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Foreign Affairs, Defence and Trade Legislation Committee
17/03/2016
Estimates
DEFENCE PORTFOLIO
Department of Defence

Department of Defence

[ 15:32 ]

CHAIR: I welcome Senator the Hon. Marise Payne, Minister for Defence. I also welcome the secretary of the department, Mr Dennis Richardson AO; Vice Admiral Ray Griggs AO, Acting Chief of the Defence Force; and officers of the Department of Defence. Minister, do you wish to make an opening statement?

Senator Payne: Not substantially, but I just indicate that I am not sure about the status of other senators, but I do not have leave this afternoon. So we are subject to the vagaries and exigencies of the chamber, which, on a day like today—

CHAIR: Well, I do, so there you go! Secretary?

Mr Richardson : No.

CHAIR: Acting Chief of the Defence Force?

Vice Adm. Griggs : No.

CHAIR: Thank you very much. We will go to questions.

Senator CONROY: Thank you very much. I firstly, again, publicly thank the minister for her offer to have an extra sitting of Senate estimates. It is unusual for that courtesy to be extended, so thank you very much.

I know you raised this in the chamber, Minister. In the ministerial foreword to the 2015-16 Defence budget brochure, then Defence Minister Andrews stated:

In conjunction with the White Paper, the Government will publish a fully-costed 10 year Defence Investment Plan, a Defence Industry Policy Statement and an enterprise-level Naval Shipbuilding Plan.

You did partially address this in question time today, but, for the benefit of the committee, did the government publish its enterprise-level Naval shipbuilding plan in conjunction with the white paper? If not, why not?

Senator Payne: No, we did not. As I indicated—in fact, today in the chamber—it will be published later this year.

Senator CONROY: Is there a reason that you did not publish it as the previous minister suggested it would be?

Senator Payne: A number of the matters which would form part of a Naval shipbuilding plan, or will form part of the Naval shipbuilding plan, are matters which are currently underway in terms of competitive evaluation processes and tenders. In the development of that, it will come out later this year.

Senator CONROY: Do you have an indication of when?

Senator Payne: I do not.

Senator CONROY: First half of the year or second half?

Senator Payne: I would have thought second half. As I indicated in the chamber as well—I do not have my words in front of me, but I know you were hanging off my every word—

Senator CONROY: Always!

Senator Payne: I did say it would be a matter for significant collaboration and consultation between the government, educational institutions, industry, the skilled workforce and their representatives. A lot of that work is predicated on the processes of competitive evaluation processes and tenders. It will take some time to conclude.

Senator CONROY: When did you make the decision not to bring it forward with the white paper?

Senator Payne: I do not think there was a conscious day or date in that way, but given, as I said, the amount of work that is being done—in fact in parallel with the competitive evaluation processes—and what we are going to need to put together the continuous shipbuilding plan process and the outcomes of the CEPs, it just became part of that natural progression.

Senator CONROY: You are conscious that the former minister had indicated it would be released, so it was a conscious decision—

Senator Payne: I had not specially focused on it, no.

Senator CONROY: Mr Richardson, did you advise that it had been in the defence budget brochure in 2015-16?

Mr Richardson : No, not specific advice. It has been clear for a couple of months now that the naval shipbuilding plan would be unlikely to be developed for completion of publication at the same time as the white paper.

Senator CONROY: I hope I am quoting correctly from the forward; it was not a typo?

Mr Richardson : No.

Senator CONROY: So in conjunction with the white paper, the government will publish a fully costed 10-year Defence investment plan—tick.

Mr Richardson : Yes, that is right.

Senator CONROY: The Defence industry policy is done I think—tick.

Mr Richardson : Yes.

Senator CONROY: And an enterprise-level naval shipbuilding plan.

Mr Richardson : And that was the plan at that time.

Senator CONROY: I want to move on to our favourite topic at the moment, Minister. I want to turn to the announcement of Navantia as the preferred tenderer for the Navy's new supply ships. I would appreciate if officials could confirm the details of the supply ships acquisition. So the 2016 defence white paper and the integrated investment plan state that two supply ships will be acquired by the early 2020s, with a third ship to be acquired in the late 2020s—is that correct?

Mr Richardson : Yes.

Senator CONROY: Am I also correct that Defence estimates the cost for the first two supply ships as $1 billion to $2 billion, with a further $1 billion to $2 billion for the third vessel?

Mr Richardson : I would need to refer that too.

Mr Nicholl : I would have to take that on notice, Senator.

Senator CONROY: I am just a little surprised that you need to confirm billion-dollar costs for ships that we have announced. Defence estimates the costs for the first two supply vessels as $1 billion to $2 billion—is that correct?

Mr Nicholl : That is correct, yes. It was the third ship that I—

Senator CONROY: That is why I was breaking it up into two there for you. So a further one $1 billion to $2 billion for the third vessel, and you will take that on notice. If somebody in the room can help, that would be useful to the committee. Thank you very much. I would also like to get some of the facts on the record, given there has been confusion amongst the officials at the additional estimates hearing on 10 February, about times and time lines. On what date did Defence make its recommendations to government on a preferred tenderer for the supply ships?

Mr Richardson : The date for the preferred tenderer? That is—

Senator CONROY: That Defence make its recommendation to the government.

Mr Richardson : I will pass that over but that was relatively recently.

Mr Nicholl : It was very recent. It was February.

Senator CONROY: So at additional estimates, on 10 February, Kim Gillis said Defence concluded its assessment prior to Christmas—

Mr Richardson : Concluded its assessment by—

Senator CONROY: and that advice had been provided to government. Mr Gillis is in charge of CASG now, isn't he? Isn't that his role?

Senator Payne: Yes.

Senator CONROY: So he would be your boss, wouldn't he, Mr Nicholl?

Mr Nicholl : Yes, that is right.

Senator CONROY: On 10 February, he said advice had been provided to government—and you have just said it was not provided until February. Was it provided in the first nine days of February?

Mr Nicholl : I cannot recall whether it was in the first nine days.

Senator CONROY: It seems that everyone is not on the same rough page.

Mr Richardson : Mr Gillis was certainly right in saying that Defence had concluded its assessment before Christmas. We will need to find out the precise date on which the advice was forwarded with the recommendations.

Senator CONROY: Did Defence recommend that Navantia be selected as the preferred tenderer?

Mr Richardson : I will refer that to others. I am not quite sure what the rules are relating to recommendation whatever. There is no problem with that?

Unidentified speaker: No.

Mr Richardson : In which case, the answer is: yes we did.

Senator CONROY: Did Defence, at any stage, provide verbal or written advice recommending or indicating a preference for Daewoo Shipbuilding and Marine Engineering as the preferred tenderer?

Mr Richardson : No.

Senator CONROY: Absolutely not?

Mr Richardson : Let me qualify that. I am certainly not aware of any such advice, verbal or in writing.

Senator CONROY: Vice Admiral Griggs, is that consistent with your understanding that at no stage did Daewoo get recommended by the process?

Vice Adm. Griggs : Not to my knowledge.

Senator CONROY: On what date did the government make its decision to select Navantia as the preferred tenderer, and on what date were Navantia and Daewoo notified of the decision?

Mr Richardson : We would need to take that on notice. Navantia and Daewoo were advised over the last several weeks. That was very recent. The actual decision was taken within a couple of weeks of that, prior.

Senator CONROY: Prior, did you say?

Mr Richardson : Yes. You have the decision; then you have—

Senator CONROY: Who makes that decision? Is it the Defence Capability and Investment Committee?

Mr Richardson : No, not the decision. The Defence Capability and Investment Committee is the committee in Defence—which has now been replaced by the investment committee—that considers the final proposal going to the minister and the government.

Senator CONROY: On what day did the Defence Capability and Investment Committee make a decision?

Mr Richardson : I would need to take that on notice.

Senator CONROY: Mr Nicholl?

Mr Nicholl : I could not give you a specific date. I will take it on notice and follow up.

Senator CONROY: If we could find that out—if it is possible during the course of the afternoon that would be great. Thank you.

Mr Nicholl : Sure.

Senator CONROY: Minister Payne, you were quoted in media reports as issuing a statement that said, in part: The previous government was advised that Australian shipyards do not have the capacity to complete the ships in the required time given the size of the ship and the limitations of the shiplift and yard capacity at Osborne.

You might have said something fairly similar in question time today. For the benefit of the committee, could you please confirm that your reference to the previous government is to the Abbott government.

Senator Payne: No; It is not. It is your government.

Senator CONROY: I assumed you had not been privy to the advice from Defence to the former Labor government on this matter.

Senator Payne: Just as one example, your 2013 shipbuilding plan would be one matter to which I would point.

Senator CONROY: As I said, I am just surprised. I assumed you were not privy to advice from Defence to the former government. Thank you for that, Minister.

Senator Payne: No problem.

Senator CONROY: I assume you are not privy to the advice from Defence to the former government?

Senator Payne: No. I have been referring in my responses and statements to reports given to the former government as advice, yes; but not internal advice, the nature of which you might be referring to, no.

Senator CONROY: I just wanted to clarify what advice it was that you were referring to. Minister, in your statement you also said that Australian shipyards could not complete the supply ships in the required time, because of limitations at the Osborne facility. Given that it took over 20 months for government to announce a preferred tenderer and that the tender process is still going, what do you consider to be the required time for acquisition of these vessels?

Senator Payne: As you know, the tender process was commenced by the Abbott government in the middle 2014, so within the first half of the year after they were elected in September. That was regarded as a process which it was necessary to get underway at that point to avoid a significant capability gap. So no decisions had been made when the government was elected in September of 2013, either in relation to issuing tenders for the supply vessels or in relation to the development of necessary infrastructure. The then minister and then the Prime Minister took the decision to issue a limited tender for these vessels, as you would be aware, in June 2014 as a result of that, for the purposes of avoiding a capability gap.

Senator CONROY: So what advice have you been given by Defence about how long it would take to make the necessary upgrades at Australia's shipyards, including at Osborne, to allow construction of ships of the size of the Navy's future supply ships?

Senator Payne: I would say that advice in relation to those matters is part of the regular discussion with Defence around, as you referred to earlier, the development of the naval shipbuilding plan and the competitive evaluation processes. I understand that there are also discussions which have been held with Defence SA which clearly will have a role to play in relation to Osborne itself. That is part of the current engagement on those issues.

Senator CONROY: Do you dispute the testimony to a Senate committee on 21 July 2014 by the then Chief Executive of Defence SA, Mr Andrew Fletcher, who said that the necessary upgrades could be made for between $20 to $50 million and would only take between 12 and 24 months?

Senator Payne: I have not seen that evidence, but I am happy to take that question on notice.

Senator CONROY: Mr Fletcher also told the Senate committee that upgrades at Techport could be done while modules were built and the supply ships assembled—in other words, that the upgrades would not hamper the build. Do you dispute that?

Senator Payne: As I said, I have not seen that evidence. As we all know, we also have the ongoing construction of the three Air Warfare Destroyers at the shipyards as well. I do not know whether Mr Fletcher took that into account. I will take the question on notice.

Senator CONROY: He was the Chief Executive of Defence SA at the time. I am sure that he would be familiar with the AWD builds.

Senator Payne: I am not canvassing the role of Mr Fletcher—whom I do not know—then, now or otherwise. I am simply saying that I am not sure what was in Mr Fletcher's mind. In fact, I could not possibly be required to be sure what was in Mr Fletcher's mind. I will have a look at the evidence which was given, take that on notice and provide you with a response.

Senator CONROY: The following comments have also been attributed to you in media reports, and I want to make sure that you have not been misquoted:

The evaluation process for the SEA 1654 Phase 3 [Maritime Operational Support Capability] limited tender has been completed, and Navantia has been selected as the preferred tenderer to proceed to the Offer Definition and Improvement Activity (ODIA) and negotiations.

You were also reported as saying:

The tender process is ongoing. Following the conduct of the ODIA and negotiations, Defence will return to government for consideration of second pass approval, likely in mid-2016.

Does that sound—

Senator Payne: To the best of my recollection; that would be part of the normal process, yes.

Senator CONROY: Could you also please explain your statement that Navantia has been selected as the preferred tenderer but also that the tender process is ongoing? I am confused by what that implies.

Senator Payne: That is the way the process works: a preferred tender is identified and then Defence engages in what is known as offer definition and improvement activity negotiations. Those are undertaken with the preferred tenderer, and then Defence provides advice to government in relation to the next steps.

Senator CONROY: Could you please outline to the committee on what basis Navantia was selected as the preferred tenderer? Could we get a precis about the factors behind choosing Navantia?

Mr Richardson : Cost—well, that is not appropriate. I am sorry.

Senator Payne: At this stage.

Senator CONROY: Are you able to indicate whether it was the cheapest bid?

Mr Richardson : No. We are unable to comment on—

Senator CONROY: When would you be able to give us advice on that?

Mr Richardson : I imagine that that would be after the second pass.

Senator CONROY: Daewoo Shipbuilding and Marine Engineering, DSME, were the other participant in this limited tender process. Why was DSME's offer found to be less favourable than Navantia's?

Mr Richardson : Well, the same answer—

Senator CONROY: They are out of the process. You could tell us what the limitations of theirs were?

Rear Adm. Dalton : The tender process is still ongoing, so it would not really be appropriate for us to comment on—

Senator CONROY: But Daewoo are not part of the tender process anymore?

Rear Adm. Dalton : The tender process is still ongoing, so—

Senator CONROY: I was trying to get an understanding of that before. So Daewoo are still in the process?

Rear Adm. Dalton : Navantia is the preferred tenderer; that does not mean that there is a final selection in place yet. We still need to go through a process.

Senator CONROY: So Daewoo are still actually part of the ODIA? Is that how it works?

Rear Adm. Dalton : No. We have not carried them forward into the offer definition, but that does not mean that their bid has yet been set aside.

Senator CONROY: Could you expand a little bit on the minister's explanation, Mr Richardson? I would genuinely like to understand the process properly so I do not ask any silly questions.

Mr Richardson : It is precisely what the minister said. Tony?

Rear Adm. Dalton : The normal process would be that, through a tender process, you would go through and potentially select down to a preferred tender and then go into an offer definition and improvement activity with that preferred tender, but you would not necessarily set aside the non-preferred tender at that point, in case you get to a point in your negotiation with the preferred tenderer where you do not like the result. So you have options to go back to the other participants in the tender process.

Senator CONROY: So you are sort of keeping the other company warm just in case, as a colloquial way to describe it?

Rear Adm. Dalton : That is a layman's description.

Senator Payne: It is normal procedure.

Senator CONROY: Thank you for that. Could you take me through the ODIA process. Without being specific to the existing tenderers, what happens in that process? What do you do? What does it mean? What does ODIA mean actually happens next?

Mr Nicholl : This is where we will take the company through, look in detail at the bid that they put up to the table and see how we are going to make the design work—all the elements of creating a proper contract and understanding all the risks involved in the process. So it is a closely worked piece of kit between ourselves and the preferred supplier in this case.

Senator CONROY: Again, out of general ignorance on this side of the table, how much of an off-the-shelf purchase were the supply ships? Did both companies put in an existing ship or did you ask them to design a new ship?

Mr Nicholl : They were both existing designs.

Senator CONROY: You say that you still have to work your way through, but if you have an existing ship then you have an existing ship. So what it is it that needs to change? What is that component when you had two off-the-shelf bids?

Mr Nicholl : This takes us very much into the negotiation space. So what we are looking at here is how we make sure that the contractor we place is right for us in delivering what is an existing design. There are also some elements—such as the combat systems and such as communication systems—specific to the Australian requirement, which we need to work into that piece. So it is not just buying completely off the shelf.

Senator CONROY: Do we have different crewing requirements? We may have a certain amount of space for the crew that perhaps the Spanish standards or the standards of whoever else buys them do not, so a bit has got to be modified in the build. Is there anything like that or is it knowing that they can put the combat system and the communications system in with the required amount of security?

Mr Nicholl : We are not looking at making any fundamental changes to the platform design, except for being able to advise the supplier of the nature of the Australian-specific equipment that we put into that to make sure that the design and completion cater for that.

Senator CONROY: Would the communications and combat systems be installed in Spain or in Australia?

Mr Nicholl : This is one of the things that we will develop through the negotiation phase. We will need to provide the Spanish designers with the information about the systems. Where we actually go about installing that—I think it is the kind of thing that we would look to be doing on receipt here, but you have to prepare the vessel to receive it.

Senator CONROY: So discussions around combat and communications—no significant changes to the platform?

Mr Nicholl : Not as far as I am aware, no.

Senator CONROY: So it is off-the-shelf other than the installation? Okay. On page 5.6-12 of the Defence Procurement Policy Manual which was approved in February 2016, there was a section entitled 'Offer Definition'. It states in part:

Offer Definition (OD) can be defined as a stage within the tender evaluation process in which shortlisted tenderers further define specific aspects of their tenders before Defence completes its source selection activity and selects the preferred tenderer.

Are you familiar with that?

Mr Nicholl : Yes.

Senator CONROY: Given Defence's own procurement manual states that the offer definition stage occurs before Defence select the preferred tenderer, could you just explain why Navantia has been selected as the preferred tenderer for the supply ships prior to the offer definition stage? Am I mixing things up? Is it just that they happen to be two common words that are different things or have I mixed it up completely?

Rear Adm. Dalton : The process is tailorable. This was a limited request for tender, so there were only two parties invited. In that case, it is not unusual to go down to one for the preferred tenderer, and take that one party through the offer definition and improvement activity. That is not unusual in a limited request for tender, as was the case in project 1654.

Senator CONROY: It is just that page 5.7A-7 of the Defence Procurement Policy Manual states:

The use of negotiations with multiple tenderers following an offer definition stage … can assist to reduce contractual risk and allows critical contract plans and programs to be agreed prior to entering into an arrangement.

Two is still multiple, even though it is limited to two, so I am just trying to keep track. I know you said it is variable. The policy manual still gives some fairly specific guidance which talks about reducing contractual risk.

Rear Adm. Dalton : That is all correct, but, again, in this particular case there were only two in a limited request for tender. The ODIA process also allows us an opportunity to limit some of our costs being incurred on the tenderers. Where you have a two-step request-for-tender process and you plan to go through an offer definition and improvement activity, you do not necessarily need to ask for the complete set of tender documents up-front. That allows you then to go into detail with the preferred tenderer about those particular plans. So we would go into more detail with the preferred tenderer on things like the very deep schedule, the very deep cost program—all of those things where you might not ask for highly detailed plans up-front. So it is a matter of us trying to be smart about how we engage with industry and it is a matter of us trying to limit the costs we impose on industry to actually participate in our processes.

Senator CONROY: So you would accept that there is no capacity to keep competitive tension and reduce risk during the offer definition process now that Navantia has been selected as the preferred tenderer?

Rear Adm. Dalton : No, I would not accept that, because we have not set aside the day where we would be—

Senator CONROY: No, as I say, they are still being kept warm.

Rear Adm. Dalton : There is a form of competitive tension with Navantia as we move through the offer definition and improvement activity, because if they do not meet the requirements through the offer definition and improvement activity we can go back to the original tender, where both of the tenders are still live.

Senator CONROY: What was the internal Defence decision making process for selecting Navantia as the preferred tenderer? We were asking a little bit about this before. Was the matter considered by the Defence Capability and Investment Committee? I think we said it was.

