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Foreign Affairs, Defence and Trade Legislation Committee
Department of Defence

Department of Defence


CHAIR: Senator Feeney, do you or any officers wish to make an opening statement?

Senator Feeney: I do not have an opening statement, but I think it is our intention as is our custom for the Secretary of the department, Mr Duncan Lewis, to make a statement followed by the Chief of the Defence Force, General Hurley.

Mr D Lewis : Good morning. Before proceedings begin, I would like to make some brief remarks regarding a number of current issues. At the last hearing of this committee I made it clear that I am firmly committed to continuing the reform of the Defence organisation. The CDF and I have taken over leadership of this department during a period of significant and necessary change. We all know that history judges harshly those organisations that will not change. Defence needs to adapt to contemporary standards and become far more efficient. Change and reform are, in my view, neither episodic nor optional; they are continuous and are essential for this department.

A few words on the strategic reform program: we have a range of initiatives under way in Defence reform and we continue to modernise the organisation. In addition to the Strategic Reform Program we are implementing the Coles review, that is the Collins class sustainment review; the Rizzo review, which is the plan to reform support to ship repair and maintenance practices; and the Black review, which is the review into the Defence Accountability Framework. We are enhancing the use of shared services and implementing the outcomes of six reviews of the defence and ADF culture. I think the CDF will speak more about that in a moment.

Each is significant in its own right and, as a whole, they permeate a wide spectrum of our business. We do, however, need to keep our departmental challenges in perspective. I said in my opening comments at the last estimates hearing that the challenges and difficulties we face as an organisation are more than outweighed by the things that we do right. Four months on, this is still very much the case and I hold the view very strongly.

I would like to talk for a few moments about achievements. Defence expects to achieve about 40 projects based approvals for this financial year. As at 27 January this year a total of 30 approvals, with a value of over $2 billion, had been achieved. Forty-nine projects were achieved with a value of over $6 billion over the course of the 2011 calendar year. The facts in relation to defence's capital equipment procurement performance tell a good story. From 1997 to 2011 the total portfolio of DMO projects closed came in at 98 per cent of the approved total budget for those projects. Since the DMO was formed in 2000, we have almost halved the level of schedule slippage in major projects. Some of this improvement is attributable to the efforts of the Capability Development Group and through the additional upfront investment and work undertaken before government is asked to make its final project approval decision at what we all know is second pass.

Defence has achieved all cost reduction targets for the Strategic Reform Program to date. In 2009-10 we met the $797 million target, in 2010-11 we met the $1.016 billion target and we are on track to meet the $1.284 billion target for the 2011-12 financial year. I will provide a couple of specific examples in each service. Navy's Anzac systems continuous improvement project, which identified improvements to inventory management, contract models and training, will streamline processes, secure more efficient supply arrangements and encourage cost consciousness of capability. In Army we will deliver approximately $195 million in cost reductions over the next 10 years through effective management and rationalisation of its vehicle fleet. Air Force has improved the interaction between operations and sustainment planning, resulting in more effective employment of the technical workforce. In turn, this has increased fleet availability and supportability of the Hawk and classic Hornet fleets.

In undertaking these reforms, I should be clear that CDF and I will not sit idly by and allow our defence enterprise backbone—that is, our personnel systems, our ICT environment, our facilities and our sustainment activities—to once again become hollow. Our enterprise backbone is an essential, although sometimes unacknowledged, component of capability. I will be working with the chief operating officer to ensure that our defence support backbone is maintained, it is enhanced and it is made appropriate during this period of reform.

I have a few words on the Black review. Several actions have been taken to improve planning performance and management, accountability and decision making across the organisation. We have agreed an enterprise corporate plan. This plan, for the first time, will capture in one place our key enterprise priorities and performance milestones and will articulate who is accountable for delivery. The CDF and I will drive organisational performance based on this plan.

On 16 January the CDF and I implemented the rationalisation of senior defence committees, as recommended by Mr Black. We have established a single secretariat for all committees chaired by us. The Workforce and Financial Management Committee and the Defence Information Communication and Technology Committee have been abolished and their functions merged into a single secretariat and a single organisation, which is called the Secretary and CDF Advisory Committee.

These changes will enhance decision making and commence a process that I have described to this committee and publicly as de-thatching our internal committee system. We are in the process of reviewing all committees across the department. Our intent is to reduce substantially the number of committees in the department and to streamline decision making.

We have made a number of senior staff appointments recently and we will be announcing more appointments shortly. These appointments will assist the overall management of our department and the streamlining of our business. In May last year the Minister for Defence announced the extension of the shared services reforms. A pilot program will commence in the first quarter of this year on that matter, and that will be followed by a phased rollout aimed at achieving effective and lasting reform that will deliver about $300 million in savings to the government.

A few words about challenges and the way forward. We will continue to pursue efficiencies and cost reduction targets to position reforms as business as usual in Defence. To support this, the SRP implementation model is being adjusted to ensure it aligns more effectively with the broader reform agenda. We have recently appointed an associate secretary chief operating officer, the COO, Simon Lewis. I might add this is not a takeover of the Lewis's. Simon is no relation of mine, a close colleague but not a relation. Simon will have responsibility for delivering reform through the SRP. We are transferring the function of the strategic reform and governance division to the new chief operating officer group.

A few words on the defence budget review. In August of last year the minister commissioned a review of the defence budget. The terms of reference for the budget review required the department to do several things: firstly, to undertake a line-by-line assessment of the budget to clarify accountabilities for allocated budgets as well as the methodology for constructing each of the individual budget estimates; and, secondly, to undertake a comparative analysis benchmarking a number of large corporate organisations to determine their approach to developing budget estimates, the way they manage risk in relation to budget estimation, and managing budget performance. In addition, Defence was required in this review to consider the extent of any barriers to the development of what I describe as quality estimates, how best to record and report budget estimates and to propose opportunities for improvements to budget estimation methodologies to our processes, our systems and our accountabilities. The report is currently being finalised, and it is expected to be completed in the coming months.

A few words on the DECA, the Defence employment certified agreement, our workplace agreement. Progress has been made in bargaining for a new Defence Enterprise Collective Agreement. We have recently reached an in-principle agreement that is supported by the majority of unions. Defence can now progress the agreement making progress through the Australian Public Service Commission as the next step in the process. We remain as a department, and I remain as the secretary of that department, committed to the delivery of a balanced and fair enterprise agreement for our APS workforce.

Turning to the defence culture reviews, as members of the Australian Defence Organisation we are united by our mission to serve Australia and support its interests. In doing so, we have earned national and international respect over many decades. Our future depends on the continued pursuit of excellence in shaping the defence culture and capability for the next generation. The CDF, General Hurley, and I are committed to ensuring that Defence provides a working environment that is safe, equitable and inclusive for all. The culture reviews that the Minister for Defence announced last year are now largely complete. The reviews were led by subject matter experts who have each importantly reported—and this is important—that much can be commended about defence culture. The reviews, of course, also found that there is still work to be done to evolve the defence culture. In response, Defence is now developing a cultural reform strategy.

A comment on the reviews of vetting arrangements. The committee will be aware of the IGIS report into our vetting processes and the actions that we are taking. I want to assure the committee that I am absolutely committed to ensuring the integrity of our vetting process, and this area of the department's business will continue to receive close management attention. We discussed some of the detail of this matter in our private hearing last week. Questions on notice—I would like to record and have the committee note that, as you had previous concerns in relation to late responses to questions taken on notice, we have worked since the last hearing to improve our record in this area. Questions taken are, as you know, typically complex in nature and require careful consideration to ensure responses provided to you are accurate and provide the required information.

From the last estimates hearing in October last year, Defence took 160 questions on notice. The questions were made up of 447 sub-questions. Of the 160 questions on notice, Defence provided to the committee 98 responses, 55.6 per cent, by the due lodgement date. This stands in stark contrast to the number of questions on notice that were answered on time from the February hearings last year, which were zero.

Returning to our October estimates hearing last year a further 64 responses, or 40 per cent, were provided one week late and we will continue to work to improve that. Of the remaining seven responses, four per cent were provided in early February. So at this point we have no questions on notice currently outstanding from October. This represents an improvement. We still have further work to do to provide you with more timely responses and we will continue to do that. It is also worth noting that 77 Senate questions and eight House of Representatives questions on notice have been tabled this year. Furthermore, the defence annual report was this year tabled on time.

With regard to reviews, regarding the Inquiry into the Management of the Defence Force Academy Skype Incident of March 2011 and its aftermath, the Kirkham inquiry, we are anticipating a resolution very soon, perhaps in the next few weeks. With respect to the review into allegations of sexual or other forms of abuse in Defence, the DLA Piper review, the Minister for Defence and I have received volume 1 complete but volume 2 is still in production. Until I have received the full suite of reports, it is not possible or proper for me to provide further comment at this stage. We expect the complete and final report at this stage in March.

Let me conclude by saying that, while the challenges ahead are significant, Defence is comprised of talented men and women with an acute sense of mission. They are doing difficult jobs in challenging circumstances for the betterment of our country. While there is no doubt that we have areas to improve, we should not overlook the achievements and the dedication of the Defence workforce as we strive to transform Defence into a more adaptive, innovative and agile organisation. Chair, thank you. The CDF now has some opening remarks.

CHAIR: Thank you, Mr Lewis. General Hurley, you have a statement too?

Gen. Hurley : Chair, thank you very much. Good morning senators, and thank you for the opportunity to make an opening statement. I remain extremely proud to lead the Australian Defence Force during a period of continued excellent performance amidst difficult days and challenges. This morning I will provide an operational update and report on the current status of the Defence cultural reviews.

On 29 October 2011, shortly after the last estimates hearing, three Australian soldiers were killed in action when a member of the Afghan National Army opened fire following a regular weekly parade at Forward Operating Base Pacemaker. I would like to place on record my condolences to the families of Captain Bryce Duffy, 4th Field Regiment, Royal Regiment of Australian Artillery; Corporal Ashley Birt, 6th Engineer Support Regiment; and Lance Corporal Luke Gavin, 2nd Battalion, The Royal Australian Regiment. Throughout their military careers, all three men demonstrated outstanding skills and a remarkable strength of character that continues to inspire their comrades.

You will recall that seven Australian soldiers were wounded in action in this incident, and three others were also wounded in action during another shooting of a similar nature on 8 November last year. I am pleased to say one of these men redeployed in Afghanistan in December; another has returned to duty at his Australian base unit; and the other eight soldiers are currently undergoing rehabilitation as part of the ADF rehabilitation program. All are likely to return to full duties in the future.

At the time these incidents occurred, I indicated that we would conduct an extensive investigation into the circumstances. Over the past four months Defence has undertaken a significant body of work to establish the facts and increase our understanding of what motivates this type of attack. Our first priority is always to ensure the safety of our people. Since October we have instigated a range of measures at the tactical level to mitigate the threat to our personnel in Afghanistan. However, we continue to operate in an extremely complex and dangerous environment and with this comes an element of risk.

International Security Assistance Force, or ISAF, data shows that at least half of these 'insider attacks' are not linked directly to the insurgency but arise from an individual's personal grievances. Regardless of the rationale behind them, insurgents will seek to claim responsibility for these attacks in order to exploit them as part of a broader propaganda campaign. We know the Taliban's strategy is to try and undermine confidence in the Afghan authorities, but we cannot allow these events to distract us from our mission to mentor the Afghan National Army 4th Brigade so that they can take the lead responsibility for security in Oruzgan province.

In addition to improving our force protection, our analysis of these incidents was used to assist a campaign design review. The purpose of this review was to ensure that our approach to transition to Afghan leadership is conducted in an environment where the security of our personnel in Afghanistan is maintained.

Turning to the transition in Afghanistan, eight months ago the first tranche of provinces began the transition to an Afghan security lead. Today this process is well advanced. The second tranche is underway, and we are already seeing the shift from ISAF-led combat operations in some provinces to a more advisory role known as 'security assistance operations'. When tranche 2 is complete, the Afghan National Security Forces will have the lead security responsibility for half the Afghan population.

In our own area of responsibility, Oruzgan remains on track for transition to Afghan security lead and we anticipate Oruzgan province will be included in tranche 3, which we expect will be announced in the first half of this year. The ADF's Afghanistan campaign plan is on track and we expect a conditions-based transition to occur by 2014 or earlier. The progression from a tactical support posture to one of operational support will see the individual kandaks or infantry battalions of the 4th Brigade capable of independent operations without a permanent ADF presence. At the brigade level, ADF advisers and forces will continue to support the Afghan National Army for the command and control of the province's security operations.

To this end, the 4th Brigade is increasingly taking the lead in planning, preparing and executing tactical operations. This has allowed Australian forces to concentrate greater effort on advising and partnering Afghan command and combat support functions. Australia is also making a lasting contribution to institutional training in Afghanistan by helping to develop the Afghan National Army Artillery Training School in Kabul. Australia is considering an invitation to support the UK-led Afghan National Army Officers Training Academy, and we will continue to work with our Afghan and ISAF partners to identify further institutional training opportunities as we move through the transition phase.

Last month I attended the North Atlantic Treaty Organisation, or NATO, Chiefs of Defence Staff International Security Assistance Force, ISAF, session on Afghanistan at the NATO Headquarters in Brussels. I also accompanied the minister to the NATO/ISAF defence ministers meeting in Brussels. It is very clear that we are at a decisive point in the transition from an ISAF to an Afghan security lead. The model is changing, and this will be more clearly articulated at the NATO summit in Chicago in May this year.

There is also still a great deal of work to do to determine what the international contribution to Afghanistan will look like beyond 2014 and our journey to get there. The Chicago Summit will shape the long-term strategic plan for Afghanistan, including the size and composition of the Afghan National Security Forces and the international community's enduring assistance.

Australia, and indeed the ADF, expects to play a role in Afghanistan post 2014. While we are considering what that may look like, we can potentially expect the ADF to continue to contribute to capacity building with the Afghanistan National Security Forces with military advisers and a Special Forces presence.

If I could turn now to other operations. As you would be aware, East Timor will hold presidential and parliamentary elections this year. At the invitation of the government of East Timor, Australia's military contribution to the International Security Force remains about 390 personnel. We do not anticipate any significant change to the level and force structure of the International Security Force until after the 2012 elections. The Minister for Defence has indicated that a full assessment of a planned withdrawal of Australian troops from East Timor will be made in conjunction with the government in Dili following the elections.

In the Solomon Islands, the government has agreed to maintain our existing commitment to the Regional Assistance Mission to the Solomon Islands, or RAMSI, until at least mid-2013. The ADF currently has a three platoon size task force deployed. Continued stability in the region has allowed RAMSI's participating police force, supported by our task force, to shift its focus from front-line policing to capacity building. Defence is now working with RAMSI and other agencies to develop a drawdown strategy commensurate with the security situation and RAMSI's transition plans.

Finally, I would like to address the issue of defence culture. As members of Defence, we are united by our mission to serve Australia and support its interests. In doing so, we have earned national and international respect over many decades. The future of this organisation depends on the continued pursuit of excellence. We have high standards to meet. All Australians rightly expect that we will deliver to consistently high standards, whether in theatres of operations, capability development, support to our operations, our everyday personal behaviour, and in how we treat our colleagues.

We have learnt, to our cost, that we do not always meet these high standards. More worryingly, at times we have tolerated shortfalls in performance. These incidences cannot be excused or justified under any circumstances. Against this background, it is clear that we have work to do to evolve our culture and amend those practices which hurt our people, limit our performance and damage our reputation.

The suite of cultural reviews is complete, and we are now in the final stages of developing a comprehensive response to these reviews that complements and builds on the wider defence reform agenda. This includes part 3 of the Gyles report on HMAS Success which was provided to the committee last week. Central to our response will be a statement of cultural intent. It will outline the actions that we must take to ensure that we remain the most trusted organisation in Australia.

This statement will not offer a 'quick fix'. It will however mark an important step in our evolution, starting with a five-year program of integrated and far-reaching efforts to tackle our cultural challenges at their source. We acknowledge it will require a sustained effort from all defence staff over many years to achieve the kind of real and lasting change across the organisation. Chair and senators, thank you for the opportunity to address the committee this morning.

CHAIR: Thank you very much, General Hurley. We will move now to questions arising from those opening statements. Is your opening statement going to be circulated as well?

Gen. Hurley : Yes.

Senator JOHNSTON: CDF and secretary, thank you for those opening statements. Obviously the Coles report is very important for the committee and there are a number of matters turning on that. But the first issue I wanted to go to this morning was the Gyles report wherein Mr Gyles recommended that the three sailors central to the genesis of all of that be paid compensation. Could I have an update as to where we are with that? The words used by Gyles I think were significant, that an ex gratia payment be made in compensation. Chief of Navy, if I could have an update as to where we are at in that circumstance.

Vice Adm. Griggs : As you will understand, with that process still in train there is a limited amount that we can say at this time other than the process is in train and negotiations are continuing.

Senator JOHNSTON: Are you at liberty to tell me whether you are going forward on the basis of a compensatory payment or on the basis of an ex gratia payment, the two of which are distinctly different in terms of the capacity to meet the requirements of the recommendation by Gyles?

Vice Adm. Griggs : I understand the difference but I think Mr Cunliffe would be best placed to answer that question.

Senator JOHNSTON: Mr Cunliffe, what I have just put to the CDF is, and we all acknowledge that negotiations are in train: are we dealing with these negotiations in response to the recommendations of Mr Gyles on the basis of a compensatory payment or on the basis of an ex gratia payment?

Mr Cunliffe : I was going to answer by saying 'negotiations' on one view is probably not quite the right word because these are discretionary mechanisms which were in accordance with what Mr Gyles had worded in his comment and also is the basis on which the matters are being progressed. To step through the detail in broad terms, as I understand it and I have not been directly involved, the representatives of the sailors have met with our legal advisers and our internal legal people. And following that there have been a series of exchanges of letters, the most recent of which was last week, and the matter at this stage is back with us.

Senator JOHNSTON: The Gyles words were, as I read them, 'payment of ex gratia monetary compensation'. Are we proceeding upon that technical legal basis?

Mr Cunliffe : If we are to go into the precise detail, I would seek your indulgence to progress it a little later and have my assistant secretary legal services, Michael Lysewycz, who has been directly involved in the detail of the matter. I would be happy to do that, if that would suit the committee.

Senator JOHNSTON: That is fine. You have retained private lawyers with respect to this matter?

Mr Cunliffe : Yes.

Senator JOHNSTON: I bear in mind that these are three petty officers. Counsel fees for Mr Gyles ran at $7,700 per day. He has received over $1 million. Counsel assisting's fees ran at $3,600 per day. He has received over $647,000. Counsel assisting junior counsel ran at $2,400 per day and he has received over $432,000. These sailors have had their names dragged through the mud. They have received an apology from the Chief of Navy, and I thank Chief of Navy for that, but at the same time they were given a show cause as to why they should not be terminated.

In the third report Mr Gyles erroneously claims they were found guilty of some sort of sexual misconduct. I do not understand when we want to change the culture here how we can have recommendations for payment of ex gratia monetary compensation, apologies and at the same time do a show cause as to why they should not be terminated. Can someone please explain to me what on earth is going on here?

Vice Adm. Griggs : What Mr Gyles also said was that two wrongs do not make a right.

Senator JOHNSTON: He did say that, and I think we all agree with that.

Vice Adm. Griggs : That is why we are doing what we are doing.

Senator JOHNSTON: They have never been charged with a single solitary offence relating to this matter.

Vice Adm. Griggs : That is correct. They have not been found guilty of any sexual misconduct, and twice I have gone out on the record to correct erroneous media reporting of that fact.

Senator JOHNSTON: And I know they thank you for that.

Vice Adm. Griggs : But as I said to all three of them when I gave them the apology on 7 July, which I did both in writing and through a telephone conversation with each of them, that Mr Gyles quite correctly differentiated between the landing and the subsequent management of that, which we all agree was most unsatisfactory and that is what the ex gratia payment from his perspective is designed to correct, but also he identified potential shortcomings in their behaviour and performance—and that is what the notice to show causes have tried to address. All three sailors have had the result of that deliberation given to them in the last week and they will obviously take whatever action they feel is necessary.

Senator JOHNSTON: The show causes have been reduced, as I understand it, to simply administrative sanctions not termination?

Vice Adm. Griggs : That is correct.

Senator JOHNSTON: So we go through this issue of having people issued show cause for termination and then we take a step back and reduce that, having created the anxiety and the stress throughout their families of such a procedure, and fall back to something lesser, something more palatable.

Vice Adm. Griggs : Could I go through the process of how we got to that point? Once part one and part two of the report was received, part one of the report was passed to Mr Kirkham QC to analyse if there was a required disciplinary or administrative sanction against any of the participants in the incident. Part two of the report was similarly dealt with by Professor Devereaux. From that they then passed back to the CDF's office their thoughts on the matter. A team in the CDF's office then developed a list of people that we might consider to take action against. That was then endorsed by the then CDF and passed to Navy for action.

What we did was based on the material that we had before us. The reason it has taken so long is that, as you can imagine, it was a considerably lengthy process. There were 55 people originally identified for action. Following the independent review within Navy that was brought down to 18. Eight others were issued with letters of reflection, so short of an adverse action but here is a letter to say, 'You really need to think about your role in this,' and the remainder were considered no further action. Of the 18, various notices were issued—and the rank for those people went from able seaman through to the star ranks so we are not talking about just hitting junior people here—and the range of actions contemplated ranged from termination through to formal counselling. As of yesterday, with 15 of those 18 decisions have been made and transmitted to those people.

Senator JOHNSTON: Needless to say the remaining three out of the 18?

Vice Adm. Griggs : Two are unable to be completed at this stage due to medical issues and one is due to continuing exchange of information to complete the process. But the independent decision maker—and we have gone to great lengths to make sure that the decision maker in each of those 18 cases is someone who has had nothing to do with the Success COI or were in Fleet Headquarters at the time or were in Navy Headquarters directly involved.

Senator JOHNSTON: So you have had to quarantine defence legal and all the people who were involved in some 11 inquiries into this matter.

Vice Adm. Griggs : What we have done is made sure that the final decision maker was as independent as we could. They have then made their decisions based on the material that is available. In some cases the notice to show cause for a particular action has been agreed. Certainly in two of the reduction in ranks that occurred, that was what was being considered. In other cases they have been reduced, but that is based on the decision maker's process. I can assure you, having done one of them myself, that that is a lengthy process. In my case it took four days of reading and a week of contemplation to make my decision.

Senator JOHNSTON: I thank you for that answer. That is a most satisfactory answer and more than I have received over a long period of time on this matter in this committee. Can I ask Mr Cunliffe who the private lawyers are that have been retained with respect to this matter and what has been paid to them so far in terms of the compensation through the ex gratia payment?

Mr Cunliffe : The solicitors are Clayton Utz.

Senator JOHNSTON: That is a large national firm.

Mr Cunliffe : It is, yes, and indeed one of the firms on our legal panel. I will need to seek clarity, if I can, on the amount paid to them. I think I have an amount but I am not sure whether it is specific to that or whether it is for some other matters along the way, because there has been a series of matters which we have sought advice on and I do not know if it is a global figure or a narrow figure.

Senator JOHNSTON: I am happy for you to come back with that figure at a convenient time. But you can see the point that I am seeking to make here: three petty officers on a salary—known to all service personnel as to what that would be—fighting legal battles with private lawyers against Navy and the department and the Commonwealth; and issues as to costs, issues as to the parameters of the payment as recommended by Gyles, issues as to the humiliation being included in such matters and issues as to legal costs being included are probably matters for another day given the state of the matter at this time and its sensitivities. I just want to flag it for you that we will revisit these issues in the circumstances of the model litigant rules and the imbalance that these three men have confronted in dealing with their situation.

Mr Cunliffe : Without going into the detail, and I think it would assist to have Mr Lysewycz here so he could take you through each line, I think your representation is probably not something that I should leave on the record without at least an initial response. There are a number of matters that I should point out. First, although you have brought together the range of issues that is not necessarily a fair reflection. Clayton Utz has not been involved, for instance, in relation to the commission of inquiry matters. They were not part of the work in front of Mr Gyles.

Senator JOHNSTON: No, I realise that.

Mr Cunliffe : There are separate arrangements as you know and as we have gone through many times—even in my time in Defence—for the provision of legal assistance to people before inquiries, including to the people who are within commissions of inquiry. That has been put in place here not just for these men but for a whole range of others who were persons identified as requiring that. In terms of fairness and in terms of balance, I think that is also a fair balance to reflect and identify. That is the first step.

The second step which I can tell you, without again having the full detail, is that for the purposes of the meeting which was held last year, which involved the external legal firm that these three men had initially already consulted very many years ago now, we in fact offered them a financial amount for the purposes of attending this meeting, which was also partly because of where it was held. So those steps have been taken.

It is important to note that I would assert we may occasionally breach those responsibilities under the legal services directions. Where we have such a claim we refer it—I have referred one recently in relation to another matter. Whether or not I agree with it, the proper step is for us to refer it to the Office of Legal Services Coordination and we are very punctilious in taking that action. I would have to say that, almost without exception, their response is that there has been no breach. But that is a matter for them to assess not for me merely to assert. If you are suggesting that you see this as a breach, I would obviously be keen to also draw that as a suggestion to them. I will seek their view and obviously they will report back to you presumably in the relevant committee on a future occasion.

But if I can seek your guidance and, chair, your guidance, would it be more helpful for us to do this separately on another occasion which will allow you to step through; it or would you like me to have Mr Lysewycz come up later today which would suit the committee?

Senator JOHNSTON: It is entirely up to you. I would like the costs figure relevant to the negotiations of the direction of Gyles but I do understand the sensitivities here. It may be that nothing turns on it because, by the time we come back in May, the matter may have been resolved. But having had our little discussion this morning, you can see the sorts of things that I would like to explore next time were it not to be resolved.

Mr Cunliffe : I fully understand and equally I am open, if it suits the committee and subject to the minister, to assisting in relation to that even progressively if that would help. But I will certainly seek that figure and I think we can identify that today. If you would also like to step through some of the precise actions, Mr Lysewycz could be available later today, if that would help the committee.

Senator JOHNSTON: That would be helpful but the point is I just want to know how much we have spent. At the end of the day we have a problem talking about this, given that I think people are talking to each other and matters are on the table for discussion and negotiation—

Mr Cunliffe : That is certainly true.

Senator JOHNSTON: Let us get to May. We will all know where we stand. But I flag it so that we know what we want to find out then.

Mr Cunliffe : I will come back with the costs figure later in the day.

Gen. Hurley : Could I just clarify your concern is about the costs the department is spending on actions in relation to the three petty officers and not what is spent on the inquiry?

Senator JOHNSTON: I know what has been spent on the inquiry. We have already had that on notice and we have answered all of those questions.

Gen. Hurley : If you are building the characterisation we are spending millions on the inquiry and only a little bit of money on the petty officers, I do not think that is right. The money we have spent on the inquiry could have cleared the petty officers and it would have been money well spent from their perspective. So I think we just need to balance the figure.

Senator JOHNSTON: With respect to what the genesis of the inquiry was, and that was the landing of the three sailors and the 11 inquiries to the point of Gyles' commencement, Gyles recommended and dealt with the primary matter to be considered, the landing, and then went on and did the subsequent reports. In dealing with the landing he recommended that an ex gratia compensatory payment be made. That is the area that I am focussing upon because the genesis of it is the three sailors.

Gen. Hurley : Okay.

Mr Cunliffe : Again just to have clarity, the characterisation of it as solely related to the landing is not right. I think if the terms of reference are consulted it is much broader than that.

Senator JOHNSTON: Certainly, but the Senate terms of reference focused primarily on the landing of the three sailors. As you recall, the then CDF came before the committee and said, 'Look, we want to do a wider inquiry,' and we said 'okay', but the whole thing turned on the landing of the three sailors. That was the beginning of it all.

CHAIR: I think you have made your point, Senator Johnston.

Senator JOHNSTON: I want to go on to the ADFA review but, before I do, I am remiss in acknowledging that there has been at least three major promotions that have occurred within the department: Mr Warren King has been made been promoted to head of the DMO, and I want to congratulate him; Vice Admiral Jones is in the capability group; and Mr Simon Lewis that we have already mentioned. I think the committee should acknowledge those promotions as being significant, important and extend our congratulations to those people and those other officers that have also received promotion of which there has been quite a number.

Turning to the ADFA review, where are we at with respect to Mr Kirkham's report? When was it completed and where is it now?

Gen. Hurley : Mr Kirkham's report was submitted to the Chief of Air Force on 12 December 2011 and is currently with the minister.

Senator JOHNSTON: Where is Commodore Kafer now?

Gen. Hurley : He is doing other duties in the Australian Defence College.

Senator JOHNSTON: So he is at ADFA?

Gen. Hurley : No, he is not at ADFA, he is in the Australian Defence College which is the umbrella college at Weston Creek.

Senator JOHNSTON: Yes okay. I think we had six inquiries, maybe seven, with respect to this matter. I am not sure how many but there was Broderick, there is DLA Piper, there is Kirkham and some others. Where are we at with all of the inquiries that have flowed from this?

Gen. Hurley : Let me just distinguish between them. There was the Kirkham inquiry which was into the ADFA management of the Skype incident at ADFA. That is an inquiry under the inquiry officer regulations. The others were reviews essentially into various aspects of defence culture. I have just informed you about where we are at with the Kirkham inquiry report.

In relation to what we term locally as the cultural reviews, all of those have been received during the last six months of last year bar stage two of the report by Ms Broderick, the Sex Discrimination Commissioner. The first stage of her report was into the treatment of women at ADFA. The second stage is the treatment of women in the ADF. She is still working on that and we expect that within the month—sorry, in April-May. She has been touring the country speaking to our people in relation to that.

All of those reports have been received. Since about mid-September and October last year, the Defence Committee and the Chiefs of Staff Committee have been considering the reflections on ADF culture that those reviews have provided, have been looking at how the recommendations interrelate with each other, and we have produced a document that brings together all those reviews. As I think I said at the last hearing, this should not just be a tick and flick exercise of each of the recommendations. That will not get us anywhere. It is trying to bring it all together, look at it and seat it in the broader reform agenda that the secretary and I are trying to implement, and bring this to the Defence Force in a way that is a positive driver for change—not another opportunity to kick them in the rear end, frankly. I think we have done a reasonable job on that pretty well. The document is complete. It is ready to go to the minister for him to have a look at our response and for us to put that into the public light within the next month or so.

Senator JOHNSTON: Save for the Kirkham report, the other reviews you are putting to the minister with your response at the same time?

Gen. Hurley : Yes—sorry, he has seen the review reports but not our response.

Senator JOHNSTON: Okay, and we will not anticipate what the minister is thinking of doing. The DLA Piper review, that has been completed?

Gen. Hurley : No, it has not but I am not attached to that so I will let the secretary answer that.

Mr D Lewis : That more properly falls into my court. I mentioned in my opening statement that I have received volume 1 of the DLA Piper review. There is a second volume which is not complete. I expect at this stage, and we were notified of some small delays, that it will be received next month in March. Once the minister and I have both volume 1 and volume 2, then obviously we will be in a position to consider the longer-term implications.

Senator JOHNSTON: Can you tell me the difference between volume 1 and volume 2?

Mr D Lewis : Essentially volume 1 is a summary—I suppose in simple terms it is the executive summary—and volume 2 then serialises the alleged incidents, so it is the substance of the document.

Senator JOHNSTON: Do we have a cost for all of these reviews and inquiries?

Mr D Lewis : Yes, we do have costs to date on some of them. One moment and I will see if I can turn it up.

Air Marshal Binskin : The costs are broken down at the moment in direct costs to date and indirect workforce costs to date. As of—and I will find the exact date we have in there—we are running $10.518 million total for all the reviews, including DLA Piper, as direct costs and in indirect workforce costs that add to that, a cost of $1.445 million. So that is the cost to date of that.

Senator JOHNSTON: So $12 million approximately.

Air Marshal Binskin : It adds up to $11.963 million. If you take away DLA Piper, so it is all the reviews except DLA Piper just to give you an idea of the costs, that is $2.802 million.

Senator JOHNSTON: DLA Piper is $2.802 million?

Air Marshal Binskin : No, so all the reviews except DLA Piper—actually I can give it to you the other way. The DLA Piper part of that at the moment is—

Senator JOHNSTON: About 80 per cent?

Air Marshal Binskin : It is $6.886 million direct costs with $0.302 million indirect costs.

Senator JOHNSTON: Justice Brereton was required or was asked to assist Mr Kirkham. Do those costs include his costs? Were there any costs? What did Justice Brereton actually do, do we know?

Gen. Hurley : Justice Brereton was called in to do the legal review of the Kirkham inquiry report before it was moved on to the appointing authority in that case. That is our standard process where an inquiry is conducted a legal review is undertaken.

Air Marshal Binskin : He did that as a reserve officer.

Senator JOHNSTON: He is a reservist.

Gen. Hurley : He did that in his capacity as a Major General.

Senator JOHNSTON: So his costs were relatively—

Air Marshal Binskin : They were at the reserve rates.

Senator JOHNSTON: That is very beneficial.

CHAIR: Senator Johnston, can I alert you to the fact there are other senators seeking to ask questions as well.

Senator JOHNSTON: On this matter?

CHAIR: No, not on this matter. So when you have finished this matter, I will give the call to another senator.

Senator JOHNSTON: I have finished this matter, thank you, chair.

Senator KROGER: Just on the DLA Piper review, I understand from the opening statement that you are not in a position to discuss the content and substance of it. Could you just explain the process that they have actually undertaken over the last 12 months? I understand there were terms of reference determined and that was publicly available; is that correct?

Gen. Hurley : You are looking at me but the secretary is the better one to answer that.

Senator KROGER: Thanks, CDF.

Mr D Lewis : That is correct, I believe, yes.

Senator KROGER: Which bit of it was correct?

Mr D Lewis : Your comment that the terms of reference of DLA Piper were made public. I will have to come back to that. I am sure that is true but I would like to check it.

Senator KROGER: Could you just explain the process? You have the first phase that you have outlined with volume 1 and volume 2 to be submitted. I guess what I am asking is: where are we going from here once you have that volume 2?

Mr D Lewis : It depends obviously on what is in volume 2. I cannot speculate on precisely how it will go from here. But, as you know, on 11 April last year the Minister for Defence announced a series of reviews and from that then emerged the DLA Piper review. There was a call publicly for individuals who felt that they wished to make representation to come forward and do so. I understand that those individuals have come forward and made themselves known to the review team, and they have explained their particular circumstance to the team.

It has been a fairly protracted process, as you can imagine, because there are a large number of issues to hand. Some of them date back over a number of years and some of them are complicated, so it is not surprising to me that it is taking quite some time for volume 2 to be complete. When volume 2 is received, then the minister, myself and the CDF will have a look at what has been produced and then we will have to work out a way forward.

Senator KROGER: With the number of reviews that are under way, there is a cultural crossover that seems to be emerging through a number of these. Will all these reviews that are being undertaken still be considered in isolation? At some point in time is there going to be some coordinated effort in the way in which more general recommendations from these will be considered in terms of the cultural—

Mr D Lewis : General Hurley made that point a moment ago but it might be worth repeating.

Gen. Hurley : I am sorry if I was not clear. So take out the Kirkham inquiry; that is under the inquiry officer regulations, so it is not a review. We then have the six reviews that were announced into behavioural cultural aspects, then DLA Piper. So you have three sets. Within the six cultural reviews, the point I was trying to make there is that we have not gone to each of them and said, 'Right, 20 recommendations in one, 30 in two, 10 in one, let us go through each of them and do them individually.' What we have done is bring them all together with the report writers—the people who actually conducted it, so we have not done this independently—and said, 'Right, how do these all nestle together?'—your point—'What do they tell us about ourselves and what do they tell us in military terms about the lines of operation you would take to address each of those general areas?' So without discarding the recommendations, bring them together and say—and I do not like the word—'Okay, what is a more holistic way of looking at what they have told us about ourselves, and how do we address that in a coherent manner into the future?' That is the work we have been doing.

You can imagine that when you get those sorts of points, this is not something you can just knock over fairly quickly. There is a lot of discussion that needs to go on between the three services and with me, because we are looking at three longstanding cultures. What are the implications for them from a Defence umbrella point of view? Then once you have nutted your way through that, go back to what we are trying to do in the reform agenda for Defence and changing behaviours there. How do they relate to that as well? So we want it to be a coherent program that is enduring and takes us forward rather than something that in three months time can come back to some Senate committee hearing and say, 'Yes, we have ticked all nine recommendations.' I think we really do understand the significance of the opportunity it creates to get that in place.

Senator KROGER: Thank you, that is very encouraging to hear. I am not suggesting that there is any magic bullet to the task at hand but it is encouraging to hear that approach.

