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JOINT STANDING COMMITTEE ON FOREIGN AFFAIRS, DEFENCE AND TRADE Defence Subcommittee
30/03/2010
Department of Defence annual report 2008-09

CHAIR (Mr Bevis) —Welcome. Today the subcommittee will be taking a range of evidence from Department of Defence personnel pertaining to the annual report, including major projects such as the Joint Strike Fighter, the Air Warfare Destroyer and the multirole helicopter. The subcommittee will also examine the recruitment and retention of our servicemen and women and current pay system issues and seek an update on Australia’s operations overseas. I refer any members of the media who may be present at this meeting to the need to fairly and accurately report the proceedings of the committee. I am sure they will take great attention to that.

Although the subcommittee does not require you to give your evidence on oath, I advise you that these proceedings are legal proceedings of the parliament and therefore have the same standing as proceedings of the respective houses. The giving of false or misleading evidence is a serious matter and may be regarded as a contempt of the parliament. Are there any opening comments you would like to make?

Dr Gumley —No.

CHAIR —There being no opening comments, I thought for the purposes of today’s hearings it might be most useful if we go through the major project issues first and then some personnel issues, followed by operation and estate matters. I understand the Chief of Defence Force and secretary will be here this afternoon. There may be some matters discussed this morning that will have some carryover to the chief or the secretary at that time. But I appreciate that we have before us senior representatives who are involved in the major projects activity.

I think, for structural procedural purposes, we might try and do it project by project. We have before us the Defence annual report 2008-09, including the Defence Materiel Organisation volume,  as well as the Australian National Audit Office review of the DMO Major Projects Report 2008-09. Can I commence perhaps with the Joint Strike Fighter? We have got a list of items. The committee had the benefit of a private briefing in respect of scheduling and cost matters, and I think it would be desirable for some of that material, perhaps more of that material, to be on the public record. In making that point, I might just observe that in the United States Dr Ashton Carter, the Under Secretary of Defense for Acquisition, Technology and Logistics, gave evidence to the Senate Armed Services Committee a couple of weeks ago in which he made this comment:

This means that the average price of a JSF aircraft as estimated by the JET—the overall cost of the program averaged over all the years of production divided by the number of aircraft—would be more than 50% higher (in inflation-adjusted dollars) than it was projected to be back in 2001 when the program began.

Can you advise us of your assessment and interpretation of that and what it means for the costs that we are likely to incur.

Dr Gumley —Chair, yes, the information given by Dr Carter is correct. If you look at the total cost of the program, which includes the engineering and development costs of the aeroplane, and divide it by the quantities, it has gone up by about 50 per cent in real terms since the program started. It is important to recognise, though, that in that you are amortising the development of the aircraft, and Australia does not pay its proportionate share of that. So our average cost per aircraft is lower than the US average cost on that basis.

CHAIR —Is that the same type of aircraft? Because the US are doing three variants.

Dr Gumley —Yes. Of course we have also got to have a look at the three types of aircraft, so it is a very complicated mix. Australia is buying only the conventional take-off and landing version. In that mix that Dr Carter was referring to, you also have the more expensive carrier versions and the more expensive again short take-off and landing versions. So Dr Carter made that comment giving the average price for the US, but because we are buying the cheapest of the three variants, the CTOLs, our average price is a little less.

Air Vice Marshal Harvey —Chair, as Dr Gumley said, those statements by Dr Carter are correct. There is one key point of differentiation, though, and that is that I would like to separate the New Air Combat Capability project, which is our project, from the core Joint Strike Fighter project. They are the average costs, as Dr Gumley said, across all three types, including all the development costs and all the broader project costs. We step outside the JSF program and, as the minister has said, we have cost and schedule buffers and our own cost projections. We were never budgeting on that original 2001 cost estimate that the US started back in 2001.

CHAIR —It might be useful if you could, for the record and for the benefit of the committee, elaborate on how that costing was based on a different methodology, in that our initial costing included other factors to arrive at a higher initial estimate than the base figure that the US is using.

Air Vice Marshal Harvey —That is correct. We look at the annual reports that the US program office delivers to congress, called selected acquisition reports, and they started as early as 2001. Every year we look at those reports as the basis for our estimates. We have looked at the trend in those prices year by year. We have also done our own analysis on the history of aircraft projects and how price has tracked over time. We did some sensitivity analysis on the key drivers for the cost of that. We put all those things together and we always had quite a higher estimate than the US estimate for our own provisions for a project. Then we explicitly carry contingency on top of that for unknown risks as well.

Dr Gumley —Chair, that is a very important point that has just been made. The American system and the Australian system, up until last year, costed major programs differently. The Americans tend not to use contingency in their project costs. We have always traditionally used contingency in our project estimates. So, because major projects do increase in cost, what we do at the beginning of a project, like we have in the NACC project, is estimate a contingency, and it gets burnt down bit by bit as things happen to projects. The Americans tend to report their project increases year by year.

CHAIR —So when you factor in all those considerations and you look at the testimony given in the US Senate a couple of weeks ago referring to, on their estimates, a 50 per cent higher in real terms figure, what does that mean for your best estimate now of the cost to Australia?

Air Vice Marshal Harvey —Back in 2008 Dr Gumley gave an estimate of the price to the Senate.

CHAIR —To this subcommittee as well—to both committees, I believe, in the Senate and here.

Air Vice Marshal Harvey —I will just make sure we get the reference right. The expected price to pay for the average of our 100 aircraft fleet was A$75 million in 2008 dollars at a 0.92 exchange rate. That was an expected price, and we carry contingency above that as the aircraft only component of that. So we have to be careful with the numbers, because the numbers quoted there by Dr Carter cover the total project cost, which is aircraft, broader project costs, plus the development cost as well. Those numbers still hold good. We have done our projections out to the future, and the recent assessments do not change our assessments of what we will pay for our aircraft.

CHAIR —So that earlier testimony that has been given in different places in this parliament, before this subcommittee amongst others, that you just referred to for aircraft only cost is still your best estimate? We are still in that range?

Air Vice Marshal Harvey —At the time it was stated as the expected price to pay, and that has not changed now. Things will change a little over time but above that we have contingency as well, so it is a figure we have confidence in.

CHAIR —Based on what we know now, given the most recent evidence and reviews that have been conducted in the United States, that is still an accurate figure?

Air Vice Marshal Harvey —That is right, and we have provision above that amount.

Senator FORSHAW —Are you able to say here what the contingency is as a percentage?

Air Vice Marshal Harvey —We tend not to say specific amounts, because there are some commercial factors. It is a significant proportion of the total price. We are not talking one or two per cent; we are talking a significant amount.

Senator FORSHAW —I appreciate it.

CHAIR —How much were the additional costs that do not go to the actual aircraft—that is, the bits that make it work and usable—the cause of the higher cost estimated by the United States most recently?

Air Vice Marshal Harvey —They contribute in part because some of those are what they call parametric estimates. If the estimated cost of the aircraft goes up, the estimated costs for spares et cetera go up  in parallel. So that is part of it, and again we did our own assessment of those elements of the cost. But, again, the increased estimate of the cost is not just because something has changed in the program. There are a lot of external factors, because we are projecting out to at least 2034. We are looking at labour rates, material costs and a whole range of factors that affect that. It does flow across the broader project, but, again, we apply our sensitivity analysis to those factors as well.

Dr Gumley —A lot of the public debate on this subject has been because different people use different definitions of cost. We would not want to be seen to be misleading anyone about the numbers we quote. In previous testimony we have talked about the five or six different levels of price. When we just now quoted those figures we were talking about the cheapest possible price, which is the recurring fly-away price for a CTOL aircraft. Other people will talk about the average procurement cost, which includes the amortised R&D in engineering, and that is significantly higher. As we have talked about several times before, there are about five steps up in price depending on what you include.

CHAIR —I appreciate that and thank you. In fact, in years past, that was certainly a thorn in my paw. I think we have now at least got a baseline from your earlier testimony that provides—on that fly-away unit price—an apple to compare an apple with, which is what we have been doing so far today. If I am wrong, please correct me. It does raise the question: are those other—and there is that wonderful graph that sets out four or five different accepted calculations of that aircraft cost—estimates publicly available? Can you place them before the subcommittee either at an open hearing or in a closed session?

Dr Gumley —The average procurement unit cost is Dr Carter’s testimony to US congress and so that number is on the public record, and it is has grown proportionally faster than the cheapest cost we have talked about, which is a recurring flyaway cost, because the R&D and the engineering cost, what we call the STD phase, has got more expensive. So that part of the project, when amortised by the total production build, has got more expensive.

CHAIR —I was actually going to come to that, because along with the cost blow-out referred to in the US testimony there has been a slippage in the schedule. Secretary Gates has set about doing a number of things to try and rectify that, which has involved some additional costs being borne upfront for the STD aspects of the program. Does that bring with it additional costs for us in that system development and demonstration phase?

Air Vice Marshal Harvey —Secretary Gates has stated that the US were going to put an additional US$2.8 billion into the project to essentially build an additional test aircraft and an additional software test line and to cover the extra time involved in the 13-month extension to the test program. So there is no request from the US for us to contribute to that.

CHAIR —Okay. So the US is going to bear the full cost of that?

Air Vice Marshal Harvey —That is right.

CHAIR —My understanding is that they are shoving some of that onto the contractors.

Air Vice Marshal Harvey —What has happened is that Secretary Gates announced they were withholding $614 million, I think, of potential award fee from Lockheed Martin. So they have held that back. The position is that they will have the opportunity to win some of that back if they perform to the chief cost and schedule.

CHAIR —Okay. I was not aware of the latter part. I did not think they would be benevolent enough just to absorb $600 million worth of costs, so I thought some of it might be coming our way. But there is a structure in place for them to actually get that money back if they perform.

Dr Gumley —Yes, but only if they perform.

CHAIR —I think there would be a lot of people who would say that is not an unreasonable bargain. Can I just make one other observation. Typically at these sessions we raise criticisms—and I have probably done it more than anyone else by talking about the GAO report and other very critical comments. I should also place on the record that I noticed that in that same testimony by Dr Carter this comment was made:

None of these reviews—

and there are a number of them that are the subject of the evidence—

discovered fundamental technological or manufacturing problems with the JSF program, or any change in the aircraft’s projected military capabilities—

which is good news. Does our own assessment concur with that? Firstly, we would make our own assessment of that, presumably. We have got people actively engaged in the program, so we do not necessarily just accept every bit of assessment that is made there. Have we satisfied ourselves that that is an accurate assessment of capability?

Air Vice Marshal Harvey —We continue to review the capability of the JSF, as it is contracted to be delivered against likely threats, and our assessment of that has not changed. We believe it can do the job for a considerable time into the future, but we note that we will have to continue the upgrade program, which is built into the program, and continue to deliver new weapons as they come into service, and the DCP has provision for those.

CHAIR —Okay. I have been monopolising the conversation here. Are there other questions on the JSF that any of my colleagues wish to raise?

Senator FORSHAW —There is an article in the Australian Financial Review today—have you seen it?

Air Vice Marshal Harvey —I have seen something relating to Senator Faulkner’s comments yesterday.

Senator FORSHAW —Yes. Today is the 30th, isn’t it? I will just quote a paragraph—it is from an article by John Kerin:

Senator Faulkner announced in November that Australia would purchase the first 14 F-35 Joint Strike Fighters at a cost of $3.2 billion for delivery from 2014. Defence sources suggested Australia had paid too much—a price tag approaching $148 million for each aircraft.

Do you have a comment about that?

Air Vice Marshal Harvey —If I can clarify, the $3.2 billion is then-year dollars, so it does take inflation into account—

Senator FORSHAW —I am more interested in the $148 million per aircraft.

Air Vice Marshal Harvey —I am not sure where that number came from, because it is not a correct number.

Senator FORSHAW —It came from Defence sources, according to John Kerin.

Air Vice Marshal Harvey —Well!

Senator FORSHAW —I am giving you the opportunity to comment, given your evidence a moment ago.