Mr Richardson : Yes.

Senator CONROY: You chair that, Mr Richardson. Were you there for this decision?

Mr Richardson : Yes.

Senator CONROY: What was your role in the process, if I can ask this without spending too much time on it—so, concisely. I did ask what date did it consider the matter and finalise the matter earlier.

Mr Richardson : I had an initial discussion with people involved prior to the Defence Capability and Investment Committee meeting. In the meeting itself, a presentation was made by the group head or service chief—whoever is relevant—

Senator CONROY: So Vice Admiral Barrett did that?

Mr Richardson : I cannot recall now. Very often it is. Then we go around the table. We have each of the service chiefs there, the CDF, the VCDF and the group heads. We have relevant other people who know the detail of the particular matter more than others. They are there to provide input and to respond to any questions and the like. From there, it goes to the minister and then normally to the NSC.

Senator CONROY: There were a few acronyms tossed in there. Vice Admiral Griggs, were you part of that process?

Vice Adm. Griggs : I am not sure I was at that particular meeting.

Senator CONROY: You are on that committee?

Vice Adm. Griggs : I am on the committee, yes.

Senator CONROY: But you do not make the presentation?

Vice Adm. Griggs : No.

Senator CONROY: You would have in the old days, before you were promoted?

Vice Adm. Griggs : Generally.

Senator CONROY: Does anyone else remember who made the presentation? Was it Vice Admiral Barrett?

Mr Richardson : We would need to take that on notice.

Senator CONROY: There are at least three people here I suspect were in the room. You might be able to remember. It is a $2 billion big ship. There were two choices and two countries. It was only in December, which was not that long ago. It is not a submarine, not a frigate and not an OPV. The meeting was specifically about a large, big ship. Anyone else?

Mr Richardson : I genuinely cannot recall.

Vice Adm. Griggs : We very rarely have meetings for one particular project.

Senator CONROY: This was a large one, though. I cannot imagine you forgot you were at the meeting that selected a $2 billion to $3 billion ship.

Mr Richardson : No, no. The Defence Capability and Investment Committee used to sometimes meet monthly and sometimes meet every second month. Occasionally, it has been three months in between. We are normally considering a number of items. In terms of cost, this does not stand out from many others we would consider. We might meet for several hours. I am simply being honest with you in terms of not having it precisely in my mind.

Senator CONROY: If someone is able to just check who did the presentation, that would be helpful for the committee.

Rear Adm. Dalton : The deputy secretary for CASG sits on that committee. It would have been considered as a paper brought forward by Mr Kim Gillis.

Senator CONROY: I thought from what Mr Richardson said that Vice Admiral Barrett would normally undertake the process.

Mr Richardson : No, I said sometimes it is; it varies. Very often it is a service chief; equally, there are occasions when it is not the service chief.

Senator CONROY: I am just seeking clarification about who made the presentation.

Mr Richardson : Sure.

Senator CONROY: Does the service chief participate in the decision-making process or just make the presentation and leave?

Mr Richardson : No. The membership of that committee was—

Senator CONROY: Sorry, I did not realise you were up the back there, Vice Admiral Barrett; you were hidden. Perhaps you know whether you made the presentation. You could probably come to the table and solve the mystery for us.

Mr Richardson : The committee is chaired by the secretary of Defence. On the committee not just for presentation sit the service chiefs, the CDF and the VCDF and other group heads. They just do not make a presentation and leave.

Senator CONROY: I thought that would be the case but thank you for clarifying. Sorry, Vice Admiral Barrett, but I genuinely could not see you through the crowd at the front table. I was just asking: did you make the presentation about Navantia?

Vice Adm. Barrett : No, I did not make the presentation.

Senator CONROY: Cool; thanks. You have solved that mystery—thank you very much. Mr Richardson, could you just take us through what process will be used and when a tender will be conducted for the third supply ship?

Mr Richardson : No, I cannot at this stage, Senator.

Senator CONROY: Minister, is it absolute commitment for the third supply ship?

Senator Payne: That is my understanding, yes.

Mr Richardson : Senator, if I can come back to an earlier question you asked: consistent with what Mr Gillis said at Senate estimates, I think you said on 10 February, the assessment was completed in Defence prior to Christmas and the advice—or the recommendation—went across in late January, early February. I am a little bit unclear of what precise state but it was late January, early February.

Senator CONROY: Thank you very much. I was just coming back to the question: is there an absolute commitment for a third supply vessel?

Senator Payne: I said yes.

Senator CONROY: Sorry, I did not hear you say that—thank you. Has Navantia been selected as the preferred tenderer for all three or just the first two?

Mr Richardson : No, the tender was only in respect of these two.

Senator CONROY: Minister, will Australian companies be allowed to tender for the third supply ship?

Senator Payne: Senator, I think Mr Richardson indicated to you that the press is not anywhere close to being underway for that tender.

Senator CONROY: No, but I am asking as a principle position: will an Australian company be allowed to tender for the third ship?

Senator Payne: Senator, I would obviously examine the options available to government at the time that that tender is taken. However, in the spirit of both the white paper and the Defence industry policy statement, I would be encouraging an arrangement which enabled that—yes.

Senator CONROY: So you would reverse the position of directing that no Australian company can bid for the first two. You would be advocating, supporting, able to—

Senator Payne: Encouraging, I think I just said.

Senator CONROY: Encouraging—wonderful but, if they are not allowed to bid, it does not matter how much you encourage someone to bid.

Senator Payne: This is true, Senator. What I just said was, at the time—and when that time comes—I would take advice from Defence on the matters surrounding an acquisition of that nature as I would in relation to any acquisition. But, in the spirit of both the Defence white paper and the Defence industry policy statement, I would be encouraging an approach which included Australian bidders.

Mr Richardson : I might just add that that sort of consideration is some years off in terms of the third one. It will be up for government decision around the mid-20s.

Senator CONROY: Minister, during question time on 15 March you said:

In relation to the supply ships we will, through negotiations with the preferred tenderer, secure in excess of over $100 million worth of Australian content.

Could you please outline what Australian industry content makes up that $100 million estimate?

Senator Payne: I will ask Rear Admiral Dalton or Mr Nicholl to give you that detail.

Mr Nicholl : I mentioned earlier communications systems and combat systems, so what we are looking at here is built around that—some of the deck-mounted kits, such as deck cranes and some of the elements of the ship in the context of ILS packages support as we take things forward. So there is an element related to the number that the minister talked about earlier on, which is very much focused on Australian kit—largely driven by combat management systems and communications systems in terms of value.

Senator CONROY: Would they be fitted in Australia, in Adelaide?

Mr Nicholl : I am not entirely certain. I mentioned earlier on the fact that we are going through the ODIA system—

Senator CONROY: I appreciate that but there has been a guarantee given to the Australian public by the minister, three seats up from you, that Australian industry content makes up $100 million. So you were suggesting that they might buy a deck crane and then ship it to Spain and fit it in Spain, or, more logically—

Mr Nicholl : I think that is unlikely but it is a question of making sure that we understand the overall risk of delivering the platform on time. This is about Australian equipment and we will go through the process of making certain that we do the right job in risk terms of fitting that.

Senator CONROY: I appreciate that, but the minister has made a very big point—and I think the Prime Minister made the same point—that there is $100 million of Australian industry content. I have asked you what it is, I have asked you whether or not they will be fitted—you picked a crane and I am just following up on that.

Mr Nicholl : It will be more than likely in Australia. Indeed I would say—

Senator CONROY: 'More than likely'. I am assuming in Adelaide, given the statement?

Mr Nicholl : Sorry?

Senator CONROY: Was the $100 million confined to Adelaide or was it an Australia wide figure?

Senator Payne: I think I indicated it was Australian.

Senator CONROY: Australian rather than just done in Adelaide.

Senator Payne: That is my recollection. I do not have my Hansard in front of me. Unlike you, I do not carry around my own words.

Senator CONROY: Would the work take place in Adelaide, Mr Nicholl? Would the ship dock in Adelaide and the crane be fitted in Adelaide?

Mr Nicholl : Again it is a little early to say how we would do that process. This is Australian equipment. The whole process of how we fit it to the ship—and the secretary has made it clear that the most likely outcome is that we will be doing that in Australia somewhere. Quite frankly, at this stage I do not know whether it is Adelaide, and I would not want to declare that at this stage, because I am not entirely certain.

Senator CONROY: Okay. I am trying to identify $100 million worth of work or content that the Prime Minister and the minister have indicated, but at this stage you cannot give us any idea what it is and where it will be fitted?

Mr Nicholl : I did give you an outline of what it actually is. We are talking about combat management systems supplied by Saab, we are talking about communication systems. The value is in the product that we are procuring in Australia.

Senator CONROY: But you also indicated earlier that you could not confirm that they would be installed in Australia, so I am trying to understand whether the $100 million includes that or not.

Mr Nicholl : What I was doing was referring to the ADIA process and how we de-risk the overall program. Just being certain and going through that process we can make the right decisions for the risk of delivery against—

Senator CONROY: Either the combat system installation and the communications system installation are guaranteed to be part of the $100 million of Australian industry content or they are not. It is fairly straightforward. Either they are in the $100 million—which means they are going to be done in Australia—or they are not in and you cannot guarantee it.

Vice Adm. Griggs : It does not mean that at all. There are elements—for example of a combat system—that it makes eminent sense to install during build. Parts of it may need to be done during the build, and other parts can be installed when the ship gets to Australia. To say that the whole thing has to be done here would make absolutely no sense from a shipbuilding perspective.

Senator CONROY: So some part of the weapons system and the communications system, logically, to make sense as a ship build, would be done in Spain. Which parts then are we guaranteeing are part of the $100 million? From the sound of it, some of it is not going to be included in the $100 million, and you have made a big play of those, Mr Nicholl, so I am now looking to find out where the rest of the $100 million is.

Vice Adm. Griggs : I was not implying that. I was implying that—

Senator CONROY: What? You are cutting it in half and doing half here and half there? No; that is a silly way to describe it. Sorry.

Vice Adm. Griggs : Foundations, cabling—all of that sort of stuff. It makes no sense to do—

Senator CONROY: Just plugging a box into cables that are already there when it arrives in Australia does not amount to $100 million.

Senator Payne: Could you possibly let the VCDF finish, please, Senator?

Vice Adm. Griggs : I am not saying it is $100 million worth. I am saying some of that equipment will come from Saab in Adelaide and have to be installed during the build. So the value is still there to Australian industry, because that equipment is still purchased in Australia.

Senator CONROY: I am just trying to add up to $100 million so that the people of Australia can have confidence in the announcement by the minister and the Prime Minister of $100 million. So far we have shrunk the possible parts from not 100 per cent of the weapons—

Senator Payne: I think you are misrepresenting the evidence that Mr Nicholl has given.

Senator CONROY: I am not misrepresenting it at all. He listed it as one of the $100 million.

Senator Payne: I think you are.

Senator CONROY: Vice Admiral Griggs has now indicated that—

Senator Payne: And VCDF's evidence.

Senator CONROY: for common sense, it is not the whole installation of the weapons system, so I am just looking to add up to $100 million. I have asked about whether the cranes would be installed in Australia or not, and so far not a lot has been specified as a 'yes'. I am just trying to get up to $100 million worth of 'yeses'. It is a big number. It is a big statement. So I am looking for some certainty for the people of Australia, from the statement by the Prime Minister and the minister, as to what makes up the $100 million.

Rear Adm. Dalton : I think—and Mr Nicholl will correct me if I get too far out of my lane—the value of the equipment is over $100 million. The negotiations through the offer definition and improvement activity will determine the best place for that to be fitted. We cannot say whether it will be fitted in Australia or Spain yet, because we have not got to that level of detail with Navantia, but we can say that the value of the equipment to be fitted—

Senator CONROY: Is greater.

Rear Adm. Dalton : That will be sourced from Australia.

Senator CONROY: So the weapons system is sourced in Australia? The communication system is sourced in Australia?

Rear Adm. Dalton : Sourced through Australian entities, absolutely.

Senator XENOPHON: I have a supplementary question on this. I am trying to understand what 'Australian content' actually means in terms of the announcement, leaving aside the figure of $100 million.

Senator CONROY: Exactly.

Senator XENOPHON: If equipment that happens to come from overseas is bought through an Australian company, and the Australian involvement is the office administration in Australia and maybe some minimalist involvement in the purchase, but it is actually built overseas and we just ship it over here, is that included as Australian content? In answer to Senator Conroy's question, it seems unclear.

Senator CONROY: Which Australian weapons system are we purchasing?

Senator XENOPHON: How do you define Australian content?

Senator CONROY: What Australian communications system—

Rear Adm. Dalton : If we take, for example, the combat support system, which will be a variant supplied by Saab, they have a variant of this in service on other Australian ships and it is largely produced in Australia. It is supported by Australian knowledge and intellectual property, but not all of the components that make it up are manufactured in Australia, so some of them are sourced overseas.

Senator XENOPHON: If you say, 'It's largely produced in Australia,' in terms of the $100 million figure 'largely' could mean 51 per cent. What do you define by that? I think Senator Conroy's line of questioning is very pertinent to how that $100 million figure was derived and whether it genuinely means $100 million of local production, local jobs and local economic activity. I am just trying to establish what that actually means.

Rear Adm. Dalton : It goes through a number of key Australian corporations and—

Senator XENOPHON: That is not answering the question. You can go through all sorts of corporations.

Senator CONROY: Saying, 'We bought something from Saab that Saab had imported from Sweden,' does not mean it is built in Australia. It might be purchased by an Australian entity, and you might count it towards the cost of Australian content, but probably Senator Xenophon and I would have a slightly different definition of Australian content. So we are just trying to understand.

Senator XENOPHON: If an Australian entity—a company registered in Australia—buys $10 million worth of equipment that comes from overseas, and the Australian component of that might only be one or two per cent in terms of some administrative functions, is that what you count? Is that included in the $100 million?

Rear Adm. Dalton : No. It is largely investment in Australia. But it does rely on us bringing other elements that are not manufactured in Australia into it. There is a value-adding piece that is done by Australian industry on all of these components.

Senator XENOPHON: So is the $100 million purely value adding by Australians in Australia?

Rear Adm. Dalton : My understanding is that there is $100 million worth of Australian investment in this particular part of the—

Senator XENOPHON: But what does 'Australian investment' mean?

Rear Adm. Dalton : I would have to refer to Mr Nicholl to go into the detail.

Mr Nicholl : This is Australian technology developed for Australian platforms. This is my understanding. This is Australian technology. It is an Australian system which we have fitted across the fleet. Clearly there are going to be some components drawn in from a global supply chain. But this is Australian technology, and it is—

Senator CONROY: So what is the name of the weapons system that Australia has developed?

Mr Nicholl : The combat system we are talking about here is related to the Saab 9LV program. It is clearly a development of technologies elsewhere, but it has been brought on and developed in Australia, so it is an Australian product.

Senator CONROY: I will probably come back to that particular line of questioning. We have talked about a combat system, so I now want to talk about a communication system. Which Australian communication system is going to be fitted?

Mr Nicholl : I would have to take on notice the specific details of that, but it is common with all the other communication systems we have fitted across the Australian fleet—

Senator CONROY: I would hope so!

Mr Nicholl : which I believe are Australian sourced.

Senator CONROY: Vice Admiral Griggs, you must know then where the Australian communication system is manufactured here in Australia, given that it is on all of your other ships?

Vice Adm. Griggs : They are not my ships anymore.

Senator CONROY: He's not smiling right now. You cannot see that, but he is not smiling!

Vice Adm. Griggs : I do not know what the particular arrangements are for this project. I think we actually should not be talking about it because—

Senator CONROY: I am trying to establish whether an Australian-made weapon system that is manufactured in Australia is part of the $100 million. I am unfamiliar with an Australian communications system that has been developed solely for us. I am hoping you can enlighten me. Vice Admiral Barrett or Rear Admiral Dalton—anybody?

Vice Adm. Griggs : There are a range. CEA, for example, in Canberra provide internal communications systems on our ships. There are a range of providers. CEA is an Australian company that produced the equipment here. That is one example.

Senator CONROY: Is that the one that Mr Nicholl just said is compatible with all your existing ships?

Vice Adm. Griggs : As I said, we are not sure—

Senator CONROY: It is the only one manufactured here.

Vice Adm. Griggs : I am not saying that. I said it is an example.

Senator CONROY: I am just trying to know whether, if a process is bought from overseas by an Australian company, whether it is a separate Australian company or it is the Australian subsidiary of an international company, that counts in the statement of $100 million of Australian industry content—and that has a different definition, probably, to Senator Xenophon's and mine, or not. I am sure I could speak to Senator Xenophon, and we would not count it as that, but it may qualify under what you are describing. I am sorry to be pedantic about this, but it is an important issue—

Senator XENOPHON: It is not being pedantic. There must be some rigor in terms of how you define Australian content. The government made a statement about $100 million for the supply ships. Can you tell us not only how that figure is derived, but how you work out whether it is Australian content or not. How do we know that it is not 50 per cent, 60 per cent, 70 per cent of something that was built overseas and imported into the country? There is no specificity in terms of what Australian content is. There must be some easy definition, so that you can put us out of our misery on this. You are going to put me out of my misery on this. I just want to know what the definition of Australian content is? Can someone tell me what 'Australian content' means for the purpose of the $100 million reference in relation to the supply ships.

Vice Adm. Griggs : I think the safest way to do this is to take that on notice, because—

Senator XENOPHON: You cannot even tell us something as basic as that?

Vice Adm. Griggs : It is not a matter of whether it is basic or not. We do not want to mislead you in any way. We will get you an answer on those exact—

Senator XENOPHON: I am not suggesting you want to mislead us at all, Vice Admiral. But I would have thought, given that the government said there would be $100 million worth of Australian content, that there would have been an assumption as to what Australian content is before that announcement was made.

Vice Adm. Griggs : I am sure there was.

Senator XENOPHON: Then why can't you tell us?

Mr Richardson : It is—

Senator CONROY: Minister, are you able to clarify? It was your statement.

Mr Richardson : This is not an exhaustive list by any means—I am not an expert in this area—but it consists of components made in Australia. It consists of components brought together in Australia. It consists of labour, engineering, integration, intellectual property—Tony, you know this better than I. Go ahead.

Rear Adm. Dalton : I think you have covered most of them.

Mr Richardson : I might add—and I realise it is not part of the question, but just for the sake of completeness—the maintenance and sustainment of the vessel through its life will be in Australia, and that will be well in excess of $100 million. Over the life of the platforms, you are probably looking at something in excess of $1 billion I would think for that.

Senator CONROY: I appreciate the through costs. But the government—the minister, the Prime Minister—were very specific. They said, 'We will, through negotiations with the preferred tenderer, secure in excess of $100 million worth of Australian content.' So Senator Xenophon and I are just looking to put some meat on that bone to understand what it is, or whether it is a bunch of multinational companies—and I have no problem with this—purchasing from their head office back in their home country and installing them. A decision has been made that the weapon system that we are installing on the submarines is an American weapons system. That is correct. So I just want to make sure that the weapon system that we are installing is not a weapon system from another country, or bought from Saab international—not that I object to this—for the purposes of the definition of Australian content. So if Saab Australia had the weapon system and all they did was buy it off Saab in Sweden, we would not be counting that towards the $100 million. Senator Xenophon, would you agree?

