Gen. Hurley : Slovakia.

Senator LUDLAM: They are on their way out?

Gen. Hurley : They have readjusted their position. Slovakia have small armed forces and a small budget to spend on this. They have decided that they will be continuing with the mentoring and advising tasks and they are going to pick up another task which I am not at liberty to say. They will need to announce that in the future themselves. But to do that they need to balance off their investment so they have stopped doing that particular task.

Senator LUDLAM: With that aside, by the end of this year we will be out of the FOVs and we will have withdrawn to Kandahar and Tarin Kot principally. Do you have an estimate of the size of the force that we still have in Afghanistan by the end of this year?

Gen. Hurley : It will be about 1,300 or 1,400.

Senator LUDLAM: So a net drawdown of about 200?

Gen. Hurley : Roughly. It will grow again slightly next year because we will start putting in the redeployment force. That is going to help us extract ourselves out of the country.

Senator LUDLAM: So let us come to that. Tarin Kot is now a small city. How much of that equipment needs to be airlifted out? Can you talk us through the logistics of how much of the base you expect will be left when we are gone?

Gen. Hurley : I cannot give you any specifics as to that because a lot of that is still being determined. A number of major factors will come into play in this: once we know what the US plan is for the next two years in terms of a reduction of their force sizes; when ISAF, through NATO, has completed its extraction planning to get the different forces from the different countries out of Afghanistan; for us determining what the most cost-effective way is to move certain types of equipment either by air or by road; which lines of communication are going to be open for what sort of period. So there are a lot of factors in play. As you are aware, we have had a team working on this for a number of months. We cannot come to finality on that until some of those other factors come into play. I do have people working with NATO, BRUNSN and SHAPE to help us come to understand what that might look like. I think your next question was: when will I know? I would anticipate that in the first quarter of next year, because I need to start moving kit out because there will be a lot of stuff to get out not just from us but from all of the ISAF countries.

Senator LUDLAM: I recognise that. Is it likely then that the special operations task group will remain by themselves in Tarin Kot or they will find themselves redeployed somewhere else?

Gen. Hurley : The next point in that evolution in the transition is that on 18 October, tomorrow, we will take over command of CTU, Combined Team Uruzgan, and therefore will be responsible for operations within Uruzgan province until 31 December 2014 or decided otherwise by ISAF. That will require us to maintain a small command element in Uruzgan until the end of 2014. That will need life support force protection and so forth. The special operations task group will continue to operate over that period. I anticipate it will change slightly in its design and functionality in 2014 because, as you are aware, the government has indicated it is looking at a continuing deployment to Afghanistan post 2014 and has not made decisions on whether or not that will have an SF element or not. So if it is so we will start making some changes in 2014 to position ourselves for that.

Senator LUDLAM: As somebody who has Swanbourne Barracks as a part of their electorate, I have a keen interest to know, from a local perspective as well as a foreign policy perspective, how long those units who undergo some of the most dangerous work that is done in Afghanistan will be in that country.

Gen. Hurley : The special operations task group, in one form or another, will be there at least until 31 December 2014 and, should government determine it will evolve into something different, post that.

Senator LUDLAM: I do not know if you are alluding — and clarify this if I have got it wrong — that they will transition to more of a force protection role than the kind of expeditionary work that they are doing at the moment.

Gen. Hurley : I am not.

Senator LUDLAM: So you are not saying that. The war is costing the country about $1.3 billion a year. This might be a question for the minister actually and I am not sure who to direct this to. Does that money go back into consolidated revenue once we are completely out of the country or mostly at the country or does it remain within the Defence budget?

Gen. Hurley : It is not within the defence budget. It comes on no win, no loss, so that funding is available to government.

Senator LUDLAM: I think that answers that quite elegantly.

CHAIR: The committee will break now until 3.45 pm.

Gen. Hurley : Chair, may we have an indication as to who you may want from now until 6.30 pm?

Senator LUDLAM: I can give you an indication of where I will be going next, if you like. I have a number of questions to ask about the defence white paper, and then the basing of the United States—I have used the word 'basing', but I mean—

Gen. Hurley : The rotation of the United States Marine Corps through Darwin?

Senator LUDLAM: We are not going through that again.

Gen. Hurley : Thank you very much, Senator.

Senator LUDLAM: the presence of US troops in Australia and, then, a number of things, including procurement, particularly around drones.

Air Marshal Binskin : They are not drones, Senator.

Senator LUDLAM: We have done this before as well.

Senator Feeney: Unmanned aerial vehicles.

Senator LUDLAM: And, then, just to wrap up, I will have a couple of questions which are somewhat historical in nature about Tenix and contracts with Tenix.

CHAIR: That will all be in 10 minutes. I will consult, but I presume that we will go back to Navy, if that is what Senator Johnston wants. We also have to deal with Army before we lose the Chief of Army at 4.30 pm.

Senator IAN MACDONALD: Chair, if General Morrison has to leave by four o'clock—

CHAIR: He will leave by 4.30 pm.

Senator IAN MACDONALD: I was wondering if we could have Senator Johnston with the Chief of Army when we resume.

CHAIR: No. I have sorted out with Senator Johnston. The committee will go to a break now.

Proceedings suspended from 15:31 to 15:46

CHAIR: Welcome back.

Unidentified speaker: Madam Chair, we realise that you have a schedule, but we do have a few answers to questions, when you are ready, that we could read into Hansard on the Cantabria and on health.

CHAIR: I might deal with Senator Ludlam's 10 minutes and then we will go to you, if that is okay.

Senator LUDLAM: Deal with me? Okay. We do not have a minister with us, so this could get completely out of hand. We will start with the 2013 Defence white paper. I think last time I asked, we were not able to identify a lead author. Could you please provide us with an update as to where the 2013 Defence white paper process is up to and who is actually writing it?

Mr Sargeant : White papers are government policy documents, so when they are approved by government in the strictest sense of the term the government is the author of the white paper. That said, what is happening within Defence is that we are doing a lot of work to support the development of the text essentially. That work includes research, the development of various drafts of parts of the white paper and so on. Over the next few months there will be a process of ministerial consideration.

Senator LUDLAM: I want to come to the question that I actually asked: is there a lead author and can you identify who that is?

Mr Sargeant : I am responsible for ensuring the development of the draft.

Senator LUDLAM: Okay, so that makes you the lead author?

Mr Sargeant : I just do not think 'author' is a sensible term when you are talking about government policy documents because that is not the way they are developed.

Mr Lewis : And, Senator, there will be many contributors.

Senator LUDLAM: I understand that, but for the purposes of the discussion, Mr Sargeant, it is you overall?

Mr Sargeant : Yes.

Senator LUDLAM: Thanks. Has an exact release date been specified?

Mr Sargeant : No.

Senator LUDLAM: Has a date when the document would be submitted to the minister for final approval been identified?

Mr Sargeant : We are consulting with the minister regularly, so I would expect a reasonably mature draft to be available by the end of this year or early next year.

Senator LUDLAM: But no identified date during 2013. I am not sure whether to call this a national security statement, plan or strategy and the people I spoke to yesterday were not either. It is still a bit up in the air, but I am keen to understand because I would have thought that would be establishing a broader national security context into which a Defence white paper would fit. Is that reasonable?

Mr Sargeant : Yes, that work is being undertaken by the Department of Prime Minister and Cabinet through the national security advisor. We would ensure that any Defence policy fitted within that.

Senator LUDLAM: Are we going to see the national security statement—or whatever I call it—prior to the publication of the Defence white paper?

Mr Sargeant : That is really up to government. It is not something within our control. It is a decision by the government.

Senator LUDLAM: I understand. But are you taking your guidance from a national security statement or are you working in a vacuum?

Mr Sargeant : No, we work closely with colleagues across government to ensure that our policy is consistent, so we do not go out and do things by ourselves.

Senator LUDLAM: Just on public consultation, you may not be aware that I have been quite critical of the fact that the public has been locked out of this one. For the 2009 white paper and the process leading up to it, there was quite extensive public consultation. But for the time being there is not. So what criteria are you using to select peak organisations that are capable of offering better representation of public opinion than actual consultation with the public?

Mr Sargeant : The 2009 white paper and the consultation process that was undertaken then is still relatively fresh, so what we have done in relation to this so far is to consult with interested parties and through think tanks and through industry associations. That said, there is nothing to stop any member of the public presenting a view on the issues to the department or the minister.

Senator LUDLAM: If we write to Minister Smith it will make its way to you. But you are not advertising this.

Mr Sargeant : I would assume so. What I mean is that any member of the public has the ability to make representations on any aspect of government policy or policy development.

Senator LUDLAM: That is noted. Chair, as a check on procedure, while I have the opportunity, I cannot do bases and US occupation of the country in four minutes. Will there be an opportunity to come back to that later?

CHAIR: Are you talking about Darwin?

Senator LUDLAM: That was a bit cheeky, wasn't it?

CHAIR: It has been canvassed already. No, we are coming back there.

Senator LUDLAM: So I have to do it in four minutes?


Senator LUDLAM: That is fantastic. Tell us about Stirling. What is in the pipeline for Stirling naval base in south-west WA?

Gen. Hurley : There are no concrete plans at all for Stirling at the present time.

Senator LUDLAM: Will we find out about concrete plans when US Secretary of State and Defence are here in November?

Gen. Hurley : That is a hypothetical. All I can say is we have no concrete plans for use of Stirling.

Senator LUDLAM: Are there plans that are not concrete? I am not trying to fool around here.

Air Marshal Binskin : Other than the continued use as we see the ships come through now.

Senator LUDLAM: Yes, that is not all that often.

Air Marshal Binskin : It has gone up and down over the years.

Senator LUDLAM: It has. It has been quite a quiet spell. Is there a proposal in development anywhere for expanded interoperability with US naval assets at Stirling?

Gen. Hurley : No, when the enhanced engagement with the US armed forces in the Pacific was discussed, there was an order in which issues would be looked at. Stirling was put on that order but we have done no formal work other than to say it is still on the list for something to be looked at in due course.

Senator LUDLAM: It sounds as though if something is announced in November you would be pretty surprised to hear it then.

Gen. Hurley : If something is announced in November I would be very surprised to hear it.

Senator LUDLAM: That would make two of us, I guess. We will have to just see what happens. I might come back to the white paper since we have you here, Mr Sargeant, and it has been my first opportunity to ask, How are you evaluating the risk posed in a security context of climate change? You have a difficult task. You are meant to be somehow crystal ball gazing to what our security environment is going to be in the 2030s because that is the lifetime of the assets and the procurement decisions that will be made arising from your white paper. How do you read the context of climate change in terms of Australian security in the 2030s and how are you accounting for that in the document you are drafting?

Mr Sargeant : We have not drafted yet.

Senator LUDLAM: No, present tense. I am aware it is in process.

Mr Sargeant : It is a complicated issue. Climate change is likely to have an effect in our region, and there is a range of views on this. To the extent that it has an effect in terms of sea levels or changing weather patterns or drought or whatever, then that may have some impact on security in the sense that it creates, or is one of the causes of, natural disasters or crises—

Senator LUDLAM: Or political instability. Mr Sargeant, do you acknowledge that all of those things that you have listed are occurring now? There is a lot in the defence and security literature that says that these things are having an impact in the present day.

Mr Sargeant : We know that in our region there are disasters and catastrophes, and the ADF has a very strong record of supporting a response to that.

Senator LUDLAM: I am trying to get a sense of whether, as you are drafting the Defence white paper, this is going to be a footnote, as it was in 2009, or is this actually starting to move to the centre of people's thinking that the security environment we operate in in the 2030s will be strongly contoured and defined by changing climate patterns?

Mr Sargeant : It will be one of the things that affects the security environment. There are other large forces in play which are also likely to affect it such as economic development and population growth. What is a matter for judgement is the way in which those different forces might interact or compound, but that is pretty speculative when you go that far out. But what we do know is that populations will increase, economic development will increase as part of the world will become wealthier, but there will be greater competition for resources and so on. It will become a more complex environment and the extent to which climate change has an effect on that will be one of the factors which the region as a whole will have to manage.

Senator LUDLAM: I am going to move us on because we are very short of time. I invite you to at least absorb some of the literature—some of it very good, from Australian academics and Defence writers who have been producing material on this for quite a long period of time—and hope that it makes it onto your reading list.

Mr Sargeant : Yes, I am aware of it and I am aware of the debate.