Air Vice Marshal Harvey —I am not sure where that number came from. It does not relate to anything that I am aware of, specifically in terms of aircraft. As I was saying, the $3.2 billion is then-year dollars. If you pull it back to now-year dollars, it includes a large amount of contingency, and approximately half of that is non-aircraft costs. It does take into account the fact that the first aircraft have a higher cost than later aircraft. But the $148 million does not mean anything to me.

Senator FORSHAW —It is a lot more than your $75 million, and appreciate that we are not necessarily talking about apples and apples. It might be apples and apple strudel or something.

Dr Gumley —And the $75 million figure has no relationship to that number at all, because it is in 2008 dollars and we are talking about then-year dollars. The reason we put that figure on the table was so that, forever, there is a benchmark we can measure against. But for any figure you see in a newspaper or in a submission, you really need to do the maths to come back to that baseline figure.

Senator FORSHAW —Okay. Thank you. We will wait with interest to see what is in tomorrow’s Australian.

Mr OAKESHOTT —My question is along similar lines to Senator Forshaw, in the spirit of an opportunity to respond. If not in a paper today, I read in a news article recently—and I will give you the same opportunity when the Collins class issue comes up, because both were rolled into the same article—an allegation that the JSF was a political decision from the highest office in 2004 rather than a request from Defence. I am not going to ask you, on the politics, to respond, but I would have thought that in all of this the exercise is maximum value for money, which would be maximum operational and strategic outcomes. With regard to JSF, it is in that context that I would give you the opportunity to affirm or reaffirm that these are providing maximum value for money because they are providing maximum strategic and operational outcomes.

Air Vice Marshal Harvey —Perhaps I could step through the history and go back to 2002, when the then government decided to join as a partner in the Joint Strike Fighter project, at a cost of $US150 million. That was to join the partnership to get benefits associated with that, but that was not a decision to buy the aircraft. Even back in 2006, at first pass, that was a decision to join the next phase of the project. It was still not a decision to acquire the aircraft. The first decision to acquire the first 14 aircraft did not occur until November last year. But all those decisions were based on the assessment that JSF could do the job and do it in the most cost-effective way. I do not know what the 2004 date would refer to.

Mr FITZGIBBON —Could I just say on that: I suppose one might seek to go back to the time when Australia became a partner in the project. Would that be partly the answer to that question, or is that even prior to that date?

Air Vice Marshal Harvey —The time we decided to be a partner was in 2002, but again it was not an acquisition decision; there were benefits in being a partner, to allow us to make decisions subsequently.

CHAIR —The variant we are getting is most closely based on the US Air Force variant. I understand their initial operating capability is now planned for 2016.

Dr Gumley —That is the most recent testimony from the secretary to the air force, yes.

CHAIR —How does that with our plans for acquiring what we need?

Dr Gumley —We are over two years behind the US. We were expecting IOC to be declared in 2018; they are in 2016. We are intentionally staying behind the US program in this because there is not always an advantage in going first.

CHAIR —I think from previous evidence there would be a few members of the committee here who would agree with that.

Dr Gumley —An additional point is that there is a question of money. The early aircraft are more expensive. Lockheed is burning down the experience curve, or the learning curve, and so there is an advantage to saving money and being a couple of years behind as well.

CHAIR —Do any of my colleagues have any other questions on the JSF?

Mr BALDWIN —Could I ask, for clarity: how are we relative to our original agreed time line for acquisition?

Air Vice Marshal Harvey —We had planning numbers in the past, even as far back as the 2000 white paper. But in terms of a hard decision that only occurred once we made a decision to acquire aircraft, in November last year, which was aligned with 2018. Prior to that we had planning numbers but we had no hard IOC date.

Mr BALDWIN —From the original intended acquisition date, how far behind are we now?

Air Vice Marshal Harvey —It is a matter of how far back you go. Originally, back in the 2000 white paper, we were starting to look at some aircraft—we were looking at the classic Hornets back in those days—as early as 2012, but that was before we had even joined the JSF program. As you know, things changed back in 2006 when we decided to retire the F111s early, which brought the Super Hornets in, which allowed us more time to replace the classic Hornets. It has been part of the total air combat system, so there is no simple answer. The dates have certainly adjusted but taking into account those changing circumstances—the F111s going out and the Super Hornets coming in. But we had in the past looked at as early as 2015 for those aircraft.

Mr BALDWIN —What is the current date anticipated for delivery of the first of the JSF aircraft into Australia?

Air Vice Marshal Harvey —As announced in November last year, at second pass approval for the first 14 aircraft, the plan is to achieve initial operational capability, with the first squadron ready for deployed operations, towards the end of 2018. To achieve that, we are looking at acquiring our first two aircraft for training in 2014. The initial aircraft will stay in the US for training and then the last four of those 14 will come out to Australia in 2017 to do our Australia-specific operational tests.

Mr BALDWIN —Has there been any consideration about moving further down the acquisition time line to make sure that we do not repeat the errors that occurred when we acquired the F111, where we were in a rush to get them into Australia, had a bit of a fly around and then had to ground them and get an interim aircraft whilst there was further development and testing of the aircraft?

Dr Gumley —What we are doing at the moment is having a really good look at the classic Hornets—how long they are going to last for and whether we need to do some preventative maintenance in the next few years to make sure they can last out to 2020. It all becomes an equation. Let us be clear: aircraft are coming off the Lockheed production line now. They are coming out at about one a month at the moment, or something of that order.

Air Vice Marshal Harvey —Next year I think they will start to go to one a month.

Dr Gumley —Next year is one a month and then it moves to one a week a couple of years after that. So the aeroplanes are starting to come off the production line. Remember that Lockheed have got to get it up to one a day—one per working day—within about five years, so they have got a big ramp-up of production. So the question of availability of aircraft (1) goes to cost—the earlier you buy, the more it costs you—and (2) goes to slots, or which ones on the production line a particular customer can buy. All the countries are looking at the age of their current fleets. All of the partner countries have combat aircraft at the moment, and they are ageing, so we have got an optimisation question to look at between the cost of keeping the classic Hornets going and the cost of buying Joint Strike Fighters either ahead or behind particular dates. Those business cases are being worked on during 2010 so that we will have a much better piece of advice to offer government early next year.

Mr BALDWIN —You just raised the issue of the classic F18 and the cost of extending the life. I thought you had just been through that with the 10 or 11 barrel replacements, which were going to give you the extended life capability that you required until the introduction of the JSF. Are you now saying to us that you need to re-evaluate the rest of the fleet for further delays in the delivery of the JSF?

Dr Gumley —I will hand to Air Vice Marshal Thorne to handle that question.

Air Vice Marshal Thorne —The centre barrel program is largely complete. We have done seven of the planned 10 aircraft. Although at one stage we planned to do up to 49 centre barrels, we have been able to do some modelling and testing through DSTO and Air Force to confirm and be comfortable with safety factors around just doing 10 centre barrels. Through to a life of 2018 through 2020, we are quite confident that we will not need to do further centre barrel work for fatigue reasons. The reason we are quite confident about that is that, currently, our fleet leaders are at about 4½ thousand flying hours. If you compare that with the US, flying their A/B/C/D classic Hornets, they have about 61 per cent  beyond 6,000 hours and about 12 percent beyond 8,000 hours, so we are well off that lead. There are some issues. I am talking fatigue now, and centre barrel was all about achieving life of type by dealing with fatigue. Hornet, because of the environment and whatnot, also encounters corrosion issues. There will need to be some further work done to address corrosion on the Super Hornet. We are investigating that at the moment. We can perhaps invest some of the savings from centre barrel in corrosion management on the classic Hornet to achieve 2020.

Mr BALDWIN —So you feel comfortable that you will be able to extend the life, if required? If the JSF contract, for a variety of reasons, was to blow out by another two years, you could extend the classic Hornets to make sure that we cover the capability gap?

Air Vice Marshal Thorne —Yes, we are confident. There is never, ever a drop-dead date with aircraft. As the aircraft get older, and given that we are so far behind the fleet leaders—and we had a senior partnering board meeting on Hornet last week where Navy were talking about operating some aircraft up to and perhaps even exceeding 10,000 hours, so we are quite confident of achieving that—obviously, as you fly them longer, you need to invest more, and you are heading up the bathtub curve there. But the investment would be manageable.

Mr BALDWIN —I guess the question that I am leading to is that, given we just bought a squadron of Super Hornets, you do not see that if there is a delay in delivery or technology meeting the requirements through the JSF there will be a need to rush in and grab another squadron of Super Hornets to fill the capability gap?

Dr Gumley —No, we do not see that. We see that either through another small Hornet upgrade project to look at corrosion or through the sustainment budget—there are two ways of doing it—we would look after our classic Hornets to cover the life we need. But it is an economic question out there too, because every aircraft as it ages gets more expensive per year to maintain. So it does become a repair or buy decision as to when you actually switch over. So I am confident one way or another we will get there. At this stage I do not see any need to buy any more Super Hornets.

Mr BALDWIN  —I am sure that you have done the what-if scenarios and economic modelling. If the introduction of the JSF into the Australian Air Force were to be delayed, what would be the cost-benefit of actually acquiring another squadron of Super Hornets, to have those up and operational if you were to not spend the money on the classic F18s? Where would your financial position be if you did not upgrade the classic F18s and you delayed or if there were an inadvertent delay in acquiring the Super Hornets?

Air Vice Marshal Harvey —We have looked at those scenarios in the past. The Chief of Air Force would say the aim is to go to an all fifth-generation fleet for the future, to deal with the future threats. The aim to get to a single fleet is the most economical long-term outcome as well. So the model we have done suggests transitioning to the all fifth-generation fleet is the most economical way to go to the future. So we keep looking at it. You have the bathtub curve at the front end with the early JSFs and a bathtub curve at the back end with the late classic Hornets. As you know, the government agreed to a staged approval approach in late 2009, and we will go back in 2012 for the decision on the bulk of the aircraft. But the aim is to go to a single fifth-generation fleet, and that is seen as the most cost-effective way for the long term.

Mr BALDWIN —But if you look at block supplies—and I go back to block 1 of the Super Hornet as against block 2 of the Super Hornet—you cannot retrofit equipment back to the block 1 Super Hornets. Are we going to be faced with the same situation in the JSF where we have block 1, block 1(b), block 1(c) and then towards the back end perhaps block 3, 4 or 5—whatever the number is? Are we going to be able to retrofit back through to the first of the line we are acquiring to make sure that we have common capability and, importantly, commonality in parts for carrying the spares? You just said to me that the best thing is to have one aircraft and one line of parts.

Air Vice Marshal Harvey —Within the JSF development program there are three blocks of capability that come along. The hardware basically freezes at block 1, so block 2 and block 3 are purely software upgrades. The plan beyond that is another block every two years. The vast majority of that is in software. But about every four years you might do some minor hardware change, which would flow back through the fleet. But the plan is to keep all aircraft throughout the fleet at the same block standard, primarily through software but also through some hardware upgrades throughout their life. So that is the plan. I am sure things will change through time. We will have to do a bit more on the hardware side. But the aim now with the systems is that the hardware largely stay the same, and major changes are at software. One of the benefits we get is that we pay three per cent of the cost of those development upgrades as a partner in the program but get 100 per cent of the benefits.

Dr Gumley —It is inevitable with any combat aircraft that the black boxes in them will change over their 30-year life, and you build that into the cost of maintaining a combat fleet.

Mr BALDWIN —But, as I understand it, with the Super Hornet it was not a black box upgrade between block 1 and block 2; it was more an engineering upgrade and that is why the retrofitting back to block 1 of the equipment in block 2 cannot occur.