Senator XENOPHON: I think that further to that, Mr Richardson, you made mention—and thank you for at least giving some further details of that—of components made in Australia. How do you define 'made in Australia'? Is it 51 per cent local content? What does 'components brought together in Australia' mean? Does that mean that if you import products you include the value of those imported products?

Mr Richardson : I certainly would need to take that degree of detail on notice. That is beyond my level of knowledge.

Senator CONROY: So just to be clear: the $100 million has not been secured yet. It is still in negotiation.

Mr Richardson : That is the estimated value. What the government put out—what the minister stated—was very much on the recommendation of the Department of Defence. There will be detail sitting behind that—

Senator CONROY: That is what we are trying to get to.

Mr Richardson : and we will—

Senator CONROY: You seem unclear.

Mr Richardson : take that on notice. I have provided the detail that we can. We will take that on notice and provide you with further detail.

Senator XENOPHON: Mr Richardson, how can you say that the Department of Defence has provided the figure of $100 million and, presumably, details, without telling us what a breakdown of those details are?

Mr Richardson : Well, I explained that—

Senator CONROY: I would agree.

Mr Richardson : Well, I do not see any contradiction at all. I have advised that what the minister stated was based upon advise from Defence. Sitting behind that advice is quite a degree of detail. I have provided you that which I can, and I have said that I will take on notice the detail that is outstanding which you are after.

Senator XENOPHON: But my objection, Mr Richardson, is this: the government makes an announcement that there will be $100 million of local content of this approximately $2 billion project for supply ships. I would have thought that before that announcement was made there would have been some detail behind that announcement as to what it comprised of, whether it comprised of components brought together in Australia, what the labour component would be approximately—the engineering, the IP—and what a reasonable definition is of 'made in Australia'.

Mr Richardson : And that is right. I have said that I do not have that detail with me, and I will need to take that on notice.

Senator XENOPHON: You did not think we would be asking about this very issue today?

Mr Richardson : Sorry?

Senator XENOPHON: You did not think that we would be asking you about this today?

Senator CONROY: To be fair, Senator Xenophon, I never know what you are going to ask from moment to moment. I think that is little hard. I am defending you here, Mr Richardson. Reading Senator Xenophon's mind would not be good for your health.

Senator Payne: I think Senator Gallacher has just tabled a very important report on those matters. So we will not go there.

Senator CONROY: Exactly.

CHAIR: I think the purpose of the estimates inquiry was the defence white paper. We are obviously at will to extend beyond that. But, to assist, it is not the case that Mr Richardson would have come here today expecting, I think, to be asked these questions. Senator Xenophon, had you finished on that line at the moment?

Senator XENOPHON: For the moment.

Senator CONROY: I am just clarifying that the $100 million is still up for negotiation. I think this is what you said, Mr Richardson—you have not finalised it yet.

Mr Richardson : It is our estimate. It is $100 million. The minister made that statement on our advice, and we believe that is an accurate statement.

Senator CONROY: Except you do not actually have a definition of what 'Australian made' would be. So to satisfy Senator Xenophon and us, what you have counted as Australian content we would count as Australian content?

Mr Richardson : I have provided you with the information that we have, and I have said that we would take the more detailed questions on notice.

Senator CONROY: Are you familiar with the Japanese town of Usa?

Mr Richardson : Not particularly.

Senator CONROY: It was a renamed Japanese town so that when they exported something to America they could say 'made in Usa'—USA.

CHAIR: So we will get back to the serious questions, please.

Mr Richardson : I have never been there.

CHAIR: The same as Sheffield. There was a town called Sheffield—

Senator CONROY: Exactly. So there will be a new town renamed 'Aus' soon somewhere in Sweden. Anyway, is the estimate of $100 million to work across the first two supply ships or across all three?

Mr Richardson : No. Across the two, not all three. The Australian industry content could be as low as just five per cent of a $2 billion contract?

Senator XENOPHON: Or lower.

Senator CONROY: Or lower. That is just a math question—$100 million, a $2 billion contract, two per cent Australian content.

Mr Richardson : That will vary depending upon the final price.

Senator CONROY: Thank you for that. I would like to ask some questions, but did you want to finish up, Senator Xenophon? I am just going to move on to OPVs after that.

Senator XENOPHON: I do have some questions on the supply ships, if I may, Chair.

CHAIR: Go ahead, Senator Xenophon, please.

Senator XENOPHON: I do not want to traverse directly matters that Senator Conroy has set out, or has asked about. The department is in contract negotiations with Navantia for these two supply ships—correct?

Rear Adm. Dalton : The department is conducting an offer definition—an improvement activity—with Navantia.

Senator XENOPHON: So these ships are principally off the shelf?

Rear Adm. Dalton : They are.

Senator XENOPHON: Being built in Spain?

Rear Adm. Dalton : They will be.

Senator XENOPHON: And the weight of the ship, approximately? Can I help you out—about 19½ thousand tonnes.

Rear Adm. Dalton : Nineteen and a half thousand.

Senator XENOPHON: What was the weight of Navantia's LHD? Was that about—

Mr Richardson : Twenty-seven or 28— something like that.

Senator XENOPHON: Yes, 27,000 or 28,000 tonnes. Is it correct that the 27,500-tonne LHDs had their hulls built overseas, but the superstructure work, the fit-out and combat system work were done here in Australia?

Rear Adm. Dalton : That is correct.

Senator XENOPHON: All up, by value, how much work was carried out in Australia on the LHD?

Rear Adm. Dalton : I would have to take that on notice.

Senator XENOPHON: I understand it was about a $3 billion program. Would it be fair to say that about 25 per cent of the work was done here?

Rear Adm. Dalton : I would have to take that on notice.

Senator XENOPHON: Does that seem a reasonable figure?

Rear Adm. Dalton : I will have to take that on notice.

Senator XENOPHON: Okay, but it is more than five per cent, isn't it?

Rear Adm. Dalton : It is more than five per cent, but it is a very different program.

Senator XENOPHON: I appreciate that, but noting that the LHD is 8,000 tonnes larger than the planned supply ship, and a lot of LHD work was done here—the superstructure and the fit-out—why could a similar build approach not have occurred for the supply ships?

Rear Adm. Dalton : I might differ in a minute to Mr Nicholl, but my understanding is the LHD superstructure is a very different superstructure to what will be provided on the supply ships. It is a very narrow, isolated and relatively small component of the LHD, whereas the superstructure on the supply ship is integrated with the entire hull, so it would mean a significant change to the build process. In the time available, it just does not make sense.

Senator XENOPHON: Going to issues of time available, are you aware that both ASC and BAE made, as I understand it, unsolicited offers to Defence or perhaps to Defence Materiel to say, 'We can build three for the price of two'? My understanding of the ASC offer was that the first ship was to be built in Korea with about 20 per cent of the value here in Australia, and then there would be a reversal where the majority of the value was going to be in Australia for the remaining two ships. Are you aware of any of those? It is something I have alluded to previously with you, Mr Richardson.

Rear Adm. Dalton : I am not personally aware of it.

Senator XENOPHON: Were you aware of that, Mr Nicholl?

Mr Nicholl : No, I was not.

Vice Adm. Griggs : I think that is incorrect—it was two ships in Korea and one in Australia.

Senator XENOPHON: But this was an offer that was made by ASC?

Senator Payne: There was an unsolicited proposal, yes.

Senator XENOPHON: When was that unsolicited proposal from ASC made?

Senator Payne: I am not sure. I think it was in the middle of 2013 or thereabouts.

Senator XENOPHON: Minister, could you please take on notice what assessment was carried out of that proposal and how it was dealt with?

Senator Payne: Yes, sure.

Senator XENOPHON: It seems to me that that would have involved, as I understand it, a much more significant Australian content than the five per cent—if not less—that we are looking at now.

Senator Payne: With respect, I think your five per cent is an inaccurate assessment against the total contract. The ship contract itself—as I understand it, and I am sure somebody will correct me if I am wrong—is less than $1 billion, and so the $100 million is set against that amount, not the total $2 billion. The second of the billions of dollars is related to development of port infrastructure, training and the other things that are associated with bringing the ships into service.

Senator XENOPHON: I would like to go back to the issue of the opportunities that arose from 2013, particularly the latter half of 2013. What was the advice of Defence to government when this tender was decided upon—in other words, to have a limited tender? I am trying to understand at what point Australian shipyards were excluded from tendering.

Mr Richardson : I may be wrong, but from memory I think there was an announcement about 18 months ago. I think it may have talked about this, and I think we have answered questions elsewhere in Senate estimates, but I think the cost estimate was some 40 per cent more for a build here. I think it was some hundreds of millions more.

Vice Adm. Griggs : Between 30 and 40 per cent more.

Mr Richardson : That is right, yes.

Senator XENOPHON: Are you in a position to be able to table the advice as it passed through the various Defence decision-making committees—for instance the defence capability committee or the Defence Capability and Investment Committee?

Mr Richardson : I would need to take that on notice, because there could be certain confidentiality around that. I would just need to check.

Senator XENOPHON: But on notice could you provide details on what you say the price differential would have been.

Mr Richardson : Sure.

Senator XENOPHON: Was that for the first supply ship or the second? The 2013 defence report on submarine skilling referred to efficiencies of a continuous build, and the report of the RAND Corporation last year said that you could get a very significant reduction on that premium—

Mr Richardson : That is for a continuous build of a light ship. There is no continuous build, and there has never been a proposal to have a continuous build, of supply vessels. Building two that would essentially be orphans—

Senator XENOPHON: Well, we need a third one.

Mr Richardson : But that is in the late 2020s. That is not a continuous build. According to the RAND report, you reduce your cost premium from 30 per cent to 40 per cent to 15 per cent to 20 per cent if, firstly, you have a continuous build of similar ships which might evolve over time and, secondly, you have, as far as possible, a mature design. There are other factors of that kind that need to align in order to get your cost premium down to 15 per cent to 20 per cent.

Senator XENOPHON: But there are other issues. I appreciate what you have said about cost premiums. I am not in a position to contest that with you at this point. I am trying to understand this. Is the economic impact and benefits of a local build, with people being employed here and the multiplier effect of the tax paid by those who are working here and the tax paid by the supply chain in the work that is being carried out, taken into account? Even with that premium, is that taken into account? It obviously reduces the actual premium in net terms.

Mr Richardson : There are different economic perspectives about the flow-on benefits of naval shipbuilding. I think you are aware of—

Senator XENOPHON: I am sure that macroeconomics.com.au report would shed some light on this! I am just wondering what—

Mr Richardson : Dr Robin Burke answered your questions extensively.

Senator XENOPHON: But he still will not show us the report.

Mr Richardson : No, but he gave you the full benefit of his expert knowledge.

Senator XENOPHON: But not the report.

Mr Richardson : No.

Senator XENOPHON: I presume that a lot of work was done on the Sea 1654 project supply ships by the then CDG and DMO prior to the change of government, yet it took a year to get to the tender phase. The tender was released on 6 June 2014 and it then took another 20 months to get a decision on the preferred tenderer. Can any of you comfort me that for an urgent project and buying off the shelf that is not the best that could have been done? It took three or so years to make a decision on an off-the-shelf purchase. Am I missing something here?

Rear Adm. Dalton : Again, there is a process that has flowed through this in order to get the decision we have. It has taken a little bit longer than we perhaps expected—

Senator XENOPHON: Why?

Rear Adm. Dalton : but it is the process we have gone through.

Senator XENOPHON: So it took longer than you expected?

Rear Adm. Dalton : Elements of the process did but, overall, I think it has run, as I understand it, in order.

Senator XENOPHON: It has taken a long time. Mr Richardson?

Mr Richardson : Oh, no—

Senator XENOPHON: Something off the shelf took 20 months.

Mr Richardson : I understand the question. I have sometimes asked the same question myself.

Senator XENOPHON: And what answer do you get when you ask that question?

Mr Richardson : They took me through the detail of what is involved in the preparation of the tender and the various elements to consider. It is a whole lot more complex than what a layperson like me might think.

Senator XENOPHON: You are not really a layperson.

Mr Richardson : I am. When it comes to naval shipbuilding, I can assure you I am probably less than a layperson.

Senator Payne: One thing I have learnt from the many lessons I have taken on board in the last six months is that shipbuilding is a very complex process. It involves very long lead times. As I indicated, the government under the former minister in June 2014 initiated the limited tender. It was expected to be returned at about this time in 2016. It has just been indicated to me that the estimated completion date of the tender remains what it was always expected to be.

Rear Adm. Dalton : That is correct. Just for the record, in October 2014 the risk reduction and design studies commenced. That led to a limited RFT being released in March 2015. The tenders closed in August 2015. The initial evaluation was completed in November 2015. The preferred tender documentation was sent to government at the very end of January 2016. In reality that is a process that covered a very complex evaluation in a reasonable amount of time.

Senator XENOPHON: You may want to take this on notice. By way of contrast, there was the C17 aircraft decision-making process. Aircraft are quite complex as well. I am not sure whether that is a fair comparison—

Mr Richardson : No, it is not. They are very, very different.

Senator Payne: You really are not comparing apples with apples.

Senator XENOPHON: I am talking about completion—

Senator Payne: You are very lucky that the CDF is not here. He would take you on on the C17s.

Senator XENOPHON: Based on past experience, with that caveat, what time frame would you expect for the supply ship contract negotiations in Navantia's case?

Mr Richardson : We expect to go back to government around the middle of the year.

Senator XENOPHON: So is June a reasonable—

Mr Richardson : Around the middle of the year, yes.

Senator XENOPHON: But if an election is called, just hypothetically, by the middle of the year then, as I understand it, the caretaker period means that everything will be in limbo.

Mr Richardson : That is right. My understanding is that governments do not normally take major decisions relating to expenditure of significant public moneys on a matter of this kind during the caretaker period.

Senator XENOPHON: Minister, this is not to be provocative, although—

Senator Payne: I did not hear the end of Mr Richardson's answer. But ask me your question and I will see whether I needed to.

Senator XENOPHON: Mr Richardson, do you want to restate that answer for the minister's benefit?

Mr Richardson : It is my understanding that during the caretaker period governments do not normally take a decision of this kind.

Senator XENOPHON: So is it once the election date has been announced or the writs have been issued? At what point is everything in limbo? Minister, what is your answer to that?

Senator Payne: When parliament is prorogued.

Mr Richardson : It is not always the date on which the parliament is prorogued. I am not quite sure of the technicalities but, for instance, in the 2013 election I know that there was a gap of a week or so in between the election date being announced and the commencement of the caretaker period. There is normally a period of time between the announcement of an election date and when the caretaker period begins. But do not ask me to explain the technicality of that.

Senator XENOPHON: But basically once the writs are issued it would be unwise to finalise any contracts—that is the general convention?

Senator Payne: Indeed.

Senator CONROY: I want to talk about the OPVs and the continuous build for minor surface vessels. The Defence white paper confirms that the government will procure 12 OPVs. Could officials please outline the rationale for 12 vessels.

Vice Adm. Barrett : The patrol and surveillance commitment provided by Defence to the Australian Border Force originally was 14 Armidales and is now 13 Armidales—after the loss of one, about a year and a half ago, into a fire while in contracted hands. The consideration for 12 was based on the contemporary need for border protection and the nature of the tasks that are being conducted. The tasking has changed from when the Armidales were first introduced in as much as when the Armidales were first introduced it was a change from what their predecessors had done in the past. We have found ourselves going further afield, spending more time further away from the Australian mainland, so the vessels have changed in nature. The OPV has been considered to be a larger vessel because the contemporary task has those vessels spending more time further away from the Australian coast but at the same time improvements in their ability to conduct surveillance with equipment carried on board mean that you can conduct the same level of surveillance with fewer hulls. So there was consideration of the contemporary task and consideration of current technology—all of which lead to a decision on 12 OPVs.

Senator CONROY: During additional estimates on 10 February Mr Gillis confirmed that the competitive evaluation process for the OPVs began in November last year. Could Defence please update the committee on the current status of the OPV competitive evaluation process? Where are we up to? That committee again, Mr Richardson.

Mr Richardson : Very good. I will pass over to Mr Nicholl.

Mr Nicholl : The CEP continues and it is refined from when we last got together. We are still looking at taking forward some recommendations to government on the original schedule, which is around the middle of the year again.

Senator CONROY: Are you able to outline key milestones for the process—for example, when bids are due or anything like that? Have you got an indicative time frame?

Mr Nicholl : An indicative time frame, yes—we are looking to come back in the early part of 2017 to look at—

Mr Richardson : The government announced that the cutting of steel for the OPVs would commence in 2018 and we are on track for that. We are pursuing a process and we are still on track in our process, which would allow that to happen.

Senator CONROY: So working backwards from 2018: is the cutting of steel in December, July or January 2018?

Mr Richardson : I do not know. That degree of detail I do not think can be determined at this point. The commitment was 2018. The next time we go back to government—and correct me if I am wrong—is in respect of a down select.

Senator CONROY: Just an indicative—

Mr Richardson : Around the middle of the year and following that we then come back to government—

Senator CONROY: In the middle of this year?

Mr Richardson : Yes, in the middle of this year. Then, from memory—and I stand to be corrected—either later this year or early next year we come back to government with a recommendation as to—

Vice Adm. Barrett : In early 2017.

Mr Richardson : Yes, in early 2017 we go back to government with a recommendation about the actual winner.

Senator CONROY: Thanks. Has Defence provided potential tenderers with any high-level requirements of the OPVs—such as the size, endurance, capabilities and the like—and, if so, could you outline them to us?

Mr Nicholl : At this point the CEP has been a market evaluation essentially, so what we have done is use a third-party organisation to make certain that we understand what is on the market and how it fits against the capability requirements outlined.

Senator CONROY: Is the OPV more likely to be off the shelf? If you are unsure yet, that is understood. I am interested to know if there is something off the shelf that works.

Mr Richardson : We are seeking to make it as close to off the shelf as we can, which is why Mr Nicholl said at the moment it has been a market assessment of what is there.

Senator CONROY: So you have not been able to give anyone anything of detail yet?

Mr Richardson : We are looking at what is there. We do have a number of options that would meet base requirements. We have requirements relating to range, we have requirements relating to capacity, we have requirements relating to sea states and the like, and there are a number of potential options meeting those high-level requirements. Again, I will be picked up if I get this wrong but we are not, for instance, saying it must be X tonnes. In fact, we have different options but they all meet our high-level requirements. So we are seeking to make it as close to off-the-shelf was we can.

Senator CONROY: Has Defence made any changes to its high-level requirements of the OPV since the competitive evaluation process began in November last year?

Mr Richardson : No, I am not aware of the requirements having changed.

Senator CONROY: In response to a question from Senator Xenophon during additional estimates on 10 February about the construction material for the OPVs, Mr Gillis said:

Senator, I will respond to that and say that the preference is for steel and the indication is we will be building both in steel.

Does steel remain Defence's preferred construction material for the OPVs?

Mr Richardson : Yes.

Senator CONROY: Does the competitive evaluation process for the OPVs require that the vessels be constructed from steel?

Mr Richardson : Yes.

Senator CONROY: So there are no aluminium hulls?

Mr Richardson : No.

Senator CONROY: Is that unlikely to change? I have just spoken to the experts. As you have said, you are not an expert in this area. Is the Navy's preference steel?

Mr Richardson : It is steel. They are always steel guys.

