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Government Clothing and Ordnance Factories-Senate Select Committee - Report - The future of the Government Clothing Factory at Coburg, together with the transcript of evidence (1 vol)


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The Parliament of the Commonwealth of Australia

SENATE SELECT COMMITTEE ON THE GOVERNMENT CLOTHING AND ORDNANCE FACTORIES

The future of the Government Clothing Factory at Coburg

Presented and

ordered to be printed 14 October 1982

Parliamentary Paper No. 221/1982

J/|( W JT

Senate Select Committee on the Government Clothing and Ordnance Factories

The future of the Government Clothing Factory at Coburg

HI

SENATE SELECT COMMITTEE ON THE GOVERNMENT CLOTHING AND ORDNANCE FACTORIES

THE FUTURE OF THE GOVERNMENT CLOTHING FACTORY AT COBURG

Australian Government Publishing Service Canberra 1982

© Commonwealth of Australia 1982 ISBN 0 644 02154 3

Printed by C.J. Thompson, Commonwealth Government Printer, Canberra

Contents

PART A - MATTERS IN RESPECT OF WHICH THE COMMITTEE IS IN GENERAL AGREEMENT

CHAPTER 1 INTRODUCTION Background to the inquiry Establishment of the Committee Report on Ordnance Factory Bendigo

The inquiry Acknowledgements

CHAPTER 2 THE FACTORY

History of the Factory Past inquiries Allison-Brewster Report Industries Assistance Commission Report on

textiles, clothing and footwear Report by an industry adviser to the Minister for Industry and Commerce Present operations

Role Employment Items manufactured Production Financial arrangements Comparison with Ordnance Factory Bendigo

Manpower and production manhours Trading statements

CHAPTER 3 THE ISSUES

Sale or lease as a 'going concern' Sale Lease Retention by the Government

Closure

CHAPTER 4 SALE OR LEASE AS A 'GOING CONCERN'

Defence considerations Cost Quality control Design

Page

Patterns 31

Embroidery 31

Consultancy service 32

Supply lead time 32

Commercial considerations 32

Increase in the cost of defence orders 33

Discontinuation of short production runs 35

Increased cost of short production run items 37

Liquidation of the Factory 37

Social considerations 38

Employment 38

Industrial relations 41

Training 41

English classes 42

Loss of capacity 42

PART B - RECOMMENDATIONS 45

CHAPTER 5 FINDINGS AND RECOMMENDATIONS 45

PART C - DISSENTING REPORT BY SENATOR JOHN BUTTON AND SENATOR JOHN SIDDONS 51

Appendix I Resolutions of the Senate relating to the Committee 63

Appendix II List of submissions presented to the Committee 67

Appendix III List of witnesses who appeared before the Committee 69

Appendix IV Information from the General Manager of the Factory relating to purchase of materials 71

Appendix V Information from the Department of Defence relating to maintenance of defence interests 75

iv

Terms of Reference

On 22 September 1981 the Senate resolved that a Select Committee be established ' . . . on the future of the Government Clothing Factory at Coburg and the Ordnance Factory at Bendigo.'

Members of the Committee

Senator J.R. Senator J.N. Senator N.A. Senator J.R.

Martyr (Western Australia), Chairman Button (Victoria) Crichton-Browne (Western Australia) Siddons (Victoria)

Secretary

M.L. Willheim The Senate Parliament House Canberra

(Telephone: 062 - 72 6712)

v

• .

PART A - MATTERS IN RESPECT OF WHICH THE COMMITTEE

IS IN GENERAL AGREEMENT

Chapter 1

INTRODUCTION

Background to the inquiry

1.1 As indicated by the terms of reference, the Committee

was established to report on the future of the (Australian)

Government Clothing Factory (AGCF) at Coburg and the Ordnance

Factory at Bendigo. The inquiry arose out of the Ministerial

Review of Commonwealth Functions decisions relating to

commercial activities performed by the Government. In a

statement made to the Parliament on 30 April 1981, the Prime Minister said, 'We propose to offer for sale as a going concern

the Ordnance Factory at Bendigo and 'We will offer the

Australian Government Clothing Factory for lease or sale as a

going concern to the private sector.

Establishment of the Committee

1.2 On 26 August 1981, the Senate resolved that the

Government's decision to sell the Government Clothing Factory at

Coburg and the Ordnance Factory at Bendigo be referred to the Senate Standing Committee on Finance and Government Operations. On 22 September 1981 the Chairman of that Committee, Senator

P.E. Rae, informed the Senate, '...the (Finance and Government

Operations) Committee is unable to undertake an inquiry into the

decision at this time because of the pressure of the work load

with which we are already faced.'2 The Senate then resolved that

the Resolution of the Senate of 26 August 1981, referring to

1

the Standing Committee on Finance and Government Operations, the

Government's decision to sell the Clothing Factory at Coburg and

the Ordnance Factory at Bendigo, be rescinded and that a Select

Committee be established on the future of the Government

Clothing Factory at Coburg and the Ordnance Factory at Bendigo.

The relevant resolutions appear in Appendix I.

Report on Ordnance Factory Bendigo

1.3 The Committee decided to conduct its inquiry and

present its report on the Ordnance Factory at Bendigo, before

commencing its inquiry into the Government Clothing Factory at

Coburg and accordingly the report on ' The Future of Ordnance

Factory Bendigo' was tabled in the Senate on 9 March 1982.

The inquiry

1 .4 Advertisements were placed in the national press

inviting submissions in December 1981 and a total of 11

submissions was received by the Committee. A list of the

submissions presented to the Committee appears in Appendix II.

1 .5 The inquiry began with an inspection of the Factory and

informal discussions with the management and staff

representatives on Friday 26 February 1982. The Committee met on

six other occasions in public and private meetings including two

1 in-camera' sessions. The Committee received public evidence

from 11 witnesses representing two Departments and three

organisations. A list of witnesses who gave evidence appears in Appendix III.

1.6 Departmental responsibility for the Australian

Government Clothing Factory was transferred during the inquiry

from the Department of Industry and Commerce (which gave

evidence to the Committee on 30 April 1982) to the newly created

Department of Defence Support on 7 May 1982.

2

Acknowledgements

1.7 The Committee wishes to thank the witnesses who gave

oral evidence, those who presented submissions to the Committee

and particularly the staff of the Committee for their constant

work and assistance during the inquiry and in the preparation of

the draft report.

3

Endnotes

1. House of Representatives Hansard. 30 April 19 81, p. 1831.

2. Senate Hansard. 22 September 1981, p. 853.

4

Chapter 2

THE FACTORY

History of the Factory

2.1 In 1 909 the Department of Defence and the Postmaster

General's Department conducted an inquiry into the means of

manufacturing and supplying clothing to fulfil the requirements

of both Departments. As a result of this inquiry, the Government

Clothing Factory commenced its operations in South Melbourne in

January 1912.

2.2 During World War I the Factory, in addition to the

supplying of uniforms to the Services, provided samples and

patterns to private industry which enabled it to help meet the demand for Service clothing.

2.3 The Factory expanded its role in 1919, by accepting

orders from other Government instrumentalities, such as the

Police Department, and the Victorian Railways and Tramways. In

1923 the Government Harness and Saddlery Factory was closed, and

the Factory assumed responsibility for the production of canvas

goods.

2.4 In 1935 the Attorney-General of Victoria challenged the

operation of AGCF in the High Court of Australia on the basis

that the Commonwealth did not have the statutory authority to

produce clothing other than purely for defence purposes. The

High Court found in favour of the Factory continuing to produce

a diversified range of clothing, for sale to bodies outside the

regular naval and military forces.

5

2.5 The Factory was unable to cope with Service demands

during World War II and private industry helped meet this

demand. However, the Defence Services had difficulty in

obtaining artillery textiles such as cartridge bags and special

canvas goods from private industry so a second factory was

established at Carlton to produce these goods. This factory was

closed after the war.

2.6 In 1952 accommodation problems at the Factory caused

the Caps and Canvas Section to be transferred to a factory in

Brunswick, which was closed in 1969 following representation

from the private sector to undertake this type of production.

2.7 The Department of Works reported in 1 958 that the

buildings at South Melbourne were unsatisfactory and that it

would require considerable expense to repair them, which in

their opinion was not warranted.

2.8 Following the Department of Works' report, a Board of Management for Munitions Factories recommended that the site at

Brunswick be expanded to accommodate the whole of the Factory's

operations.

2.9 In 1 962 the then Minister for Supply asked Cabinet to

approve the construction of a new government clothing factory

and the Government decided that an independent committee should

review the proposal. Sir John Allison and Mr Leslie Brewster,

O.B.E. were invited to conduct this review. Their report,

commonly known as the Allison-Brewster Report, is canvassed in

more detail later in this chapter.

2.10 On 22 October 1968 the Parliamentary Standing Committee

on Public Works reported that there was a need for a new factory

and in April 1971 the Factory's new premises in the Melbourne

suburb of Coburg were officially opened.

6

2.11 Since its opening two inquiries have been held. In 197 6

the Industries Assistance Commission included the Factory in its

inquiry into the clothing, footwear and textiles industries. In

February 1981, an industry adviser to the Minister for Industry

and Commerce reported on the Factory. Both inquiries are

discussed later in this chapter.

Past inquiries

2.12 As mentioned in the history of the Factory, there have

been five reviews of the Factory since I960. Of these, the most

significant to this Committee have been the Allison-Brewster

Report, a report by the Industries Assistance Commission and a

report by an industry adviser to the Minister for Industry and

Commerce. These are examined in detail below:

Allison-Brewster Report

2.13 In 1964, the Government asked Sir John Allison

(Chairman, of the Defence Business Board) and Mr Leslie

Brewster, O.B.E. (a Director of Latoof and Callil Pty Ltd and

Business (Clothing Industry) Adviser to the Department of

Supply) to form an independent Committee of Inquiry.

