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Labor drags its feet on commercialisation-Durack



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T H E S E N A T E

SENATOR PETER DURACK, QC Deputy Leader of the Opposition in the Senate Shadow Minister for Defence

Labor drags its feet on commercialisation - D urack

"In spite of the enormous scope for commercialisation of Defence support areas, the Labor Government is dragging its feet on contracting these positions out to the private sector.

"Unless some momentum is developed with commercialisation I think the whole process will grind to a halt."

These comments came from the Shadow Minister for Defence, Senator Peter Durack, who on Monday night addressed the Institution of Engineers' conference on Defence Industry Spin-Offs for the 21st Century.

"There are two major flaws in Labor's approach to Commercialisation", Senator Durack said.

"The first is that the whole process is too slow. Labor plans to introduce

commercialisation over the decade, and is dragging its feet over even the introductory pilot program.

"The second flaw is that Defence is keeping industry at ' arms-length' in

commercialisation negotiations.

'Defence must overcome its suspicions of industry. Commercialisation will not work unless there is close co-operation between the two groups at all levels of planning.

"The Coalition will speed up the implementation process and create an interdepartmental authority — with industry membership - to see that commercialisation is fully introduced.

"The Services are badly in need of a commercialisation project which returns to the private sector the sorts of positions which should never have been put into uniform.

"For example, the Navy has 625 cooks, Army 964 and Air Force 524 (plus 146 cook's assistants). Navy has 494 stewards and 213 people in "stores victualling". Army has 499 Medical assistants, 126 carpenters and joiners, 89 repographic illustrators, 285 musicians. The Army has 2487 clerks compared to 3102 riflemen. The airforce has 705 pilots and 813 engineers but it also has 2,462 clerks, 170 medical assistants and 242 police dog handlers.

"These are examples of areas where commercialisation is needed so that Defence can return to a primary focus on developing combat capabilities."

(ends) November 26, 1991 (58) More Information: Peter Jennings (06) 277 3725

Telephone: 09/221 1277 06/277 3725. Facsimile: 09/221 3350 06/277 3169

COMMONWEALTH PARLIAMENTARY LIBRARY MiCAH

ADDRESS TO THE INSTITUTION OF ENGINEER'S TARGET 2000 CONFERENCE:

DEFENCE INDUSTRY SPIN-OFFS FOR THE 21ST CENTURY.

Senator Peter Durack, QC

Shadow Minister for Defence

Deputy Le a d e r of the Opposition in the Senate

Canberra, 25 November 1991

Durack, Defence Industry Conference.../2

I am very pleased to address this conference of the Institution of Engineers on the future of defence industry in Australia.

Let me this evening offer some reflections on the main theme of the conference which is "to explore factors affecting the development of the Australian defence industry and its future in military and non-military employment."

A difficult decade for industry

I told a recent meeting of the Defence Manufacturers' Association that the 1990s would be a difficult decade for Australian defence industry.

In Australia, there will be fewer major defence equipment projects, and what projects there are will be subject to very tight financial controls.

Overseas, the market for defence equipment will be very much more competitive. Australian companies will find it difficult to break into the South East Asian market. Defence industries in the ASEAN countries are already well established and are developing significant capabilities in the high-technology end of the market.

We have seen with a number of major equipment acquisition proposals that the ASEAN states are interested in forming joint ventures with major overseas manufacturers.

In short, the defence industry pattern which we have seen in operation here - of forming joint ventures with overseas interests to produce defence equipment locally - is one which is gaining favour in South East Asia as well.

For Australian industry, this means that we are faced with a highly competitive international market, in which it will be difficult to sell our products.

The ability of our industry to expand in this environment will depend very much on three factors:

First. Australian industry will need to secure its base by working more closely with the Department of Defence in the identification of work which can be done locally.

Second, industry will need to strengthen its capacity to develop indigenous defence equipment technology, which has export potential.

Third, defence industry must develop a more aggressive and innovative approach to marketing their products internationally.

In some respects the 1980s were an overly optimistic era for those who thought that defence industry could rapidly expand and take on major export markets.