Senator CONROY: Moving onto the OPVs role in the continuous build program, I note that paragraph 4.117 of the defence white paper states:

The government is establishing a continuous build production line for smaller Navy vessels. This will commence with the construction of a fleet of 12 offshore patrol vessels to replace the Armidale class patrol boats with construction to start in 2018 following a competitive evaluation process.

That is a direct quote so I assume everyone is comfortable that is an accurate reflection of government policy?

Mr Richardson : Yes.

Senator CONROY: Everyone was nodding . That was great. Paragraph 4.35 of the defence white paper also affirms that the OPV build will begin in 2018 and that all 12 offshore patrol boat vessels will be delivered by 2030. So based on the white paper, can one conclude that the OPV build will occur between 2018 and 2030 on current projections?

Mr Richardson : Yes.

Senator CONROY: Given the white paper's commitment to 'a continuous production line for smaller Navy vessels', could Defence please explain how this will be achieved when the OPV build only lasts 12 years between 2018 and 2030? What is continuous about this smaller vessel production line if there are only 12 ships and 12 years of work? How do we turn that into a continuous build?

Vice Adm. Barrett : Let us remember that continuous build is about a philosophy that establishes an environment in which you can continue to build; it is not about a project start and stop date. There are two elements to this based on that context I have just put it in. Firstly, you will note that within the IIP there will be consideration later for how Navy will replace not only its mine countermeasure, minehunters, but also the hydrographic capability so there will be consideration of using a continuous build structure to look at how those will be done. It may will be that they are an evolution of that particular hull, so there may be more vessels.

At the same time, continuous build, as a philosophy, means you can consider how you operate your own vessels, and it may well be that you move from a traditional view that might say you run these vessels for 25 years and you might only operate them for a lesser period of time. So you might actually continue to build the hulls and not conduct expensive midlife upgrades to try and maintain them for 25 years. By entering into a program of continuous build, it allows us to make those decisions—deliberate decisions—in due time and in due course, during the period of the build of this first series of 12 vessels.

Senator CONROY: Thank you. Gentleman, I got confused, because that is not what the white paper says.

Vice Adm. Griggs : It sort of does.

Senator CONROY: The white paper states—and I will go through it very specifically—that the four Huon class minehunters will be extended until the 2030s, plural. The accompanying integrated investment plan says it will allow time to develop and evaluate remotely operated systems. It even suggests that a potential future option could be a modular countermeasure system 'that could be deployed from a range of non-specialist vessels', which suggests no specific replacement vessel at all is an option.

Vice Adm. Griggs : I do not think it is suggested at all.

Senator CONROY: I just wanted to come back to where it says 'non-specialist vessel'. I am assuming a minehunter is a very specialist vessel and the words 'non-specialist vessel' would imply the exact opposite of a specialist vessel.

Vice Adm. Griggs : It could be an OPV hull.

Senator CONROY: I agree that an OPV could use a modular countermeasure system. That is possible as well, but I go back to this question of continuous build—I am just trying to marry together these two statements. Defence, in its own words, intend to have a continuous production line for smaller navy vessels, when they are only, still, 12 smaller ships in 12 years of work forecast. I appreciate the points you have made, Vice Admiral Barrett, but there are other parts of the white paper that I cannot marry up yet.

Vice Adm. Barrett : I do not think—

Senator CONROY: I cannot marry them up yet. You might be able to, because you are far more knowledgeable about this, but I am just trying to marry those two things.

Vice Adm. Barrett : They are not in conflict at all. Indeed, if we assume, as I have said, a continuous build philosophy, it creates an environment in which whichever government is in power will be able to make decisions in the mid-2020s about how they will consider all of these requirements for replacement of the MHC, be it modular design or whatever. However, what will have been created by taking this path is an industry environment in which you will be able to continue the build process. It may not be exactly the same design. It may well be the same design but it will give the government of the day a number of options to be able to continue rather than run a stop-start process and thereby incur additional start-up costs et cetera, which has been the history to date.

Senator CONROY: How old will the oldest OPV be when you have finished building the last OPV?

Vice Adm. Barrett : I think you mentioned that, if its delivery is 2030 and we cut steel in 2018—which means it won't be delivered for two years after that—it will be around 10 years.

Senator CONROY: I am just trying, again, to marry some of your earlier comments about not using them for 25 years. When the first one is 12 years old, at best 10 to 12 years old—

Vice Adm. Barrett : No, I accept that.

Senator CONROY: then surely you are not suggesting that you are going to start cutting steel again for a replacement of a ship that is 10 to 12 years old.

Vice Adm. Barrett : Here is one option that I was outlining: in accordance with the white paper, as it currently fits, there may be a decision by a future government to build a further four or six OPV hulls to replace the MHCs, which will have by 2030 reached their end of life; or it may well be that there is a decision based on economic grounds that does retire some of the OPVs early.

Senator CONROY: That is pretty early though.

Vice Adm. Barrett : To replace them—

Senator CONROY: Ten to 12 years is early.

Vice Adm. Barrett : We are about to replace some of the Armidales within 15 years of their life, if not possibly earlier than that. It is a decision that might well occur, because the economics of it point to an ability to do this. That same continuous build philosophy and the environment created might allow you to build other vessels: large polar vessels, replacement for submarine rescue vessels. It provides options for the government of the day in the mid-twenties to be able to use that build—

Senator CONROY: No, I appreciate that you are saying that the government has options into the future, but 'options into the future' is not a continuous build mandated today. At the moment there are 12 ships for 12 years. We have talked about the minehunters. I will move to the survey vessels in a second. Again, I am working off the integrated investment plan as well. I appreciate what you desire—I truly do—but for the government to say that there is a continuous build, then, in my mind, there should be something at the end of the 12 years, not an option that can be considered in 2026.

I want to move on to the survey vessels, which you also mentioned a little earlier. The integrated investment plan states:

The current fleet of two large and four smaller ADF hydrographic survey vessels will be progressively retired from around the early 2020s.

They will be replaced with a combination of military and commercial survey capabilities. It also foreshadows that modular systems might enable enhanced hydrographic capabilities from nonspecialist vessels in the future.

am trying to get this continuous production line for smaller Navy vessels when the only thing that is actually committed is 12 ships over 10 to 12 years. I absolutely get what Navy's desire is, but now I am trying to understand. When the government want to say they have got a continuous build going for small service ships, there actually is not anything set out in the white paper where you could put your hand up and say, 'There's a 20-year continuous build. There's a 30-year continuous build.' There are just 12 ships over 12 years at the moment.

Vice Adm. Barrett : My answer to you, Senator, firstly is that, by definition, with a continuous build you do not set a statement of whether it is 12 years, 20 years or 30 years. It is, indeed, probably a 50-, a 70- or an 80-year build. It would be imprudent, I would suggest, to set the design, the size or the nature of the hulls that might be built in 2030 for hydro or for mine countermeasures because the nature of how that is conducted might affect the design of those vessels right now in terms of the displacement, the number of hulls—whether it is single hulled or a dual hull catamaran. But what is sought—and you have to start with a series of ships being built—is a program of industry that allows that industry to then evolve hulls, evolve designs and have all these skills that are necessary to meet whatever that ship or that boat may look like at whatever time the government of the day decides, in 2025 or 2028, is the actual need for those things. It will always be thus that we would not be predicting every single project that would meet a 30-, 40- or 50-year continuous build. Continuous build is about evolution of those hulls.

Senator CONROY: I think that it is, as you said, prudent. That is absolutely the right way to describe it. Thank you for that. We have got 12 subs. Everyone says it is a continuous build, and everyone knows the evolution could take place over maybe the fifth to eighth or the ninth to twelfth. You and I probably will not be around, but in the year 2036 I am sure the submarine that gets delivered will look very different to the sub that we are talking about designing in the year 2016.

Vice Adm. Barrett : It may well do.

Senator CONROY: Yes, and it would be prudent. But no-one is able to say that that is in a continuous build process. It is very easy to describe that as a continuous build. The frigates have been described as a continuous build. There is an understanding of how that will evolve over time. I just do not see that same continuity in your smaller ships. I accept the 'prudent' argument, but, equally, saying there are 12 subs absolutely incorporates all of the same arguments you have just made but with a concrete, easily identifiable continuous build—where industry would say, 'Tick, yes, that's a continuous build and will be a continuous build'—albeit evolving, prudently, in design because of the fact that it is a continuous build. One of the arguments put to me over the subs was, if we just add eight, they will design eight and they will be pretty much the same, other than upgraded capacity, whereas 12 really gives you that chance, prudently, to evolve it over the time. And it may be that the evolving starts earlier than the last four. I think you have absolutely described it correctly. I am just looking to see what is at the end of the 10 to 12 years that can match the certainty that the frigates' continuous build is described as having and the subs.

Vice Adm. Barrett : I disagree.

Senator CONROY: Please. You know far more about it than me. Help me out.

Vice Adm. Barrett : The complexity of a continuous build for a minor war vessel or a smaller specialist or even non-specialist ship is far easier to manage in terms of what they may look like. This is a hypothetical, but there are a number of state-run ships, run by various departments within government—research vessels operated by CSIRO, large-hulled vessels operated by Border Force—so there are a number of other vessels that could be built in a yard that builds OPVs as well. How the government of the day or the nation chooses to employ an industry that will be created by the OPV is really a matter for those future governments. I do not think it is for the white paper to dictate specifically the next 50 years of small minor war vessels from Navy. But I think it does in this white paper indicate where some of the likely ships or platforms will be.

Senator CONROY: I am also looking at the integrated investment plan, so I am looking at what is committed in that as well to try and match up continuous. A continuous build to me suggests that, to get the efficiencies, to get the expertise built up, to get the experience, you would begin and end in the same place. Would it be hard to have two separate yards in different places and call that a continuous build?

Vice Adm. Barrett : If you are after a comparative statement, I would make a statement of the obvious to say, yes, it would be harder. I would rely on someone doing the value-for-money proposition to determine whether one yard vice two yards, for instance, would work. I would look at that in terms of the facts presented from the economic outcome.

Senator CONROY: One of the arguments is that you get it down, you get it set, everyone is there and you just roll through. I am not talking about two places doing six each as a continuous build. I am talking about one doing 12. You can see that that maximises your efficiencies of a continuous build.

Vice Adm. Barrett : Yes.

Senator CONROY: But, if you start in one place and then move it to another place, then you seem to lose some of those efficiencies. That just seems common sense.

Vice Adm. Barrett : You may, in terms of that, lose those efficiencies. I agree. Again, it is not rocket science. Shipbuilding is such that you have to establish the infrastructure and the yards and everything else around your design, your line. If you are going to do that in one place and then move it to another place, then you have to establish all those same facilities somewhere else. There will be a cost differential.

I guess that is looking at it at one point. If you are looking at it as a broad shipbuilding national enterprise that indeed may on occasion be more cost effective than running two lines when it can be run from one. I think we need to consider both the individual build you are trying to do and also the longer-term effect of what you are trying to achieve.

Senator CONROY: This is not sort of running two at the same time—starting in two places and then running them through. This is starting in one place and doing a couple, and then closing that part down, moving somewhere else and doing some somewhere else.

Vice Adm. Barrett : Senator, that is what I am saying. If you do that there are clearly two costs of establishment that you need to do in both of those areas. There will be a cost associated with that. You may be building just a couple in one area which might in the broader term actually save you money over the entire project of other areas in that build. That might be more cost effective from there. All I am saying is that I make no judgements over which is preferred. I am saying it will be an economic decision on whether your long-term benefit is accrued by taking that action or whether you set on a path—

Senator CONROY: That becomes a cross subsidy from the small surface vessel build into the major vessel build.

Vice Adm. Barrett : It may well be, yes. There are two ways of looking at it. One is in the short-term costs there, and the other is the longer-term costs about how you seek to establish a national enterprise which might be two areas of continuous shipbuilding.

Senator CONROY: It would be hard to maintain a continuous shipbuilding argument if 10 were being built in one place after the first two were completed. It would just make it a harder argument.

Vice Adm. Barrett : If you are referring to the discussion we had earlier, then I stand by my commentary to say that I do not look at a continuous build as 10 ships—that is a project.

Senator CONROY: I am just a bit more suspicious. I look at what Finance says and if I do not see the dollars committed then I start to think, 'Not necessarily.' I appreciate that you are an optimist.

Vice Adm. Barrett : I am.

Senator CONROY: I have dealt with Finance not quite as often as you have, I am sure. I tend to come out of those meetings as a pessimist. I will not ask you to comment on Finance. I will move on to the future frigates. The white paper confirms that Defence will acquire nine new future frigates which it says will be optimised for antisubmarine warfare. Could officials outline for the committee the rationale for nine future frigates and the concept of operation for the new vessels. How will they differ in terms of size, capability and personnel requirements from our existing frigate fleet? I appreciate that all of the specifics may not yet be finalised, but I am just interested in how it is going to look different and what its capability difference is.

Vice Adm. Barrett : The current frigate force within Navy consists of eight Anzac class general purpose frigates that are optimised for general purpose roles. They commenced their life at about 3½ thousand tonnes. They are currently—after a recent modification—at about 3,900 tonnes. They provide a level of self-defence for both themselves and for those ships that they escort,. They have been used in the Middle East and around other parts of the region. They have what I would characterise as a limited level of antisubmarine warfare capability. Based on the strategic view that has been examined through the white paper, it would suggest that there will be a greater number of submarines within our region over the next five, 10, 15 or 30 years.

Senator CONROY: Just a few. Just a couple.

Vice Adm. Barrett : The numbers have been published in many areas. The issue for us then is to consider the escort duties that will be provided by those frigates to have a prominence around antisubmarine warfare. The design will be around that. I mentioned earlier the displacement of the Anzacs, where we have moved from the original 3,500 tonnes to about 3,900 tonnes. We have used all of the margins that you would normally design into a ship at build that you use as you develop ships through their life. Ships usually become heavier through their life. One decision point on the frigates themselves is that the frigates will be larger than the Anzac class so that we can build more growth into them but start with a capability that is quite specific around anti-submarine warfare. So it will be a heavier ship.

In terms of the number nine, we look at it from a fleet perspective, across not just the frigates but also the air warfare destroyers. There are three of those being delivered. Those three, together with the nine frigates, will retain or maintain what will be a major surface combatant force of 12 ships. That is sufficient to allow us to meet the requirements that we currently meet for government in terms of where ships are deployed and what they need to do and will, on current arrangements, meet the future requirements of where government might seek to send those ships.

Senator CONROY: Thanks. Paragraph 4.34 of the defence white paper states that the future frigates will be introduced into service from the late 2020s 'to replace the existing fleet of eight Anzac class frigates, with construction to start in 2020'. For the committee's benefit, could officials please outline the expected build schedule for the future frigate program?

Vice Adm. Griggs : Senator, when you read that out, you said 'late 2020s'; it says 'early 2020s'.

Senator CONROY: Sorry, yes. As I was reading it, I thought 'late' did not make sense. Thank you for that. So, in the early 2020s, they will replace the existing fleet. For the committee's benefit, could you outline the expected build schedule for the future frigate program? Is it just: every two years, one gets churned out?

Mr Richardson : That is the rough-plan drumbeat, as they call it.

Vice Adm. Barrett : It is the rough drumbeat that we will look at. There are several factors that will need to be considered in that. I would suggest that, through the life of this program, we will need to consider the strategic posture and how those ships need to be delivered. We need to consider the ongoing ability to run Anzac class so that we maintain, during the transition period, sufficient numbers to provide all those duties. It will indeed be matched with how we might consider the continuous build for complex major warships needs to be progressed and how the industry is developing. But at the moment, with what we know, we are estimating a drumbeat of about every two years.

Senator CONROY: Okay. So when would be the first of the future frigates?

Vice Adm. Barrett : The government announced in August last year that we will cut steel—that term again—in 2020.

Senator CONROY: Now, is that part-way through the process? Would it be 2021 when that one will be finished, or is it two years from cutting steel?

Vice Adm. Barrett : No. From cutting steel, it will be longer, I would suggest—probably around four years, and that would be for delivery. The vessel would then be tested and then commissioned and introduced into service.

Senator CONROY: From watching the LHDs, is that a one-year process, a six-month process, doing the sea trials and all of that? When would it be commissioned and ready for service?

Vice Adm. Barrett : Again, you are asking me to crystal-ball this to some extent. I would say experience would suggest about 12 months. But, between now and when that goes into service, if there are ways in which we can test components and equipment before we take it to sea, if there are technologies that allow us to simulate and do all our testing beforehand, then the regime by which we have tested and introduced ships in the past may not be exactly the same as we do in the future. In fact, I hope it is not. I hope there are more efficient ways of us testing in the future. So I would say 12 months at this stage, but that would be a judgement made on what we know. It may change—it may indeed lessen—depending on how technologies change between now and that period.

Senator CONROY: Accepting that that could be the case, the first would be sometime in 2024, 2025, with cutting in 2020?

Vice Adm. Barrett : Mid-twenties, so I would say 2025, yes.

Senator CONROY: 2025. Okay.

Vice Adm. Barrett : And I stand by what I said: there will be variations in that based around what the testing regime will be.

Senator CONROY: In the white paper, I think there is a part that talks about introducing them into service in the late 2020s. Are you being optimistic? I do not think you are being optimistic, from what you have described.

Vice Adm. Barrett : I guess I have been to some extent, and I would ask that I not be held to those figures. As I said—

Senator CONROY: No, no.

Vice Adm. Barrett : there are a number of variables.

Senator CONROY: You are being very clear. There are variables. It is in an indicative number—

Vice Adm. Barrett : That is right.

Senator CONROY: not one that someone will look back at in five years time and say, 'No, he said it'd be this date.'

Vice Adm. Barrett : That is right.

Senator CONROY: You have been very clear, and I am on the record now—

Vice Adm. Barrett : But I am not saying that the late 2020s means the end of 2029.

Senator CONROY: I accept that. I am looking at what the white paper says, as opposed to what you have described.

Vice Adm. Barrett : But I would suggest that, after the period of the CEP that we are going through now, we will have a better understanding—with each of those that will be considered—of their ability to deliver against the time line that we have expected and we will be in a better position to answer those specifically after the CEP has closed.

Senator CONROY: I appreciate that. I am just confused about what the white paper says as opposed to what you are describing, and what you are you are describing sounds very reasonable—not that we are holding you to it, in a literal sense, down the track. I will try and find the exact page.

Vice Adm. Barrett : I have given you the optimistic end.

Senator CONROY: It is page 93.

Vice Adm. Barrett : I contributed to the white paper and I stand by the white paper.

Senator CONROY: On page 93, it says:

Nine new future frigates optimised for anti-submarine warfare will be introduced into service from the late 2020s to replace the existing fleet of eight Anzac Class frigates …

I know you corrected me a little earlier, but page 93 indicates that it will be in the late 2020s.

Vice Adm. Barrett : Yes. On behalf of VCDF—and he will correct me if I am wrong—your earlier statement referred to the Hobart class entering service in the early 2020s. I think you may have said the 'late'—

Senator CONROY: I said 'late'—

Vice Adm. Barrett : And you were corrected.

Senator CONROY: and then Vice Admiral Griggs corrected me, that it was 'early', but I am now reading from page 93—

Vice Adm. Barrett : I note 'late' in the paragraph.