Mr D Lewis : The terms of reference of DLA Piper are public and we can get you a copy of those. Just to clarify the question you asked with regard to what the activity has been. The DLA Piper review team was asked to make an initial assessment and to provide advice to the minister on whether the alleged incidents appear to have received proper consideration in the past and that appropriate action had been taken to address matters arising or what other recommended action should be taken. I think it is important. Some people would expect the review to have fully investigated allegations to the extent that it could make a finding. The review team has itself acknowledged in advice to the minister that the individual allegations contained in this report are untested and unverified. Part of that is because, to the best of my knowledge, those individuals against whom allegations have been brought, or the perpetrators, have not been approached, so basically we have an aggregation of allegations or assertions, but they are untested. That is what will be in volume 2, the series of assertions and allegations for each of these incidents.

Senator KROGER: So it is essentially an identification process?

Mr D Lewis : That is not an unreasonable description.

Gen. Hurley : My understanding is—I am not entirely deaf to what goes on—is that once we have those, where appropriate DLA Piper will recommend a way forward for some of those but will not resolve the issue.

Mr D Lewis : I understand the reference here—we will table those.

Senator McEWEN: I have a few questions for Mr Lewis or his officers arising from his comments about the Defence workplace agreements. You said in your opening statement that the in-principle agreement is supported by the majority of the unions. This is for the civilian workforce. Do the majority of the unions also represent the majority of the workforce?

Mr D Lewis : I am not sure of the exact percentage. No, I do not have a visibility of the total numbers of the workforce that belong to unions.

Senator McEWEN: So the in-principle agreement has been reached. When then do you expect the agreement to be put to the vote?

Mr D Lewis : It is dependent on a number of steps, as you know. We go from here, where we have in-principle agreements with, as I said, most of the unions. There are still a couple of issues to be ironed out. And then we go to the Australian Public Service Commission. I cannot predict this but I am hopeful, if we were to secure the agreement of the Public Service Commission with the terms that are in prospect of total agreement now then I would be expecting a vote probably in early March. But that is entirely dependent on the outcome of the deliberations of the Public Service Commission.

Senator McEWEN: You said a couple of unions were not happy. Are they big unions? Do they have a big proportion of the workforce as members?

Mr D Lewis : No. APESMA is the union with whom we are still negotiating some detail.

Senator McEWEN: I understand that the Defence Force Remuneration Tribunal has made its decision with regard to the WRA for Defence personnel?

Mr D Lewis : That is correct.

Senator McEWEN: Did that deliver a nine per cent increase over three years? Is that what the in-principle agreement for the civilian workforce is also going to have in it, subject to all of the things that have to be gone through?

Mr D Lewis : As you know, the public service-wide guidelines go directly to those figures, nine per cent over three years.

Senator McEWEN: I understand the Defence Force Remuneration Tribunal also gave a payment date of November 2011, so there will be some back pay. Is that correct?

Gen. Hurley : The date was 3 November. That was the date that the previous arrangement expired so it was moving on from there. There was no gap between arrangements.

Senator McEWEN: Will there be back pay to the same date in the WRA as in the DECA?

Mr D Lewis : There is no provision for backdating in the terms of the agreement. It is a very different system, as I am sure you know. There is no provision for that at all.

Senator FAWCETT: Thank you for your evidence today and more importantly thank you for your leadership of our defence capability over the last several months. Secretary, in your opening statement you talked about the appointment of the Chief Operating Officer. You also mentioned a chief operating officer group. Could you tell us how many additional staff are being appointed as part of that group?

Mr D Lewis : I probably have misspoken but the chief operating officer group is one that is emerging. We have, as you know, a series of groups and services in the Defence organisation. How indeed that part of the Defence organisation, those current groups, which will be subject to the direct oversight of the Chief Operating Officer will be characterised is still emerging. I would not want to leave you with the impression that I could show you some sort of chart right now which shows a chief operating officer group. That does not exist. We have appointed, the day before yesterday, a Chief Operating Officer. Mr Simon Lewis and I are working our way through that process now. I was trying to indicate that there are three groups in particular that are falling within the direct purview of the Chief Operating Officer but that officer will have even wider interests than just the three groups.

Senator FAWCETT: Other than the Chief Operating Officer's direct on-costs, do you have a set budget for the creation of this group and all the attributed infrastructure for it?

Mr D Lewis : No, there is no anticipation at this stage of increased costs as a result of the appointment other than one additional SES officer. I have already worked out compensating arrangements for that. You will not see some kind of budget line that shows an increase as a result of that appointment.

Senator FAWCETT: I will have some further questions on the Black review later. Was this appointment a recommendation of the Black review?

Mr D Lewis : Not specifically. The Black review was more general about the requirement for better lines of accountability and for better identification of who was responsible for what. Mr Black talks in his report about horizontal and vertical alignment and integration, as I think you know. The role of the Chief Operating Officer is to provide that integration, particularly what I describe as our whole of enterprise backbone arrangements—around ICT, around personnel and around the financial function across the department.

Senator FAWCETT: Coming back to the cultural reviews, did any of the reviews attempt to benchmark where Defence is against like organisations in the broader community? Did they, for example, compare ADFA with residential colleges in universities? Did they compare the broader Defence workforce with comparable workforces?

Mr D Lewis : We might get CDF to—

Gen. Hurley : We had already been doing some work with university residential colleges around the country. We actually formed a group of like-minded organisations to look at what the issues were. We did that back in 2010. Admiral Goldrick was in charge of that. I do not think the reviews could do it, because there was not a lot of data about what goes on in residential colleges—you could ask parents; I am one and I have children who have lived in them. But there is no national benchmark that we could do in relation to that. There were surveys by the university student unions and so forth about instances of sexual offences, but not specific to residential colleges. That is something we really want to get our teeth around.

We started the work two years ago to find out where we stood and what were the common issues. And not so much even then as a benchmarking exercise but really to share with each other the similar problems we are facing and what other people are doing about it—bringing up younger people in residential colleges, obviously away from parents, lacking certain influences and under stressful situations. I think we are cognisant that there is work to be done and we can learn a lot from each other in that space.

Senator FAWCETT: Part of the sense of my question is that the media and certain others have reacted quite extremely to occurrences within Defence. I think it is an important question for Defence and the broader community to understand whether you are trying to bring an errant organisation and culture into line with the broader community or whether in fact you are dealing with a representative sample of the broader community and you are actually trying to raise the standards. Do you have a view as to where you are at?

Gen. Hurley : I do. I think if you go through Ms Broderick's report on the treatment of women at ADFA— and it obviously goes broader than that in its comments—and the report on ADFA that Commodore Kafer undertook in 2010, ADFA is a high-performing organisation. Its standards of behaviour are very good. The press grabbed on one line in the Broderick review about something like 70 per cent of people in ADFA having been subject to some sort of sexual harassment or so forth. When you look at what they define that as, they could be telling a dirty joke. I think frankly we have been unfairly characterised in relation to the academy. I think the young men and women who are at the academy have been unfairly characterised in the press. As we go through the cultural review, yes we will look at some issues in there, but I do not think I am in any situation at all where I am trying to right a sinking ship at ADFA.

Senator FAWCETT: So, the overreactions have not been helpful in moving Defence forward.

Gen. Hurley : The media reactions are what the media are about—the story of the day.

Senator FAWCETT: My question was about overreactions, not media reactions.

Gen. Hurley : Sorry. Maybe I am oversensitive, Senator.

Air Marshal Binskin : To carry on from that, at the ADFA open day last year we had, obviously, a lot of parents down with their children looking at joining ADFA. One of the mothers made an interesting comment. They had come down from Sydney and she mentioned to one of the staff at ADFA that, prior to the incident in March or April, she had never considered sending her daughter to ADFA but now she was simply because she understood that there were processes and discipline in place to handle such situations. She was not confident that that was the case in the broader university environment around Australia.

CHAIR: Good point.

Senator IAN MACDONALD: Mr Lewis, you mentioned in your opening statement a number of reviews. Unless I missed it, you did not mention the defence posture review. I appreciate that it is not due until the first quarter of this year, but there was a progress report with preliminary conclusions which I think were released a month or so ago. Is that correct?

Mr D Lewis : Yes, it was put out in December.

Senator IAN MACDONALD: Do you understand that the review is proceeding on time and that the final conclusions will be delivered by 31 March?

Mr D Lewis : Yes, I have no reason to believe that the end of March would not be the time we receive the final report.

Senator IAN MACDONALD: I understand from the minister's media release in announcing the defence posture review that the base consolidation review will be tied up in that. Is that correct?

Mr D Lewis : I am not sure about that.

Mr Jennings : I think, best described, it will be a component of the force posture review but may not be released simultaneously to it.

Senator IAN MACDONALD: The preliminary conclusions, of course, were fairly direct, but I guess, Mr Lewis and General Hurley, you would take the view that perhaps it is not appropriate to inquire into that today but perhaps leave it till after the final report is received prior to 31 March.

Mr D Lewis : I think we would be in a more firm position to talk about what the future might look like after that, but I would say that, further to 31 March, the issue about the ADF's posture is also tied up in the force structure review, which will be done next year and lead onto the defence white paper. So I would not like you to think that we could appear here on 1 April and say, 'This is the blueprint for the defence footprint—the force posture review—for the next 20 years.' That is not going to happen. It is an iterative process. The force posture review will be considered when it is received. It will feed into the force structure review next year and then, subsequently, the white paper.

Senator IAN MACDONALD: Would you tell me the process that will be followed. I take it it will be delivered to the minister prior to 31 March. Will it be publicly released at the same time?

Mr D Lewis : That would be a matter for the minister. He has released the interim report, so I would have some expectation that it would be released, but that is entirely a matter for the minister.

Senator IAN MACDONALD: And it is simply a recommendation which you, the CDF and the government will consider, as you say, leading into the other determinations in the time ahead?

Mr D Lewis : That is correct.

Senator IAN MACDONALD: Is it appropriate, then, for me at this stage to ask in a general way about the preliminary conclusions? They were very much about moving the defence forces north, a conclusion which you would appreciate I entirely agree with as a northerner. I just wonder: is that in line with the thinking in the department or in the Defence Force? Or is there likely to be violent objection to that general thrust to, as I say in a one-liner, move further defence forces north?

Mr D Lewis : I am not sure that I agree with the characterisation of moving further defence forces to the north. But as for your earlier statement, about if it does imply a concentration of attention on matters relating to the north of the country, then I think that is not unreasonable. It is not just a defence issue, as I think you would appreciate, as the entire Australian nation finds itself in quite different circumstances in a strategic sense now than it did, say, a decade ago. If you do accept the proposition of the Asia-Pacific century and if you accept the reality of the value of the resource extraction wealth that we have in the north of the country and, obviously, growing population centres and growing economic horsepower in the north of the country, it is not unreasonable that we should be paying attention to the security arrangements there. I would not want to suggest for a moment, however, that we have in any way abandoned the north of the country. The ADF has been operating, as you know, in the north of Australia for many, many years. In the last few years there have been international engagements and so forth that might have resulted in a slight dip but I do not accept the notion that we have abandoned the north. In fact, I think there was a counterterrorism exercise run up there a little over a year ago and I am sure there are more military exercises being planned. The CDF can speak more to the issue of the military footprint.

Gen. Hurley : Could I correct this. I misspoke the date. The report was received by the minister in December and publicly released on 30 January this year. I think it is very important to understand that the report is not a basing report but a force posture report, so it is broader than physical location. It is about our presence up north, our interaction with communities, exercises up there, familiarisation visits. So there is a whole range of issues there. Defence is actually quite active up there but, unfortunately, a bit invisible. That is one of the things that the report points to that we need to address. So I think we just need to take those concepts into mind, wait for the final report to come through and then fit it in. Obviously, it would be cognisant of the report. It would be that cognisance and the strategic guidance that will inform the white paper so the two should move in parallel into the white paper process and the debates will occur once the report is in.

Senator IAN MACDONALD: I certainly disagree with you just on one thing. The defence forces are not entirely invisible. There was a rousing welcome to the 3rd Battalion in Townsville just last Friday and, of course, it is very much part of the Townsville and Darwin communities and, indeed, of Shoalwater Bay-Rockhampton these days. I wonder if Defence generally is selling the benefits of personnel perhaps moving to warmer climates. I know that at 11 am last Friday 3rd Battalion standing in the blazing sun while politicians made speeches was not a great welcome to the attributes of the north, but I would expect that there would be some reluctance by some personnel to move, say, out of the leafy suburbs of Sydney and move into the even leafier and more attractive suburbs of Townsville but perhaps they do not understand that Townsville does have those—and Darwin and Cairns and, indeed, Broome too with very leafy suburbs and very attractive places. I wonder if Defence is doing anything about explaining to people that there are job opportunities for spouses and partners and there are good schools for children in many other parts of Australia apart from Sydney and other places.

Air Marshal Binskin : If you send us the brochure we will distribute it to all personnel if you want!

Senator KROGER: So welcome to a stay in Queensland—

Senator FEENEY: He does not want them to be tourists. He wants them to stay there.

Gen. Hurley : If you gave that opportunity to my wife to move from Russell to Brisbane or north, you would get her vote, Senator Macdonald.

Senator IAN MACDONALD: Can we appoint her as Chief of Defence Force then?

Gen. Hurley : She is the only five star in the country! I think if you look back to the 1990s, when we started moving 1st Brigade up to Darwin, we have grown a lot in our understanding of what life is like in the tropics. Obviously Townsville has been there from the sixties. I think across the Defence Force there is a good understanding now of what life is like in the tropics. There has been a generation or more of service personnel from all three services who have been up there. If you look at some of our force elements, for example the patrol boats, their life is essentially in the tropics. So I think there is a good understanding across the defence community of what life is like, both the attractions and the disadvantages, living in tropical environments. Many people put their hand up to go and many do not put their hand up. It would be an issue, if a decision is made to move north, of again going back to our previous experiences of how we generate programs to encourage people to move.

Senator IAN MACDONALD: Finally, I hear what you say about the defence posture review not being a base relocation assessment, but it worries me as a rank amateur that we are expecting three huge ships to join the Australian Navy over the next few years. We had this highly publicised report a week or so ago of cruise ships, which are a significant part of Sydney's economy, having to park out in the middle of the harbour and get rowboats into the shore because there is nowhere for them to park in Sydney Harbour. While not pre-empting any decision, I just wonder what work is being done in relation to whether Garden Island is the best base for the LHDs. As I understand it, we are close to spending a lot of money in Garden Island to accommodate the LHDs. Perhaps someone can correct me if I am wrong there. It seems to me as a rank amateur that it is an untenable venue for the east coast fleet in the long term.

Gen. Hurley : There are two reviews that cut across into that subject area. One is the force posture review, which will look at those issues. Secondly—I just cannot remember the name of the review that was handed in only a week or so ago; the Chief of Navy can address that—there was a report that looked at the utility of Garden Island or the Sydney Harbour basin area for cruise ships and how that might sit with the Navy. There is work underway, but it is a long way from final decisions. The Chief of Navy might have a comment.

Vice Adm. Griggs : I think the important point to note, particularly on the point you made on being about to spend money, is that we have to spend that money because we have to provide the appropriate basing infrastructure for the LHDs when they come. These reviews, as you have heard, are really about the longer term future. Even if a decision was made very shortly to base the LHDs somewhere else, that would take a number of years to come to pass and develop. We would have to base them in Fleet Base East in the interim period anyway. So we still have to make the infrastructure investment.

Senator IAN MACDONALD: What is the figure that we are proposing to spend on Garden Island for the LHDs?

Vice Adm. Griggs : I do not have it off the top of my head.

Mr S Lewis : I do not have the precise figure, but I am pretty sure it is more than 30. It might be closer to 100. If I can come back to you a bit later on this morning, I should be able to give you the precise figure. As the Chief of Navy just explained, this is going to do essential wharf works, power, augmentation et cetera in order to be able to bring the vessels to Sydney Harbour. Long-term basing will obviously be looked as part of the force posture review and the outcome of the cruise ship review that is being done by Allan Hawke.

Senator IAN MACDONALD: I will leave it there. Perhaps it is a bit premature, but I do note in concluding that places like Brisbane take ships that are bigger than the LHDs at the moment—not in secure confines. It is a fraction of concern to me that we might be spending around $100 million in the next couple of years when perhaps that $100 million could be used—just using a hypothetical—to dredge out the Cairns harbour and allow them to be put in that mecca of world tourism.

Mr S Lewis : We are engaged in a partnership with the Queensland government and the Townsville authorities in relation to the redevelopment of the wharf at Townsville. That project is on track, I believe. There will be capability available by about the middle of 2013 for the LHDs, well before they arrive.

Senator IAN MACDONALD: I want to ask about that further, later in the estimates, if I get the opportunity. Thank you for that.

Proceedings suspended from 10:31 to 10:46

Senator EGGLESTON: Following on from Senator Macdonald's comments about the low visibility of Defence in the north, in his case referring to the north-east coast, I refer to the north-west coast where the visibility is much lower. This is the case even though there are some important facilities, including the oil and gas fields in the North West Shelf and, on the Kimberley coast, the growing Browse Basin oil and gas field which will eclipse the North West Shelf. There are also some very major ports, two of the biggest ports in the world in fact in Dampier and Port Hedland which at the moment is the fourth biggest commodities port in the world. Yet there is very little Defence Force presence in the north-west. There is Norforce in the Kimberley, the Pilbara regiment based in Karratha, the bare airbase in Curtin and the bare base in Learmonth. For a long time there has been talk of establishing a patrol boat base in the north-west. In fact in 1989, when Kim Beazley was the minister, he announced on the Port Hedland wharf that there would be a patrol boat base established in Port Hedland. That is 23 years ago, and one rarely sees patrol boats visiting Port Hedland, much less a base. What plans are there to increase the Defence Force presence on the north-west coast of Australia?

Gen. Hurley : I think invisible is in the sense that most of our operations take place in the air and sea environment and not on the land. You indicated we have some reserve units on the land in the north. Air Marshal Binskin will take you through some of the data. But I think the problem is there is a lot of activity there from Defence, it is just not visible from the key cities there. Essentially, if we are looking at the security and defence of those areas, a lot of that would have to be forward of land and revision of forces there.

Senator EGGLESTON: I understand that.

Gen. Hurley : The Vice Chief will take you through some of the stats and then we will come back to your question.

Air Marshal Binskin : The visibility is the issue. The preliminary review highlights that there is a lot of activity up there, it is just not visible. To give you an example of some of the activities, as a part of Resolute which is border protection but still has a lot of assets there, Defence routinely assigns seven Armidale patrol boats. We have three P-3 aircraft and approximately 450 personnel. While they doing the border protection they are actually also doing the security side of operations there. We routinely conduct counterterrorism training. The last counterterrorism exercise was just over a year ago, and more are planned to be conducted in the area in the coming years. We conduct aerial surveillance and patrols up there, and they are conducted on a regular but deliberately non-predictable basis. With Customs and ADF vessels there were 99 patrol days in the North West Shelf over the last year. I understand that the Inspector of Transport Security, Mr Michael Palmer, is currently conducting a review of the quality and effectiveness of the current security arrangements for offshore oil exploration and production infrastructure up there as well. So there is a lot of activity going on in the review sense at the moment.

Into the future we will be looking at doing more exercises again, up there, that we were doing previously. Air Force will be looking to do more exercises around Learmonth and the Curtin area, and the training areas to the west of Tindal Air Force base. Navy will be looking to conduct more presence patrols around there as they transit through, so that the people who are there can see what they are doing, and get a bit more of an idea of the presence that really is there. I understand there will be more land patrols and exercising going on as well. That is what we are looking at doing over the coming years.

Gen. Hurley : I have directed that we have a refresh of our knowledge of the logistics infrastructure up in that region to make sure we are not dated. We hope to get a good understanding of how we can either deploy two support operations in the area or generate forces to depart from the area, and sustain them there in the field. I am cognisant that in my youth we used to exercise up there every two years, with the Kangaroo exercises and so forth. The emphasis for those exercises has primarily gone to the north-east in recent years, across to the Northern Territory and Delamere and Bradshaw in future years. I think we need to go back again and ask, 'Are we doing enough over there to familiarise the next generation of people with operations in that region?' I do not think there is a lack of understanding of how to operate long distances away from major bases—that is bread and butter for us—but operating in that environment has some unique requirements, and we need to get up there a bit more.

Senator EGGLESTON: I know about the coastal patrols by aircraft and the long-range patrols further out to sea. I know about that, and the presence of the Army there, but there is a perception that perhaps less attention is being paid to that very important economic area than there ought to be. I think your comment about infrastructure is very important, regarding moving materiel into that area. For a long time some people have advocated the upgrading of some of the roads that lead to the north-west coast from Alice Springs, such as the Tanami Road, which runs from Alice Springs through to Halls Creek and provides a shorter and quicker access to the Kimberley and to the Curtin air base, were it to be required by land forces in some sort of emergency. In a general way I am very pleased to hear that you are reassessing the location of your exercises, and perhaps we will see more military activity in the north-west than there is at present.

Gen. Hurley : We would be supportive of any state government initiative to improve the roads in north-western Australia.

Senator EGGLESTON: I am sure you would. Senator Macdonald would be somebody who would like to see that sort of thing happen as well.

CHAIR: General Hurley, in your opening statement you talked about the suite of cultural reviews, and in your response you talked of it being a statement of cultural intent. Is that statement the full report that you are pulling together out of all of the reviews, or is it going to be something like a charter of cultural intent that will be embedded in the organisation?

Gen. Hurley : More the latter. It is bringing together a statement of our values as an organisation and integrating the values of the subcultures in the organisation and trying to bring that into an umbrella statement about 'this is what the ADF is about.' It is the banner charter statement of our culture.

CHAIR: You indicated that it was coming soon. Is there a time frame for that?

Air Marshal Binskin : It should be in the next couple of weeks. It has just been finalised and we are just going through the clearance processes now. We should have it in the next few weeks. By mid-March we should have it out. As you would understand, we want to keep the impetus going here, so we want to get it out. The first engagement will be with the Defence 100, which is the top 100 uniformed and SES within Defence. It will look at what we need to do in that area to grow the culture, and they have a lot of say in the activities and how we are going to progress this. It will also be flowed out across the broader Defence organisation.

Senator JOHNSTON: Can I go to the security vetting report of the Inspector General of Intelligence and Security. How much did Defence have to pay for that report, if anything?

Mr McKenzie : Just to clarify: how much did we pay for the IGIS report? Is that what you are asking?

Senator JOHNSTON: Yes.

Mr McKenzie : I do not actually have the precise figures, but I do know the estimate originally was that, for her time and effort in terms of travel and incidentals, and her staff, the estimate originally was $40,000. But if I could take it on notice I will find precisely what we paid.

Senator JOHNSTON: In reading that report—feel free to correct me if I am wrong—she set out with the allegations contained on a television program, Lateline,and, in the course of her inquiries, found further widespread issues with respect to the management and administration of security vetting. Does Defence accept that, and do you accept the recommendations and the tenor of her report or are there any issues you want to take with it?

Mr McKenzie : We certainly recognise that she has done a thorough examination and has identified issues that contributed to the problems identified by the three people who went on Lateline. Her report concludes that the essential allegation, which was that there were workarounds that contributed to false data in the vetting process, was indeed true. Her report, frankly, gives a comprehensive account of the contributing factors to that, and the government—and Defence, obviously—have accepted all 13 recommendations that she made.

Senator JOHNSTON: I think we do need to touch on this. It is a bit post facto and there is nothing much to be gained by raking over these coals, and I am not going to be very long, you will be pleased to know, in talking about this. But it is a disturbing report in that I myself was told last year that this was a bit of a beat-up and really there is not much to this. I am paraphrasing, of course, but the Hansard speaks for itself. Eventually, and I am not sure how or why, somebody said, 'We better check this out and we better interview these people.' Obviously with the benefit of legal advice, they said, 'We want some indemnity from prosecution to tell you what has gone on.' To get around that, we had to get the Prime Minister to appoint the Inspector General—which I think is all very straightforward. But when I read the report, what really hits me over the head—and I think it would be the same for anybody reading the report—is that we had an abundance of arrogance with respect to these complaints on such a sensitive and important issue. We had President Obama arriving, we had the Queen arriving, we have done 20,000 of these—let's not get into the numbers other than to say 20,000—and we have got a number of years of remediation ahead of us. The point I want to dwell on and get some engagement with you on is that the Lateline program said that there was falsifying of information, disregarding missing information and documentation, adding fabricated information, addressing gaps in addresses and employment, and rubber-stamping security clearances to get the numbers up. On page 22 of the IGIS report, she says:

The allegations raised by the original complainants shaped the initial stages of my inquiry. I found that the data-entry practices alleged by the Lateline complainants did occur although there was no evidence of any attempt to subvert or mislead the vetting process.

Well, there would not have needed to be any attempt or mental element because, if they were happening, it was good enough, I would have thought. What really disturbs me is that when these issues were raised, be it prior to March 2011 or in the previous year, the penny never dropped that there could have been some serious consequences if there was the slightest one per cent chance of anything this program said or they had complained of previously was true.

She then finds in annexure B—and we can go through it all, but annexure B is pretty sobering reading—that virtually all of the personnel with this responsibility have been caught up in this. There were 23 people summoned to account—of which I think five had to make statements. At the end of all of this, do we acknowledge that there is some sort of cultural arrogance that is problematic with this inside the particular department or that might even be more widespread in Defence?

Mr D Lewis : Perhaps I could respond to this first. You will recall, I am sure, that Mr Merchant addressed this particular issue during his testimony I think at the last Senate estimates hearing. You know that the first letter that was sent by the complainants was sent somewhere around early March 2010 to a member of parliament. In that letter—and I think you would agree with this—the headline, if you like, was the issue of harassment and bullying and there was also mention in that letter about what I would describe as the unsatisfactory security practices that were going on. It is—and I think Mr Merchant said this at the time—unfortunate that we were absolutely focused on the bullying and harassment and less attention was paid to the issue of what was physically happening with the security clearances.

So if you can accept for a moment that the Defence department's attention was fully focused on the harassment and bullying issue. That in fact was the context of the letter that went back from our minister to the member of parliament. It was only then, with the Lateline show, which was a few weeks later, that the focus shifted from the harassment issue—which is a very important issue in itself—to another related issue, which is the security workarounds and the issues that were going on with regard to the quality of the vetting. That is a point that I think was made clear by Mr Merchant at the last hearing—and I just wanted to reiterate that this morning. That accounts for why there is a difference in emphasis. As soon as it became apparent—and you know that events cascaded very quickly after the Lateline show—that a major component of this issue was actually the workarounds and the quality of the vetting then the IGIS inquiry took place.

Senator JOHNSTON: I accept all that, and we are all wiser with the benefit of hindsight, but it just troubles me—and I think I am entitled to be troubled—that, if it had not been for a television program, these practices would still be continuing.

Mr D Lewis : That is speculation and I cannot—

Senator JOHNSTON: It is speculation but, with the failsafes that one hopes are in place, the sensible response, the responsible outlook, even if a small percentage of the scuttlebutt is true—there is a significant issue here. The alarm bells had to be stood on and jumped upon in order for them to begin to ring. When they did ring we found out that the circumstances were far and away beyond what the whistleblowers had alleged. The reason I raise it today is because I was told that it really is not a problem. Back last year in what might have been budget estimates, I realise Mr Merchant probably did not know the length and breadth and parameters of the problem. But effectively that was some long time after the program—indeed, months—and the issue involved was so important.

I think there is a lesson to be learned here and I am not sure that we have picked up on this. When people say and do things, one has to be responsive. We really saw the train on the tracks heading towards us and just stood there. How many years is it going to take us to get this train back on the rails? We have a lot of vetting to do. I think the contagion has spread to the other agency. How long is it going to be and how much is it going to cost? Do we scope this out to get this very important function back to where it should be professionally?

Mr D Lewis : I will just respond to your comment about standing on the rails and not seeing the train. There is another dimension to this which was trawled through previously. That was that the three complainants on the Lateline show were working for a contractor. They were not Defence employees, so it was just another layer of obscurity to our understanding. It is not an excuse for us not understanding, but I have described to you that the understanding was not complete for some time. As soon as the understanding was complete then investigative action was taken. As a result of that, the IGIS report and her 13 recommendations have been accepted. Not only that but we had started working prior to her report to sort a good deal of this stuff out. I can say with some great degree of surety that the degree of oversight that now exists over that particular function—it would not surprise you to know—is enhanced considerably. So I think we are potentially in a good space looking to the future, but there is a degree of remedial work to be done. I might get Mr McKenzie to address the second part of your question.

Mr McKenzie : We have already begun the work on checking the clearances. Mr Merchant mentioned last October that our estimation for the two years and three months that were affected by these practices is that we expect that we will have to remediate probably about 20,000 clearances. When I say remediate, that can cover a lot of work for some and maybe none for others that are error free. By our judgments that estimate is still valid in terms of the work we have done so far. We now have a little more understanding because we did start last year when we clearly understood the problem. We have already tackled it. On a risk management basis we have started with the highest level clearances first. There are 5,300-odd clearances from that period at the highest level and we have already completed that ahead; from last week's announcement of 3,100 we are actually now up to nearly 3½ thousand. The team is working very hard on this.

Senator JOHNSTON: How big is your team?

Mr McKenzie : It is 15 people. We gathered those people from across the intelligence and security group to do this work. It is not the most exciting work in the world, but they are doing a very good and thorough job. So we are working on that. I suppose there are two main strands of work here in addressing this issue. One is the remediation of the data from that era. The other is strengthening the vetting organisation to make sure this does not happen again. We estimate that this is going to take us 18 months to two years; this year we will have the organisation built fit for purpose and it will probably take another year to—what I would say—'reassure' ourselves that all the systems are working very well. The primary cause of the start of this process was an online tool that applicants had to use to put their data in, and it was not robust at the start. That was the main cause of this problem. That is now very good. I can speak from personal experience because I used it a week ago for my own re-evaluation. It is intuitive, and occasionally it tells you, 'That isn't quite right. You need to fill that in differently.' So the errors from the applicants, the vettees themselves, are now very minimal. That is a very important step forward.

On the task of checking the clearances from the period, we think our estimate that it will be 20,000 that we will have to revalidate still stands. We are saying that is 18 months to two years of work. It may take a bit longer or it may take a bit less. I am a bit reluctant to give absolute answers on that because we are doing the hardest ones first, and that has taken us about six months to do nearly 70 per cent of them. However, the team is getting better as there is familiarity with the task and so on. We had to set up some training for them at the start.

The amount of information in a pack for a high-level clearance is significant. It is a very intrusive amount of information. So obviously, there is more work involved in doing each of those. As we get down to the lower level clearances the amount of information that a vettee has to provide is less, and therefore it is likely we will do those a little bit faster. But we are saying 18 months to two years is our estimate, and we have also both added some strength in the management structure of the vetting organisation and allowed the acting Chief Security Officer to expand the workforce temporarily as a surge.

We have to fix this. The IGIS made the point in her report that we have to fix this but also that we have to manage current operations to keep the thing going. So I have allowed Mr Collie to expand the workforce temporarily because while I would not say we have spare capacity, we have some recruiting that is underway in the agencies in the group that have not quite met their targets this year and we can afford to let him do that temporarily.

I do not have a precise cost on the implementation of this over the next several years.

Senator JOHNSTON: I accept all of that, thank you very much. Secretary, I suppose that given what we now know in the report that the question I am bound to ask, I feel, is the accountability question. Twenty-three interviews and I think five requests for response: what has happened with respect to the accountability for this?

Mr D Lewis : There are a couple of things. In her report, IGIS makes it quite clear that in her judgement, after a forensic examination, there was no particular aggregation of responsibility that would cause her to bring any individual before me to be held personally accountable in any sort of disciplinary way. I just make that point as a backdrop.

Having said that, as I mentioned to you the other day, I have taken immediate steps to strengthen the senior management team around this issue. In fact, there are several SES officers who have come into that management team directly with the responsibility of fixing the issue, and there has been change in the management team. I just want to assure you of that.

Senator JOHNSTON: I accept all that, and I thank you for your responses to what has been a very concerning the report, if I may say so.

Senator HUMPHRIES: I also wanted to congratulate Mr Simon Lewis on his appointment as associate secretary but, of course, there is another position yet to be filled in that role: the Associate Secretary Capability. Is there any time frame as to when that position is likely to be filled?

Mr D Lewis : Not specifically. We have had, as you know, some significant turnover in the senior management of the department. There was announcement made on Monday. You mentioned Simon Lewis but there have been a number of others: Dr Zelinsky for the DSTO, Warren King, who was mentioned earlier, and there are a number of deputy secretary appointments being filled.

The process for the Associate Secretary Capability position is still underway. It was an international search, as you know. The Chief Operating Officer's position is a little more clear in terms of its tasks—the duties and the range over which the Chief Operating Officer would work is not an unknown sort of an appointment in the corporate world. An Associate Secretary Capability position, however, is altogether more complex. So that process is still underway. I cannot give you a time but I would think within some weeks I would be in a position to make some further announcement with regard to that position.

Senator HUMPHRIES: You mentioned turnover of staff. One of those turnover items—if I can put it that way—has been Air Marshal Harvey. What is Air Marshal Harvey's status at the moment?

Mr D Lewis : I might just ask the CDF to refer to that.

General Hurley : Air Marshal Harvey submitted his resignation in the latter half of last year. He is transferring, I think, to the inactive reserve. That date must be about now. He has essentially removed from duties in the department.

Senator HUMPHRIES: His was a very sudden departure, you will have to agree. You would be aware, I am sure, of reports in the media that the sudden departure of Air Marshal Harvey was connected to the imminent appointment of a new Associate Secretary Capability and a restructuring of lines of responsibility within Capability Development Group. When Air Marshal Harvey left that position—I assume he left it voluntarily; he was not removed from the position that he occupied—did he make reference to that issue?

General Hurley : You are correct in saying that it was his decision to move, and I think he should answer. He is the one who should give his reason. It is not for me to try to express those for him.

Senator HUMPHRIES: I cannot call Air Marshal Harvey to this committee.

General Hurley : I understand that but he had personal reasons for making the decision. He made the decision and he has left us.

Senator HUMPHRIES: I accept that Air Marshal Harvey's decision is his own but I put it to you that we have now had two significant and sudden resignations with respect to defence capability development: Dr Gumley's last July and Air Marshal Harvey's in November-December. Both were widely reported as having a reflection on the way in which this department is being restructured in the wake of the government's response to the Black report. I think we are entitled to know, as a committee, whether there is a concern within elements of the Defence hierarchy about the way in which those changes are taking place. I do not think it is unreasonable to ask whether either of those individuals expressed concern as they were departing about the nature of the changes that were taking place.

General Hurley : I think you can see in the response we announced on Monday that the department has looked at what has been required of it under the Black review and responded appropriately. If people had different points of view, or so forth, in that process, that debate has been had. If it led people to say, 'I must move on,' they have moved on. I cannot speculate for them; they should answer for themselves.

Senator HUMPHRIES: What relationship will the new Associate Secretary Capability have to the head of DMO? To what extent will that position be placed between the head of DMO and the minister?

Mr D Lewis : I said in my comments just a few minutes ago that the position of Associate Secretary Capability was more difficult to proscribe than the case of the COO—the Chief Operating Officer. I think the answer to your question is that it is still emerging as to exactly what that relationship would be. So I cannot say anything more than that at this stage.

Senator HUMPHRIES: I do not understand how you can advertise the position internationally but not know exactly what the position will do with respect to the rest of the Defence hierarchy. Surely you would need to settle that issue before you put a person into that role.

Mr D Lewis : It was made clear at the time, I think, that the role was to provide end-to-end coordination of the capability process—that is, from the user requirement identification at the start of the process, which typically would start, say, in one of the services, through the Capability Development Group and the work that is done on identifying precisely which bit of kit might be required and the capabilities of it, through to the DMO and the acquisition process, and on to the disposal of the equipment at the end of its life. So the object of the exercise for the department is how to get a grasp on that process from end to end, because it is punctuated, of course, by the various columns, if you like, at present. The acme of success here will be the joining of that process from one end to the other.

Senator HUMPHRIES: Do we know how, once the appointment is made, that position will operate vis-a-vis the head of DMO and the minister?

Mr D Lewis : I am sure that when that is established we would be in much clearer air.

Senator HUMPHRIES: I look forward to asking those questions at another estimates.

CHAIR: Do you want to make any comment, Parliamentary Secretary?

Senator Feeney: No.

Senator HUMPHRIES: I am sorry. There is one other issue arising out of the opening statement. Mr Lewis, you said:

We will continue to pursue efficiencies and cost reduction targets to position reforms as business as usual in Defence. To support this, the SRP implementation model is being adjusted to ensure it aligns more effectively with the broader reform agenda.

What did you mean by that?

Mr D Lewis : I might get Mr Sargeant to talk specifically to that.