2.14 The Committee was charged with considering '... not

only the question of a new factory but also the need for direct

Government concern in clothing manufacture and, given this

need,the relationship which should exist between the Government

Clothing Factory and the private sector.'1

2.15 In late 1 964 the report was submitted to the

Government. It recommended that the Government Clothing Factory

be retained, as the Factory had certain advantages which

warranted its continuance as a Commonwealth instrumentality, for

the following reasons:

7

(i) the Services, the then Postmaster General's Department

and other government departments had expressed the view

that it should be retained not only for the supply of

clothing and canvas-ware at peacetime levels and for

the quick delivery of items in variety, but as a

laboratory for garment design and development;

(ii) many of the items produced at the Factory were

unattractive to or not normally obtainable from private

industry;

(iii) that it would be imprudent to depend for the

Services' needs either wholly or even heavily on

peacetime vagaries of private industry's level of

commercial work ' ; 2 and

(iv) in an emergency the Factory would carry the burden of

supply until industry could slowly gear up.

2.16 The report also recommended that private industry be

given additional opportunities to tender for defence work. It

stated that, if this were adopted, the Factory would still

handle those items regarded as unsuitable or unattractive to

industry and be a nucleus of production of those specific items

offered under tender to industry.

2.17 The report also stated that the clothing industry did

not regard the Factory as impinging on the. rights of private

industry. This was exemplified by the general reluctance of the

industry to tender, particularly when there was plenty of

commercial work available. 'However, the "middle" course we

recommend would mean that the Government is offering a share of

the work and in so doing is providing a springboard of shadow

factories in private industry for an emergency. It would also

act as a basis of cost comparison.'3

8

2.18 A cost comparison between Government and private

sources was undertaken in the report by comparing direct labour

costs in Service garments, because labour costs reflect

production efficiency. No substantial inconsistencies were

revealed by the comparison but it did prompt the following comments:

(i) 'The Commonwealth Government Clothing Factory cannot expect to produce at the optimum level of production and costs because of the great variety of items manufactured, and in

relatively short production runs the

Commonwealth Government Clothing Factory does not break up as finely in operations as would be possible and desirable in long production runs. ...

(i i ) In general, on specialised long-run orders, private enterprise could produce at

production costs a little below the

Commonwealth Government Clothing Factory, which is, in the main a short-run production unit, but the inclusion of the profit content would place the final outside tender price above the cost of the Commonwealth Government Clothing Factory.'1 *

Industries Assistance Commission Report on textiles clothing

and footwear

2.19 The Industries Assistance Commission examined the role

of AGCF in its review of the textile, clothing and footwear

industries in 1 9 7 6 . 5

2.20 The Commission interpreted the tenor of the Department

of Defence submission to mean that its continued operation was

desirable. In its submission to the Commission, it argued that,

although there were no significant technical reasons why items

produced by AGCF could not be made by commercial producers and

in the case of some of the long-run items there were price

disadvantages associated with AGCF, there were advantages in the

9

continued operation of AGCF. These advantages included an

assured source of supply, a continuation of expertise in

production and design in the one establishment and the ready

availability of that expertise to assist in the expansion of

volume production by industry in a time of emergency.

2.21 The Commission, did however, consider there was scope

to achieve substantial reductions in the cost of maintaining

AGCF.

2.22 In reply to a question by the Committee as to whether

economies had been effected since this report, the Department of

Industry and Commerce stated that the report followed a period

of low work levels at the Factory. Under-utilisation of the

Factory combined with the employment policies of the Government

which prevented the retrenchment of employees, meant there was

no opportunity to adjust the workforce properly to the work

load, therefore inefficiencies resulted. These inefficiencies

had been overcome with an increased level of work and a change in the employment policy. The Committee was also assured that

since the report there had also been a conscious effort within

the Factory to reduce overhead costs.

Report by an industry adviser to the Minister for Industry

and Commerce

2.23 In 1981, the Government appointed an adviser from the

clothing industry to inquire into and report to the Minister for

Industry and Commerce on the options for selling AGCF.

2.24 The industry adviser reported that in his view:

(i) AGCF would not be saleable as a 'going concern' unless

there was some security of contracts;

10

(ii) one of the reasons private clothing manufacturers had

not been interested in tendering for Defence contracts

was the rather cumbersome Government tendering system;

(iii) industry might not be interested in supplying

specialised items and their production might have to be

retained by the Government;

(iv) the cost of garments would have to increase to meet the

charges not currently borne by AGCF; and

(v ) if the Factory was closed, private industry could

maintain current Defence contracts provided that:

(a) the industry was given sufficient notice of the

closure;

(b) there was improved forecasting of ordering

patterns; and

(c) the tender system was revised to allow for period

contracts with a range of qualified suppliers.

Present operations

Role

2.25 In the light of the comments of the Allison-Brewster

Report on the need for a change in the Factory's operations

vis-a-vis the private sector, the purpose of the Factory was

re-stated by the Government as follows:

(i) to provide, under government control, an assured source

of uniforms and other specialised items of clothing;

(ii) to supplement the supply of uniforms, etc., from the

private sector;

(iii) to assist in the design and development of new clothing

items and to manufacture experimental models,

prototypes and sealed samples;

(iv) to establish standards of making and of material

requirements as a guide to the private sector; and

(v) to record details of manufacture, hold patterns and

other information and make this information and other

appropriate advice available to other manufacturers.

Employment

2.26 In June 1 982 the. Factory employed approximately 720

employees. The administrative staff, which numbered

approximately 90, were employed under the Public Service Act,

and the remainder were employed under the Supply and Development

Act. Of the total workforce nearly 80 per cent are women of which nearly 80 per cent are migrants from 39 ethnic groups. The

largest ethnic groups are Italian, Greek, Turkish, Yugoslav and

Maltese.

2.27 Since July 1977 employment has fluctuated from 692 to a

low of 662 in June 1980, subsequently increasing to the present

number. The workforce has expanded to meet the increased demand

due to the expansion of the Army Reserve.

2.28 Employment turnover at the Factory is approximately 18

per cent, which compares more than favourably with the clothing

industry average of about 30 per cent.

Items manufactured

2.29 Over 2000 different items are manufactured in the

Factory, for customers including the Commonwealth Departments of

Defence, Transport and Construction, Veterans' Affairs, the

Australian Customs Service, and the Australian Federal Police

Force; the Victorian Police Force, Railways and Tramways, and

overseas Defence Forces of the Bahamas, Fiji and Papua New

Guinea. Military uniforms comprise the main component of the

diversified range which includes uniform outerwear, shirts,

ties, caps, jackets, tunics, overcoats, raincoats, trousers,

shorts, skirts, dresses, menswear, coveralls, flying suits,

embroidered rank insignia and badges. Other items include,

Queen's colours and banners, medal ribbons, kilts, national

ensigns, naval signal flags, hospital linen, surgical wear for

operating theatres, tank crew suits, foul weather clothing and

clothing for wear in explosive areas.

2.30 The diversity of the Factory was a subject of comment

from Mr R. Aitchison, Executive Director of the Australian

Confederation of Apparel Manufacturers (which has a membership

of 400 companies) who stated, 'The Factory, it seems to me, is

virtually an entire clothing industry in its own right under one

roof. ' 6

Production

2.31 As shown in the figures below, the Factory's workload

increased in 19 80/ 81 and 1981/82. This increase is due to the

additional requirements caused by the expansion of the Army

Reserve.

13

Production Manhours ' 0 0 0s

1979/80 1980/81 1 9 8 1 / 8 2

Defence and Defence Related 486 614 656

Government Instrumentalities 161 144 121

Total 647 758 777

2.32 The Department of Industry and Commerce stated in

February 1982, 'The workload figures shown in 1 9 80/ 81 and

1981/82 are close to a maximum capacity of this Factory within

the boundaries of existing floor space and on a single shift

production.'7 In May 1982, the General Manager of the Factory,

Mr S.E. Silk, estimated that the Factory is operating at

105 per cent of capacity at present. Due to full utilisation of

all available machines and factory floor space, extra floor

space is being utilised by the renting of outside premises for

the training section and a portable building accommodating 20

production employees of the trouser section. ' 8

2.33 The expansion of the Army Reserve has caused the

Factory's non-defence production to decline from 179 000

manhours, or approximately 27 per cent of total manhour

production in 1 978/ 7 9, to 1 21 000 manhours or approximately 16

per cent of total manhour production in 1 981/82. It has also

caused work for the RAAF, Navy and other customers to be

def erred.

Financial arrangements

2.34 The accounting system and pricing policy employed in

relation to AGCF is not commercially oriented. The system

essentially reflects the Factory's government ownership and

accounting is done in terms of income and expenditure.

14

2.35 The Factory finances its operational expenditure

through a Trust Account, which was originally created by a

Parliamentary Appropriation. This revolving account finances all

the direct costs of production and is recovered from sales. Any

operating surpluses must be returned to Consolidated Revenue and

any requirement for additional funds sought through a

Parliamentary Appropriation.

2.36 The Factory also receives annual appropriations to

cover such things as purchases of plant and equipment, some of

the production development work and any rearrangement of capital

facilities. Appropriations are also received by the Department

of Transport and Construction (previously the former Department

of Housing and Construction) for any building and capital works

and/or repairs and maintenance required at the Factory.

2.37 Financially the Factory operates on a policy of

breaking even, i.e. the cost of production at the Factory should

be recovered by the sale of the Factory's products. As Mr Silk states, 11 get into trouble whether I make a loss or whether I

make a profit and so I am supposed to finish up square. 19

2.38 The Factory has been divided into sections (or cost

centres) to accommodate the various types of garments produced.

In this way like garments are produced in a section, e.g. the

cost of making shirts is incurred in one section, whereas the

cost of making trousers is incurred in another.

2.39 The costing of garments revolves around the labour, the

base material and findings, findings being buttons, threads and

other items which go into making garments. The quantity of

labour, material and findings is determined by using proper

industrial engineering techniques which set a standard value for

each garment produced.

15

2.40 The Factory's overhead costs are charged through each

section, with some exceptions. In these sections because of

policy decisions, overheads have been adjusted to keep the cost

to the customer down. Pricing of the products is aimed to

recover the labour, material, findings and overhead costs plus a

small margin of about 3 to 5 per cent. For an explanation of the

Factory's purchasing policy for materials see Appendix IV.