Air Vice Marshal Thorne —That is true. You need to understand that the block 1 to block 2 Super Hornet was not representative of what normally happens with air combat fleets either. The introduction of the Super Hornet was a unique program in that, through an ECP process, essentially they increased the size of the aircraft by 30 per cent and increased its payload, range and a whole range of things. To some extent that was block 1 and then the upgrade to block 2 was a fairly radical refit on that. In fact, block 2 largely took the avionics fit from the unsuccessful Boeing JSF bid and introduced that to the Super Hornet. It was not really representative of the kinds of block upgrades that you will see. In fact, the future with Super Hornet will be very similar to what Air Vice Marshal Harvey just described: each two years we would expect to see a mainly software dump go into the aircraft and possibly every three or four years some minor hardware changes, but in the main the same sort of philosophy.

CHAIR —I make an observation rather than ask a question. I suspect that, if the government down the track, whoever it might be, were to acquire a significant number of Super Hornets—one of the scenarios Mr Baldwin suggested—there would be some concern that would encourage a future government not to buy as many fifth-generation aircraft, having already acquired a larger number of Super Hornets. I suspect that is somewhere in the back of the minds of a range of people engaged in these decisions as well.

Senator FORSHAW —Can someone update me on what is happening with the engine noise? I am sure you are aware that this is of some interest in the area around Williamtown air base. I understand Defence is having discussions with the local council. I have never been able to get a clear answer—and maybe there is not one at this point in time—about just how much extra noise impact there will be from the JSF compared to the F111s or the FA18s.

Air Vice Marshal Harvey —We did extensive testing in the US of the JSF to make sure we have a good fact based approach to the noise for the JSF. Based on that data, we looked at expected use at bases around Australia. The key outcome for the JSF is: if it is in afterburner for take-off it is noisier than the current generation aircraft but in the circuit and approach it is less noisy. So there are those effects as well.

We have put out the draft public environment report. We have had feedback from that. Within the next week or so we are going to put the final PER out in response to the community comments. We have also put out—and this is the one that has gained the most attention for Williamtown—the Australian Noise Exposure Forecast—

Senator FORSHAW —Yes, the ANEF.

Air Vice Marshal Harvey —for 2025.

Senator FORSHAW —That is one acronym I am familiar with.

Air Vice Marshal Harvey —We have put that out based on the best estimate of likely usage of the aircraft with some noise mitigation procedures put in place. Now we have got the feedback, the report will go out and again we will engage with the community and the Air Force to see what other mitigation actions might be able to be put in place for those affected by the noise. We are engaging with the community and the councils to work through that.

Senator FORSHAW —How definitive is the testing that has been done in the States that you are relying on for the longer term? Is there some potential that the noise generated might be less than what is predicted at this point in time, given the development program?

Air Vice Marshal Harvey —We believe that the data we have is fully representative of the mature aircraft. There is some work being done in the US to see what might be able to be done to reduce noise, but it is very difficult. It is a big, powerful engine and it produces a lot of noise. On our approach we try to minimise the use of afterburner. We are looking at runway extensions at Williamtown, flight paths and doing as much as we can away from the base—for example, we will not do any practice bombing at all at Salt Ash range—to try to mitigate it as much as we can, but it is a noisy aircraft.

Mr OAKESHOTT —Just on that issue of low fly zones for residents, is that process you are talking about establishing a separate set of standards for those zones or do you just keep the same ones regardless?

Air Vice Marshal Harvey —We expect to do very little low flying in this aircraft. Because it is a stealth aircraft, you operate at medium altitude, so there is not much requirement for low flying with the aircraft at all. There is some requirement for using the range, primarily for gunnery, and that is what we continue to review in the noise forecast. We expect to do a full environmental impact study as well in the future with DEWHA as we go forward.

Mr FITZGIBBON —Air Vice Marshal, you made the point that there are three things that impact upon the local environment. One is the noise of the aircraft itself, one is the frequency with which it is flown and the third is the way in which it is flown. Are you saying that flight paths, for example, are still a matter for determination and negotiation? My understanding is that just a slight deviation from what you might call the current take-off flight path—I am talking 50 metres, for example—can have an enormous effect on the way in which the aircraft impacts upon the local urban community. Is that right and, if that is true, are you saying that it is still a matter that is under consideration?

Air Vice Marshal Harvey —We are still working on the final flight paths and things such as approaches—which approach you can use. It is sensitive to that, but if you move the flight path 50 metres it will tend to take the sound that far as well. You do not get a huge difference. The bigger effect comes from things such as whether you are using afterburner or not and the frequency of use of the aircraft. But we are continuing to work on that. The problem is, as you move the noise footprint away from one area, you push it towards another area. So we have been trying to get the right balance there, respecting existing homes because people are there already, versus new buildings, which are an important part of Kings Hill, for example, where people want to build. We want to make sure we predict as best we can what the likely impact is. But we are continuing those sensitivity analyses of usage of areas, flight paths, frequency of use and where we go for deployed operations.

Mr FITZGIBBON —You say moving 50 metres takes it elsewhere, but in this case it takes it to sea, which is the critical point. Is that correct?

Air Vice Marshal Harvey —Because of the general runway direction, we will have to use runway 30, I think it is, which has most effect on the community. Runway 12 does not have much effect, but just on wind conditions we are limited in where we can operate. But, as I say, we are looking at extending the runway and we are looking at the sensitivity of that and what effect that has on the community as well.

Mr FITZGIBBON —What is the end point in terms of operational necessity? Obviously, you only have so much flexibility in terms of your operational needs. Can I get some sort of feel for the extent of that flexibility?

Air Vice Marshal Harvey —We think we have done as much as we can possibly do, given the number of aircraft, the number of movements and the training requirements of Williamtown. We have used the simulator as much as we can. The main one we are focusing on now is Salt Ash Air Weapons Range, which is the one that gets the most attention, to see what can be done to reduce the noise there.

Mr FITZGIBBON —So you are saying those who still live in hope of a further variation in the take-off flight path are in fact living without hope?

Air Vice Marshal Harvey —We think we have done as much as we can at this stage to mitigate, purely in terms of take-off and landing for the aircraft.

Mr FITZGIBBON —Are those flight paths part of the public exhibition you have just spoken about?

Air Vice Marshal Harvey —Yes, they are. They are part of the noise maps.

Mr FITZGIBBON —So, from your perspective, people should expect that the flight path shown on public exhibition is the flight path they will get in the end?

Air Vice Marshal Harvey —We do not see a lot of scope to move the actual flight paths, because we do have to make assessments of wind direction, performance of the aircraft and the approaches we can use. But, as I say, we are addressing the community comments as we go out with our final PER as we go forward. Again, we do not want to give people false hope in terms of future noise. This is our best protection. The actual noise will be measured once the aircraft come into service, which is starting in 2018 or so.

Mr FITZGIBBON —You say that 50 metres only means a 50 metre shift in the noise impact. That is a good answer, because I was not sure if there was some other variable. I am not familiar with the urban environment—where the streets are, where the homes are or where the houses will be—but 50 metres in an urban subdivision can be quite substantial.

Air Vice Marshal Harvey —It can be and that is why the 25 ANEF contour is always shown as a dotted line. It is somewhat hard to predict anyway. We also have to work with the Australia standard and with state regulation which flows down requirements to the local council. The local council have some flexibility to interpret those rules as well. It is not a hard number. Even the line on the ground is a dotted line because it moves around a bit. That is where the councils work with the local regulations. We have been sending noise experts up to work with them to see what flexibility they have in terms of individual home owners and what they need to do.

Mr FITZGIBBON —Can I invite you to confirm what I think you said earlier—that is, when the F35 arrives Salt Ash weapons range will not be used at all. Is that what you said?

Air Vice Marshal Harvey —No, I said that we will not use it for practice bombing. It will still be required for the Hawk and we currently plan to use it for gunnery on the F35 as well.

Mr FITZGIBBON —So what did you say earlier?

Air Vice Marshal Harvey —That we would not be using it for practice bombing. They were only ever practice bombs anyway. So it is not the noise of the bombing; it is the noise of the aircraft in the pattern.

Mr FITZGIBBON —Okay.

Mr BALDWIN —What time frame do you anticipate before you make a decision about extending the runway at Williamtown?

Air Vice Marshal Harvey —We will probably do an analysis over the next couple of years. I do not think we will make a decision until the 2012 decision on the next acquisition of aircraft because that is when the majority of funding comes for the facility side of it as well.

Mr BALDWIN —I know that the ANEF is a forecast or a prediction and I know that, through the Williamtown consultative committee, you have had mobile noise monitors to measure the actual effect on the ground. At what stage do you go back with an actual noise pattern to council so they can better determine planning requirements?

Air Vice Marshal Harvey —We will not know the actual noise footprint on the ground until the JSF starts flying. We continue to refine the noise forecast—

Mr BALDWIN —Not with the JSF, but going backwards to the last one, which was laid down for the approval for the Hawk. I think 2012 was the ANEF. When do you go back and say: ‘Here is our actual noise contour. Our prediction for 2012 is this, but because the plane has been up for a couple of years now, here is our actual noise footprint?’

Air Vice Marshal Harvey —I do not know specifically in terms of the current aircraft. In terms of getting ready for the JSF, there are noise monitoring devices out there now. So people are measuring noise as we speak to know what the actual noise effect is.

Mr BALDWIN —That is great, but when do you actually lay out a footprint for council to be able to model its planning on actuals rather than forecasts?

Air Vice Marshal Harvey —I believe the actuals are available now for the current aircraft. For the JSF, obviously we will—

Mr BALDWIN —I think the actuals are measured as an ANEC. Is that the term that you use?

Air Vice Marshal Harvey —The ANEC is the forecast. I believe that goes on regularly. They do monitor the actual noise on the ground there.

Mr BALDWIN —So on the 2012 ANEF, when is the actual ANEC handed down for that noise footprint?

Air Vice Marshal Harvey —I will have to take that on notice.

Mr BALDWIN —It is one thing to put forward projections, but I think it is also important to measure the actuals on the ground and then do a comparative analysis between the forecast and the actuals, which would give the council a better planning tool as it looks towards the 2025 ANEF and at what the possible outcomes of actual noise measurement may be.

Air Vice Marshal Harvey —Of course, those sorts of things are affected by civil traffic as well and what actually happens with the use of the airport, but I will test that.

Mr BALDWIN —I accept that, but the civil aircraft fly a direct route in and a direct route out of the airfield. They do not do the loops, do the touch-and-goes nor go to the Salt Ash weapons range.

Air Vice Marshal Harvey —Correct.

Mr FITZGIBBON —Mr Baldwin and I find ourselves on a quite unusual unity ticket on this issue. Air Vice Marshal, I thought you said that you will not actually know the noise impact of the JSF until it flies out of RAAF Williamtown. Is that what you said?

Air Vice Marshal Harvey —What we have now is a forecast of what we expect it will be. The weather effects, the specific local environment in terms of the land and what actually happens on the ground will be measured at the time by sensors on the ground. What we do now is do our best estimate of what it is going to be so council can make planning decision based on that.

Mr FITZGIBBON —I suppose I cannot expect you to answer this question, but I am just wondering what that means in terms of the legal framework. I assume that gives council the protection it needs and the capacity and confidence to go forward in making these decisions.

Air Vice Marshal Harvey —Under the Australian standard we provide the forecast and council uses that as a basis for its future planning.

Mr BALDWIN —On the back of what Mr Fitzgibbon just asked: if you look at the 2012 ANEF that has just been laid down, the noise footprint over Oyster Cove for the introduction of the JSF actually precludes any further building in that area. You have a situation at the moment where Port Stephens council is in a quandary. If it approves residential development under and ANEF, not an ANEC, and then that contour actually comes up, then council has acted negligently. However, going back the other way, if it refuses approval for someone to build a dwelling on something that is approved for zoning for construction, and then the ANEC comes out in, let’s say, 2020, saying you have some noise footprints there, and you say, ‘Oh, sorry, we made an error here; you can actually build there now’, what does that person who has had their life put on hold for a decade do?

Air Vice Marshal Harvey —I accept that it is a challenge. All we can do is look at what we best understand the noise footprint will be so people can make long-term decisions based on that. Part of the PER process is to get feedback from those people on which areas are particularly affected, and we continually look at what mitigation measures we can take.