Mr Sargeant : Basically we are three years into the Strategic Reform Program, and so far we are on schedule to achieve the cost reductions and to pursue the reforms, but we have got to the point where we need to move the SRP from being a program which is, for want of a better term, sitting outside the mainstream work of Defence and to ensure that it transitions from a program in itself to business as usual for Defence as a whole so it becomes mainstreamed. One of the ways in which we are doing that is with the advent of the chief operating officer position. That position has responsibility for a number of major SRP streams: the ICT, workforce and shared services and non-equipment procurement streams. They comprise about two-thirds of the SRP. So what we are doing is bringing the program under the responsibility of the chief operating officer and really giving him the opportunity to integrate the program with the other streams of work that he is responsible for both in terms of business as usual and in terms of reform. So what we want to achieve out of that is a reform program that is something that we do every day and that is aligned with the accountability of line managers. We move from reform as something we do in addition to what we do normally to something we do because we are an organisation that is in a process of continuous improvement and reform.

Senator HUMPHRIES: All right. I will ask some other questions about SRP later on.

CHAIR: Are there any other questions on opening statements?

Senator JOHNSTON: I will talk about the Coles report. I realise that the minister responsible for the DMO is coming in at about 2 or 2.30 pm and has other responsibilities, so I was not going to raise any particular matters other than directly with respect to Navy on the Coles report. Admiral, this appears to be a generational changing report with respect to one of our most important force element groups. Do you accept the length and breadth of the first tranche of this report?

Vice Adm. Griggs : In the DOFD estimates yesterday, Ms Mason gave a very good summation of part 1 in that Mr Coles came at our invitation to look at the submarine enterprise.

Senator JOHNSTON: The minister's invitation?

Vice Adm. Griggs : Ours, as in the Commonwealth government, invitation. It was not something that he imposed.

Senator JOHNSTON: I am pleased you were watching the estimates yesterday morning, may I say.

Vice Adm. Griggs : I will leave that one, Senator! The important thing is that phase 1 was a collection of initial interviews that Mr Coles did throughout the Navy, throughout DMO, more broadly in Defence and then of course with ASC and industry. It is a collection of what we told him. He has made some overarching observations. It does represent our knowledge of the situation. The useful thing about it is that it aggregates it into a single document and points us forward. He is the first to admit that it is not evidence based, other than the discussions that he has had with various people throughout the process. That is the work that he is now engaged to do in phase 2—to do the hard evidence based collection to work the program forward.

Senator JOHNSTON: I think he raises issues that have been canvassed by this committee for some long time. Whilst the committee does not carry the weight that he and his team carry, I think we have all been, in the colloquial, singing from the same song sheet with respect to Collins. The reason I ask whether you accept the Navy aspects of his report is that the two issues that are up for grabs, if you like, or where there is a big question mark, are leadership and responsibility. Whilst Navy does not carry the direct responsibility for sustainment and operation, I think the government looks to the Chief of Navy, if I may say—and I do not criticise you at all, because you have inherited everything to do with this Force Element Group and I think you are doing a very good job in dealing with what is a difficult problem—as the user of the capability, as the end user.

Senator FEENEY: Or the capability manager.

Senator JOHNSTON: More than that, because the government takes your advice on how we deploy this, how we use it et cetera—this particular Force Element Group platform.

Gen. Hurley : No. The government would take advice on how to employ it but not to deploy it. That is an operational—

Senator JOHNSTON: You are quite right. I stand corrected on that. I look at Navy doctrine and I see that somebody has to, at the end of the day, say that this is or is not working, this is or can work much better, and needs to complain if things are not happening as they should. I think we are in that space. The reason I ask whether you accept the Navy aspects of his first report is that I think somebody has to put their hand up and say, 'This needs to be fixed.' Template that I think Coles is going to produce, if he has not already, is the model by which we must live and die. That is, we have to fix this in accordance with what he has set out. I ask you again: do we accept that this is that template? Are we going to go forward upon its basis?

Vice Adm. Griggs : We have not seen it yet.

Senator JOHNSTON: The first report is pretty straightforward.

Vice Adm. Griggs : It is. One of the things that I have a little bit of difficulty with in the reporting is that I am absolutely crystal clear that, in terms of current capability, I am accountable for the delivery of this capability. There is no question in my mind; nor is there any question in anyone else's mind at the senior levels of Defence. As the capability manager, I am accountable.

Senator JOHNSTON: I am worried that not everybody down the chain in the four separate units that are producing the capability understand that.

Vice Adm. Griggs : I think that increasingly they are, Senator. Over the last eight months I have been making strenuous efforts to ensure that they do.

Senator JOHNSTON: That is what I want to hear.

Vice Adm. Griggs : We used to treat future and current capabilities as separate issues in discussions on submarines. I have brought that together. I now have a regular meeting with Air Vice Marshal Deeble, Rear Admiral Moffitt and my own submarine management team and we talk about the submarine enterprise as a whole, because you cannot separate them out. There is no doubt in my mind where we sit in that regard. The only part of the report that I would disagree with is the contention that Navy is lukewarm about—

Senator JOHNSTON: That was my next question.

Vice Adm. Griggs : I thought it might be—the ownership of submarines. It is absolutely not. Again, what we are talking about are the opinions of a whole range of people he spoke to, a lot of whom are in Western Australia, who do not see, frankly, the level of activity in Canberra relating to submarines and the level of focus that I have on submarines on a daily basis.

Senator JOHNSTON: I am really pleased to hear you say that, but I think at the back of Coles's mind—and I am just surveilling what I and the committee have understood—is that you have got quite a large number of two and three stars in Navy. I do not think that there is one who is a submariner.

Vice Adm. Griggs : That is correct.

Senator JOHNSTON: The domain knowledge issue that he raises, I think, is a very serious problem. I note that you have got the new submariner—is he a Commodore, one-star—

Vice Adm. Griggs : Director-General Submarine Capability, Commodore Sammut.

Senator JOHNSTON: Yes, that is right. That is a relatively recent appointment.

Vice Adm. Griggs : He is the second one. It was done about two years ago.

Senator JOHNSTON: But two years ago for this Force Element Group is really the blink of an eye in terms of time, given that the first boat was in the water in the early 90s.

Vice Adm. Griggs : You recall that the Force Element Group Commander was a one-star submariner from its inception.

Senator JOHNSTON: But the issue is Canberra.

Vice Adm. Griggs : That is correct. That is why we moved the one-star position from Perth to Canberra, so that this very issue could be addressed.

Senator JOHNSTON: Do you think that it is being addressed?

Vice Adm. Griggs : I think that it is being addressed and I think that we are making some progress. One thing that I have just recently done is direct the Deputy Chief of Navy to increase Commodore Sammut's manning, for example, because I do not believe that it is sufficient for him to get across all the issues. So while we made a start with moving the position and a couple of staff, I have just directed an increase in that staff level.

Senator JOHNSTON: Very good, thank you for that. I am pleased to hear that. Let us go onto some of these other things that he has raised. It appears to me that you have got a very good man seeking to do the remediation in Air Vice Marshal Deeble, but it seems that there is an authority issue coming through the pages of Coles and that there are blurred lines of responsibility in terms of who gets to say what should happen when and where and what have you. Do you accept that? I can take you to the paragraphs—5.5 is the leadership issue—and it goes on in terms of who has got full responsibility. I think that is a serious problem here. There are a lot of cooks, a lot of chiefs, and it does not appear that we are getting rubber on the road, if I can use that expression, in terms of remediating this boat and sustainment and operation.

Vice Adm. Griggs : I am not sure that I agree that we are not getting rubber on the road. Air Vice Marshal Deeble is one of Mr King's two-star officers. He is split between Wedgetail and submarines. He spends a lot of his time on submarines and has appropriate people in his team. As I said, we regularly communicate. The mechanism that I have to ensure our sustainment is correctly managed is through the Materiel Sustainment Agreement and we have been improving the metrics in that agreement. We did a major revamp to the metrics in the middle of last year. What I am trying to do is make sure that that mechanism works. Mr King and I talk regularly about how each of our product lines are going and where we need to shift emphasis. Where we need to shift emphasis is driven by me, not by anyone else.

Senator JOHNSTON: That is good, and I am sure Mr Coles will probably be surveilling what we are talking about at some point in the future. But on page 9 he says:

Neither were we able to identify anyone who was charged with taking full responsibility clearly and decisively for all aspects of the sustainment of the Collins Class Program.

Why would he say that, do we accept that and what are we doing about it?

Vice Adm. Griggs : I do not accept that.

Senator JOHNSTON: Why not?

Vice Adm. Griggs : I am accountable. My job is the capability manager. It lies on my shoulders.

Senator JOHNSTON: I think you are accountable and I think I acknowledge that you are accountable and all that, but I am not sure that he is talking about your position as being the one that he wants to see, because you have got a lot of things to do as Chief of Navy.

Vice Adm. Griggs : Correct.

Senator JOHNSTON: I think he is looking to someone who is specifically and directly in charge of submarines and submarines alone.

Vice Adm. Griggs : He may well be, but he has not revealed that yet. He is still doing the review.

Senator JOHNSTON: Okay, but that phrase worries me greatly. I don't think it is about Chief of Navy, either.

Gen. Hurley : In conversation with him—and it may not have come through as clearly in his comments—I think he also has an eye to the future in what he is saying. I think he is looking back, looking at today and looking at how we take it into the future and what is the construct by which we will manage both current and future capability. It is an important comment and certainly the department is engaged in thinking through what that construct looks like to support the Chief of Navy as a capability manager to produce the capability.

Senator JOHNSTON: All right. I think the comments and the discussion we are having a very helpful here, but this is a very frank, confronting report, if I may say so. I do not know whether you find it that way, but I certainly do, particularly in paragraph 5.6, where he talks about the relationship being damaging between ASC and DMO. He also talks about the 'highly-charged, difficult and often hostile relationships between the parties'. To my mind that is unacceptable, given the amount of money we spend every year and given the risk element in the operation—and I do not mean construction risk; I mean risk to our sailors on this platform. I find that very disturbing that he would say that. It is something that I have considered for a long time, but to have it independently verified like this is really very, very disturbing. Mr King?

Mr King : I think, as Chief of Navy pointed out, Mr Coles's phase 1 report was very much a gathering of inputs of different information and, indeed, he has drawn some conclusions which are not comfortable for us.

Senator JOHNSTON: I appreciate that expression. I think that is a very accurate expression, and I thank you for it.

Mr King : What I would say is that we had already started remediating internally a lot of those matters. It would not be obvious to someone coming in that all of those initiatives that we have taken, including the way I work with the Chief of Navy and, indeed, with the CEO of ASC after a long number of years of a less than adequate functioning organisation to address this problem—

CHAIR: Mr King, I need to interrupt you there, I am sorry. Procedurally, you are here representing the DMO, aren't you?

Mr King : Yes.

CHAIR: I am not sure that it is appropriate that you be answering the question.

Senator FEENEY: The senator in his questioning of the Chief of Navy did refer to the ASC-DMO relationship.

Senator JOHNSTON: I did, but I prefaced all that by saying that I am happy to revisit all of these in front of the appropriate minister. If, Minister, you are unhappy with the line of questioning, I will repeat it all so it will be perfectly clear and fair to the minister. I was saying those things focusing solely upon Navy.

Senator Feeney: I am just being the practical and helpful chap that I am. It just seemed to make sense to me that the people who are here and relevant to the conversation you are having could be questioned.

CHAIR: Minister, on that point, it is a procedural matter in terms of the way in which the committee is structured.

Senator Feeney: I appreciate that, Chair.

Senator JOHNSTON: I am sorry if I breached procedure. Mr King, I am sorry. I will stick with the Navy and we will talk about this after two o'clock, as I initially intended to do.

Mr D Lewis : Chair, just to make it clear, whether Mr King is at the table having this discussion or not, we are not in a situation of demarcation between the DMO being on this afternoon and the rest of the department being on now. Mr King is a part of the Department of Defence, and so it is entirely appropriate that he be—together with the Chief of Navy, the CDF and me—answering the senator's questions. I want to make it clear that the DMO is not some sort of separate entity that does not sit here with the defence department.

CHAIR: Mr Lewis, we totally appreciate that, but Senator Carr is the minister for DMO.

Mr D Lewis : I understand that, but when a question is asked it is in my view, with respect, entirely appropriate that Mr King join the rest of us here. We are one team.

Senator JOHNSTON: I think it is appropriate too, and I will try to avoid any reference to the DMO out of courtesy to the minister to whom I want to be seen to be applying.

CHAIR: Thank you, Senator Johnston.

Senator JOHNSTON: Coming back to you, Chief of Navy, the other issue I wanted to take up was in paragraph 5.11 of the Coles interim report. I quote:

We were made aware by many of the interviewees of what is perceived as a long-running ‘battle’ within the RAN between the surface and submarine elements, and the difficulty this has caused for the submarine force.

The whole paragraph is relevant. It goes on:

Even today, the submarine branch constitutes only a small proportion of the overall RAN in numbers of people; the fact that the Collins Class program is now the biggest spender in sustainment terms has sharpened the debate, but has also begun to lead to a realisation that submarines need to be seen as very much a key part of the service. With this must go a more pro-active approach to growing and maintaining the core of experience and competence which will allow the full capability of the Collins Class to be realised on a consistent and reliable basis. We believe that this process has been started with the recent creation of the DG Submarine Capability post—

which we have discussed—

which should enhance the Navy’s capability management responsibilities, but wish to emphasise that it needs to be the subject of explicit and sustained effort from the top.

The bit that really worries me is that he has actually mentioned the longstanding issue of surface versus subsurface sailors, and management, and officers, and all of that. Again, it is very concerning that he, as an outsider with the credentials that he has, would see it as appropriate to bring this to our attention. It is a cultural thing, is it not? I take it you reject what he has said because, from what you have said, these things are, as Mr King has said, very uncomfortable.

Gen. Hurley : Just before the Chief of Navy answers, I do not want to be a nuisance, and it must be my infantry ears, but when you are turning away from the mic I can hardly hear the question.

Senator JOHNSTON: Sorry.

Gen. Hurley : I got the drift of what you are after, so you can go on.

Senator JOHNSTON: So you do not need me to repeat it.

Vice Adm. Griggs : I heard it. It is my ears!

Senator JOHNSTON: Of which we have only one qualified officer on frigates, I believe. But let us not go there for the moment. What are we doing about the culture here? As we have acknowledged, we have three- and two-star officers in Canberra, none of whom are submariners. You have your DG Submarine Capability in place, but it seems the problem is much deeper than that, given that 33 per cent of your surface sustainment costs are going to submarines as of today. I can understand the resentment but, firstly, do you acknowledge it and, if you do, what are we doing about it?

Vice Adm. Griggs : Firstly, you talked about the size of the submarine force. No-one would be happier with a larger submarine force than me.

Senator JOHNSTON: I think you are doing a good job in getting there.

Vice Adm. Griggs : We are growing that force.

Senator JOHNSTON: Yes, you are.

Vice Adm. Griggs : We are recovering from where we were in the late part of the last decade. Again, it goes back to my first comment about this—that it is the nature of part 1 of the report in that Mr Coles has gone around the countryside talking to as many people as he could, at a range of rank levels, who have given him some fairly strong opinions. In this particular case, I reject the fact that there is a war between the surface and the submarine communities.

Senator JOHNSTON: It is less than that; it is a battle.

Vice Adm. Griggs : Regardless. Are there tribal rivalries? Of course there are. Are there healthy, professional debate and competition? Yes. In fact, I would want to see that continue. I do not want it to be destructive; I do not believe it is. Part of the issue is the geographic dislocation of the submarine force from the rest of the Navy in that it is, by and large now, a totally Western Australian base force. So there is an element of that and not having the visibility of what goes on as much as we would like on the east coast. But I do not believe there is any resentment from the rest of the Navy about the amount of money that is spent on sustaining Collins. I just do not accept that.

Senator JOHNSTON: I actually think that, given the $800 million a year approximately, there should be some resentment.

Senator Feeney: We have quarrelled over that number before.

Vice Adm. Griggs : I think we agreed it was $629 million.

Senator JOHNSTON: We will deal with that number later. What do you say it is?

Vice Adm. Griggs : I think we agreed on $629 million last time.

Senator JOHNSTON: It is a moving feast of different numbers, isn't it? But let us just accept the $629 million for the moment. I think you will admit that that is approaching 30 per cent of what you are spending on surface ships. It is sustainment.

Vice Adm. Griggs : It is a significant part of our sustainment budget; there is no doubt about that.

Senator JOHNSTON: And we are down to three in the water?

Vice Adm. Griggs : We are aiming to have three to four, and we have three in cycle at the moment.

Senator JOHNSTON: What worries me about all of this is that he has put this in writing—I think for good reason. As uncomfortable as it might be for all of us, I think he has done us all a very big favour by putting these things down because this is what people are telling him. He has already acknowledged the disconnect between the four groups that are involved in running this platform and the disconnect between South Australia and Western Australia. There are disconnections from stem to stern, if I may say so, according to him. It is not just him; there are three others in his team. I think they are probably the most qualified people I have ever seen with respect to engineering and with respect to submarines. It concerns me when we are prepared to indicate that we do not think he has the full story or he has the story wrong, because I do not think he has, to be perfectly honest. I do not think this committee thinks he has got it wrong, because from everything we have seen and heard over the last many years he seems to me to be absolutely on the money.

Vice Adm. Griggs : And I am trying not to give you any other impression. I have highlighted a couple of small areas where I disagree with some of the observations he has made but I see this report—and I said it at the time—as a significant opportunity for us. It is starting us down the path on which we need to go. As I said earlier, it has aggregated a range of perspectives and started to articulate it in a cogent way. To me, it is exactly the same as the Rizzo report was for the surface ship maintenance issue. In fact, in phase 2 of Coles, one of the things I have asked them to do is to work very closely with the Rizzo team to make sure that we have a cogent and coherent set of recommendations, because there are some similarities between the two reports and I want to make sure that we have a holistic approach as we go forward on it. I am sorry if I gave you a different impression. This report is an opportunity, as Rizzo was.

Senator JOHNSTON: Just before I close on this particular subject—and I am very pleased with the responses you have given me, given where we have been on this particular platform—you are the person that the parliament and the government look to with respect to this force element group and its availability, its reliability and its functionality. Yes?

Vice Adm. Griggs : Yes.

Senator JOHNSTON: The last thing I want to say that Coles has adverted to, which I think is the most disturbing of the whole thing, is the safety elements. He is very, very clear that there is a safety quotient in all of this that he is unhappy about. Do we accept that?

Vice Adm. Griggs : I do not accept that we are jeopardising safety in our submarines—

Senator JOHNSTON: I am not suggesting that you are.

Vice Adm. Griggs : I am utterly rejecting that.

Senator JOHNSTON: No—if you look at what he says, he says that the way this is being conducted has a risk to safety that he is uncomfortable about. I am paraphrasing what he says—it is at the bottom of one of his pages—but I think it is clear. Let us get this on the table because it is crucially important to the way we conduct the recruitment and the day-to-day operations. He is concerned. I am concerned, reading what he said. Are you concerned?

Vice Adm. Griggs : I am concerned that it is not working as well as it should. That is what I am concerned about. And the good thing about this report is that it helps us get towards finding a place where it does work. I think the one thing that has not come out strongly is the amount of work that has already been underway, in Navy in the continuous improvement program, in DMO's reform program and also ASC's WorkSmart program. Those programs have started a lot of this effort. But in terms of safety, and experience—which is the other dimension of this, because there is no doubt that our submarine workforce, while they are an incredibly professional group of people and a dedicated group of people, in macro terms are less experienced as a group than they were 10 years ago.

Senator JOHNSTON: Thirty-three per cent had under two years experience—I think that is his figure—hence the safety question.

Vice Adm. Griggs : And what we have done to mitigate that is that we are, I suspect, probably being a little conservative—and I do not have a problem with being a little conservative—about the way we are operating at present. We have a very good licensing system from a safety perspective to put a boat to sea after it has been in maintenance, and we are taking into account the overall experience levels of the force in the programming of our submarines.

Senator JOHNSTON: I think that is right and I do not have any question of that certification system. I think that is very strong. With the chair's indulgence I will thank you for answering those questions and will come back, if I may, in DMO, and we will talk about sustainment and the other aspects of the report that deal with the other agencies. But I do thank you for your answers.

Senator LUDLAM: I have a batch of questions that range fairly broadly across a number of topics, so you might want to direct me to officers later in the day, but I will start with opening statement stuff. I have a couple of questions about the recruitment of Afghan National Army soldiers. Can you tell me what exactly Australians have asked ISAF to do to ensure that there is not systemic infiltration of the ANA by the Taliban?

Gen. Hurley : Just to reiterate a couple of points I made this morning in my opening address in response to this: obviously we have taken our own steps internally for the ADF, at the tactical level, but in increasing our force protection measures and how we can move up and down the scale of levels of protection should the threat so direct. What we have done there is not uncommon across ISAF. So there is some commonality in approach. We have undertaken, on our own and with ISAF, behavioural studies looking at the history of these events and, from the evidence available, what motivates people to undertake them. That information then feeds back into our understanding of how the Afghan government would approach its vetting process, how it approaches its counterintelligence process and how we approach the education, training and mentoring of the ANA leadership, who are responsible for these soldiers.

Let me say that at the NATO ISAF chiefs of defence meeting a couple of weeks ago in Brussels, in my intervention to all of the chiefs of defence that were there—50 countries were represented—I specifically highlighted that this as an issue of major concern for Australia and that I appreciated that the work had been done but we need to make sure we go to all efforts to try to reduce the risk as much as possible. That is just to say that we take it very seriously.

In terms of what ISAF and the Afghan National Army are doing, they have reviewed and strengthened the eight-point vetting process that they use in bringing personnel into the ANA. The ANA and ISAF together have already taken steps to strengthen the ANA's counterintelligence capability, both within units and within regions where particular soldiers come from. We are also working through with the commanders of ANA units, from corps downwards, processes that they should be putting in place for understanding their people better than they might today, and also reinforcing command responsibilities. Included in that will be things like no-warning inspections going through people's equipment and so forth. It would be put through with a different message, but those sorts of issues go through. We are really helping them to develop a command philosophy that, as a very young force, they do not necessarily have at the present time. In shorthand, I suppose there are a range of physical things we have done, standing operating procedures, studies for better understanding and process improvement to ensure we have got a better understanding of what is going through the minds of the ANA soldiers.

Senator LUDLAM: Thank you for that. I recognise that it must be formidably difficult, given that the Taliban do not hand out identity cards to their recruits.

Gen. Hurley : That is correct. As you would be aware, many of these young men that come into the armed forces are illiterate when they start. It is not as though you can go to a high school and get their records and all the sorts of things we would be used to. That process is difficult, but a lot of attention is being paid to it.

Senator LUDLAM: What effect has it had on morale—just sticking with the ADF at the moment—for the people there? The people they are trying to train are now turning around in some instances and killing them. I cannot imagine what that must be like for the people who are still in the middle of it. You have tried to describe what we are setting in place to prevent these kinds of things from happening but I do not understand, if this has become something of a turning point or a strategy to destroy morale and attack from the inside, how the people there are taking it.

Gen. Hurley : I will go to the back end of your question first. I think it is very important that we do not allow the Taliban to see that this is a tactic that can be used successfully against us. That is why we need to build these measures in to deny them that opportunity as much as possible. Our reaction to it tells them a lot about us and what they can do with that type of tactic. I cannot put myself in the boots of every soldier who is over in Afghanistan at the moment, but certainly they would be wary of their environment and very watchful of what is going on around them. But they fundamentally understand that their job there is to train the Afghan National Army to be able to take over the lead responsibility. The only way you can do that is to be in amongst them.

If we go back to the incidents that happened in the latter half of last year and the really tragic incident where we lost three people in one day and had seven wounded, that day, that evening and the next morning, to their credit, all our people in other patrol bases and so forth got on with the job. Yes, they might have been looking differently at the people around them. Yes, they may have been in an emotional state that was boiling or whatever. But to their credit they looked beyond that. In many of those areas the relationships are quite strong. They know the people and they have been working with them a while. There is a mixture of things; no simple answer. But to their credit they look beyond that and say: 'Yes, we know we've got to look after ourselves, but we've got a job to do.'

Senator LUDLAM: Has that kind of infiltration been going on for a long while or are you assessing that this is a material change in the strategy?

Gen. Hurley : It has been happening for a number of years, probably about three years. I do have statistics if I can find them for you. We have no indication at the moment that this is something the Taliban have increased dramatically in recent times. But if you look historically at the way the Taliban have operated—and this is a point I made in Brussels—subversion of the opposing force is one of their tactics. We need to be conscious of that from an intelligence perspective.

Senator LUDLAM: Minister Smith asked for action from ISAF. Can you describe in a bit more detail what that was.

Gen. Hurley : To go back to the comment before, General Allen, the Commander of ISAF, has put a lot of energy and effort into this with Minister Wardak, the Minister for Defence in Afghanistan. Improvement in the eight-point vetting process, additional staff, additional processes in counterintelligence, training and education and getting messages right into the chain of command of the Afghan National Army are all part and parcel of this process.

Senator LUDLAM: Is Defence aware of whether a colourful racing identity, as he would probably be described in Australia, Matiullah Khan who is the Oruzgan police chief, I believe, has been allowed to integrate his militia into the local police force?

Gen. Hurley : I do not think it is a process of integration. I think a number of his people have transferred out of the KAU organisation into the police. That would be the movement you are talking about.

Senator LUDLAM: They are not rolling his entire militia into the local police?

Gen. Hurley : No, I do not think the entire organisation has moved across.

Senator LUDLAM: If you are able to provide us with any further detail of that on notice, I would appreciate it. I turn to the treatment of detainees who are captured by the SAS outside of Oruzgan province. My understanding is in July 2011 ISAF requested that Australia suspend transferring detainees to Afghan authorities. Is that correct?

Gen. Hurley : That is correct.

Senator LUDLAM: In October last year, the UN Assistance Mission in Afghanistan report on treatment of detainees in Afghan custody included evidence of torture, but Australia did recommence transferring detainees to Afghan authorities in December 2011. Did we conduct some kind of investigation that concluded that there was no material risk to detainees that we handed across to the Afghans?

Gen. Hurley : When we suspended the transfer of detainees to the Tarin Kowt facility in the middle of last year, there were no accusations or allegations about the handling of detainees in that facility. It was related to a facility in Kandahar. But in support of the position that was being taken by ISAF at the time, we ceased our transfer. The UNAMA report came out. Again, the facilities we were using were not listed as having had allegations against them. When the general restrictions about use of the various facilities were cleared we commenced moving people back into those facilities. We did it in concert with the ISAF review of what was being provided by UNAMA.

Senator LUDLAM: How confident are you of the wellbeing of the detainees that were transferred into Afghan custody?

Gen. Hurley : We are quite confident in the wellbeing of the detainees. We do have our own detainee monitoring team that visits detainees on a regular basis. That team is made up of a whole-of-government organisation—so the Department of Foreign Affairs and Trade as well as Defence and legal representation. Our reporting is quite transparent to the ICRC and the Afghan Independent Human Rights Commission and so forth. We do make regular visits. Again, I have some stats here. Since August 2010, this interagency detainee monitoring team has conducted 85 monitoring visits, monitoring 159 detainees. This includes 45 visits to the NDS facility in Tarin Kowt, 11 visits to the Tarin Kowt central prison and 29 visits to the detention facility in Parwan.

Senator LUDLAM: General, can you give us the citation for what you are reading from so that that can be followed up?

Gen. Hurley : I have just got notes from the actual activity. Do you want that data in writing?

Senator LUDLAM: Is the study or the report you are reading from in the public domain?

Gen. Hurley : It is not a study; I am just summarising the activities over that period.

Senator LUDLAM: Okay. Is that activity report in the public domain?

Gen. Hurley : No, it would not be. We do not produce it as a report. I am just summarising. We know that they have done all these activities and I have just summarised what they have done.

Senator LUDLAM: General, as much as you can, without risking anybody's security, are you able to table for us the activities of—what do I call them—a unit or a task force?

Gen. Hurley : It is an interagency detainee monitoring team. Yes, we can pull together a brief of composition, terms of reference, what they do and so forth.

Senator LUDLAM: That would be much appreciated. What happens to detainees who are captured by the SAS outside of Oruzgan? Are they transferred to US or Afghan custody?

Gen. Hurley : No, they remain our detainees and we handle them into the appropriate system.

Senator LUDLAM: What does that mean? Are they transported back to Oruzgan? Where do they go?

Gen. Hurley : They come back to Tarin Kowt.

Senator LUDLAM: How many detainees can be accommodated at that facility?

Gen. Hurley : I think it is 35.

Senator LUDLAM: What procedures are in place in relation to the detention of juveniles?

Gen. Hurley : We endeavour not to detain juveniles. So once we determine that a detainee is a juvenile, we take all steps to link back into the community to find the appropriate person to hand the juvenile to and make that transfer as quickly as possible.

Senator LUDLAM: I apologise for missing your opening statement; I was tied up in a different committee. Did you address the issue that was in the press last week about handling of detainees in Iraq? I think it was in the Fairfax press.

Gen. Hurley : No, I did not.

Senator LUDLAM: Would you care to address that issue for us and maybe clarify whether you have any misconceptions, because some pretty serious allegations were made in that report that Australian forces in Iraq knew very well what was going on with people that we were handing over into places like Abu Ghraib, who were then being tortured. At the time there was denial, both from the military and from the government, that Australia had anything to do with it.

Senator IAN MACDONALD: Just before you do that, General, are you aware—fortunately there have not been too many Australians captured by the Taliban—how the Taliban deal with any prisoners they get?

Gen. Hurley : Well, we do not hear too much from them, Senator, when they do it. I am only aware of one US soldier who is still in their hands, and really I cannot comment any more than that.

Senator LUDLAM: General, the reason I ask is that one of the things that we hope separate us from the Taliban is respect for the rule of law. So I think it is worth going through when allegations surface, as they did earlier in the week, about our handling of prisoners in Iraq. Do you have a brief or any information that you care to put on the record?

Gen. Hurley : Senator, I would rather hear what the questions are. I could read out the whole thing, but there is no doubt that we take our international domestic legal obligations very seriously. That has been our approach to detainee management for a long, long time.

Senator LUDLAM: One of the matters that was raised in the article that Neil James from the Australian Defence Association was fairly critical of was the idea that, in fact, Australians took no prisoners at all in Iraq. We established what looked to me like a legal fiction, that in fact anybody captured by an Australian unit was legally in the custody of the United States military. Does your brief address how on earth that actually worked in practice?

Gen. Hurley : Senator, we can talk through it, but I think you would be as aware as I am that this issue was covered in quite an amount of depth in 2004 and 2005. I think there were three days of Senate hearings on the issue and an inquiry by the Senate references committee into the duties of Australian personnel in Iraq. I think if you read the responses there—and they are quite, I think, forthright—around the arrangements that were put in place, you will see that the processes were legal and appropriate for the operating environment we found ourselves in at the time.

Senator LUDLAM: Can you go to the specifics of how it actually worked in practice? Do you still maintain that Australians took no prisoners in Iraq—that anybody captured by an Australian unit was legally in the custody of the US?

Gen. Hurley : The US was attaining power for that operation.

Senator LUDLAM: How did that work? Did the US have somebody attached to every Australian unit that found itself in there?

Gen. Hurley : There were US personnel attached to the Australian Special Forces units that were in operations there.

Senator LUDLAM: In what size? My understanding is that these guys move around in fairly small numbers, say, five or six of them at a time in vehicles, for example—some of the first people over the line. Did all of those units have a US soldier with them?

Gen. Hurley : There was a US person attached to each of the SAS troops, which is four patrols of five—so about 20 people.

Senator LUDLAM: So on average one US military personnel for every 20-odd Australians?

Gen. Hurley : I think that is the rough proportion, but I will check that for you, though.

Senator LUDLAM: I would appreciate that. And their responsibilities were to take charge of anybody who was captured?

Gen. Hurley : They had a range of responsibilities, of which that was one.

Senator LUDLAM: I am presuming you are familiar with the press reporting that I am referring to. Is there anything in there that has caused you go back and check our records? Do you have any concerns at all—for example, about some of the concerns that Neil James raised, that in fact this could have exposed Australians to legal liability?

Gen. Hurley : Again, the process that we went through in 2004 and 2005 I think trawled through the operating environment, the approaches that were taken, the legal advice given and the appropriateness of the arrangement. And we do not see anything particularly new in what has been added to that to say that those responses were not as adequate today as they were then.

Senator LUDLAM: Thanks. I appreciate that. I might revisit that issue a bit later in the day, if that is okay. Where and in what circumstances are Australian military forces using drone technology or unmanned aerial vehicles?

Gen. Hurley : We use them in Afghanistan today, operating out of Tarin Kowt and Kandahar airfield.

Senator LUDLAM: Are they are armed?

Gen. Hurley : No.

Senator LUDLAM: Can you describe for us what technology specifically we use?

Gen. Hurley : I would not be specific, Senator, other than to say that they give us full-motion video and the ability to watch what is going on under certain light and environmental conditions. Beyond that, we start to get to some sensitive areas.

Senator LUDLAM: Are they flown out of Tarin Kowt or from the other side of the—

Gen. Hurley : There is a smaller tactical one that is flown out of Tarin Kowt—a ScanEagle now but it is to be replaced by Shadow—and the larger Heron ones are flown from Kandahar.

Senator LUDLAM: Do we uses drones owned by other countries or do the ADF own all the drones that we fly?

Gen. Hurley : We could employ drones that are owned by other countries—so they are all part of the ISAF support construct. In terms of accessing surveillance reconnaissance assets, UAVs and so forth, everyone would be aware on a daily basis what assets are available, where and which ones are being tasked specifically to do specific jobs. You bid for that time for the non-Australian assets. If you are in the field, you have that built around to support your operation. If in extremis, in contact, you needed additional support, we have people in the group who can call for that support and then higher up in the decision-making echelons they will determine whether or not they can release an asset to come to support you.

Senator LUDLAM: Would that be flown by, for example, a US—

Gen. Hurley : It could be flown by the US.

Senator LUDLAM: Can we book time on a 'weaponised' drone, or are we strictly only using those drones for surveillance?

Gen. Hurley : You could to support an operation.

Senator LUDLAM: Do Australian drone pilots receive the same kind of training as conventional fighter pilots or is it completely different?

Air Marshal Binskin : They are not drones. A drone is something that is mindless and goes off and does its thing. They are manned remotely piloted vehicles. The aircrew that we employ in this could be fighter pilots or any other pilots as well. They are not necessarily just from the fighter community. Likewise, the sensor operators could be from a broad air force community as well.

Senator LUDLAM: Maybe this is going to white paper stuff or broader concerns. Is there any thinking within the defence community to purchase and start using weaponised drones and UAVs?

Gen. Hurley : I worked through the force structure review and looked to the Defence white paper. I will not be surprised if their capabilities are considered in that process.

Senator LUDLAM: It would be odd if they were not.

Gen. Hurley : Very odd, so I will not be surprised. But we will work through what that priority would be in terms of new capability.

Senator LUDLAM: Can you just give us a quick update, if you did not already put it in your opening statement, on where we are up to with the joint strike fighter? Do we know how much they are going to cost?

Gen. Hurley : Yes, we could. I think we have the subject matter experts here. It is more in the DMO space. Do you want to wait till this afternoon?

Senator LUDLAM: I am happy to because I think other senators have questions for DMO as well. I have one very quick question for Navy. We recently participated in Exercise Milan hosted by India. Burma also attended this exercise. This is a question that I have raised once before. Australia maintains a unilateral arms embargo and we also support a universal arms embargo over the military regime in Burma, which is doing its very best to flag its democratic credentials at the moment. But I do not understand how we can maintain an arms embargo against that country while attending military exercises in which they are in attendance. Can you explain the thinking behind that?

Mr Jennings : We have, as you say, unilateral support for a global arms embargo against Burma which has been in place since the early 1990s. The only occasions where we would have military contact with the Burmese would be on rare examples when we find ourselves participating in a multilateral exercise where the Burmese also would be participating. The one that you have referred to was a maritime exercise hosted by the Indians. I can say that, during the course of that exercise, our force element which took part had no contact with the Burmese maritime units which were involved and so, although it is correct to say that we were participants in a multilateral exercise, there was no engagement between us and the Burmese.

Senator LUDLAM: Are there any countries that we would not conduct those sort of things with no matter what the degree of contact? What if the Iranian Navy have been invited? Maybe North Korea is a more interesting example. Would we still participate or would you have a problem with that?

Mr Jennings : With regard to those two countries, I cannot think of any multilateral events which would bring us together with North Koreans and Iranians.

Senator LUDLAM: But you know the point that I am trying to make.

Mr Jennings : The point I am making is I cannot think of any occasions where that contact would take place.

Senator LUDLAM: What if they turn up at one of these exercises such as the one that the Burmese Navy took part in?