Senator LUDLAM: I just have a couple more questions and, as we are short of time, I suspect that some of these will need to go on notice. I want to come back to the social impact assessment for the facility in Darwin that was released in August 2012. It was a fairly quick study and it looked only at the impact of the 200 to 250 US Marines rotating through Darwin. What stands out is that the consultant indicated that there is a low risk of most of the different kinds of impacts of the things that I have been bringing up, but a moderate risk of incidents of sexual assault due to the US Marine Corps presence. Can you tell us what your interpretation of 'moderate risk' is and what steps you are taking to mitigate that moderate risk?

Air Marshal Binskin : If you just looked at the risk, you would take that out of context. But to put it in context, the consultant said that the likelihood is 'unlikely' and that the consequence would be extreme, and therefore you end up with that moderate risk. So the likelihood is 'unlikely' the consultant said.

Senator LUDLAM: That does not actually answer my question: what are you doing to mitigate this moderate risk that has been identified?

Air Marshal Binskin : What we briefed you last time in fact: the Marines are conducting themselves very well as ambassadors in this country. They did in this rotation and we anticipate that to continue. As always, they are briefed on what the requirements are, how they conduct themselves and all that. So I do not anticipate having a problem.

Senator LUDLAM: Findings 28 and 29 of the report indicate that a substantial impact assessment on the full proposal is required, and so that takes us up to a full contingent of 2½ thousand or so US Marines. It goes on to say that there would be no delay in inviting the wider Darwin community to participate in a government initiated social impact statement that gives local people some role in setting boundaries to the growing foreign military presence. That is what the consultant said. There was zero, or very low, public consultation for the first report, so can you tell us what actions are now planned in response to those two recommendations?

Air Marshal Binskin : You missed the first part of the answer before. There was consultancy with federal government agencies and Northern Territory government agencies. There were particular groups in the community that were engaged as well.

Senator LUDLAM: You did not hold public meetings or anything like that though, did you?

Air Marshal Binskin : There has been public consultation. It may not be as wide as you would have liked, but there has been public consultation.

Senator LUDLAM: I was at a meeting where Major Michael Kraus took questions directly from the audience. Let us go—

CHAIR: No more questions, Senator Ludlam. Finish up now, please.

Air Marshal Binskin : I will finish this answer for you. The next rotation would be another 200 to 250. The rotation after that is anticipated to be about 1,000 or 1,100. There will be another impact study similar to this to cover that. As we go to the future and are looking at up to 2,500 no earlier than 2016-17 we will continue to do these studies to inform how we will bring these rotations in over the coming years.

CHAIR: Thank you.


CHAIR: We will now go to program 1.3, Army capabilities.

Mr King : I have an additional response in relation to the workforce. I hope I can make this as clear as possible. The PBS figures for 2011-12 are the actual numbers of people that DMO had that year or projected to have—we had not quite finished the financial year. The figures for 2012-13 were the figures projected for that year. That showed that we would have a reduction in civil personnel and an increase in military personnel. In fact, we work under a composite workforce model in DMO and when the military workforce cannot be supplied due to other pressures in Army, Navy or Air Force we are able to offset that number of people with civil employees. So, although the PBS shows that budget allocation, the reality at the end of 2011-12 was we had about 384 civil positions that were filling positions that were military and at the end of 2012-13 we will have about 388 people. If I can summarise that: our military workforce from last year to this year will be going from 1,410 to 1,402 and our civil workforce will be going from 5,993 to 5,871. It is essentially the same number of military workforce and a reduction in the civil workforce. I can send you a table, Senator, if that helps.

Senator HUMPHRIES: Can you also give me the figures as they stand today? You can take that on notice if you want.

Mr King : Broadly we are about 100 civilians over and tracking down to be about the right number by December. That is broadly it, but if you want more detail I can get it for you.

Rear Adm. Walker : I have a response to two questions from Senator Johnston. One was about the controls we have regarding providers in our contract. Medibank Health Solutions must immediately notify us of any suspension, termination of licence approvals or registrations required by any of our health practitioners or their credentials. They must notify us immediately if there has been any complaint made or likely to be made against any of the health practitioners to a complaints body or regulatory authority or if any of the providers' appointments to provide services in a hospital or a health service is suspended or terminated or if they have conditions imposed on them in any way. Once we have received receipt of that or if we become aware of any such instances not notified to us we will take reasonable action as is necessary to protect the Commonwealth, which means our patients, including suspension of that provider to provide services to us. We can also remove or replace any contracted health practitioner who fails to observe or conform to all laws and customs of the medical profession relevant to their profession; if they fail to observe or conform to Defence policies and procedures and, if applicable, the Defence environment; if they have fail to comply with any law; if they fail to comply with any workplace health and safety requirements; and, if in our sole and absolute discretion we are of the opinion that the standards, competence or performance of any of the contracted health providers falls below the standards, competence or performance required under this contract. So that is what we have in terms of dealing with Medibank Health Solutions.

You also asked about the termination terms of the contract with Medibank. In addition to any rights it has under the contract, the Commonwealth may, by giving the contractor at least 60 days' notice, at our absolute discretion, terminate the contract in whole or in part, including to avoid doubt, all or part of a service package or reduce the scope of the contract by notifying them in writing. We may at any time by written notice terminate, suspend or reduce the contract in whole or in part or reduce the scope of the services if the contractor breaches a material provision of this contract where that breach is not capable of remedy and where the contractor breaches any material provision of the contract and fails to remedy the breach within five business days, or such longer period as determined by us, after receiving notice to do so. It can also be terminated if in our reasonable opinion a conflict exists which would prevent them performing their obligations. If over a period of six months they consistently fail to meet critical key performance indicators; if, subject to some other clauses, there is a change in control of the contractor, an insolvency event occurs or the contractor ceases or threatens to cease or conduct business or where the contract otherwise provides, the Commonwealth may terminate it.

Senator JOHNSTON: Chief of Army, I want to ask about the self-propelled howitzers and the towed guns. I know you have to be out of here very shortly. I think there is a press release that says that says, '$70 million for 19 towed guns', and that was recently announced. I am confused because I thought the budget said that there were 35 M777A2 for $322 million, at about $9.2 million each. Obviously the $70 million does not include some things. Does it include digital fire control, does the vehicles accruing and all of those sorts of things? I believe that the AS9 and the M777A2, with the additional costs, may very well be comparable, shall we say, without getting too fine a point on it, subject to what you say. I do not think that $70 million for 19 guns is quite right, is it?

Lt Gen. Morrison : I will have to take that on notice because you are asking for a detailed breakdown by dollar cost of not just the guns but also the ancillary parts, so I will get back to you on that.

Senator JOHNSTON: I appreciate that. So it is $70 million for 19 towed guns, bare guns only I presume. I would like to know what other systems are required and what the cost is of those systems to bring them up to the equivalent of the 35 at $322 million as announced in the 2012-13 budget statement. In other words, there is about $6 million difference per unit. I believe there is a comparison with the additional crew of two and the ammunition carrier et cetera, which takes the cost of 18 of those guns to $292.3 million as opposed to 18 of the self-propelled guns to $285.4 million, which would suggest that there is no saving at all in this venture. But I will allow you to review the question and I am happy to further elaborate should anyone require such elaboration.

Mr King : What is the source of those numbers? Could you give them to me again, because they do not tie up with anything I have? I have the announcement about the 19 guns, but your final numbers.

Senator JOHNSTON: These are comparable numbers and I think Samsung have given me these numbers. These are 18-unit cost estimates. For the M777: crew of eight, times 18 guns, vehicle crew of two; ammunition carrier crew of three; total of 292.3 million. Then the AS-9: 18 units at 249.4, crew of five, times 18, 36 million; total of 285.4 million.

Mr King : We are talking about two different things. We have done an evaluation. I am not sure how rigorously I would take the figures from a company that calls my organisation disingenuous and dishonourable. I take that quite personally.

Senator JOHNSTON: I think this is Samsung numbers. I am not sure whose numbers they are.

Mr King : If they are Samsung's—

Senator JOHNSTON: They may be Raytheon numbers, I am not sure.

Mr King : I would be very surprised.

Senator JOHNSTON: Operational costs over 20 years, according to my numbers, are $468 million for the 777—

Mr King : Maybe the better way to do it, Senator, would be for us to give you our numbers, which we cannot do here in public because of commercial sensitivities. Quite frankly, a company, if it was that company, who uses those terms about Defence and DMO and therefore, indisputably, about me and my leadership I would very much want to challenge.

Senator JOHNSTON: I did not know—

Mr King : Well, in their press release today was that we are disingenuous and dishonourable. I have had a lot of accusations against the organisation, we fail on occasions, but we are never that.

Senator JOHNSTON: You would understand if I have not seen the press release today.

Senator Feeney: It was reported I think in today's Financial Review.

Mr King : I do not think it really would be valuable for you to analyse whoever's figures they are. What would be valuable to you is for us to give you our analysis of the costs.

Senator JOHNSTON: The main thrust of my question is the $70 million for 19 towed guns.

Mr King : It is in that order.

Senator JOHNSTON: Which is in conflict, I think, with the 35 set out in the budget statement for Land 17, quoted at 322, each at 9.2 million. I would like to know the difference.

Mr King : I think it would be better for us to answer that question for you.

Senator JOHNSTON: At last estimates we said $220 million was the cost of 18 M777A2s, which is a higher number.

Mr King : We have done the cost comparison. It is quite clear to me where the cost differentials are, and they are significant. The report of the team, which studied the Samsung unsolicited offer in detail, is that it is a viable offer but it is not affordable. The purchase of the additional M777s is.

Senator JOHNSTON: Okay, that is good. Let us have a look at those numbers. Thank you, Chief of Army, that is fine. I have no further questions for you.

Lt-Gen. Morrison : Thank you, Senator.

CHAIR: As there are no questions from other senators, you are free to go.

Lt-Gen. Morrison : Having taken one question on notice and not shown any large slides! Thank you, Senator.

Vice Adm. Griggs : Chair, I have three clarifications or corrections. Senator Macdonald asked about coverage during the cyclone season for emergency response vessels. I mentioned the New Zealand ship Canterbury. We have just been advised that she is in maintenance until February, so she will be effectively unavailable for the cyclone season. We still have frigates and landing craft heavy that can assist in that role during the period.

In the discussion earlier regarding the Rizzo team, Senator Johnston asked me how many people. I had the number 36 stuck in my head. It is 36 Navy and 12 DMO, so it is actually 48 not 36, as I advised you.

I have also just got the breakdown of the $14 million for the Cantabria deployment. There is a little bit of rounding but it does add up to $14 million, and I have checked that. The figures are: pre-deployment preparation and maintenance, $2.7 million; fuel, $4.6 million; crew deployment allowance—this is not their wages, which the Spanish are paying, it is a specific allowance for the deployment itself—$4 million; victualling and supplies, $800,000; shore based support team, $150,000; port services while in Australia, $250,000; transit costs through the Suez Canal, Panama Canal and other port visits whilst en route, $250,000; support costs, $50,000; core ship's crew on compassionate travel, $200,000; and contingency, $1 million.

Senator JOHNSTON: Thank you. If I can go back to submarines? Are we comfortable to talk about material-ready days as percentages in comparison to international standards?

Mr King : We will have a go at it.

Senator JOHNSTON: We are getting about half the material-ready days of other nations that have comparable conventionally powered submarines—that is in Coles.

Mr King : That is the sort of broad finding of Mr Coles, yes. I think it was about half of what we could achieve, actually.

Mr Gould : It is about half of the theoretical maximum that you could achieve compared to a group of comparable navies.

Senator JOHNSTON: I am told he addresses what they are achieving as a percentage and then says that we are getting about half of that.

Major Gen. Cavanagh : I think that we are getting about 50 per cent of what we could.

Mr King : Yes, I think it is about 50 per cent of what we could—given the design and given the boat.

Senator JOHNSTON: In terms of defects: we have about a 50 per cent increase on time in maintenance.

Mr King : It is probably of that order.

Mr Gould : It is not necessarily defect driven, but it is certainly true that the planned periods of maintenance for the Collins class are about that order of magnitude greater than they would be, again, for the average of the comparators.

Senator JOHNSTON: Mr Coles is doing the benchmarking; I think at last estimates we said that he was going to present some benchmarking. Has he done that?

Mr King : At last estimates we were getting the information in, I believe, but I will—

Mr Gould : Yes, he has done that.

Senator JOHNSTON: Obviously, you are concerned that there are restricted elements of this second report. Is it likely that we will have a redacted, watered-down version for public consumption?

Mr King : I do not like to call it 'watered-down' because—

Senator JOHNSTON: I am sure you don't.

Mr King : The reason I say that is that we were very keen to have this work done. This was not something that was just whimsical; this was a very well-thought-out strategy to understand what we should be able to get out of the Collins in availability, how it compares to other navies and how to go about fixing it.