We have seen that the business of establishing a strong local defence industry is one which must go beyond the flurry of major contracts that were let by Kim Beazley in the

Durack, Defence Industry Conference...β

mid to late 1980s.

Defence exports in particular have failed to live up to the expectations generated by Bob Cooksey's 1986 Review of defence Exports and Defence Industry.

Everyone here will know that Australia has come no where near realising the $500 million worth of defence exports which Cooksey believed could be achieved in three to five years.

The 1990s will force defence industry to take a more realistic look at their capabilities and aspirations. The opportunities for expanding operations certainly is there, but I believe that industry will have to take a more assertive and positive approach to capitalise on these possibilities.

The Coalition has already set out in some detail what it intends to do in developing defence policy for industry, and I do not propose to go into the details of this package here.

However I would like to make some comments with regard to two areas where I believe the current Government's approach is badly flawed. These are the Commercial Support Program and the defence export area.

The Commercial Support Program

The Coalition supports the principle of commercialising defence support areas, but the approach the Government has taken to implementing the program will not succeed.

Let me outline some of the flaws in Labor's approach.

First, the whole process is far too slow. The Government outlined a nine-year implementation period for commercialisation in the Force Structure Review.

On their current plans, Labor envisages no savings arising out of commercialisation until the mid to late 1990s.

Unless some momentum is developed with commercialisation I think the whole process will grind to a halt.

Labor appears to be dragging its feet on the pilot program for commercialisation - the so-called Tier One stage. Originally, the Government's Force Structure Review called for all the positions identified in Tier one to be commercialised during 1993.

However I have been told by Senator Ray in a question on notice that Tier One positions will be commercialised "over the decade". Senator Ray's answer to me actually showed that considerably less than half the Tier One Positions would be commercialised bv the

end of 1995.

The Coalition believes that it can speed up the commercialisation process so that, by the

end of our first term in office, we will have taken the policy much further than current plans envisage.

The second mistake in Labor's approach to commercialisation is that industry is not being involved in the process before the tendering stage.

I have seen a document produced by the Royal Australian Air Force on their approach to the Commercial Support Program which shows their continued suspicion of involving industry.1

Unfortunately, it is a good example of the level of suspicions in some section of Defence which must be overcome before commercialisation will work.

The RAAF philosophy on contracting out involves what they actually call an "arms length" approach to industry. In short, this means that industry's first involvement in the process will be at the Request For Tender stage.

This means:

no industry involvement in discussing industry capacity to do particular work - Defence alone will assess industry capacity to do the job.

no industry assessment of areas where they believe they could do work.

no industry involvement in writing performance specifications for contracts. Defence alone will do this job.

The Air Force document says at one point: "We can have a partnership which is still at arms length while still being co-operative."

The idea of an arms-length approach could be used to force up the tender price in order to show that the job should be done in house.

Commercialisation will not work unless Defence and industry work very close together.

There should be very close collaboration between Defence and industry in assessing industry capabilities for commercialisation, and in looking for the most cost-effective solutions to support problems.

The Government must ensure that the Commercialisation program allows for the fullest consultation with industry. There can be nothing arms-length about this process. Commercialisation will not work unless industry is involved at all stages of the process.

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1

Royal Australian Air Force, RAAF Commercial Support Program. (2 August 1991)

Durack, Defence Industry Conference.../5

The urgent need for Commercialisation

As I have said, the Coalition is committed to making Commercialisation work.

We should not be in any doubt that there is enormous scope for commercialisation to be implemented in many areas of Defence.

There are concerns - and they are entirely appropriate - that Commercialisation should not in any way compromise Defence combat capabilities. The Coalition agrees with this.

But the fact remains that there are very many positions where commercialisation can be implemented where this is not an issue.

Let me briefly list some of the numbers of professions we find in the Defence Force2:

As of March this year, the Navy has 625 cooks, Army 964 and Air Force 524 (plus 146 cook's assistants).