Mr Jennings : That is a highly hypothetical question.

Senator LUDLAM: I thought you might say that. So the way that we get around it is that we do not have any direct contact with the Burmese Navy and that makes it okay?

Mr Jennings : There is a significant benefit to be gained from our participation in these exercises and we participate as a country which is invited by the host, in this case India. It is of benefit not only to us but also to regional security that navies, in this particular case, would operate together. So there is benefit to Australia. We worked to minimise the contact to the point of creating zero contact between ourselves and the Burmese.

Senator LUDLAM: How is that done?

Mr Jennings : By ensuring that, in the context of the exercise, the forces simply do not interact.

Senator LUDLAM: Did Defence raise any objections with the Indian government, for example, about Burma's participation in those exercises?

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

Senator LUDLAM: I would appreciate that if you could. My last set of questions relates to President Obama's announcement late last year about the establishment of a US Marine base—I am happy to be corrected on the language—to be established outside Darwin. Senator Feeney, if you have anything—

Senator Feeney: As you know, we have this issue where there are joint facilities. There are not dedicated US military facilities in Australia.

Senator LUDLAM: I understand.

Senator Feeney: That is why we like to avoid the language of referring to them as US bases.

Senator LUDLAM: I understand. This US base will be flying an Australian flag, and I understand why that is being done this way. I recognise that that is a political decision as well, so I am not going to seek—

Mr D Lewis : Senator, sorry. If I could just correct you again, you say 'this base'. We have made it quite clear that it is not a US base. I am sorry.

Senator LUDLAM: So where exactly will these 2,500-odd US Marines be stationed? What do I have to refer to it as to not be corrected?

Mr D Lewis : They will be stationed at various places but on Australian military facilities.

Senator LUDLAM: So I could call it a 'facility' but not a 'base'.

Mr D Lewis : Senator, you described it as a 'US base'. I am sorry. I am just correcting that. It is not a US base. It might be an Australian base—an Australian military facility—but it is not a US base.

Senator LUDLAM: This is going to look kind of funny in print. There will be 2,500 US service personnel stationed there, but I am not allowed to call it a base.

Mr Jennings : The phrase that we use to describe what is projected to happen is that the Americans will operate a rotational presence into various military facilities in the north of Australia. They will not be a permanent military presence. They will operate there during, essentially, the northern dry season. When it is the wet season they will be exercising and operating throughout the South-East Asian region. During the times that those forces are here in Australia, they will be operating out of Australian defence facilities.

Senator LUDLAM: Okay. The Darwin facility was obviously the one that got the most attention subsequent to President Obama's speech, but can you either provide here or table for us a list of the total number of facilities that will be impacted—for example, the air weapons range at Oobagooma in Western Australia and the Curtin air base? Have all those facilities been caught up in whatever deal has been done?

Mr Jennings : It is quite possible that any exercise range in the north would become potentially an area that could be used by the US presence.

Senator LUDLAM: It sounds like a blank cheque. Everything that we have is on the table.

Mr Jennings : At this point it is a question of us, with the Americans, designing what the shape of that footprint might be. It is not yet the case that we have established the precise scheme of manoeuvre for those forces in the coming five or six years, but I think it is highly likely that they will be able to avail themselves of the range of training areas that we have in the north of the country.

Gen. Hurley : I think they would also be mindful that they have to support themselves while they are over here, so I think they will concentrate on the major training areas like Bradshaw and Delamere. To disperse themselves much further than that becomes logistically very difficult and very expensive. Mindful of their budget, I think they will be trying to minimise the cost of doing business as far as possible.

Senator LUDLAM: That is understandable. Just to be parochial for a second, we have concentrated mostly on the north, but what about Fleet Base West in Garden Island and the Marine Complex in the south of Western Australia? Has that been offered up to the US Navy as a maintenance port or a sea-swap port?

Mr Jennings : That is not yet part of the plans that have been agreed as a result of the President's and the Prime Minister's announcement of last year.

Senator LUDLAM: Not yet.

Mr Jennings : But both countries have indicated an interest in looking at the possibility of using HMAS Stirling, in particular, as an area which American fleet units might seek to visit.

Senator LUDLAM: Submarines?

Mr Jennings : That is something which would be the subject of later deliberation between the two countries, I guess.

Senator LUDLAM: So what do we actually have on the public record at the moment apart from what I read in the NT News and going back and reading President Obama's speech? Nobody knows a damn thing about what has been offered up, what deals have been done, what is on the table and what is not. Can you provide us with anything at all, as a voter of this country, as to what has been offered to the US government and what has been agreed up to date?

Mr Jennings : I would say that I think there has actually been an extensive amount of information announced by both countries as to what is anticipated by the US Global Force Posture Review and our cooperation with them. You do not have to rely on the Northern Territory News. There is actually a range of material available, announced by the President and the Prime Minister during the President's visit, on the record in terms of the communiques that were issued at the last two AusMIN meetings which indicate in very precise terms what is anticipated within phase 1 of this cooperative activity through Marine Corps operations and increased US Air Force access to northern facilities. It seems to me that that information is there in some detail. Having said that, we are still at a point where the design of the precise shape of the US rotational presence has yet to be determined. That is not unusual as we look forward over a five- to six-year time frame and that is something that is being worked on even as we speak.

Senator LUDLAM: That is what you call phase 1. What does phase 2 look like?

Mr Jennings : We will know it when we get there.

Senator LUDLAM: Or we will be told when they are ready to tell us.

Mr Jennings : What we will do is systematically work our way through phase 1 and then we will probably look at phase 2 sometime after that.

Senator LUDLAM: I guess—when we are told that that is necessary. Have you folk considered some of the perennial issues that occur around the periphery of US bases at the world? It is the subtext of the force posture review that they need to withdraw forces from Okinawa because the US military are as deeply unpopular there as they are in other places. There is sexual and other kinds of violence as a result of drunkenness and drug taking. There is the black economy and there is the sense of immunity—and the actual immunity—that such personnel have from domestic laws. Have you done any social impact assessment of the effects of stationing large numbers of troops in Darwin?

Mr Jennings : The way you ask the question is, candidly, rather loaded in terms of some of the assumptions you have made there.

Senator IAN MACDONALD: And inaccurate.

Senator LUDLAM: Have you studied this stuff at all? I will let you answer the question.

Mr Jennings : I would not share some of these things. There are a couple of points I would make. The first is there is no relationship between the negotiations that have been held between the United States and the position of their marine forces in Okinawa; they are unrelated. It is not a marine presence which is going to come from Okinawa in terms of the operations up in the north. Your comments about sexual matters, frankly, I would only want to address if you were to put precise questions to me rather than make general assertions.

Senator LUDLAM: All right. I would be very happy to do that.

Senator Feeney: We are obviously not here to debate the force posture in Okinawa.

Senator LUDLAM: I understand that. Let us keep it really simple then. I am very happy to provide you with decades of evidence of the things that occur around not just US bases but many bases. Have you done, or do you intend to do, a social impact assessment?

Mr Jennings : Yes. Although it may not have been covered in the Northern Territory News, we will in fact be doing a social impact assessment. That was part of the announcement that was made at the time of the President's visit. I should also say that the legal basis on which American forces are dealt with in Australia is clear and has been clear for many years—indeed, since the conclusion of the Status of Forces Agreement in 1963, which provides a very clear legal basis for the treatment of American soldiers.

Senator IAN MACDONALD: Is this similar to what happens at Shoalwater Bay when the Americans come in for exercises? That has been happening for 20 years now.

Gen. Hurley : It is a similar model. I expect the US will come in and flow through Robertson Barracks, which will be a staging area for them to go out into the field. If they think they are coming here for a six-month holiday in Northern Australia, being out at Bradshaw training area for four of those months will not be part of it.

Mr Jennings : It is not one of the leafy suburbs!

Senator LUDLAM: It does not sound like one.

Gen. Hurley : Secondly, having commanded the brigade in Darwin and having had many Marine Corps visits to Darwin while I was there, I would say they are very concerned and serious about how they set the visits up, how they maintain discipline during the visits and how they leave their footprint in the Darwin community when they go. If they had been hallmarked by what you are saying, the Northern Territory government would have its hand up at the moment about this entire proposal. But it does not. It has experienced these people coming there. I think it is a slight on the US Marine Corps to say what you are saying.

Senator LUDLAM: It does not sound like there is a great deal of awareness of the experience of host populations in other parts of the world.

Gen. Hurley : You are talking about permanent US bases that have been in places for decades; we are talking about troops coming to Australia to exercise for limited periods.

Senator IAN MACDONALD: Do you have statistics on increases in sexual attacks and venereal disease in Rockhampton?

Gen. Hurley : No, I do not.

Proceedings suspended from 12:30 to 13:31

CHAIR: This afternoon we have just one more senator asking questions about the opening statements and then we are going to move to the portfolio issues. Senator Carr is in another Senate estimates hearing representing the Minister for Industry and Innovation and he will be joining us as soon as he can, a little after 2.30, so we will move to the DMO questions then. For senators' information, General Hurley and Mr Lewis need to attend a meeting at 4.30, so they will be leaving this afternoon at that time. That might influence how you shape your questions this afternoon. Yes, General Hurley?

Gen. Hurley : This morning, when the Vice Chief of the Defence Force was talking about the cultural reviews and total costs, the total costs he read in were those provided as at 31 January this year. As an update on the DLA Piper costs, as of 13 February, the direct cost for the DLA Piper work is $7.130 million.

CHAIR: Thank you very much.

Mr D Lewis : If it would suit the committee, Mr McKenzie could read into the record the cost of the IGIS review that was asked for this morning.

CHAIR: That would be great. Thank you very much.

Mr McKenzie : The additional cost that the IGIS required Defence to fund for her review of the vetting service was $40,000, which was invoiced in June and paid in June to the office of the Inspector-General of Intelligence and Security.

CHAIR: Thank you very much.

Mr D Lewis : Further, Mr Cunliffe has also the cost of the Clayton Utz bill for the Success inquiry that Senator Johnston, I think, asked about earlier,

Mr Cunliffe : The actual cost as at yesterday that I have been advised of in relation to the discretionary payments issue was $63,775.03.

CHAIR: Thank you very much. One more bit of housekeeping?

Mr D Lewis : There is one last one. Senator Macdonald asked a question about the cost of facilities at Garden Island, and we also have that figure if it would suit the committee.

CHAIR: Excellent, thank you.

Mr S Lewis : There are actually a couple of numbers. The first is in relation to AWD sustainment facilities, which are estimated at $105 million, but they are across three sites: Randwick Barracks, HMAS Watson and Garden Island. We also have a further 31.8—

Senator IAN MACDONALD: Is there any figure between the three?

Mr S Lewis : There will be. In fact, we are seeking referral to the Public Works Committee, I think, later on this month or early next month, so this will be before the PWC very shortly. Full details—

Senator IAN MACDONALD: You do not have it now?

Mr S Lewis : I do not have that, I am afraid. There is a further $31.8 million, estimated, in relation to LHD sustainment facilities in relation to Garden Island. I think that addresses the question, Madam Chair.


Senator IAN MACDONALD: Of the $105 million, would most of it go to Garden Island?

Mr S Lewis : I do not think so. There is a fair bit in relation to the Randwick Barracks site, where there is going to be a new AWD training centre built. That is a significant cost. There will be a command team trainer built at Watson, so I would have thought it is more likely to be a minority at Garden Island, but I do not actually have the numbers.

Senator IAN MACDONALD: I was aware of Randwick, which struck me as a little strange when you have four or five bases around Sydney Harbour where the LHDs will be, but you are going to train them five or six kilometres away.

Mr S Lewis : It is not far, and we are quite land constrained at Garden Island. When you have regard to the maintenance work that is being done there as well—and we are subject to some encroachment. We had a little bit of discussion before lunch about the cruise ships and some of the pressure we have there. We actually have some significant constraints on Garden Island that we need to work through. You will see from the PWC papers that will be coming through very shortly that we have plans to deal with the AWD training centre at Randwick and the command training centre at Watson, but there are some infrastructure works at Garden Island as well. But that would not be the majority of the cost.

Senator IAN MACDONALD: Perhaps another time I can have a chat with the vice admiral and you about Randwick, the why and wherefore and whether that is the best position, but perhaps now is not appropriate. Thanks for that, though.

CHAIR: That is all the housekeeping tasks?

Mr D Lewis : I am sorry, Chair; thank you very much.

CHAIR: Senator Macdonald, you had some further questions.

Senator IAN MACDONALD: It is not quite the place, but this question follows on from what I will editorialise and say are Senator Ludlam's quite outrageous questions about American troops and all the alleged ills that they bring with them, which is quite insulting to our major ally and which of course very few Australians agree with. Does the Department of Defence take any statistics on things like increase in crime or increase in diseases happening at Rockhampton or in Central Queensland as a result of the quite substantial American involvement in the Shoalwater Bay exercises that occur?

Air Marshal Binskin : I do not believe we collect those statistics, nor do I think that they are worth collecting, to be honest. To put it in perspective, in Darwin we are talking about up to 2½ thousand marines. This will grow over a number of years to 2015. To put that into perspective, this is not new for numbers of US forces in Australia, and they always conduct themselves very, very well. During Talisman Sabre last year, we had 14,000 US sailors, air men and women and soldiers predominantly around the Shoalwater Bay area but also around northern Australia as well. We do that on a regular basis every two years with Talisman Sabre, so what we are talking about in the Darwin area is not actually new. I think, if you go to the Darwin community, as with the Shoalwater Bay communities and all that, they welcome these people being there. They conduct themselves very well. They are very professional and they take a lot of pride in the image that they put for their country and their service.

Senator IAN MACDONALD: Thanks very much, Air Marshal. That has been my experience, but it is good to have it from the experts, and I can assure you publicly that the people of the communities up there welcome with open arms the proposed involvement.

Senator Feeney: Senator, I think Peter Jennings can add to this answer as well.

Mr Jennings : One of the things we are doing as part of the preliminary work for the cooperation is to also undertake economic impact surveys, which will in due course become available, and I think that will be of interest to the committee as well.

Senator IAN MACDONALD: I am sure it would be. On notice, just while we are on that, can you tell me what garrison support services there currently are at Robertson Barracks? What I am really interested in is: what additional services are proposed as the Americans start to come in on rotation, as has been pointed out, to use the base?

What is the arrangement for the cost of additional services and infrastructure provisioning that will be required as to Australian Defence Force bases as a result of the increased use by the United States forces? I assume, and perhaps you could correct me now without giving me the figures, that any additional services required or support required will be billed to the United States government. Is that so?

Mr D Lewis : Firstly, we can quite easily produce for you the garrison support arrangements that are currently in place. With regard to the ones that might be coming down the pipe, all that is prospective and so I could not say to you that in the very near term we can get those sorts of figures with the type of granularity that you would require. That is a work in process.

Senator IAN MACDONALD: Perhaps not figures but perhaps what is required rather than what the cost is.

Mr D Lewis : We can certainly get you a generic expression but you would just have to accept it would not have specific figures attached to it.

Gen. Hurley : Certainly for the first couple of years, when we are dealing with a company group size of about 250—and we have done that historically and they have come across in those sizes—the accommodation and so forth at Robertson Barracks can easily cater for that number. Then you are talking about the normal arrangements we have with the US for rations and so forth. So in the early days it will be about systems that are commonly used at the present time and arrangements that are commonly in use and as we start building towards the larger numbers the work now will lead us into the decisions we need to make. But even when you get up to a thousand or 2½ thousand you will not expect to see them all landing on Robertson Barracks at the same time. They will phase through in using it like a reception base to get out into the field.

Senator IAN MACDONALD: Take things like food, electricity, fuel. Is what you are saying to me, General, that we absorb that?

Gen. Hurley : No. We already have arrangements in place with the US about how those expenditures are met.

Senator IAN MACDONALD: Could I be told about those perhaps on notice?

Gen. Hurley : Yes, we will get those for you.

Senator IAN MACDONALD: So that is what happens at Shoalwater Bay as well?

Gen. Hurley : Yes, it is the same sort of arrangement.

Senator IAN MACDONALD: I guess there are reciprocal arrangements when Australian troops are in the United States or at United States bases. Is that correct?

Gen. Hurley : Yes.

Senator IAN MACDONALD: Are there cash payments made or do we write them off one against the other rather than pay with a cheque?

Gen. Hurley : Air Vice-Marshal Staib might be able to answer that for us.

Air Vice-Marshal Staib : Senator, we have in place what we call an acquisition and cross-servicing agreement with the States. We have provisions in that for full cost recovery. It works both ways. We would use that agreement to charge the Americans for the rations that you talked about and fuel et cetera.

Senator IAN MACDONALD: On notice, could you tell me about the last recorded bill that you sent to the United States, and I do not want you to go to any great trouble. Shoalwater Bay and Talisman Sabre would probably be the best. I am interested in the quantum of money that comes into Australia as a result of those. Is that possible to do?

Air Vice-Marshal Staib : Yes, it is. I do not have it at hand but I can get that to you shortly.

Senator IAN MACDONALD: That would be fine and thank you very much.

Senator JOHNSTON: I would like to go on to the Adagold air sustainment contract. Air Marshal Binskin, should I be directing the questions to you?

Air Marshal Binskin : I will take the first question.

Senator JOHNSTON: Very good. How long is the flight from Darwin to Al Minhad?

Air Marshal Binskin : From Darwin to Al Minhad is about a 12-hour flight.

Senator JOHNSTON: Non-stop?

Air Marshal Binskin : Non-stop.

Senator JOHNSTON: Two meals served?

Air Marshal Binskin : I have not got the exact details. I am pretty sure it is two meals. That would be the norm.

Senator JOHNSTON: I think the contract stipulates that within six months of acceptance the contractor had to have 100 per cent Australian aircrew and attendants. Is that correct?

Air Marshal Binskin : I do not have that detail on the contract. I can chase it up for you.

Senator JOHNSTON: I would be pleased if you would, because the issue I have with that is that, as of November 2011, this is not been achieved with only two Australian pilots flying the Australian sector. The rest is carried out by put Portuguese and other European personnel for the long-haul section. I would appreciate your taking it on notice. If you cannot get it today, it is not a major drama.

Air Marshal Binskin : I will be able to get that today. Can I get your concern, please?

Senator JOHNSTON: The contract stipulated, as I understand it, what should happen. But the contract is not being adhered to.

Air Marshal Binskin : I will check that up if it is just the contract side that you are worried about. But I fear you are going somewhere else.

Senator JOHNSTON: I am. As we go to that place, I think you will see why I am concerned. Half the flight attendants are Portuguese and half are Australian. The Portuguese flight attendants earn, in Australian dollar terms, approximately $650 per month, which is substantially less than the Australian flight crew are earning. Again, I think you will see where I am going on this in due course. I think that is a problem in the differential between the crew and their remuneration.

The catering is done by Alpha catering, and we know broadly what the cost of those two meals is—it is somewhere between $3 and $5. The figures we have received indicate that the charge, one-way, for the meals is around $125 per person. I am told the meals are very ordinary, to put it as politely as I can. I think there is a problem in terms of value for money, I think there is a problem in terms of the fact that we have a very long haul for people who are going ultimately into combat and I think there is a question mark over the quality of what we are providing them.

I am told that the flight crew smoke in the cockpit, particularly the engineer, and that the floor of the cockpit is littered with cigarette butts and the like as a matter of course. I do think that that is unacceptable. The aircraft is a Portuguese aircraft from, as we all know, Hifly, and the training is done by Portuguese instructors, including the Australian training, in manuals that have been translated from Portuguese to English. I am told that they do not make any sense. The article in today's Herald Sun encapsulates a lot of these things and more.

I am told that the seats are by and large broken. In the recline position they do not come back to the upright position for landing and takeoff; you have to get out of them and manually lift them up and hope that they lock into position. As for the in-flight entertainment over the course of the 12 hours, 95 per cent of the screens are damaged owing to the age of the aircraft, and there might as well not be any in-flight entertainment for the personnel on board.

There have been some incidents with respect to safety and other matters. On one occasion, the in-flight entertainment system malfunctioned and emitted smoke and required extinguishing by a fire extinguisher. The fire alarm system was as a matter of automation activated, and the engineer solved the problem by removing the light in the smoke alarm. The flyaway kit on landing in, I think, Sydney crashed into the side of the cargo hold, rendering a very large noise into the cabin such that there was a crack clearly visible in the fuselage when the aircraft was finally landed in Brisbane. At one stage there was a fire on the stairs into the aircraft in Townsville which had to be extinguished. This morning's article indicates that there is flammable oil on board the aircraft, Mobil Jet Oil II, and other tools and equipment lying around inside the cabin. Fire extinguishers are alleged to be expired or missing. The engineers, as you can see, have Leatherman knives, Stanley trimmers, screwdrivers, et cetera, inside the cabin.

CHAIR: Senator Johnston, do you have a copy of the newspaper article?

Air Marshal Binskin : I have a copy of the article. It is a rehash of a couple of articles in the last year, and there are a lot of unfounded statements in it.

Senator JOHNSTON: Have any of us ever flown on this aircraft? Has anyone at the table here, have any senior officers, flown on this aircraft that we put in and put out on a regular basis?

Air Marshal Binskin : In fact, the Deputy Chief of Joint Operations flew in it last week. He got a good chance to have a look at the operation itself and at the quality of the inflight service, and had no issues with it.

Senator JOHNSTON: It was the Hifly A340 that is regularly used?

Air Marshal Binskin : Correct. If I break it down to the inflight service and then the safety because the safety one is a concern, and it recurs in anecdotal comment. I will address the safety first. As you know, the responsibility for safety of the aircraft, certification of the aircraft, in flying under Australian operations is CASA. We work closely with CASA. Any time we get these allegations we ask, wherever they come from whether it be a journalist or even yourself, to forward all the allegations to us. We pass them to CASA and we ask CASA to investigate. As far as I know from the CASA reports, there might be some small issues that have been addressed early on in the contract and there has been nothing that has popped up in the last six or 12 months, as these stories have been popping out, and the claims are unsubstantiated. CASA cannot find anything.

We did a review on 7 February from a duty of care point of view, as with do with the contract, and went in with CASA to look at maintenance documentation and inflight safety and those sorts of things. Nothing major came out of that. There were a few small things, as you would normally come up with, but there was nothing major. The last time that we got these questions from the journalist we forwarded the claims to CASA and, again, they had a look and could not find anything to substantiate it.

With regard to the inflight entertainment, inflight service, we do surveys going from Australia to the Middle East and since about April last year the statistics have been fairly standard throughout. I can give you a summary of the last one that was done on 31 January. These are in line with the aggregated survey response. Cleanliness of the aircraft, 99 per cent satisfaction; airline staff, 100 per cent satisfaction; food, 99 per cent satisfaction; serviceability, 99 per cent satisfaction; seat serviceability 96 per cent satisfaction; entertainment 61 per cent satisfaction. That was on purely the content of the entertainment, not the system itself and how it worked. I have flown on aeroplanes where they did not have anything that I felt like watching. I would probably have had the same survey result if they had asked me on an airline. Those statistics are fairly recent. As an aggregated result it is about the same.

CDF just pointed to the flight back, which was almost 100 per cent all the way through, but it was a very small group that filled out the survey. We normally do the survey on the way over and not on the way back as we figure everyone wants to come home so it is not a problem. We get them on the way out and it is a more balanced view of it.

Senator JOHNSTON: If you could have a look at the contractual term I would be interested.

Air Marshal Binskin : I will get that for you.

Senator JOHNSTON: The reason I ask that is the previous contractor was held to have 100 per cent Australian crew and went out and purchased an aircraft, as you know, and did all the things to meet the contractual terms. This does not seem to apply to this contractor. I think that is problematic. I note that in the article this morning a flight attendant is telling us about these things.

Air Marshal Binskin : A previous flight attendant in the first couple of months of service, I think. Is that the same article?

Senator JOHNSTON: I think a previous flight attendant who has obviously made a number of flights. You have not addressed the smoking issue. What do you think of the smoking issue?

Air Marshal Binskin : There was no evidence of the smoking issue in the investigation that was carried out.

Senator JOHNSTON: Good. Have you seen the manuals?

Air Marshal Binskin : I have not personally seen the manuals, no. Again, this is a part of the CASA operation. They are the regulatory authority. They will assess it against their requirements from a civil aviation safety authority point of view. They will make a call on whether it is appropriate or not and take action.

Senator JOHNSTON: You are saying they have done that on this particular aircraft?

Air Marshal Binskin : I would not want to talk for John McCormick. I might have a statement from CASA. This is a response to one of the journalists and I have a copy of it from CASA. It would normally be CASA's responsibility, but I have this so I will read it. The question was, has CASA received any complaints against Adagold, Hifly, Reva defence charter? If so, what are they and what has been done? The response:

Adagold is an aviation charter broker and does not hold an air operator's certificate. The company does not operate aircraft not authorised under the civil aviation legislation to do so.

The reason I put that up is CASA's responsibility is working with Hifly as the aircraft operator. We would do the contract with Adagold, but CASA is responsible through certification with Hifly.

CASA has issued a foreign aircraft air operator's certificate to Hifly, a Portuguese airline which operates charter flights which are arranged by Adagold. When CASA receives complaints about the safety of air operators, these are reviewed and further inquiries may be made. If any breaches of safety regulations are found, CASA will take appropriate action. Any concerns in relation to Hifly brought to CASA's attention have been reviewed.

Again, we forward these concerns to CASA. We do not sit on them if they come in. We also ask anyone who presents them to us if they have more underlying information to give it to us or to give it directly to CASA.

CASA is satisfied Hifly addressed these concerns on its own initiative. CASA believes that the concerns raised were not significant in terms of safety. CASA has a program of safety checks for all foreign airlines operating into Australia, including Hifly. CASA's last inspection of the Hifly 340 was 29 November 2011.

That does not take into account when we did the joint inspection on the 7 February.

CASA inspectors did not identify any serious concerns and brought some minor defects to the aircraft captain's attention. Previous inspections were carried out in March and May 2011 and November 2010. The CASA inspections include: the flight deck, operational documentation—

which is what you alluded to—

flight data, safety equipment, flight crew, technical maintenance documentation, maintenance inspection and overall aircraft condition, including the cabin.

They found no concerns.

Senator JOHNSTON: Who is the author of that?

Air Marshal Binskin : That was a response to a media request from the manager of corporate communications in the Civil Aviation Safety Authority.

Senator JOHNSTON: What is his name?

Air Marshal Binskin : Mr Peter Gibson. I would not normally raise something from CASA, but you are heading down the line which is CASA's responsibility and I had that to hand.

Senator JOHNSTON: I appreciate that. You say that concerns were raised by Defence with CASA.

Air Marshal Binskin : No. About on an annual basis we run our own review and it is called a ramp check of any civil operator. It is from a duty-of-care point of view that we have. It is normally conducted by the Airworthiness Coordination and Policy Agency, ACPA, within Air Force. If you want to go down that line, I will get the Chief of Air Force who is the airworthiness authority, to work through that with you. They, in conjunction with the CASA representative, did a ramp check. In this case they looked at maintenance documentation. There was another safety issue raised—I will give you exactly what they looked at. On 7 February we exercised our contractual oversight responsibilities and undertook a formal safety inspection. We focused on maintenance documentation and passenger cabin safety requirements. No significant issues of concern—

Senator JOHNSTON: Why did you do that?

Air Marshal Binskin : It was through our normal process.

Senator JOHNSTON: It was just a scheduled event?

Air Marshal Binskin : I think the previous one had been in October 2010. It was about due. We do it about every 12 months.

Senator JOHNSTON: So it was cabin safety and—what was the other thing?

Air Marshal Binskin : Maintenance documentation.

Senator JOHNSTON: That is what I am talking about with respect to the manuals, is it?

Air Marshal Binskin : That is part of what you are talking about with manuals. You were talking about operating manuals as well, operational documentation. That was what CASA had previously looked at.

Senator JOHNSTON: You went there with a CASA official. Whereabouts did you inspect the aircraft?

Air Marshal Binskin : It was in Brisbane.

Senator JOHNSTON: You say there were some minor defects.

Air Marshal Binskin : No significant issues of concern were identified.

Senator JOHNSTON: None at all? I thought you said that previously you had referred matters to CASA.

Air Marshal Binskin : Yes.

Senator JOHNSTON: When was that and what were they?

Air Marshal Binskin : There have been a few allegations of safety breaches. During and since October 2011 estimates a number of safety related issues have been brought to the attention of Defence. Normally these come through media inquiries more than anywhere else. In all instances defence has acted promptly to pass on these concerns to the Australian Civil Aviation Safety Authority for further investigation and action. To date, CASA has been unable to substantiate any claims that significant safety breaches have occurred.

Senator JOHNSTON: All right, what about less than significant?

Air Marshal Binskin : I would have to go into the detail on what they may be. I can give you an idea of what the operation has provided to us so that we can put it in context. The contract started in November 2010. There have been 170 separate flights. Mission success rate is 97 per cent. There have been only four significant delays attributable to the contractor. 19,200 Australian defence personnel have flown. 1.8 million kilos of cargo have been moved into the Middle East at an average cargo load in the MEAO of approximately 22,000 kilograms, which is an increase of 44 per cent over the previous contractor that we had. So it is proving to be a good contract for us both financially and from a capability point of view. I will chase up the contractual issue about cabin crew for you. You are referring to a previous contract. I will need to check what the current contract says.

Senator JOHNSTON: I believe defence pays for the fuel for this aircraft.

Air Marshal Binskin : We probably would. That would be factored into the contract. Again, I can clear that up. We would probably be dry leasing the operation and providing the fuel. I will confirm that for you.

Senator JOHNSTON: That is good. Chair, I have no further questions on this matter.

Senator IAN MACDONALD: This is probably a more general question on fuel. You are big users of fuel and electricity. Are you factoring into all of your budgets and contracts the impact on fuel and electricity the carbon tax will impose upon Defence? I imagine it would be a very substantial hit to your budget. Has that been factored in?

Mr D Lewis : Yes it has.

Senator IAN MACDONALD: Do you have details?

Mr D Lewis : I will check on these figures but it is something like a 1.7 per cent impact and about $81 million. I need to confirm that.

Senator IAN MACDONALD: Perhaps you can answer on notice.

Mr D Lewis : We definitely have them here. I will come back to you shortly.

Senator IAN MACDONALD: So the 1.7 per cent is $87 million?

Mr D Lewis : The figure of $81 million rings a bell as being the impact of the carbon tax on Defence's operations.

Senator IAN MACDONALD: That is across Australia? It would only be Australia, wouldn't it?

Mr D Lewis : No, it is against the defence department and its operations.

Gen. Hurley : If I could step in, based on the government's estimate of overall price increases of 0.7 per cent in 2012-13, the indirect cost is estimated at $81.9 million, so the secretary's memory is pretty good.

Senator IAN MACDONALD: It is not for you to double-guess the government and double-check Finance and Treasury, but you do have to pay for it. Have you done your own assessments on what petrol and electricity might increase by? I ask this because every time I go to Lavarack, Robertson or anything in the north I see that your electricity use there must be just astronomical. I am not critical of it. As I say, you would not need to double-check the government, but for your own purposes—you have to pay for it—I just wonder what work you have done in that regard.

Mr D Lewis : Phillip Prior, the chief finance officer, can elaborate a little bit on this issue you raise about how we establish precisely what the impact of the carbon tax is.

Mr Prior : We have modelled the impact on Defence's costs based on Treasury's publication titled Strong growth, low pollution: modelling a carbon price. We have applied to our costs approximate costs of 0.7 per cent, as the general said, and then extrapolated that across the various—

Senator IAN MACDONALD: If I could stop you there, that is fine. You are using Treasury figures, which some people doubt, but I am not asking you to comment on that. What I was really asking was: have your procurement people been out to the fuel companies and said, 'Hey, what's our bill going to be next year?' But you are telling me that so far all your work has just been on Treasury modelling.

Mr Prior : That is correct.

Senator FAWCETT: Gentlemen, I take you to the additional estimates statement, page 8, 'Portfolio Workforce'. You make this statement in that document:

While the strength of the ADF is close to budget, personnel of the necessary skill and experience profile are not available for the vacant DMO positions.

You then go on to attribute some of that to 'underlying structural causes'. I just wonder if you could outline for the committee what those underlying structural causes are that have led to a shortfall in skilled and competent people.

Mr D Lewis : I think that your question goes to the issue of where those gaps in certain skill sets lie and the reason why some of those gaps appear. Is that essentially the—

Senator FAWCETT: We have heard for some time about skills shortages, and this is a clear statement that there is a lack of skills. This is one of the first time there has been an attribution to underlying structural causes. I guess I am keen to hear an explanation of what Defence interprets those underlying structural causes to be.

Mr D Lewis : I will get Major General Fogarty to make some comments about the specifics of your question. From a general point of view, we have significant shortfalls in some areas with regard to our skill set. I am the first person to admit that, and we do need to address it. Part of it is a problem that we can address and part of it, of course, is a wider community issue which is more difficult to address. I think you understand the competition we have through the mineral resource extraction companies and so forth, so I will not go into that. But, just to break it down into those two bits, there are parts that we can control and there are parts that we probably cannot in the near term.

Major Gen. Fogarty : The specific reference is to a shortfall in military workforce in the Defence Materiel Organisation. They are mainly technical skills—engineering and logistics. We have a general shortage across the ADF in technical skill sets, mainly in engineering. But we have been making steady progress to remediate many of the trades where we have been short. We currently have about 15 trades that we would assess as being critical. They represent skill sets that are short in the labour force across the entire country.

Senator FAWCETT: To come back to the core of the question, I understand and I appreciate the remediation efforts that are going on. And I understand the broader issues. Specifically, this talks about underlying structural issues. I would just like to get Defence's interpretation of what the underlying structural issues within Defence are that have led to these shortages.

Major Gen. Fogarty : I think you are aware that we grow our workforce from within. It is very difficult for us to grow technical skill sets, particularly in engineering, at the rank levels and the experience levels that are required by the DMO—

Senator FAWCETT: Why is that, General?

Major Gen. Fogarty : without increasing the base positions required throughout the workforce for engineers and other technical skill sets.

Senator FAWCETT: Why isn't that base currently in existence?

Major Gen. Fogarty : That is the structural issue that we have. They are not required in other parts of the workforce at the lower rank levels to sustain and grow the numbers that are required in DMO at higher rank levels. So we have been investigating ways of remediating that.

Senator FAWCETT: Can I take you to the Rizzo report, and annex B, in particular, which was signed off by the previous secretary and CDF last year. In annex B, paragraph 3, it says,

The drive for efficiency ... has meant a greater need to outsource many critical functions to Industry.

It goes on:

... the resulting outsourcing of deeper maintenance requiring high level skills and experience—

has resulted—

... in a loss of professional skills within Navy and Defence Materiel Organisation (and possibly more broadly across Defence), an inability to internalise the knowledge of some critical components of our business, and in some cases greater cost. This has worked to the detriment of technical skills and competencies.

Is that at the heart of the underlying structural issue?

Major Gen. Fogarty : It is one of the inputs that has affected our base level of growing technical skill sets. Part of the remediation efforts that I have mentioned, as part of our shared service work and other remediation efforts, we have been addressing the structural issues by trying to civilianise a range of positions which previously were held by military personnel, which we can no longer sustain.

Senator FAWCETT: I notice that you have had an increase of some 368 APS positions within the DMO. Is that a direct correlation to unmanned military positions?

Major Gen. Fogarty : Yes; the DMO has a flexible workforce model. The DMO is currently short about 400 military positions and it has the flexibility to take the salary for those positions and use that to hire other labour. In some cases they have brought on non-ongoing and ongoing APS staff as well as contract staff.

Senator FAWCETT: I note that you cannot answer this for every specific individual position, but in general could you say that the APS people who are filling those vacant Defence positions have the skills and competencies that Defence has been unable to provide to fill those positions?

Major Gen. Fogarty : Yes, that is correct.

Senator FAWCETT: So they are people with engineering qualifications and experience working on Defence platforms and engineering systems.

Major Gen. Fogarty : I would say, yes, that is my understanding. But I think CEO DMO might have to clarify that.

Senator FAWCETT: Could I ask you to take that on notice and come back with a breakdown of those 368 positions.

The other comment that is made on page 8 of the estimates statements is that the use of APS in vacant ADF positions provides value for money because of the lower cost of APS staff. How much of a driver has that been versus identifying the appropriate skill sets to fill the positions?

Major Gen. Fogarty : Again, that comment only relates to the DMO. That is the only part of the organisation where that is occurring. I think I would have to refer to the CEO DMO to see exactly what type of labour he has bought to fill those vacant military positions.

Senator FAWCETT: Rizzo also identifies that within Navy but he assumes, possibly extrapolated across the rest of Defence, that the services are likewise suffering a shortage of people in those skilled positions. Would that be an accurate reflection?