I think it is quite likely that versions of it will be released; but they will not be watered down, in my opinion, in the conclusions they draw and the necessity for all of us—DMO and Navy, to some extent, and ASC, certainly, to another extent—to work to remedy the maintenance problems and to seek to achieve the availability that we should be able to intrinsically at an affordable cost. So I do not think any of that, so that is why I do not want to use the words 'watered down'. The redaction will be about specific numbers, if any.

Senator JOHNSTON: He is very critical of the enterprise participants, is he not?

Mr King : He was at the first time that he saw that. But remember now, of course, that the work has gone on for a while and I think that his view—I have not seen his third stage—would be that a lot has gone on in the relationship between Navy, DMO, ASC and the whole enterprise in getting a complete focus on this problem.

Senator JOHNSTON: Do you have an idea of what he has cost so far?

Mr King : The total is about 9 million.

Mr Gould : The contracted price is 9.8 million—that of course is not all expenditure, but that is the price.

Senator JOHNSTON: And does he have a further role to perform?

Mr King : No. There are options for further work beyond phase 3, but we have not defined that as yet. But obviously someone of Mr Coles' experience, we might want to call him in to have a look at, for example, how the implementation of the recommendations is going.

Senator JOHNSTON: I want to turn to SLEP.

Major Gen. Cavenagh : Before we leave Coles, I want to make a point about redacted reports. As the end recipient of all the love that will flow, when you redact reports sometimes you take out some important context in the classified material. It is just a plea that when it comes out that that is borne in mind.

Senator JOHNSTON: I have utmost faith in your capacity to make a digestible document. Using the term redacted was a convenience. I do not know what you want to do. I have no say over that, so I will just take what I am given as usual. With respect to SLEP, is the 'E' for evaluation or extension?

Mr Gould : It is for evaluation.

Senator JOHNSTON: How many people have we got involved in that program?

Mr King : We will have to take that on notice. There is a team in-house—

Air Vice Marshal Deeble : We have three personnel permanently appointed to the SLEP team. One is from the Navy, Commodore Mark Sander, and we have two Reservists at the commander level that are doing that work. We have contracted out a number of pieces of work to ASC. They did the majority of work and assessed 135 systems. We have specific reports on each of those 135 systems. We have also done some additional work in the mission system space with Raytheon, BAE and Tallis in particular. They have assessed 10 of the mission system related aspects for us. We have some work ongoing with the US Navy, who are doing an independent peer review of the overall findings to determine whether there are any gaps that may have fallen through there. We did use a process that was used for looking at obsolescence on the Ohio class, so they are familiar with the methodology that we applied.

Senator JOHNSTON: What is the cost?

Air Vice Marshal Deeble : The budget for that work is $2.2 million. At this point in time I believe we have spent $1.2 million, and that relates to the work that has been undertaken by ASC and those other industry partners that I talked about—Raytheon, BAE and Tallis—and there is a small cost associated with the US Navy work.

Senator JOHNSTON: And when will we expect the formal advice from the team?

Air Vice Marshal Deeble : We are waiting at this point in time for a response from the US Navy. They are yet to provide their report. We are chasing that down now; we believe it is currently through the signatory cycle within the US Navy and it has got to the final stages of that to be undertaken. We are also doing work looking at the findings with regard to obsolete systems and what the funding profile would need to be to address those systems over time and comparing that to our budget.

Senator JOHNSTON: Which is roughly when, do you think?

Air Vice Marshal Deeble : At this point in time we believe that the majority of the work will be completed by the end of October. Again the US Navy report is on the critical path and we will be providing, through the Defence committee, an update on exactly where we are by the end of the year.

Senator JOHNSTON: That is this October?

Air Vice Marshal Deeble : This October.

Senator JOHNSTON: All right, I have no further questions on Collins, just on the SEA 1000 project. Admiral, as I am sure you would be anticipating, I just want to talk about the $214 million. I think 101 has been spent. Question on notice 257 sets out the total at 101.5. You have spent $6.2 million on design studies with DCNS, HDW and Navantia. What did we get for that?

Rear Adm. Moffitt : The work contracted with Navantia, DCNS and HDW relates to a second tranche of requests for information to those companies about their MOTS products—a greater depth of granularity in information about those products to allow us to evaluate the likely performance in a separate part of work that we are doing.

Senator JOHNSTON: The information, I take it, is classified.

Rear Adm. Moffitt : There is some of it which is classified, yes.

Senator JOHNSTON: You also have a separate $6.1 million for Kockums. That is for some of Collins, I take it. Is it?

Rear Adm. Moffitt : This is a forecast spend that you are reading from.

Senator JOHNSTON: I have a spend in 2012-13 of $3 million for Kockums, and then in 2013-14 $3.1 million.

Rear Adm. Moffitt : That is for next year, yes. This is our forecast of spend. The design studies with Kockums are intended to do a quotation and then a concept study for us on a technologically refreshed Collins design—so the existing design updated for modern technology, removing obsolescence issues and removing some of the known design defect areas and performance shortcomings of the Collins design, and then building it again.

Senator JOHNSTON: You are spending $18 million on analysis of options studies. You are spending $8 million this year and $10 million next year. What is that all about?

Rear Adm. Moffitt : There are a number of parts to the process, one of which in particular has been going on for some time, where we have been doing performance modelling using the US company SPA—Systems Planning and Analysis. That also engages General Dynamics Electric Boat. Part of that work also will relate to our investigation of the option 4 set, which is the new design option set and which we would be planning on doing in Australia. Some of it is work which relates to studies and analysis being done on our behalf by DSTO of the other options, including the technologically refreshed Collins option. So there are a number of different pieces of work in those numbers being done by different people on different parts of allowing us to analyse and compare the data we get for the various option sets.

Senator JOHNSTON: Thank you. The next line is a mission system study. Could you explain to me the difference between a mission system and a combat system.

Rear Adm. Moffitt : A combat system is a subset of the mission systems. There are platform systems and mission systems.

Senator JOHNSTON: We are spending $6.2 million on a mission system study. Who are we spending that with?

Rear Adm. Moffitt : That again will be a variety of organisations. In mission systems, that covers such things as our recent combat system request for information to the commercial submarine combat system vendors of the world to allow us to compare and contrast and to complete some work that was done for us in 2010 by DSTO around comparing combat systems. This part in particular looks at the business case side associated with each of the combat systems rather than just the system performance side. So that is a part of it—the combat system RFI. There are other mission systems: sonar systems, communication systems, periscopes, optronic masts, navigation systems and all of those things which relate to the delivery of the capability that allows the submarine to do its mission in a combat sense.

Senator JOHNSTON: Similarly, I take it that 'support systems' is in line with that broad thrust of looking at different systems and the support base for the submarine, its hotel services and all of that.

Rear Adm. Moffitt : No. That is more related to the sustainment of submarine in service types of systems, so concepts for sustainment. This is work which will of course link very closely with, and flow in some respects from, the work that Mr Coles is doing. What we would ideally like to be able to do is this. Once we have got the sustainment system right with Collins, we would like to continue to use it for whatever the future submarine might be.

Senator JOHNSTON: So who is the beneficiary of the $2.4 million?

Rear Adm. Moffitt : Some of that will be DSTO and some of it is still in the planning phase. I am not expecting to have staff to actually start doing that work until the new year when I have got a new staff member turning up to focus on it. That is an estimate at this stage.

Senator JOHNSTON: Is it significant that in terms of sustainment ASC is not mentioned?

Rear Adm. Moffitt : Not at all. ASC is the nation's submarine sustainer. We will be doing that work in part with them. They know as much about it as anyone. It is just that they are not mentioned specifically in the table of numbers that you have got.

Senator JOHNSTON: And that is the heading where they will come into the picture, is it?

Rear Adm. Moffitt : They certainly will be involved in that work, absolutely.

Senator JOHNSTON: You are doing a MS evaluation study. DSTO is doing that?

Rear Adm. Moffitt : DSTO is helping us to evaluate the data we have got back. They are doing that now and have been doing that for some time in response to our MS RFIs to Navantia, HDW and DCNS.

Senator JOHNSTON: And they are doing two years each at $1.2 million for systems integration and capability modelling?

Rear Adm. Moffitt : Yes.

Senator JOHNSTON: Where are they doing that?

Rear Adm. Moffitt : There is a range of work under that heading, some of which I would expect to be done in Fishermans Bend and some of which I would expect to be done in Edinburgh and there may be some of it done in other places as well, including perhaps some of the facilities at AMC although not so much systems integration there but some of the other modelling bits and pieces. There are some facilities at AMC that are very useful.

Senator JOHNSTON: The combat system study is $5 million.

Rear Adm. Moffitt : They will be helping us, as they have done, with the original combat system study that we did in 2010. They will help us to analyse the results that we get back from the RFIs that are currently out.

Senator JOHNSTON: Signature is self-explanatory, power and energy is self-explanatory, and cell ageing and performance is pretty self-explanatory. The one that I wanted to look at was submarine propulsion, energy, support and integration facility development. Is that the land based test site? It is over the page.

Rear Adm. Moffitt : That is 'spesify'. That is not necessarily DSTO. We are doing some more work with the original successful contractor who did the 'spesify' study. That was Babcock. We will be doing some more work with them to develop that.

Senator JOHNSTON: So that is just the development of the plan with the 5.3, is it?

Rear Adm. Moffitt : Yes, it is.

Senator JOHNSTON: With US program management support it is costing us $2 million with the FMS?

Rear Adm. Moffitt : That is an FMS case. There is a number of things in that as well. That will be ongoing payments for the existing contracts with SPA and General Dynamics Electric Boat.

Senator JOHNSTON: So we have got a total of 1.5 and in the budget there is, I think, $214 million. What has happened to the balance?

Rear Adm. Moffitt : The $214 million was spread over three years. What you have got here is two years.

Senator JOHNSTON: So have we worked out what we are going to spend the balance on?

Rear Adm. Moffitt : We have a plan.

Senator JOHNSTON: Are we permitted to know the plan?

Rear Adm. Moffitt : Yes, you are, of course.

Senator JOHNSTON: I would not mind if you had said no because I am pretty used to that, so I would not have taken issue!

Rear Adm. Moffitt : Is that right? I would never say no to you — you know that! Yes, of course, you are. I would make a point though before going into it in much detail. I think it might be wiser for me to take it on notice given the time rather than it becoming a bit eye watering and brain numbingly detailed for everybody else. I would simply make the point that in respect of the planned work there is an element of a journey of discovery here. We learn things from each of these activities that we do that cause us to want to modify somewhat the future plan as we go. There are some broad high-level milestones that government has announced that we will be aiming for. We will certainly maintain our objective of hitting those milestones on time and on budget but the actual detail within which we execute and expend the finances is going to change as we learn more.

Senator JOHNSTON: Last night I was told at Finance estimates by ASC that they will finish construction of the last air warfare destroyer sometime in 2019. Do you have a very rough estimation of when the first bit of work—that is, real metal bashing and welding—on SEA 1000 will commence?

Rear Adm. Moffitt : No, I do not.

Senator JOHNSTON: Is it likely to be 2019, 2020 or 2021?

Rear Adm. Moffitt : It will depend to a significant extent on the second-pass decision by government on what it seeks to acquire and therefore how much detailed design work will need to be done and therefore over what period of time that must occur. But we would aim for that to be the ballpark, for sure.

Senator JOHNSTON: So 2019 is the ballpark?

Rear Adm. Moffitt : The ballpark that you mentioned is the ballpark.

Senator JOHNSTON: Okay. I have no further questions.

Mr King : Could I read into the record some answers to some of Senator Johnston's questions earlier from Captain Wardell's assessment of Choules and what we have done about it.

Senator JOHNSTON: If I might table that document, which might be beneficial to the other committee members who have not seen it. I am happy to hear what you have got to say, but if I could present, Chair, some copies of that document so that people can see it. Is the committee happy for me to table it?

CHAIR: All members being in favour, yes.

Mr King : I want to summarise it. If we have to go into great detail, I might need to get an expert to join me. As I indicated to you earlier, all these reports were made available to us before we built the ship. Item 1 was addressed as part of what we called the tropical cooling upgrade. So there was a major change. For item 2, part 1—that was the exhaust question you had—there is an interim fix on place in Cardigan Bay still being evaluated by the class. The class is still managed out of UK. I think my last recollection of this is they had found that they wanted to change that interim fix a bit. That is what I understood. When that happens as a class A&A, alterations and addition, we will undertake it. The remainder of item 2 was addressed during the recertification. That was done in the UK.