2.41 The Department of Industry and Commerce supplied

trading statements for AGCF for the years ending 25 May 1980, 31

May 1981 and 30 May 1 982. An examination of the Factory's costs

and the Factory's income, listed below, reveals that the Factory

recorded a small surplus each year.

$M

1980 1981 1982

Total Factory Costs 1 1 . 8 15.1 16.4

Total Factory Income 1 2. 0 15.9 17.0

Cash Surplus .2 .8 .6

2.42 As the Factory is government owned, it is not required

to pay many charges that a private operator would be required

to. In order to reflect AGCF in a commercial light, the

Department of Industry and Commerce has indicated, the charges

which are listed below, in the Factory's trading statement, as

notional costs:

Audit fees Administrative support Depreciation Interest on capital Superannuation

Repairs and maintenance Insurance Other expenses

2.43 When the notional costs are included in the trading

statement the Factory then incurs a cost to the Government to

retain it. For the past three years this cost has been:

16

1J

$M

1980 1981 1982

Surplus 0 . 2

CO O

0 . 6

Total notional costs 1 .5 1 .9 2 . 2

Cost to the Government to 1.3 1 . 1 1 . 6

operate and retain the Factory

2.44 Not all the charges accruing to a private operator are

included in the above list. For example two highly significant

expenses to a private operator would be company tax and payroll

tax. If these two items were added to the trading statements,

then the cost to the Government of retaining the Factory would

increase, although on these figures the Factory would not pay

any company tax.

Comparison with Ordnance Factory Bendigo

2.45 The Committee wishes to compare the Ordnance Factory

Bendigo (OFB) and the Australian Government Clothing Factory.

2.46 Although both Factories are Government owned and

operated they produce very different items for the Defence

Forces. This difference makes any meaningful comparison

difficult.

Manpower and production manhours

2.47 A simple review of the number of employees compared to

the number of production manhours at each Factory shows AGCF to

be more productive. Using 1981/82 figures, AGCF employed 724

people for 777 000 production manhours, whereas OFB employed 628

people for 292 000 production manhours.

17

2.48 The comparison shows AGCF to be more productive

because:

(i) as the first report of this Committee shows, the type

of production undertaken at OFB mitigates against

receiving extensive orders from the Defence Forces

during peacetime. An examination of the table below

reveals that whereas AGCF receives all its orders from

the Defence Forces and other Government sources, OFB

receives less than half of its orders from these

sources:

DIRECT PRODUCTION MANHOURS 000's

1981 1982

OFB AGCF

Def ence 128 657

Other Government 19 120

Commercial 145

Total 292 777

(ii) of the peacetime lack of utilisation by the Department

of Defence and other Government instrumentalities,

combined with OFB's lack of success (a success rate of

approximately 9 per cent) in tendering for commercial

work, OFB is presently only utilising 47 per cent of

its capacity whereas the General Manager of AGCF claims

to be utilising 105 per cent of AGCF1s capacity; and

(iii) the nature and compexity of OFB's products necessitate

OFB employing more non-production employees than AGCF.

The table below shows that OFB has considerably more

professional, sub-professional and administrative/

clerical people who are not directly engaged in

production at the Factory.

18

STAFF STATISTICS AS AT JUNE 1982

OFB AGCF

Public Service Act Staff

Professional (Technical) 24

Sub-Professional (Technical) 44 13

Foremen/Stores 38 26

Administrative/Clerical 62 53

Total Public Service Act Staff

Supply & Development Act Staff

168 92

Trades: Machinists (metal) 142

Fitters 5

Boilermakers 37

Tailors 13

' Cutters 26

Sewing Machine Mechanics 6

Others 56

Total Trades 240 45

Non-Trades 124 586

Sub-total 364 631

Apprentices: Metal trades 85

Electrical trades 4

Building trades 7

Clothing trades 1

Total apprentices 96 1

Total Supply and Development Act Staff 460 632

Total staff 628 724

19

Trading statements

2.49 The table below shows a comparison of the respective

trading statements of the Factories and reveals that OFB is

costing the Government considerably more to maintain than AGCF.

TRADING STATEMENTS FOR YEAR ENDING 30 MAY, 1982

Factory costs:

OFB AGCF

Total cost of production 6 . 1 16.4

Reserve capacity cost 7.3

Total factory costs 13.4 16.4

Less Total Income: 7.9 17.0

Net cost of operations and retention of Factory

(5.5) 0 . 6

Less Notional Operating Costs

Government cost of operating and

2.7 2 . 2

retention of Factory ( 8. 2 ) ( 1. 6)

2.50 OFB's poor performance results from two major causes:

(i) underutilisation of its capacity; and

20

(ii) the pricing policy which prices defence work at the Defence Munitions Manhour Rate of $11.80 per hour

compared to the industry average of between $45 to $60

per hour, whereas AG OF is fully utilised and pricing is

based on the full recovery of costs.

21

Endnotes

1. Transcript of Evidence, p . 6.

2. Transcript of Evidence, p. 15.

3. Transcript of Evidence, p. 16.

4. Transcript of Evidence, p. 19.

5. Industries Assistance Commission Report on Textiles, Clothing and Footwear. 28 April 1980, Part C Clothing, Appendix H , pp. H233-H243.

6. Transcript of Evidence, o. 230

7. Transcript of Evidence, p. 9.

8. Committee Document.

9. Transcript of Evidence. p . 6 8.

22

Chapter 3

THE ISSUES

3.1 The Committee agrees that there are three options open

to the Government in determining the future of AGCF:

(i) sale or lease as a 'going concern 1 ;

(ii) retention by the Government; and

(iii) closure.

Sale or lease as a 1 going concern'

Sale

3.2 The sale or lease of the Factory is a Government

decision arising from the Review of Commonwealth Functions and

reflects the philosophical view of the Government that

activities of a commercial kind are generally best performed in

the private sector, where they are open to greater influence

from consumers and to the disciplines of competition . ’ 1

3.3 The Department of Administrative Services placed

advertisements in the national press in May 1981 inviting

registrations of interest in the lease or purchase of the

Australian Government Clothing Factory, Coburg, Victoria, as a

'going concern' and expressing the willingness of the Government

to enter into negotiations with interested parties to maintain a

government work load in the Factory over a period of five years.

The Committee was told that a guarantee of at least 500 000 man

hours per year could be given.

23

3.4 Evidence also indicated that, as well as orders from

the Department of Defence, there would be other opportunities

for work, if additional work was required by a purchaser, within

the government ordering system, both Federal and State. In

addition, a private operator would be free to augment this work

load with his own work load, should this be necessary, and

spread his operating costs over a larger volume, subject

however, to an undertaking to give priority to government work

in return for a work load guarantee.

3.5 It is expected that existing arrangements would

continue between a private operator and the prime customer, the

Department of Defence, i.e. direct order placement subject to

satisfactory quality, price, and delivery, without the necessity

for open tender.

3.6 Registrations of interest have been received by the

Government, but further action to invite selected firms to submit proposals for the purchase or lease of AGCF has been

deferred during the period of this Committee's inquiry.

Lease

3.7 The Committee received very little evidence relating to

leasing the Factory. Leasing could attract a professional

manager, but it is unlikely to do so as the Factory presently

runs at a loss, making leasing a risky proposition. It is also

unusual for a whole business to be leased as a going concern. In

the final analysis the implications of this option would depend

on the terms of the lease, although there would be some

considerations similar to those which would arise if the Factory

were sold. These considerations are dealt with in Chapter 4.

24

Retention by the Government

3 . 8 This option would in general terms preserve the status

quo, i.e. continuation of the Factory as a primary manufacturer

for clothing and accoutrements for the Defence Services and

employment of staff would continue in the public sector. It also

allows the Government scope for private industry involvement in defence contracts.

3.9 Greater involvement by private industry in defence

contracts would not be to the extent that AGCF would require a subsidy to operate. The Government would ensure that only work

that is over and above what is required to give AGCF a viable

work load would be made available to private industry.

Closure

3.10 This option would involve phasing out production at

AGCF and selling its assets. Staff would be gradually reduced by non-replacement and re-deployment where possible within the

Public Service.

3.11 The Department of Defence stated in its submission to

the Committee that it would be opposed to the closure of the

Factory. This view was also expressed by the Department of

Industry and Commerce. The Factory had provided specialist

guidance and assistance with the development of military

clothing and a degree of production responsiveness to the

Department of Defence which was not generally available from

commercial services. Private industry found low volume

requirements unattractive to manufacture in the normal tender

process and experience had shown that there was a lack of

willingness to quote for defence requirements in periods of

booms or seasonal peaks.

25

3.13 Present arrangements between the Defence Forces, the

Factory and the clothing industry have worked extremely well for

over seventy years. Clothing required for the Services covers a

large, complex range of items which must be made to a high

standard. The design and development capacity of AGCF provide a

direct resource to the Defence Forces and, at the same time,

augment industry capacity in the production of clothing to meet

particular defence needs. The '... current functions and

responsiveness reflected in the existing capacity is a

continuing requirement of the Defence Force.'2 The Department of

Industry and Commerce was also of the opinion that the

Department of Defence has a need, and that need is presently

fulfilled by AGCF; in particular, design and development were

vitally necessary functions.

3.14 Private industry would not welcome the loss of any

further production capacity in Australia according to the

representative from the Australian Confederation of Apparel

Manufacturers. Australia should be careful that it does not reach the stage where it could lose a lot of expertise and

people trained in the clothing industry. The Government could

not rely on industry to make every item for defence purposes,

although it has the capacity at present to do so. Private

enterprise has no commitment to the Government as it

manufactures in terms of the best return on investment.

3.15 The Department of Industry and Commerce also noted the

lack of interest by private industry in doing defence work and

indicated the reason for this was that; a factory may incur

expenditure on equipping itself for a defence order; then

because of undercutting by a competitor, lose the work the next time an order was required.

3.16 Closure is not an option favoured by the Committee.

Evidence has indicated a need for the work done by the Factory

to be continued either by private enterprise or as a government

function.

