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Government refuses to study defence cost blow-outs-Durack

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M t -I^AUBTg^LIA^T H E S E N A T ESENATOR PETER DURACK, QCDeputy Leader of the Opposition in the Senate Shadow Minister for DefenceGovernment refuses to study Defence cost blow-outs - D urackA leaked D efence document to Cabinet shows that D efence has opposed the public review of its equipment procurement program.The document dated 9 August 1991 called on the Minister for D efence, Senator Ray, to oppose an Industry Commission proposal to review defence procurement in 1992.The Industry Commission Annual Report for 1990-91 shows that D efence equipment procurement has not been included in their forward work program for 1992."The Coalition has called for months for the Government to publicly review defence procurement", said the Shadow Minister for D efence, Senator Peter Durack."The Government's record on defence procurement is appalling. We have recently seen more than $100 million wasted on the failed inshore minehunter project."We know also that both the A N ZA C frigates and the submarines are suffering from cost over-runs and delays in some component areas, as was outlined in the 1991-92 budget."There is an urgent need to make sure that current equipment procurement policies will cope with over 100 major projects worth a massive $27 billion."The dangerous risk of massive cost blow-outs is one we cannot afford to take, especially given that D efence does not have a good project management record."It is therefore astonishing that the Government should reject the Industry Commission's proposal to review defence procurement."The Commission's Annual Report recognised the need for such a study by saying:'a public examination of the extra costs attached to local sourcing in defence procurement would permit a better evaluation of their relative contribution to the defence of Australia and the economic welfare of the community.' (p. 148)"Why has the Government abandoned the chance to review an area where cost blow-outs threaten, and where savings could be made? D oes Senator Ray support the D efence rejection of the Industry Commission proposal?"The need for a review of D efence procurement policies is obvious. The Government should reverse this decision and allow a review to go ahead before it becom es too late to stop D efence cost blow-outs."(ends) D ecem ber 10, 1991 (62) More Information: Peter Jennings (06) 277 3725 < Q.Telephone: 09/221 1277 06/277 3725. Facsimile: 09/22! 3350 06/277 3169C O M M O N W E A L T H

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CPO 91/22307(1) FASIEQ 3T4/19 9L:


through DE^SFii^A&L

For Information:

Secretary CDF



1- The purpose of this minute is to brief you for Cabinet consideration of submission number 8213, which is scheduled to be taken by Cabinet on Thursday, 15 August 1991.


2. The submission proposes a forward work program for the Industry Commission. The references proposed for inclusion in the program are set out in' attachments C and D of the submission. A reference on 'Defence procurement' is included.

It is scheduled to commence in 1992.

3 . The submission also proposes that the terms of reference for inquiries (and any changes to the terms of reference that may arise from consultations with the States and Territories) be finalised by the Treasurer in consultation with the-

responsible Minister(s), rather than all Structural Adjustment- Committee Ministers as has been, the practice in the past.

4. The submission goes on to recommend that each report of the Industry Commission be responded to by the Government on the basis of a Submission by the- responsible Minister (s ) within one year- of receipt of the report.


— Όf rodiit f roasscsiviiy . . . a Oslencs Priority

Cons iderations

5 . We believe you should support the recommendations- relating to consultation on the terms or reference and Government., responses to Industry Commission reports. However, Defence does not support the inclusion of the 'Defence procurement'

reference in the Commission's work program for 1992.

6 . Defence does not. believe that such a reference is appropriate for the following reasons:

- 'Defence procurement' is an-extremely broad subject area, ranging from major, projects such as. the Anzac: ships to purchases of consumables, such as food...

- The subject is not amenable to the public inquiry methods of- the Industry Commission because much of the information needed is only held by Defence; is commercial.-in-confidence and/or security classified; and

relates to major decisions taken by Cabinet.

- Defence procurement arrangements have been the subject of numerous reviews over the past few years including Auditor-General Efficiency Audits, JCPA inquiries, and Defence Inspector-General's evaluations and audits (.see

attachment A ) .

- General Defence procurement activities follow purchasing policies laid down by the- Government for all its. procurement authorities. The most recent revision of these policies occurred on 1 November 1989, with the

introduction of the Government's 'purchasing reforms'.

- The frequency of such reviews ignores the long term nature of Defence procurement. The aim of the Australian Industry Involvement approach to Defence procurement (introduced in the_mid-l9 8.0-'q) is to develop the ability of Australian inuustry to repair, maintain, and modify ADF equipment in-service. Defence contends that it is

far too early to adequately analyse the effectiveness of such policies, when the construction phases of many of the major projects (such as the Anzac. ships and new

submarines) are yet to be completed.

- Any premiums for Australian Industry Involvement must be consistent with the Government, policies set. out in the 1987 Defence White Paper concerning Defence capability requirements, and are funded from within Defence's cash^ budget. - '


7 . It is our., view that: the main contribution Defence can make to the Government's micro-economic reform agenda is not in its capital procurement area, but in other areas' of management including contracting out, property management, base

rationalisation, supply management, and. further _

commercialisation/privatisation of ASTA and A D I . Defence would prefer to continue to concentrate its energies on these .

reforms. _ ' .

Resource Aspects

8. A study of the scale being proposed has the potential, to divert significant Departmental, resources to. supporting the Industry Commission, inquiry, at the expense of: other priorities' such as those, listed, above. ~ :

Positions of. O t her Departments

8 . The coordination comments indicate other departments also support the revised, arrangements for finalisation of terms of reference and responses to Commission reports. The Department of Prime- Minister and. Cabinet suggests a six month time limit

for responses. _

9. The other portfolios primarily affected by the proposed expansion of the Industry Commission inquiry charter to include ' general Government programs' are the Department of Industry,

Technology and Commerce (DITAC) and the Department of Employment, Education and Training (DEET) . DEET is similarly concerned that the Commission is now seeking to extend- its work program into matters that are already subject to extensive

external and internal review mechanisms. As the DEET coordination comment on page 19 of the submission points out, not only do departments have to carry out internal evaluations as a matter of current, policy, but outside of this the

Australian National Audit Office, co-ordinating departments, Senate Committees, and House of Representatives Committees all separately initiate inquiries/studies which seek to evaluate the appropriateness and effectiveness, of departmental programs.


10. We recommend that you:

(a) support the. recommendations relating to revised arrangements for finalisation of terms of reference and. Government responses to Industry Commission reports;

(b ) oppose the inclusion or. the ' Defence procurement' reference in the. Commission's forward, work program; and,


(c) highlight, the need for a. more efficient approach to reviewing Government programs .


Industry Policy and Programs Branch August 199 1




- Report, of the Committee of. Review on Offsets: (Englis- Committee) — 1984.

- Reports of the Auditor-General- on Efficiency Audits

. Administration of the·. Offsets Policy — 19 84-..

. Administration of the Australian Industry Participation Program in Relation to Overseas Procurement. - 1985 .

- JCPA Report No 2.43 - Review of Defence Project Management - 1986 .

- JCPA Report No 270 - Implementation of the Offsets Program - 19 8 9 (and input into JCPA Report No 305 on the Finance response to Report 270).

- JCPA Inquiry into Commonwealth Funded Research/Development - (included supplementary questions, on offsets) - 1991.

- Department of Defence, Inspector-General's examination of the Australian Industry Involvement Sub-Program - 1991.

- Department of Defence, Inspector-General's Management Audit of the JORN Project - 1991.