Mr BALDWIN —But I hope you can understand the issue here. One is a forecast of what may occur, but in having to escape any negligence for approving planning on the basis that they were informed that this is a possibility, it is double-edged sword for council—if that contour does not come up in that direction when it is an ANEC, and council has denied somebody a right to build on their land because a forecast, not an actual, saying that no construction was to happen under that noise profile.

Air Vice Marshal Harvey —I agree it is a difficult job for the council. I have talked with the council. DSG have taken specialists up there as well. The alternative is to not try and give them advance warning, which is not good either.

Mr BALDWIN —That is why I asked you the question about the 2012 ANEF and when a contour map is actually going to be produced for the noise footprint which can then give council a level of surety that this is actually the noise effect—‘This was the forecast, but here is the actual effect.’

Air Vice Marshal Harvey —I do not know specifically about the 2012 one. I imagine that because they have monitored on the ground they would look at the footprint and compare that with what was forecast before, which should give them more confidence about how accurate the 2012 forecast is.

Mr BALDWIN —Okay. But I hope you took on notice to provide this: when is the ANEC, from the 2012 ANEF, going to be produced and made into a public document?

Air Vice Marshal Harvey —Not knowing the specific 2012 ANEF, presumably, because it is projecting to 2012 and will take into account increased traffic out to that time, you will not know exactly if it is right until you get those conditions applying in 2012.

Mr BALDWIN —But the ANEF 2012 was for the introduction of the Hawke, not the introduction of the Hornet.

Air Vice Marshal Harvey —That is right, but it also takes into account other things around it, such as what is the usage of other platforms at the time, because it is an average—it is not just relating to the Hawke, of course, but takes into account other activities at the time as well.

Mr BALDWIN —Try and look at it from all perspectives. You have a council that is dealing with a bowl of jello: it pushes it in a certain direction but, no matter what it does, it always has a problem but it cannot contain the problem because it is either a forecast or an actual. It could face legal action on two fronts: one for approving and the other for not approving.

Air Vice Marshal Harvey —It is a difficult challenge. The best we can do is try and predict what the likely situation will be. The requirements of the Australian standard flow down to state legislation, which empowers council to make decisions. There is some latitude there, but that is the complex area that the local council works in.

Mr BALDWIN —If I can just mention the Kings Hill development. I know Defence’s position is recommending to council not to approve residential development under the flight paths but, given that it is currently zoned agricultural farmland, and it is a flight approach path that will never change—people will always come in on that heading over that farmland—why doesn’t Defence move to acquire farmland, as it did at the eastern end under Lavis Lane, and therefore protect its approach and departure parts? Because, if it is farmland, it is a lot cheaper per acre to purchase than once it is rezoned as residential.

Air Vice Marshal Harvey —I will have to take that on notice. I will talk to the Defence Support Group about that. It is more their area than mine, but we will raise it with them. We were asked by the New South Wales government to produce the noise footprint so they could make decisions about Kings Hill as well.

CHAIR —Final question, Mr Fitzgibbon.

Mr FITZGIBBON —The important take-home message for you is that the local members who are affected by this, including Ms Grierson, who actually has Williamtown in her electorate—

Ms GRIERSON —I have the base; I do not get the noise area.

Mr FITZGIBBON —would be amongst the most sympathetic people in the parliament towards the operational needs of the RAAF. We are very frustrated by the inability of Defence to give councils some early answers and therefore capacity to go forward with their planning processes. This has enormous implications for urban settlement in the valley where demand for housing significantly outstrips supply. So the take-home message, please, is: we are frustrated and we would like Defence to work very hard on getting some more certain and earlier answers to the decision-making bodies.

CHAIR —There are a couple of things you have taken on notice. I want to draw this topic to a close at least for the moment. We have had a significant amount of time, and that is appropriate. The acquisition of our next generation aircraft is arguably the single most important strategic acquisition this nation will make in a generation. It is certainly going to be the most expensive, and it is appropriate that we devote the time we have as well as for the obvious local implications. We will move to the second item on our list, which is the AWACS aircraft. It is about 40 months overdue. It is still listed as a high-risk item. Can you give us some good news?

Mr King —We have made good progress on the project. It is late—49 months late. In summary we have taken initial delivery of the aircraft, which has allowed the commencement of flight crew training. The delivery of the mission capability is actually triggered by what we are calling initial acceptance. We are expecting initial acceptance in late April, early May. Boeing is forecasting final acceptance in December. We are not as comfortable as Boeing about that date but we are not talking years; we are talking months. The final acceptance relates to electronic support measure acceptance, so between initial acceptance and final acceptance is the remaining piece of the capability that needs to be corrected or brought up to the final operational state.

I think the end is in sight. We are certainly pleased to get the first two aircraft back here and operating with a flight crew. Improvements are going on all the time with system stability, radar performance and so on. That is the summary of it. We have made a commercial settlement with Boeing on matters relating to the late delivery and also matters that I think I brought to this committee’s attention, which was a shortfall in one area of radar performance and coming to an agreement for compensation for that but also a structure so that over time that capability can be brought up to the standard we had hoped in the first instance.

The point was: we had an independent group, Lincoln Laboratory from the US, look at that radar. They advised us two things which were very important: one was that the radar was a sound basis for moving forward; and the second was that existing technology could not deliver that element of capability at this time. So our compensation is one to allow us over time to introduce that technology and get that capability; in fact, we are hopeful it will even improve the capability beyond the original specification.

Mr BALDWIN —When you appeared before us you expressed at that time that you were referring it to the Lincoln Laboratory for testing and that it would come back as a percentage of achievability. What percentage of its initial planned capability have you been able to achieve?

Mr King —Do you mean total aircraft capability or radar?

Mr BALDWIN —Total but also of the systems integration.

Mr King —Of the total system there are about 10,000 technical points. We expect to achieve the vast majority of those technical specifications.

Mr BALDWIN —By December?

Mr King —By December. Already, many of those exist. In fact, in some of them the company has exceeded the specification. By December, the two areas that will exist and remain problematic, in my opinion—Boeing still make the point that they believe that they will complete the program by December—will be the ESN performance, the electronic system, and the deficiency in pulse Doppler radar performance.

Mr BALDWIN —I was rather alarmed to read in one of the media reports on the AWACS that the system would work fine and then, all of a sudden, all the systems would have to be shut down mid-flight and rebooted to get them operational again. Is that true? What has been done to rectify that aspect of it?

Mr King —Continual work has been done. That is what we call system stability. There are various degrees of it. If we go back about 12 months, system stability was quite a short duration—hours.

Mr BALDWIN —How long?

Mr King —It was around two hours. It was not necessarily a complete shutdown. That is now being significantly extended, closer to mission time.

Mr BALDWIN —How long is it planned that the aircraft go up for—10 hours, 12 hours, 20 hours?

Mr King —I will have to take that on notice. I believe it is around six hours.

Mr BALDWIN —Your operational time frame for the systems before they had to be rebooted was two hours. Now it is three hours?

Mr King —No. Currently, it is closer to mission time. The last figures I saw showed it was about 4½ to five hours.

Mr BALDWIN —What is the reboot time—for the system to be shut down, to bring it all back up, to get the full picture?

Mr King —It has different failure modes. It has a mode where, if there are elements not working, elements of, say, the complete radar—would you call it gradual degradation—you can keep operating. On other occasions you can get a hard shutdown. I would have to check but they are significant periods—I think, more than 20 minutes to restart it.

Mr BALDWIN —When you are required to shut down is it because of a software integration problem or is it because of a hardware problem?

Mr King —It is predominantly software. We will not accept it—we will not get to the initial acceptance until those shutdowns, for example, are within tolerance.

Mr BALDWIN —You said ‘predominantly software’. What are the hardware issues that are causing it to fail?

Mr King —There were certain problems with the transmit-receive modules. I think they have all now been corrected in the last testing. So I think we are in the software domain.

Mr BALDWIN —Can I suggest to you, Chair, that when we come back after the budget session we actually get an in-confidence briefing at committee on where the AWACS is actually at. There are a lot more things I would like to explore, but I do not feel comfortable doing it publicly.

CHAIR —That is probably a good suggestion.

Mr King —Can I stress that, at initial acceptance, with the exception of the pulse Doppler radar performance—of which we know the deficiency level—all those other matters would have been raised to the acceptable standard for Air Force before initial acceptance.

CHAIR —One of the questions you might take on notice for that subsequent briefing—I think Mr Baldwin’s suggestion is a good one—is that there is a whole raft of off-the-shelf aircraft of this type, with systems integrated, that you can buy. Can you give us some idea of how they sit against the capability that we will have, let us say, by the end of this year rather than what we thought we might have been buying five years ago. It would be useful to get some comparative understanding of what we have, compared to military off-the-shelf available kit. Are there any other questions people want to raise about the AWACS?

Mr FITZGIBBON —I am not sure whether this is more an operational question and therefore whether those at the table can answer it, but when will a Wedgetail first meet an F35?

Vice Adm. Tripovich —I am assuming that, when the first JSF arrives in country as part of the Australian acceptance—and I am really speaking on Air Vice Marshal Harvey’s area—but I would imagine that you would see AWACS and JSF do some interoperability testing and assessment, given that both those aircraft are part of the air defence capability, if you see what I mean.

Mr FITZGIBBON —So there is no possibility that the Wedgetails will go to the US for integration and training?

Vice Adm. Tripovich —I do not know. I recommend that you leave that to the private briefing, then you can get the whole picture, rather than me trying to guess. That would probably be the best way to do it.

CHAIR —You can take that on notice for a private briefing.

Vice Adm. Tripovich —For the briefing, yes.

CHAIR —Are there any other matters on AWACS?

Dr Gumley —Can I just confirm that the private briefing will be after the budget?

CHAIR —We will do it during a sitting week and the first sitting week is the budget, so it will not be that week. We will line something up during the budget session at a mutually convenient time. We touched on the F18 Hornet upgrade and the refurbishment in the discussion of the JSF. Are there any additional matters people want to raise about the F18 upgrade?

Mr BALDWIN —I have only one question. If in your determination you needed to extend the life by doing more centre barrel testing, would you be looking at doing those in Canada as a continuum or bringing the capability to do that back in Australia?

Air Vice Marshal Thorne —In all likelihood we would probably do those in Canada. As you can imagine, it is a very complex modification. It involves breaking the aircraft apart and taking the wings off. It involves very complicated jigs and fixtures, for which L-3 have that expertise. So I would imagine that would be the case. Of course, if we were doing a very large number—indeed, when we were looking at that in the first instance with 49 we were looking at the business case for doing that in Australia, possibly using overseas expertise to augment our local capability.

Mr BALDWIN —Given that you are in the process of running 10 through, what is the cost per centre barrel to put it through the testing?

Air Vice Marshal Thorne —The entire program? HUG 3.2 is the project that we are putting through. I need to look at what the value of the project is. To date, we have expensed $292 million for the 10 centre barrels.

Mr BALDWIN —So the cost is about $29 million per centre barrel?

Air Vice Marshal Thorne —That sort of magnitude.

Mr BALDWIN —When will you be looking to make a decision whether you do more centre barrel testing beyond the 10 that you have already done?

Air Vice Marshal Thorne —As I have said, there is no plan to do more centre barrel testing at the moment. Currently, we believe, looking at fatigue usage, that 2020 is achievable and that 2018 is the official withdrawal date of the aircraft. We are looking at 2020 as a hedge against delay. We do not believe we need to do any more centre barrel testing to get to 2020. As I said earlier, there is some other corrosion work that we need to do to get to 2020.

Mr BALDWIN —The L-3 are doing the work in Canada. How long do you think they will have the capability for an international requirement of doing and keeping centre barrels operational?