26

Endnotes

1. House of Representatives Hansard■ 30 April 1981, p. 1831.

2. Transcript of Evidence, p. 149.

27

Chapter 4

SALE OR LEASE AS A 'GOING CONCERN'

Defence considerations

4.1 General matters which were identified by the Department

of Defence as important to be continued in the event of a sale

or lease were:

(i) the availability of an assured source of supply in

terms of quality, price and delivery for present orders

. and future requirements including 'special

capabilities' ;

(ii) the establishment of standards as a guide to industry;

(iii) capacity to supplement the supply of clothing etc.,

from industry, or fully provide clothing required by

the Department when tenders from industry are

unacceptable or unavailable;

(iv) flexibility to respond to short term surge requirements

from the Government and to adjust to variations in

Defence budget levels; and

(v ) the ability to manufacture specialised items not

produced elsewhere.

4.2 Particular matters which would concern the Department

of Defence are:

29

Cost

4.3 For a private operator to make a profit, and cover

costs not currently met by the Factory, e.g. taxation,

insurance, etc., the cost of garments made in the Factory would

have to increase. The Department could also be faced with price

increases in industry as evidence indicated a belief that the

Factory presently operates as a bench mark or standard in

pricing for defence clothing in the industry. Quotes from AGCF

and industry as to quality, price and delivery are assessed by

the Department to ensure value for money and any increase in

price for products from the Factory could cause a price rise in

the defence clothing industry.

Quality control

4.4 Department of Defence standards are presently met by

the Factory, which is geared to working to standards higher than

those existing for commercial production. Some concern was expressed to the Committee about a private company being able to

supply goods of a comparable standard however, the Committee was

told that the Department's requirements on quality are met by

private industry on longer production run items and that, in any

case, this would be a matter for negotiation between the

Government and prospective purchaser.

Design

4.5 The Department considers the retention in one

establishment of continuing expertise, in the design of Service

clothing and related specialised items, should continue.

Availability of expertise and experience in the design,

development and specification of new clothing items for the

Defence Forces is another important factor. It was also pointed

out to the Committee that certain design services now included

in overhead costs might have to be separately funded should the

30

Factory be privately operated. Evidence indicated that in the

event of a sale the assumption would be that the design facility

would be retained within the Factory with arrangements for a

continuing work load for five years.

Patterns

4.6 The future custody and maintenance of patterns which

are presently held at the Factory are also of importance. The

Factory is presently working towards placing pattern records on

computer files and archival files which will be locked up in

fire proof cabinets. Evidence indicated that the recording of

Defence clothing patterns is a vitally important function and it

would be necessary to ensure that this aspect of the Factory was

dealt with in negotiations with a prospective purchaser.

Embroidery

4.7 The embroidery facilities for production of items such as rank insignia, badges, Queen's colours, banners and medal

ribbons should be retained within the Factory. This aspect of

the Factory's operations however would appear to hold little

interest for most purchasers from private industry. The

Committee was told that this section runs at a loss according to

the real cost of the section. (For an explanation of AGCF's

policy in relation to expensive short production runs refer to

para 4.31)

4.8 The Department of Industry and Commerce indicated that

the Factory is being sold as a 'dedicated facility' and

accordingly the embroidery section should stay in the Factory,

even though the new operator may have to be paid more to operate

the section. This would form part of the negotiations with the

prospective buyer. Otherwise, it was suggested that the

embroidery facility might have to continue as a government

function, in another government factory.

31

Consultancy service

4.9 This would involve continued provision of a consultancy

service in regard to product development and 'value engineering'

of new designs. The Committee understands this would be a

subject of negotiations with the purchaser along with retention

of patterns and design arrangements.

Supply lead time

4.10 Present operations enable the Department of Defence to

order, and change an order at short notice. Under a private

operator the supply lead time might have to increase, because of

competition for production capacity with other customers. As a

consequence there might have to be a one time enhancement of the

Defence inventory to offset this.

4.11 The Department also stressed the importance of dealing with one supplier for a considerable amount of its clothing

requirements. It indicated that it is a matter of concern that a

smooth transition take place in the event of a change of the

Factory's ownership and that the defence interest is protected,

so that the services the Factory has provided would continue in

one operation.

Commercial considerations

4.12 The sale of AGCF as a 'going concern' will depend on

the Factory's commercial viability as perceived by a private

buyer.

4.13 The Government has recognised that the Factory has no

brand name or goodwill to sell and in order to ensure that the

Factory is sold as a 'going concern' , has guaranteed a minimum

workload of 500 000 manhours, which is approximately 7 0% of

capacity, for the next five years.

32

4.14 Although the Committee received evidence from the

Department of Industry and Commerce regarding expressions of

interest and regarding the valuation of AGCF, because of the

confidentiality of this material the Committee does not propose

to pursue these aspects.

4.15 The Committee does wish to analyse the differences

there might be in the Factory's operation if it is sold. As

negotiations for the sale have not yet commenced it is difficult

to envisage what arrangements the Government and the prospective

buyer would agree to, but some of the differences that might

occur would be:

(i) an increase in the cost of Defence orders;

(ii) discontinuation in the production of some short

production run items; and

(iii) an increase in the cost of short production run items;

or

(iv) liquidation of the Factory.

Increase in the cost of defence orders

4.16 The Factory prices its garments to take account of all

known costs, plus a small margin of profit, in the order of

3 - 5%. This policy has resulted in the Factory making a small

cash surplus each year. But as mentioned in Chapter 2, because

the Factory is government owned it does not incur certain costs.

After these are notionally costed, to reflect the Factory in a

commercial light, the Factory incurs a loss of between $ 1 — $ 1 .6

million annually. An independent valuation report assesses the

loss in the order of $1 million annually.

33

4.17 As a private operator would be required to pay these

costs and also expect a return on his investment (for example in

1979/ 1 9 8 0, the clothing industry's rate of return was

approximately 17 per cent ) 1 the cost of defence orders is

expected to increase.

4.18 Evidence was presented from a number of witnesses who

claimed that the Factory's prices act as a bench mark for prices

charged by private industry for defence orders. If this is

correct, it is fair to assume that there will be an increase

throughout the industry in the cost of defence orders.

4.19 Whether the sale or lease of the Factory as a 'going

concern' will in fact cost the Government more is unclear. What

is clear is that the Department of Defence would face increased

costs but evidence indicated that these increased costs could be

offset either wholly or partially by the extra revenue the

Government would collect through taxation. With so many

variables, it is impossible to calculate the exact effects. As Mr Currie, Secretary of the Department of Industry and Commerce,

said, '... the cost to the Commonwealth will be more. The

customer may pay more but the Commonwealth would get more

revenue via taxes so those two factors offset each other.

Whether they do so exactly God knows. I do not.'2

4.20 It is not expected that the private operator would be

able to convert this operating loss into a profit purely by

increasing the price of the garments as this would make the

Factory less competitive. A private operator would have to

achieve cost savings, this could be done by reducing the range

of items produced.

Discontinuation of short production runs

4.21 AGCF differs from normal clothing enterprises because

of the great variety of garments that it produces. Many of the

garments that it is required to produce are of a complex nature

and produced in limited numbers.

4.22 In commercial terms the most profitable items to

produce are those of a simple construction which are produced in

large numbers. As Mr Aitchison, Executive Director of the

Australian Confederation of Apparel Manufacturers, stated,

'Longer runs, as everyone probably knows, are the most

profitable for any type of manufacturing.'3 'If you were

requested, as a business to make 2 000 sorts of products on

notice and in short runs I do not think that anyone would agree

that it was a profitable proposition.'1 *

4.23 Mr. Aitchison's comments were reinforced in a letter to

the Committee from the clothing manufacturer Bonds which stated:

'... the Factory produces only 1750 dozen garments and accessories per week with a staff of 733 persons, due obviously to the breadth and complexity of the product

range. We, on the other hand, mass produce approximately 5 5 , 0 0 0 dozen garments per week (knitted underwear and casual wear) with a cutting and sewing staff of about

1 350. '5

4.24 This view is supported in the Allison-Brewster Report,

by the comment 'The Commonwealth Government Clothing Factory

cannot expect to produce at the optimum level of production and

costs because of the great variety of items manufactured and in

relatively short production runs . . . ' . 6

4.25 If the prospective buyer believes that some or all of

the short production run items are uneconomic to produce, then

in negotiations with the Government on the terms of the sale,

35

the buyer could require the Government to consolidate defence

orders thereby increasing the length of production runs; and/or

the operator could cease the production of all or some of the

short run production items.

4.26 If the Defence Forces are able to consolidate their

orders, thus enabling larger orders to be placed at the Factory,

this could make some runs economic, but it is unlikely that all

of the short production runs would be able to be lengthened

because of the limited demand.

4.27 The prospective buyer may decide to cease short

production run items, leaving the Factory with extra capacity,

allowing it to seek the more profitable long production run

work.

4.28 The cessation of short production run items at AGCF

means that the Government would have to find an alternative

means of acquiring these garments. The Government could:

(i) attempt to tender the work out to private industry, but

it is unlikely that private industry would be

interested because most of this work would be

uneconomic;

(ii) seek to have this work done overseas, but the problems

of inferior quality, price and long lead times mitigate

against this option; or

(iii) continue to produce these items by establishing a

special section in another government factory.

4.29 The last option, which was canvassed by the Department of

Industry and Commerce, is the most likely solution, because it

would offer the same level of quality control and speed of

delivery as at AGCF, but at an increased cost.

36

Increased cost of short production run items

4.30 If the private operator decided to continue

manufacturing the short production run items then it could be

expected the price of many of these items would increase.

4.31 As a matter of policy AGCF has recovered some of the

overhead costs of the more complex and expensive short

production run items, e.g. embroidery, against the more

profitable longer production run items. This has had the effect

of reducing the price of those expensive items whilst increasing

the price of the more profitable longer run items.

4.32 This may be one of the reasons why the Department of

Defence has found in a number of cases that there were cost

disadvantages in using AGCF particularly where large volumes are

required.