Item 3 was accomplished by an A&A—an alteration and addition, if I can use that as a shorthand—during recertification. Item 4: problem solved as part of the tropical upgrade. Item 5: problem solved by an A&A during recertification. Item 6 was addressed during the recertification. Items 7 and 8 were addressed by A&A during the recertification. Item 9 was changed out during recertification. Item 10 is a class fit; no action taken to upgrade. Item 11: overhauled; further direction from the class. Item 12: class issue waiting on development of a class alteration and addition.

Item 13: A&A to upgrade the lift schedule for next availability but not accomplished during the recertification due to a long lead time on replacement pumps. The impact of that I think is that the 20 tonne lift is derated at the moment to 10 tonnes. That is my understanding. The crane boom hydraulic rams were repaired during recertification. Item 14, parts 1 and 2, is waiting on a class A&A and we need to determine the RAN experience on that one. Item 14, part 3 is addressed during tropical cooling upgrade. Items 15, 16 and 17 were addressed during recertification. Item 18 was addressed by ships staff during recertification. Items 19, 20 and 21 were addressed during recertification.

His top six concerns were summarised at the end of his letter. They were the failure of the main engine room intake shut down valve—replaced valves and refurbished vents has been done. Fragility of the chilled water plants: four new chiller plans added and existing pumps replaced. The third item was the fragility of all cargo lift systems, which we have just touched on. All lifts inspected and refurbished, except the vehicle lift, which is being updated as part of a present alteration and addition. In the meantime it has been downrated from the 20 tonnes. Item D refers to the fragility of the vacuum toilet system, additional ejector pumps fitted to the system; item E, steering pump fragility overhauled, system overhauled and certified by Lloyds—they are the class certifier; and item F, lack of chemical treatment in the closed chilled and boiler water systems have been modified to include chemical flushing system.

Senator JOHNSTON: All of that work was done by us?

Mr King : Yes, under our direction. It was part of the agreed purchase.

Senator JOHNSTON: Did it cost us anything?

Mr King : Yes, there was an element for it but that element was provided for.

Senator JOHNSTON: And it was over and above the purchase price?

Mr King : Yes, it was.

Senator JOHNSTON: And how much was it?

Mr King : I will have to get that.

Senator JOHNSTON: That is fine. Thank you for your answers.

CHAIR: Is that it?

Senator JOHNSTON: That is it.

CHAIR: Thank you very much. We have dealt with Navy capability.


CHAIR: Now we will move to program 1.4, Air Force capabilities. Has somebody got questions in this area? No? Program 1.5, intelligence capabilities. Anybody? No. Program 1.6, Defence support. Senator Kroger, you have some questions.

Senator KROGER: Thank you, Chair. I want to ask about the discussions and negotiations that have been undertaken in relation to the air base in Avalon, Victoria. I understand that Defence has given agreement for the lease to change on that. Could someone furnish me with some details in relation to that?

Mr Greskowiak : You may have read in the media that the Minister for Defence has recently written to the CEO of the Avalon Airport authority, advising him that he has asked Defence to adjust the terms of the lease in terms of the approval process for building works on the airfield. The adjustment will remove the need for the CEO to seek approval from Defence for infrastructure works that are less than $15 million and less than 10,000 square metres overall. So we will now, with that instruction from the minister, work on the lease adjustment, which should be completed within a few months.

Senator KROGER: If they were looking at building, for instance, an international terminal, I would have thought that would probably exceed that financial amount. I am wondering whether the way in which it affects it will affect Defence's use of the base and so on.

Senator Feeney: It sounds like we all know that Lindsay Fox and his team nursed the ambition to build Avalon into an international airport. Obviously, there have been discussions between Lindsay's organisation and Defence. Government has essentially reached the point where the decision to upgrade it to an international airport ultimately will be one for Anthony Albanese and Transport, so that is not a question for Defence. But Minister Smith has, as the officer just advised, amended the lease arrangements that exist between Avalon and Defence so as to enable Avalon to make the enhancements that they need to make so that they can nurse that ambition. I will stick to my earlier phraseology.

Senator KROGER: So clearly the lease arrangements recognise what has been put to Defence in terms of what they think the requirements will be so that it can be incorporated in that. Secondly—and you might be able to assist me here, Senator Feeney—does the extension of it being used as an international facility in any way affect the use of the base for defence purposes, even the Avalon Air Show? Does it have any implications for that?

Senator Feeney: No, it is not an active RAAF base, so we do not have any capabilities based there. So I guess the short answer is no.

Senator KROGER: And those who attend Avalon Air Show?

Senator Feeney: Avalon Air Show is only an enhancement, an ornament, to the airfield. So, really, we have confined ourselves to changing lease arrangements so as to facilitate enhancements at Avalon. But, again, I repeat: the decision as to whether that facility is appropriate as an international airport or not is not one for us.

Senator KROGER: That was not really my question though. I was more interested in the arrangements.

Mr Lewis : The sale of Avalon was not that distant in time from the sale of the 22 federal airports. The underlying freehold ownership of all 22 airports remains Commonwealth land in the transport and infrastructure portfolio. Long-term leases apply there. You need to think of this lease on Avalon in identical terms. The lessee has effective use of the site.

Senator KROGER: I look forward to the government support of a rail link there that helps develop it more.

Senator FAWCETT: I want to follow on from the earlier discussion about cost pressures on Defence. I would like you to take on notice what outstanding requests the Defence Support Group have for remediation work at Defence sites, including underground infrastructure et cetera. It does not need to be to the cent; I just want an idea of the kind of cost pressure that is currently unfunded that Defence is facing.

Mr Lewis : I would not have looked at that for over 12 months but I remember the last time I looked to see that there was a pile of printouts. It is a significant prioritisation job as to which third or so we can afford to do that year. For the latest I would turn to Mr Greskowiak to provide an update.

Mr Greskowiak : We can certainly take that question on notice. There is a fair pile of spreadsheets that show all of the requested maintenance works. We run an annual prioritisation process with the three services involved. Capability and work health and safety issues are a priority to ensure the safe operation of the Defence estate.

Senator FAWCETT: Particularly they are the ones I am interested in—the ones that have an OH&S implication or an operational implication—and whether there is any lag in funding those.

CHAIR: I think we have dealt with defence support.


CHAIR: Let us go to defence science and technology.

Senator FAULKNER: I read an article in today's media headed 'Defence bill a research risk: academics'. I want to ask the Chief Defence Scientist, Dr Zelinsky, about the consultation process. On the face of reading the article in today's Australian newspaper it does not appear to have been an absolute triumph. Being always careful about accepting these things at face value I wonder if you can assist me at all.

Dr Zelinsky : With regard to consultation on this bill, the Senate Foreign Affairs, Defence and Trade Legislation Committee made a report on 15 August asking for more consultation. There had not been enough in the view of the committee and due to representations made to that committee. With Mr Ken Peacock I was then asked by the Minister for Defence to run consultation with the relevant stakeholders, people who had made submissions outlining concerns. He asked us to do that reasonably quickly. We did that over a period of two weeks. We consulted extensively through the people who made various submissions. I could probably run through them. It would give you a sense of who we talked to.

Senator FAULKNER: Sure.

Dr Zelinsky : Universities Australia, the University of Sydney, the Australian National University, the Australian Research Council, the National Health and Medical Research Council, the Cooperative Research Centres Association, CSIRO, ANSTO, the Academy of Technological Sciences and Engineering, the Australian Academy of Science, the Grains Research and Development Corporation, Science & Technology Australia, the Department of Industry, Innovation, Science, Research and Tertiary Education, the Department of Health and Ageing, and the Department of Agriculture, Fisheries and Forestry. Out of our work, we did form some recommendations. We wrote to the minister and he then took most of those recommendations and forwarded them on to the Senate committee. The Senate committee did make a recommendation that a round table be convened chaired by the Chief Scientist of Australia, Professor Ian Chubb. So our work really became the background work that was done identifying all the major issues and effectively mapping out a way forward with 11 key recommendations.

Under Professor Chubb's chairmanship, we then conducted two round tables. Our meetings were on 7 and 21 September and we had an intervening subgroup of that round table on 14 September. The major issues were put, discussed and agreed to on 21 September which then became the basis for amendments to the legislation that were put to the committee. Subsequent to that, one party, the University of Sydney, has contested some of the outcomes of that meeting and has been in the media.

Senator FAULKNER: But the import of this article was to say, ' academics are up in arms'. I did listen carefully to what you said. Would you say that is a fair reflection or in large measure some of these issues have been worked through as far as the University of Sydney? Is the University of Sydney view a representative view? That is what I am trying to grapple with here.

Dr Zelinsky : I think some academics are up in arms. I would not be prepared to say that everyone aligned here, but certainly we have worked closely with the peak body, Universities Australia, which represents 38 universities. I spoke to quite a number of Deputy Vice Chancellors of research and Vice Chancellors of various universities during our consultation period with Mr Ken Peacock. We got a sense of what the issues were and a way forward to resolve this.

If you look at history probably the closest thing to compare this legislation to was 20 or 30 years ago when legislation was passed around animal and human experimentation legislation ethics related to conducting that kind of research. Universities had to implement self-assessment and regulatory regimes to comply with the law. I recall that at the time there was quite a bit of controversy and people were worried that this would really severely impact on academic freedom, the way research would be conducted et cetera. Now it is regarded just as one of those parts of doing business in research in those areas, that if you are going to do research involving animals or humans you have to make a submission and get approval to do that kind of work.

Senator FAULKNER: The government is going to propose some amendments to the legislation, one assumes. Is that correct? Just for the record I am assuming that.

Dr Zelinsky : It is correct.

Senator FAULKNER: But one should never make assumptions in this process. But is that correct?

Dr Zelinsky : That is correct.

Senator FAULKNER: Are you able to say yet how the controls faced by Australian researchers will compare to their US counterparts? Will they be the same? Do you think they will be more strict? Do you think they will be less strict? This obviously is a critical issue here.

Dr Zelinsky : It is a critical issue and it is not really an easy question to answer definitively in the sense that you are comparing apples with oranges. The bill that has been proposed and the US export control arrangements are quite different models. The US system regulates a much broader range of circumstances than what is proposed by the Australian bill. Just to give one example, the US does have domestic controls. For example, foreign students are required to obtain permits for using controlled technology during their studies in the US while Australia does not have that. One of the things we became very aware of in the consultation I did before the roundtables was that there was a sense that Australia may be asking for a system which would actually make us uncompetitive, and we were very conscious of that. We also wanted to make sure that the regime Australia was going to adopt was no more restrictive than the US arrangements. So in response to the university sector concerns, Defence sought advice from the US government agencies with responsibility for US export controls and the regulation of US universities and research sectors both from the Department of State and the Department of Commerce. This advice was provided by Ambassador Bleich to the Chief Scientist as part of the roundtable. The advice was both clear and authoritative and includes the following statements:

In the United States, if a university wants to use specifically controlled equipment or data, they would need a license or other approval to transfer this technical data or allow access to the equipment to a foreign person.

…   …   …

[u]niversities in the United States are not exempted from U.S. ITAR and dual-use export controls.

That was quite definitive.

After the roundtable, the University of Sydney obtained legal advice from a private US law firm and provided it, I believe, to the Senate committee. This particular additional advice obtained by the University of Sydney has now been provided to the US government for review. We have been informally advised that there is an error of fact in their legal advice and their legal advice does not change in any way the ambassador's letter to the Chief Scientist. Defence has been advised that the US ambassador intends to follow up formally on this point with the Senate committee.

Senator FAULKNER: Let us be clear. Just for the record, I think that you have got to say whose legal advice, just so we know.

Dr Zelinsky : The legal advice obtained by the University of Sydney from the US firm.

Senator FAULKNER: So it is University of Sydney legal advice.

Dr Zelinsky : Yes. I think that was submitted recently to the Senate committee.

Senator FAULKNER: It is one thing to say that, I suppose, Dr Zelinsky, but it is another thing for the university to have the benefit of that. Is it in the consultation process? You have been quite open about this with the committee. Obviously the interested parties at the University of Sydney will be informed about this?

Dr Zelinsky : Certainly. Just to be clear, the roundtable concluded—

Senator FAULKNER: And the University of Sydney was there—

Dr Zelinsky : Yes, they were there, and subsequently they sought this legal opinion which they then submitted independently. We only saw that after the submission went to the Senate committee.

Senator FAULKNER: But you now have advice on that?

Dr Zelinsky : We then went to find out what—

Senator FAULKNER: And that is a reason for my asking the question: whether you can assure the committee that you will be open and frank—

Dr Zelinsky : Absolutely.

Senator FAULKNER: with the researchers and scientists from the University of Sydney who have got concerns.

Dr Zelinsky : Absolutely. This is just breaking news, by the way.