Air Vice Marshal Thorne —I do not know the answer to that. I would have to take that on notice. They have aspirations, I guess, of taking US centre barrel work. Currently, they are not doing US centre barrel work but they have the capacity. They have been lobbying hard to do that. If that were the case, though, they would still be in business for quite some time. This is a bit of a moving feast and I mentioned earlier on that the United States, both marines and navy, have some very high-use aircraft. One possibility is that, if they are compelled to extend those aircraft into the 8,000- or 10,000-hour kind of range, it is possible that they will need to do a lot more centre barrels in that space.

Mr BALDWIN —And if we needed to we would still be able to slot into a program to have that work done? Or do you think there would be no capacity there at that time?

Air Vice Marshal Thorne —I would be speculating. There is centre barrel update capacity through the US Navy in the US and there is centre barrel capacity with L-3 in Canada. If you are interested, I would have to go back and take it on notice to look at what the future plans are for L-3 in Canada.

Mr BALDWIN —What concerns me is that we get to a funnel point where we have to make a decision one way or the other. If there is a delay in the JSF we have to extend the life of our F18s, but we cannot get capacity in the centre barrel testing, because everyone else is trying to rush their aircraft through there at the same time. We then end up in a hamstrung position.

Air Vice Marshal Thorne —At the moment, we have not seen any evidence of capacity limitations at L-3. They have far and away the capacity to do whatever we would want to do.

Mr BALDWIN —Okay.

CHAIR —Let us move on. We have also touched on the Super Hornet in our earlier discussions on the JSF.

Ms GRIERSON —I want to know the Super Hornet training schedule. When will that commence and how will it be run out for air crew and ground crew?

Air Vice Marshal Thorne —The Super Hornet training contract with Raytheon was signed recently. That is underway at the moment.

Ms GRIERSON —So it has begun.

Air Vice Marshal Thorne —It has begun, yes.

Ms GRIERSON —Do you want to make any other comments on the challenges involved or how it is progressing?

Air Vice Marshal Thorne —Not really. I think it is a fairly low risk exercise. Raytheon Australia, who took on that contract, also do the training for the classic Hornets under contract. They have an experienced subcontractor, Milskil, who also do training for Super Hornets. They have a lot of experienced former Australian and former US instructors in that program, and we believe it is a fairly low risk enterprise.

Ms GRIERSON —And what is the feedback from the personnel on the ground?

Air Vice Marshal Thorne —From the training? We have not had feedback yet. As I said, it has only just recently been signed off.

Ms GRIERSON —Thank you.

Mr FITZGIBBON —When talking about bridging capability we were talking about centre barrel replacements. We were also talking about corrosion. That was on the Super Hornets, correct?

Air Vice Marshal Thorne —No, it was corrosion on the classic Hornets.

Mr FITZGIBBON —I see. That would have surprised me. I thought that, given the Super Hornet had a naval capability, it would have some form of protection against corrosion. Would that be the case?

Air Vice Marshal Thorne —That is true. These things are aluminium aircraft, so no matter what you do you will end up with corrosion. A lot of the corrosion we are seeing is around fuel tanks and the like, where fuel necessarily introduces moisture.

Mr FITZGIBBON —Given it has naval capability in the US, has it been built in a way which makes it less susceptible to corrosion than, for example, the classic Hornets or other aircraft that the US uses?

Air Vice Marshal Thorne —Supers versus classics? There are structural differences between supers and classics. The most significant of those is that the centre barrel on a Super is titanium, not aluminium, so it has a fundamentally stronger core. It has more composite in it, but it still comes down to aluminium. Yes, you can coat it, bond it and do those sorts of things, but fundamentally, in the normal wear and tear of operations, it will corrode.

Mr FITZGIBBON —Therefore, composites are, in a sense, more appropriate for naval operations.

Air Vice Marshal Thorne —Yes, but the composites are generally used in the skins and the like. When we are talking about corrosion that causes concern, a lot of that is in structure.

Mr BALDWIN —I go back to the centre barrel. I think your anticipated savings from not having to do the extra centre barrels is about $400 million. Correct me if I am wrong on that.

Air Vice Marshal Thorne —It is about $480 million inclusive of unallocated budget and the contingency that we would write that back.

Mr BALDWIN —How much of that would be apportioned to the corrosion program, upgrading the undercarriage and things like that? What are your costings going to be on this?

Air Vice Marshal Thorne —It is still very early days and the project is still to go through the defence committee and government, but we estimate about $180 million over six or seven years.

Dr Gumley —It may be a bit more than that. It depends on what you find when you open up some of the aircraft. But I will perhaps give the committee some guidance as to the comparative costs. You asked earlier about an extra squadron of Super Hornets. They would cost you at least $1.5 billion to $2 billion or more. Here we are talking about something which is perhaps $200 million, $300 million or $400 million—one is perhaps five times more expensive than the other. That is why from a purely economic point of view it makes a lot of sense to put the work in to make sure the classics can see us through.

CHAIR —Can you give us the current scheduled delivery dates for the remaining aircraft?

Air Vice Marshal Thorne —Yes, I can. They are coming off the production line at one a month at the moment. They are being batched and tested in the US. At the moment we have planned about six waves of delivery, which is around the economics of tanker transport and the like. The final aircraft are due for delivery in late 2011.

CHAIR —So it is a fairly regular flight of four at a time.

Air Vice Marshal Thorne —That is right. On this schedule we expect the next waves, wave 2 and wave 3, towards the middle of this year. Wave 4 will be early next year, wave 5 will be in the middle of next year and wave 6 will be at the end of next year.

CHAIR —I make the observation that the arrival of the four into Amberley just a couple of days ago received a lot of very positive popular news coverage and support. I notice the local mayor, the Mayor of Ipswich, who has previously been asked about noise problems, simply refers to it as the ‘sound of freedom’

Mr FITZGIBBON —That does wear thin for some people.

CHAIR —He is in Ipswich.

Mr FITZGIBBON —There goes the sound of (inaudible).

CHAIR —That as well—jobs and a whole lot of other things for the local economy, I am sure. In all seriousness, I just make the observation that I think the arrival of the first four went very well in the local community and the media coverage was very good.

Air Vice Marshal Thorne —We actually delivered five aircraft.

CHAIR —Sorry, you are right. It was five. They were escorted by four F111s. Thank you. If there are no more issues on the Super Hornet, we will move to the light protected vehicle. I know Mr Gibbons has got some questions.

Mr GIBBONS —I will come to 12154 and my questions will be to Vice Admiral Tripovich. I have one query on Land 121 phase 3 in relation to the selection of 20 vehicles for the initial assessment, of which I understand three have now been short listed. I understand that the Thales Copperhead vehicle, which is a Bushmaster based vehicle with a single cab flat-top tray, was initially overlooked; it was not considered in the 20. It was added some time later and it has actually made the short list, along with a Mercedes vehicle and a MAN vehicle. Why was it excluded in the first assessment?

Vice Adm. Tripovich —If it is 12153 it is an approved project. I am going to defer to the DMO. I am not skipping out from the project. It is in the DMO.

Mr King —I am not aware of it being excluded.

Mr GIBBONS —There were 20 vehicles assessed initially. It was not included in those. Apparently there was a review of those vehicles after the change of government and the Thales vehicle was included in that initial 20, and now it has actually made the short list.

Dr Gumley —We selected a preferred tenderer for that project, from memory back towards the end of 2007. That vehicle, which is an American vehicle, did not pass all its tests on the proving range, so we went out to re-tender. The first time round the Bushmaster Copperhead, or that variant produced, the Thales, was not ready. By the time we had gone through the re-tender, Thales had done a lot more development work and it was ready and it was included. So I do not think there is anything untoward about the fact that it was not ready to be looked at the first time round.

Mr GIBBONS —I understand that there are reports from the US in terms of difficulties with the JLTV project. I realise that a lot of people in America make their living out of writing speculative articles, but what concerns me is it appears that it is going to have a major weight problem. I understand the Australian specification calls for a seven-tonne maximum, yet all the reports out of the US indicate a much higher weight level for the JLTVs.

I understand that the whole program could be in difficulty—and I emphasise the word ‘could’—because of the economic environment over there. Also there could be time blow-outs, which would be related to the economic arrangements. Also I understand that there is a view in the US in the military—the Marines and the Army—that a better way forward might be a much smaller, lightweight MRAP vehicle rather than going ahead with the JLTV. Are you able to provide any advice on that?

Vice Adm. Tripovich —First of all, you are right: there are lots of people who spend their time writing lots of articles about what might or might not happen. A lot of that is sometimes driven by commercial interests and sometimes driven by pure speculation. But let me tell you what we know is true.

We are part of the technical development phase. The provision of vehicles to Australia for testing in Australia as part of the overall testing program is on time and we fully expect to get those in the third quarter, about August-September, of this year for testing that will go through till May. That part is on time. We are very pleased with how the development of those right-hand drive versions is going.

The program is very focused, as I understand it, on the weight issue. There will always be in the US various requirements between army and the marine corps for good reason. At a recent Australia-US high-level meeting on acquisition logistics—Mr King and I were there—Dr Ash Carter reaffirmed his strong support for that program, and it is going ahead. At the very senior level there was no indication that that program was going to be delayed or is in trouble.

It is a tactical development phase, and that is really important. They are building prototypes to evaluate to refine their requirements. That is what this phase is about.

Mr GIBBONS —So what about the weight problem? Will they be able to produce an Australian variant for testing that will meet our weight requirements?

Vice Adm. Tripovich —We will get a variant out here that will meet our requirements for the testing we have to do, which is to confirm our requirements.

Mr GIBBONS —And that will weigh no more than seven tonne?

Mr King —We do not have the final vehicles yet. They are still in production. I think Vice Admiral Tripovich’s point is very well made: this is a technical development phase. The way the US portray that, which I think is very valid, is they are looking at the trade-off between mobility, weight and protection. So the three manufacturers deemed by the Americans to be the most competent are all trying to optimise that triangle and they are going to produce variants which will then be tested—they will be tested not just for weight but mobility, explosive resistance and so on.

It is important to remember that that is a technical development phase. From that and from the testing we do with our variants we would then be better informed about what our requirements can realistically be because this whole protection armouring has become a heightened activity because of our experience in Afghanistan and the degree of protection that we seek. The important point is that this phase of the program produces vehicles from which we will better understand the framework of requirements that physics will allow us to ask for.

Mr GIBBONS —So what you are saying is that we may have to rearrange our specification requirements to suit these vehicles?

Vice Adm. Tripovich —As a result of testing these vehicles, we will know what our requirements need to be balanced against what the laws of physics allow you to do.

Mr GIBBONS —But if we have called for a seven tonne maximum—and I understand the reason for that is so it can be slung under a Chinook—then why would we want to consider going outside that capability?

Vice Adm. Tripovich —We are not. We are participating in the technical development phase to test what is physically achievable balanced between protection, cost, the laws of physics and transportability and then we will have a set of requirements that we will know, with the Americans, is achievable.

—The last question I have is about the request for proposal process. I understand that the time for that process was closed off a month or so ago. How soon can we expect to see some result from that? I understand that there were quite a large number of expressions of interest from Australian manufacturers and I also understand that there will be a short list. Can you provide any advice as to a future time line for that process?

Vice Adm. Tripovich  —I can say that, in the next couple of months, we will be providing government with advice on the outcome of those assessments and recommending a way forward.

Mr GIBBONS —Why does it take a couple of months?

Vice Adm. Tripovich —There is a process that is undertaken to get to NSC. There is a finite period of time for that, which I am sure you would understand from the committee process. Advice to the minister will be well inside that and then, I fully imagine, it will have to go to NSC, which is appropriate.

Mr GIBBONS —To?

Vice Adm. Tripovich —The National Security Committee of Cabinet.

Mr GIBBONS —Would that lead to a request for tender process, which will again involve some considerable time?

Vice Adm. Tripovich —Subject to a number of options which will be presented to government, we will be able to say to government: ‘This is what a company has told us. This is what we know. This is our assessment and recommendations on how to proceed from there.’ I do not want to go into the details of the outcome of the assessments for obvious reasons. It is still under a valuation process and we should not do the announcement here.