4.33 It is unlikely that a private operator would continue

this subsidisation of the short production items, which lessens

the Factory's competitiveness in the production of longer run

items and restricts its ability to gain outside contracts. It is

expected therefore if these items are to recover their costs,

that the price of these short production run items would rise.

Liquidation of the Factory

4.34 Representatives of the employees at AGCF believe that a

private buyer might find that the Factory is not worth

operating. They believe that the buyer might find it more

profitable to use some of the Factory's equipment to re-equip

the buyer's own factory, sell any excess equipment and sell or

lease the site and building. The guaranteed workload could be

undertaken in the buyer's other factory. Mr R. Ballantine,

President of the Combined Union Shop Stewards' Committee,

37

pointed out that there were examples within the clothing

industry of companies sold as 'going concerns 1 being closed by

the new owner. He indicated that this was a real danger for

AGCF.

Social considerations

Employment

4.35 Despite the stated intention of the Government that the

Factory would be sold as a 'going concern', some evidence

indicated a belief that a private operator is likely to change

the operation of the Factory, which could result in unemployment

for some employees, at least for a period of time.

4.36 A number of possibilities were canvassed in evidence

and they included:

(i) The discontinuation of short

production run items which could result in -(a) reduction in capacity; or

(b) maintenance of present capacity by an increase of long

production runs;

(ii) the purchaser winding production down and engaging in asset

stripping, or ceasing production entirely, using the Factory for storage space or as a warehouse; and

(iii) employees from the purchaser's

company replacing existing AGCF employees.

^•37 In the event of the discontinuation of short production

run work, without a comparable increase in long production runs,

staff employed in the short production run areas could be

dismissed. If however there is an increase in long production

run work, unemployment is less likely, as the majority of staff

38

engaged in short production areas, with the exception of those

engaged in embroidering, could switch to longer production work

in the Factory. If staff are dismissed, employment in short

production run work could be difficult to find in private

industry as most factories are geared to long production runs

and their willingness to do shorter runs depends very much on

excess capacity.

4.38 In the event of winding down and/or eventual closure

some staff would be at more risk than others, e.g. staff

employed in the embroidery section. The ACTU also indicated that

store grades are employed in larger numbers in AGCF than in

private industry, and may also have more difficulty in finding

employment. On the other hand, machinists are in demand in the

industry.

4.39 Unless the Department of Defence requirements are

manufactured overseas, they must be met by industry in Australia

and it follows that some additional demand for employment would be created. There is, however no guarantee that all former AGCF

employees would be re-employed.

4.40 Most people seeking employment in this situation would

be migrant women whose families would be dependent on their

wages but who would have little mobility even within the

industry, because of family commitments, possible difficulty

with transport and restrictions on moving a home.

4.41 Even when new employment is found, it may result in an

unfavourable change of lifestyle, e.g. further travelling or

moving a home perhaps out of an ethnic area in the case of a

migrant family.

4.42 Evidence given to the Committee indicated that there

has already been some anxiety among employees due to the

uncertainty of the future of the Factory and this would no doubt

39

be increased if the Factory was sold and staff dismissed. Should

employees be unable to find work in the industry, chances of

finding work elsewhere are not good, as unemployment in

unskilled and semi-skilled work in Coburg and in Victoria

generally, is quite high. Prospects for re-employment appear

bleaker in the light of evidence which indicated that

contraction in production in the industry over the last ten

years had caused most plants to work at less than full

production, and in fact, a number of plants were on a four day

working week.7

4.43 The Combined Union Shop Stewards' Committee indicated

that conditions of employment at the Factory are generally

superior to conditions in the industry, in particular,

provisions for superannuation, long service leave, maternity

leave and sick leave. It was concerned that selling or leasing

the Factory as a 'going concern' would not guarantee continuity

of employment and would result in employees who had given long

and faithful service to the Commonwealth losing these benefits. There is however an obligation on the Department of Defence

Support and the Public Service Board to try to re-deploy those

employed under the Public Service Act.

4.44 There might be some cost involved to the Government

even where employment continues. Income maintenance payments may

be necessary depending on the wages paid by the new employer.

Should the employees not be taken on by the new operator,

further payouts such as accrued recreation leave, long service

leave in lieu, and superannuation might also have to be made.

4.45 Job security in AGCF is greater than in private

industry. Fluctuations in production occur less frequently than

in private industry and accordingly the adjustment of staff

levels is not as imperative, and the right to hire and fire is

more easily negotiated in private industry.

40

Industrial relations

4.46 Industrial relations in the Factory are good, although

over the last twelve months anxiety relating to the future

ownership of the Factory has prompted some industrial action.

The Factory operates relatively free of industrial disputes

largely due to the willingness of management and employee

representatives to discuss matters of concern, and employees'

satisfaction with conditions of service.

Training

4.47 AGCF has been a leader in training machinists and

apprentices in· the industry and has trained a total of 12

cutters, tailors and two sewing machine mechanics from 1 972 to 1982 inclusive. Apprentice cutters undertake a comprehensive

four year training program and the Factory trains machinists in

a separate off-line section for a period of three to eight

weeks. On the completion of off-the-job training, machinists then move to a closely supervised period of on-the-job training,

which generally takes three - six months. This period is used to

train machinists to the standard required by the Factory.

Machinists recruited from industry are also trained for this

period. The number of clothing machinists trained from 1 972 to

1982 inclusive is 593.

4.48 The separate off-line section for training in AGCF was

believed by a witness from the Combined Union Shop Stewards'

Committee to be unique in the industry. According to the ACTU,

private industry is reluctant to train machinists and has

poached or enticed machinists from the Factory. In fact, training programs had been started at education institutions to meet the demand for training in the industry. Another

representative of the Combined Union Shop Stewards' Committee

stated that he knew of no other factory '... that has a training

program, let alone one that comes anywhere near ours,'® and

41

was firmly of the opinion that a private operator would continue

neither the apprenticeship system nor on-the-job machinist

training.

4.49 A contrary view was put to the Committee by a

representative of the Australian Confederation of Apparel

Manufacturers, who when asked if he thought the training and

apprenticeship systems would continue under private enterprise

replied that most factories in private industry had extensive

training systems of their own however, private industry did

regard the Factory as providing a reservoir of training in the

industry.

English classes

4.50 English classes are conducted on the premises for

migrant workers, who constitute a large percentage of the

Factory's work force. Some concern was expressed to the

Committee, that these classes might not continue under a private operator, although the Committee was also told that in many

instances language classes do exist for staff employed by

private industry.

Loss of capacity

4.51 Private industry would not welcome the loss of any

further production capacity in Australia, according to a

representative of the Australian Confederation of Apparel

Manufacturers. The Committee was told the clothing industry is

under a lot of strain and contraction, and care should be taken

so that expertise and people trained in that industry are not lost.

4.52 The Confederation indicated that the Swedish

Government's experience would be of interest to the Committee.

Loss of capacity in the textile and clothing industry in that

42

country since 1968 had brought about the need for a large

injection of funds and expertise into the industry from the

Government with a view to making it more viable and reducing the

country's dependence on imports. In this context, i.e. the loss

of capacity, the industry in Australia had an interest in the

fate of the Factory, and there could be no guarantee what this

might be if the Factory was sold.

43

Endnotes

1. Industries Assistance Commission-Annual Report, 1980-81. 278.

2. Transcript of Evidence, p. 7 7.

3 - Transcript of Evidence, p . 236 .

4. Transcript of Evidence, p. 230.

5. Committee Document.

6. Transcript of Evidence, p . 1 9.

7· Transcript of Evidence, p. 238.

8. Transcript of Evidence, p. 207.

PART B - RECOMMENDATIONS

Chapter 5

FINDINGS AND RECOMMENDATIONS

5.1 As set out in paragraph 3.1 the Committee examined the

evidence in terms of various options. As the Government's stated

intention was to sell AGCF as a ' going concern' , it was this

option that has principally occupied the Committee's attention.

5.2 However, the Committee recognised that other

possibilities existed for AGCF, and it was for this reason that

the Committee canvassed the effects of the various options in

regard to the defence, commercial and social issues.

5.3 The other options discussed by the Committee were:

(i) closure

(ii) retention in government control.

Findings

Defence

5.4 Evidence to the Committee revealed that AGCF did not

possess any unique industrial process vital to defence

production. Most tasks performed at AGCF could equally be undertaken at other clothing factories, though price and

delivery would probably be affected.

45

5.5 Given the high level of defence orders to AGCF in

recent years, and the departmental evidence, the Committee is

convinced that though the Factory output is necessary to present

defence requirements, there is no evidence that it must be

retained by government.

5.6 The Committee appreciates the dilemma of the

Departments of Defence and Defence Support, in that they must

attempt to obtain the greatest possible value for the taxpayer's

defence dollar, whilst at the same time ensuring that defence

skills and capabilities already acquired in Australia at high

cost are not lost or dissipated. In this instance, sale of AGCF

as a ' going concern' would realise both objectives more

effectively than retention, or closure.

Commercial

5 . 7 Defence production levels at AGCF are comparatively

high; other government work occupies approximately 16 per cent of production time. In recent years, AGCF has achieved a cash

surplus on its operations, meaning that AGCF has not required a

direct subsidy from defence appropriations, as other government

factories have. Nevertheless, when the Factory's notional costs,

many of which are direct costs to other sections of the

Government, are accounted for, the Factory runs at a loss to the

Government. In recent years the Factory has cost the Government

between $1 - $ 1 . 6 million annually to retain it.

5.8 Other government work undertaken by AGCF could have had

a better economic return with a realistic pricing policy.

5.9 The Committee appreciates that AGCF has the capability

to undertake the full range of defence clothing manufacture.

Even the cost of preparation for the comparatively short runs

required for Australian defence orders seems reasonable.

Evidence showed that overseas quality was not acceptable by

Australian defence standards.

46

5.10 As a commercial operation, AGCF would have many

advantages. A steady, skilled workforce is available. Defence

work would be forthcoming to the Factory, and additional defence

contracts would no doubt be obtained. Further, a private

operator would bring his own capacity and expertise to the Factory.