Senator FAULKNER: We always like to hear breaking news. One of the issues of course that has arisen, as you know, is whether it is possible to have the Defence export control aspects of the bill in some way removed from the critical task of implementing the Defence Trade Controls Treaty. Has any of the consultation process actually shone any light on this, or any of the work that Defence has been able to do? Obviously these are genuinely-held concerns that people have. I read that they are also genuinely-held concerns that a number of parliamentarians have too. So in terms of progressing this matter, that strikes me as an absolutely critical issue as well.

Dr Zelinsky : Very early, when I started the consultation with Ken Peacock, the view was expressed to us that it might be easier to split the bill into two parts. So we then looked into that, both by asking for advice within Defence and by asking the US colleagues about how this would be viewed to see if it was an acceptable way forward. The advice we received back was that it was not possible, and I have three points here that I can make around that. The ratification of the treaty is not possible until Australia has passed legislation to strengthen its export controls; that is very clear.

Senator FAULKNER: I always understood that that was certainly the case.

Dr Zelinsky : Yes, and there is a US congressional requirement binding on the US President that he is unable to recommend ratification of the treaty until he is satisfied that Australia has passed such legislation. The third point is that treaty benefits cannot be delivered until Australia's strengthened export controls are operational. These need to meet our Wassenaar arrangement commitments. So that is the advice we received back in a nutshell. For that reason, we then went forward to look at how we could actually implement the defence controls and make changes to the bill. That has then formed the basis of our subsequent recommendations.

Senator FAULKNER: Is the symbiotic, indivisible relationship of these two elements something that you were able to make clear through the consultation process too, or did that come later?

Dr Zelinsky : At the beginning, this was one of the first things that were put to us by the—

Senator FAULKNER: You said it was raised at the consultation.

Dr Zelinsky : Yes, it was raised right up front.

Senator FAULKNER: But you have had two—

Dr Zelinsky : We then immediately thought this could be a way to break the impasse: get the treaty parts passed and then do the export controls separately. Then we did that work straightaway up front. We did the investigation and then were quickly informed that it was not possible. So then that guided us in terms of our further consultations, and we went back to all the parties and explained why that was not possible. In fact, when we had the first roundtable on 7 September, chaired by Professor Chubb, he had asked us that question because he had heard that from the committee, and we were able to definitively give the same sort of answer I have just given you.

Senator FAULKNER: But you can categorically say that the roundtable participants are aware of the advice that you have just given to the committee.

Dr Zelinsky : Correct. There is probably one last thing I wanted to say about the aspect: everyone who has worked in this area really is mindful that we do not want to lose competitiveness for Australia for our R&D sector. It is vital. So the implementation that has been recommended here is the transition period of two years, so it allows the export controls to take effect but not take immediate effect. So that way we can enable all sectors to become familiar with the obligations of the bill. Secondly, there is a steering group of industry, research and government leaders that will be formed to review the act's operation and implementation during the transition period. The group will report to the Minister for Defence and to the Minister for Tertiary Education, Skills, Science and Research. During the transition period, a number of pilots will be run which will study the impact of the programs of the bill on all sectors, particularly the universities. There are already a number of universities and CRCs that have put up their hands and said they would like to partake in that, so that is where the actual implementation will be done.

Their most important point about this is that, with the transition period, the steering group and pilot programs will enable the testing of the controls in the industry, research and university sector without the offence provisions being in effect. The members of the steering group will carefully consider the effect of the controls—whether they are striking an appropriate balance between Australia's international obligations and national security requirements while not unnecessarily restricting trade, research and international collaboration and limiting R&D competitiveness of Australia.

Senator FAULKNER: You have to get it through first, of course.

Dr Zelinsky : Yes, of course. But that is what has been proposed. The important point about why we are trying to allay the concerns of the sector is that the steering group will report regularly to the government and will make recommendations for any changes to legislation or regulation if required. So there is a chance, if there are unintended consequences with this sort of legislation, that we can have a way to tweak it, improve it and get it right.

Senator FAULKNER: Yes, but I would just put them in the context of commitments if this all lands as Defence or government might hope it lands, which is fair enough.

Dr Zelinsky : Yes.

Senator FAULKNER: Thanks.


CHAIR: Thank you, Senator Faulkner. There being no further questions in program 1.7, and no questions in program 1.8, Chief Information Officer, we will move to program 1.9, Vice-Chief of Defence Force. I think Senator Sterle has some questions.

Air Marshal Binskin : Vice Admiral Griggs has a couple of responses for us.

CHAIR: Vice Admiral Griggs, what have you got to tell us?

Vice Adm. Griggs : It goes back to a discussion with Senator Fawcett around the capability of the Oberon class combat system versus the Collins class, and particularly around a number of tracks that could be tracked by the system. The Oberon combat system had a capacity for up to 99 contacts to be entered into the system, although there were significant limitations on how many of these could actively be managed with the two consoles that were allocated for that purpose. The system did have a nominal automatic solution function, although this was rarely utilised by the crew, as it was assessed as being not particularly accurate. By comparison, the AN/BYG-1 system is capable of tracking and generating solutions for a much higher number of contacts, well in excess of 100—the actual number is classified—with greater numbers achievable within various subsets of the system. The AN/BYG-1 combat system employs a number of algorithms to generate assisted and automatic solutions for contacts which are of interest to the submarine command team and which are routinely used by the crew. The specific details of the AN/BYG-1 combat system tracking capabilities are classified. However, it is a generational advancement over the Oberon combat system and is entirely capable of being successfully operated in high-contact-density environments.

CHAIR: Thank you. We will now move to program 1.9, Vice-Chief of the Defence Force, with Senator Sterle questioning.

Senator STERLE: I do not know who I want to ask, but it is about the Aboriginal Army Community Assistance Program.

Air Marshal Binskin : That was Chief of Army and he left about 40 minutes ago.

Senator STERLE: Well you ask me the questions and I will tell you all about it. I have been waiting for this moment!

Air Marshal Binskin : The deputy chief is here and he should be able to answer it.

Senator STERLE: Tremendous. Deputy Chief, I was wandering around the Dampier Peninsula a few months back and bumped into a huge number of Army people at Gelligen. Could you tell me about the program, please.

Major Gen. Campbell : I can tell you about the program in general rather than that particular activity. The program is designed as a cooperative venture between Army, Defence and FaHCSIA in order to support the development of isolated Indigenous communities. It involves a period of scoping over a number of years and then an intensive project phase which can see both Army engineers and a wider range of specialist skills and contractors coming together, coordinated through FaHCSIA's efforts, and supporting a local community.

Senator STERLE: Okay, and it would be disingenuous, because you did say to me you could tell me about the program but not the venture up on the peninsular?

Major Gen. Campbell : No, I do not have those details with me today.

Senator STERLE: I think in all fairness to the rest of the committee—

Major Gen. Campbell : I am very happy to take it on notice.

Senator STERLE: I just want to flush out numbers, projects that they are doing. I have cheated, because I have been up there and met with them. My Aboriginal mates are absolutely over the moon. I have been waiting all day for that!

Senator Feeney: The answer will be worth the wait, Senator.

Senator STERLE: Thank you anyway.

CHAIR: There being no further questions on this program, I would like to put on record—and I am sure Senator Kroger would join with me—to thank all of the services for supporting the ADF Parliamentary Program, in particular the recent visit of a number of senators and members to RIMPAC. It was an invaluable opportunity for us to understand more about what our defence forces do, but also to give us a real insight into human capability and other aspects of defence. My appreciation to everybody concerned.

Senator KROGER: And the human capability of the members of parliament when on deployment—or lack thereof!

Senator STERLE: You should do a reality show on that—it would be a killer!

Senator Feeney: I don't think many of us will be enthusiastically embracing that idea.

CHAIR: We won't go into what it means to sleep in a rack!

Senator FAULKNER: They knew about that in the Middle Ages!


CHAIR: Moving on, there are no questions on program 1.10, Joint operations command; program 1.11, Capability development; or program 1.12, the Chief Finance Officer. We will move to program 1.13, People strategies and policy.

Senator KROGER: It is quite salient that the chair has just referred to RIMPAC, because the first question I want to ask is on something that came up when we were participating in that program. It relates to the decision that affected recreational leave entitlements for ADF personnel, which was the subject of much discussion. I understand that decision has been reversed but I would like to ask when the decision was made and why it was made.

Mr Lewis : The decision in relation to recreational leave travel was made in the budget context.

Senator Feeney: It was announced in the budget.

Mr Lewis : So it was announced on budget night.

Senator KROGER: And the reversal?

Mr Lewis : Following the disallowance motion by Mr Stuart Robert—

Ms McGregor : The shadow minister for defence science, technology and personnel, Mr Stuart Robert, notified on 26 June that he wanted to disallow some items. Then on 13 September Minister Snowdon announced the removal of the age limit that applied to the rec leave travel, so from 13 September members without dependants are eligible for rec leave travel. On 17 September Mr Robert then withdrew the disallowance motion.

Senator KROGER: What was the projected budgeted savings with the measure?

Ms McGregor : I do not have that here so I will have to take it on notice.

Mr Lewis : My recollection is that it was in the range of $10 million to $15 million per annum, but we will take it on notice and give you a precise answer.

Senator KROGER: I was very pleased that the minister had made that determination because it was an issue that was raised by many when we were away and it was an issue of great concern. I am interested to know whether, even in that short window, there were personnel who were affected by the short-term cancellation of recreational leave and whether that has been addressed subsequently.

Ms McGregor : Any travel arrangements that would have been made in that intervening period would have been made in a private capacity, so we would not have visibility or a record of that.

Senator KROGER: One of the issues that came up during that time was the way in which there was no communication about the change of policy directly with personnel or there was a perceived limited communication in the way in which personnel had been advised. How have personnel been advised of the change in policy?

Mr Lewis : My recollection is that there was communication from service troops in relation to the initiative as part of the budget process. My recollection is that there was communication in relation to the policy change. Just one other observation: in some ways this was part of a package of initiatives linking back to the strategic reform program. Now it was dealt with in a budget context rather than as part of the SRP, but I think it was one of the initiatives identified several years ago as part of the strategic reform program when looking at ways to identify ways to reduce budgetary expenditure in relation to allowances.

Senator KROGER: Mr Lewis, that is the case, but I just want to go back to communication. The advice I was given by more than one individual, in fact it came up particularly on one of our ships, was the very fact that a number of them were not aware of it until it had been removed and that they had been advised when they were actually trying to organise and book leave. So clearly the way in which communications unravelled means it had not been effective because it was an issue that was raised by a number—

Senator Feeney: I do not think any of us would be surprised to find that this matter was raised with you; I am sure it was raised with all of us. Members of the ADF were notified by service chiefs. They were not consulted ahead of the budget announcement, but there is nothing unusual about that.

Senator KROGER: Yes, I understand.

Senator Feeney: It sounds like the personnel you were talking to work from the Royal Australian Navy, and their entitlement to two trips—as I understand it Air Force and Army have one, Navy has two—was obviously reinstated and notifications flowed from the reinstatement. But there was no advice provided to personnel ahead of the budget, and I do not think there is anything remarkable in that.

Senator KROGER: No, the issue was in the way in which they were informed after the decision had been made and that it had not been—no, I was questioning that they were not advised of the decision straight away, so there was some concern about the way in which that—

Mr Lewis : That is not my understanding. We can look into that, but my understanding was that notification pretty well straight away.

Senator Feeney: Admiral Griggs might be able to help us.

Vice Adm. Griggs : The Navy was advised, as the Air Force and the Army were, immediately after the budget announcement. In all of the discussions I have had with probably couple of thousand members of the Navy since the budget, the key issue was the lack of notification beforehand not afterwards. But when it is explained to people that because it is a budget measure there is no mechanism for us to discuss that prior to the budget being announced, most of them understood that. I was quite open in saying that for such a significant change this was not an ideal way in which to communicate, but it was an inevitable function of it being a budget measure.

Senator KROGER: As I said, in addressing the subject I think that it is an area, given the small amount of savings that were achieved by it as a budget measure, that—

Senator Feeney: It was $47 million over the forward estimates.

Senator KROGER: having spoken to a number of personnel about the way it was going to affect them, it certainly was something that could potentially affect morale. I commend Minister Snowdon for changing his decision on this particular one. Admiral, while you are at the table I want to ask you about our recruitment of former British personnel. With the Brits reducing their budget, it has enabled us to explore trained former Royal Navy—I think it is mainly Royal Navy personnel that have become available. Admiral, what has been your approach in recruiting and using this as an opportunity for yourself?