Mr BALDWIN —Can you confirm—and I go on record purposefully—that there was US$40 million spent to participate in the JLTV program in the US?

Vice Adm. Tripovich —US$30.6 million.

Mr BALDWIN —And there was media reporting that there was a requirement for another US$100 million to continue participation in the project. Is that correct?

Vice Adm. Tripovich —The US tactical development phase comes to completion around the middle of 2011, after all of the evaluation that I have spoken about has happened both in the US and in Australia. At that stage, the Americans will make a decision about whether they will proceed to an engineering manufacturing and development phase—EMD phase—which is the next phase.

Mr BALDWIN —So our total commitment today is $30 million?

Vice Adm. Tripovich —US$30.6 million.

Mr BALDWIN —Are we committed to any further—

Vice Adm. Tripovich —No, we are not committed at all. In the middle of next year, the Americans will be thinking about the next phase. If they were to proceed and if we were to become involved, it could be up to $100 million. But it really does depend—and this is the subject of ongoing negotiations between Australia and the US—on what we will know at the end of the phase that we are in now, on what the objectives are in their phase and on what information we get from it for what levels of investment. It is very similar to what Air Vice Marshall Harvey described, which is that we will make a decision about committing to the next phase of development of the JSF. A few years ago, it was very much about ‘What do we get for our money?’ It is not just a process of handing over $100 million; there is a value for money consideration. The negotiations between now and August next year are exploring what the Americans might do, what elements we might want to be involved in and what it might cost us to be involved in that.

Mr BALDWIN —Can you inform the committee of how much money has been spent in Australia on development programs for a JLTV?

Vice Adm. Tripovich —I do not know what the companies have spent.

Mr BALDWIN —No. How much has the Australian government spent—

Vice Adm. Tripovich —On the manufacture and supported RFP—

Mr BALDWIN —on developing a JLTV in Australia? Given that we have spent US$30.$6 in America, how much have we spent in Australia?

Dr Gumley —A commitment to expend money is one of the things that we will be taking to government in the very near future.

Vice Adm. Tripovich —But right now the department has not made any investment.

Mr BALDWIN —So there is nothing.

Vice Adm. Tripovich —No.

Mr BALDWIN —Okay. In the estimates in February of this year, Admiral, you were asked the question: ‘Had the JLTV program had a head start in the US?’ and you said yes. You were then asked, ‘Would it be difficult for an Australian proposal to catch up?’ and you replied yes.

Vice Adm. Tripovich —That is literally a matter of the fact of time. The American program has been going for some time now and has received a considerable amount of investment. In the advice that we will be presenting to government, the results of the RFP, we will be making suggestions such as: what could be done if it were manufactured and supported in Australia—what you would call the Australian JLTV; and what options could we explore in Australia so that decisions concerning the JLTV program are made with appropriate information about what is possible in Australia? There are basically two streams of development.

Mr BALDWIN —The area of concern put to me by defence industry players in Australia is that, without any real consultation to Australian defence industry players, we went straight to the US and signed up and paid cash to a US development program.

Vice Adm. Tripovich —I would not support that line from them. We consulted with them through the Land Environment Working Group and direct approaches before first pass on the JLTV program to see if anyone had any plans—

Mr BALDWIN —Australian industry?

Vice Adm. Tripovich —Australian industry. And it was clear—I am characterising their expressions—that they had no plans to develop a vehicle along the lines of the JLTV because they saw at that stage the JLTV was a large program in America and it did not seem to them that it was likely to—if you would just let me finish—

Mr BALDWIN —When I was approached by Australian defence industry players that could have participated, they said that they were never approached.

Vice Adm. Tripovich —I would contend that that is not the case. The moment industry came to us and the gentleman from Thales came and saw me in my office—around the same time he came and saw government—as soon as we were aware, we spoke to the government at the time and said, ‘Industry has just come to see us. They have said that they might do something,’ and that was the start of what is now called the manufacturers supporting Australia, the parallel line.

Mr BALDWIN —My next area of concern with the US program is that a congressional research paper entitled Joint Light Tactical Vehicle (JLTV): Background and issues for congress, dated 18 May 2009, stated that the cost had already blown out to be 70 per cent higher than the target cost of US$250,000 per vehicle, at US$418,000 per vehicle. That was an anticipated cost for the US developed JLTV in 2009. Have you done any estimates on what your proposed budget would be?

Vice Adm. Tripovich —We have made some estimates based on our understanding of the potential costs of the JLTV and that forms a provision that is in the DCP for phase 4 of Land 121.

Mr BALDWIN —Can you advise the committee what we anticipate the unit costs will be for a JLTV?

Vice Adm. Tripovich —No, I do not have those numbers, but they are very similar to those of the JLTV program assessment, as Air Vice Marshal Harvey said, with appropriate contingencies, given this is a very early part of a developmental project. This is a technical development phase of a project. It is a long time before we know the precise requirements and we know who is going to build it, what it will be built of, the level of integration and the sorts of things that will be on the vehicle.

Mr BALDWIN —In the white paper that has just been released, these vehicles are a part of that and, given that that puts costings into the future environment, how much is the program for the supply of the vehicles?

Vice Adm. Tripovich —I am referring to page 156 of the public DCP, Land 121 phase 4, and it is listed as greater than $1.5 billion, which I think we have spoken about before.

Mr BALDWIN —Is that based on a unit cost of US$250,000 per vehicle or US$418,000 per vehicle?

Vice Adm. Tripovich —I do not believe it is based on the US$418,000. You have had the benefit of that—I have not read that document.

Mr BALDWIN —I am just referring back to the report to the US congress in May of last year. Given our white paper came out around that time, I am asking whether there is an upgrade in costing.

Vice Adm. Tripovich —No, the provision in the Defence Capability Plan has not changed since the DCP was released in the middle of last year.

Mr BALDWIN —Given that in Adelaide there was much fanfare about going to a four-year DCP and that has now been readjusted to a 10-year DCP, can you explain the whole strategy behind that?

Vice Adm. Tripovich —The government has made a decision on its review of the public DCP. The minister has already said that they would extend the length of the forecast if you like, the horizon of the DCP, to 10 years. They view it as giving an appropriate level of forecast, horizon, visibility, to the audience of the public DCP—that is, taxpayers, obviously, and industry, importantly, on the sorts of plans that are out there, with a varying degree of fidelity in that information, depending on how far away the horizon is. The further you go out, there have to be broader indications because it can be up to 10 years away in that sort of planning.

Mr BALDWIN —But it is an awful reversal of a policy decision which would have been driven by a department—to have gone to four years in the first place and now going back to 10 years.

Vice Adm. Tripovich —That is a matter for the minister. A policy decision about four or 10 years is a matter for the government.

Mr BALDWIN —Perhaps the head of DMO could tell us how it all eventuated.

Dr Gumley —Government made a decision at this time last year it would be a four-year DCP. You would also recall that government made a decision to have people look at the amount of public information that is disclosed. It received a report. It has considered that report, amongst other considerations, and it has now decided that it is in the public interest that we go beyond the four years. I do not have a problem with that. It is just people looking at the amount of information that is of best benefit to the public.

Mr BALDWIN —So in another six or eight months time will we be coming out with a DCP forward projection of six years or will it be back to four years or will it stay at 10 years or go to eight years? These are things that business and industry rely on for their future planning.

Vice Adm. Tripovich —The minister has said that the release of the public DCP will be 10 years.

Mr BALDWIN —Okay. Just going back to the JLTV, how disadvantaged do you think the Australian defence industry is given that the US has had a massive head start and you are expecting vehicles to be delivered in the third quarter of this year?

Vice Adm. Tripovich —Test vehicles for us to test?

Mr BALDWIN —Yes. How disadvantaged do you think Australian industry will be in catching up?

Mr King —It may be better for me to comment on that a little bit. We need to provide some advice to the minister, clearly, but we have had a look at a number of things. We have been more greatly informed on the manufactured and supported in Australia option. It took longer because there was a large number of submissions of high calibre. We think there are some very serious options there, which is excellent for Australia. We are also now aware that there are changes in America from just the broad number of vehicles that are being produced, and the JLTV intention after the technology demonstration phase is actually to re-tender. That is quite interesting. They are pursuing that, of course, because they are looking for something like 60,000 vehicles. So, although they have developed these three vehicle streams under the technology development stream, they will re-tender and it is possible that another manufacturer can also come into the EMD phase. The manufactured and supported in Australia options we have—and I obviously cannot go too far down that path—also represented different levels of maturity.

What is now happening is that, depending on the vehicles that are chosen to go forward in the JLTV and the EMD phase and depending on which vehicles are chosen in the manufactured and supported in Australia phase, there is the potential for those to line up much more closely than we first anticipated. That should provide—as I said, it depends on choices that are made—a far closer, more aligned program than we first anticipated.

Vice Adm. Tripovich —I think that might also give you a level of assurance, perhaps, or comfort that, if we just follow the JLTV program, around the middle of the year they will make a decision about progressing to the EMD phase and, as Mr King said, they will re-tender. A whole bunch of new companies may come in to pick up the requirements that we get from this test development phase and build brand new prototypes that might look nothing like the ones that we did the original work on. And around middle to late 2013-ish is when they expect to get to the end of the EMD phase to make a choice on the vehicle to buy. So if you take that as one stream, quite different but parallel, if the government proceeds with the MSA Australian version, there is a peg in the sand down here around 2013-14 where America will have got to the end of its development and will go: ‘This is our vehicle.’ So, if you like, that is a choice down here and that is a time line for the manufacture and support in Australia to also achieve some level of development so that the government of the day could make a comparison between what Australia is able to produce and what the American line produces. In around 2013-14 they will have a very good idea alternative to look at, provided the MSA can develop a vehicle that meets the requirements clearly.

Mr BALDWIN —I want you to look at it now through the eyes of the Australian defence industry, who pay the taxes that pay for this program. We have got an Australian funded US$30.6 million program, with no money being spent on an Australian program. The US industry players have got a head start in development, partially funded by the Australian taxpayer. There is no money to the Australian industry, no go-ahead. They are having to develop their concepts out of their own pockets. Isn’t it about equality of opportunity?

Vice Adm. Tripovich —The advice we give government about the way forward will include advice about making a contribution to that next stage of the MSA. I do understand where you are coming from and I do look through that lens, because we have spoken about it many times before. I am truly mindful. Let me reassure you personally and from an organisational point of view that this is an open issue. There are no closed minds one way or the other.

Mr BALDWIN —But, looking through the eyes of the Australian taxpayer, here we are funding a US development program.

Vice Adm. Tripovich —No, no. Our contribution to the US program is quite small—$30 million is minuscule compared with the total amount of money the US are putting in.

Mr BALDWIN —To the Australian taxpayer and the Australian defence industry, US$30 million is an awful lot of money.

Vice Adm. Tripovich —It is not a small amount of money, but it is not like we are funding the JLTV program. That is not true.

Mr BALDWIN —I have said to you before: where is our funding placed into Australian industry? I am not talking about Australian at all costs; I am talking about equality of opportunity. Where is our funding on the table for Australian industry to work on developing prototypes that it could put to Australia? Indeed why aren’t we supporting Australian industry to perhaps have an inroad into the US JLTV program? There are many players, but the Bushmaster is the most successful protected vehicle in Iraq and Afghanistan at the moment. As I understand it—touch wood—to date nobody has been killed in the Bushmaster; they have come away battered, bruised and fairly injured but have not been killed, unlike people in other vehicles going around in that environment. This is where it is disappointing that Australian industry was not approached in the first instance: ‘What can we do to work together? How do we fund a program building off the technical expertise that you have developed here in Australia?’ Why aren’t we helping Australian industry infiltrate US markets with the quality of product that we produce?

Vice Adm. Tripovich —Indeed. That is part of the advice we will give to government about the results of the RFP and how we will recommend they go forward.

CHAIR —We are over time for what was going to be our morning tea break. I intend to go to Mr Oakeshott then to Mr Fitzgibbon, then we will break.