5.11 Present management of AGCF is very efficient and

capable of greater achievement if given more authority in

purchasing and pricing areas.

Social

5.12 The Committee believes that a decision to sell AGCF as

a ’going concern' would not result in significant social and

economic· impact in either the Coburg area or the industry.

5.13 The Committee appreciates that a sale of AGCF may

result in some changes to the size and operation of the Factory,

and in negotiations for sale with a purchaser, believes that the

Government should consider the matter of retention of factory

staff by the purchaser with a view to continuation of the

existing terms and conditions of service.

5.14 The Committee does not accept the concept that the

Government has a social responsibility always to maintain a

non-viable factory in its present form. As the Report sets out

in paragraphs 2.41 to 2.44 the Factory is not commercially

viable, because although the Factory makes a small operating

surplus, when the notional costs are accounted for, the Factory

runs at a loss. Given that the size of defence orders is

constant, perhaps even increasing, the Factory sold as a 'going

concern' may attract a buyer who would make it viable.

47

Principal evidence summarised and focussed on particular options

Defence

5.15 As in the OFB inquiry, the Committee had always before

it the classic protection argument for defence industries, but

in this case neither the capacity nor capability of Australia's

defence would be affected by the sale of AGCF as a 'going

concern' . Closure however would have an adverse effect, and

evidence indicated there is no case for closing AGCF in the

present circumstances as there was with OFB.

5.16 It seems that reasonable value for the defence dollar

is being obtained from a loyal and dedicated staff at AGCF.

Commercial

5.17 The annual loss incurred by AGCF, confirmed by­

evidence, presents a challenge to any buyer. Leasing did not appear to be a viable option.

Social

5.18 The concerns of employees about sale are not ignored.

The consequences of a sale as a 'going concern' need not be as

pessimistic as those outlined in many submissions to the

Committee.

RECOMMENDATIONS

The Committee recommends that:

(i) the effort to sell the Factory as a 'going concern' -

suspended for this inquiry - be now pursued with

maximum vigour, and a particular effort be made to show

the work force the benefits of sale;

48

(ii) as an incentive to prospective purchasers, and in

establishing fair terms of sale, the Factory should

retain all its defence contracts, and be given

favourable consideration for others in the future; and

(iii) if AGCF is to be retained by the government:

(a) the Factory should be given more autonomy to

operate as a commercial enterprise. As a

consequence of this the Factory would account for

its 'notional' costs and Factory management would

be given more incentive to pursue profitable

purchasing and pricing policies;

(b ) the embroidery section should be examined to see

• if its services are really necessary for fighting

forces uniforms, and if so whether the cost of

embroidery on uniforms be allocated to the wearer rather than the Government. This presumes the

availability of cheaper alternatives to

embroidery, as standard issue; and

(c ) duplicate sets of all patterns be retained in safe

keeping at a location outside the Factory in case

of fire etc.

Senator J.R. Martyr

(Chairman)

49

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PART C - DISSENTING REPORT

DISSENTING REPORT BY SENATOR JOHN BUTTON

AND SENATOR JOHN SIDDONS

The Senate Select Committee on the Government Clothing

and Ordnance Factories will probably be held up as a model for

future Senate committees to avoid when the development of the

committee system is discussed.

Though the Committee has reached agreement on many

facts pertaining to the history and operation of the Clothing

F a c t o r y t h e Committee has been sharply divided on the main

issue confronting it. The basic question is whether the Factory

should be sold to private enterprise, or remain a government

factory.

Senators Crichton-Browne and Martyr accept the view,

first articulated in the Report of the Review of Commonwealth

Functions of April 30, 1981, that the Factory should be sold. We

disagree.

The present Government's decision to sell the Factory

is based on the view that governments should not perform

functions which private industry could equally well perform.

That is a legitimate view, with which we do not agree. We

believe the evidence given to the Committee shows quite clearly

that private industry could not equally well perform the functions of the Factory except at great and unnecessary expense.

51

Though the Government has tried to make the sale of the

Factory as a 'going concern1 as attractive as possible, by

giving guarantees of work and contracts, it is our view that the

evidence suggests that even if the Factory was bought as a

1 going concern' , it is likely the Factory would soon thereafter

be closed and stripped and that at least some of its functions

would still have to be performed by other government factories.

There are a number of aspects of the Factory and the

reasons for its development, about which we would like to make

further comment:

1. The requirement for a government owned uniform factory

The need for a government owned uniform factory was appreciated quite early in the history of the Commonwealth. An

inquiry in 1909 determined that such a factory was necessary and

it began operations in South Melbourne in 1912, shortly before

World War 1 .

During the World Wars the Factory's activities expanded

dramatically, and by the 1950s the facilities available at South

Melbourne were becoming inadequate. The building had become run

down and it was determined that repairs would not be cost

effective. The Menzies Government thus appointed a two man

committee to examine whether a new Government clothing factory

should be built and if so, where.

The committee comprised Sir John Allison and Mr Leslie

Brewster. Sir John was then Chairman of the Defence Business

Board and Mr Brewster was a director of Latoof and Callil Pty Ltd, one of the largest private textile firms in the country. He

was also for many years the Treasurer of the Victorian Chamber

of Manufactures.

52

The commitment of these men to the private enterprise

system which had served both well, cannot be doubted. Yet they

found compelling reasons to recommend that a new government

clothing factory should be built and by implication that the

Government should remain in the business of manufacturing

uniforms.

Other inquiries, by the Industries Assistance

Commission (IAC) in 1980, by an industry adviser to the Minister

of Industry and Commerce in 1981 and the Defence Review

Committee, chaired by Mr J.W. Utz, in 1982, have also suggested that there were many advantages in retaining the Factory as a

government enterprise.

2. Why should the Government make uniforms?

We believe there are two main reasons why the

Government should manufacture uniforms for its own Services. The

first is strategic and the second financial.

Climatic and operational requirements ensure that

soldiers, sailors and airmen must have a variety of uniforms to

be effective. The supply of uniforms is a critical constraint on

the rate at which the Armed Forces could be built up in a

defence emergency.

Allison and Brewster found that the Services and other

government departments believed the facility ought to be

retained not only for the supply of clothing and canvas ware at

peacetime levels and for the quick delivery of items in variety,

but as a laboratory for garment design and development. The development of these is time consuming, expensive and requires

highly specialised personnel. Production tends to be

concentrated on comparatively short runs in peacetime, but may

expand enormously in wartime.

53

The role of the Factory was intended to be and has

always been to supply uniforms to various government agencies

particularly the Armed Services in peacetime, and to provide a

buffer during wartime expansion until private industry can gear

up to meet the much greater need. The Services have shown some

understanding of the capacities of both AGCF and private

industry in their procurement policies. Allison and Brewster

favoured the development of a 2-tiered procurement system which

has been generally followed by the Services. In this role the

Factory has functioned well for more than 70 years.

Allison and Brewster also found that many of the items

produced at the Factory were unattractive to or not normally

obtainable from private industry and that it would be imprudent

to depend for the Services' needs either wholly or even heavily

on peacetime vagaries of private industry's level of commercial

work. They suggested that the Factory would act as a basis of

cost comparison with private industry and that generally costs

were comparable.

The cost question is the second major reason for

keeping a government clothing factory. All past inquiries have

concluded that the cost of garments would rise significantly if

the Government decided to abandon direct uniform manufacture.

Peacetime uniform procurement tends to be in relatively small

lots, which are unattractive to private industry. The

Allison-Brewster report suggested that in general, on long run

orders, private enterprise could produce at production costs a

little below the Factory, which was basically a short production

run unit, but the inclusion of the profit content would place

the final outside tender price above the Factory's cost.

The report of the IAC inquiry, mentioned earlier,

suggested there was scope to achieve substantial reductions in

the cost of maintaining AGCF. In the two years since,

54

considerable efforts have been made to achieve these cost

reductions. Employment practices have been changed and made more

responsive to activity levels and the level of work increased.

3. Utility of the Factory

The Factory has shown commendable efficiency in dealing

with recent demand for uniforms. It is probable the recent rapid

increase in the size of the Army Reserve would not have been

possible if the uniform market was entirely in the hands of

private entrepreneurs. Though the capacity of the Factory was

stretched, substantial orders were met in the time required.

The sudden need for uniforms suitable for Middle

Eastern service provides a good example of the flexibility

afforded.by the vertically integrated nature of the Factory. The

need arose when the Government decided to send a contingent to

the Sinai peacekeeping force. The Factory worked under great

pressure to develop and supply special additional uniforms for troops leaving for that area. It is almost certain such uniforms

would not have been produced in time if the Army had to go

through private enterprise which would have required tendering;

or if a vertically integrated facility containing research, design, development and production facilities did not exist.

In general it can be said that the fewer constraints on

a country's Defence Forces, the better. Whether they be

materiel, manpower or logistical; whether they are imposed by a

need to import certain goods; or by a dependence on private

firms with substantial, competing commercial interests, the

greater the constraints, the smaller is our freedom of action.

55

4. Economics of the Factory

For at least the last three years the Factory has

recorded a cash surplus on its operations. In accord with normal

practice, this cash surplus is returned to the Government's

Consolidated Revenue. In common with other Government

enterprises the Factory does not have to bear a variety of

costs, of which the most notable might be capital, investment

and superannuation. However nor does it have to make a profit,

and in fact it aims to break even.

A comparison with the Ordnance Factory Bendigo shows

AGCF is operating at full capacity and that the great majority

of employees are involved in direct production at AGCF. OFB's

relatively poor performance results from the nature of the work

undertaken, the underutilisation of its capacity and an

unrealistic pricing policy. These restraints do not affect AGCF.

Information available to the Committee shows beyond doubt AGCF is efficiently run and that substantial cost savings

have been made due to administrative changes since the IAC

report in 1 9 8 0. The Factory has a well structured costing

system, a decentralised management structure and has been

innovative in the use of advanced technology, particularly

numerically controlled design and cutting machinery.

It has a happy and enthusiastic work force. It has an

excellent industrial relations record and a turnover rate 40 per

cent less than the industry average - probably the best in the

country.