Vice Adm. Griggs : [inaudible] in the paragraph.

Senator CONROY: Just to come back to that—maybe that was just confusion—

Senator Payne: I think that was a confusion between you and those at the table, Senator Conroy.

Senator CONROY: Yes. I am looking at the indication that the frigates would be introduced in the late 2020s. I am not being critical. I am again just trying to understand. So the white paper is a little more bearish than you have been today. I am not trying to pick it apart. I am just trying to understand the—

Vice Adm. Barrett : I have said that after the CEP we will know better what these dates are. I have given you what might be best case.

Senator CONROY: I think it is your natural optimism, Vice Admiral! Again, the table on page 89 of the Defence integrated investment program lists the time frame for the future frigate program design and construction as 2017 to 2040. It says 'design', not just cutting steel. I am not trying to play a game there. On current projections, when does Defence expect the final future frigate to enter into service? I am presuming, on the two-year time frame, around 2040. When would the last one come into service?

Vice Adm. Barrett : I will use the dates out of the table here so I am not using my usual optimism! If that refers to construction—so, if by 2040, it completes that—there would be a period of testing for that particular unit. As I said earlier, that could be up to 12 months. Based on that, I would make a judgement that it would be around 2041.

Senator CONROY: Okay. Thank you for that. The committee has decided to have mercy on us all and have a tea-break.

CHAIR: We will resume at 20 to six.

Proceedings suspended from 17:28 to 17:42

Senator XENOPHON: Going to the issue of OPVs, on 21 August—I am not sure you are familiar with that transcript, Mr Richardson—essentially it seemed that then Prime Minister Abbott was saying that at least two of the first OPVs would be built in South Australia in the lead-up to the frigate build. Is that no longer the case?

Mr Richardson : I think that was discussed by Admiral Barrett and Senator Conroy. That option was left open.

Vice Adm. Barrett : We had a discussion earlier, but I think it was more around a generic question on where builds were. I think your question is around a specific transcript of a statement where then Prime Minister Abbott said that a number of OPVs may be built in Adelaide. The same transcript did also then go on to say that this would be considered in the CEP—if it is the same transcript of the same radio interview that I followed. He made a statement of that but then indicated that it was still subject to consideration within the CEP, if I recall.

Senator XENOPHON: This statement was a joint doorstop interview at Austal, Henderson in Western Australia on 21 August 2015, where then Prime Minister Abbott made reference to two Corvettes:

Now, what I’ve said is that the Corvette build is likely to start in Adelaide. The frigate build will certainly start in Adelaide. That doesn't mean that other yards can't have a role, but certainly the Corvette build is likely to start in Adelaide. It will stay in Adelaide until the frigate build starts in 2020 and then it's quite possible that the Corvette build could shift. Whether it shifts to somewhere else in South Australia, whether it shifts to somewhere else in our country, that obviously is something that we will work out through the Competitive Evaluation Process.

It seemed to be that at least the first couple of OPVs would be built in South Australia, and presumably that would fit into the whole issue of the continuous build and the efficiencies that are driven by a continuous build. Is there now a different position from that expressed in respect of the OPVs?

Mr Richardson : No.

Senator XENOPHON: So we will have the first two OPVs built in South Australia?

Mr Richardson : What Prime Minister Abbott said is still possible.

Senator XENOPHON: He did not make it sound like a possibility—the then Prime Minister.

Mr Richardson : Formal consideration will take place within the framework of the competitive evaluation process that we are currently working through.

Senator XENOPHON: He said:

It will stay in Adelaide until the frigate build starts in 2020 and then it's quite possible that the Corvette build could shift.

That does not sound like a possibility; it sounds like a certainty.

Mr Richardson : I cannot add any more to what I have already said.

Senator XENOPHON: It is not your understanding that the OPV build will at least start in South Australia?

Mr Richardson : I am aware that it is a real possibility; I am not aware of any formal decision having yet been made.

Senator CONROY: It must have been made. When you say that you are aware it is a real possibility, at the last Senate estimates it was made very clear to us that the tender does not require it.

Mr Richardson : That is right.

Senator CONROY: And there is no change?

Senator Payne: There is no change.

Mr Richardson : There is no change to that. What I have just said does not contradict that.

Senator CONROY: I appreciate that. It is just an optimistic, wishful thought. Are you committing that it will be? Minister, are you prepared to repeat Mr Abbott's promise?

Senator Payne: I will refer you to the statements I made directly to you in relation to this at the last estimates—

Senator CONROY: Which is 'no'—you will not commit to back Mr Abbott's—

Senator Payne: which are that there is a competitive evaluation process underway, the competitive evaluation process is going to run its course and then appropriate decisions will be made.

Senator XENOPHON: Doesn't that contradict, or is at least inconsistent with, the comments made by former Prime Minister Abbott on 15 August 2015?

Senator PAYNE: The point I would make is that I am completely consistent with the competitive evaluation process.

Senator XENOPHON: You are not consistent with the promise made by the former Prime Minister.

Senator Payne: You can make that statement, Senator.

Senator XENOPHON: I suppose I just did. I know the issue of a continuous build was traversed with Senator Conroy earlier, and I will not restate what was said in the RAND Corporation report of April last year, nor the Future Submarine industry skills plan by Defence, where reference was made more broadly to the cost of all planned naval projects being somewhere above $75 billion—parenthetically, we now know it is in the order of $89 billion—and that a proficient and productive ship-building industry would produce overall savings to the Defence budget in the tens of billions of dollars. Reference was made by RAND about the continuous ship-building. Is there a view in Defence that implies that you have a centre of excellence and efficiency in ship-building where you drive those efficiencies at a particular shipyard, rather than the stop-start process that we have seen, which I think the government, the former Prime Minister, the current Prime Minister—and indeed you yourself, Minister—have all said is very inefficient and quite destructive to economic efficiency and certainty for jobs in the industry?

Senator Payne: The stop-start process?

Senator XENOPHON: Yes.

Mr Richardson : There is certainly a view in Defence that the stop-start process does add to cost and inefficiencies.

Senator XENOPHON: We know from evidence that ASC shipbuilding gave to estimates just last month that they will go down to about 100 employees by the end of 2018—basically a skeleton staff—after the AWDs, because there aren't any other contracts in the pipeline. They are then due to commence building the frigates in 2020. Do you acknowledge that there is going to be a significant cost, if it gets down to those 100 employees, for rehiring, restarting, reskilling and the like?

Mr Richardson : Over the last two years we have been very consistent in stating that to avoid the dip—the downturn that you mentioned—decisions would need to have been taken on a range of matters some years ago, and that whatever decisions were made today there would be a limit to the extent that you could dilute that reduction. However, the government has been conscious of that, hence the decision in August to announce the cutting of steel for the OPVs in 2018—

Senator XENOPHON: Where, though?

Mr Richardson : and the decision—

Senator XENOPHON: But where would that be?

Mr Richardson : We have been over that, Senator. And there was the decision to bring forward the cutting of steel on the first of the future frigates to 2020.

Senator XENOPHON: Okay. I appreciate the government brought forward the cutting of steel for the OPVs and the cutting of steel for the future frigates, but there is still potentially a two-year period between the two. We have heard from ASC just last month that they will be down to practically a skeleton staff of 100 employees. The South Australian government's defence industries minister, Martin Hamilton-Smith, has referred to figures that it could cost up to $1.2 billion in terms of the inefficiencies and the restarting process, which is the very thing that the government has quite rightly said that we need to put an end to.

Mr Richardson : That is right. That is why—

Senator XENOPHON: So you are not confirming that $1.2 billion figure—

Mr Richardson : No, I am not confirming that at all.

Senator XENOPHON: Are you denying it?

Mr Richardson : I do not know where that figure was got from. I have no comment on that figure. I would simply note that against that background, decisions have been taken for the first time in Australia's history to establish a permanent naval shipbuilding capability in this country. That is an historic decision and it will lead to the creation of a significant, permanent naval shipbuilding workforce in Australia—

Senator XENOPHON: But where? Where will the principal workforce be?

Mr Richardson : The government has committed to have a continuous build of the future frigates in Adelaide. That will be a continuous build of future frigates and the AWDs. That is a multibillion dollar—

Senator XENOPHON: The AWDs will be done by 2018.

Mr Richardson : Yes, but when we talk about a 'continuous build' of the future frigates we are talking about a continuous build of the future frigates and the AWDs—

Vice Adm. Griggs : They are major surface—

Mr Richardson : That is right: major surface ships. That is a multibillion dollar permanent investment in South Australia and will lead to the creation of a permanent skilled naval shipbuilding workforce in South Australia.

Senator XENOPHON: But it is going to go down to 100 by 2018 and then it will have to rehire, retool and reskill by 2020. Is that what is going to happen? That sounds like insanity to me, considering there are other builds. There are Pacific patrol boats, there are OPVs—

Mr Richardson : Decisions would have to have been taken some years back in respect of a variety of matters to avoid the situation that you point to—

Senator XENOPHON: The 'valley of death', as it is referred to.

Mr Richardson : As it is referred to—the 'valley of death'. Decisions needed to have been taken some years back. We have been conscious of that for some years and we have been consistent in our advice in relation to that particular matter.

Senator XENOPHON: Respectfully, Mr Richardson, I understand what you are saying about decisions having to have been made but there are decisions that can be made quite properly now in respect of the OPVs. We had the former Prime Minister saying that they will at least start in Adelaide. That would make a significant difference in respect of the valley of death at the ASC shipyards.

Mr Richardson : I have nothing to add.

Senator Payne: I refer you to the evidence of Mr Mark Lamarre to Finance estimates in February of this year where, as the CEO of ASC shipbuilding, he said:

Well, I would say that many of those job losses are unavoidable, irrespective of the start date for the OPV or decision round of the OPV … there is no avoiding the down ramp that we are on from this 1,400 we are at today.

I do not say that for any other purpose except for restating the fact. The fact that I would then reiterate beyond that is that what the government has indicated in relation to the announcements from 4 August last year in relation to the OPVs and the future frigates is to change our entire approach to this—to remove that project-by-project stop-start approach, which you spoke about earlier, to change the culture—

Senator XENOPHON: Which the government has spoken about.

Senator Payne: Yes, to do this work and to move into an environment where we work on enterprise shipbuilding and not just project to project.

Senator XENOPHON: But there is an issue that the OPVs will start in 2018—the cutting of steel will commence in 2018; correct? I appreciate the quote from Mr Lamarre, but he also went on to say that, in the absence of any other contracts, by the end of 2018 we will be down to 100 employees in the shipyard. I think a reasonable inference from that is that, if there was a contract in 2018 for the OPVs, that would prevent it going down to as low as 100 and there would be several hundred jobs saved.

Senator Payne: Senator, I know that that is your view. You have maintained that position. You have reiterated it here today. I have made it very clear that we are involved in a competitive evaluation process, which was instituted last year, and that evaluation process is going to run its course.

Senator XENOPHON: I think Mr Lamarre said that the OPVs were key to the—

The bells being rung

Senator XENOPHON: I think Senator Conroy is paired. I am not. I will try to work that one out. You are paired as well, aren't you?

Senator Payne: I am, Senator. I think we knock each other out, so to speak.

Senator CONROY: I do not know whether you are there or not will make any difference to the vote, if that helps.

Senator XENOPHON: I know, but—

Senator CONROY: I appreciate that you could be accused of not turning up.

Senator XENOPHON: You will give me an alibi?

Senator CONROY: I will give you an alibi.

Senator XENOPHON: Thank you. I do have some other questions that relate to the Parliamentary Budget Office, but I better find out what this vote is about. Excuse me.

Senator CONROY: Okay. I will jump in. I want to return to the major surface vessel continuous build program, of which the future frigates are the centrepiece. Several different formulations are used in the white paper when describing the future frigates and the continuous build program. For example, paragraph 4.115 states:

… a long-term continuous build of surface warships in Australia, involving construction of our future frigates and offshore patrol vessels in Australia.

Paragraph 4.116 states:

A continuous build of the Navy’s future frigates will commence in 2020.

When it comes to minor surface vessels a different formulation again is used, namely:

… a continuous build production line for smaller navy vessels.

For clarity, could Defence please outline what the continuous build program actually comprises? What exactly will we be continuously building?

Mr Richardson : It is, one, major surface ships and, two, minor surface ships.

Senator CONROY: To be clear then: when Defence talks about a continuous build of surface warships does that mean that each class of surface warship will be continuously built?

Vice Adm. Griggs : Not each class; each type.

Senator CONROY: Okay.

Vice Adm. Griggs : Major and minor—OPV being minor and frigate being major.

Senator CONROY: But is there a continuous build of both major and minor?

Mr Richardson : Yes.

Senator CONROY: But not each class of surface warship.

Mr Richardson : No. Well, are you—

Senator Payne: There is a difference between class and type.

Senator CONROY: That is why I—I am not trying to catch anyone out; I am just trying to be very precise.

Vice Adm. Barrett : That was the statement made earlier about the philosophy of continuous build. We do not stick to one class, which is usually project driven. This is about evolution of hulls, and there may be many classes built during the period of continuous build over many decades.

Senator CONROY: For clarity, what is the difference between a commitment to a 'continuous build of the Navy's futures frigates' compared with 'a continuous build production line for smaller navy vessels'? Why is one specific to a particular class of vessel and the other is across all smaller vessels?

Mr Richardson : I would say, for what is worth, I would not read anything into the difference in that wording.

Senator CONROY: I would say, I do. That is why I am offering you the opportunity to be specific.

Mr Richardson : Yes, I know. Both add up to a continuous build. It is, simply, different wording. When you are writing a document like that you will sometimes use different wording to mean the same thing. That is what that does.

Senator CONROY: Again, for clarity, when paragraph 4.116 refers to:

A continuous build of the Navy's future frigates…

Does that mean that future frigates will be built continuously—in other words, by the time the ninth future frigate is built the first of the future frigates will be replaced?

Mr Richardson : It is a continuous build of the future frigates of the—

Senator CONROY: Except when it is not.

Mr Richardson : major surface ships, which is the future frigates and the AWD.

Senator CONROY: I am quoting directly. It says:

… continuous build of the Navy's future frigates…

It is very specific. I am asking whether, by the time the ninth future frigate is built, the first of the future frigates will be replaced.

Mr Richardson : Yes, and we talked earlier about a drumbeat of around two years. That drumbeat could be 2½ years. Right?

Vice Adm. Griggs : I would say that you have to put the Air Warfare Destroyer replacement into that category; it is major surface ships. By the time of the end of the ninth frigate, you are starting to get towards the end of life of the Air Warfare Destroyer. You have to look at that continuous build of major surface combatants, including frigates and the destroyers.

Senator CONROY: I was just about to come there. I was wanting to understand whether continuous build of the Navy's future frigates referred to the future frigates or referred to a class. The language has moved around in different paragraphs so I am trying to understand. Does that mean that when the ninth future frigate is built, the first of the future frigates will be replaced? Is that a 'no'?

Vice Adm. Griggs : That is a no.

Senator CONROY: At paragraph 4.21 that Defence 2016 Integrated investment program states:

Three Hobart Class Air Warfare Destroyers will enter service by the early 2020s and will remain in service into the 2040s.

I am not sure you were with us, Vice Admiral Griggs, on 10 February; I just cannot remember. Defence's response to question on notice No. 85 from supplementary budget estimates on 21 October 2015 confirmed:

The contractually defined life of type for the AWDs is 35 years from Provisional Acceptance of the third AWD.

It also confirmed that provisional acceptance of the third AWD, the Sydney, was due in March 2020. Given a contractually defined life of type of 2055, for the AWDs, why does the Defence white paper only forecast the AWDs remaining in service into the 2040s?

Vice Adm. Barrett : Firstly, can I make a point. There is no contractual life for a vessel. Life of type is considered by the department, I would hope, on the advice of Chief of Navy about its ability to be maintained, sustained and used. If we were to retire a vessel early, because we sought to replace it or if it were too expensive to run or any of these issues came into account, that would be a decision made by the department not by some contracted arrangement with a commercial company. It is the planned withdrawal date that is important.

The second point is that I would refer you to the opening statement I made about our continuous build philosophy. What we are creating here in the frigate program is an industrial environment in which major surface combatants can be built within Australia. They may be a class that then evolves into a different class—they may be a frigate and then a destroyer, and then subsequently something else—and by having the ability to do that, it allows Navy, the department and government to make a decision on how it is going to choose to manage the planned withdrawal dates of its surface fleet based on what the demand, the threat, the capability actually is. There may be decisions made in the future that hypothetically you may only run the air warfare destroyers for 20 years. It may actually be more economical for you then to build a replacement at the end of the last of the last frigate program. So the philosophy of continuous build gives government and the department the ability to do that, and it gives industry certainty of continuing work.

Senator CONROY: I was reading from an answer from the department, which said the contractually defined life of type—I accept the points you have made—for AWDs is 35 years from provisional acceptance.

Vice Adm. Griggs : Senator, what that means is that the shipbuilder who is designing the AWD—it needed to be designed to have a life of type for 35 years. Whether we exercise that full life of type is another issue, and it gets down to design philosophy and all of those sorts of things that go into—

Senator CONROY: I accept that it gets down to a philosophy, but I would disagree with you, Vice Admiral. Philosophy is not, if I was a defence industry company, what I would make an investment decision on. I would make an investment decision on a costed, funded continuous build that I could see, not the philosophy or hope that a future government might morph something. Is Defence working on the assumption that AWDs would be withdrawn from service prior to their life of type—perhaps up to a decade or more before 2055? You have made the point that, yes, you might think about doing that. But I just want to be clear if that is what is in the thinking, that we are spending billions on these to retire them 10 years earlier than necessary.

Mr Richardson : I will add two other points. Firstly, precise timing will also in part be determined by the drumbeat in terms of the build of the Future Frigates. We talked about a rough estimate of two years. That may well be 2½ years; that may well be 2¾ years. It is just a little bit early to be dogmatic on that. That is why there is a bit of looseness around the precise timing. Secondly, some of the issues you have raised are spot on. They go to the naval shipbuilding plan, which—

Senator CONROY: Which has not been released yet.

Mr Richardson : No.

Senator CONROY: I am at a disadvantage to you all.

Mr Richardson : No.

Senator Payne: No, you are not—not in that way.

Senator CONROY: I hope you are not as disadvantaged as me, Minister; that would be a very frightening thing!

Mr Richardson : The questions you raise are quite legitimate, and they are some of the issues that are being worked through. But that, combined with the precise drumbeat—particularly the precise drumbeat—is a variable that we cannot be certain about at the moment, and that could add a number of years to the timing estimates that you talk about.

Senator CONROY: I appreciate the drumbeat issue, but the drumbeat for the frigates is fairly straightforward. Everyone says it is two years, unless you want one to go slower. So we know when the last frigate is going to be built. What I am trying to understand is there is a gap that is created. We had a bit of a discussion about it last time; we had a sort of 'known unknown' or 'unknown unknown' conversation with the CDF I think.

Senator Payne: When you say, 'We know when the last frigate will be built,' that is not the evidence that—

Senator CONROY: Sorry, I am just reading from the white paper.

Senator Payne: But in terms of the discussion—

Senator CONROY: I am taking the white paper as evidence.