Major Gen. Fogarty : As I started to say before, at the moment within the ADF we have 15 trade groups where we are short. A year ago that number was 20, and a year before that the number was 32. We have been very successful in the last two years in remediating what have been critical shortages in trades. So, in general, I would say today that that is not the case compared with where we were two years ago.

Senator FAWCETT: I notice that one of the measures used to meet budgetary pressures has been reducing the use of reservists. I note, for example, that the chief engineer of NASPO, the Naval Aviation Systems Program Office, is a reservist. Can you provide—and I am happy if you take it on notice—a breakdown of how many people providing reserve service are at a technical level where their skills and competence have been the driver for their re-engagement in Defence versus how many perhaps are at a more operational level supporting current operations?

Gen. Hurley : I appreciate the point. It is a significant body of work, though, because there could be quite a number of people you would need to search through the database for. Could we take it on and have a look at the work and come back and sort out how we put it.

Senator FAWCETT: I am happy for an indicative figure. What I am trying to get a feel for is whether 90 per cent of the people who have had their reserve service wound back have been perhaps providing logistics support in the field—you know, in the Solomons or East Timor—or how many people on both training days and continuous full-time service have actually been serving in fairly key appointments, such as a chief engineer or other people within the technical regulatory structure who were there specifically because of the skills they brought.

Gen. Hurley : As you would expect I think you will find that it will vary across the three services, given the different technical nature of the services, particularly Navy and Air Force when compared with Army.

Mr D Lewis : Madam Chair, notwithstanding the conversation we had before lunch about Mr King and Senator Carr not being at the table, this is a personnel matter—and some of the questions Senator Fawcett was asking earlier about the DMO. Certainly, Mr King has further information, if that would be of assistance.

Senator FAWCETT: Sure. I am happy to take that up to 2.30, when the minister is here. That has been the chair's guidance.

Senator FEENEY: We can just do it now.

CHAIR: I think it is relevant to this conversation.

Mr D Lewis : This is a personnel matter, essentially.

CHAIR: If you could respond that would be appreciated.

Mr King : One thing I wanted to correct, in case it got some credence, is the issue of offsetting APS against military positions, which you thought might be a cost-saving measure. It is not. Our preference is for those positions to have military engineering and technical people involved. We go for the APS positions only when that cannot materialise. I just wanted to make sure that that was clear.

Senator FAWCETT: It is not actually the tone of the additional estimates statement, but I hear what you are saying and I accept that. I have a question about DMO but it is actually directed to the Office of the Secretary and CDF, because it is about the strategic direction. The additional estimates statements say that there is no change to DMO's strategic direction. But Rizzo talks about the fact that:

DMO System Program Offices are responsible for the ongoing sustainment of capital assets.

Is it a fair assumption to say that an amphibious ship in the navy is a capital asset?

Gen. Hurley : Correct.

Senator FAWCETT: So, despite the fact that at the start of last year we had what can only be described as a catastrophic failure of Australia's amphibious capability, is that statement that there is no strategic change in direction for how DMO does its business to support Defence sit comfortably with the Office of the Secretary and CDF?

Mr D Lewis : It sits comfortably with me. There is no strategic change in direction in my view. Quite obviously within the strategic direction the DMO travels there will be changes of emphasis through time. The issue of sustainability has been, as I think you know, a matter of discussion for many, many years. The balance between the effort being put into sustainability on the one hand and the acquisition functions on the other has been a long-standing discussion. But I do not see it as being a strategic change of direction. I think it is just a matter of improving our collective performance around the issue of sustainment.

Gen. Hurley : The issue that is also alluded to is the relationship between DMO and its place in the department. That is the strategic decision about whether you are separating it further or dragging it in further, and what is the relationship between them. It refers to that and not the innards of the way it does its business, going back to the question that Senator Johnston was asking about the role of capability managers, though inside that arrangement. Refining those would be an important thing to do.

Senator FAWCETT: I notice Chief of Navy earlier quite bravely and appropriately put his hand up to say he was accountable and responsible for the submarine sustainment. Rizzo identifies, though, that the service chiefs—I am paraphrasing here—essentially might be accountable, but they do not necessarily control the resources they need to achieve the sustainment outcomes. Does that not speak to a fundamental command relationship change between the services and DMO, if indeed we are going to make service chiefs both accountable and have control of the resources they need to ensure that sustainment occurs?

Mr D Lewis : The service chiefs hold the MSAs and the funding for sustainment, so I do not think the point you are making is absolutely right. They do hold both of those levers—but maybe Chief of Navy would like to comment specifically from his point of view.

Vice Adm. Griggs : I will support what the Secretary said. I have no doubt that I control the financial lever and, as I mentioned in earlier testimony, shifts in emphasis, in particular, product lines, are my decision. The key part of the MSA arrangement, as you would be aware, are the KPIs and we are doing a lot of work on improving the KPIs so that they are more meaningful and so that it makes it easier for me to pick the problem areas.

Gen. Hurley : Also, if you go back to the Black review, these are some of the issues that the Black review addressed in terms of accountability, responsibilities, the internal machinations of the department, and ensuring that all of those responsibilities and accountabilities aligned effectively to underline the concept of accountability—so, whose responsibility? So, if the resources are not appropriately aligned, what are we doing about it—ensuring that you either own them or you can access them on an arrangement that allows you to produce what you were asked to produce.

Senator FAWCETT: A good segue to the Black review. How many committees did the Black review identify within Defence?

Mr D Lewis : I do not recall there being a specific figure. I thought it said there were hundreds. It may have offered that view, I think.

Senator FAWCETT: That suffices for the discussion.

Mr D Lewis : A large number.

Senator FAWCETT: A large and potentially excessive number of committees. Why did so many committees evolve in the Defence organisation, and I use that term deliberately, as Black did, to separate between the ADF and the ADO?

Mr D Lewis : I think it was because of the complexity of the organisation and the fact that, as we discussed earlier, there are 13 groups and services. Each of those has its very legitimate interests, so there is obviously a requirement, whenever making decisions or gathering information upon which to make the decisions, to get wide input. I think it is that issue of the breadth of the input and the breadth of the interest. There is scarcely a decision taken within the organisation that does not impact on most of those 13 groups at any one time. That has been the driver. As you know, I am personally very supportive of the proposition that there are too many committees and that question needs to be addressed, and it is being addressed.

Senator FAWCETT: Taking you to your comment that you have 13 groups, each with their own legitimate priorities and interests, given that most of those groups exist to support the three services, by eliminating committees but allowing the groups and their divergent—sometimes—interests to remain how are you going to address that need for communication and the ability for someone, for example, Chief of Navy to actually exercise control when each group would argue that it has its own legitimate interests to pursue?

Mr D Lewis : I think this was precisely the point that Associate Professor Rufus Black was going to in his report. He highlighted for us the fact that those statutory officers who hold the decision-making responsibility, or the responsibility for decisions that are being taken, were in fact not exercising all of the levers that they had at their disposal, because of the committee system. As you know, Senator, a committee can be the refuge of knaves, if you are trying to obfuscate or delay or circumvent or all of those kinds of functions. I am not that down on committees that I do not think they have a place, but I am just saying that—

Senator JOHNSTON: We are relieved to hear that!

Mr D Lewis : I would not advance that in this particular room either; that would be a very bold move on my part! But, notwithstanding the august nature of this particular committee, the idea is to put the decision making back into the hands of the statutory authority so that that individual is quite clearly exercising their authority and making the decision. It may be based on advice from a committee or a working group or some other sort of gathering of people, but again the success of this will be measured in the way in which you can cast out the net to gather the ideas, the notions, the positions and the arguments but then have the statutory authority make the decisions. It probably was lost in the noise, but when I was making my opening remarks, I said that we have established the secretary and CDF advisory committee to replace a number of other committees; we have aggregated those. It is deliberately titled the 'advisory committee', because it is providing advice to the CDF and me, two statutory office holders who make decisions based on our statutory office authority.

Senator FAWCETT: I am very glad to hear you put the emphasis on that—statutory office holder. The nature of committees is remarkably similar to a headquarters staff who advise a commander who makes a decision. Are you familiar with what Black said in his report about the efficacy of the ADF command and control system in terms of accountability versus the broader ADO?

Mr D Lewis : Yes.

Senator FAWCETT: What did he—

Mr D Lewis : I think he made the observation that the way in which military headquarters worked was in some way inspirational to how it could perhaps work elsewhere through the department.

Senator FAWCETT: So, if we look and see that the military has actually retained a command and control system that works, is effective, has accountability and we have decided that we actually need to have accountable decision makers—and that is a model the military has retained and perfected and does well—is the escalation of commitment into the civilian management infrastructure in the broader ADO justified in the appointment, for example, of two new associate secretaries, when it has been proven over the last decade to add complexity and to detract from accountability?

Mr D Lewis : I think you probably would be overrepresenting the appropriateness and the effectiveness of what I would describe as a military command system in what is clearly a very complex set of arrangements in one of the great departments of state. I would not be for one moment subscribing to the notion that a military command system is something that should be implemented throughout great departments of state. I just do not think that works, and I am sure you would understand the point I am making.

Senator FAWCETT: Indeed.

CHAIR: Just a final question from you, Senator Fawcett, before I move to Senator Humphries for a while.

Senator FAWCETT: I am happy for you to move to Senator Humphries now.

Senator HUMPHRIES: I want to ask a few questions about the SRP. I see that some figures have been provided updating the SRP savings with respect to the 2011-12 and 2012-13 financial years. Thank you for that. That was useful. I note that last year in May, when the government made some announcements about the SRP, it said that, unlike the original intention of the SRP, which was that savings should be returned back into defence operations, $300 million would be devoted to the returning of the general budget to surplus. So that $300 million was taken out of the general purpose of the SRP, which was to return a saving into other areas of defence. Was that $300 million a one-off, a borrowing, from the SRP which will be returned later on, or is that a permanent $300 million shaving off the target that the SRP set?

Mr Duncan Lewis : The sum of money you refer to is associated with the shared services. I might ask Mr Sargeant to speak to that.

Mr Sargeant : The announcement in May was an additional $300 million which was the costing of a savings measure associated with the reduction in the rate of growth of the civilian work points. The government made a decision to reduce the rate of growth by 1,000. The cost reductions that came from that costed out at around $300 million. That was in addition to the $20.6 billion which the SRP is designed to get over the decade. In order to achieve that $300 million Defence has embarked on a series of reforms around increasing the level of shared services in addition to what was originally planned under the SRP.

Senator HUMPHRIES: Although that announcement appeared in a media release by the Minister for Defence and the Minister for Defence Materiel headed 'Strategic reform program', in fact, that $300 million was not really about the SRP at all, it was just happening at the same time as other announcements.

Mr Sargeant : In order to achieve that $300 million we have to undergo significant reforms in the way we do internal shared services in Defence. We used the governance structure that we have in place for the SRP to manage it. The other thing is that it also represents a significant reform and, in that context, is being managed through the SRP framework. We use our governance and advisory committees to handle it.

Senator HUMPHRIES: We have a number of factors working on the Defence budget, which I would like to try and get reconciled if possible. I understand, for example, that the announcement of the increased efficiency dividend from 1.5 to four per cent of the budget affects Defence, so it has to find an additional 2.5 per cent of its budget to surrender to Treasury for purposes to restore the budget to surplus. Does that commitment cut across the promise made before the 2007 election that the government would increase the Defence budget by three per cent in real terms until at least 2016?

Mr Prior : The three per cent commitment by the government, which was announced as you referred to, has been funded and was funded at the time. The increase in the efficiency dividend was documented in our portfolio budget statement for 2011-12 rather than the portfolio additional estimates.

Senator HUMPHRIES: This is the one that was published in May.

Mr Prior : Just to be clear, in relation to the increase in the efficiency, there was one in the portfolio budget statement. I am just trying to understand which one you are referring to.

Senator HUMPHRIES: My understanding is that last year, I think at the time of the budget, there was some increase in the efficiency dividend to 1.5 per cent.

Mr Prior : Correct.

Senator HUMPHRIES: But in the MYEFO of November-December there was an announcement of a further 2.5 per cent.

Mr Prior : Correct. I was just trying to tie the two together. Those two efficiency dividends are dividends that we will return money to the government's overall budget.

Senator HUMPHRIES: The question is: does that promise or does that decision trump the decision to increase the Defence budget by three per cent in real terms? In other words, do we have a three per cent increase and then a shaving to account for the efficiency dividend?

Mr Prior : We have had the three per cent and—you are using the word 'shaving'—we have also now handed back funds in accordance with those efficiency dividends. Correct.

Senator HUMPHRIES: Which means that presumably the three per cent real increase commitment will not be met, because obviously it has to give way to a reduction in spending occasioned by the increase in the efficiency dividend?

Mr Prior : Mathematically correct, Senator.

Senator HUMPHRIES: Is it possible to get a reconciliation of how the defence budget and the forward estimates actually work out with those various components, where we see the three per cent in the base figures and where we see the four per cent efficiency dividend and how it affects the bottom line? You have already given us the SRP figures, so as well it is how they also affect the total picture of what is being spent across defence.

Mr Prior : The very best way of doing that is to go back through it. We can see if we can do that, but not right now of course. But we will go back through our portfolio budget statements and our portfolio additional estimates statements and track for you those announcements as they were made and compile a composite of all of those. But can I say to you that it does get a little complicated because over the course of time there are events and transactions whereby we will sometimes re-phase funds into other years and move money around to meet our needs. It gets a bit more difficult to track each dollar exactly, if you know what I mean. It does not actually show up as sharply as I think you would like, but what we will do is show you, through each of the documents, how those various measures were announced, when they were announced and what the dollars were in relation to each one if that is suitable.

Senator HUMPHRIES: I think that is what I am asking for, so thank you very much for that. Is it possible to get also what the expected gross and net savings targets will now be for the SRP in the out years? When the SRP was announced in 2009, we had figures for the ongoing four financial years. Does SRP finish at the end of 2012-13 or does it go beyond that?

Mr Sargeant : It goes through for a decade out to 2019.

Senator HUMPHRIES: Can we have the figures at least for the forward estimates, for gross and net savings under SRP?

Mr Sargeant : Yes.

Senator HUMPHRIES: With respect to the four per cent efficiency dividend, what will that mean in terms of employment within the Department of Defence?

Mr Prior : Apart from the announcement about the 1,000 that my colleague has referred to, there are no other plans to reduce staffing.

Senator HUMPHRIES: What does the extra 2½ per cent announced in MYEFO represent as a dollar hit to the defence budget?

Mr D Lewis : About $190 million across the forward estimates.

Senator HUMPHRIES: Can you realistically sustain a cut of $190 million on top of the other measures we have talked about without losing staff?

Mr D Lewis : I think that is an exercise to be gone through. As you know, there are a number of adjustments that can be made to a budget that is as large and complex as the one that we are running. I am not in a position to say to you that cuts in staff are in prospect at this stage, other than the 1,000 that we have already been talking about—which is not a cut in staff but is a reduction in the recruiting; we were to recruit a thousand that are now not being recruited. This is APS staff that I am talking about now.

Senator HUMPHRIES: Yes, I understand.

Mr D Lewis : We are now not recruiting them.

Senator HUMPHRIES: I trust that by the May-June budget estimates you will have some idea of what is happening in that respect.

Mr D Lewis : I would think so, yes, but again it is remembering that we are adjusting this over a forward estimates period.

Senator FAWCETT: Could you let me know whether service police dogs are ever carried on VIP flights? I have had a question from somebody about seeing a dog being taken off a VIP flight. Are service dogs every carried on VIP flights?

Gen. Hurley : I think I will have to take that one on notice.

Senator FAWCETT: Would it ever be appropriate for private pets to be carried on a VIP flight?

Gen. Hurley : I would doubt it.

Senator FAWCETT: Could you come back to us and let us know if service dogs or, indeed, private pets have ever been carried?

Gen. Hurley : On VIP aircraft in particular?

Senator FAWCETT: On a VIP aircraft, yes.

Air Marshal Brown : There have been occasions when private pets have been carried on VIP aircraft before.

Senator FAWCETT: Who has carried those on?

Air Marshal Brown : Again I would have to go back through history, but we do have instances where that has occurred.

Senator FAWCETT: There is a question here about a flight from Canberra to Melbourne, where it was offloaded. If you could get back to me with the details—

Air Marshal Brown : Do you have a date?

Senator FAWCETT: No, I do not have a date.

Air Marshal Brown : It is going to be rather difficult to do then.

Senator FAWCETT: I take it that you keep passenger itineraries—

Air Marshal Brown : We do that.

Senator FAWCETT: if you could classify a personal pet as a passenger.

Air Marshal Brown : To my knowledge it has not been done recently, so the instance we were referring to was probably three or four years ago. This is a recent one?

Senator FAWCETT: I believe so.

Senator BRANDIS: I just have one inquiry. It is in relation to security clearances for ministerial staff. The Department of Defence is the department responsible for security clearances, isn't it?

Mr D Lewis : That is correct. I should add, to qualify that, that of course the administration of the security clearances of ministerial staff is managed through the department of finance. We are the authority—

Senator BRANDIS: That conducts the interview and so on.

Mr D Lewis : That is correct.

Senator BRANDIS: Obviously, I am not going to trespass into areas where I should not. What is the position in relation to ministerial staff who are not Australian citizens?

Mr D Lewis : I am not sure that we have an answer for that. There will be an answer, but I do not know it myself.

Senator BRANDIS: Mr McKenzie, can you shed some light on my question?

Mr McKenzie : I would have to take it on notice. We would have to do a clearance for someone, but I am not sure about the circumstances. As far as public servants throughout the system are concerned, except in the case of a waiver pending the granting of citizenship, we are always clearing people who are Australian citizens.

Senator BRANDIS: Does that mean that, conversely, in terms of public servants you do not clear people who are not Australian citizens?

Mr McKenzie : No, for people who have been given a waiver for employment because they are very close to becoming an Australian citizen and have special skills which are required—and these are very rare cases—we can in some cases grant them a clearance. This would usually be because they have a clearance from another country that might be a clearance that we would recognise.

Senator BRANDIS: The way you explain it, it sounds very much—so far as it concerns the public servants at least—that these are, to use your phrase, 'rare cases', and that the clearance of non-citizens is very much an exception to the general rule. Is that right?

Mr McKenzie : For public servants that would be true.

Senator BRANDIS: The reason I am interested in this is that I am aware that two of the Prime Minister's senior staff—Mr McTernan, her director of communications, and Mr Tom Bentley, her deputy chief of staff—are not Australian citizens, and I wonder whether or not special rules or waivers have to be applied for those two gentlemen to be given the appropriate clearances or indeed whether either or both of those gentlemen have been cleared.

Mr D Lewis : I think the best thing to do here would be to come back to you with some form of written response on those two cases, if indeed they are known to us.

Senator BRANDIS: So you are taking that on notice?

Mr D Lewis : That is right.

Senator BRANDIS: Thank you.

Senator FAULKNER: Very briefly, I thank you very much, Mr Lewis, for writing to me after the last estimates about the Australian Women's Land Army and the arrangements that had been arrived at between the Department of Defence and the Department of Prime Minister and Cabinet. I was just going to ask you whether, since that time, you have you been able to provide any further or better information. I certainly accept that a lot of progress has been made. I very much appreciate that good sense appears to have prevailed in relation to an appropriate way of acknowledging the service of the small number of surviving members of the Australian Women's Land Army. But you might be able to indicate to me whether there had been any further developments since you wrote.

Mr D Lewis : Nothing specifically, other than to reinforce the point you made, that we have made some significant progress with that. The program is what I would describe as being on track, and going through to what you would describe as a successful conclusion. I think that is all I could say at this stage. I can get further checks done and come back to you—I am happy to do that—on any specific developments.

Senator FAULKNER: I was briefed—I appreciate this very much too—by two officers of the Department of Prime Minister and Cabinet who, as a courtesy, informed me of progress that was being made. I understand that an interdepartmental committee has been established on this matter—

Mr D Lewis : That is right.

Senator FAULKNER: and I understand that Defence is serving on that IDC. Perhaps, for the purposes of the record you could confirm that that is the case.

Mr D Lewis : That is my understanding.

Senator FAULKNER: You can confirm, I am sure, that that committee is chaired by an official of the Department of Prime Minister and Cabinet, which I assume means, now, that the issue of who the lead agency is, or is not, has basically been finalised internally and effectively: it is PM&C—would that be fair to say?

Mr D Lewis : Yes, although I would not over play that, because I do not resile for one moment with regard to Defence's input into this. We are not idle partners in it. So, as I think I said to you in a previous hearing, Dr Watt and I agreed at a very early point that we would work together closely on this. And that has been the case.

Senator FAULKNER: You appreciate the urgency of this, because of the 70th anniversary a little later this year. This is a year for 70th anniversaries, of course, and there will be many significant ones over the next matter of months. This is one of them and I just wanted to acknowledge, given that I have asked a number of questions here, that I appreciate the correspondence that you have provided to me. I appreciate the role of agencies, particularly Defence and the Department of Prime Minister and Cabinet—but also there is also some role, although I am not entirely sure what it might be, by either the Department of Veterans Affairs, the Australian War Memorial or both—in what is, to all intents and purposes, a very worthwhile outcome. If you would pass on my appreciation to the relevant officers in the agencies concerned I would appreciate that.

Mr D Lewis : Thanks, Senator. I will do that.

Senator HUMPHRIES: I just wanted to follow up the SRP questions I asked before with one other short question. I am sure you are aware of the article in the Australian last week about the possibility of Defence attaches being removed from some overseas posts as part of the SRP saving. Would you be able to indicate whether that is part of the current government projects of where SRP is going?

Mr D Lewis : The CDF will probably have something to say about this also, but I do not see the adjustment in the Defence attache posture around the world as being related to the SRP. There has been a review done, and there is still discussion going on about that review. It would not surprise you that from time to time we need to re-examine where our Defence attaches are around the world. Regions of the world change in terms of their relative importance to us through time. We are going through one of those reviews now, and it is my expectation that there would be an adjustment of the footprint of those Defence attaches. That is not code for 'adjustment down'; that is just saying in a very straightforward way that we would be adjusting the location of those people. and, as I said, that is a work in progress.

Gen. Hurley : Just to reinforce the secretary's comment, this is not SRP related and it is not just looking at defence representation and attaches around the world. We are looking at our exchange postings in the UK, the US or wherever they may be and the range of representation we might have there—liaison officers and so forth. We are just making sure that in our current and emerging strategic environment we have our weight in the right place—are we investing too much into our heritage, should we be looking forward into our own region and rethinking what that level of presentation should be, and what level of benefit do we get from it?

Senator HUMPHRIES: So the transfer of a Defence adviser from Vanuatu to Tonga fits within that category?

Gen. Hurley : Yes. We would be looking at the benefits of people being located in particular countries and where we can get better bang for the buck in the sense of having that person there—what outreach can they get, what engagement is there, where is our weight of effort at the present time, where do we think we are going to and what relationships do we a need to establish and invest in. Those sorts of issues are on the table.

Senator IAN MACDONALD: I have a couple of questions about two Defence Force bases. One is RAAF Williamtown and the other is Robertson. I will go to Williamtown first. I understand that the base is being connected to a new Hunter Water sewerage main. Is anyone aware of that? Can you confirm that that is the case?

Mr D Lewis : I will ask the chief operating officer to step forward. I do not know whether we have the answer, but, if anybody does, it is him. I do not think he thought this went with the job!

Senator IAN MACDONALD: He is in the parliamentary system—he should be aware of sewerage!

Mr S Lewis : We have so many bases! I am aware very broadly of the issue. I do not believe it has yet been finally resolved, but what we are trying to work with Hunter City Council about is arrangement whereby our current facilities which are on base would be closed down and we would draw on a new facility which would also be used by the city council for community purposes. My understanding is that that has been making good progress but I do not think it is yet resolved.

Senator IAN MACDONALD: I am told there are reports around saying that that, from the existing system, contaminants, including carcinogenic items, are being leached into the soil at Williamtown. I am also told that the soil there is very sandy and, therefore, porous to any contaminants. I am also told that the water table is less than a metre below the ground. If that is correct, it is apparently a problem because the aquifer is part of the water supply used in the Hunter region. I understand that some money has been set aside for Williamtown base to shut down the existing system which is potentially a problem area and for that money to be used to connect up to the Hunter Water sewer main. That is the nature of my inquiry and the nature of my concern. Can you help me on any of that?

Mr S Lewis : I would not have that level of detail but now that you have raised the issue with me I will investigate. We will find out whether some of those reports that you have had access to involve issues of concern and I will report back on notice. I will do that first up. In relation to the issue regarding the future supply, I will also give you an update. We are definitely looking to a collaborative arrangement with the local council whereby there is common infrastructure we will use in future, which would involve the closing down of the current facility on base.

Senator IAN MACDONALD: Thank you for that, but my concern is of course that, if these reports are correct, we could be poisoning the users of the Newcastle water system. If that is the case, it might need some urgent attention.

Mr S Lewis : I am not aware of the detail of that. I will investigate and get back to you.

Senator IAN MACDONALD: Okay—relatively quickly if that is possible. It may be that my information is not correct, but it is from a reliable source.

Mr S Lewis : As I think I have mentioned on previous occasions, we take our environmental responsibilities very seriously, as we do the safety of both defence people and those in the community around us. So, if we are aware of an issue of that kind, rest assured we will take action as a matter of some urgency.

Senator IAN MACDONALD: Thank you. As I often say, you are the best environmental managers in Australia and have been for some time. Can I move onto Darwin and the houses, which I think we have discussed before. At Eaton, are the 395 houses still owned by the Department of Defence? Perhaps, rather than me asking you a series of questions—I think the issue is reasonably well known—I wonder if you could give me a brief update on where we are at. Bear in mind that, as you know, there is a huge housing crisis in the general Darwin community and there has been a lot of angst against the defence department for having these houses sitting there that could be used to address part of the housing crisis. But Defence has other requirements. Could you give me a summary?

Mr S Lewis : Certainly. I do not know what level of detail you want, but obviously those houses are getting quite dated and they will no longer meet the standard by 2017, so we need to upgrade any defence houses on base by that point in time. We have a redevelopment program in hand. We will be doing that with DHA. The mix is changing to some extent because some of the housing is on base, but there is also the Muirhead development, which is being managed by DHA. It is a very substantial development and a lot of ADF families are choosing to relocate to Muirhead.

If you have any particular areas you would like me to focus on in a supplementary, let me know. I have do have a comment about RAAF Base Darwin itself. As I think I mentioned on a previous occasion, the footprint of RAAF Darwin from our perspective is a strategic footprint. We do not seek to reduce the size of that footprint because we see this as an important part of our future posture. So, even if we remove a few of the houses and use that for future capability, we will plan the redevelopment of the base around that. So it is actually a very important mounting base for future defence purposes.

Senator IAN MACDONALD: I understand that, but you would be aware, as I am, that there is a lot of odium being directed at the defence department because, whilst these houses may not meet Defence standards, they certainly more than exceed the current civilian average across Darwin, and it is practically impossible to get anywhere to sleep in Darwin these days, apart from a tent out in the backyard.

Mr S Lewis : We are relocating those houses where can, as you may be aware.

Senator IAN MACDONALD: Last time I was there, which was quite some months ago, there were Defence Force personnel who wanted to be living in those substandard houses, mainly because of their close proximity to the base, which would save them transport costs et cetera.

Mr S Lewis : Indeed they are close to the base.

Senator IAN MACDONALD: We are talking about 395 houses—is that right?

Mr S Lewis : I cannot give you the precise number but it is of that order, and probably several hundred of those remain occupied. A significant number remain occupied, but I would not want to mislead you by giving the wrong number, so I will take it on notice. We can tell you how many are occupied, how many are vacant, how many are vacant but could be occupied and how many are vacant and really not of a standard to be occupied and the disposal of which we are in the process of arranging.

Senator IAN MACDONALD: That would be very useful. Could you also tell me what the current maintenance costs are for those that are occupied and indeed for those that are unoccupied? It seems to me, and it is told to me by people in the area, that authorised maintenance by Defence has been deliberately reduced or stopped in recent times. What is the purpose of that?

Mr S Lewis : I would need to look into the detail of that. For example, we have a house we regard as no longer being serviceable for purpose and it is going to require, let us say, eighty or a hundred thousand dollars or more to refurbish, and we know it is not going to meet standard a few years time anyway. I would not be at all surprised to find, if there are such places that we have decided are no longer habitable and not worth restoring for continued use by ADF members, that we are in the process of replacing those and have a plan with DHA which will involve the redevelopment of a significant portion of that real estate for a new housing estate on-base.

Senator IAN MACDONALD: Are these Department of Defence houses rather than DHA?

Mr S Lewis : I think they are DHA managed but Defence owned on-base. We have different models from DHA, which operates around the country. On this occasion, I think they are owned by Defence and managed by DHA.

Senator IAN MACDONALD: I know that DHA leases to non-defence personnel certain of its stock when there is very high demand in the general community and it has not been taken up by Defence housing—

Mr S Lewis : This would be off base that you are talking about?

Senator IAN MACDONALD: Yes, but my understanding is that some of the Defence houses at Robertson, while they are strictly on-base are outside the barbed wire perimeter

Mr S Lewis : Sorry, are you talking about Robertson or RAAF Darwin?

Senator IAN MACDONALD: Sorry, Eden.

Mr S Lewis : You are talking about RAAF Darwin.

Senator IAN MACDONALD: Yes, it is not Robertson—Eden.

Mr S Lewis : You are talking about a housing development that is on RAAF Darwin, which I think is managed by DHA. I think what you are talking about is houses owned by DHA in the community. It is a little bit like load factors on a plane, you will not always get it right. In some places on some occasions we will have a bit of an imbalance in our relationship with DHA. What DHA will occasionally do, but not frequently, is lease to a family member from the community for a relatively short period of time.

Senator IAN MACDONALD: I did not make myself clear. I am not suggesting these are DHA houses; I am suggesting that DHA has a policy of leasing to non-defence members, where they can. You say it is not common. I am just using it to say that, given the housing crisis there is in Darwin, would it not be possible to lease some of these what appear to me, and to most of the community members I have spoken to, to be perfectly acceptable houses. In fact, they are houses that are above average standard, but which seem to be locked up, and have been for some time, are not being maintained and are therefore falling into disrepair.

Mr S Lewis : Part of the problem is that they are on-base. Another part of the problem is that we are seeking to re-utilise that land. Once the houses become vacant we are trying to manage a process whereby we can vacate the sites so that DHA can construct new housing on-base for ADF members beyond 2017. None of those houses can be used for ADF members from 2017.

Senator IAN MACDONALD: When you say they are on bases, I recall that they are technically on-base but they are outside the wire perimeter. They are not on the base, although they are on-base. I will look forward to your considered answer on that whole issue. Far be it from me to tell Defence how to run its operations, but could you perhaps tell me what communication you have with the local community in relation to that housing. It is a constant source of anxiety in the community that there are these houses there that seem perfectly good, they are empty, they are not maintained and people are sleeping under trees and in tents. If what you say is right, and I am sure you are telling me as best you know now, it is a very bad look and causes a great deal of anxiety. Defence and indeed the government might look better if there were some explanation of what was happening and who is doing what and when it is all happening.

Mr D Lewis : We will come back to you with a complete answer, but the anxiety in the community is understood. Clearly if the housing is on-base I cannot think of any example where the Defence Housing Authority is leasing to anybody other than defence members or defence department related people on base. If it is off base that is another situation altogether, and the DHA does lease to parties outside of the defence community for off base housing. We will come back to you with a complete answer because there are some definitional issues that need to be tied up.

Senator IAN MACDONALD: I averted earlier to berth 10 in Townsville and the LHDs. Is there a written agreement between defence and the Townsville Port Authority on the use of berth 10—for example, who is consuming what?

Mr S Lewis : The answer is yes. First of all there is a written agreement. The defence funding contribution towards the berth 10 upgrade was made in June 2011, once it was finalised. That contribution is capped at $30 million and will ensure that the Navy receives a minimum of 45 days access to berth 10A under a deed of licence between defence, the Port of Townsville Ltd and the Queensland state government. This deed will guarantee Navy access to berth 10 for 25 years.

Senator IAN MACDONALD: When will that be ready for you? And it is not just for LHDs; it is for any defence craft, is that right?

Vice Adm. Griggs : It is primarily used for the amphibious ships.

Mr S Lewis : I believe it is due for completion by June 2013.

Senator IAN MACDONALD: And that is when you are expecting the LHDs?

Mr S Lewis : That is ahead of the introduction of the LHDs.

Senator IAN MACDONALD: What happens with Choules when it goes into Townsville now?

Mr S Lewis : I am not sure it has actually been into Townsville yet, but it obviously will. Choules will be able to access berth 10 when it is ready. She will not be able to load from her side door at berth 10; the LHD will be able to do that. Choules will be able to do that at another berth, up to the limit of her side door, which is a lower limit in tonnage terms than the LHD door.

Senator IAN MACDONALD: So there are other berths that Choules can use in Townsville harbour until June 2013, when berth 10 becomes available?

Vice Adm. Griggs : That is correct, but they are subject to commercial access issues. The thing about berth 10 is that priority that we get when we need it. As you know, Townsville is a very busy port and getting access to those other berths can be difficult sometimes.

Senator IAN MACDONALD: Is there any interim arrangement with the Townsville Port Authority in relation to the use of Choules before the LHD has arrived and berth 10 is ready for action?

Vice Adm. Griggs : The fallback position is that she can anchor and we can use the mexifloat system which we purchased with the ship. It can transfer vehicles from shore to load into the ship.

Senator IAN MACDONALD: Does the arrival channel to Townsville harbour need dredging? I understand the full displacement draft of the LHDs is not much above the seabed. Are there any arrangements regarding the entrance channel being dredged. If so, is Defence paying something towards the cost?

Vice Adm. Griggs : I am not aware of any requirement to do that. I will check if that is a requirement and get back to you.

Senator IAN MACDONALD: On the same note, I understand the LHDs and Choules would be expected to use Darwin harbour at some time?

Vice Adm. Griggs : That is certainly a possibility.

Senator IAN MACDONALD: Is the seabed low enough for those big ships to get into Darwin harbour?

Vice Adm. Griggs : The depth of channel is not an issue in Darwin. The key issue in Darwin is tidal range. When a ship is alongside a wharf, particularly using the side door, at what parts of the tide can you effectively use the door? That holds true for any merchant ship that has a side door or a quarter door. They have to deal with the same sorts of issues in Darwin because of the range of the tide.

Senator IAN MACDONALD: But you have it in hand and have a solution for it? You can operate the ship should it be needed in an emergency out of Darwin?

Vice Adm. Griggs : The primary vehicle for loading would be by watercraft to the hardstand which was announced in the white paper.

Senator IAN MACDONALD: You would park it outside.

Vice Adm. Griggs : We would anchor it and, in the case of the Choules we would use the mexifloat and in the case of the LHDs we would use the LCM1 echo landing craft to transfer the vehicles from shore to load on or unload from the ship.

Senator IAN MACDONALD: That can all be done with the ship standing off and the landing craft?

Vice Adm. Griggs : That is correct.

Senator FAWCETT: Please give an update on the single accommodation at RAAF Base Edinburgh for the members of 7RAR.

Mr S. Lewis : Construction is underway. I am not sure I can give you too much detail on that, but I know that is now well underway and on track.

Senator FAWCETT: What is the expected completion date?

Mr S Lewis : I think I have found the section: Lavarack Barracks in Townsville and the Edinburgh Defence precinct north of Adelaide are the priority locations for delivery of the permanent LIA. We have temporary accommodation on site now, as you are aware. Edinburgh permanent live-in accommodation will be completed in two stages: in December 2012 for 200 units and in July 2013 for a further 230 LIA units.

Senator BUSHBY: I recently attended the 200th anniversary celebrations at Anglesea Barracks, and consider it a jewel in the Defence estate as a working barracks. The Prime Minister said earlier last year that its long-term future was dependent on the outcome of a review that was looking at Defence assets. What is that review and has its findings being finalised and/or released?

Mr S Lewis : I cannot recall the precise statement by the Prime Minister but my sense is that it would have referred to the estate consolidation review work which we had underway last year. That work was suspended upon the announcement by the minister of the Force Posture Review, which is underway at the present time. There is a preliminary report—I think it is described as that—which has been issued publicly, and a final report is due in March. Upon the completion and consideration of that report by government we will need to then finalise the estate consolidation work. That is some months away and it will depend on the outcome of the Force Posture Review.

Senator BUSHBY: Okay, so at this stage is there any Defence estate that is immune to the potential outcomes of that, or quarantined?

Mr S Lewis : I think that the entire Defence estate is within the scope of the Force Posture Review and the subsequent consideration of estate consolidation.

Senator BUSHBY: So potentially a site like Anglesea Barracks, which although it has great historical significance is not at the forefront of strategic capabilities in defending the nation, may well be at risk?