5. The attitude of private industry

A representative of the private clothing industry

endorsed the view that the Factory is efficient and beneficial

to the industry. For instance it performs a useful training

function and many workers enter the industry via the Factory.

56

Evidence from the Department of Industry and Commerce

showed private industry was generally not interested in doing

defence work because it regarded the procurement process as

cumbersome and the risk of incurring expenditure on equipment

without a guarantee of future workload, as not worth running.

The Government could not rely on industry to make every item for

the Department of Defence, although it has the capacity at

present to do so. Private enterprise has no commitment to the

Government because it simply seeks the best return on investment

As noted earlier the Factory is often called on to do

short runs of particular uniforms, a practice which is not

commercially attractive. AGCF differs from normal clothing

enterprises because of the great variety of garments it

produces. Many of these are of a complex nature and are produced

in limited numbers. Conversely the most profitable to propduce

commercially are of simple construction and produced in large

numbers.

Allison and Brewster said:

'The Commonwealth Government Clothing Factory cannot expect to produce at the optimum level of production and costs because of the great variety of items manufactured and in

relatively short production runs...'1

Whatever solution to the problem of short production

runs is chosen - and the main body of this report canvasses

several options - there can be no doubt the cost of garments

would increase substantially.

57

6. Attitude of customers

The main customer of the Factory is and has been the

Department of Defence. Indeed the original facility was built at

the request of the Department, and the then Postmaster-General's

Department, to satisfy their joint needs.

The Department of Defence said in evidence that the

Factory had provided specialist guidance and assistance with the

development of military clothing and a degree of production

responsiveness not generally available from commercial services.

The Department particularly stressed its ability to order and

change an order at short notice at present.

It is incontestable that the present relationship

between the Department of Defence, the Factory and private

industry has been harmonius for more than 70 years.

7. Overseas experience

Many overseas countries maintain government clothing

establishments for the same reasons Australia does. The

alternative, as with ordnance manufacture, is generally to have

a small number of private firms which are heavily subsidised in

effect by high prices.

The representative of the Australian Confederation of

Apparel Manufacturers said the Swedish Government's experience

should be of interest. Loss of capacity in that country's

textile and clothing industry led to an injection of Government

funds and expertise into the industry to make it more viable and reduce the country's dependence on imports. The Australian

industry is concerned that the same may have to happen here if

further production capacity is lost, and particularly if

expertise and people trained in the industry are lost.

58

In our view it would be a loss to the nation if the

Factory, which is a vertically integrated facility, was

dispersed. Mr R. Aitchison, Executive Director of the Australian

Confederation of Apparel Manufacturers stated, ' The Factory, it

seems to me, is virtually an entire clothing industry in its own

right under one roof.'2

8. Employment and the costs of sale

The Factory currently employs 724 employees (June

1982). This number has fluctuated from a low of 662 in June 1980

to the present level. The Department of Industry and Commerce

has stated the Factory is working close to its maximum capacity

and the General Manager has stated that extra floor space is

being utilised by renting outside premises for the training

section.·

Despite the stated intention of the Government that the Clothing

Factory be sold as a 'going concern', it is difficult to see how a private firm could maintain all aspects of the Factory's

operation and still make a profit in a commercial environment,

without very substantially increasing prices. It is likely the

Government would have to transfer some activities to other

factories simply because a private operator could not or would

not do them. The alternative of importing products such as those

made by the embroiderers at the Factory is not acceptable to the

Department of Industry and Commerce. It has proved impossible to

guarantee quality and lead times have greatly increased when

overseas sources have been used.

Already staff at the Factory fear for their future. It is almost certain the employment of some, or even many employees

would be terminated and their prospects for re-employment in the

industry are bleak. The industry has begun a massive

restructuring program which will result in the rationalisation

of many jobs. Production in most plants is already at less than

capacity and a number of plants are on a four day working week.

59

9. Conclusion

It seems to us extraordinary that the Government should

contemplate selling a factory which a previous conservative

administration set up after exhaustive debate. The Factory has

been shown to be viable as a government enterprise and has shown

it can swiftly respond to changes in requirements. Private

industry has indicated it is generally not interested in the

type of work done at the Factory. For longer production runs

existing mechanisms ensure private industry can tender and

participate in manufacture, particularly in times of defence

emergency as occurred during the World Wars. Sale or lease of

the Factory would leave the Government with a procurement

problem which could only be resolved by the Government

transferring important sections of the Factory's work to other

government factories at considerable expense and with the

certainty of causing personal disruption to many people.

The Factory is a means of keeping private industry

honest in regard to costing and maintains unique research

facilities. It is developing a bank of patterns stored

electronically which would be a national asset. The Factory has

performed its historical role of master factory and in wartime

would provide expertise and patterns to private industry as it

geared up to meet the expanded need.

The Government has not implemented the Utz Committee's

recommendations regarding staff changes to AGCF or OFB other

than to transfer both to the control of the new Department of

Defence Support.

We therefore recommend that the Factory remains owned

and operated by the Government through the Department of Defence

Support and that the recommendations of the Utz Committee be

implemented forthwith.

60

We commend the General Manager of the Factory, Mr S.

Silk, for running an efficient and effective government

enterprise of which all Australians can be proud.

The Government's stated reason for wishing to sell the

Factory is primarily ideological and not supported by any

practical view. Neither private industry, the Factory's

customers or the Factory's employees are enthusiastic about a

sale to private industry, and such a sale raises many practical

problems. The most obvious of these is that it would appear the

Government simply cannot escape doing some of the things the

Factory now does; things private industry will not do, at least

at any reasonable price.

SENATOR J.N. BUTTON

SENATOR J.R. SIDDONS

61

Endnotes

1. Transcript of Evidence, p. 19.

2. Transcript of Evidence, p. 230.

62

A P P E N D I X I

Establishment - 22 September 1981

That -

R e s o l u t i o n s of the S e n a t e r e l a t i n g to the C o m m i t t e e

(a) The Resolution of the Senate on 26 August 1981

referring to the Standing Committee on Finance and Government Operations the Government's decision to sell the Government Clothing Factory at Coburg and the Ordnance Factory at Bendigo be rescinded;

(b ) A Select Committee be established on the future of the Government Clothing Factory at Coburg and the Ordnance Factory at Bendigo;

(c) The Select Committee report to the Senate by the first sitting day in November 1981 on the future of the Ordnance Factory at Bendigo; and

(d ) The composition and powers of the Select Committee be contained in a subsequent resolution.

Powers - 23 September 1981

(1) That the Select Committee, established by Resolution of the Senate, on the future of the Government Clothing Factory at Coburg and the Ordnance Factory at Bendigo, be known as the Select Committee on the Government Clothing and Ordnance Factories.

(2) That the Committee consist of four Senators, as

follows:

(a) two to be

Government in nominated by the Senate; the Leader of the

(b) one to be

Opposition in nominated by the Senate; and the Leader of the

(c) one to be nominated by

Australian Democrats. the Leader of the

(3) That the Committee proceed to the despatch of business notwithstanding that all members have not been duly nominated and appointed and notwithstanding any vacancy.

(4) That the Chairman of the Committee be appointed by and from the members of the Committee.

63

(5) That the Chairman of the Committee may, from time to time, appoint another member of the Committee to be the

Deputy-Chairman of the Committee, and that the member so appointed act as Chairman of the Committee at any time when there is no Chairman or the Chairman is not present at a meeting of the Committee.

(6) That, in the event of a equality of voting, the

Chairman, or the Deputy-Chairman when acting as Chairman, have a casting vote.

(7) That two members of the Committee be necessary to constitute a meeting of the Committee for the exercise of its powers.

(8) That the Committee have power to send for and examine persons, papers and records, to move from place to place, to sit in public or in private, notwithstanding any prorogation of the Parliament or dissolution of the House of Representatives, and have leave to report from - time to time its proceedings and the

evidence taken and such interim recommendation it may deem fit.

(9) That the Committee be provided with all necessary staff, facilities and resources and be empowered to appoint persons with specialist knowledge for the purposes of the Committee with the approval of the President.

(10) That the Committee be empowered to print from day to day such papers and evidence as may be ordered by it, and a

daily Hansard be published of such proceedings as take place in public.

(11) That, except where the Committee by vote otherwise decides, its hearing of evidence be open to the public.

(12) That the Committee report to the Senate by the first sitting day in November 1981 on the future of the Ordnance Factory at Bendigo, and as soon as possible on the future of the Government Clothing Factory at Coburg.

(13) That, if the Senate be not sitting when the Committee has completed its report, the Committee may send its report to the President of the Senate or, if the President is not

available, to the Deputy-President, who is authorised to give directions for its printing and circulation and, in such event, the President or Deputy-President shall lay the report upon the

Table at the next sitting of the Senate.

(14) That the foregoing provisions of this Resolution, so far as they are inconsistent with the Standing Orders, have effect notwithstanding anything contained in the Standing Orders.

64

Membership of the Committee - 24 September 1981

The President informed the Senate that he had received letters from the Leader of the Government in the Senate, the Leader of the Opposition in the Senate, and the Acting Leader of the Australian Democrats nominating Senators to be members of

the Select Committees on the Government Clothing and Ordnance Factories.

The Minister for Aboriginal Affairs (Senator Baume), by leave, moved - That, the Senators indicated, having been duly nominated in accordance with the provisions of the Resolutions passed on 23 September 1981 and 24 September 1981 be appointed members of the respective committees as follows -

The Government Clothing and Ordnance Factories:

Senators, Button, Crichton-Browne, Martyr and Siddons.

Extension of time for the presentation of the OFB Report - 29 October 19 81

(1) That the time for the presentation of the report on the future of the Ordnance Factory, Bendigo, by the Select Committee on the Government Clothing and Ordnance Factories be extended by providing that the Committee report as soon as possible.

(2) That, if the Senate be not sitting when the Committee has completed its Report -(a) the Committee may send the Report to the President of the Senate or, if the President is unable to

act due to illness or other cause, to the

Deputy-President of the Senate;

(b) the Report shall be deemed to have been presented to the Senate and the President or the

Deputy-President is authorised to give directions for its printing and circulation; and

(c ) in such event, the President or the

Deputy-President shall lay the report upon the Table at the next sitting of the Senate

(3) That the foregoing provisions of this resolution, so far as they are inconsistent with the Standing Orders, have effect notwithstanding anything contained in the Standing Orders.