Vice Adm. Griggs : We certainly have used it as an opportunity. One of the things we have tried to do throughout this process is to work collaboratively with the Royal Navy during their downsizing. We have had a longstanding no-poaching agreement with the Royal Navy because we do not want to jeopardise things like exchange programs. If everyone who comes out here on exchange decides to stay, we will lose the value of the exchange programs. When we saw this opportunity I went and spoke to the First Sea Lord, and we agreed that we would do this collaboratively. We have had a couple of teams—in fact, there is a team over in the UK right now which has been integrated with the Royal Navy's process to help transition people out of the Royal Navy. We have really meshed in with their process.

At the moment, I think we have around 80 officers and 120 sailors at various stages in the pipeline, and not all of those will convert to entering the Royal Australian Navy. That is what is in the pipeline at the moment and that is why I have the second team over there at the moment in order to try to make sure that we smooth the rails to convert them.

Senator KROGER: How many are in the team?

Vice Adm. Griggs : I think there are two over there at the moment, but they have just gone over for about six weeks to go round the country and talk to—

Senator KROGER: Presumably they will interview prospective—

Vice Adm. Griggs : They have interviews. I think there are around 90 people already on the books, and they will obviously pick up some more as they go round. In the last financial year, we had nine officers and 13 sailors come in from the Royal Navy and from the Royal Marines. We picked up a couple of marines with our focus on the amphibious capability development.

Senator KROGER: Do they bring a different skill set from our own?

Vice Adm. Griggs : They bring similar skill sets. Obviously they work on different equipment and on different ships but, in broad terms, because we traditionally have been structured very closely to the Royal Navy model, in many ways they are the easiest to bring in because our training is similar way and the way in which we operate our ships is similar. It is the same with the New Zealand and the Canadian navies. There is very little difference, and the transition is, on that level, quite smooth. Clearly, there are minor cultural differences but, from a professional perspective, it is quite an easy transition.

Senator KROGER: So do British officers have to do any officer training here? I could not imagine, but is there any difference?

Vice Adm. Griggs : What we try to do is, if at all possible, bring them across at the rank and seniority that they hold in the parent service. There are times when, if the skill sets are different, considerably different, then we might bring them in at a lower rank level because they will then have to work through a certain range of things in our system before they can advance. So it would be in a way disadvantageous if we did not bring them in at the right level. But that is quite rare, and I am working hard to try to keep the rank parity. What we do insist on, though, is some sort of indoctrination process to learn about the ADF and the Navy, in particular with a focus on our New Generation Navy cultural program. We try to inculcate that in them right at the start so that is very clear to them what the cultural expectations are from the Navy.

Senator KROGER: How many of those applicants are women?

Vice Adm. Griggs : I will have to get back to you on that. Of course, the percentage of women in the Royal Navy is much lower than it is in the Australian Navy.

Senator KROGER: I did not think that was possible.

Vice Adm. Griggs : Actually, we are at the forefront of the world's navies, Senator, at 18.4 per cent.

Senator Feeney: Celebrate the victories, Senator.

Senator KROGER: Indeed. You just mentioned that you do give training in relation to cultural issues. Given the many cultural reviews that have been undertaken, what specific training do you give them in relation to cultural matters? I presume it is in relation to our principles and guidelines?

Vice Adm. Griggs : What we have done is that, as we introduced the New Generation Navy program, we had several blocks of training that we gave everybody. We distilled the essence of that down. We do not make them sit through block 1, block 2, block 3. We give them a cut-down version but we are really focusing on our values and on the 10 signature behaviours, which are the flagship of the New Generation Navy program.

Senator KROGER: I have to say that it would be poor form of me if I did not commend you on what I observed when we were on Perth and Darwin, and that is the way in which the men and women worked together. I thought it was very, very commendable the way in which they all worked very effectively together. So it would be very churlish of me not to put that on the record.

Vice Adm. Griggs : Thank you, Senator. It is good to hear.

Senator KROGER: While you are at the table, could I ask you about the Broderick review and Navy's response to it. There were 21 recommendations made. Have you looked at their implementation specifically in relation to Navy?

Gen. Hurley : The Broderick review applies to treatment of women in the ADF, so there has been an ADF perspective to this and all the services have input into the implementation of it.

Senator KROGER: You referred to it very briefly, I think, in your opening statement.

Gen. Hurley : Correct.

Senator KROGER: Do you have anything further you would want to add to that, General?

Gen. Hurley : I could. We received it—I cannot remember the date now—a couple of months back. We have given it very intensive consideration. We have worked through the recommendations. We have actually finished that and have good outlines of how we are going to implement it and integrate it into the Pathways to Change program. On the whole, we are very supportive of where the report wants to take us. There are, as you can imagine, some really difficult issues for us to work our way through in the future, with the implementation of it; but, overall, it is a very positive response. Ms McGregor, who is here at the table, has discussed our intentions with Ms Broderick, and I think we are aligned in terms of where we want to go on this. She agrees with our intent and is actually trying to find some more information to help us in some of the more difficult areas in order to give us some other options to look at. But, overall, we are very comfortable with where it takes us.

We believe that we can meet the objectives of the review, and we certainly see benefits not only for women in the ADF but for men. It has been a particularly focus as we have worked through this report that it is for the ADF. It is about women in the ADF but there are many, many things that apply to both sexes. So I think, as a whole, the senior ADF leadership is pleased with the report. They have done the hard thinking about where we want to go. They have developed an implementation plan in outline. There is not the detail in every recommendation yet, but it is heading in the right direction.

Senator KROGER: In developing the implementation plan, what have you done in terms of an assessment plan to evaluate the effectiveness of that implementation plan?

Gen. Hurley : That will fit in underneath the Pathways to Change. Ms McGregor can talk about the tools we are looking at and the data collection processes and so forth. We will go through that.

Senator KROGER: If I can put another question to you, as well, Ms McGregor: how do you ensure that the implementation of the program does not become a tick box with personnel at various levels saying, yes, they have undertaken that program but it has actually not achieved any perceivable outcome?

Ms McGregor : It is a fair point. I still would acknowledge that, with each of those 175 actions or things that we need to acquit, we certainly are going to treat them seriously and make sure they are done; but, as you are pointing out, that does not go to the heart of achieving the program outcomes. So I guess we are asking ourselves three sets of questions: what have we done, how well have we done it and what impact has it made? These sorts of change programs do take years and some of these milestones are out a couple of years. But we are currently working our way through a detailed evaluation strategy within our group that looks at the actions, the accountabilities and the responsibilities.

We also do have considerable metrics available within Defence. It is very impressive in terms of what we know about people's attitudes, their aspirations, how they are performing, their views of leadership or whatever else. We want to make ready use of all of that data that we have to hand. We will augment it with things that we have used in the past around cultural change readiness surveys. There is the work that Admiral Griggs has been talking about in terms of Navy. We want to optimise the work that is going on in each of the services as it complements the Pathways Program but also look at things like our workforce outlook programs or analysis because it does give us a sense of people's satisfaction, whether they are joining, whether they are leaving, attrition rates and also our Defence census and broader community benchmarks.

We are just working our way through that because we are still trying to also assimilate Ms Broderick's latest report and ensure that it will be not missing any of the threads that she is pointing to. We will also be held to account by Ms Broderick because she will be coming back in 12 months to see our progress. So there is a sense of us needing to put together a pretty significant strategy that acquits the recommendations but also measures the change as it evolves and also an external scrutiny. So I think it is going to be a pretty robust analysis that we will have but we are still putting all the various pieces together.

Senator KROGER: Is it possible that it is not just—and I do not use this term lightly—a 'bureaucratic structure'? I use my experience from Perth and Darwin as an example where you have officers in charge that clearly are walking the talk, just by virtue of the way in which a ship is running a operation. Where you can hold up examples of words working really well and effectively, individuals should be commended for the way in which they are doing that, regardless of any Broderick review or not.

Gen. Hurley : That is a good point. A couple of critical recommendations in the second part of Broderick are the responsibilities and accountabilities of commanding officers or commanders across the board. That is one area where we have particularly invested time and thinking about. The report goes as far as to say that we will rate commanders on an annual basis in terms of the unit temperature. That creates some difficulties in the early days and we are working through that. Yes, certainly the role of commanders, and the influence they have on their organisation, and those intangibles you are talking about are part and parcel of the program we will be looking at. Just in response to that, we are not dragging our feet. One of the recommendations was to create a new agency within Defence to look at the handling of sexual offences and we have already created the one staffer who is going to do that job and is starting to set up that organisation. So although we have been working our way through this, some aspects have already been attended to.

Senator KROGER: I do believe that a lot of the recommendations in that report that I have read apply across the community. It does not just necessarily apply to the Defence Force. They are issues that could translate to any industry, so it is very important that those that are doing a great job—and I have personally observed people doing a great job—should be applauded and encouraged so that it is not, as I put it, a 'bureaucratic approach' across the force. I think we should be acknowledging and recognising the successes, as you said earlier on. I do not know that we have done that.

Ms McGregor : I think some people are better at this than others. So those people who are the early adopters or whatever can pave the way and, as you say, build a best practice which we, through a communication strategy, will ensure all members in the senior leadership group understand and live and breathe each day. As General Hurley was saying, there are also accountabilities in there and even on the APS side of things we are building this into performance agreements. Those are the sorts of things that do indicate the seriousness of how we treat these matters.

Senator KROGER: What did the Broderick report cost?

Ms McGregor : I will have to take that on notice. I am sorry.

Senator KROGER: Thank you.


CHAIR: If there are no further questions on program 1.13 and no questions on programs 1.14, 1.15, 1.16 and 1.17, we will go to outcome 2.

Senator RHIANNON: I had a question on notice in the May estimates. It was No. 41. It comes under the provincial reconstruction team. You provided a detailed project list for 2006-07 to 2010-11. Thank you for providing that level of detail. I want to ask why there was no detail provided for 2011-12 and 2012-13.

Mr Sargeant : I will have to check that and find out.

Senator RHIANNON: The total amount I understand is available for 2010-11. You did not provide a breakdown. For 2012-13, considering that these projects would have had to have been approved, you would have had an indication of what they are.

Gen. Hurley : I am just wondering if your question was about work done particularly by the ADF because the operation transitioned into delivery of these projects to a different manner around the end of that 2010-11 period. I am wondering if that is why.

Senator RHIANNON: On page 127 of the budget paper Australia's International Assistance Development Program 2012-13 under the heading 'Summary of aid programs delivered by OGDs' in the table titled 'Aid delivered by Australian government agencies other than AusAID', so we are talking about ODA, Defence comes in with an estimated spend of $11.7 million for 2012-13 and $19.7 million for 2011-12. You have provided a great deal of detail for all those other years and then it stops.

Gen. Hurley : I am not quite sure why that was the case but if the detail is there we will give it to you.

Mr Sargeant : I think it is the difference. The question asked how much we had spent. We know that. We have an estimate for 2012-13 but we have not finished that year, so what we could provide is the estimate.

Senator RHIANNON: So you could provide an estimate of the division between direct project costings, Defence employee costs and Defence employee support costs?

Mr Sargeant : I would expect so.

Senator RHIANNON: Thank you. For the year that is completed 2011-12, can you provide details about what that money was spent on?

Gen. Hurley : Yes, we will be able to.

Senator RHIANNON: So you need to take that on notice?

Gen. Hurley : Yes, if we could.

Senator RHIANNON: Staying with that same question on notice that you responded to, I will read out one of the paragraphs that you included in your answer because I had some questions arising from it. It says:

The overall security situation, the relatively small scale of the individual projects undertaken by the MRTF and MWT—

the Mentoring and Reconstruction Task Force and ADF Managed Works Team—

and the time imperatives to consistently deliver immediate and visible benefits to local communities, militate against the conduct of formal cost/benefit evaluations …

The line that comes out there that I want to explore is:

… consistently deliver immediate and visible benefits to local communities, militate against the conduct of formal cost/benefit evaluations …

Are the projects that are done by the ADF and that are labelled as ODA eligible expenditures in line with the review and evaluation across aid program guidelines that, again, are set out in the publication I just referred to? It is quite detailed in terms of evaluation.

Mr Sargeant : I would have to take that on notice.

Senator RHIANNON: Is there somebody here who can explore that, because we are talking about one of the very fundamental aspects of Defence projects that are funded by aid and the evaluation is built into all that so deeply—

Senator Feeney: Senator, I think we need to clarify some of that language.

Gen. Hurley : Senator, these are not funded by aid. These are funded out of the Defence budget. They may be declared ODA eligible but they are not aid dollars; they are Defence dollars.

Senator Feeney: And of course they only become ODA eligible if they fulfil external criteria. Defence is not able to unilaterally declare its own expenditure ODA.

Senator RHIANNON: That was what I was trying to assess. Thank you for clarifying that point. For it to be classified to be ODA eligible, I understood that evaluation was essential but in response to my question you had said 'militate against the conduct of formal cost/benefit evaluations'. So I am trying to explore this issue that you have laid out there.