Mr S Lewis : I am not saying that. I am simply saying that the estate consolidation review—

Senator BUSHBY: Those types of issues—the ability to which it is of strategic purpose—would be something that would be looked at as part of the review?

Mr D Lewis : Yes. The strategic considerations are a factor. It is a pretty complex equation, as you know. Unfortunately, you were not here when I spoke to this issue about the estate consolidation review this morning, and where this might go. You should not, in my view, be anticipating any conclusive statements or positions being taken in the near future around this, because the work of the Force Posture Review and the estate consolidation review will eventually feed into the Force Structure Review, which is being done next year, and eventually, of course, the next Defence white paper, which is currently scheduled for 2014. We cannot turn around and say to you that there is an end date to this process which is a certain date. It is not going to unfold in that way.

Senator BUSHBY: Okay. In the interim are there any plans to reduce the workforce of the barracks or to redeploy them, whether they are uniformed or nonuniformed?

Mr S Lewis : Not that I am aware of.

Gen. Hurley : Certainly not to my knowledge from the ADF's perspective.

Senator BUSHBY: I am happy for you to take this on notice: are you able to provide details of what it costs to maintain the Anglesea Barracks as a working Defence site?

Mr S Lewis : Certainly.

Gen. Hurley : Can I just respond to a question that Senator McDonald raised about Townsville Harbour? The Chief of Navy confirmed that there is no requirement to dredge the Townsville channel for LHD operations.

Senator IAN MACDONALD: Thank you.

Pr oceedings suspended from 15:19 to 15:33

CHAIR: We will resume and go to procurement through the DMO. I know that Senator Johnston has a series of questions, so I will hand over to you, Senator Johnston.

Senator JOHNSTON: Thanks, Chair. Just before we went to a break, I did discuss with the secretary that a colleague of mine had given me a question. If I may, with your indulgence, spend one minute upon it. I have given the secretary notice.

CHAIR: Certainly.

Senator JOHNSTON: Secretary, the British Commonwealth Occupational Force was reviewed and an independent review was conducted by Mr Sutherland, who provided his report to the minister on 26 August last year. My question relates to the fact that I think the department received that report on 4 October 2011. Could you confirm this? I am happy for you to take all of this on notice. On what date did the department respond, if at all? Can you recall what the response said? As I say, I am happy for you to take that on notice.

Mr D Lewis : Yes, Senator, we are very much aware of the report. We have in fact responded, and I was just discussing in the break whether we can put our hands very quickly on that response. In fact, we are expecting a call back shortly. Hopefully, before the end of proceedings this evening—like dinnertime—we will have an answer for you on that.

Senator JOHNSTON: I appreciate your assistance. I will move on to the DMO and go to Mr King with respect to the Coles report. Collins class sustainment review is the technical name of the document. Insofar as the DMO is concerned, Mr King—and I do congratulate you on your elevation and formalisation as the head of the organisation now, and I know the committee very much congratulates you on that promotion—do you accept all of the matters in the report so far as they relate to the DMO?

Mr King : In the broad, yes, noting of course Mr Coles's own written words, which show that it must have been unverified information that he used to form a broad opinion, but, in the broad, yes I do accept the phase 1 report.

Senator JOHNSTON: Can you tell me about your anticipation of the timing of the in-service support contract rewrite?

Mr King : Yes, I can. We expect to sign it at the end of March, but we have left flexibility in it so that we get the outputs of the Coles report and use those outputs in the final formulation of the in-service support contract.

Senator JOHNSTON: I do not know whether you saw me discussing with ASC yesterday the issues. I put it to Mr Ludlam in estimates that the sticking point was the performance based terms and conditions. Without putting words into his mouth, I think it is not unreasonable for me to say that that is the issue that is causing the delay or the issue that is problematic in the document from ASC's point of view. Do you agree with that?

Mr King : Could you just restate that?

Senator JOHNSTON: The performance based criteria and the benchmarks for that performance are the issue that is causing the delay with the respect to the in-service support contract rewrite.

Mr King : Essentially correct.

Senator JOHNSTON: I want to take you to clause 5.6 of the Coles report, wherein he talks about the 'highly charged, difficult and often hostile relationships between the parties'. He talks about the department of finance, the DMO, the Royal Australian Navy and industry. Do you have any comment to make about that? It is on the public record. I think he would say it is a castigation of the way we have done our business with this particular platform and force element group. Do you have any understanding of why he would call it a highly charged, difficult and hostile relationship?

Mr King : I would, and I could draw off other, earlier projects in the previous decade. When parties—particularly in our business, the defence business—embark on an acquisition contract or a sustainable contract, you always start off with a good shared view, a common approach to what you are seeking to achieve, your budgets and so on. As that becomes more difficult, there is an easiness about falling into your own camp and your own view about what is right and what is wrong. I would say too often we have seen it in projects of concern—can I also say, before we remediated them—where the parties, by slowly getting into this situation where each of the parties, whoever they are for each project, feel disaffected by what has happened; either they are not delivering the product on time, or Defence is not being supportive or DMO is being too difficult. If you allow that to grow too much, it does create an environment that is more hostile and less productive than it should be.

Senator JOHNSTON: He says it is damaging.

Mr King : Of course it can be. It has been damaging before, could I say. I hate to bring this up, but when Collins in the acquisition phase ran into serious troubles the relationship again broke down between the then DMO equivalent, Defence, industry and, can I say, on occasions government, because everybody was feeling disaffected by the outcomes. That is when we have to have strong leadership, bring the parties back together and focus on getting positive outcomes.

Senator JOHNSTON: I suggest to you that this has been going on for some long time—damaging, high-tension, highly charged atmospheres, and all of the things that you have described. Now we simply have an independent corroboration of what has gone on. I would be interested to know how you envisage a solution to these disparate and destructive vested interests of four organisations in the management of this force element group platform.

Mr King : Certainly. I would like to make the point, though, that by the nature of Mr Coles coming to Australia and understanding the environment, which was basically phase 1, he was obviously taking a number of people's views of the situation. Some of that situation had already started to be changed, and I will ask Air Vice Marshal Deeble, for example, about some of the working relationships that we have changed. But from the highest level down we now have a stakeholder group that operates between CDF, the secretary, the chairman of ASC, the secretary of Finance and me.

Senator JOHNSTON: How often does that meet?

Mr King : I would have to get it, but we have been meeting about quarterly. It is purely a strategic meeting. One thing we have to protect here is that ASC is a company that operates in competitive neutrality terms in the broad, and we are the customer, so we do maintain a proper supplier-customer relationship. But we also recognise that there are broad strategic issues at play, so that group has been formed. There is then also a cooperative group that is called the ASPO, the Australian Submarine Program Office. Again, we have all four parties involved in that office. There is another stakeholder group which, at my level, is also all parties being involved in getting an enterprise view of it. That had started to be activated at about the time that Mr Coles issued the report—I could get the timing, but we had already started to take action on the front of realising that we do have to work together to make the sustainment of Collins a success.

Senator JOHNSTON: It is surprising, I think, that it has gone on for so long and that the realisation that we have to work together, as you say, occurred late last year in the face of Mr Coles's commencement of his review. I think that is really quite disappointing given what we have been saying in this committee for some long time. But, again, raking over the coals is not going to help. Why is it, do you think, that the Western Australian side of the argument seems to get his tick of approval in DMO, ASC, DSTO and Navy terms, yet the Canberra-Adelaide side of the equation does not?

Mr King : I would only be guessing at it, but I think it would relate to the location of the parties and the proximity to the operational needs of the submarine community to work very closely together for immediate results to get boats to sea. For example, just to highlight that, the maintenance in the west is typically the shorter maintenance periods, whereas the maintenance being conducted in Adelaide is very long term; it is very costly maintenance but long-term maintenance.

I would just like to correct something. We had started working more closely together before Mr Coles's phase 1 report came out. I could highlight that the Department of Finance and Deregulation and the Department of Defence jointly signed the terms of reference for Mr Coles to do this work. That was done through the meeting of the stakeholders group and agreeing to put this in place. We had started this journey. Mr Coles saw a snapshot and saw a great deal of the history of how we got to the position.

Senator JOHNSTON: Were you surprised when, at paragraph 5.8, he talked about the misalignment of accountability, authority and responsibility and said, 'The Collins Class Program Manager has no recognised authority outside his own program or the DMO'? That is at the top of page 11. That concerns me greatly, in that we have a very highly trained, experienced person who has the technical skills to do good things with this platform, and yet he has acquired a perception over a very short period of time that that person has no recognised authority outside the program and the DMO. I would have thought that that is very unsatisfactory. What are we doing about that?

Mr King : I do not fully understand the context of Mr Coles's comment on this particular item. There are two things you want to do, I think, when you make a program work properly. The first is obviously to give it great structure and cohesion, as Mr Coles rightly points out. Authority outside his own program or the DMO seems to be also potential to introduce risk. I need to talk to Mr Coles about exactly what he meant about this. I do not fully comprehend the authority or the opportunity to operate outside that he contemplated by that.

Senator JOHNSTON: I think that is one of the reasons we are having the discussion in the way that we are, so that we can abbreviate the process and the issues can be put on the table in order for Mr Coles and his very experienced team to be able to attack them and pick them off.

Mr King : Indeed.

Senator JOHNSTON: Paragraph 5.12 specifically deals with the DMO. It says:

… the DMO still adheres to the ‘old’ way of doing business, in which it tends to seek direct involvement in the whole range of technical and commercial decision-making at the tactical level. Examples are the DMO’s involvement in approving ASC Work Instructions and the engineering authority’s wish to adhere to the original Kockums design even for non-critical items such as minor fittings. We also sense that the engineering authority in DMO Adelaide may be seeking to act both as an acceptance authority and as a problem-solving organisation for ASC, leading to conflicts of interest.

Is that legitimate? And what are we doing about it if it is?

Mr King : The root cause of much of this—put aside the design of the submarine and issues like that—in the relationship space I believe comes back to the TLSA, which was the total logistics support agreement, which was signed in 2003. The way that that agreement operates is in fact a no-risk and limited accountability for ASC to perform to a high standard. I do agree with Mr Coles that we have defaulted into this style of engagement. I would point out that the thoughts for this review were very much triggered from us in the DMO, Navy, Defence and DFD, so we sought this information from an experienced team. We sought the team. In fact, it was my first engagement with Mr Coles in the UK to find the suitable person who might head up this team.

Senator JOHNSTON: May I pause to congratulate you for that, because I think this is the first bit of sunlight that any of us on this side of the equation up here have seen for some time that really does spell out, in great, objective, undeniable detail, the problems we are having. So I congratulate you all on that. It is uncomfortable, as you said, but we have to just swallow this pill as best we can.

Mr King : Yes, I agree. I am just trying to explain the issues. What happens, I think—and I am a little bit of an outsider that both has looked into the DMO and is now in DMO—is that, when the parties get into this unsatisfactory state where results are not being delivered and it is perceived to be too expensive or too slow, then the customer starts taking the role of director. There is some correctness in that, and I think Senator Fawcett, for example, might believe that there is a great deal of value in DMO military having competent engineering staff that can play an active role in these sorts of things. But it got to the position—because of the way the TLSA works, without a performance regime and a reward-for-performance regime implicitly in it—where, I agree, our people got far too much into this tactical response, directing role. And we are taking steps to deal with that. I also agree with Mr Cole's view that we do not have a great deal of submarine expertise.

Senator JOHNSTON: Domain knowledge.

Mr King : I agree with that. We do have a lot of what I would call submarine-as-a-system knowledge, but one of the things I noticed, having recently visited Sweden and a few other countries looking at submarine issues, is that in those countries particularly the DMO—or DMO equivalent—and the Navy maintain deep skills in certain areas of submarine technology, whether it is propulsion, stress levels or hull strengths and these sorts of things. I certainly agree with Mr Coles that our submarine depth of experience is light.

Senator JOHNSTON: Do you anticipate, given what we are talking about in this relationship, that the new in-service support contract is going to reduce the level of sustainment and operational costs?

Mr King : In the longer term.

Senator JOHNSTON: In term longer term?

Mr King : Correct.

Senator JOHNSTON: So you anticipate that in the short- to medium-term there will be an increase?

Mr King : Indeed.

Senator JOHNSTON: I thank you for that because I think that is at the nub of what we have to confront with this remediation. Mr Coles talks about the master-slave relationship. He says:

Particularly for ASC, this approach by DMO has taken away the incentive to accept more risk and responsibility and, even in the current negotiations for the new ISSC (which is supposed to be creating a better set of behaviours) we were surprised to find the relationship still characterised (on both sides) as ‘master/slave’.

Again, he is focusing on his perception of the relationship. Do you accept that that is the problem?

Mr King : I do not, now. I would not want to characterise that as always being the relationship between DMO and industry, or DMO and ASC. I cannot remember the last time you were at the Adelaide site but the Air Warfare Destroyer project works under an alliance contract. They are DMO, ASC and Raytheon. I would hold that up as an exemplar of a cooperative, shared responsibility and shared outcomes. Even though we have had some challenges on the AWD with blocks, et cetera, and the secretary and I were there just last Friday, you can still see that it is very much an enterprise structure at work. It is there because the basic contracting framework is an alliance based framework where everybody gets inducted into the understanding that they have to deliver the results.

I come back to the TSLA. It was structure in the old sense of very much being a directional, master-slave relationship. In December I sat down with the CEO of ASC and we knocked off a number of issues about how we share that relationship into the future, particularly how the reward structures work and how we keep that going. I have also, for example, given quite strong direction to our commercial team and our lawyers associated with that to make sure that we remove that detail in that instructional mould and move back into the objectives of what the contract is supposed to be delivering.

Senator JOHNSTON: At the bottom of page 14 it says, in talking about the transfer between acquisition and sustainment:

Despite this well-intentioned move, sustainment remains a poor relation. The bulk of DMO sustainment staff is located in WA, whilst the acquisition community is based principally in Canberra. The disposition of resources between Canberra, Fremantle and Adelaide appears to be unbalanced and the sustainment arm appears to be significantly under-resourced and will require review. The DMO needs to find a way to shift its focus more on to output and away from input, and as part of this, needs to see ASC as its Strategic Partner.

I accept that what you have just said aligns completely with that, but I am interested in the money comment, the resources comment. What are we doing about that?

Mr King : We are rejigging, we are relooking. We have already had in train a number of changes in the DMO management since—or during—because we have not stopped, as you can imagine, for the final Coles report. Air Vice Marshal Deeble will talk to this, but we have already started the structural changes inside the DMO. The other issue that will have to be considered at some stage is: how will we have the capacity and management structure to take on sustainment of Collins and also prepare for extension of Collins and ultimately future submarines? I do not believe sustainment is a poor cousin across the broader DMO and I would have to say that, in my mind, there would be no element of my business that gets greater attention—and my almost daily thoughts—than the sustainment of Collins.

Senator JOHNSTON: I understand that. I am endeavouring to be as constructive as I can with what is, as I say, a generationally game-changing report. If we can go to sustainment: you and I have bandied around numbers. I must say that at each estimates the numbers are different and they contrast with questions on notice that I have got. Currently, I am told—and this is a question on notice No. 504 from October estimates—that sustainment is $435.1 million. I am then told in question No. 31 that sustainment plus operational cost is $490.8 million. I am also told in other questions on notice—No. 2 in October—that the anticipated figure was $629 million. If I throw in depreciation I get $801 million. I think that is the right figure.

Mr King : I need to know the dates and the years.

Senator JOHNSTON: I am talking about 2011-12 and the questions on notice that you have answered to me. There are questions on notice Nos 2 and 13 from October and then question No. 31 for this estimates. You have said $490.8 million but you have also said sustainment and operation. We think these numbers are sustainment only—$490.8 million.

Mr King : It sounds more like sustainment.

Senator JOHNSTON: Thank you.

Mr King : You have operations on top of that and then, if you want to, you add in depreciation. But we do not use the depreciation figure as a normal way of comparing.

Senator JOHNSTON: I know that you do not. But we are bound to in line with the accounting practices that we have to be pursuing. So when I say $800 million per annum I think I am on the money.

Mr King : Using all that basis you are in the right area, absolutely.

Senator JOHNSTON: I am glad we are in agreement to some extent.

Mr King : We are in agreement to a great extent. Can I just explain why the numbers are jumping a little bit. We are in this reform process where we are working with ASC to understand the cost drivers for their maintenance and we have been taking emerging issues back to our internal committees to seek some additional funding in particular areas. I do not know that that explains all of that, but there is some of the reason we are having challenges.

Senator JOHNSTON: When I look at the ASC business model I am very concerned that we have lumbered ourselves with something that is really soaking up a huge amount of resources. For instance, they are funding Deep Blue Tech, which really does not have a functional capacity to return anything to that organisation. It seems like a standby design capability that is not being utilised. We have paid for that out of the only profitable aspect of ASC's operation—that is, Collins sustainment. I put it to the CEO of the organisation: what are the benchmarks? When do you expect the submarine to be off the projects of concern list?

I do not think his answers measured up. It seems to me that his shareholder has a business model that is not conducive to the best interests of Navy. I do not want you to agree or not agree with that, but it just seems obvious that the only profitable thing they do is sustainment of Collins. They hive off some money to stand up Deep Blue Tech. Nobody uses them, and Navy is paying for all this. He would not tell me the insurance premium. I know—because they have set it out in their annual report—that the insurance premium is $8 million per annum. He is going to tell me in due course how many claims there are and what the return has been, but the problem we have here is that we have a self-sustaining business that thrives upon, to some greater or lesser extent, non-performance.

Mr King : I would not characterise it that way, but the TLSA structure was not conducive to performance. I think the CEO would probably want to say to you—he certainly had that discussion with me, and we are capturing that in the ISSC—that he wants to run a performance-based operation and that he wants to become one of the leading companies in the world. He is fully committed, and he tells me his board is fully committed, to the notion that they can perform better and that they will. So I think that he personally has that leadership and he wants to do that. It would not be appropriate for me to comment on the ownership side, because I am the customer.

Senator JOHNSTON: Exactly.

Mr King : But that Deep Blue Tech money does not come out of direct charges to us; it comes out of the profit element from the owner, as best I understand.

Senator JOHNSTON: From the what?

Mr King : It is a reinvestment of profit they have made on their operations.

Senator JOHNSTON: The only profitable operation he told me about was sustainment of Collins.

Mr King : Yes, but in many ways every defence company that is totally in the defence realm is doing the same thing. For example, if we are working with a private company that makes $2 million profit on our business in a year, that is all profit that came out of Defence money. We are not against profit, because profit is a great way for a company to demonstrate its efficiency and effectiveness and to improve and everything else, but that private company might also put $200,000 or $300,000 of that profit into R&D. That is an ASC decision. I understand that their owner has agreed to that investment decision.

Senator JOHNSTON: I am telling you this because of these negotiations, and I am going to ask you some questions about this which I am not necessarily expecting you to be able to answer. He tells me that he has a turnover per annum of $700 million, largely deriving from submarine sustainment.

Mr King : The AWD work is becoming a significant element.

Senator JOHNSTON: Yes. His dividend return to government was $2 million, I think.

Mr King : I would have to verify that. It has been lower over the last few years.

Senator JOHNSTON: It is less than one per cent. The problem we have is that, when you introduce performance-based thresholds and sanctions in a contract, there are a lot of problems for that organisation in its present business model. I saw nothing at Senate estimates when I questioned the department to indicate that they were keen to change the present model. Coles says he has seen the new document, which is good. I was told they do not anticipate signing it until July.

Mr King : That is news to me. Between the CEO and I, we have committed—and we do not just sign it because we have set a date; we sign it when the document is right, but put that aside. The principles have been created. The basic principle that I have agreed with the CEO of ASC is as follows: ASC will be in a rolling program of five years of work, and at every three years we will review the level of their performance. If the level of their performance meets the reasonable metrics that we have set then they will get another extended period of work. So the idea—and all companies seek this from us—is some sort of certainty of work so that they can invest in the future. So they have a rolling horizon of work. But if after three years we do a review and what we are calling a reset, and that is not meeting the metrics that we have set, we will then have the right to seek to have another company or another group of management operate the maintenance contract.

Senator JOHNSTON: You anticipate that will be a term and condition and one of the sanctions contained in the contract?

Mr King : I do. The other side of that is we want ASC to be successful. It is a national asset. It has great skills. We want them harnessed better and we want them more efficient and more focused to deliver the outcome. My agreement with the CEO at this moment is that we will sign the agreement by the end of March and it will become effective on 1 July. Maybe that was what Finance were talking about. But I have not had any reason to doubt that we will be signing by the end of March, given that we do not encounter any more difficulties.

Senator JOHNSTON: Can we just deal with these sustainment numbers?

Mr King : Yes.

Senator JOHNSTON: I take it that the answers you have given me to questions on notice anticipate the new agreement into the future?

Mr King : I cannot answer that; I will have to take that on notice.

Senator JOHNSTON: Fine; I accept that. We will revisit all of that. Sheean has just come out of a full-cycle docking?

Mr King : It is in the water.

Senator JOHNSTON: It is in the water. It has not come out yet but it is about to. Do we have an anticipated cost of what the full-cycle docking has cost us?

Mr King : I do not, off the top of my head.

Senator JOHNSTON: Bear in mind I think Dechaineuxcost us for three years $205 million.

Air Vice Marshal Deeble : Routinely an FCD is in the order of about $200 million to $220 million depending on the work scope, which can be a combination of sustainment and project work. So I do not have a specific cost on Sheean. It is still undergoing its FCD, so there is still work to go. We are envisaging that Sheean will be out by the middle of the year, in the June-July time frame and we are aiming to deliver that approximately one month early.

Senator JOHNSTON: Are you anticipating any surprises with respect to cost?

Air Vice Marshal Deeble : Not at this point in time. We have done a lot of work through the work that we are doing with the ISSC to define the work scope. We believe that we have a good understanding of what that work scope is, and I do not envisage any additional issues with respect to cost. Having said that, routinely it is about one million man hours associated with a full-cycle docking and we have reduced that to around 900,000 man hours on Sheehan. We are aiming to try to reduce the full-cycle docking periods over time, and Sheehan has been able to demonstrate that. ASC and the Commonwealth are working closely together to try to deliver it early. That will allow us to shake down Sheehan prior to Collins going into the full-cycle docking within a month of Sheehan coming out.

Senator JOHNSTON: Can you tell me when Rankin went in?

Mr King : We will get that date for you, Senator, but it did not go in for a full-cycle docking immediately; it was removed from service in anticipation of the full-cycle docking. So it stayed idle for a period of time.

Senator JOHNSTON: I was told yesterday that it is 18 months away from coming out.

Air Vice Marshal Deeble : Rankin arrived in the Osborne facility in the fourth month of 2008. It entered into the FCD last year and will be out around the third or fourth quarter of next year.

Senator JOHNSTON: So was it formally withdrawn for service for the first two years of its obviously five-year period that it is out of service?

Air Vice Marshal Deeble : There were a number of factors associated with Rankin not being inducted into the FCD at the time. I think Chief of Navy might be able to answer some of the—

Senator JOHNSTON: Technical issues is all I need to hear; I do not want to get into what precisely in terms of its capacity, unless there is something that you can tell me and you feel comfortable about telling me

Vice Adm Griggs : Rankin went in early, as did Sheean, largely because of our manpower situation at the time. That is why she went into lay-up for that period.

Senator JOHNSTON: So Rankin will have effectively been out of service for five years by the time it comes out?

Senator JOHNSTON: So Rankin will effectively have been out of service for five years by the time it comes out?

Air Vice Marshal Deeble : Yes.

Senator JOHNSTON: Do we pay anything to store it at ASC?

Air Vice Marshal Deeble : I do not know the specific costs, but there are costs associated with Rankin when it is in storage. There are maintenance activities that need to be conducted to ensure that when it go into full cycle docking those systems have not deteriorated.

Senator JOHNSTON: Coles uses the word 'cannibalised'—correct me if I am wrong,.

Air Vice Marshal Deeble : Yes.

Senator JOHNSTON: I have been maintaining that the vessel has been cannibalised for some long time, but people have been telling me that I am wrong. I believe that panels are missing and will have to be remanufactured.

Air Vice Marshal Deeble : I do not believe that there would be any panels missing, but it is true to say that there is a degree of cannibalisation due to shortfalls in the supply support system with the Collins class, which we are remediating right now. The degree of cannibalisation is a significant issue for us, which we are specifically addressing with a number of strategies. We are working very closely with Navy, in particular, as part of the continuous improvement program, to look at all of those supply support issues.

Mr King : It is not uncommon in extreme circumstances to use a spare out of another vessel, whether it be a surface ship a submarine. What Air Vice Marshal Deeble rightly points out is that that had got to a position that was excessive. We have had a program underway for some time to invest more highly in the spares organisation and spares holdings.

Senator JOHNSTON: And rotables?

Mr King : And I think in rotable pool.

Air Vice Marshal Deeble : Yes.

Mr King : One of the reasons is that by cannibalising you are doing two things. You are taking assets off another boat which have to be made good at some point and the delay you introduce by not having a spare available has a significant impact on the number of materiel ready days we can supply to the Navy.

Air Vice Marshal Deeble : We believe that, in the longer term, the supply support system is where significant efficiencies can be gained. When you do a cannibalisation you wear about three to four and up to five times the cost through removing it, having to replace it and then taking it to the other boat. If you are moving stuff between Adelaide and Western Australia you add the transport costs.

Senator JOHNSTON: Has the pressure hull on that vessel been cut?

Air Vice Marshal Deeble : I do not believe the pressure hull on the vessel has been cut.

Senator JOHNSTON: On Rankin?

Air Vice Marshal Deeble : On Rankin.

Senator JOHNSTON: Good. Who is going to carry out the work on the onshore test facility for the drive train?

Air Vice Marshal Deeble : There are two aspects to the onshore: one aspect is being worked by Future Submarines, called Specify—that is purely in the future submarine context. We currently have a facility at the Stirling base which is being worked up to perform a land based test facility for the Hedemora diesel and the generator system. We are currently working with ASC on the design for the base for the diesel to be installed. There will be some minor modifications to the buildings that we believe will need to be up and running if we will be base lining the Hedemora diesel, which is currently used for training at Stirling, as part of that facility.

Senator JOHNSTON: Who is the lead contractor with respect to running that facility?

Air Vice Marshal Deeble : At this point in time will be working collaboratively with ASC. We have an IPT arrangement—Integrated Project Team—worked in the diesel space. It includes Drivetrain, who are the in-country Hedemora diesel support agency, and ASC, who are acting in a platform system integrator role. We have engaged through ASC with an expert, named Dr Lustgarten, from Europe. He has been involved in looking at the diesel issues since 2009. We are also working with a European diesel design and modification house, named AVL, to look at what modifications will be required for that diesel in the longer term.

Senator JOHNSTON: Have we specified our benchmarks and thresholds to identify whether we have succeeded in our objectives? What is the cost of this land based test facility?

Air Vice Marshal Deeble : At this point in time I cannot give you a definitive cost. We believe that establishing the building will be in the order of $10 million, but we are yet to fully define what will go in there. We are working with DSTO to work out what level of test capability we would require in that environment. We are still working through all of that level of detail at this point in time.

Senator JOHNSTON: When do you anticipate being able to tell me how you will gauge the success of the facility?

Air Vice Marshal Deeble : We have looked at a number of modifications recommended by Dr Lustgarten and which have been confirmed now by AVL and worked through the IPT arrangement. We believe there are a number of modifications that can be easily undertaken on the Hedemora diesel, and we are starting to actually incorporate some of those changes where we think they are appropriate in the diesels to improve current reliability.

Where we have identified those changes we believe that they will be easily benchmarked. One of the issues that we have in establishing the facility is actually getting a benchmark for capability in the Hedemora reflecting the installation on the boats, and being able to use that to further guide and conduct that testing.

Senator JOHNSTON: Last time I did raise the issue of getting ASC to quote on doing work on these submarines, and they charge for providing a quote to design and install various things. Is that issue being addressed at all in the contract, given the monopsony relationship that we have here?

Mr King : In the new contract?

Senator JOHNSTON: Yes.

Mr King : Yes, it will. It will be part of the performance space.

Senator JOHNSTON: Do we have any current outstanding issues with ASC with regard to faulty workmanship?

Mr King : I am not sure if they are outstanding. I might get Air Vice Marshal Deeble to address that.

Senator JOHNSTON: You know what I mean by faulty workmanship—that is a broad generalisation. Issues that have broken and they should not have broken, and we find that there has been a problem with the maintainer—in other words, ASC.

Air Vice Marshal Deeble : As part of the move from the through-life support arrangement into the in-service support contract we have tried to clear the slate of any of those issues. To that extent we have at this point in time.

This is a complex system, so we are continually working through the maintenance of those systems. At this point in time I do not believe we have any outstanding issues where we are concerned about the quality of ASC.

Senator JOHNSTON: Have we forgiven them on a number of fronts?

Air Vice Marshal Deeble : No, we have not forgiven them. There has been an insurance claim by ASC, and where there has been quality work or quality issues we have not been charged for those. It is a combination of an insurance claim and not charging us for the work that they have conducted.

Senator JOHNSTON: How do you value the quantum of the claim for insurance?

Air Vice Marshal Deeble : We go through a fairly extensive process looking at the costs to us and the nature of the fully attributed costs across the range of activities. If we build up that cost, that is subject then to negotiation with ASC.

Senator JOHNSTON: Before they put the claim in?

Air Vice Marshal Deeble : You normally go through that claim process in advance of them putting in the claim. Then it gets arbitrated through that claim process.

Senator JOHNSTON: How many times have we made a claim via ASC on their policy?

Air Vice Marshal Deeble : I would have to take that on notice.

Senator JOHNSTON: And could you take on notice the value of each of those claims, the time it has taken to settle the claims and the time it has taken for the insurance company to pay for the claims? And whether or not the claims are forwarded in full to Defence? I do not want the claimant to take any proceeds on the way through, obviously, given that we have set the costs and all of that. Is the money, once it gets into Defence—I take it that it is money, not credit—retained in and for the maintenance and sustainment of the submarine fit?

Air Vice Marshal Deeble : I will take that on notice.

Senator JOHNSTON: Are you involved in providing advice on the SLEP program, Air Vice Marshal Deeble?

Air Vice Marshal Deeble : I have a Navy one-star—a commodore—who is working to me for the service life evaluation of the Collins class.

Senator JOHNSTON: So it is your program?

Air Vice Marshal Deeble : Yes, it is.

Senator JOHNSTON: How many people do you have doing the SLEP, and what are its costs?

Air Vice Marshal Deeble : Currently we have three people working in the SLEP team—two additional people working to the Commodore—and we are working very closely with the ASC. We are doing a lot of work with them. We intend to potentially work with NAVC and electric boat as part of that process, and we are also looking at working with Kockums. Currently the budget for that is, I believe, just a bit over $2 million, and we have expended some of that money already in working with ASC on a pilot program. The process that we are using is a process utilised by the US Navy for the extension of the Ohio class.

Senator JOHNSTON: So you are bringing all these variables together to provide what we need to see as to the cost of going from 2025 to what date?

Air Vice Marshal Deeble : At this point in time there are two aspects which we have asked the team to look at. The first one is to confirm the service life of the boat as it currently stands and to see whether there are any showstoppers in that regard, and the second part is to look at one additional FCD and an operating cycle for the boats.

Senator JOHNSTON: Let us deal with the first of those. When do you anticipate that you will have that answer?

Air Vice Marshal Deeble : We are hoping to have the first answer by about the middle of this year. As I said, we have already conducted a pilot study. We will need to do some more work there to then look at those in a more specific context, and we hope to take that to the defence committees towards the end of this year.

Senator JOHNSTON: How much are we paying to NAVC?

Air Vice Marshal Deeble : I cannot give you the specifics. I would have to take that on notice.

Senator JOHNSTON: Let us try to understand what we are seeking to do here. ASC is involved in the day-to-day, year-to-year sustenance of the six boats. They have an expected life now to 2025. You are double-checking that in phase 1 of the SLEP.

Mr King : That is correct. The original design life was based around 2025; there is not an expected life at the moment. What we are seeing is what margins we have left. To put that in context, there are about 80 boat-years left at the moment under the current plan. If we can extend it another cycle, that buys us about another 48 boat-years—it takes us from having about 80 to having 130 boat-years of life. So it is obviously very important program if it is viable.

Vice Admiral Griggs : I clarify that 2025 is for the first boat.

Mr King : Yes, it is 2025 for one boat at one boat a year.

Senator JOHNSTON: Thank you. I appreciate that. If the SLEP—and hopefully we will know this by the middle of this year—says that we have no chance of getting to 2025 or the subsequent staggering of the commission dates of the boats, what is the fallback?

Mr King : No, the current situation is that we believe that we will get to 2025; the SLEP is to go one more cycle, so 2025 would be the year we would plan to withdraw it from service. If the SLEP can proceed, it would be one full-cycle docking, which hopefully by that stage would be shorter, and then eight years of operations.

Senator JOHNSTON: I understood the Air Vice Marshal to say that the first thing the SLEP is going to do is to see if 2025 is attainable.

Air Vice Marshal Deeble : The preliminary work that has been done has identified nothing of significance that would prevent us from getting to that, but we need to confirm that because clearly that establishes the foundation for their being able to move on.

Senator JOHNSTON: Thank you very much for that answer. If there happens by some remote event to be a problem with our achieving that, what is the fallback?

Mr King : At this stage we have not done any work on that; at this stage we are broadly in the place where the boats will meet their life cycle. Some unkind people say they have not been used all that much, which is not that fair, but a plan not to do that would be very massive plan indeed.

Senator JOHNSTON: So there is a small but nevertheless extant risk that they will not meet 2025?

Mr King : Indeed, but we will know that within months, and those months will not make any difference in a plan that would be that huge.

Senator JOHNSTON: With respect to phase 2 on the extension—let's say all goes according to Hoyle and we can make the assumptions as we have just discussed—when will we know the cost of the extension?

Air Vice Marshal Deeble : I believe by the end of the year we would have identified those significant areas that would require future investment. I think we will need to do more work beyond that to actually get more definitive costings. We will not have that in full detail, but we are aiming to get rough order of magnitude costs for those systems we identify that would be fundamental to extending the life of the Collins class.

Senator JOHNSTON: Given that sustainment and operation of this platform runs at 30 per cent, approximately, of all surface ship sustainments, have you projected out what percentage this will be running at to 2032? Are we anticipating 2032? I think that is what we discussed.

Mr King : No, I do not think we have done that in detail. Part of the work we are looking at is this benchmarking work coming out of the Coles review about what we can see, what we should anticipate in terms of efficiency dividends and those matters. We are just not informed enough at this stage to make those projections.

Senator JOHNSTON: Why are we doing the SLEP?

Mr King : It would give us a certainty of submarine capability through the period of the future submarine development.

Senator JOHNSTON: I note that the man in charge of SEA1000 has indicated, I think to the Pacific conference, that, from effective second pass, there is a 20-year time frame before the new boats hit the water. That is the problem, is it not?

Mr King : The time frame to getting a new boat in the water will depend. It is a long period, and we can estimate what it is at this stage based on other projects' experience. But the time to have the first boat in the water and operational will depend on an enormous number of factors, not the least of which will be: is it a brand-new design or is it a military off-the-shelf solution unmodified? The time frames to the end of that are quite different.

Senator JOHNSTON: I do not want to get into that, but do you contest with me that the reason we have got the SLEP being undertaken is that we have not even begun, effectively, anything tangible on the 20 years that Admiral Moffitt has set out, and clearly there is going to be a problem if the Collins cannot have an extended life?

Mr King : I would like to look at it the other way. We are often accused of not looking ahead and looking at alternatives; I would couch it more as being good sense. It is good sense to see what value for money we can get out of Collins anyway. A lot of things are designed for a certain life. You do not just throw them away because you have met that nominal life. I think it is just good program management.

Senator JOHNSTON: Does NAVC have access to Kockums matters?

Air Vice Marshal Deeble : Where NAVC have been required to support us, we have cleared, through Kockums, the ability to provide them with the data that is required for them to assist us.

Senator JOHNSTON: Do we have to pay Kockums any money for that?

Air Vice Marshal Deeble : Not to my knowledge.

Mr King : We did pay a settlement for IP issues previously.

Senator JOHNSTON: When was that?

Mr King : I would have to take that on notice. It was several years ago. It was a settlement with Kockums that allows us to conduct maintenance on Collins for the life of Collins.

Senator JOHNSTON: Can I talk about RIMPAC in the coming year? This is a RIMPAC year. Are we sending a submarine to RIMPAC, as is our usual practice?

Vice Adm. Griggs : That is our intention.

Senator JOHNSTON: Which one?

Vice Adm. Griggs : Farncomb, I believe.

Senator JOHNSTON: And Farncomb's auxiliary motor had to have further repairs last week, I think, and had to go back for further maintenance. Is that not the case?