Senator Payne: I know what you mean, but we have just been explaining the process by which these analyses and decisions are made, and Vice Admiral Barrett, Vice Admiral Griggs and the secretary have gone through that with you. The development of the naval shipbuilding plan is an important part of that for this year. I know you said you are at a disadvantage, but this is an iterative process following on from the white paper and the Integrated Investment Program.

Senator CONROY: I am just reading from page 89 of the Defence Integrated Investment Program.

Senator Payne: I know. I have it in front of me.

Senator CONROY: It says the future frigate build will be ending by 2040. I can only go on what is in the white paper and the investment program.

Senator Payne: I understand that, but what both Vice Admiral Barrett and Vice Admiral Griggs have explained to you—and the secretary, for that matter—is the process by which these decisions are made.

Senator CONROY: I appreciate that. I think at the last discussion—and my office can probably flick me the Hansard—it was a question of there being a gap between the end of the build of the frigates and what we are defining as the contractually defined life of type of the AWDs, and it is a fairly substantial gap. It is not as if it is a year or two; it could be five, six, seven or eight years. So I am trying to understand not just the philosophy but the practical impact. If I were a defence industry, I would be looking at what is quite clearly a major gap where there is no funding in the investment component. I appreciate I have not seen the Defence shipbuilding plan at the moment, but my problem is that there is a large gap there. Unless you say, 'No, we are going to make a decision that we are withdrawing the AWDs in the early part of the forties so that then we can start the cutting a couple of years ahead of that first one going out of service,' we have morphed something into something else. I get the philosophy behind that, but I am trying to operate on a practical basis: who has put funds in and what has been costed for? None of that has been given the same stamp of being fully funded and fully costed—'It's in the white paper; this is the most comprehensive.' Those parts do not fall into that category.

Vice Adm. Barrett : I understand. The point that we have made, though, is that there are some aspects that are not yet solidified. They are within the competitive evaluation process that will occur for both future frigate and for OPV but have not yet been concluded. As part of that, we will have determined the capacity of designer and builder to meet the drumbeat that we are assuming will be the case. There will also be considerations, when we look at that, of the design philosophy and how long we would expect to run those frigates, all of which will have an impact on the future consideration here. But what we have said, in the fact that we enter a continuous build program—and it is a program, not a project—and the fact that it is a philosophy, is that we are suggesting to industry—I will not say 'guarantee'; well, we are guaranteeing industry—that there would be a continuation and those aspects will be married up so that we are able to sustain an enduring shipbuilding program. Some of this is made in the absence of all the information that is not yet available because—

Senator CONROY: Okay. As I said, I am at a disadvantage, so I am just doing a bit of maths and working my way through. I take the investment plan very seriously, because that is concrete.

Vice Adm. Griggs : But the other part of this is that it is very clear, on the first page of the executive summary of the white paper, that the focus of this white paper is out to 2035, so to talk about gaps in a period 10 years beyond the end of the focus period of this document, I think, is—

Senator CONROY: RAND identified it.

Vice Adm. Griggs : Why would you expect to have, 10 years beyond the period of focus of the document, a solidified plan? I think the Chief of Navy has explained it very clearly.

Senator CONROY: No, it is just that perhaps I would not—and I am not referring to you here—overcook this as a continuous plan indefinitely that means everyone can be certain. It is some of the rhetoric around it. I am struggling to match the rhetoric with the substance in the white paper. It is the political rhetoric and promises made—not by you—to people in Adelaide that do not eventuate. I am just trying to match the political rhetoric and the white paper. And you are now saying, 'There's more information still to come and you'll get a better understanding of it when you get that information.' I accept that that is a reasonable position to take, but I am just trying to match up public statements, white paper documents and now some extra evidence which says, 'You haven't quite seen the whole picture yet, Senator.'

Senator Payne: And a naval shipbuilding plan is underway.

Senator CONROY: It is on the way—sometime in the second half of the year?

Senator Payne: It is in development.

Senator XENOPHON: Maybe I am missing something obvious here but we know what Defence said back in 2013 about continuous build and the benefits to that. I do not think that is in dispute. I think what may be in dispute is whether it is best done in one location, at a centre of excellence and efficiency. Mr Richardson, does it make more sense to have one place where you do the shipbuilding, providing it has the capacity, in order to drive those efficiencies and one centre of excellence where you have a continuous build and not stop/start?

Mr Richardson : Are you talking about all shipbuilding?

Senator XENOPHON: Is there a view that it should be 100 per cent in one location—or 80 per cent or 70 per cent? What should the split be?

Mr Richardson : We do not have such a view. We do agree, however, that a continuous build strategy would be difficult to manage over multiple shipyards. Clearly, a lower number make sense.

Senator XENOPHON: Yes, and I appreciate that. But maybe I have missed something really obvious here. It is not okay to announce an OPB build location prior to the completion of the CEP. Is that right?

Mr Richardson : Yes. We have nothing further to add to what we have already said.

Senator XENOPHON: But it is okay to announce that the future frigate will be built in Adelaide without the CPB being finalised?

Mr Richardson : That is what the government announced in August last year.

Senator XENOPHON: I am very pleased that they made that announcement—

Senator Payne: Sometimes it is hard to tell that you are very pleased. I am glad you have put that on the record.

Senator XENOPHON: Do I come across as being that miserable?

Senator Payne: I would say from time to time you are a glass half empty.

Senator XENOPHON: It is how I am. Sorry about that.

Senator Payne: You have the burden of the world's troubles on your shoulders! I understand.

Senator XENOPHON: That is right. That is why I have bursitis in one of my shoulders!

Senator Payne: I thought it was your tennis arm!

Senator XENOPHON: So it comes down to a decision of the government of the day?

Mr Richardson : Yes, as it should be.

Senator XENOPHON: But you do see an inconsistency between saying, 'We can't tell you where the OPBs will be built but we can tell you where the future frigates will be built'?

Mr Richardson : I do not see an inconsistency in that.

Senator Payne: Different ships, different programs.

Senator XENOPHON: That is almost a slogan! Will there be a breakdown as to whether the future frigates will be entirely built within South Australia? What proportion of the build will be in South Australia? You might want to take this on notice. I am trying to establish what proportion of the—is it $9 billion for the future frigates? Someone help me out here.

Senator Payne: For the frigates?

Mr Richardson : It is about that.

Senator XENOPHON: Sorry, it is $9 billion for the OPBs and $30 billion for the frigates.

Mr Richardson : Yes.

Senator Payne: See why you didn't choose me!

Senator XENOPHON: So it is $30 billion for the future frigates. Given that the announcement has been made that they will be built in South Australia, what proportion of the work will be done in South Australia? Obviously they would be importing some combat systems, but what proportion of that would be built in South Australia? Is that yet to be determined? Presumably there are other shipyards around the country that might also be involved in the project.

Mr Richardson : I cannot answer that in precise terms. However, it is my understanding that the very great bulk of that work is in South Australia—

Senator XENOPHON: What is your definition of 'great bulk'?

Mr Richardson : It is my understanding that they are going to be built in South Australia—

Senator CONROY: Which area of South Australia?

Mr Richardson : and that is going to be the great bulk of the work. Beyond that, do not ask me to define that. That is certainly my understanding and I have seen nothing that would vary that. I know that I have said this before: South Australia is receiving a multibillion dollar investment which is going to lead to the creation of a permanent naval shipbuilding capability and workforce in South Australia.

Senator CONROY: But having to be rebuilt if the first two OPVs—

Mr Richardson : No, Senator—

Senator CONROY: Yes! ASC are laying off the workers right now.

Mr Richardson : We have been through that. Do you know why that is? It is because decisions were not taken when they were meant to be taken—

Senator CONROY: Because two supply ships were sent overseas.

Senator Payne: No, Senator.

Mr Richardson : Because decisions were not taken when they were meant to be.

CHAIR: Let's just have one conversation. Secretary, complete your answer.

Mr Richardson : I might just say that in relation to the two supply vessels, that would not have relieved the problem that you point to. That is a furphy.

Senator CONROY: It is awfully kind of you to disagree with the South Australians, but that is your opinion—as opposed to the industry experts, which you continually tell me that you are not.

Mr Richardson : I am certainly not. I simply exercise some common sense, and I have nothing to sell.

Senator CONROY: So they are just slick oil salesmen are they?

Senator XENOPHON: You may want to take this on notice because I know, Minister, you made reference to the Defence Teaming Centre and that Mr Chris Burns made reference to this back in August last year: the Defence Teaming Centre undertook an analysis that showed that South Australia could get just $8 billion of the promised $39 billion for surface shipbuilding. I am very happy for you to take that on notice, but that does indicate a fairly small proportion of that.

Senator Payne: I think you have referred to that before, Senator. If I thought you were glass half-empty, it has nothing on that analysis.

Senator XENOPHON: So you are calling me an optimist now?

Senator Payne: Well it is a chameleon-like environment, the politics of the Senate, isn't it, Senator Xenophon? I did indicate in the chamber today that I thought Mr Burns's comments in relation to the naval shipbuilding plan, which I saw published this morning, were in fact very relevant and I think you will see I endorsed them.

Senator XENOPHON: I am just trying to establish whether Defence is able to refute that—

Senator Payne: I will take that on notice because, obviously, I was not in this role at the time. I will take that on notice and come back to you.

Senator XENOPHON: Sure, I appreciate that. I just want to go very quickly to the PBO before Senator Conroy's other questions. I made a request to the Parliamentary Budget Office for an analysis of the defence white paper cash flow. I requested that they conduct a budget analysis of the defence white paper and the costings in relation to cash flow. I attached the defence white paper Integrated Investment Program, which provided a total rough order-of-magnitude cost for each capability program, but gave no details of the temporal allocation of funding other than across decades. I asked them to undertake an analysis. I got a response back from the PBO on 16 March, saying that the Department of Defence has advised that the information that underpins the DWP, the defence white paper, including program-level expenditure estimates is both cabinet-in-confidence and commercial-in-confidence and cannot be released.

Then, from a follow-up from my office to the Parliamentary Budget Office, the information we got back was that most agencies are extremely cooperative with the PBO. Defence has been in the past. I am just trying to understand why, in terms of the temporal allocation of these billions of dollars, there is so much 'vagueness' for want of a better word—there is just a lack of specific detail.

Mr Richardson : For the reasons stated, cabinet-in-confidence and commercial-in-confidence.

Senator XENOPHON: We are going to find out eventually, aren't we?

Mr Richardson : At some point.

Senator CONROY: Which part is cabinet-in-confidence? I am conscious of what Senator Xenophon is seeking. I understand that Senator Xenophon is not seeking to have any individual number published, so what is cabinet-in-confidence about an assessment of a flow of numbers?

Mr Richardson : The material asked for was both cabinet-in-confidence and commercial-in-confidence.

Senator CONROY: My understanding from what Senator Xenophon has explained, no-one is looking at publishing any serious dollar value attached to any individual project. That is right, isn't it, Senator Xenophon?

Senator XENOPHON: That is right. I am just trying to get—

Mr Richardson : I have nothing further to add.

Senator CONROY: But you cannot claim cabinet-in-confidence, because no-one is trying to publish anything. If you just classify every document in government now as cabinet-in-confidence, PBO cannot have it.

Mr Richardson : No, that is not the case at all—

Senator CONROY: It is a good starting point.

Mr Richardson : In fact, we take our responsibilities in relation to that office very, very seriously and we seek to provide as full information as we can. On this occasion, we could not for the reasons I stated.

Senator XENOPHON: The information directly back from the PBO was: 'Most agencies are extremely cooperative with the PBO. Defence has been in the past.' The logical extension of that is that you are being uncooperative in relation to where these billions of dollars will go.

Mr Richardson : If that is their view, that is their view.

Senator XENOPHON: No—I do not want to verbal them. They said, 'Most agencies are extremely cooperative with the PBO. Defence has been in the past.'

Mr Richardson : And we remain cooperative.

Senator XENOPHON: Not on this one.

Senator CONROY: I think we must have a different definition of 'cooperative'.

Mr Richardson : You can be cooperative, but that does not mean that occasionally you are unable to meet a request that someone makes.

Senator CONROY: Refusing to provide any information on the most substantive document the government has produced in the portfolio probably, I think, goes beyond the bounds of a very reasonable question. It is not like Senator Xenophon has asked the PBO to publish the information that they have sought.

Senator XENOPHON: No, I have not.

Senator CONROY: In fact, it is the opposite: Senator Xenophon has not asked for it. PBO simply want to make a calculation using information to answer Senator Xenophon's question, and even they are quite surprised at the reaction of the minister. Do you think it is reasonable for PBO not to be able to gain access to material, even when they are not going to publish it?

Senator Payne: I was not aware of the exchange with the PBO, so I will have a look at that and will make a response on notice.

Senator CONROY: It is an odd one.

Senator XENOPHON: I have a number of questions to ask on combat system costs contained in the Defence white paper. I asked for Mr David Cochrane to be here. I am very happy to wait. I just want to foreshadow that I did specifically ask for Mr Cochrane.

CHAIR: We have an hour, so you need to work it out between yourselves.

Senator XENOPHON: I am in Senator Conroy's hands. If he wants to continue—

CHAIR: A courageous place to be, Senator Xenophon, but that is all right.

Senator CONROY: Every now and then he is a wise man. I have a couple more questions on this before I go on to submarines. The questions are probably a little bit repetitive on shipbuilding jobs. In paragraph 1.114 of the white paper it states:

The acceleration of the future frigate and offshore patrol vessel projects will sustain around 1,000 jobs over the next few years, as the Air Warfare Destroyer project winds down and the preliminary work on these two shipbuilding projects is undertaken ...

At additional estimates on 9 February, Mr Mark Lamarre, the Chief Executive Officer of ASC Shipbuilding, was asked what ASC's shipbuilding workforce, excluding submarines, is projected to be at the end of 2018 in the absence of any substantive OPV work, and Mr Lamarre said, 'Under 100.' Under 100 is a lot less than 1,000, Mr Richardson. No-one is selling anything here, so how does Defence substantiate its claim in the white paper that it will sustain around 1,000 jobs over the next few years if the ASC, the company itself doing the work, is projecting it will be down to under 100 workers? Where are the 1,000 jobs that will be sustained? Are they shipbuilding jobs?

Mr Richardson : Is this OPVs?

Senator CONROY: No. In the white paper it says, '… future frigate and offshore patrol vessel projects will sustain around 1,000 jobs over the next few years …' But ASC say that unless they get OPV work they will be down to fewer than 100 workers. So how do you sustain a claim on the public record of 1,000 jobs?

Mr Richardson : I think the bring forward of the future frigates and the bring forward of the OPVs—there is design work; I am not across the detail of it but Mr Nicholl might have the detail—

Senator CONROY: But you cannot commit that the OPV works are going to be in Adelaide. Unless you are prepared to state here and now, and then I will accept it—

Mr Richardson : It does not say 1,000 jobs in Adelaide.

Senator CONROY: Oh. Senator Xenophon, did you hear that? One thousand jobs that are projected, over the next few years, as the Air Warfare Destroyer Project winds down and the preliminary work on these two shipbuilding projects is undertaken. They are not guaranteed Adelaide jobs.

Senator XENOPHON: It does not sound like a continuous build then, does it?

Mr Richardson : It is a continuous build.

Senator XENOPHON: But just in different locations.

Mr Richardson : No.

Senator CONROY: So are those workforces all going to be made to move to Perth? There is no way that, if they start in Adelaide, they are going to finish in Adelaide. That is agreed. So you are going to pick the workforce up—

Senator Payne: Senator, you cannot go around saying things like 'that is agreed' as a proposition back to the officers at the table.

Senator CONROY: It is a statement that is based on a whole range of other statements.

Senator Payne: You are agreeing with yourself—

Senator CONROY: No, I am pointing out that—

Senator Payne: which is probably greater unanimity than you usually get.

Senator CONROY: I come to excellent agreed decisions.

CHAIR: Secretary, you had a point you wanted to make.

Mr Richardson : The minister has already stated that, in respect of the OPV decisions, they will be made in the context of the CEP. They are yet to be taken. So some of your assertions are based upon assumptions which may or may not be borne out.

Senator CONROY: No, I am asking you to substantiate your assertion in the white paper, which says, 'The acceleration of the future frigate and offshore patrol vessel projects will sustain around 1,000 jobs.' I am now asking you to point to them.

Mr Richardson : Yes, and I think that statement is accurate.

Rear Adm. Dalton : I think if you look at the Air Warfare Destroyer Program, where the new ship Sydney is designed to be complete and then you look at when we need to get into contract to achieve a cut steel for the OPV in 2018, that needs we need to be in contract for the OPV at the beginning of 2017. To cut steel for the future frigate in 2020 we will need to be in contract by the middle of 2018. So there will be a range of design activities, facilities activities, a whole range of other activities that need to happen ahead of cutting steel. If you go across all three of those programs—air warfare destroyer, offshore patrol vessel and future frigate—I think you can see that there will be a workforce that is sustained across that period.

Senator CONROY: I did ask earlier and you were not at the table, so hopefully you were not paying attention, but I said, 'Are they shipbuilding jobs?' You are indicating they are not shipbuilding. The people doing the design and the build are—last time I checked, I have met a few—different people.

Rear Adm. Dalton : It is a shipbuilding industry, Senator.

Senator CONROY: I am referring specifically to the ship building part of it—not the broader definition—

Senator Payne: You are inserting that—

Senator CONROY: No, I am being fair. I am defining what I mean when I say 'shipbuilding'—which could have a different meaning. I am being fair. What I am trying to understand is: the poor blokes I was talking with yesterday, from Adelaide, are hanging their hats on a statement that says, '1,000 jobs in Adelaide'. These are the guys—

Rear Adm. Dalton : I do not think it says 1,000 jobs in Adelaide.

Senator CONROY: No, it does not, but they are hanging their hats that is referring to 1,000 jobs in Adelaide.

Senator Payne: I am not sure you can hold Rear Admiral Dalton responsible for that interpretation, Senator.

Senator CONROY: No, but what I am asking for is an explanation of the comment made by Mr Mark Lamarre, the Chief Executive Officer of ASC Shipbuilding, who said that, unless he gets the OPV work, there will be under 100 people in shipbuilding by the end of 2018. It is pretty straightforward.

Senator Payne: I presume you disagree, then, with your leader, who said on 4 August 2015, in relation to that contract:

This naval shipbuilding contract, this money should go - these resources should go to Australian shipyards, not just in Adelaide but throughout the nation, they should be based upon prioritising Australian jobs in the national security of Australia.

I do not necessarily agree with Mr Shorten either, so I can understand that you might not hold the same view as he does, but you and I both know that what you are doing now is not an accurate representation of what is in the white paper, and you are trying to make an interpretation which is not fair.

Senator CONROY: I appreciate you want to distract from the fact that the former Prime Minister of Australia took the cabinet—which you were not part of, to be fair—to Adelaide and stood up, on radio—

Senator Payne: Not for the want of trying, Senator!

Senator CONROY: That is a very fair point!—and three times on the floor of the parliament, and said the OPVs would start in Adelaide. I am simply trying to ensure that that promise that was made is kept. Mr Shorten is not relevant at this point.

Senator Payne: On so many levels.

Senator CONROY: Mr Abbott's promise is the commitment of the government. It has been changed. The CEO of ASC, taking a white paper and the tender process on face value that it does not guarantee jobs in Adelaide, has made it very clear that unless the OPVs are in Adelaide there will be fewer than 100 shipbuilding jobs. They are his words, not mine.