Mr Sargeant : A cost-benefit evaluation is not necessarily an evaluation about whether expenditure is ODA eligible. It could be about different things.

Senator RHIANNON: What different things could they be?

Mr Sargeant : A cost-benefit analysis, which would be an analysis of the value of the project against the costs that went into delivering the project—

Senator Feeney: Senator, it seems to me that the phraseology essentially is trying to say that a project might be supported in a place like, for example, Uruzgan province—and I am about to make something up—where, for instance, a well might be sunk and, by virtue of the fact that that is a tangible benefit to the local community, that goes above and beyond the simple parameters of a typical cost-benefit analysis. That is because of its emblematic, symbolic value or whatever. So I think that is the language you are talking to.

Gen. Hurley : I think you need to be thinking through what are the objectives of the work we do, Senator. When you particularly look at the period over the last four or so years in Afghanistan when we were doing this type of work, you see we were there trying to create a secure environment to allow activities to occur. Many of the times when you are doing these military operations you are looking for opportunities to give confidence to the community that we are a dependable group that is there to do good for them, to help them in their current situation. So you are looking at projects that they might bring to you and say, 'We have not had a school here,' or 'Our school was burnt down. If you could rebuild that school for us that would be very beneficial for us.' We will look at those tasks and say that that seems to be something that hits a local need very quickly so we will put the resources into doing that. We will be using Defence budget funds to do that. It is not necessarily that we have sat down and said: okay, how do you reconstruct Uruzgan, for example, and build the infrastructure over a set six- or seven-year period to a formal plan, and evaluate each of the projects within that plan. In the early days, we have to work hard—we are in a combat situation; we are trying to win the population's confidence and win them over to our support—so are there projects we can do that help us to achieve that as we go through it?

Then there is the bureaucratic process that says later on: you have spent this money on this type of project and that is actually ODA-eligible. We are not thinking of it in that sense. We are thinking that it helps us get the security objective achieved as well as advance the welfare of the people.

Senator RHIANNON: Thank you for explaining the process. It would appear that there could still be a contradiction there so I was interested in your expanding on the point of how these projects are listed as ODA-eligible when the primary purpose, as set out in that response to my question, is to deliver immediate and visible benefits without assessing whether these projects are effective in promoting the economic development and welfare of developing countries.

Gen. Hurley : But again, if you go through the list you would be hard-pressed to find anything on that project list that does not achieve those objectives. Flood mitigation, waste management, wells, community projects, storage cellars for food, mosques, a girls' schools, a boys' schools, a boys' high school, training centres for trades and crafts, a building for the governor to meet with his local people, health centres, a hospital, bridging, crossings, causeways—these are all part and parcel, I would have thought, of fundamental infrastructure to help a society rebuild.

That they have a security benefit for us is just as important. And again, the framework particularly when we first arrived in Afghanistan was more from security perspective and how we open the door to get in to have that communication and confidence with the people. There is a process after that that says that it is ODA-eligible, but in doing those tasks we are not seeking to make that funding ODA-eligible. We are seeking to have a security and a community outcome.

Senator Feeney: Again, I just want to make clear that these are Defence dollars; these are not AusAID dollars, and ODA eligibility is something that is established externally, not internally.

Senator RHIANNON: Yes, I appreciate that. But from what I understand, the majority of this will be approved and become ODA funded—it will move over.

Senator Feeney: No. The Australian government might end up saying that this year we spent X as ODA, but those moneys will come from many departments. This does not change, distract, divert or subvert the AusAID budget, and Defence is not reimbursed for this activity.

Senator RHIANNON: So you are saying that this does not come under the ODA budget at any stage?

Senator Feeney: It is recognised as aid by internationally established standards, but it is not an AusAID program. It does not change the AusAID budget.

Gen. Hurley : We are not compensated for it.

Senator RHIANNON: The word 'standards' is where I wanted to go. We are aware that there are the OECD guidelines that set out what is classified as ODA and when you look at the costings here with Defence and employee support costs they come in, in most cases, well over 90 per cent of the total that has gone in in any year. Going to that issue of standards, the OECD guidelines on statistical reference set out how projects linked with the military can be regarded as ODA. I note that they exclude salaries and expenses, so my question was: considering Defence employee costs, does that include salaries and expenses?

Senator Feeney: We are not able to characterise Defence spending as ODA eligible unless it meets those criteria. Without being able to answer that specific point—perhaps there is somebody here who can, otherwise we will take it on notice—we cannot deem something as ODA on our own recognisance. If you are saying that those are the standards that apply then those are the standards that apply.

Gen. Hurley : My brief says that, in accordance with the Organisation for Economic Cooperation Development Assistance Committee reporting guidelines on ODA, the ADF's personnel costs associated with delivering ODA in Afghanistan include military employee and support costs for ADF personnel undertaking reconstruction tasks. These costs include personnel costs which consist of the payment of international campaign allowance, additional accrued leave entitlements, separation and field allowance. In addition to these personnel costs, support costs are also ODA eligible and consist of logistics costs support for ADF personnel such as rations, water, base support, electricity generation, maintenance and vehicle running costs. It should be noted that these costs exclude the cost of the ADF personnel providing force protection to the reconstruction force, so it is really only those doing the reconstruction work or the actual task.

Senator RHIANNON: But we would call that expenses. Page 12 of the OECD guidelines on statistical reference sets out:

On the other hand additional costs incurred for the use of military personnel to deliver humanitarian aid or perform development services are included in ODA (but not their regular salaries and expenses).

Gen. Hurley : And I have said that there. These costs include personnel costs which include payment of allowances but not their salary. The payment of international campaign allowance, additional accrued leave entitlements, separation and field allowance—that is not their salary.

Senator RHIANNON: But would not you interpret the word 'expenses' as covering that, and that is to be excluded?

Gen. Hurley : I have to admit that I am not a Department of Finance expert or a Chief Finance Officer expert on the issue, but obviously agreement has been reached with the Department of Finance about how these expenditures are to be accounted for or could become ODA eligible. It is talking about personnel costs as those allowances and it is not talking about salary as part of that package in the brief I have. Whether or not salary is an expense I would have to let some other expert argue that point.

Senator RHIANNON: Could you take that on notice—and I have read that definition out; page 12 of the OECD guidelines on statistical reference says that expenses should not be covered in these types of projects—whether the term 'expenses' covers any aspect of what you have set out there?

Gen. Hurley : I will take that on notice and come back to you.

Senator RHIANNON: Thank you very much. I want to go back to the May estimates. I asked whether the International Security Assistance Force undertakes an evaluation of ADF administered development projects. In response to that question you said:

… I think the international agencies that support it to assist in the oversight of delivery of aid projects through the provincial reconstruction teams, so, yes, there are external visits conducted and assessments. They may not be directed through to the ADF, though; they are more in the PRT chain.

Then, in response to my question on notice, it was stated that the ADF states there are no formal cost-benefit evaluations. I know we touched on that a bit before, but I want to ask if you can clarify this: does ISAF do evaluations and, if so, which projects have been evaluated and what are the outcomes?

Gen. Hurley : Understandably, I will not have all that detail on hand now. I will take it on notice.

Senator RHIANNON: I will leave it at that. Thank you.

CHAIR: Thanks. We are still in outcome 2. Are there any questions in program 2.1, program 2.2 or outcome 3?

Air Marshal Binskin : I can clarify a question on notice we took earlier on about personnel numbers in Manus and Nauru and where they came from, if you will allow me to do that.

CHAIR: Yes, we can do that now.

Air Marshal Binskin : The question was, 'Can Defence provide a breakdown of ADF personnel—both rank and where they are deployed from—who are currently deployed to Nauru and Manus Island?' There are a total of 134 ADF personnel currently deployed to Nauru and Manus. By gender, there are 18 females deployed to these locations. Two of those are on Nauru and 16 are on Manus. By service, the breakdown by location is as follows: for Nauru, Army, 20, and Air Force, nine, for a total of 29; for Manus Island, Army, 19, and Air Force, 86, for a total of 105. By rank, the breakdown by location is as follows: for Nauru, private equivalent, 15, lance corporal equivalent, one, corporal equivalent, 10, and sergeant equivalent, two; in Manus, private equivalent, 64, lance corporal equivalent, three, corporal equivalent, 12, sergeant equivalent, seven, flight sergeant equivalent, four, warrant officer 2 equivalent, one, lieutenant equivalent, six, captain equivalent, seven, and lieutenant colonel equivalent, one, for a total of 105. By home base—unfortunately, I only have this by state—for South Australia and Adelaide it is two, for Brisbane/Townsville in Queensland it is 24, and for Canberra and the ACT it is three. That was for Nauru. For Manus, we have Adelaide, 12; Brisbane/Townsville, 75, Melbourne, one, and Sydney, 17, for a total of 105.

CHAIR: Thanks very much, Air Marshal Binskin.

Senator EGGLESTON: Could I just ask a question about that. Why are there so many Air Force personnel on Manus? What is the reason for that?

Air Marshal Binskin : The way the response worked is that Army had the lead for Nauru and Air Force, with their ground defence elements, took Manus as the lead.

Senator EGGLESTON: What are they actually doing?

Air Marshal Binskin : They are constructing the camps and setting up the camps before handing those camps over to DIAC for management.

Senator EGGLESTON: So it is nothing particularly related to Air Force.

Air Marshal Binskin : They are Air Force engineers. Air Force has a ground defence element so that they can go and set up air bases. That element is being used to do this.

Senator EGGLESTON: Thank you, Air Marshal.

Mr Lewis : I have an answer to the question raised by Senator Kroger in relation to the cost of the Broderick review.

CHAIR: Thank you.

Mr Lewis : My notes advise that Defence's funding commitment to the Australian Human Rights Commission was $6.69 million.

CHAIR: Thanks for that.

Air Marshal Binskin : Senator, it is combat support elements in Air Force, not ground defence elements. Sorry about that.


CHAIR: Senator Fawcett has a question in program 3.1, which is Defence contribution to national support tasks in Australia, and then we are going back to Senator Macdonald, who has a question or two in 1.6, Defence support.

Senator IAN MACDONALD: And in 1.9.

CHAIR: In 1.9, assuming those officers are still here. Then, if there is any time left, we will go to DMO.

Senator FAWCETT: I have a very quick question—I am happy to take the answer on notice—relating to fraud. I would just be interested in an answer on notice from Defence about your statistics on fraud, particularly audits in fraud, and how it compares to defence organisations in comparable countries—Canada, the US and the UK.

Mr Lewis : Over what period?

Senator FAWCETT: The last 12 months or 24 months if you can find it. I have just had some inquiries from constituents relating to fraud concerns they have had, and I am just interested to get some current statistics as to where the ADF is at.

Mr Lewis : We certainly have that information. On my assessment, the scale of business at Defence is surprisingly well in some ways. We have those stats. As to the relativity with other nations, I am not sure what is available but we will consult and see what we can get for you.

Senator FAWCETT: Thank you.

Senator IAN MACDONALD: On Defence support, Mr Lewis, who is your replacement? Or is it still you?

Mr Lewis : I hope there is someone back there, Senator, but if not I can answer.

Senator IAN MACDONALD: They are very quick questions, and I suspect you might need to take them on notice. Thank you for answering my question—which was poorly worded, I have to say—in relation to electricity use at Lavarack Barracks. Thank you for the advice. Unfortunately, I did not ask you what the total cost of electricity is at Lavarack in particular. You did give it to me in relation Stirling. If you do not have that now, could I put that on notice.

Mr Lewis : We would certainly have it available.

Senator IAN MACDONALD: Okay, I will put that on notice. In the answer you did say that electricity costs would go up by 11.3 per cent, in accordance with the approval of the Queensland Competition Authority, taking the effective electricity rate up to 15c per kilowatt hour. You then say, 'From internal modelling and feedback from electricity retailers Defence anticipates the impact of the carbon price mechanism at Lavarack could increase the effective rate by another 3c to 18c per kilowatt hour.' Have you budgeted for those increases, which are, according to my calculations, a 16 per cent increase in the cost of electricity to Lavarack?

Mr Greskowiak : I do not have the specific data for Lavarack, and my colleague may be able to find that, but across the department we have put money in our budget for our estimated increased cost of energy for this year. Across the estate, in terms of electricity and gas, that is in the order of $20.3 million.

Senator IAN MACDONALD: That is the increase, or the total cost of electricity and gas?

Mr Greskowiak : That is the increase.

Senator IAN MACDONALD: That is an increase of $20 million. That takes into account not only, for example, the Queensland situation of the QCA-approved increases of 11.3 per cent but also these other carbon price mechanisms?