Vice Adm. Griggs : There was an issue during her maintenance period with that. I am not totally up to speed on the resolution of that.

Air Vice Marshal Deeble : It is the emergency propulsion unit.

Senator JOHNSTON: That is correct. Are we going to make RIMPAC? That is all I want to know.

Air Vice Marshal Deeble : We are working hard with Navy to achieve RIMPAC, including the remediation of the EPU.

Senator JOHNSTON: We have a very proud history at RIMPAC, I think we would all acknowledge. Last time was I think the first time we have not had a submarine at RIMPAC. Correct me if I am wrong.

Vice Adm. Griggs : The first time for some time. I do not think we have had a submarine at every single RIMPAC.

Senator JOHNSTON: But we are definitely trying to make it this year?

Vice Adm. Griggs : Absolutely.

Mr King : Can I just add that this is a difficult year. You will be aware that we had the integrated master schedule, and we are remediating problems in key areas such as the diesels and main motors and generators. They are long-term problems. They go back a long way. Some of the remediation work for that can only be done in FCDs, and we have got to get back on top of the maintenance. So, with our planning for this year we knew from when we re-baselined the integrated master schedule that this is a difficult year for us.

Senator JOHNSTON: I want to thank the people at the table for the answers they have given me on this subject. I would like to go to SEA1000. Admiral Moffitt, last October you indicated that there was movement afoot and that you were hopeful of appearing before the National Security Committee and that there were going to be some developments with respect to this project. Can you give us a brief update as to what has changed between then and now.

Rear Adm. Moffitt : The minister said at Pacific 2012, a week or so ago, that he expected to take a submission to NSC in the first quarter of this year. That submission is in his hands now.

Senator JOHNSTON: So, since October nothing much has transpired.

Rear Adm. Moffitt : Well, we have reached the point where—

Senator JOHNSTON: We are waiting—

Rear Adm. Moffitt : a finalised submission has been lodged with the minister for his consideration and to take to his cabinet colleagues.

Senator JOHNSTON: You mentioned in May that we have a study underway with DSTO at the moment into military off-the-shelf submarine options that exist in the world today—that is, evaluating the performance in the Australian context of those submarines on the basis of information given to us by the designers. Early on last year—that is 2010, and I am quoting from what you said to me then—we received at a cost of $1.2 million studies providing us with a great deal of information from each of those conventional submarine designers in Europe in answer to a formal request for information from us, which was an evaluation of what is in the marketplace for us to consider. Have we just put out a request for tender?

Rear Adm. Moffitt : We have put out a request for information.

Senator JOHNSTON: Sorry, a request for information, an RFI.

Rear Adm. Moffitt : For further information from three of those four.

Senator JOHNSTON: Is it commercial in confidence as to whom the three are?

Rear Adm. Moffitt : No, it is not, and there is also a reason why we have only approached three on this occasion. The three companies we have approached are Navantia, from Spain, DCNS, from France, and HDW, from Germany. The fourth in the original request for information, which is not in this list, is Kockums, the Swedish company. The reason for this is that Kockums's current offering is still in design and, so, does not satisfy the fundamental criterion of being in service for it to be considered as an off-the-shelf submarine, simply because it is not a reality benchmark against which we can measure anything else and nor does it exist for us to have confidence in the claims being made by the designers. But, for the other three—the Spanish S-80 class submarine, the French Scorpene and the German Type 214—they exist and they are in service. The information we are particularly seeking on this occasion is simply to ask: for the changes in design that would be necessary for each of those submarines to be adapted to comply with Australian law—an Australian design regulations compliance plate, if you like—what would be the cost and design effort associated with that and what implications would there be for the performance of the submarine? So, it is really to take the more strict definition of MOTS—the existing submarines—to evaluate any changes that might be necessary were we to adapt the design for Australian legislation.

Senator JOHNSTON: Without getting into too much commercial detail, why were Kawasaki and Mitsubishi not part of that inquiry.

Rear Adm. Moffitt : Simply because the Japanese do not export military equipment.

Senator JOHNSTON: Have we asked them about that?

Rear Adm. Moffitt : We have had some preliminary discussions with Japan and you would be aware that the Japanese government is changing its position somewhat in respect of military issues, and particularly military equipment issues—

Senator JOHNSTON: That is why I asked—

Rear Adm. Moffitt : but it is still true to say that—

Senator JOHNSTON: The constitution prohibits it.

Rear Adm. Moffitt : It is not the constitution so much as the regulations that the government has chosen over many years to apply to military equipment, and that looks like it might be in the process of shifting somewhat. But it is nonetheless still true to say that the Japanese submarines are not available in the marketplace, even though they do exist, and we understand they are very good submarines. It is true to say that we are in the very early stages of conversations with the Japanese. I think it is fair to say that any changes that might come about will probably take quite a period of time before they might throw up any fruit. But, certainly, we are very interested for a number of reasons, not least amongst those is that the Japanese submarine, we understand, is a very good product.

Senator JOHNSTON: That is why I asked. When did we go to the three Europeans companies, when did they respond and how much did all of that cost?

Rear Adm. Moffitt : The request for information left my office in January this year. We have asked that they respond by about the middle of this year—late May in fact. The terms of those requests are that we will pay, depending on what we receive from them, up to an amount of $300,000 per company. That depends on how much we like what they have given us. In fairness, for the amount of work we have asked be done—

Senator JOHNSTON: It is not unreasonable.

Rear Adm. Moffitt : I probably would have said tight-fisted, but—

Senator JOHNSTON: I take no issue with that. Given the costs that I have seen on this particular sustainment operation, it is not a question I am going to raise.

Rear Adm. Moffitt : We do expect a very substantial amount of manpower effort necessary on the part of the companies to answer the questions.

Senator JOHNSTON: So the submission you have given to government does not include the information that you have requested from the three European manufacturers and designers?

Rear Adm. Moffitt : No.

Senator JOHNSTON: Are you aware of the German 216 design.

Rear Adm. Moffitt : Yes, I am.

Senator JOHNSTON: Has that been within your purview in terms of the project?

Rear Adm. Moffitt : The 216 is very much of interest to us. It does reside in one of our four option spaces, which I think I have outlined to the committee previously, those being off-the-shelf, or MOTS; MOTS with a selection of systems, perhaps, of our choice, which I have chosen to call modified MOTS; and evolved MOTS, which is essentially the model we adopted for the Collins program; or a new design. I would say that the Type 216 resides in the new design space, even though they can show you a graphic of that design, recognising that the full design of a submarine costs in the vicinity of something between one and two submarines—so therefore a very substantial amount of money—it is my assessment that the German company has not committed on spec that sort of funding, so they do not have a design. They have a concept, which they have been able to draw graphically, to show us and to give us some indicative performance. But that does not exist in other than what I have referred to as 'cartoon' terms—graphics. It may well be that it is a balanced design in terms of where they have systems and so on, but companies in my assessment do not invest the millions, if not hundreds of millions or even low billions, of dollars necessary, on spec, for a design, unless they have a market.

Senator JOHNSTON: Has the recently released preliminary report into force posture review affected any of your thinking in terms of the acquisition of this capability, given the reference to future submarines in Brisbane?

Rear Adm. Moffit : In the consideration that we have been given so far—and certainly in the early planning for provisioning within the Defence Capability Plan for the future submarine—there has always been consideration that there might be a need for some basing arrangement in addition to the base in Western Australia. There has been provision made for that in the DCP. But, to specifically answer your question, it has not changed our thinking at all. It might have brought a degree of clarity as to where such a base might one day reside, depending on government's reaction to the force posture review, but I think that is well into the future. It does not substantially change the thinking that we have done so far.

Senator JOHNSTON: I take it you have read Mr Coles's first report.

Rear Adm. Moffit : I have indeed.

Senator JOHNSTON: Have you noted that he talks about the lack of domain knowledge?

Rear Adm. Moffit : It is a source of very great concern to me.

Senator JOHNSTON: I think the report anticipates very substantial increase in risk for an Australian designed and manufactured vessel. Do you accept that or not?

Rear Adm. Moffit : In part I would accept that. What you are touching on is absolutely right. If we were to decide to design a submarine in Australia using the skills and resources we have in Australia today, the risk would be extreme. No-one is saying that we should do that. In fact, the RAND study quite clearly suggests that if we are going to do this in a timely manner then we are going to need a great deal of assistance from overseas. I do not think there is any doubt about that. We do not have the resources and no-one has suggested that we do this entirely within our existing national resources. It is not something that makes a lot of sense to do in terms of design.

I would say that in terms of the manufacture of the submarine it is a very different problem and very much less of a problem in dimension. We have the necessary skills in broad terms to build a submarine in Australia: to assemble the various components and to fabricate the various components. Some of those skills may not today be at a level of currency, particularly the highly specialised pressure hull welding, but we have had those skills in the past and I do not think that there is any reason we should feel that we could not have them again if we approached building them as we did with Collins, recognising of course that we had no submarine building enterprise in Australia when we started Collins. I think it is very true to say—as I did say at Pacific 2012—that none of the problems we experience today with the Collins class submarines relate to Australian trade skills—none.

Senator JOHNSTON: RAND, Rizzo and Coles are, I think, very definitive in sounding alarm bells as to how we go forward with design on shore, but also I think RAND focused on our manufacturing capability technically.

Rear Adm. Moffit : The RAND study that I commissioned was specifically focused on design. When they debriefed me on the work that they did they said they were a little surprised to find how much we actually had. They did not expect to find as much as they found. Nonetheless, that is still well short of what we need. They then went on to give us some advice about how we could close the gap between what we have and what we need and various methodologies for doing that. But quite clearly for us, we will need specialist external help in the design activity. What is important, I think, to understand and to factor into our thinking about the design activity, is who will own the design. That is quite different from the question of who will do the design.

Senator JOHNSTON: The white paper sets out that this is a construction program spanning three decades. Do you anticipate that in the nature of what you see as being the foundation stones of SEA1000 as a continuous build?

Rear Adm. Moffit : There are a number of critical foundation questions that need to be answered in respect of coming to that conclusion: what is the submarine that you are going to build, and therefore how long will each submarine take to build? How quickly do the submarines need to be delivered to the Navy, and what is the life of each of those submarines? All of those questions have variable answers. However, having said that, in some groupings of answers to that question you get to a point where at some point around completion of the 12th submarine you need to start building a replacement for No. 1. Therefore, you can easily envisage a set of circumstances where in all practical terms this becomes a continuous build program.

I would go so far as to say that even delivering the 12 submarines foreseen in the white paper is, for practical terms, a generational activity. It will take quite a long time if they are delivered at a rate at which Navy can absorb them, which is obviously essential because Navy will need to significantly grow its submariner workforce, and growing that workforce does take quite a long time. For some of the key people, like commanding officers and engineering officers for submarines, that is a 15 or more year activity to produce one of each. So delivering the submarines at a rate at which Navy is able to grow its workforce to cope with them needs to be factored into a sensible program, and that would necessarily mean it is going to run for quite a long time.

Senator JOHNSTON: I note that the white paper is entitled Defending Australia in the Asia Pacific Century: Force 2030. What you have just described is Force 2050, is it not?

Rear Adm. Moffit : Others might be better to answer that, but I do not think that the white paper says anywhere that everything that is in there will be delivered by 2030.

Senator JOHNSTON: As I understand it, you set out that you need 20 years from second pass.

Rear Adm. Moffit : If I may, Senator, I think you may have slightly misconstrued what I said at Pacific 2012—which is in fact what I have been saying fairly consistently—which is this: for a new design of submarine, from the point at which you begin to define the capability that you want until the point at which you deliver the first of those new design of submarines post operational test and evaluation is a period of around 20 years. In that 20 years there are four significant blocks of activity. The four blocks will exist in any submarine program. The length of each block will vary, depending on the submarine, and the first of those four blocks define what it is that you want. That is a block of some time—from a couple of years up to four years—and all of the experience that major program gurus and academics tell us of is that if you do not do that properly you are building problems. So that is a period of time. We are into that already.

Senator JOHNSTON: How far?

Rear Adm. Moffit : How long is a piece of string? It depends on—

Senator JOHNSTON: It is four years. Are we in one, two, three or four?

Rear Adm. Moffit : It is a couple to four years. There was a lot of work that has been done in the white paper that helps to define what it is that the government is after, but we are now into taking things to government to lay out a program of work to move us down the pathway. We are in that block now. Discussions with government and the decisions the government take on that as we present them with those decisions will determine how much more of that is to be done and on how broad a front as well. The more options we continue to pursue then the longer it will take us to do that. So, how long is a piece of string is probably about the best answer I can give you at this point.

The design phase is the next important block, and the amount of time it will take to do the design will be either really quite short, if we are going to buy it off the shelf, or much longer if we are going for a new design. If it is a new design it is a seven- to eight-year period. If it is making a design suitable for an Australian compliance plate then I will get the answer from the European vendors by around the middle of the year. Then we will start a build program.

The build will take somewhere between four and eight years for the first submarine. The next submarine that we build in Australia will be the first one that we will have built in something like a decade or more. I think we should therefore believe that that submarine will take us closer to eight years to build than it will to four, regardless of what it is. There will be a learning process. The shipyard will learn with each passing submarine a lot about building it more efficiently and therefore probably significantly more quickly. I cite as an example there the Virginia class submarine, where the first one took 84 months to build and they are now very close to a point where they are taking 60 months to build. That is the sort of learning curve, but I stress that they expect to reach 60 months to build a Virginia class submarine by hull 14. The learning curve takes some time.

The last block, which again I think will probably not differ in length much regardless of what submarine we build, will be the operational test and evaluation, where the Navy takes the submarine to sea and through an extensive and complex series of tests, trials and evaluations to prove exactly what it will do and, most importantly, exactly the best way to use it as a weapon system to get the best out of it. The blocks will all exist regardless of the submarine that we acquire, with each block being of a length that will be determined in some measure by the submarine that we acquire.

Senator JOHNSTON: If we go off-the-shelf, how long between second pass and water?

Rear Adm. Moffit : That could be a decade, maybe a bit less.

Mr King : It depends. The air warfare destroyer experience here was quite illuminating. It depends how much you want it directly off-the-shelf and how much you want to modify it off-the-shelf. If you just said today that a particular submarine with its complete equipment fit would suit us, or that is what we have to go with, that would be the absolute shortest period of production.

Senator JOHNSTON: Do you include operational test and evaluation in the period of time?

Rear Adm. Moffit : No. Your question was 'in the water'.

Senator JOHNSTON: So the four years for operational testing and evaluation are beyond that.

Rear Adm. Moffit : Two years, I think probably, for the first one. Operational test and evaluation for subsequent submarines would obviously be much shorter. The first one would take us longer because it is a brand new tool in Navy's hands and therefore longer would be needed to really understand it for the first time. But thereafter it would be a very much simpler process.

Mr King : The same applies also for off-the-shelf. If you have an off-the-shelf vessel that you are building then you can get a lot of a head-start with operational testing and valuation by drawing on the experience of the current parent Navy. Everything tends to multiply or shorten depending whether it is absolutely off-the-shelf or a brand new design.

Senator JOHNSTON: Admiral Moffit, is there any risk at all of a capability gap, given what you have been talking about?

Rear Adm. Moffit : Yes, of course there is a risk of a capability gap, depending on how long these things actually take.

Senator JOHNSTON: And you brief government as to that risk?

Rear Adm. Moffit : Certainly in the submission that we have with the minister there is that issue, which of course is a part of the whole mosaic of looking to the future.

Senator JOHNSTON: Chair, I thank you and thank the participants at the table for their answers to my questions. I have no further questions on this matter.

CHAIR: Thank you. Senator Humphries.

Senator HUMPHRIES: I want to ask about projects of concern, but could I just ask a couple of overview questions first. I noted in the Auditor-General's DMO major projects report that there is concern about delays in 28 major projects, up from 22 in 2010-11, 15 in 2009-10 and only seven in 2008-09. He records that the total accumulated delay in those 28 projects is in the order of 760 months, or 63 years, in total. I know the government has been talking at length about how fast these decisions are getting made lately, but the auditor's finding in that respect would not suggest that things are getting better; it would suggest that things are going in the other direction. What do you say to these suggestions in that report that there is a very serious problem with delivery of projects in a timely way?

Mr King : I draw a different conclusion to the one you have drawn, Senator. The number of projects is part of the build-up to just reporting. That is not recognising that there is any problem with those projects; it is just that we are moving to a reporting regime of 30 major projects, which is a benchmark so that the parliament can understand how we are performing on projects. My recollection of the data is—and I will have to get the actual wording correctly for you there—that since we have gone into this measured process of first and second pass, command process and so on and the establishment of the DMO, average project slip for the major projects has gone from 50 per cent to 30 per cent, so there is an improvement.

The second thing that distorts some of the slip in the major projects report is that there are some very old legacy projects that remain under report but have effectively now delivered all or most of their capability. For example, the measure, ultimately, of a project is final operational capability. The various stages we have are initial materiel release, initial operational capability, final materiel release and final operational capability. The materiel release aspect is simply when DMO has got the bits together, the hardware, and put it in the hands of the user in a fit state. IOC is the initial period with that hardware and other inputs to capability— people training and everything else, such as whether it can be used in some limited capability. Final materiel release is when we deliver the final pieces of hardware and the final operational capability is when all of those aspects come together, including all the people and skills, and are put into service.

With some of the projects under report, for example, there are only very minor bits of the project to be completed, but they remain under report because those bits have not been completed. Sometimes that is an aspect such as an inability to field all the systems because we have to roll through programs, or assets being used for other purposes so that we cannot put the materiel in. At other times it is a complete fielding of all of the pieces of the capability that are needed to make it a full capability. So I think the data actually shows we are improving, but if you asked me what our biggest challenge is, it is improving our scheduled performance.

Senator HUMPHRIES: Do we benchmark our performance in respect of timeliness in delivery of projects against other equivalent nations?

Mr King : Yes, we do. We actually perform better than the ones that we know about.

Senator HUMPHRIES: What do we do with that benchmarking?

Mr King : We use the data that they produce.

Senator HUMPHRIES: Can we see that data?

Mr King : One of the UK ones is a report by their accounting office so, yes, of course. There are a couple of important issues here. One is if you are the US or the UK, for example—particularly the US—you do not have many options for military off-the-shelf. All I am saying is we should not be complacent about our performance. It is not bad by world comparator—in fact, it is reasonably good. But the other side of just saying we have to get better is that if you look at the nature of projects that are late they are the ones that are developmental, and quite often in our case, unfortunately, they are the ones that we are doing in Australia. There are a number of factors that contribute to schedule delay. Of course, the more developmental it is, the more likely it is that you will have underestimated the amount of time it is going to take to complete that project effectively.

I have recently started some work on comparing us with the chemical and extractive industries—so, mining and everything else. We outperform them on cost and schedule. Off the top of my head their performance factors are about 48 per cent over budget. I am negotiating with an independent company to look at our performance using the data that has been audited and how we compare with industry. I think we will find that is quite illuminating and we are doing all right. But I am not using it for that purpose. I want to use it for the purpose of finding what industry does better than us, so that we can adopt some of those best practices.

Senator HUMPHRIES: Which independent company are you negotiating with?

Mr King : I am in negotiations with a worldwide company that specialises in major chemical extractive industries, mega projects. I think it is IPA, but I will check that.

Senator HUMPHRIES: Will we be able to see that comparison when it is completed?

Mr King : Yes. If it is good news, I will get it to you even quicker.

Senator HUMPHRIES: I am sure you will. This question you might want to take on notice: how many DMO staff have qualifications in project management?

Mr King : I will get that. We certainly track it. I have some answers on the engineering questions that Senator Fawcett asked. He asked for the breakdown of the increased 368 APS positions in DMO, including roles, types of vacancies being filled and the skills being provided. The majority of the additional 368 APS staff are used to fill positions that cannot be filled by other services, as we discussed. The breakdown of unfilled ADF positions has approximately 61 per cent in engineering and technical roles, 13 per cent in project management roles and 17 per cent in materials and logistics roles. To put that in context—I think there is a perception that somehow DMO is separate from Defence or separate from the capability managers—17 per cent of my workforce are military people, and I would welcome more if we had the resources. That represents about seven per cent of the ADF workforce. We do involve a lot of people, and a great many of my division leaders are senior military people.

The second question was how many ADF Reserves are being employed to provide the required technical skills to meet skills shortages, and Senator Fawcett asked for an indicative response. One hundred and fourteen ADF Reserves mentioned in the senate estimates statements are full-time equivalent. Throughout the year DMO will employ approximately 351 individual ADF Reserves on a short-time or part-time basis. This consists of 141 Navy, 106 Army and 104 Air Force. Approximately 130 of these will be employed in technical roles.

Senator FAWCETT: Thank you.

Senator HUMPHRIES: A lot of projects have come off the projects of concern list in the last six to 12 months. That is a good thing, but it is a bit hard to tell, looking at those that remain on the list, most of which seem to be tending towards remediation and resolution of the problems, why one item is on the list and another item has been taken off. Is there a clear criterion that you have used to put them on one side of that line or the other?

Mr King : Yes, there are. The broad concept is that a project gets into trouble. We recognise it is in trouble. We report that to the senior management in Defence, clearly the capability manager or senior decision-makers in Defence. It is then reported to ministers. It is also subject to a diagnostic gate review. If that triggers certain criteria about schedule, cost or capability issues, it is put on a project of concern list. We then work with the companies to create a remediation plan.

Senator HUMPHRIES: If I can but in, you have told us that before; I understand all that. But saying a project gets into trouble is slightly vague. We have had projects that have not been on the projects of concern list which have clearly been in trouble. Conversely, we have had projects which appear not to be in trouble anymore, but are still on the list.

Mr King : Which ones do you think are not on the list?

Senator HUMPHRIES: The problem with the lightweight torpedo replacement project is not clear yet.

Mr King : That is coming close to it. We need just to conduct some testing effectively.

Mr Cawley : You have seen the process that was laid out in media releases in the middle of last year. Ultimately there is a judgment as to when a project goes on the list or comes off it. At the moment we are documenting the criteria for when a project comes off the list and when it goes on. We are conscious always, when we sit through gate reviews, of being equal in the treatment of projects that go on and those that come off. We look at that, industry look at that also and those are part of the criteria that have been set up. We are conscious of it.

Senator HUMPHRIES: What you are saying is that there are no absolutely clear criteria. There are a number of criteria which have a certain level of subjectivity to them. It is not clear really, is it, why lightweight torpedoes need to be on that list right now? They could equally come off at the moment, couldn't they? There is no crystal clear rule that says that must be on that list, is there?

Mr King : No, we set it on a project-by-project basis. Project 2070 has phase 2 and phase 3. Phase 2 is the initial torpedo, its performance and its effective deployment from a ship. Phase 3 is war stocks.

Senator HUMPHRIES: I am looking for an assurance that these projects have not been pushed one side of the line or the other for political reasons. That is basically what I am saying to you. If you can satisfy me that you have clear criteria which prevent that from happening, I will be very satisfied.

Mr King : Clear criteria, but they vary from project to project. I can say that I see no sense of politicisation of that process.

Senator HUMPHRIES: I will take that assurance and bank it. I turn to a couple of specific projects that are on the list; first the Wedgetail project. We were told in our update in October last year that the delivery of ground support systems commenced in April 2010 and was to have been completed by March 2012. But technical issues in system performance have delayed the aircraft final acceptance and ground support systems—that is the advice as of today. Until when has this been delayed?

Mr Cawley : I will give you an overview of it and I will ask Air Vice Marshal Deeble to comment on the particular details. You are right, when we met in October last year we had a plan to do a certain level of flight testing by this time. Progress has been slow. We have not got the software baseline in the air and through testing that we had planned to do six months ago. At this point we are looking for the final version—software build 4—to be delivered by April. The flight testing program that was meant to occur through December and January is happening now. There were a couple of flight tests done, but the main flight testing program is happening now and two tests have been conducted successfully. Chris can talk about that in more detail. And there is the flight test happening today. Electronic support measure was the other issue for software acceptability—its performance—and that has come through two recent reviews, but the work to get reliability of the hardware up is still ongoing.

So the milestones we are heading for today are aircraft, hardware and software delivery by April with materiel acceptance by July and IOC in October.

Senator HUMPHRIES: What delay does that represent of the original project? It was 64 months, then went to 68 months in this update. Is it still 68 months? It would be later than that, wouldn't it?

Air Vice Marshal Deeble : When I came onto the program we looked at the IOC requirement back in about the 2007 timeframe. We stated that we were hoping to achieve IOC at the end of 2011. Compared to the original schedule, that would have been declared at the end of December 2006, but we moved that out as part of the work that we were doing trying to remediate the program with Boeing. At this point in time, that represents from the December 2011 time frame a period of another nine or so months until we can achieve the IOC criteria.

There are a number of elements associated with IOC, and many of those relate to Air Force elements that must be put in place and other stakeholders. The initial materiel release will actually be achieved in the June-July time frame, which is the DMO component of what is required to declare IOC.

Senator HUMPHRIES: But your statement that was tabled the other day says that 'acceptance of the first fully configured aircraft in July 2012 represents a 68-month delay against the original project baseline.' We are now talking October. That is 72. Is that right?

Air Vice Marshal Deeble : There is a difference between IOC, which has a number of other elements associated with it, including trained personnel from Air Force, and the initial materiel release. The definition of initial materiel release has come in during the time frame, so we are representing, from a DMO perspective, around a six-month delay of where we would have those IOC elements in place to support Air Force.

Senator HUMPHRIES: Where does the 68-month figure come from in the figures that you have tabled?

Air Vice Marshal Deeble : I believe the 68 months would reflect back to the time frame in December 2006 when an initial operational capability was due to be delivered.

Senator HUMPHRIES: Okay. That was the original time frame. So the delay from the original time frame is now expected to be 71-71 months.

Air Vice Marshal Deeble : If you take it to the IOC framework, yes. To the initial materiel release—

Senator HUMPHRIES: Your statement does, so I am adopting the same framework. Let's be consistent between meanings in this committee.

Air Marshal Binskin : To put that in context as well, Air Force are ready to go with their elements. They are just waiting for the materiel part. To let you know how well the program is going, Wedgetails are deployed today in Guam supporting Super Hornets as part of a trilateral exercise between the Japan Air Self-Defence Force, the US Air Force and the Royal Australian Air Force. So we are not waiting for that to move on and develop that capability. It is already delivering today.

Senator HUMPHRIES: That is very good. The radar capability was one of the issues that was holding back final delivery, and there was some renegotiation with Boeing of what the ultimate capability of this aircraft would be. Are we still getting 100 per cent of what we originally bargained for, or has there been some compromise and reduction of the scope of what we are getting?

Air Vice Marshal Deeble : When we undertook the first settlement deed in, I believe, the December 2009 time frame, we waived the radar requirement for the higher level of radar performance. We did that on the basis that we had a number of analyses being done on the radar potential; we had worked with MIT Lincoln Labs and DSTO looking at where we could take the radar; and we entered into a collaborative radar development program between Boeing, Northrop Grumman and the Commonwealth, including DSTO. We also engaged MIT Lincoln Labs as part of that. In that intervening period of time we have undertaken a series of updates to the radar software that has been flowing from that collaborative program. We have recovered the clear performance of the radar. That is the ability of the radar to operate at the power levels that we require and to do that stably. That has now been achieved through some innovative technologies being worked by Northrop Grumman, with DSTO and MIT Lincoln Labs support for that. We are now working with Northrop Grumman on the final stage, which is improving the clutter performance. By the end of this year, through that collaborative program we hope to have recovered the radar back to an appropriate level to meet the operational need from Air Force.

But it is true to say that at the time we signed the contract there was a degree of aspiration in terms of the performance that could be achieved from the MSAR radar given the technology that was available at that time. What was not taken into account was some of the installed effects of the MSAR radar within our aircraft—the 737 form factor—and as a consequence we have now characterised that and are working with Northrop Grumman to be able to better calibrate the radar and improve its clutter performance. I am confident that by the end of the year it will meet the operational need of Air Force. It has a number of features, including the ability to sector scan. The ability of the MSAR radar is significantly greater than the mechanical scan radars operated by the AWACS aircraft that you will see operated by the US, the UK and NATO. We will be able to utilise those techniques plus the operational experience that we have gained by operating the aircraft for over two years to be able to employ it very effectively. We have developed as part of the DCP a follow-on phase. There will be a study conducted under phase 4 which will be looking at future enhancements to the radar, and that will allow the technologies to evolve to improve the radar to specification and, I believe, beyond. We have clear evidence of that through the collaborative study with Northrop Grumman and with Boeing.

Senator HUMPHRIES: To summarise all that, when we get the final aircraft in October we do not expect to get what we originally aspired to get, to use your word, but will have something approximating that and might be able to develop its capability in service to get to where we had aspired to be. Is that what you are saying?

Air Marshal Brown : I think we need to characterise what we are missing in terms of capabilities. From an operational perspective, it is pretty much in the margins. That is what we are seeing. In terms of using the capability, I think by the end of the year we will have the best AEW&C aeroplane anywhere in the world. There are some laws of physics there with the original specification's technical spec, but as far as operational use and the operational specification, it will be fine.

Mr King : To add a little bit to that from the business side: when we did that settlement we knew that the technology at that time in a certain sector of the work could not reach the aspiration that we wanted it to. We had a commercial settlement with Boeing the details of which are confidential but which we have briefed the Senate on in private. We have actually recovered radar performance quicker than we expected. At that stage we thought it might take seven years for the technology to catch up. We have remediated quicker, so some time later this year we will have pretty much all the performance we ever aspired to. In addition to that we will have the ability, because of the settlement we did, to take that radar performance to an even higher level in time.

Senator HUMPHRIES: I accept that. I am sure we are getting a very good product, but with a six-year delay in getting it I think we are entitled to find out what is going on.

Air Marshal Brown : I will go to the delay a little bit because I think it is worth characterising that. If you look at the original project specification, it actually had a six-month development, test and evaluation program. If you go back and benchmark the technologies that were being integrated in this aircraft and the degree of difficulty, most other aircraft projects have development, test and evaluation time lines of two to three years. I think the fundamental problem with this project was over-optimistic scheduling. If we were going to do the development, test and evaluation in six months, everything had to work straight up first off, and I do not think that was really a realistic aspiration.

In my terms we are now up past six crews. We are very close to being able to declare our initial operational capability as soon as we finish the last technical bits.

Senator HUMPHRIES: Thank you. I have a couple of other questions about other projects. The ESM upgrade on the Orions project is not on the DMO major projects report by the Auditor-General. Is it the Auditor's decision what goes on that list?

Mr King : No, they are set up quite differently. The major project report is a report to parliament about exactly that: our major projects. Thankfully, some of those are actually performing quite well. Projects of concern is kind of a different management regime. It is to manage those projects, which could be small or large but which are in trouble.

Senator HUMPHRIES: What is the threshold for major projects in the Auditor's view?

Mr King : I think it is just the top. We started with the top seven; then it was the top 14. It is just the top by value.

Senator HUMPHRIES: What is the current delay in months for this project?

Mr Cawley : When the P3 upgrade was put on the projects of concern list, it was 24 months late. IOC is now forecast for November 13, which is—

Senator HUMPHRIES: It was from what to what?

Mr Cawley : I cannot find that original IOC. It is about 24 months.

Senator HUMPHRIES: It is fine to take it on notice. I have a question with respect to the MRH helicopters. You say in your statement that you have accepted three helicopters in a production baseline 3 configuration.

Mr Cawley : Yes. I will just ask Admiral Campbell to come through to explain it. Back on P3: some of the events which were about to occur were imminent when that statement to you was signed. We have done the test readiness review on the ESM equipment for the P3. That was done on 1 February and has passed. The modification readiness review of the aircraft design to take the new equipment was done on 13 February. Today they started modification work on the first aircraft.

Senator HUMPHRIES: Sounds good. Thank you.

Rear Adm. Campbell : You asked about product baseline 3, which is the next level of software that goes into the MRH helicopter. It is basically an improved level of software that we are assured improves the reliability of the aircraft. It should make several of the systems work slightly better and is overall a general improvement. It removes a bunch of bugs from the system. Regression testing has produced a series of things that have to be rewritten in the code, so that has all been done.

Senator HUMPHRIES: So the MRH90 is the centrepiece for our multiplatform helicopter fleet. Despite these delays, it is still very much on track to perform that role, underpinning our helicopter capability.

Rear Adm. Campbell : It has two roles. Its primary role is to move Army troops around to where they need to go in the battlefield. The second role is to do maritime support with Navy. That is basically to move stuff around the fleet. With both roles we are working towards delivering that capability.

Senator HUMPHRIES: And the delay is not compromising those essential roles?

Rear Adm. Campbell : No. We have things in place in both Army and Navy to fill any capability gap. At present Navy is suffering in that we are disposing of Sea King. We stopped that aircraft flying back in December last year and we are hoping to have the MRH in place by the middle of this year. Army is able to keep its current air mobile capability, which is the Black Hawk, operating quite successfully.

Senator HUMPHRIES: If I could have your indulgence for just one more issue briefly, it is the problems that have been experienced at the Thales plant in Bendigo and the question of a gap in production between the end of the Bushmaster PMV program and the commencement of the Hawkei program. You may be aware that Mr Gibbons, the member for Bendigo, said in December:

The Federal Government and Thales are currently working through options to cover this gap as the Government is keen to ensure Thales maintains the critical skills level in Bendigo in order to be fully prepared for the Hawkei production program.

Can you tell me what those options are?

Mr King : I will start and then I will pass to General Cavenagh, Head of Land Systems Division. The trigger for this was the down select of the Thales Hawkei as the manufactured and supported in Australia option for the Land 121 phase 4 program. That selection process was made in its own right, to start with. We had three contenders for that, they were evaluated in their own right and that was the winning option. What then became apparent was that the natural rundown of the Bushmaster production as currently planned would cease before the ramp-up of Hawkei, should it be successful. So the work that we are looking at is additional PMV Bushmasters, which would retain key skills so that, in the event that the Hawkei development is successful, we will be able to launch into the production program with minimum impact. That is it in summary, but I will pass to General Cavenagh.

Major Gen. Cavenagh : With the options that we were looking at to try and fill that gap in production, we were looking at post-operational remediation and what sort of work we could do there, any additional engineering work—and there was some work that we had on that you would be aware of, to improve the blast protection on Bushmasters—and also whether we would be able to do work such as midlife upgrades to the fleet, because it has been in production for a while now. We have been looking at this range of activities as well as the potential to produce additional Bushmasters. The net result of all of that is that, to maintain the core skills that are needed, one of the more viable options is to continue to produce some Bushmasters. So we are currently in discussions with Thales about working through the detail of what that is, what form it could take.

Senator HUMPHRIES: Were some of those activities contemplated by virtue of Bushmasters being manufactured at Thales at Bendigo anyway? Wouldn't they have happened there naturally—like midlife upgrades?

Major Gen. Cavenagh : The midlife upgrade, as far as I am aware, is not one program at the moment. So that would be a new activity.

Senator HUMPHRIES: But for an Australian manufactured product—there might be not be many examples of this—wouldn't we normally go back to the manufacturer and get them to undertake that activity?

Major Gen. Cavenagh : Yes, that would be the normal course of events, but in this case it is a question of timing, about: could we start the program earlier, to keep the core skills?

Senator HUMPHRIES: So what is the answer? Will we start any of these programs in time to be able to save some of these jobs, noting the announcement the other day that 50 more jobs are going at that plant?

Major Gen. Cavenagh : We are preparing advice for government at the moment on that. We are moving very quickly on this because of the time frames, as you point out, that are involved in it. We will be presenting the advice that encompasses those issues that I have just outlined to government in a couple of tranches quite shortly and seeking government advice.

Mr King : The work that we are exploring is sometimes different when you are doing upgrades to vehicles when you are in a position to produce vehicles—for example, working with armour quality steel, welding, cutting and those sorts of things. Just because you are working on the same vehicle does not mean that you are necessarily employing the production skills that we will need if all goes successfully. It is still in the exploratory phases and we are working through that with the company.

Senator HUMPHRIES: I would like to hear about that in due course as those plans unfold. I have just one last question you might take on notice. Could you get us a list of the number of suppliers of components and services that are part of the chain for the Bushmaster project, please, so we know what the downstream effect of this sort of potential gap might be?

Major Gen. Cavanagh : Certainly.

Mr King : Chair, I will read out a couple of updates. Senator Johnston's question was on Kockums and when we signed the IPD. That was 27 June 2004. There were also questions regarding insurance, and the answers are as follows. Defence has claimed insurance costs against ASC for faulty work eight times, through the TLSA. The total value of the claims was approximately $8 million. It took about two to three years to settle the claims. It took the insurance company about 18 months to pay the money. The money was not forwarded in full to Defence; it went to consolidated revenue. And such money, once received in Defence, does not go back into submarine sustainment.