Senator Payne: I do not think that you were in the room when I quoted earlier from Mr Lamarre, where he said—

Senator XENOPHON: What page, Minister?

Senator Payne: From Hansard. I do not have the page, I am sorry, but I will obtain it for you. I think I said this to you before, Senator, where he said, in Finance estimates in February of this year:

Well, I would say that many of those job losses are unavoidable, irrespective of the start date for the OPV or decision round of the OPV … there is no avoiding the down ramp that we are on from this 1,400 we are at today.

I do not say that because that is a good thing. I in fact say that with a reasonable degree of frustration, because I would not be in the process of running competitive evaluation processes for future submarines, OPVs, future frigates, supply vessels and Pacific patrol boats if one single order had been placed with an Australian shipbuilding company in the entire term of the previous government. That is not what we would be doing now. We would be having a very different conversation. But, unfortunately, this is the conversation we are having.

Senator CONROY: Let us be very clear. I know Mr Richardson will jump in and try to pretend that he is an expert in how you expand the Techport facility but, when ASC made an unsolicited bid, when the CEO at the time said, 'We can expand Techport; we could have done it if an order had been placed'—as we said we would before the last election, for supply vessels that an Australian company could have tendered for, Techport could have expanded for two years to do that and would have been in place in time for those supply vessels, after the 20 months that you have taken to solve that. That could have merged together quite nicely. He was very clear about how it could be done. He may just be a seller, Mr Richardson, but he was prepared to put his money on the line. I was going to move on, Senator Xenophon.

Mr Richardson : I can only say that is not consistent with the continuous professional advice that I have seen.

Senator CONROY: The ASC made an unsolicited bid, did they not, Senator Xenophon?

Senator XENOPHON: That is my understanding. I think BAE, in Victoria, did as well.

Senator CONROY: Absolutely. So let us be clear.

Rear Adm. Dalton : Senator, at the risk of opening this up further—

Senator CONROY: Please; I was about to move on!

Rear Adm. Dalton : Mr Gillis, on his arrival, reached out to industry, following the first principles review and what is evident in the white paper and the defence industry policy statement about industry becoming a fundamental input to capability. We have already had two shipbuilding forums that have embraced all of the shipbuilding leaders in Australia, which is quite unusual; in fact, it is unprecedented. The most recent of those was held on 24 February, and the advice that we consistently get from those shipbuilding leaders in Australia is that the trajectory that we are currently on a SEA5000 to cut steel in 2020 is achievable but aggressive. The trajectory to cut steel on OPV in 2018 is achievable but also aggressive.

We did talk to them about facilitates as well and they introduced another term, which is a precursor to cutting steel: they talk about pouring concrete. The facilities element that you need to put in place to achieve those shipbuilding start dates is actually quite significant as well. That predates the cutting steel date by up to 12 months and that is the advice that we get from those professional shipbuilding leaders in Australia. So I think that the way that it has been set up is as aggressive as you can possibly make it.

Senator Payne: Senator Xenophon, page 19 Tuesday 9 February Finance and Public Administration Legislation Committee estimates is the reference point for Mr Lamarre's statement in relation to the matter we were discussing a moment ago.

Senator XENOPHON: Thank you. That goes to 900 but, if I can take you, Minister, to page 9 of the estimates—

Senator CONROY: Exactly.

Senator Payne: I do not have the whole Hansard with me!

Senator CONROY: It is called selective quoting.

Senator Payne: You would know, Senator, because you were a past master.

Senator CONROY: I have learnt everything I could from you!

Senator Payne: Senator, you quote off the back of drink coasters of Vic lights to create an entire national broadband network, so do not even try that with me.

CHAIR: We are going nowhere with this. Senator Xenophon, do you have more questions before we go to Senator Conroy?

Senator Payne: How observant of you, Chair.

Senator XENOPHON: To the minister—and, again, hopefully, it is not selectively quoting; I am not suggesting Senator Conroy was either.

Senator Payne: Can I borrow senator Conroy's copy of finance and public administration.

Senator XENOPHON: He has probably got a special copy.

Senator Payne: I am sure.

Senator XENOPHON: In answer to a question from Senator Wong to Mr Lamarre at the bottom of page 9, Senator Wong says:

So that is assuming where the workflow ends up , or how the workflow plays out, in terms of the Air Warfare Destroyers, and, assuming the continued sustainment of the Collins submarines.

Mr Lamarre : I am not commenting on Collins-class submarines, just on shipbuilding.

Senator WONG: Leave that to one side. In terms of the shipbuilding side of the business, you would anticipate a small workforce by the end of 2018. What are we talking about?

Mr Lamarre : Under 100.

Senator WONG: What is your current workforce?

Mr Lamarre : We are at 1,400 right now.

Senator CONROY: And down since then.

Senator XENOPHON: That is right: about 100 or so. I am just trying to fairly put the context to that conversation in terms of shipbuilding. Senator Wong asked at page 10—some mention was made to submarines earlier:

I understand that. That is why I am asking. I just want to get clear on the public record what the assumptions are: so, no OPV involvement; no decision at that point on the frigates?

Mr Lamarre : Even if there were a decision on frigates it is my understanding that we would not start fabrication until 2020.

Senator WONG: To put it simplistically, if there is not any engagement or involvement by ASC in the OPV work, you will see, potentially, very substantial job losses in the shipbuilding side of ASC.

Mr Lamarre : That is correct.

I am trying to give you a fair context to that. That is what I am worried about in respect of that.

Senator Payne: I understand that, Senator Xenophon; so am I.

Senator XENOPHON: We are both worried. Now you are the glass half-empty person.

Senator Payne: No, mine is half full.

Senator XENOPHON: I have got some questions on combat systems but I will not say I am in Senator Conroy's' hands, because that is always dangerous.

Senator CONROY: Now you have got to stop being intimidated by the chair. You said you were fine to be in my hands before.

Senator Payne: I do not want to know, if you don't mind.

Senator CONROY: Thank you. I want to move onto one of Senator Xenophon and my favourite topics: submarines. The white paper states that the acquisition of the 12 future subs will commence in 2016. Why did Defence determine that 12 future submarines were required? Vice-Admiral Barrett—Dennis has run away; he has had enough.

Vice Adm. Barrett : Again, as I said in my previous answers on justifications for OPV and for Future Frigates: the white paper details the strategic circumstances that we will find ourselves in the period covered by the white paper indicating the need for a strong deterrent capability within the Australian Defence Force. It highlighted changes in regional submarine numbers across all nations—Indonesia, Malaysia, Vietnam, Singapore, China, Russia and a range of countries. There was a deliberation around where and how our submarines needed to operate distant from the Australian mainland and where their focus and attention would be. As a consequence of that, the analysis formed that a long-range submarine that had a stealth capability and a combat capability that was greater than Collins was now needed. In terms of the numbers, without going into all the detail of how those numbers came about, the following was taken into account: the transit distance to be covered, the ability to be on station for set periods of time and the concurrency that might be needed by submarines. As a result of those considerations, the number that is represented in the force structure is 12.

Senator CONROY: That analysis is very consistent with the 2009 and 2013 white papers in terms of our strategic needs. Is that fair?

Vice Adm. Barrett : Yes.

Senator CONROY: There was 12 in 2009, 12 in 2013 and 12 in 2016.

Vice Adm. Barrett : I think it was specifically commented on in both. Yes, it was.

Senator CONROY: The white paper states—and you have just explained—some of the key strategic requirements for the subs, including range and endurance similar to, or perhaps exceeding, Collins. I want to refer to an article on ASPI's The Strategist blog entitled 'Mission creep and the SEA 1000' by Brian Toohey on 10 March 2016. He says:

… no government has ever given a substantive explanation for why Australia is embarking on the highly complex and expensive task of acquiring huge, conventionally powered submarines. Instead, all assert that Australia requires much bigger subs than the existing Collins class and the Oberons …

Would you like to respond to that? I know you did a little bit, but you might like to give a slightly more fulsome response.

Vice Adm. Barrett : Firstly, I would say that, with the increasing availability of the current Collins class, the roles that it is performing at the moment are in accordance, I believe, with the original requirements—because there has been a significant improvement in availability. It is conducting roles which are very similar to those justified in the white paper for what the future submarine would be. The requirements in the latest white paper refer to improvements in its stealth and its 'competitive advantage', if I can use that term, but uses similar characteristics for its endurance and its range et cetera. The issue I take from that is the justifications we have previously used, and the demonstration now of that capability to meet government's requirements, are sufficient to be able to indicate that the type of submarine that we have characterised in the white paper is still needed.

Senator CONROY: To some degree, from what Mr Toohey was arguing I took it that he believes that smaller subs should have been considered. Could you respond to that. Why didn't we go for smaller subs?

Vice Adm. Barrett : I think I have responded, by saying that the submarines that we have operated in the past, and currently operate with Collins, have demonstrated their utility to government as a strategic deterrent of sufficient veracity that the government has agreed in this white paper to continue submarines of that size.

Senator CONROY: I want to have a discussion on the confusion around the delivery date of the future submarines. The white paper stated:

The acquisition of the 12 future submarines will commence in 2016 with the first submarines likely to begin entering service in the early 2030s.

However, I refer to the Abbott government's previous delivery date for the future submarines, as outlined in an official press release on 20 January 2015 by the former defence minister Kevin Andrews, which says:

We need the best possible submarine to protect our trade and support our maritime security. It must be delivered in time to avoid a capability gap in the mid-2020s when the Collins Class submarine is scheduled to be retired from service.

Given that the former Prime Minister and the then defence minister committed to future submarines being delivered in the 2020s, why has the government changed the delivery date to the early 2030s?

Mr Richardson : There are a couple of points on that. As I have previously put on the public record, our consistent advice has been that it was unwise to seek to speed up the design and build process of the future submarines and that almost certainly there would need to be a life extension of the Collins. We have retained that same advice over the last three or more years. The risks of speeding up the design and build of the first of the future submarines far outweighed the risk of extending the life of Collins.

Senator CONROY: It sounds like Minister Andrews has been foolhardy in those statements. You must have given him the same advice as you are saying.

Mr Richardson : I am not making any such comment. I am simply repeating—

Senator CONROY: But you are not denying that Minister Andrews made those statements?

Mr Richardson : I am simply repeating what I have previously put on the record.

Senator CONROY: But you are not denying that the government position as stated by the minister was as I have described?

Mr Richardson : I am simply repeating what I have put on the record in the past. Our advice has been consistent.

Senator CONROY: I am sorry to do this to you, Vice Admiral. I think I saw a press conference where comments similar to the ones I have described were made. You were standing next to the minister at the time, when he talked about the dates. You are standing right there. Did you kick him in the ankle when he said it? Did you pull him aside afterwards?

Senator Payne: Senator, you know that is not appropriate.

Mr Richardson : It is not uncommon for ADF leaders and sometimes other people to take part in a press conference. I would not read anything into the Chief of Navy—

Senator CONROY: I not reflecting that the Chief of Navy should not have been there.

Mr Richardson : You cannot read anything into the Chief of Navy fulfilling his professional responsibilities in terms of being at such a press conference.

Senator CONROY: I was not in any way. I would expect you to be there. I am just making the point that I think I saw similar types of words that I have described in the press release coming out of the mouth of the Prime Minister and the minister at the time. Defence officials were standing there.

Mr Richardson : You cannot read anything into that, regardless of what some people attempt to do.

Senator CONROY: Just referring to who I think you are referring to, Mr Richardson, there was an article by Greg Sheridan where he says that both the Germans and the French could supply the first sub by the late 2020s. Is it accurate that the participants in the competitive evaluation process indicated they would be able to deliver the future subs—

Mr Richardson : I will make no comment in respect of any matter which properly resides inside the competitive evaluation process.

Senator CONROY: I am just confused. It seems that—

Mr Richardson : In relation to Mr Sheridan's article, I would note that he quotes what he says was an earlier draft of the white paper on delivery of the first of the future submarines in the late twenties. Then the white paper as published has in the early thirties. That could be a difference between 2029 and 2030.

Senator CONROY: Good try!

Mr Richardson : It could be. It is not a question of a good try. If you read the two quotes, that is precisely what it could be.

Senator CONROY: It could be 31 December 2029 and it could be 1 January 2030. You are right.

Mr Richardson : I did not go that far. However, the early thirties has been put into the white paper as what we thought was prudent. It may be 2029, it may be 2030, it may be 2031, but we thought it was more prudent to put in the early thirties.

Senator CONROY: It does cast a light on the process that could be described as potentially unfavourable. You and I have been through a process that blew up, Mr Richardson, so I know you are very, very proper about these things. It has been stated that two of the bidders could meet the mid-2020s and one cannot. Suddenly the date is changed. If you are into conspiracy theories—I know you are not—it could look like you were trying to favour one bid.

Mr Richardson : Firstly, I will not comment about that which resides within the CEP. Secondly, in terms of claims like that, I would be a touch sceptical. I will say no more than that.

Senator CONROY: Some people say they have access to a draft copy of the white paper, which says one thing. I can only ask questions about what I read in the papers.

Senator Payne: Actually, that is not true, Senator Conroy. You could ask questions about the white paper that was released.

Senator CONROY: I am. I am comparing what is claimed was in it before you became the minister and what is says afterwards.

Senator Payne: I think I said to you before that you might want to be careful about believing everything you read.

Senator CONROY: I take The Australian as gospel. I get up in the morning and I pick it up—

Senator Payne: Do you realise that you just put that in Hansard?

Senator CONROY: I know Hansard cannot see the smile, but I know that everyone reading the Hansard in future—

Senator Payne: Rupert Murdoch will be so pleased with you!

Senator CONROY: We will also have good chuckle in the same way as you are right now, Minister. I wanted to ask some questions about the time line for the government's competitive evaluation process the Future Submarine program. I refer to some comments by senior minister Senator Simon Birmingham on 2 March this year on South Australian radio station ABC 891. Senator Birmingham said the following about the future submarines:

By the time we go to the next election it will be crystal clear whose design it will be, who the international partner will be, how and where they will be built.

Is Senator Birmingham accurate? Will it be crystal clear who the international partner will be before the next election?

Senator Payne: I have not seen those comments, but I can say what I have said before: the CEP process is underway and a decision will be made in 2016.

Senator CONROY: At budget estimates on 21 October Mr Richardson said:

We invited entities in Japan, France and Germany to come forward and respond to certain terms of reference in respect of being a potential design partner for Australia in the Future Submarine program. The material from those three entities is scheduled to be with defence by or on 30 November—

which I think was achieved—

and a decision will be made in respect of that material over the course of the first half of 2016.

Minister, is it still the case that the decision will be made in the first half of 2016

Senator Payne: I am sorry, Senator. I have consistently said that the decision will be made in 2016.

Senator CONROY: So the decision could be made in the second half of 2016?

Senator Payne: No. I did not think that was difficult to understand. I have consistently said the decision will be made in 2016.

Senator CONROY: I am just pointing out that Mr Richardson indicated the first half of 2016, and now the government has decided that it could be any time in 2016.

Mr Richardson : It is a bit like a game of chess, Senator.

Senator CONROY: I promise I will never play you at chess.

Mr Richardson : A minister always beats the secretary.

Senator CONROY: I certainly would not put any money on it. You would have two queens, three horses and four bishops, and I would not even notice.

Senator Payne: That is very self-deprecating of you, Senator.

Senator CONROY: I refer to a press conference on 20 February 2015 by the former defence minister, Kevin Andrews, where he promised 'the creation of at least 500 new high-skilled jobs in Australia from the construction of the future submarines.' When I asked about this in Senate question time on 3 March this year, Minister Payne said, 'Those jobs are starting now.' Minister, could you elaborate on where those 500 new jobs are starting?

Senator Payne: I was referring to the work which relates to the build phase, including combat system integration, our design assurance and our land based testing—at least, as I said, 500 new high-skilled jobs. That process—

Senator CONROY: We did all of that. That was all stuff that we did. What about what you are doing—500 new jobs that you are creating?

Senator Payne: That process is underway for this year, and that is what I meant by 'now'.

Senator CONROY: Ha, ha, ha! Those jobs have been underway for a while. You said new jobs are starting, so where are the new jobs starting from when Minister Andrews made that announcement on 20 February 2015? Where have they been started since 20 February 2015?

Senator Payne: Sorry, I thought you were claiming they were yours. Now you are giving them away to someone else.

Senator CONROY: No, I am saying that Minister Andrews claimed 500 new jobs. Of what you have described, some of those jobs already exist and have existed for a while. I am asking you where the new jobs have been created since 20 February.

Mr Richardson : We in fact are in the process of recruiting a significant number of additional people, particularly in the design area, and quite a number of those jobs will in fact be in South Australia.

Senator CONROY: Could you give me a definition of 'significant number' and 'quite a few in South Australia'. Can you give me some breakdowns there. Is it 36?

Mr Richardson : No.

Senator Payne: If you want details, we will take that on notice. We have that detail.

Mr Richardson : But we are talking around 100.

Senator CONROY: Where are they around? Is it the 36 in Adelaide that were announced a week or two ago—last week?

Mr Richardson : No.

Senator CONROY: They are separate?

Mr Richardson : Absolutely.

Senator CONROY: Adelaide is on a roll: 3,000 for Spain, and 36—plus how many?—in Adelaide.

Senator Payne: I have made it very clear on the record that that is an inaccurate representation in relation to the job claims that, I think, Mr Champion was waving around again earlier in the week.

Senator CONROY: I think the Mayor of Cadiz is the source of the 3,000 claim.

Senator Payne: I did not know he was a shipbuilder.

Senator CONROY: You have saved his shipyard.

Senator Payne: The next thing you will be telling me is that the Mayor of Frankston is a shipbuilder.

Senator CONROY: Could I just come back to getting a number out of the roughly 100 that are roughly in Adelaide. Could I get a number.

Mr Richardson : We will be able to give you a precise number.

Senator Payne: I said I would take it on notice and we will provide you with more detail.

Mr Richardson : I would be very happy.

Senator CONROY: I am just conscious that we are over time now. Again, could I just thank you, Minister. I have not been trying to go slow or anything, but I am just conscious we are over time.

Senator XENOPHON: I think I asked Mr David Cochrane to give some information. I will try to do this as quickly as I can. I just want to go to the issue of the future submarine combat system. The Defence white paper suggests that the acquisition cost of the combat system and weapons for the future submarines is to be in the order of $5 billion to $6 billion. Would that be correct?

Mr Cochrane : Certainly there is a lot of commentary about how much money this is going to be worth. At the moment, we are still going through the process of selecting a combat system integrator. That combat system integrator will work with the platform designer and with the Commonwealth to work out what constitutes the combat system for the future submarine, and then the costs will be derived from that.

Senator XENOPHON: Perhaps I have got it wrong, but I am actually referring to page 77—it might be one of the appendices. It said:

Proposed future force (maritime & anti-submarine warfare)

It is page 77. I will show you the document; I cannot remember which appendix it is.

Mr Cochrane : It is the Integrated Investment Program.

Senator XENOPHON: The Integrated Investment Program—thank you. I just did not have it in front of me. That says:

Future Submarine Program—Weapons & Systems ($5bn-$6bn)

So we do know what the estimate is, don't we? The document actually says—let me repeat it:

Future Submarine Program—Weapons & Systems ($5bn-$6bn)

Mr Cochrane : I would agree.