Navy has 494 stewards and 213 people in "stores victualling". Army has 499 Medical assistants, 126 carpenters and joiners, 89 repographic illustrators, 285 musicians. The Army has 2487 clerks compared to 3102 riflemen. The airforce has 705 pilots and 813 engineers but it also has 2,462 clerks, 170 medical assistants and 242 police dog handlers.

Between them, the services can boast substantial numbers of people working as musicians, photographers, coach trimmers, bricklayers, butchers, painters and decorators. Army, for example, has 49 plumbers and gasfitters and the Air Force 40 tailors. Some 103 people in the RAAF have dedicated positions as telephone operators.

These figures really speak for themselves. Over the last few decades, the Defence Force expanded into areas where common sense says it should not have gone.

The Services are badly in need of the sort of commercialisation project which will return to the private sector the sorts of positions which should never have been put into uniform.

There is ample room in the Defence Force to implement commercialisation without limiting the operation of combat forces. The need is to make sure that commercialisation is introduced as fast as is practical and in as many areas as possible.

The Coalition and Commercialisation

The Coalition sees the successful implementation of commercialisation as providing Defence with an opportunity to free financial resources which can be used to add to our combat forces.

2

These professions are listed in "Defence Force Personnel", Answer to Question on Notice, Hansard (Senate) 7 May 1991.

For industry, commercialisation offers the prospect of developing a more secure work base in Australia.

Given everything I have said about the difficult outlook industry faces in the 1990s, commercialisation will become an essential part of industry work this decade.

I have said that the Coalition will speed up commercialisation when we enter office.

By that time - I am assuming this will be around March 1993 - the Government should have released its proposals for the more ambitious stage of commercialisation called Tier two.

We will seek to speedily implement the tier two reforms, and also to see if there are any remaining opportunities for commercialisation.

In addition, we will establish a body to review the success of the program.

Labor created an Interdepartmental Committee to develop the commercialisation proposal. I believe that a committee - with industry representation — should be established to ensure that commercialisation is fully implemented.

It is important that this process is kept under constant review to make sure firstly that the plans proposed are the most cost-effective, secondly, that they are introduced in the quickest time possible, and thirdly, that all possible areas for commercialisation are explored.

Labor and D efence exports

The second issue I want to briefly mention is defence exports.

Measured against the results predicted by Bob Cooksey, there has been a disappointing level of exports over the last few years.

Part of the blame for this should be laid at the feet of industry.

I said earlier that there is a need for industry to take a more innovative and assertive approach to marketing their product. In the export area, this means that industry needs to undertake more international marketing of their products.

The Government role in this is to make sure that the defence export guidelines are right.

Labor has failed in this task.

The Government claims to have twice reviewed the export guidelines and procedures in the last eighteen months.

The results of the most recent review was announced in May.

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Durack, Defence Industry Conference.../!

But, more than six months later, no new guidelines have been published for industry.

There remains a good deal of ambiguity about the application and scope of the export guidelines. This situation is hardly a good one for industry.

The Coalition and Defence Exports

The Coalition is committed to producing a clearer, more user-friendly set of export guidelines.

I have already made public comment about the content of these guidelines, but let me here state some of the major features of the Coalition's proposal:

First, we will seek to clarify and streamline the export guidelines. This responds to industry criticism that the current guidelines are ambiguous and imprecise. I might add, we will make sure that the revised guidelines are published promptly.

The Second step we will take is to enable the Department of Foreign Affairs and Trade to look at every export application. I want to stress that DFAT will not become an approving authority for applications.

However, we believe that it is necessary for DFAT to be informed of all applications to prevent embarrassing incidents occurring such as the sale of aircraft engine parts to Iraq.

Mistakes of this sort serve only to undermine public support for defence exports, hence the need for DFAT expertise to view all applications.

The third proposal is to require defence to report annually to Parliament with a comprehensive statistical statement on defence exports. This we will include in the Defence annual report.

Again, the purpose of this measure is to re-build public support for the industry. This requires making public information relating to the export process so that people can see that the export guidelines work to protect Australian interests.