Mr OAKESHOTT —I will be very quick. I just want to go back to your point, Dr Gumley, before that whole discussion. There was a reference to a failed tender process or an acceptance of a tender and it did not meet the standard.

Dr Gumley —That was for different vehicles.

Mr OAKESHOTT —I just wanted to put it in context. I might have misheard what you said, but could you just repeat that in light of what has been said?

Dr Gumley —Land 121, phase 3, is for medium heavy trucks. We had a tender competition that was conducted in 2006. A decision on the preferred tenderer, subject to their passing on technical performance, was made, from memory, around September 2007—I might be out by a month on that. We got the trucks out to the proving ground and they did not come up to scratch, so we had to go back to the market.

Mr OAKESHOTT —From a governance and due diligence point of view, how does something get through a tender process and then decisions are made about its capability only after it has been successful through that tender process? Isn’t there an issue of where due diligence and governance sit?

Dr Gumley —A manufacturer will fill in a detailed tender specification—hundreds of pages of detailed technical information. You are making a selection based on the paper process. If, when you get a physical truck and you take it to the proving ground and the truck does not work, then clearly there was something wrong in the paperwork they submitted. I do not think there is any due diligence failure there at all. You have got no choice but to believe what the tenderer gives you at that phase.

Mr OAKESHOTT —I would have thought there would be practical trials before a tender acceptance.

Dr Gumley —We did not actually accept. What we said was, ‘You’re the preferred tenderer to go through those exact technical trials.’

Mr King —We are also very challenged and listen to the industry comment. It always works two ways. Industry says, ‘Don’t put me to too much expense.’ So you try and balance those up and you rely on submissions by the companies to present their product to us with veracity. In our re-tender process, we decided we could not risk that again and so we did do that and we have tested the vehicles.

Mr OAKESHOTT —Is it standard practice that you do not go out into the field, kick tyres and have a look, and do some trials prior to the preferred tender being accepted?

Mr King —No.

Dr Gumley —It is preferred tender that is accepted to prove the technical performance.

Mr OAKESHOTT —Is that standard practice?

Mr King —It depends very much what you are acquiring. Sometimes it has never been developed, so you have to rely on a submission from a company that they can meet a certain specification with a product they have never developed. On other occasions when it is a smaller, less expensive item, we will test those items—fabric strengths or whatever, we will test it. It depends very much on what the acquisition is and what cost you are putting industry to to demonstrate its compliance with the requirements.

Mr OAKESHOTT —From a governance point of view, how do you make those decisions between what is in and what is out as far as the steps you take as an organisation in a tender process—between fabric or a truck?

Mr King —I think ultimately it is a judgment.

Mr OAKESHOTT —Whose judgment?

Mr King —The DMO is responsible for the procurement activities. We developed the acquisition strategies.

Vice Adm. Tripovich —We are also involved in the Defence Science and Technology Organisation, who do the technical risks of the proposals being provided by the companies. It is a combination of things. Sometimes prototyping is a valid acquisition strategy to take; to get someone to bring a prototype—for example, the vehicle fleets. Where it is well proven, well understood and the companies are able back up their claims with hard data—something that may be already in service, for example—a combination of the DMO capability people and Defence Science and Technology Organisation make an assessment during the evaluation process of how valid the claims are, the basis of the claims and what facts underpin it. At the end of the day, you make an assessment about whether you need to go to the cost of prototyping or you proceed with the contract and carry some risk which you have assessed as being manageable, for which you have either time or money set aside to deal with it.

Mr OAKESHOTT —So it is a discretionary exercise within DMO whether—

Vice Adm. Tripovich —No, it is a combination. I must really stress that it is Defence Science and Technology Organisation, it is us and it is the capability manager.

Mr OAKESHOTT —If it is a discretionary exercise within Defence, what is the level of awareness within Defence industry as to where and when those discretionary judgments are made?

Dr Gumley —Every tender lists the process that you will follow. Particularly for the truck project, the tenderers knew what the process was and they tender against that basis. With other projects we use a different acquisition strategy, because there is no one formula that fits every type of military acquisition.

Mr OAKESHOTT —So if I were a business and I was putting in a tender that made it clear that there was no practical engagement prior to preferred tender, do you think I as a business would submit paperwork that might say something different from what I might otherwise have submitted if I knew you were coming and having a look at my product?

Dr Gumley —In the truck tender, all the tenderers always knew, I believe, that we would test their vehicles before we actually bought any. If I were a manufacturer of trucks and I knew that my trucks were going to be tested, I think I would tell truth in the paperwork I submitted.

Vice Adm. Tripovich —The way you characterise it you make it sound as though there are some things that we would buy—major capital—where we would buy it completely sight-unseen, just because we are not prototyping.

Mr OAKESHOTT —I was talking about the cost of the process and where due diligence and governance sit in that process. For a preferred tenderer to fail has a cost implication, and is there a better value for money way of achieving the same outcome?

Vice Adm. Tripovich —I think as a result of the lessons, that is why we went to it.

Mr King —Can I say: it sounds like we do not engage. We do engage with industry. We have an industry division. We have got the tender processes. We have got the teams—land systems division, maritime systems division. We know the companies. We do engage with them. We do run a pre-tender industry briefing where we talk about what the steps of the process are most likely to be—whether it is going to be preferred tenderer and then test, or whether we are going to test multiple vehicles before we go to preferred tender, or whatever the particular thing. The whole point of the long-term DCP is to allow industry to engage with us, to give us ideas about what might be the best way to progress and what is the best balance for them between cost and opportunity and time to make a decision and so on. So it really is not done in a vacuum. It is done very much with industry engagement. Our business is predominantly placing business with industry. That is very much part of it. There are occasions, and this is one, when we might well in hindsight have done it a different way and got to the conclusion quicker. I will accept that.

CHAIR —Mr Fitzgibbon.

Mr FITZGIBBON —I am going to ask four questions and I am going to invite Dr Gumley or the vice admiral to answer yes or no to each of them, if they feel comfortable in doing so. The first question is: the Australian government was invited to participate in the JLTV program. Did it have any influence over the timing of that development program?

Vice Adm. Tripovich —I would say no. We joined the program.

Mr FITZGIBBON —Thank you. The second question is: is the Australian government committed beyond the development phase of that program?

Vice Adm. Tripovich —Beyond the tactical development phase, the current phase? No.

Mr FITZGIBBON —Does our participation in the program still offer great potential in terms of introducing competition into the broader program?

Mr King —Is that the JLTV program?

Mr FITZGIBBON —The light protected vehicle program. Does our participation in the JLTV still offer potentially a good competitive environment for the development of the light protected vehicle program?

Mr King —Yes.

Dr Gumley —Yes.

Vice Adm. Tripovich —Yes. There are at least three American manufacturers—

Mr FITZGIBBON —Yes or no, and you said yes. That is all I need, thank you.

CHAIR —I do not want to establish a requirement for witnesses to have to answer yes or no. We do appreciate it, but I do not want to set a precedent.

Mr FITZGIBBON —I can see they are feeling very comfortable. Lastly: does Australia’s participation in the JLTV program in any way preclude the government from making an investment in the development of an Australian-made product?

Dr Gumley —No. The government can make a new decision, it can make a decision, and at the moment all options are open.

Vice Adm. Tripovich —That is why I described it as not a this or a that at this stage. It is a potential for a parallel activity, and that is why I highlighted 2013, when the American development has been completed. There is a natural point in saying: ‘This is the vehicle the Americans have chosen. What do you wish to do now?’

Mr FITZGIBBON —For what it is worth, Mr Chair, I think I am in a pretty good position to say, as the former minister, that the Australian government always had an intention to invest in an Australian-built program.

CHAIR —On that note, I will adjourn the public hearing.

Proceedings suspended from 10.52 am to 11.07 am

CHAIR —I will reopen this public hearing of the Defence Subcommittee of the Parliamentary Joint Committee on Foreign Affairs, Defence and Trade. Major General Fraser has joined the table. It might be useful while you are with us, General Fraser, if we deal with any helicopter related matters rather than follow the agenda. We might kick off with the reconnaissance helicopter. It is somewhat behind the original schedule, but I understand we are due to get all of the helicopters at least initially received by the end of this year.

Major Gen. Fraser —The armed reconnaissance helicopter project is about 80 per cent complete at this point. We have accepted 17 aircraft and 10 of those are in the mature configuration. The plan is to have all aircraft accepted either at the end of this year or early next year. Some will undergo a retrofit program, but, importantly, we achieved the end of September milestone, referred to in last year’s annual report, where they were ready for operational test and evaluation, which means the aircraft were then migrated into the operational unit to allow then to conduct the collective training—the multiple aircraft type training—and develop their war-fighting skills.

CHAIR —So the weapons integration and everything else has gone well?

Major Gen. Fraser —The weapons have been excellent; they are all certified. I think we have discussed the Hellfire previously. I recall from your visit to Oakey last year that we looked at the simulator and the weapons systems in Tiger. The effectiveness, in particular, of the integration of the US Hellfire system into Tiger with an effective range out to eight kilometres is exceptionally accurate by day and by night. The cannon are performing exceptionally well. We have fired 19 Hellfires to this point.

CHAIR —In terms of operational capability, when do we anticipate that we will have full operational capability?

Major Gen. Fraser —We are approaching a critical point here now where DMO is making a recommendation that we have achieved deployable troop capability for a benign environment—and I need to stress that—so there will be capability. That will go to Chief of Army to agree or not agree and to enable him to make his position soon. The objective is to then build up the operational capability, the war fighting status, gradually as we continue to develop aircraft and these systems.

CHAIR —In the configuration that we have acquired in that configuration, with appropriate training of crews will they be able to be deployed to higher threat environments or does that require additional add-ons?

Major Gen. Fraser —Some additional work is being done at the moment particularly on the helmet-mounted sight and display. We have done the testing on that and it has proven to be very capable. They will start training on those in about a month’s time. We will train the trainers and then train the crews in particular for the night operations. As you would understand, much of the work over there is by night. That new helmet-mounted sight and display, once integrated, will provide the full capability.

One of the areas that we would still like some work to be done is in improving the logistics support for the aircraft. We have done the certification and the aircraft is working well but we would like the logistics supply to increase above what we are currently doing, and that is where we are working at the moment.

CHAIR —Are we continuing to work with the French and the Germans just to see how their variants are going, and also in terms of the use of the helicopter? In many respects it is a new capability for the ADF.

Major Gen. Fraser —We are, Chair. We are working very closely with the French in particular. They have deployed three aircraft across to Afghanistan and you might have seen the media reporting on those. They are performing exceptionally well according to that reporting, and Army has a program to gain appropriate observation and passage of information on those lessons, and we in DMO through the technical side are also gaining that information on the aircraft themselves. There are a couple of contractors in theatre to assist the French with the aircraft and that work is being passed back through the contractor.

Mr ROBERT —How long have the Tigers—the French—been in theatre?

Major Gen. Fraser —The French have been there since August last year.

Mr ROBERT —What have we learned from that?

Major Gen. Fraser —That the weapon system in particular is exceptionally capable and that the sighting system, more importantly, enables them to observe in its reconnaissance mode—and Australia has bought an armed reconnaissance helicopter so a lot of it is in reconnaissance mode, and that management of information is very important—and those sensors have worked particularly well.

As to the support of it, the reliability of some elements of it has been much better than were forecast. Some others elements still need some work. It is still a new aircraft, relatively, in testing but the French are exceptionally pleased and I think, overall, we are all pleased with the performance of Tiger on operations in Afghanistan.

Mr ROBERT —When did it fire its first shot in anger over there?

Major Gen. Fraser —I might defer, if that is okay, on some of those issues. It is French and there is some national sensitivity about French government issues with these. I can say that all its systems have been operating very effectively in operations.

Mr ROBERT —So you are happy that its systems have been fully tested on the battlefield?