Mr Greskowiak : Yes. That is my increase for the whole of Australia in terms of electricity and gas costs for the year.

Senator IAN MACDONALD: How were those figures calculated?

Mr Jenkin : I would just clarify that. In terms of the electricity budget, the increase from last year to this year we have budgeted at $26.596 million, of which the carbon price mechanism increase is $20.345 million, as Mr Greskowiak just said. So there are other elements in the price increase. As was said, this covers the whole of Australia. The other big element is the network cost, and that will vary by state, regulatory authority and various other levies that are placed on consumers of electricity. So that is the increase.

Senator IAN MACDONALD: Your answer to my question on 28 May said that 'as from 1 July', and there were figures there. To me, doing some arithmetic, and someone can correct me if I am wrong, it is a 16 per cent increase in the cost of electricity to Lavarack. I know Lavarack is not the entire Army but it is a fair part of it. You would have done the budgeting prior to that date, and I am wondering what percentage increase you allowed for. You have given me $26 million, but I wonder what that is as a percentage increase in the total. Perhaps you could just tell you what your total electricity and gas bill is across Australia?

Mr Jenkin : The overall increase is 23 per cent. That is inclusive of all of the causes of the increase. I am just talking electricity here—not natural gas or anything. It is a 23.3 per cent increase in electricity arising from a range of factors.

Senator IAN MACDONALD: That 23.3 per cent increase is over one year?

Mr Jenkin : Correct.

Senator IAN MACDONALD: When was that figure determined? Was it prior to 1 July?

Mr Jenkin : There would have been an estimate prepared around that time, yes, but we have since refined that figure. That is where our current budget sits now.

Senator IAN MACDONALD: Can you take on notice, please, the actual quantity and price of electricity at both Lavarack and Enoggera—and perhaps if I could ask for HMAS Cairns, as well. I am being a bit parochial here, as I often am, talking about Queensland only, but it is easier for me to make comparisons in my home state. Thank you for that. Do you have any assessment of the cost of air conditioning—again, particularly in Townsville, Cairns and Darwin? Is there anywhere I could get that figure? I assume the cost of electricity is a big part of that, but another big part of it is refrigerant gases, which have gone up from all reports quite substantially as a result of the carbon tax. I am just wondering if I can get any figures from anywhere about the cost of refrigerants used not just in household air conditioners that keep soldiers comfortable at night but in the major refrigeration aspects you have for keeping food cold and whatever you use refrigeration for?

Mr Jenkin : ICT equipment as well.

Senator IAN MACDONALD: Yes, indeed.

Mr Jenkin : Will have to take that on notice.

Senator IAN MACDONALD: Do not be too precise in answering exactly what I have asked. What I am really trying to get is some indication of what the total cost is, the quantities of refrigerant gases you use and what sort of increase is that over the last financial year, has it been budgeted for, how are you going to pay for it at a time when I know from what we have been hearing all day that you are all struggling to make 'savings' from various things.

Mr Jenkin : It might be difficult to try to get a figure specifically around refrigerant gas, but we will see what we can get.

Senator IAN MACDONALD: In whatever category you pay for.

Mr Jenkin : Sure.

Senator IAN MACDONALD: Again, I am not technical, but I imagine refrigerant gas is a fairly big purchase item.

Mr Jenkin : Not necessarily directly by us, though. It may well be, given that we contract for the maintenance of fixed plant and equipment, including air conditioners, it may be a subset of that.

Senator IAN MACDONALD: Thank you for that, because that then adds to my question: can you tell me what changes you have had from your contractors who were looking after air conditioning? What you say makes a lot of sense—that is how I would you imagine you would do it—but I know from my experience that all of the refrigeration engineers and the air conditioning experts have put up their prices very considerably because of the increase in refrigerant gas. That is what I am trying to find. I am sorry to give you that extra work, but if you wouldn't mind doing that.

Thank you also for your comment on Stirling. You indicated the price of electricity there and you did answer my question about the wave energy use. Again, unfortunately, I was a bit light on what I asked. What is the capital cost of that wave energy, or are you getting it for free from a developer?

Mr Jenkin : For Defence there is no cost.

Senator IAN MACDONALD: How is that—you are getting it from the developer?

Mr Jenkin : Yes, Carnegie Wave have an agreement with Defence—a licence to use some land at Stirling to construct their facility. The main part of the facility is in fact offshore. They are doing that as a pilot, as a trial, if you like, and we will be able to gain the benefit of that. They are doing that at their cost and their risk.

Senator IAN MACDONALD: You say it is expected to be commenced in the fourth quarter 2012, with power supply expected late 2013. Has anything happened that might cause you to doubt those estimates?

Mr Jenkin : No, we are still expecting that to be the case.

Senator IAN MACDONALD: So it is on track as far as you know?

Mr Jenkin : Yes.

Senator IAN MACDONALD: Okay. I have some other questions on that but I will put them on notice. Chair, can I turn to program 1.9 as the Vice Chief is still here. I have raised this a number of times but I continue to get reports that the regional force surveillance units across the north of Australia—that is, Pilbara, 51 FNQR and NORFORCE—are struggling with money for training days. Can you assure me that, for as many training days as are required for those units, funding is available?

Gen. Hurley : That question more directly belongs to Army. I will ask the Deputy Chief of Army to respond.

Major Gen. Campbell : I think it would be inaccurate to describe it as 'struggling' for training days. There was a reduction in this year's budget of Army Reserve training salaries across the Reserve as an element of the wider range of reductions that occurred. I do appreciate that where any of us may visit there may be particular concern for resource constraint. That constraint is something that is being managed and is a challenge, but something that is being accommodated across units through the Army where those reductions have occurred. So, while you have characterised it in that way, I would simply say we are in a different circumstance, resource allocations have been distributed across Army, and people are managing.

Senator IAN MACDONALD: I was with you until your last sentence. I know you have a difficult job and I know you deal with what resources you are given. This is not a criticism. I am just trying to find out what the situation is. I keep getting reports; they may not be accurate. That is why I asked you to give me an assurance. I think you have answered this, and the answer is, no, you cannot assure me. But my question asked if you could give me an assurance about all the training days and instructors needed for those three units in particular. I shall put on notice a series of questions about Reserve support which are about particular incidents for which there may be explanations. I do not want to identify people who have told me about it or to get unit commanders into any trouble—everyone is only doing what they can do. But I am particularly concerned about these three RFSU units across the north who play such an important role. The information coming to me is that training days and trainers are not available to the extent required. What I was seeking from you was an assurance that that is wrong. I think your previous answer may have indicated to me that, no, you cannot give me that assurance.

Major Gen. Campbell : I can say to you that, in this year, Army will meet the Chief of Defence Force's preparedness directive and the Chief of Army's preparedness directive requirements across Army—and that is the definition of whether resources are adequate or not.

Air Marshal Binskin : Senator, it is the difference between what is directed to be the level of preparedness and what people would like to do as the level of preparedness.

Senator IAN MACDONALD: That begs the question: how many training days does a reserve unit have on, for example—and this is purely hypothetical—Thursday Island? What is their training schedule and what has it been? Has it been one day a week for reservists or every third weekend? I do not know. I would like to know what it has been which, in the past, has been seen to be essential for their work and I would like to know that those days are still available. My information, not in that instance I hasten to add, is that the number of training days that have always been the case have been reduced considerably.

Major Gen. Campbell : I just want to clarify the question that you are posing, which we will have to take on notice, and that is, on Thursday Island—

Senator IAN MACDONALD: No, I am using a hypothetical example. I do not really want to get unit commanders—I importantly say the unit commander on Thursday Island did not tell me this.

Major Gen. Campbell : We also are not interested in blaming unit commanders. But my point that resources are sufficient to maintain capability this financial year is the answer. I would also add: resources have reduced but they are sufficient to maintain capability this year.

Senator IAN MACDONALD: I guess that depends then on your definition of maintaining capability.

Major Gen. Campbell : But that definition is provided for by the requirements of the Chief of Defence Force's preparedness directive, and the Chief of Army's preparedness directive.

Senator IAN MACDONALD: Would you accept that in those three units the number of training days and the number of instructors' training days have reduced in the past 12 months?

Major Gen. Campbell : Yes, I would, and I would accept that as a statement true across the entire reserve—proportionate to their requirements within the preparedness directives given to us.

Air Marshal Binskin : So the directed requirements would have reduced as well.

Senator IAN MACDONALD: You will have to tell me in the 30 seconds I have left why there are less requirements for those RFSUs, which always have done a specific job—not just related to the defence of Australia, but in many other ways. I would really like to know how what they are being asked to do has reduced. Would that be a question on notice you could tell me? What are they now not being asked to do that they were asked to do last year?

Major Gen. Campbell : We will take that on notice.

Senator IAN MACDONALD: Okay, if you would. I do not want you to spend all of your time defending Australia in looking up these figures, but is it possible to give me some statistics on the number of reserve force training days and instructor training entitlements for the last financial year, the year before and the current one so that I can assess how they have fallen? I understand they will have fallen because you have less money, and that is what you are telling me, but I would like to, if it were possible and easy enough to do, get some statistics that will help me comprehend that a bit more.

Major Gen. Campbell : Yes.

Gen. Hurley : We can do that. I would just go back to the Deputy Chief of Army's point though: we allocate reserve training salaries in Army. That will not necessarily distinguish to us who is an instructor because an instructor could be a corporal one day who is doing a job in a Q store, but two weeks later he is instructing on a course. What we will give you is the army reserve training salaries that have been allocated per year, and if you need a bit more detail below that—if you could provide what you want, but it depends how we can cut the figures to meet the specific question.

Senator IAN MACDONALD: Okay, well perhaps I can clarify the question on notice. I would like to ask the same thing about cadets, but I have run out of time. Cadets, it is reported to me, is also suffering from the cutbacks, which you have to deal with.

Gen. Hurley : What we can say about cadets—there have been articles about our cadet units and so forth. We have not cut any cadet units in relation to the budget savings steps. There have been changes, yes, in the levels of resources allocated to cadets, but we have not cut any. In fact, we still continue to grow in the number of cadets and cadet units across the ADF.

Air Marshal Binskin : I can give you cadet numbers to compare against where we have been. Total cadets back in 2007 were 21,088 cadets, and the staff were 2,242. This year the total number of cadets is 23,896, with a staff of 2,476.

Senator IAN MACDONALD: And this year is the calendar year?

Air Vice Marshal Binskin : Calendar year. No units have been closed for financial reasons. There have been a number that have closed due to the ability for volunteers to be able to run it.

Senator IAN MACDONALD: I am not talking about closures.

Air Vice Marshal Binskin : Cadet numbers have risen since 2007.

Senator IAN MACDONALD: And staff numbers have risen?

Air Vice Marshal Binskin : With 2,242 in 2007; 2,476 in 2012.

Senator IAN MACDONALD: That goes for staff training days?

Air Vice Marshal Binskin : That is staff numbers.

Senator IAN MACDONALD: Yes. Can you say the same thing for the hours of work that they do to train the cadets? Has that also gone up proportionately?

Air Vice Marshal Binskin : They get an allowance. It is different to the days that they may volunteer.

Senator IAN MACDONALD: Has the number of days gone up?

Gen. Hurley : No. The allowance this year has decreased.

Air Vice Marshal Binskin : In Air Force and Navy, the CFA has not reduced. In Army, it has been reduced, again, to ensure that they can cover all the units and the requirements that they have. I think it is down to 23.

Senator IAN MACDONALD: I am impinging on a colleague's time.

Air Vice Marshal Binskin : We will take this on notice and give you all the details.

Senator IAN MACDONALD: I will give you some more specific questions on notice.

Senator Feeney: It is my recollection though is that 75 per cent of persons working with cadets work less than those days in any event, so it makes no difference to 75 per cent of the total number of personnel working with cadets. We will give that all to you on notice

Senator IAN MACDONALD: Thank you.

CHAIR: Are we clear what is on notice?

Air Vice Marshal Binskin : We are clear on what is on notice. Again, we see this as a premier youth organisation in Australia. You can see by the cadet numbers and the staff numbers that it is a healthy level.

Senator IAN MACDONALD: We all agree with that. That is why we are all so very keen to make sure that they have every support and that they are encouraged and expanded.

Air Vice Marshal Binskin : As I am.

Senator Feeney: Hear, Hear!

Senator IAN MACDONALD: I appreciate that you can only do what you can do with what money you have got, and that is what I am trying to work out.

CHAIR: Thank you. Senator Fawcett, you have got eight minutes. Did you want the DMO?

Senator FAWCETT: I think the DMO is what is left in eight minutes.