Mr Cawley : In answer to the question on P3 ESM, the delay to IOC was 24 months.

Senator FAWCETT: I take you back to sustainment and the Rizzo report in particular. The earlier discussion with the CDF and secretary was around the fact that DMO and Defence are one and the same, that people were working together and that the organisational boundaries were not significant. I go back to the Rizzo report, which was only released just over six months ago, in which he comments:

Organisational complexity is a significant factor impacting accountability … the structure of the engineering organisation, as it relates to Navy, is overly complex and distributes scarce personnel across several reporting chains. Head Navy Engineering has little direct management control over a large proportion of the Navy engineering workforce. In addition to it being fragmented …

In other parts, he talks about the fact that there is an 'us and them' relationship between Navy and DMO. That seems at odds with the discussion we had earlier. Obviously that is an aspiration. The reality according to Rizzo is somewhat different. Could you talk us through how DMO is looking to move forward in the sustainment of capital assets, in this case Navy, to overcome some of those structural and disparate group issues Rizzo has identified?

Mr King : Certainly. I would say that the relationship between DMO and the three service chiefs has moved on significantly since Mr Rizzo did his work. We do have pockets of performance at various parts of our organisation. But, just to put a few practical terms around what I mean by that, I sit with the Chief of Navy and Mr Rizzo on the implementation committee. I work with all the capability managers, but particularly in this case with Chief of Navy, on the career management of engineers into and out of DMO. As I said before, we are about 17 per cent military people in DMO. One of the things I will be emphasising as the CEO of DMO—and I am sure it was always understood-—is that our existence is simply and only to serve the needs of the capability managers, the operational commanders and, of course, the CDF; we do not have a right to exist or operate just because we are. By concentrating the work in sustainment and acquisition in DMO it actually does provide an opportunity, against a scarce resource base, to better manage those resources, to have better technical regulatory frameworks, to have better concentration of the engineering base that we share across Defence. I will be working very hard to continue to develop that.

It is very true that there have been some structural changes to the way we all do business. By that I mean the capability manager and us, and I use my own experience there. When I joined the Navy, Defence owned the shipyards. In my early engineering career I had the opportunity to work in shipyards—in fact, the development of a missile system—and in the development of offshore engineering work.

One of the things we are very focused on—I know the Chief of Navy has already taken action on it, and I have to—is trying to restore the importance of technical integrity in the business we do and the centrality of that in terms of delivering capability. What we are also working on—and this is also with the capability managers—is what we are calling an acquisition career management. I do not just mean DMO here; I mean the technology, the procurement officers, the legal officers but also the military officers who can move through that acquisition and sustainment piece of Defence's business, which in a budgetary sense is just under 50 per cent of our business.

I can talk to you about the initiatives that I have got going to try and reprofessionalise in DMO or increase the professionalisation. I know it is an area where the Chief of Navy has already taken action, but one area where I am looking to see how I can restructure my SES, for example, is the appointment of a chief engineer in the DMO. From the very practical working together on the Rizzo implementation, to meeting with the capability managers two or three times a week, if not more, on the issues they have and what they want their focus to be on, whether it is acquisition sustainment, I think we have come a long way in that relationship since Mr Rizzo made his report.

Senator FAWCETT: You mentioned the possibility of a chief engineer within DMO. Are you envisaging that that would be subordinate to a naval equivalent of the Director-General of Technical Airworthiness, that there would be a Director-General of Naval Engineering? One of Rizzo's comments is that the engineering workforce is split across several organisations and the head of naval engineering does not have effective control over that. Is the establishment of a new engineer going to be complementary to the process of bringing people under one coordinated command or is that in fact going to split capability?

Mr King : No, it is certainly complementary. I will let the Head of Navy speak about the head of naval engineering, but it will be absolutely complementary to the technical, regulatory and engineering framework that we are setting up.

Vice Adm. Griggs : I think the way we are doing that most effectively is the introduction of a seaworthiness management system similar to the airworthiness management system in Air Force. Our current intention to do that is to introduce the first phase of that in July this year. It will be a phased introduction. The airworthiness system in Air Force Took a number of years to develop and mature and we will have the same issue with seaworthiness. While that is going to be a Navy-centric management system it is going to be developed hand in glove with the DMO engineering and sustainment area as we go. We cannot do it on our own. It would be pointless to do that. The head of engineering will be the person responsible and accountable for the running of the system for me.

Senator FAWCETT: Could you describe how the engineers within that workforce will gain their practical experience, not so much their qualification, that will enable the regulatory system to give them a level of engineering authority to work within the system.

Vice Adm. Griggs : They will gain that experience over the course of their career development.

Senator FAWCETT: One of Rizzo's criticisms of the sustained program within DMO was that there was a lot of short-term, almost random outsourcing of sustainment-type activities which traditionally is where engineers have got their experience in design-making decisions enabling them to reach levels of competence. Where are Navy engineers going to get that kind of experience?

Vice Adm. Griggs : I think the pendulum is swinging back the other way on that issue. That is one of the things we will continue to do in some of the work we are doing with our force.

Senator FAWCETT: What do you mean by 'the pendulum is swinging back' on that issue?

Vice Adm. Griggs : The outsourcing issue. One of the key features of the continuous improvement program in Collins and in our fleet support units is Navy doing more maintenance. That means not only doing more maintenance but doing more maintenance planning and maintenance supervision. That builds those skills sets that you are talking about.

Mr King : Naval engineers get a great deal of experience from going to sea and serving in ships. They get a lot of engineering experience there. One of the more positives experiences is naval engineers working on the AWD project within the alliance, sitting next to civilian professional engineers and really seeing what it is like to design, develop and deliver products. I imagine that the ultimate solution that we have for Collins will involve a far more integrated team between DMO and ASC in the conduct of maintenance. We are also going to have a number of other initiatives allowing military people to work in contracted facilities where they are working on sustainment activities and enhancements. There are a number of issues like that. General Manager Systems, Shireane McKinnie, who is an engineer and a big supporter of the chief engineering position in DMO, can give you some further views on how we see that position working.

Ms McKinnie : The role of the chief engineer in the DMO would be to establish the engineering management system in a robust fashion, so it interfaces with the three services—engineering, authorised engineering and organisation processes—and their regulatory roles. It would also oversee the assurance framework that our processes are being applied and applied appropriately to meet the requirements and lead the professionalisation and development of the engineers in the DMO.

Senator FAWCETT: My understanding is, in the air environment, DGCA has a lot of that oversight role. In the land and sea environment, who currently has oversight of engineers in terms of compliance, approval, delegation to authority?

Ms McKinnie : SPOs are required to achieve an authorised engineering organisation status. The three services oversee that and they audit to ensure that we have the right capability. What they do not do is prescribe the processes that we must use in the DMO in order to achieve that. They look at whether or not they believe we are achieving the intended outcomes. But it is up to the DMO to establish its engineering processes to meet their requirements. Our chief engineer would strengthen the extent to which we have good, solid engineering processes operating right across the DMO.

Senator FAWCETT: Is the chief engineer an SES position?

Ms McKinnie : That is what we would like, yes.

Senator FAWCETT: One of the questions constantly raised is that over the last decade there has been a 167 per cent increase in the size of the SES, and yet we see Defence having to replicate, as we are saying at the moment, with Navy a number of its management and command functions, so we end up with a duplicated management structure. Has a cost-benefit analysis been done to look at the holistic process across the services and DMO to say whether the creation of that role and the attendant staff would actually deliver savings versus using the same sort of system that the air group do at the moment with DGTA providing that role?

Ms McKinnie : We have not done a cost-benefit analysis. The issue for us is whether or not we can provide a greater level of assurance that we can maintain technical integrity as a supplier, if you like, to the three services.

Senator FAWCETT: Do you have any doubt in the air environment at the moment that you are providing technical integrity?

Ms McKinnie : No. In the air environment we have good, solid, robust processes, and fairly consistent processes. In other areas of the organisation we have a lower level of consistency and quality of our processes.

Senator FAWCETT: My point again is that in a resource constrained environment, as Defence is, in fact the whole of government, if you are already rebuilding Navy's technical regulatory structure to broadly mirror air's—I use 'air' because it covers all three services—why would you not also mirror that process of having that external oversight rather than creating additional positions and hierarchies within DMO?

Ms McKinnie : We are not intending to duplicate the work that the three services do as regulators, and what we want to do is strengthen our ability to interface with the regulators so that their role is to assure the service chiefs that what we are providing is safe and suitable for service. The chief engineer in the DMO's role will be to assure me that we have got the appropriate engineering processes and they are being used appropriately to deliver safe equipment to the three services. The new workplace health and safety legislation puts a greater level of emphasis on the need for clear and proactive assurance processes to ensure that we are delivering safe products as well.

Senator FAWCETT: Stepping back to the MSA, obviously that has been the key relationship to date between the services and capability management in DMO. Again, Rizzo was quite critical of the state of the MSA between Navy and DMO. What steps have been taken specifically to review and rework that, and with the amount of work you are doing with Mr Rizzo and that group, are you actually looking at developing or changing the basis of, if you want to call it this, the contractual relationship between Navy and DMO, or is the MSA still going to be the basis of that?

Mr King : The MSA will be the basis of it but it will be a much more sophisticated and outcome based document.

Ms McKinnie : At the top level of the DMO we are improving the consistency of the key performance indicators. We are developing a set of key performance indicators that will operate across all environments, with a small group that will be common, others that will be domain specific and a number of others that will be the actual product or service specific KPIs, with the view that they would be incorporated into MSAs. They would be the fundamental measure that we would be looking at on a monthly basis. In my area I have a small group of people who are looking at these KPIs, and they will be producing monthly and quarterly reports of KPIs against all the MSAs for senior management to look at regularly.

Senator FAWCETT: The MSA between Navy and DMO did not really come under scrutiny until the failure of the amphibious ships capability. What assurance do we have that other MSAs covering other capabilities across all three services are not in a similar parlous state?

Mr King : The MSA regime is reviewed at regular intervals and the capability managers sit down with DMO folk and tune the MSA to the outcomes that they seek.

Senator FAWCETT: My point though is that Rizzo's report is only six months old. This failure was less than 12 months ago. If they have been regularly reviewed, why was that MSA not picked up? Why were the outcomes et cetera not picked up in that process? If it failed there, where else has that process failed? That is the basis of my question.

Mr King : I do not know that I can answer that. You have used the air world as an exemplar of how business might be done. In that area we are very closely intertwined in the MSA construction and evaluation and assessing how it has performed. We do the same in land. We have all the MSAs under review. I cannot explain why that one was in that state.

Air Marshal Binskin : Rizzo referred to this happening over many years. Even though over the last few years we have put these processes in place, it has taken a while to start to turn that. If the Chief of Navy was to answer, I am sure it would be along those lines and that detail. I know we have been through that many times here.

Senator JOHNSTON: Can we talk about HMAS Success and its recent history? Rear Admiral Marshall, we sent it up to ST Marine in Singapore. We saved about $3 million on the $22 million it cost us for all of the various things we did. I am given to understand it has not done much recently and there are some significant problems. The drive train is out of balance given the ballasting due to the second skin. Is that correct?

Rear Adm. Marshall : We did send the ship to Singapore early last year. We did the double hulling to comply with IMO provisions. We brought her home. She went into a maintenance period and we have identified that the propulsion system alignment requires correction. The alignment of the propulsion system has been a long-standing defect. We have traced it back to the late nineties. There have been several attempts to correct it over the intervening years, which have not been successful. During the IMO conversion in Singapore, ST Marine and the Commonwealth production oversight team were rigorous in monitoring the alignment of the propulsion system. It is one of the things that you do when you are doing that type of modification to the ship. I am aware that it was done rigorously throughout that conversion. When we brought the ship home, we monitored it when the ship left Singapore. We checked it again when the ship arrived in Cairns and again when it arrived in Sydney. We continued to monitor it while the ship was in Sydney. Through monitoring across all of those checks and through increasing investigations into that problem, we found that the alignment was at a point where I could not assure the Chief of Navy with a high level of confidence that the ship was safe and fit to go to sea. You will also be aware that across that period we had the Rizzo review come out, which focused us very tightly on what were safe standards and what was acceptable to take the ship to sea. So in discussion with the Chief of Navy he decided that we would keep the ship tied up to correct this problem and to do it properly. We are taking considerable efforts to make sure that this time we do fix the problem. We are using the original equipment manufacturers to oversight and conduct large elements of the work.

Senator JOHNSTON: Is that Pielstick?

Rear Adm. Marshall : It is a SEMT Pielstick. There are variations, and the diesel engine manufacturing history is very convoluted. The engine we are using is a SEMT Pielstick, which is a French diesel engine—noting that all of the ship is of French origin and design. There is the main reduction gearbox and other shafting components, but we have, through the latter stages of the alignment checks, engaged Lloyd's Register's technical investigations department to assist us in those checks, and they are now oversighting the work for us. The advantage of using them is that (a) they are independent and (b) they do this work all around the world. So I am more confident than I might otherwise be by having them onboard and oversighting this work.

Senator JOHNSTON: I appreciate that answer. What is the cost and schedule?

Rear Adm. Marshall : The estimated cost for this work at the moment is $4.1 million. That will depend upon the invasiveness of the work. We are doing a bit of work, then doing some checking, then doing some more work and then doing some more checking. If the work blows out further, that budget could be exceeded.

Senator JOHNSTON: Does your checking involve loading the vessels?

Rear Adm. Marshall : In late October or early November we put 4½ thousand tonnes of fuel into the ship. That was, in my view, one of the critically important checks—or things to do in order to do the checks—and it was, I think, on the advice of Lloyd's technical investigations department that we did that. I am not aware that we have actually done the checks with a half load of fuel in the past.

You asked me about schedule. The current plan, based upon the current known scope of work, is that we will finish the production work in April and the ship will return to sea in about May. At the moment we are a couple of weeks behind schedule. We are seeking and in discussion with a contractor to recover that schedule, and I am expecting that an additional shift will be worked. One of the problems in this engine room is that it is a very dense space. There is not a lot of room to move around some very large pieces of machinery. Just to give you a perspective of it, there are two main propulsion engines. Each of them is probably longer than the table here and several decks high. That is held in place into a bedplate by bolts but it is also held in by an epoxy resin, to simplify the material. We have to undo the bolts, we have to chip out the whole of that resin and move the engine around the space—it is not moving very far, but we reposition it. We have to check the alignment, bolt it in, check the alignment again, reapply the epoxy and check the alignment—there is not a lot of room to move.

Senator JOHNSTON: Again, thank you for that. What are we doing in terms of our resupply and on-sea functionality that would otherwise have been carried out by Success?

Vice Adm. Griggs : HMAS Sirius, our other oiler, is operational at the moment until April, when she will go into some planned maintenance—we cannot avoid that; we must do that maintenance. HMNZS Endeavour, our New Zealand friends' tanker, is operating in Australian waters until late April and then is returning to New Zealand but is available to assist should we have an urgent operational requirement.

Senator JOHNSTON: Did we anticipate taking any of these vessels to RIMPAC?

Vice Adm. Griggs : No.

Senator JOHNSTON: Thank you, Rear Admiral, for those answers. I would like to go on to the Joint Strike Fighter program momentarily.

Mr King : Perhaps I could just read a couple of responses while Air Vice Marshall Osley joins us.

CHAIR: Certainly.

Mr King : Senator Humphries asked how many project managers in DMO are qualified. DMO has 369 project managers who have achieved project management charted status through the Australian Institute of Project Management and an additional 180 who are progressing towards that status. There was a second question. I was uncertain of the company that is helping us on this independent analysis. I was correct, the company—we have not yet engaged them but we have a proposal from them—is Independent Project Analysis Inc. who specialise in looking at megaprojects and their difficulties and how to set up properly across a world database.

Air Marshal Binskin : Chief of Navy has to depart for an important engagement and I was wondering whether there are any more questions specifically for—

CHAIR: No, no questions—you are excused.

Air Marshal Binskin : I look forward to seeing that on the Hansard.

CHAIR: Just while we are making some explanations, I will explain to the committee that Minister Carr has had to go to an urgent meeting and Senator Feeney is here in his capacity representing the Minister for Defence.

Air Marshal Binskin : After the DMO parts, we do owe you a few answers not related to the DMO. Some questions were asked earlier, so if we just have five minutes I can close it out for you.

CHAIR: Sure. There as a final piece housekeeping. There have been no questions to Defence Housing Australia. They have been discharged. Thank you.

Senator JOHNSTON: Air Vice Marshal Osley, are we still committed to the Joint Strike Fighter?

Air Vice Marshal Osley : We are certainly committed to the Joint Strike Fighter. Obviously we are going to proceed with the purchase of the first two. As for the next 12 after that, we are looking at the options and will be presenting those to the minister through this year about how we would like to proceed with those, and obviously we are putting up proposals for follow-on tranches of the aeroplane to government this year.

Senator JOHNSTON: When do we have to pay for the first two?

Air Vice Marshal Osley : Actually, we have already paid about $21.2 million or so for the long-lead items for the first two aircraft. We paid that last year. We put it into an account and it is then drawn down against the long-lead items for the first two aircraft over the period out for the next year or two. Those long-lead items include things like: setting up the tooling for the production line; the production planning for the aircraft; and some parts of the aircraft that have to be produced so that they do not slow down the production line once it gets going.

We put in our procurement request previously. This year we will receive back from Lockheed Martin a response to our request proposal and in about the third quarter of this year we will be in a position to then confirm with government and go ahead and sign for the first two aircraft to be delivered in 2014. It is about a 500-day production between placing your order and confirming it, and actual delivery.

Senator JOHNSTON: It will be a flyaway cost?

Air Vice Marshal Osley : Yes, when we get the response back from Lockheed Martin, we will then go back and they will negotiate out the contract. At that point, when we sign for it, that will have a unit recurring flyaway cost and it will also have the cost of all the other components that go with the Joint Strike Fighter to make it a capability.

Senator JOHNSTON: So I cannot ask you at this point what the unit cost of the first two is?

Air Vice Marshal Osley : No.

Senator JOHNSTON: I take it from what you have said that the FMS system is not applicable to this acquisition.

Air Vice Marshal Osley : That is absolutely correct. We are one of the partners, amongst other partner nations, working with the US on the Joint Strike Fighter. We contributed US$150 million to be a part of that. It means that we actually have access to the technology associated with the development of the Joint Strike Fighter and we get preferential access to production of the aircraft. We also get a lower price because we get the same price that the US negotiates for itself, as opposed to buying it FMS where they will add on a factor for the development of the aeroplane and they will add on a factor for the FMS cost as well.

Senator JOHNSTON: When do you anticipate there will be a Royal Australian Air Force pilot at the controls of a Joint Strike Fighter?

Air Vice Marshal Osley : 2014.

Senator JOHNSTON: Is it going to be January or December of 2014?

Air Vice Marshal Osley : We have yet to place our order for the two aircraft. When you actually place the order, you then at that time determine whereabouts in the production line you will end up. We are anticipating, though, that the first two aircraft will go to a training unit in the US and at the same time we will be sending Australian pilots there to gain experience on the aircraft. The way it works is that the two aircraft, when they are placed into the integrated training centre, then give you credit towards training your own pilots. At the same time you put it in there, you then get credits for that year and any other year that you leave the aircraft at the integrated training centre or the pilot training centre.

Senator JOHNSTON: You are aware that the Joint Standing Committee on Foreign Affairs, Defence and Trade Defence Subcommittee had a public hearing recently. I think you were at it. It was very concerning for me, and I think for anybody who has a reasonable sense of equitable and proper debate, to see some public hearings going on which were quite adverse to this acquisition. Are we anticipating making a submission and giving evidence to the Defence Subcommittee of the joint standing committee in rebuttal of the material that was adduced?

Air Vice Marshal Osley : I am part of the defence team that will be briefing the Defence Subcommittee on 16 March. I believe I will have about an hour or so to present about the Joint Strike Fighter. As part of that presentation, I will address the issues that were raised back on 7 February, at the one that you are referring to.

Senator JOHNSTON: Bear in mind that a number of questions were taken on notice as to the assumptions with respect to the war game results and the simulation results, which the committee should have, as to how the witnesses attained the information and conclusions that they got to. Do you have any idea when that presentation is likely to be?

Air Vice Marshal Osley : Yes. It is on Friday, 16 March.

Senator JOHNSTON: Thank you, Chair. I have no further questions.

CHAIR: What is the next issue that you want to pursue?

Senator JOHNSTON: I have not really got any more issues. There is combat clothing, but I do not want to go there just at the moment.

CHAIR: I will give the call to Senator Macdonald, who has been waiting very patiently.

Senator IAN MACDONALD: I have a few questions about a variety of issues, which hopefully I can put out quickly. Can you briefly explain to me what the rationale was to move the School of Military Engineering to Holsworthy?

Major Gen. Sengelman : The School of Military Engineering, as you might know already, has been out there at Holsworthy for some time. The facility and the people in it have been performing excellent service. As a result of broader infrastructure considerations for that area, which I understand were linked to a wider ambition to develop a hub there for logistics and infrastructure, a proposal was considered to relocate that facility to an additional site. I understand that discussions are underway to look at the options of how and when that might proceed, and that matter is still under negotiation.

Senator IAN MACDONALD: Sorry; what is?

Major Gen. Sengelman : The details for the relocation, such as the exact dates and the details for that arrangement.

Mr S Lewis : Perhaps I can help. The current status of the project is a study. In fact there are two companion studies happening at the same time. The first study is being led by the Department of Finance and Deregulation, but it is being done in very close conjunction with the Department of Infrastructure and Transport and Department of Defence. That study is looking at the prospects for an intermodal terminal facility to be built on the site of what is currently the School of Military Engineering. The second, and obviously companion, study is a defence led study about the relocation of the School of Military Engineering and a number of other units from the Moorebank site to Holsworthy. There is a report due back to government by about the middle of this year and that work is on track at the present time. At this stage these are studies in relation to proposals—an IMT proposal linked to the relocation of the school as a secondary proposal—and those matters have yet to come back to government for final decision. But the planning is that they would go back.

Senator IAN MACDONALD: But the decision has been made to move the school.

Mr S Lewis : The decision has been made to study the move of the school. The results of that study need to go back to the government and the government would need to commit to a project—which will be a very expensive project—to shift the school to Holsworthy. That would be linked to a desire to build an intermodal terminal facility on the site of Moorebank.

Senator IAN MACDONALD: An intermodal has nothing to do with defence—it is a commercial operation.

Mr S Lewis : That is right.

Senator IAN MACDONALD: I understand that in 2004 it was proposed that the school would go to Puckapunyal.

Mr S Lewis : Before my time—that is possible. The study we have underway now is definitely about all the logistics and costs associated with a move of the school and a significant number of other units from Moorebank to Holsworthy.

Senator IAN MACDONALD: Is this part of the base consolidation?

Mr S Lewis : Not really. The drive for this initiative really is linked to transport policy. It is really about the congestion in Sydney and the desire to take a lot of the trucks off the road and to reduce the congestion in Port Botany. An intermodal terminal facility is seen to be a way in which significant numbers of containers could be quickly taken off ships at Port Botany and shunted to an intermodal terminal from which they could connect either to the north-south interstate freight rail system or to the interstate road transportation network. The origin of this project links to that. The reason we are studying the move of the School of Military Engineering is linked to the desire to pursue these transport policy initiatives.

Senator IAN MACDONALD: I understand and I appreciate that I cannot ask you much about that—because it is being driven by the Department of Infrastructure and Transport, I take it.

Mr S Lewis : The IMT project is chaired by Finance. They have set up a team inside the Department of Finance and Deregulation to facilitate that. Part of the reason for that is that, were the government to proceed, there would need to follow some process which would almost certainly involve accessing the market via tenders for the capability to operate the IMT in future.

Senator IAN MACDONALD: I guess the decisions have not yet been made, but this is Defence land—

Mr S Lewis : It is indeed.

Senator IAN MACDONALD: Would you get the sale price and put it in your kick?

Mr S Lewis : As a matter of general principle, that is not the way it works.

Senator IAN MACDONALD: No, I understand that. But if you are building something new—the cost of the move is, I understand from the invitation to register interest, to be about $570 million to $740 million—would that cost come out of the defence budget?

Mr S Lewis : Defence would expect some augmentation to its budget to facilitate a move of that kind because that would not be high on the priority list of defence projects for funding capability. This would be linked, as I said, to a project to support transport policy initiatives. On the general question, as you may or may not be aware, when we dispose of land the proceeds of sale go back to general revenue.

Senator IAN MACDONALD: I appreciate that. My only point was if you are giving away your land but then having to pay for the new building out of your existing budget, but you are saying—

Mr S Lewis : We would expect supplementation. There might be merit in us packaging in with that project other things that we would do as part of going through the contracting for work on Holsworthy, and those extra bits we would expect we would need to fund out of our own resources.

Senator IAN MACDONALD: Okay. You said earlier that your studies are coming back towards the end of this year.

Mr S Lewis : No, it is earlier than that. We would expect to be reporting back to government in the next several months; I just do not have the precise date in front of me, but it is quite soon. And if the government were to endorse that we would expect to be in front of the Public Works Committee by the third quarter of this year.

Senator IAN MACDONALD: But until then the school continues to operate where? At Moorebank?

Major Gen. Sengelman : It remains in location, as it is, uninterrupted.

Senator IAN MACDONALD: I thought when you started you said it had already moved to Holsworthy.

Mr S Lewis : No, it has been there for a long time.

Major Gen. Sengelman : It has been there for many decades.

Senator IAN MACDONALD: But in a different location?

Major Gen. Sengelman : It has been in the area of Western Sydney for many years. The school itself in its current location has been established for over 10 years.

Senator IAN MACDONALD: Sorry, am I talking at cross-purposes? Obviously I do not understand this.

Mr S Lewis : I missed the first part of the evidence, Senator, when I was coming back into the room. The School of Military Engineering continues to function at Moorebank.

Senator IAN MACDONALD: Where it is?

Mr S Lewis : Where it is now. All we are doing at the moment is conducting a study regarding a move of the School of Military Engineering to Holsworthy. There is a lot of planning work around that prospect, but that is not a decision taken.

Senator IAN MACDONALD: You are telling me it is at Holsworthy. Are Holsworthy and Moorebank the same place?

Mr S Lewis : No, they are adjacent.

Major Gen. Sengelman : They are very close to each other.

Senator IAN MACDONALD: And when you say Holsworthy you mean Moorebank, do you?

Major Gen. Sengelman : I do, Senator. It is my fault.

Senator IAN MACDONALD: Okay. There is nothing more you can tell me until these studies come in?

Mr S Lewis : There is probably a fair bit more I could tell you, depending on your question. I actually sit on the steering committee that is chaired by Finance in relation to the IMT project, because one of the matters we are very keen to avoid is any disconnect between these two studies; they have to be done very much hand in hand in order to ensure we are synchronising the work to go back to government for sensible decision making. So if you had other questions about that I may be able to help you. It just remains a study at the present time; that is the key thing.

Senator IAN MACDONALD: That will probably do for now, but perhaps we will keep an eye on it. I want to touch briefly on military estate contamination. I understand there are 3,300 separate contamination issues across 170 defence estates, the most critical apparently being the $27 million clean-up of Point Cook. What progress is being made in addressing those sites where remediating work has been identified as necessary? Correct me if my assumptions are wrong.

Mr S Lewis : We are doing work in relation to remediation of the defence estate almost on a continuous basis. Perhaps if we could break the problem down into some of its components I could take it on notice and come back to you.

Senator IAN MACDONALD: Could you do that?

Mr S Lewis : Yes, but we have so many I would like a bit of guidance as to where your concerns are. Point Cook is the most recent one and we were at the PWC recently on that. We could certainly give you an update about the work because the PWC gave us the approval to move into the clean-up on Point Cook.

Senator IAN MACDONALD: It is a fairly significant quantity you are looking at. I am just wondering how you plan to address all those over the coming years, where you are getting the money from, what sort of budget you are looking at, how it is going to be done, what the priorities are and how you determine the priorities.

Mr S Lewis : Senator, welcome to my world! You have summarised quite neatly the defence estate problem writ large. We have an almost unlimited list of challenges and demands and quite a limited supply. You can look at that through a prism which links to the environment, which links to contamination, which links to safety, which links to capability and the contribution we make to defence capability. We are making judgments all the time.

Senator IAN MACDONALD: Could you give me a paragraph on how you are determining priorities?

Mr S Lewis : We would be very happy to, Senator. As you might imagine we have a process and a system, but we do not always get it right. We would be happy to share with you our prioritisation process.

Senator IAN MACDONALD: On the same thing and of interest to Canberrans, Mount Ainslie Nature Reserve has been closed to the public since 17 November for a UXO, is that correct?

Mr S Lewis : Which location was that?

Senator IAN MACDONALD: Mount Ainslie Nature Reserve.

Mr S Lewis : I am aware of an incident where we closed it for a short time because we found, I think, four mortar shells. I had understood that we had disposed of them and the job was done.

Senator IAN MACDONALD: It was said it was going to be closed until February so perhaps it has been dealt with.

Mr S Lewis : If it is the instance I am thinking of, it only broke very recently in the last week or so. We found out about it on one day and, when we found out about it, we quarantined the site straight away and we disposed of the mortars, as I recall, pretty much on the same day, because it is obviously a safety issue.

Senator IAN MACDONALD: There is a Canberra Times newspaper report of 18 November 2011 headed 'Unexploded ammunition on Mt Ainslie' and a photo of someone shutting the gate.

Mr S Lewis : It is possibly different.

Senator IAN MACDONALD: Then on 18 January the Mount Ainslie Nature Reserve closure is extended.

Mr S Lewis : That may be something else. It may be better for me to take that on notice and I will come to you.

Senator IAN MACDONALD: That would be useful. I want to spend seven minutes on cadets, a very important subject that deserve more than seven minutes but such is life. I am told that you have a charter to supply the Defence Force generally but it is suggested to me that there is no cadet garrison support. There is some support provided by you but, as I understand it, it is not in the DSG charter. What you do is out of the goodness of your heart.

Mr S Lewis : There is a lot of goodness in my heart.

Senator IAN MACDONALD: You do have a charter for the services you supply to the broader Defence Force, is that correct?

Mr S Lewis : I am not so sure that we would call it a charter. There is certainly an agreement which governs a way in which I work with our group heads and service chiefs in relation to the provision of support across defence bases. If your question is about cadets, I am afraid I do not have the detail of that but I can assure you that, at a number of locations around the country, we do seek to provide support to cadets.

Senator Feeney: Senator, I might at this moment invite Brigadier Sowry to the table.

Brig. Sowry : Support for cadets has been rolled into the base support agreements. So, Air Force's base support agreement with DSG covers Air Force Cadets, Army's base support agreement with DSG covers Army Cadets and at this stage VCDF group's base support agreement covers ANC Cadets, the Navy Cadets.

Senator IAN MACDONALD: So, there is something in writing in an agreement.

Brig. Sowry : In respect to the support that DSG will provide to the cadet units in terms of the maintenance of base facilities and that sort of thing.

Senator IAN MACDONALD: And the provision of base practice.

Air Marshal Binskin : It had not been specific in the original agreements or discussions. It has now been developed into a specific line.

Senator IAN MACDONALD: When did that happen?

Air Marshal Binskin : It is ongoing as we have been developing these agreements. It is an area, from an Air Force perspective, that is specifically being rolled into these agreements so it is acknowledge that the cadets are on the base and that they do activities that will require a level of funding and support.

Senator IAN MACDONALD: Without giving away where my information comes from, can I just move on to a matter that was raised with you by Senator Johnston in estimates of October 2009-10—that is the school at Amberley. Senator Johnston was told back then that the current arrangements for Amberley Air Force cadets was that they were situated in what was described as a dilapidated World War II era building adjacent to the car park—

Air Marshal Binskin : Some would call that heritage.

Senator IAN MACDONALD: in spite of the fact that there is a far newer and more suitable Amberley school which was built on the base in 1990 and built very well, I am told, which is no longer used. It was suggested and discussed at these estimates a couple of years ago that DSG and RAAF had decided to approve funding to renovate the school and that the intention was that the school was to be perhaps used by Air Force cadets as a much more appropriate building. Really what I am asking of whomever is responsible is why Air Force cadets at Amberley are being forced to use that old 'heritage' building situated in the car park when there is an unused and quite appropriate building, the school building, standing opposite.

Mr S Lewis : I am not too sure about the unused building opposite, but I do have a few notes—

Senator IAN MACDONALD: It is the school building I am talking about. I understand it is part of the folklore at Amberley.

Air Marshal Binskin : Yes, it is.

Mr S Lewis : That there is an unused school building?

Air Marshal Binskin : The school was vacated when they built a new school, and then there was the discussion about whether the old school was in an appropriate place to house cadets. There has been a bit of discussion around that.

Senator IAN MACDONALD: The old school was built in 1990 and built very well, as opposed to the heritage World War II building.

Air Marshal Binskin : I agree with that, but it was the location. It started off being on the edge of the base. Now it is central to the base and nine CSBs have been built around it. There is a lot more activity around there now than there was when it was first built. I think that is where the discussion has gone.

Senator IAN MACDONALD: But this is not to be used for a kindergarten; this is for Air Force cadets. One would expect that—

Air Marshal Binskin : But there is still a duty of care. There are 13-year-olds through to 18-year-olds. So you still have a duty of care for, effectively, children there. So there were a few issues that needed to be addressed. It is down to a facilities question.

Mr S Lewis : I have a few notes on this which go back to 2009. My notes advise that originally the RAAF base Amberley redevelopment stage 3 project approved by the government and the PWC did not include facilities for Air Force cadets or a multi-user depot. However, early tender prices suggested that delivery of those two facilities might possibly be able to be accommodated in the redevelopment project. However, subsequent tender prices—and I think that was after the estimates hearing to which you are referring—came in at a higher level, which meant it was not possible to include those elements within the approved project budget funding.

There are two things underway. One is in relation to the development of a proposed new facility on Amberley. I am advised that they are also looking at an interim solution which might deal with the interests of the Air Force cadets. What I suggest I might do on that, particularly given the time, is come back to you on notice in relation to what that interim solution might be.

Senator IAN MACDONALD: Please do. Note my interest. It is a very strong interest. Sorry, Brigadier Sowry. I had a lot of other questions about Canterbury College and funding generally for Army cadets. You perhaps have to take those on notice. I understand the Air Marshal had some answers he wanted to give in the last five minutes, which I have now taken. We will continue on cadets at some other time and perhaps I might see you in a corridor somewhere, Brigadier Sowry.

Air Marshal Binskin : With regard to the question that was asked earlier on the British Commonwealth Occupation Force, I think there was a question on the timing of the Sutherland report. The Sutherland report was received from the Secretary of DVA on 4 October 2011 by Defence. The secretary and CDF replied on 22 December 2011. Basically there was acceptance of the DVA position. I will not go through the detail because DVA are on, I think, after dinner tonight and they are in a position to be able to go through the intricacies of that, but we basically accepted their position on that. That is the first one.

I have a fair few detailed answers on the MEAO air sustainment contract that I am happy to table, but a couple of the big issues were the citizenship of the aircrew and cabin crew. Basically, on the aircrew side of it, there are nine pilots. Eight are Australian citizens. One is a New Zealand citizen, and under the Australia-New Zealand Closer Economic Relations Trade Agreement New Zealand citizens have the right to work and live in Australia. Defence has interpreted the employment of this New Zealand pilot in compliance with the contract, noting that the contract for citizenship was a voluntary undertaking of Adagold Aviation, not a stipulated part of the contract. For the cabin crew, there are a total of 32 personnel who are employed in this role or who are Australia citizens.

There were a number of other issues on meals that were raised by Senator Johnston. The big one there is that the meal costs are $125.11. That covers all meals and drinks for the complete standard flight, which is 36 hours flight time. The meals and refreshments provided during each 36-hour flight time, which is the return trip, are categorised as standard international premium economy class airline fare and include a total of six main hot meals, two scheduled snack refreshments, all hot and cold drinks and a range of additional snacks. Since we have been doing the surveys, the indicative satisfaction rates, as I talked about before, are that in February this year the survey we did indicated that 96 per cent of the respondents reported favourably on quality, frequency and timing of all meals and refreshments. So that is looking good.

There were a number of safety issues that were raised. I will leave those in summary, but there were a couple that were new to us. One was smoke generated by a malfunctioning entertainment system. No such incident has been reported to the ADF either by individuals travelling on the aircraft or by Adagold Aviation. We are following up that allegation to see where it came from. The other one was a fire under the stairs and the use of a fire extinguisher. Again, no such incident has been reported to the ADF either by individuals travelling or by Adagold Aviation. We will follow that up as well.

There are a lot of other questions, but I have this document to table and we will be able to answer those.

CHAIR: Thank you very much. I thank all of the representatives of the Department of Defence and the Defence Force for their evidence today.

Proceedings suspended from 18:33 to 19:30