65

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A P P E N D I X II

Adult Migrant Education Services Staff Association, Melbourne, Victoria

Australian Council of Trade Unions, Melbourne, Victoria

Australian Confederation of Apparel Manufacturers, Barton, Australian Capital Territory

City of Coburg, Coburg, Victoria

Clothing and Allied Trades Union of Australia, Carlton South, Victoria

Combined Union Shop Stewards' Committee, AGCF, Coburg, Victoria

Department of Defence, Canberra, Australian Capital Territory

Department of Industry and Commerce, Barton, Australian Capital Territory

Melbourne College of Textiles, Pascoe Vale, Victoria

Sgro, Mr Giovanni, Legislative Council, Melbourne, Victoria

Victorian Government, Melbourne, Victoria

L i s t of S u b m i s s i o n s p r e s e n t e d to the C o m m i t t e e

67

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A P P E N D I X I I I

L i s t of W i t n e s s e s w h o a p p e a r e d b e f o r e t h e C o m m i t t e e

Acton, Mrs Jennifer Mary, Industrial Officer, Australian Council of Trade Unions, Melbourne, Victoria

Aitchison, Mr Ray, Executive Director, Australian Confederation of Apparel Manufacturers, Barton, Australian Capital Territory

Ballantine, Mr Robert James, President, Combined Union Shop Stewards' Committee, AGCF, Coburg, Victoria

Buckham, Mr Malcolm William, Chief of Supply and Support, Department of Defence, Canberra, Australian Capital Territory

Churcher, Mr Geoffrey Jack, Controller, Munitions Supply, Department of Industry and Commerce, Barton, Australian Capital Territory

Currie, Mr Neil Smith, Secretary, Department of Industry and Commerce, Barton, Australian Capital Territory

McKee, Mr John Edward, Secretary, Combined Union Shop Stewards' Committee, AGCF, Coburg, Victoria

Proposch, Mr Raymond William Alfred, Executive Member, Combined Shop Stewards' Committee, AGCF Coburg, Victoria

Ryan, Mr Hugh Joseph, Deputy Secretary, Department of Industry and Commerce, Barton, Australian Capital Territory

Silk, Mr Sidney Edward, General Manager, AGCF, Coburg, Victoria

Stein, Mr Hayden Douglas, Executive Member, Combined Union Shop Stewards' Committee, AGCF, Coburg, Victoria

69

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APPENDIX IV

i ,

1EPAP.THEKT OF BEFEKCE SUPPORT

AUSTRALIAN GOVERNMENT CLOTHING FACTORY 14 GAFFNEY ST. COBURG VIC . PRIVATE BAG N o . 1 2 . COBURG 3 0 5 8 . TELEPHONE: (03) 3 5 * 4 0 0 0 . TELEGRAMS: "D E C L O F A ··

JS:bj

IN REPLY QUOTE

81/29

28 May 1982

Mrs M.L. Willheim, Secretary, Select Committee on the Government Clothing and Ordnance Factories, Parliament House,

CANBERRA A.C.T. 2600

Bear Mrs Willheim,

In reply to the questions asked "by the Chairman of the Select Committee on the Government Clothing and Ordnance Factories the following details are provided:

(1) How are the fabrics bought (i.e. through tendering or direct sales)?

The fabrics are bought in two ways:

(a) From the Defence Services Groups as "In Aid" items of material to manufacture garments for orders received.

(b) In accordance with the procedures of the Departmental Purchasing Manual' instruction i.e.

(i) Locally arranged contracts for items under $10,000, and

(ii) tendering and orders arranged through the Purchasing Commission of Department of Defence Support for items valued in excess of $10,000.

(2) Who are the fabrics bought from ?

(a) The Defence Services

(b) Other governmental customers

(c) The Australian Mills - Bradaill Actil Limited Morris Woollen Mills Macauarie Worsted

John Vicars and Co.Ltd. North Western Woollen Mills Bruch Australia Rutherford Textiles Warmambool Woollen Mills

71

Hilton Fabrics Wylmah Trading

(d) Importers - Charles Parsons (Vic)Pty Ltd Andrews Bros Richard Allen Australia Pty Ltd Wenzel Fabrics A.W. McLean Pty Ltd

(e) Overseas for Special items such as Banner Silk by Indent through Washington and London.

(3) How do prices that the factory pays for their fabrics compare with those paid by private firms?

If for Defence orders then the fabric is supplied by Defence to Def. Aust. specifications, which is superior quality to commercial fabrics used in the garment industry.

Some items bought by Defence do not necessarily meet the specification of design and material quality of the Department, e.g.

Coveralls Manufacture by factory using Def. Aust. Drill - cost of manufacture in the order of $5.10 per metre.

Manufacture commercially, cost of material in the order of $4.34 per metre.

Shirts Manufacture by Factory using Def. Aust. shirting - cost of material in the order of $1.94 per metre.

Manufacture commercially, cost of material in the order of $1.23 per metre.

If a manufacturer owns the Mills producing the material then that Firm is attaining its fabric cheaper than A.G.C.F.

(4) What proportion of the fabric is Australian made? If some is purchased from overseas, from what countries is it purchased and what proportion from each country?

Australian made content restrictions placed on government purchasing activities until recently would have some effect on the amount of imported fabric approximately 5 per cent imported but likely to increase with lifting of Australian made content restrictions.

Overseas imports to date mainly from Japan with small amount from Korea and currently negotiating with a Malaysian supplier.

(5) Are the other materials (such as threads, buttons, zips etc) Australian made? If not, what proportion is imported and from what countries?

Bullion, some slide fasteners, some threads, Velcro (touch tape) and Nomex threads are not available in Australia. These items amount to approx­ imately 5 per cent of our requirements and are imported from Japan, United Kingdom and New Zealand.

(6) Is there a notional cost for storage of the factory's materials in other Government establishments?

There is a notional cost for storage of the factory's materials in other Government establishments but this cost is not taken to account in the factory's financial accounts or statements. It is expected that Department of Administrative Services will shortly introduce a charge for this service which is estimated to cost this factory $40,000 p.a.

-2-

72

-3-

(7) '«hat percentage, or number of hours, compared with total capacity is being utilised in the factory now, e.g. at the date of your reply ?

It is estimated that the factory is operating at 105% of capacity at present. Due to full utilisation of all available machines and factory floor space, extra flcorspace is being utilised by the renting of outside premises for the training section, and a portable building accommodating 20 production employees of the trouser section.

Yours sincerely,

/ (S.E. SILK)

General Manager

( s e e a t t a c h e d e x p l a n a t o r y n o t e )

73

EXPLANATORY NOTE FOR ANSWERS TO QUESTIONS IN THE LETTER,

28 MAY 1982, FROM THE CLOTHING FACTORY

QUESTION (1)

"In Aid" items are:-"Any item including materials or components, aids to manufacture (plant, tooling, test equipment) and items for repair or modification, issued free or on a charge basis to a contractor

to assist in the performance of a Commonwealth Contract".

Source: Government Purchasing Manual.

Procedure followed by Clothing Factory in 1 (a).

When an order is received from the Defence Services to manu­ facture a garment:

(a) the Clothing Factory has the right to order enough material from Defence Stores to cover that particular order, in "accordance with established usage.

(b) Defence Services then charge the Clothing Factory with the cost of the material.

(c) On completion of the order the Clothing Factory recovers the cost of the material in the price of the garment.

QUESTION (2)

Some governmental customers supply their own material. They charge the factory for the material, the factory pays for it and later recovers the cost of the material in the price of

the garment.

QUESTION (3)

Where the Clothing Factory has to tender for material on the open market it does not have the advantages of bargaining such as a private industry source would have. These advantages

arise as a result of the amount of material purchased by private industry, i.e. private industry buys a number of different types of material at any one time, while the Clothing Factory normally buys one type at a given time.

74

APPENDIX V

Information from the Department of Defence relating to maintenance of defence interests.

EXTRACT FROM TRANSCRIPT OF EVIDENCE P.226

Senator SIDDONS - I am very interested in your chapter 6

on page 5, 'Implications for Defence'. I would like that chapter

to be sent to the Department of Defence for comment, with particular

reference to the last two paragraphs. You state:

The Australian Government Engine Works was put on the market by the Government a few years ago, but due to the lack of a suitable buyer it was closed down. Now Australia has no capacity to manufacture and overhaul large marine

engines.

Then you finish by stating:

Given these precedents and the difficult position of the clothing industry in Australia today, how can the Government ensure that a private firm maintains the AGCF with

protection for defence interests?

75

DE P A R T ME N T OF D E F E N CE

S U P P L Y A N D S U P P O R T

C A N B E R R A . A .C .T . 2 6 0 0

T E L E P H O N E 6 6 2 3 9 9

CS&S 217/82

25 August, 1982.

Mrs M.L. Willheim, .

S e c r e t a r y , Select Committee on the G o v e rnment C l othing and Ordnance Factories, Par l i a m e n t House, CANBERRA. ACT. 2 6 0 0 · .

Dear Mr s Willheim,

Thank you for your letter of 11 June which

was p a s s e d to me by Mr A. Mawer for reply.

There is a difference between the situation as

it e xisted in the Aus t r a l i a n G o v ernment Engine Works a few

years ago and as it exists in the A u s tralian Government

C l othing Factory now.

The Engine Works was building large marine diesel engines which were suitable for cargo ships, but not for

warships. The downturn in the Aus t r a l i a n commercial shipbuilding industry meant that there was no viable workload for the Marine

Engine Works. At the time of disposal there was no Defence interes

or requirement for their products. The greater part of the workload of the Aus t r a l i a n

G o v e r n m e n t Clothing F actory is for the A u s tralian Defence Force and there is no foreseeable reduction in that demand.

Yours sincerely,

(M.W. Buckham)

Chief Supply and Support

76