Senator XENOPHON: I could not find the source document in time.

Mr Cochrane : The indication certainly is that this is over a long time frame—over the life of the production of the submarine.

Senator XENOPHON: I realise that. I appreciate that. That seems to be quite a high figure. I want to walk through the make-up of that number. How does it compare to what the combat systems for the Collins class submarines cost? I am happy for you to take this on notice. I know it is not directly an apples to apples comparison, but they are combat systems for submarines and that might give some indicative figure. On a previous question on notice, Defence has defined the combat system. I understand that the AN/BYG-1 is the preferred system. I think it refers to: the command and control system, which is the brains of the system; the sonar, which is the ears of the system; the periscopes and optronics systems; the communication systems; the electronic surveillance system; and the weapons. There would be money associated with integration as well, correct?

Mr Cochrane : That would be correct.

Senator XENOPHON: I want to see where we get this figure of $5 billion to $6 billion. We know from a question on notice that the AN/BYG has cost us $400 million from 2004 to 2019. That includes purchase, installation and ongoing sustainment. Would that be right?

Mr Cochrane : True.

Senator XENOPHON: Could you give a rough order budget for this preferred system being transferred from Collins to the Future Submarine?

Mr Cochrane : It is certainly not simple at the moment to do that. We are not comparing apples with apples. The current AN/BYG installation—

Senator XENOPHON: We are comparing submarine combat systems with submarine combat systems, though, aren't we?

Mr Cochrane : We are talking about installing AN/BYG-1 into the Collins program. That was installed in a submarine that was not designed to take it at that time, so we had to make adaptation. The Future Submarine will be designed to take AN/BYG-1.

Vice Adm. Griggs : Could I just clarify that that figure of $5 billion to $6 billion is an out turned number through to 2045 and it includes weapons. So I think we have to be a bit careful about—

Senator XENOPHON: Thank you. I have been trying to faithfully refer to the document, which did say $5 billion to $6 billion.

Vice Adm. Griggs : It does. But the point I am making is that that is out turned over a 30-year-odd period, which is a significant period of out-turning, as you would know.

Senator XENOPHON: Sure. But even then it is a significant amount of money, and I am trying to—

Vice Adm. Griggs : It is still a big number. I am not disputing that. It was just for clarity.

Senator XENOPHON: I am trying to get a break down and some clarity with respect to that, because it is a lot of money and I am trying to see whether that is good value for money based on previous and comparable weapons systems. So you cannot give any indication of what the hardware costs might be?

Mr Cochrane : No, I cannot.

Senator Payne: This is obviously a complex and lengthy process. I am trying to be helpful. I think if you have detailed and step by step questions that you want to ask in relation to cost on the combat systems, then we would be very happy to take those on notice. All of them have to be derived, and—as we have now all agreed, somewhat unheatedly—we are not necessarily comparing apples to apples in terms of the transfer.

Senator XENOPHON: We are never heated.

Senator Payne: Indeed. So we want to be helpful, and it may be that it is better for us to take these on notice. So if you either put them verbally on the record or provide us with a—

Senator XENOPHON: I can put them verbally on the record, and that might be useful, and then maybe put a couple of supplementary ones on notice. I will run through them and please interrupt if there is a lack of clarity with respect to the questions. Could I ask for a rough order budget for this preferred system—that is, the AN/BYG-1—being transferred from Collins to the Future Submarines? Obviously that would include issues of software and hardware costs. I note that the cost to purchase and install the six systems in Collins was $139 million. That was question on notice No. 2487 in July 2015. So there is a reference point there.

Another one: we know from Defence answers that we pay 15 per cent of the joint program cost, or $20 million per annum—question on notice No. 2487 July 2015—for the evolving development program that excludes Australian companies—

Mr Cochrane : I do not believe that that was our response.

Senator XENOPHON: Wasn't it?

Mr Cochrane : It does not exclude Australian companies.

Senator XENOPHON: That was my interpretation of the response. I think your response made reference to 15 per cent or $20 million?

Senator Payne: We will deal with that in our response.

Senator XENOPHON: Yes, as to whether it excludes Australian companies or not. With 12 submarines, would this likely go up to 25 to 30 per cent? Would that be in the order of $35 million to $40 million per annum? And I am just trying to establish whether you think that is a reasonable ballpark figure. In terms of sonar, which is an important part, obviously, of a submarine combat system, how much in broad terms of this would be allocated for in this $5 billion? I note that the white paper states that the Collins sonar upgrade would be $750,000 million to $1 billion. Are you looking at moving that system from Collins to future submarines as they are for the command and control system? If I could put that on notice.

For periscopes and optronics, how much for that? For communications—and I know it is not an apples for apples comparison—my understanding is that the communications upgrade on the eight Anzacs is marked at $500 million to $700 million. With respect to communications, it is an area where interoperability is important. Will there be any restriction on the country of origin of this supplier? I presume, if it were the case, it would be a US or NATO country. I just ask because of interoperability. In terms of the electronic surveillances, what will the cost of the electronic surveillance system be? I understand that the Anzac upgrade is listed at $250 million. I am just trying to establish that.

Finally, as to weapons, at the top level—and I understand there are issues of national security—we do know that, in terms of the Mark 48 torpedoes, the cost of the Collins torpedoes was $427 million in ANAO report. How much reuse would there be? With the harpoon anti-ship missiles, the anti-aircraft missiles, the Tomahawks and the mines, in so far as this information does not compromise national security I think the ANAO did make reference to the costs involved. I do not necessarily want to know how many missiles, for those that want to do us harm, but I just want to get an idea of that.

In terms of integration, the plan seems to be that either Raytheon or Lockheed will be the integrators. If you can just provide details of the tender out for the integrated role—

Mr Cochrane : What kind of details would you be after, Senator?

Senator XENOPHON: Is there a tender for the integrator?

Mr Cochrane : There is a limited tender.

Senator XENOPHON: So that is between Raytheon or Lockheed—is that right?

Senator Payne: Yes.

Senator XENOPHON: So it is out of them two—okay. I might put some questions on notice in respect of the command and control system because there was a situation back in, I think, 2001 where the Germans missed out because there was a decision made for the US system to be used—which, I understand, was much more expensive, but I think there were some strategic decisions made.

Mr Cochrane : I might just correct that, if I may, Senator. The comparisons we have indicate that it certainly is on a par. The expense of that system that you just indicated would have been about the same as the purchase and adaptation of AN/BYG-1 into Collins.

Senator Payne: We can expand on that on notice.

Senator XENOPHON: But a decision has been made on the AN/BYG, but you cannot tell me what the cost is of that?

Senator Payne: We will come back to you on notice. I appreciate the detail that you are putting on the record. Thank you.

Senator XENOPHON: I guess the issue is: I am just trying to understand how the procurement rules and the tender processes work for this, because $5 billion to $6 billion, albeit over a 30-year period, is still a significant amount of money. On notice, through you, Minister, if we can get some details of the tender process—

Senator Payne: All right. Yes—certainly.

Senator XENOPHON: because there has been an issue with local defence contractors—Australian-based companies—where they have expressed concern in the past over tender processes for that down the supply chain where they felt Australian industry participation has been unnecessarily limited. This is something that goes back over a number of years.

Senator Payne: We will come back to you on that.

Vice Adm. Griggs : For clarification, lest the rabbits start running, there is no plan in the white paper for land-attack cruise missiles. You mentioned Tomahawk in your question. That is not considered, or envisaged, in this white paper.

Senator XENOPHON: I do not want any rabbits to run, or hares to run.

Vice Adm. Griggs : Nor do I.

Senator XENOPHON: But I appreciate it. I am glad you mentioned it.

Senator Payne: I just said that to the VCDF.

Senator XENOPHON: I guess they are a well-known missile system. There are no plans for Tomahawks.

Senator Payne: Let's be clear. Thank you, Senator.

Senator XENOPHON: I do not want to cause an international incident over a Tomahawk!

Senator Payne: That would be remarkably unhelpful.

Senator XENOPHON: That is why I do not want to do that.

CHAIR: Senator Gallacher is coming back.

Senator Payne: Soon?

CHAIR: We trust so. A big opportunity, Senator Xenophon!

Senator XENOPHON: I know. I am just trying to—

CHAIR: To think one up.

Senator XENOPHON: I do not want to be prolix in relation to that. I just think it would be better if I put some questions on notice. Just going back to the issue of the future submarines in terms of the CP process, I am just trying to gauge when that is likely to be completed—a rough time frame.

Senator Payne: I am not going to provide any more detail than I indicated to Senator Conroy.

Senator XENOPHON: What was that detail? Can you please remind me?

Senator Payne: It was 2016, Senator.

Senator XENOPHON: 2016?

Senator Payne: Yes.

Senator XENOPHON: Which quarter?

Senator Payne: I have been completely consistent since the first estimates I appeared in in October last year. I reiterated my position in February. Let me confirm it now.

Senator XENOPHON: My office tells me—and we may be wrong on this—

Senator Payne: Then why would you say it?

Senator XENOPHON: In terms of the Tomahawks—

Senator Payne: On Tomahawks? I am sorry. I will leave you with the VCN on the Tomahawks.

Senator XENOPHON: Were the Tomahawks mentioned in the 2009 Defence white paper?

Vice Adm. Griggs : Yes, they were. Land attack cruise missiles were; I do not think Tomahawks were mentioned by name. They may have been, but I would have to check.

Senator XENOPHON: That is fine.

Vice Adm. Griggs : I assume that is where the question came from because it was previously mentioned. It was not completely out of left field.

Senator XENOPHON: It was not a reckless question about Tomahawks. I am very pleased to see that Senator Gallacher is back, in that case!

Senator GALLACHER: Thank you. Are you happy to go in the direction of the budget scope and Defence industry policy? Can someone please detail the 35 Defence industry programs that were cancelled as part of the Defence industry policy statement to fund new initiatives.

Ms Louis : Did you want me to go through the list of the programs individually or just talk generally?

Senator GALLACHER: Can you please detail the 35 Defence industry programs that were cancelled as part of the Defence industry policy statement to fund new initiatives.

CHAIR: Read them out.

Ms Louis : The programs fall under a number of different categories across innovation, business government, engagement and skilling. Maybe if I just talk to the key ones, they would be along the lines of the Capability and Technology Demonstrator Program—

Senator GALLACHER: When are you going to tell us which ones were cancelled?

Senator Payne: Senator Gallacher, could you possibly at least give the officer sufficient respect to let her commence her answer?

Senator GALLACHER: I thought the question was fairly straightforward. I did not get the idea that I was going to get an answer.

CHAIR: Thanks, Ms Louis. You can continue.

Ms Louis : Continue reading them out?

Senator Payne: Yes, thank you, Kate.

Ms Louis : Next is the Defence Materials Technology Centre, then the CDG Priority Industry Capability Innovation Program, the Defence Innovation Realisation Fund, the RPDE—which is the Rapid Prototyping, Development and Evaluation Program—the Defence Industry Innovation Board, the Australian Industry Capability Program, the Defence Industry Innovation Centre, the Defence Industry Innovation Centre Advisory Committee, the Defence Export Unit, the Australian Government Defence Export Support Forum and the Joint Strike Fighter Industry Program. You can see there are quite a few. Also, the DMO Global Supply Chain Program, a number of the environmental working groups, the Capability Development Advisory Forum, the DMO Business Access Offices. If you would like me to keep going, the skilling programs include Skilling Australia's Defence Industry, DMO School Pathways, the DMO Defence Engineering Internship Program, the DMO sponsoring the Re-engineering Australia Foundation, the DSTO undergraduate scholarship programs and so on. The idea is that all of these are not, obviously, being stopped immediately or anything like that. We are looking at these and bringing them under the two broad initiatives in the industry policy statement.

Senator Payne: If I may interrupt, would you like to explain those, please?

Ms Louis : Certainly. We did a very comprehensive consultation process in the industry policy statement. A lot of the feedback to us was that these programs were quite fragmented. They needed to be brought together under a strategic leadership. We are looking at the two initiatives announced in the industry policy statement: the new innovation approach and the new Centre for Defence Industry Capability.

Senator GALLACHER: That is the complete list? The whole 35 have been itemised there?

Ms Louis : I must admit, I abbreviated some of them that come under groupings, but I can give you the whole list—

Senator Payne: We will take further detail on notice for you, Senator.

Senator GALLACHER: Thank you. According to the Defence industry policy statement, the Centre for Defence Industry Capability, the CDIC, is funded at $23 million per year, which will be redirected from existing defence industry program funding. Can you advise the committee which existing programs have been cut to fund the CDIC?

Ms Louis : I would not quite frame it like that. I would say that we are redirecting the funding. Some of those programs will continue under the Centre for Defence Industry Capability, including things like the Global Supply Chain Program. DIPS notes that the Centre for Defence Industry Capability builds on the success of the Defence Industry Innovation Centre, for example. That will grow and will be expanded into the three streams of activities under the centre.

Senator GALLACHER: The quote here is 'which will be redirected from existing defence industry program funding'.

Senator Payne: Where are you quoting from, Senator Gallacher?

Senator GALLACHER: I am quoting from your paper, I believe.

Senator Payne: Whereabouts?

Senator GALLACHER: The quote that I have here is 'which will be redirected from existing defence industry programs funding'. We have asked: which of the programs will be cut to fund new initiatives? Now we are asking about the CDIC, which was funded at $23 million per year. Where did you get the $23 million from?

Ms Louis : For example, the Defence Industry Innovation Centre is a very good program. That will form the core of the Centre for Defence Industry Capability. That, for example, is currently funded at about $3 million and that will continue as part of the $23 million. On top of that, the Global Supply Chain Program is at about $5 million to $6 million—again, a good program, being brought together under the Centre for Defence Industry Capability. The most important thing about that is it is being brought under the governance of the co-chair arrangement between Defence and the private sector. What we were really looking for was the strategic leadership, the strategic engagement over the top, and building that partnership with industry. What we found is that we really wanted the private sector industry to have the role in the formal governance of the programs. What we are hoping to do once the board is established is to take the individual programs themselves and say, 'What should the future of these be?' That is how I would frame the way that we are doing it.

Senator GALLACHER: You have sort of half addressed it. Can you explain how the CDIC represents a change in activity or scope of work in the defence industry space? Can you give us the scope of its work or activity?

Ms Louis : It is a really significant and profound and fundamental change from the scope, for example, of the Defence Industry Innovation Centre. There are three very significant streams of activity around business development, supporting competitiveness and exports and, importantly the innovation portal. So entrants, particularly new starters, in defence industry will be able to use business.gov.au and the Digital Backbone and reach back into the AusIndustry programs. We found during the consultation process that industry found it difficult to break into Defence. This was something we worked in consultation with industry on. When we were developing the industry policy statement, we did it in consultation with industry and generally the feedback has been really positive.

Senator GALLACHER: How has the Australian Industry Capability Program changed? Has it changed as a result of this?

Ms Louis : We are really hoping to build and strengthen that, partly through the fact that industry will now be a fundamental input to capability. That is a real change in the way that we will approach the policy but also the culture of how we address Australian industries. We have developed the capability proposals. The Centre for Defence Industry Capability will have that real industry outreach focus as part of that. It will be guiding that as opposed to just being within Defence.

Senator GALLACHER: Lastly, how does the Global Supply Chain Program change mesh with this?

Ms Louis : We hope to build on that as well and, again under that governance of the CDIC board, drive those outcomes, and build on and strengthen both the Australian Industry Capability Program and the Global Supply Chain Program, in the sense that they both use the same industrial base.

Senator GALLACHER: Where is this Centre for Defence Industry Capability going to be based?

Ms Louis : Headquartered in Adelaide.

Senator GALLACHER: Fantastic. The recognition of the defence industry as a fundamental input to capability, FIC, has been well received and is supported by Labor. Does the department have any plan to map the scale and capabilities of the defence industry across Australia?

Ms Louis : We certainly do. The Defence Industry Policy Statement notes that we will be developing an industry capability plan for government consideration. It goes exactly to that heart. We do think we need to map the industry capabilities in a more strategic way than we have previously.

Senator GALLACHER: Just the nuts and bolts of that—who would be conducting that activity?

Ms Louis : That will be conducted by the Centre for Defence Industry Capability, obviously with very close links with Defence. It is important to work with Defence in identifying those sovereign capabilities and then the industrial capabilities that underpin those.

Senator GALLACHER: Is there any estimation of the cost of that activity?

Ms Louis : No. I would have to take that on notice.

Senator GALLACHER: Could you take on notice how much that would cost. How do you anticipate keeping this work up to date, rather than just a static picture? How do you keep it up to date into the future?

Ms Louis : We have already started to set up implementation of the new initiatives. For example, my division, the new Defence Industry Division, has been set up within the strategic centre to raise and elevate the importance of the industry issues and give them that strategic focus. We have a dedicated team already working very closely with my colleagues in the Department of Industry, Innovation and Science on the program guidelines for government consideration and set-up in the second half of the year.

Senator GALLACHER: The Integrated Investment Program suggests there will be a significant level of foreign military sales into the future. Can Defence explain to the committee what strategies you have in place or are committed to so that you remain a smart customer and you are able to buy the right gear?

Rear Adm. Dalton : There are a number of policies and innovations coming into our Capability Acquisition and Sustainment Group through the first principles review and those outcomes. The principal one for that is the 'smart buyer' policy. We will work a lot on the way our processes work and the way we understand what industry is doing. We will work very closely with Ms Louis's division to make sure that we stay aware of what is happening in industry and implement that 'smart buyer' process. It is something that Mr Gillis is passionate about, and it is flowing down through the group as we speak.

Senator GALLACHER: How does FMS's heavy acquisition program work to promote the Australian defence industry or realise this policy of self-reliance?

Rear Adm. Dalton : There is always going to be a balance between the capabilities that are required for the Defence Force and what is able to be produced indigenously. You will see that over the last couple of years we have had an increase in our use of Foreign Military Sales cases. That is, again, perhaps a reflection of a 'smart buyer' policy coming into action that focuses on reducing those programmatic risks in looking at military off-the-shelf capability. That does limit some of the Australian industry input a little bit, but generally the kind of equipment we are buying through a Foreign Military Sales case is not an indigenous military capability at any point. In those processes, we do look at ways to involve Australian industry in the sustainment of all those products once they are in use in Australia.

Senator XENOPHON: Following on from the question that my South Australian colleague, Senator Bernardi, asked in question time today, Minister, you said that the government will release an enterprise-level naval shipbuilding plan later this year. I think the former Minister for Defence, in a joint release with the Minister for Finance back on 22 May 2015, said then that they would be issuing an enterprise-level naval shipbuilding plan later this year which will provide for the long-term future of the Australian naval shipbuilding industry. That clearly did not happen. When do you think you will be in a position to release that?

Senator Payne: I did answer some questions in relation to this from Senator Conroy earlier. I did not indicate a date or time on that, in part because the outcomes and developments of some of the CEPs will have an impact and influence on its development, but I did indicate it would be this year.

Senator XENOPHON: But you can understand the frustration, given that the former minister said on 22 May—

CHAIR: Is that a supplementary question?

Senator XENOPHON: It is a supplementary question.

CHAIR: That concludes the committee's spillover hearing with Defence. I thank you, Minister, and the officers, Acting CDF, Hansard, broadcasting and the secretariat.

Committee adjourned at 19:31