Major Gen. Fraser —The French variant, yes. As I indicated previously in earlier committees, the Hellfire has differences from the French aircraft, but we are also satisfied with that part on our aircraft.

Mr FITZGIBBON —I apologise for asking the same question again and I also apologise for asking you to give a guesstimate. I know that is often unfair and I am sure that you will avoid it if you feel it necessary. If you were asked to give an estimate and the government wanted to use the Tiger in Afghanistan, what year would it be available?

Major Gen. Fraser —I think that it is fair to say that we are about 18 months behind the French in operational capability. It would be a matter for Defence and Army to make that recommendation to government. To answer that particular question unique to DMO, I am just treading carefully in answering for the whole of Defence.

Mr FITZGIBBON —You mean their level of satisfaction with the capability can vary from yours? When you default to their recommendation, as you are suggesting, what you conclude is an acceptable level of capability might differ from what they conclude is an acceptable level of capability?

Major Gen. Fraser —No, Mr Fitzgibbon, what I was trying to explain is that DMO is responsible for the individual training, the supply of parts and the certification of the aircraft to a suitable level of capability. It is then up to the respective service to conduct the collective training and confirm the true war fighting skills of using that equipment and the deployability from that perspective. I am comfortable that we are reliant here and if I say that we are about 18 months behind the French, I think that that is a reasonable position.

CHAIR —We will take the opportunity here, as I mentioned earlier, while General Fraser is here, to raise other matters in respect of helicopters. So, if there are no more questions on the Tiger, we will go to the MRH90. I will kick off. I am sure you are familiar with the press coverage a month or two ago. There is an article I have in front of me from the Sunday Age saying ‘Defence’s new choppers are duds’. The first sentence says:

AN INTERNAL German army report has revealed serious deficiencies in the European-designed helicopter that will replace Australia’s military helicopter fleet in a $4.2 billion deal.

What can you tell us about that?

Mr FITZGIBBON —You are allowed to name the journalist, Mr Chair!

CHAIR —Well, the reputable paper that it is—a record of history, the Sunday Age—it was Lindsay Murdoch.

Major Gen. Fraser —The MRH helicopter has excellent potential from what we have seen to this point—and the program is about 20 per cent complete. We have accepted 11 aircraft, six of those in the current financial year. So in your annual report period we had accepted five; we have accepted six this current financial year. Five of those are in the intermediate level, with a next level of software load in particular that addressed some concerns we have had with it. It is true that we have not achieved the flying rate with this aircraft that we would have liked. The aircraft is still developmental, and some of the systems are portraying that developmental status. But then you match that with the demonstrated performance on the first-of-class flight trials. For example, last year, where we embarked a helicopter on a ship, its fly-by-wire controllability of this new technology gave it a wind envelope that was double the size of what we are currently using for Army’s operations and against Sea King. So it has double the wind envelope of the aircraft that it is replacing—not the pitch-and-roll limits but double the wind envelope. So the controllability was outstanding. But there are some system reliability issues that we are continuing to work through with the contractor. As to some of the issues raised in that media reporting, we share German’s concerns, and we are taking action with the contractor and the multiple organisations that make up NATO helicopter industries to get these addressed.

CHAIR —Presumably we are in contact with our colleagues in the German defence force, who would have precisely the same interests.

Major Gen. Fraser —We are indeed. We rely on Germany to provide us a base level of certification. There are many countries that make up the certification. Some of the workload is shared in order to get it completed in the fastest possible means. Germany in this case carries the baseline certification requirements. We have been in communication with them. For Australian purposes that then gets passed through the French DGA, the DMO equivalent in France, who provided us an outstanding level of service to introduce Tiger and assisting us similarly with the introduction of the MRH into service. Then we bring it to Australia for certification. We have done some of the testing ourselves on the Australian-unique parts—there is a very small amount in MRH that is Australian-unique; most of it is consistent with the German baseline aircraft. We have that tested and ready to go, but we are not on schedule to achieve in the middle of this year the Navy milestone. We will complete it by the end of this year, though.

CHAIR —On the outstanding issues that have been identified in those German studies, can you give the committee some information about the magnitude of the problems, the complexity of the fix? Saying that ‘there are problems’ can range across a raft of degrees of difficulty from ‘easily attended to’ to quite complex matters that could require the creation of new materials, new technologies, new integration systems. What are we looking at?

Major Gen. Fraser —The primary one of those would be the floor. We had concerns about that floor in 2008. We shared that information with Germany and other potential users at that point in time. So we require industry to take action. We have indicated that that is unacceptable for Australian requirements. How they got there with that was that the aircraft was reduced in weight in order to increase performance and, in its early design stages, the floor was designed too thinly. Whilst it is strong enough to work, it deforms. So we are requiring them to improve it for the combat status of the aircraft.

Some other areas do pose some technical challenges for us and for industry in particular to work through. I do not see any of those preventing us from meeting the navy’s requirements this year for the first flight of sea. They are more an issue for us operating on procedural issues with army in particular next year. The major milestone for army is next year. There are things like the door gun mounts and where they are physically located. The majority of them are work related issues as opposed to technical challenges. But we should not underestimate the engineering challenges that are there. If I take the engine performance, for example, the engine performance and lifting characteristics have been outstanding—1,000 pounds above what were forecast, which is 400 kilograms above what was forecast. Yet we will rectify an engineering or technical issue that will arise in the developmental aircraft and then something else will arise. That is the nature of it at about this 20 per cent point. We have proven and the contractors have proven that with Tiger than they can rectify these and achieve the targets. So we are confident that they have the right approach. We just need to make sure that they keep focused on this and rectify them.

CHAIR —Is the tailgate floor strength issue being rectified by using a different material altogether or simply strengthening what is there?

Major Gen. Fraser —It was a redesign. We trialled a new floor just recently. Over the last two weeks, we have trialled a new fit floor. We consider that unacceptable. It does not meet our requirements, so there is more work to be done. All the helicopter work is a combination of keeping the weight down as much as you possibly can. As you have seen in Afghanistan, the Chinook has taken on a major role for troop carrying because it performs so well above 5,000 feet—that 5,000 feet to 10,000 feet region—particularly at the low speeds use for landings and takeoffs in a high dust environment, where the power margins are really needed. What gives us confidence with the MRH90 in particular is that this engine is performing exceptionally well in the UK Apaches at the higher level compared to some different engine performance in some other craft. The aircraft performance is good in that sense, but we still need to keep the weight down as much as possible so that they can undertake the operations that we expect them to do in the future.

CHAIR —Will there be retrofit issues for us?

Major Gen. Fraser —I expect that there will be some retrofit—on the floor in particular. There will be another floor yet that will need to be modified. Our position that there are 529 aircraft ordered at the moment. Our issue with industry is, ‘Fix it now, roll it out as fast as you can and that will save you all the grief from all future customers.’

Mr ROBERT —How many MRH90s or their variants are deployed now across the globe with how many countries?

Major Gen. Fraser —There are 14 different countries with them.

Mr ROBERT —How many frames, give or take?

Major Gen. Fraser —There are 529 ordered, of which my understanding is that about 40 have been delivered at this point in time.

Mr ROBERT —The German report was alluded to in the article. Have there been any other reports that you are aware of with respect to the MRH90 or its variants from other countries?

Major Gen. Fraser —I am aware of some reports on the naval variant as that has been introduced. But the issues raised in the German report have not been raised elsewhere, because it was a report on troop carrying. It was a low trial done by the German army. It was on how the aircraft is going to be used in the future for loading in combat operations. You would expect some of these things at this point in its development cycle.

Dr Gumley —We in Australia have been worried about the floor for some time.

Major Gen. Fraser —Since 2008.

Dr Gumley —So you can really say that Australia and Germany have been alerting the manufacturer to the issue with the floor.

Mr ROBERT —Are there any other reports from any other countries, confidential or otherwise, that have made adverse findings on the MRH90 or its variants that you are aware of?

Major Gen. Fraser —I am not aware of. We have a working group, the NAHEMA working group, and the MRH90 community, essentially. The Nordic countries and others that are introducing the aircraft share information. But I am not aware of any reports per se. There are issues that we discuss and raise and seek industry resolution of. One is the reliability of the aircraft in its early stages. The software load that was placed into the aircraft in August of last year has proven to be very reliable and has increased the reliability significantly. It is certainly a step in the right direction. There is another lot of that to go at some stage here in the near future.

Mr ROBERT —So can I confirm that the only report that you are aware of, confidential or otherwise, that has adverse findings on the MRH90s variables is the one from Germany?

Major Gen. Fraser —That is correct.

Mr ROBERT —Looking at the role of the MRH90 in counterterrorism, at what stage in terms of years do you expect the Black Hawk to be moved out of that CT role and MRH90 to resume it?

Major Gen. Fraser —Because it is the most demanding of our flying, we will continue to use the current aircraft until we prove the MRH90 is suitable for that task—until it has matured sufficiently. Our plan is to introduce that to the standard unit operations. The MRH90, though, has some great strengths. It has weather radar and forward-looking infrared—which we currently do not have fitting to our current Black Hawks.

Mr ROBERT —So are you saying that as MRH90 is rolled out to our standard units, Black Hawks will then move to, I guess, Sydney to whatever the supporting unit is for the CT role?

Major Gen. Fraser —That is correct. Our plan is to withdraw our Black Hawks from the Townsville based operational unit prior to withdrawing them from the CT unit in Sydney.

Mr ROBERT —Do you have a date for when MRH90 will replace the Black Hawk in the CT role?

Major Gen. Fraser —Our forecast is in about three year’s time, by 2015. So in 2014 we would hope to be undertaking that and by 2015.

Mr ROBERT —You spoke of the FLIR and other elements that the Black Hawk does not have. What is it that the MRH90 cannot do in the CT role that the Black Hawk current can do?

Major Gen. Fraser —There is work to be done still with the MRH90 for fast-roping devices. Those sorts of things have not yet been developed for MRH90. Our intention is to do that. It is a workload issue rather than a technical challenge. We have not yet certified the ramps. So we have to get the ramps certified entry and exit. But, as far as capabilities, we are not aware of any. It is simply a workload issue and developing and introducing the aircraft and proving its reliability.

Mr ROBERT —Is there any issue with time? For example, if the CT target is a bus and a Black Hawk flares on top of it, can the MRH90 get to a place where it can drop people via rope on top of a bus at the same speed and the same time as a Black Hawk?

Major Gen. Fraser —That is correct. They are very similar in speed. The MRH90 has additional internal endurance—it can go further. It has an larger internal cabin, so therefore we can place troops in seating more so than what the current Black Hawk allows. But the current Black Hawk’s reliability is clearly above the state of the current MRH90.

Mr ROBERT —So, in terms of a Black Hawk and a MRH90 both approaching a target, both can actually hit that target, get themselves stable and deploy men at the same time? Is that your contention?

Major Gen. Fraser —From our initial work, we are very pleased with the flight performance of MRH90. We are yet to fly the profiles on MRH90 that are unique to the counterterrorist approaches but, in the work that we have done so far, the controllability is very good.

Mr ROBERT —Which was a fabulous political answer, General.

Major Gen. Fraser —Mr Robert, we contend that the MRH90 is very capable and that they could both do the same task.

Mr ROBERT —But you have not yet tested whether they can actually get to the same task, at the same time?

Major Gen. Fraser —No, I have not. I am a little cautious, because it is quite appropriate for Army to conduct those flight trials. We will instrument the aircraft and conduct it a full instrumented way and we will look at all of the systems on the aircraft and the helmet mounted sight and display and how it approaches and how it conducts that work. The CT work is exceptionally demanding. Obviously you have taken some information, you understand it well and, from your previous history, you understand it very well. It is an area that I will never make assumptions on. We will need to make sure that we fully test it and validate that there is not something hidden there that we are not aware of that makes it less capable than what we are currently doing.

Mr ROBERT —Do you have a time line for those tests?

Major Gen. Fraser —We would introduce and operate it more effectively on the conventional work first. So I would be expecting not to start that until 2012.

Mr FITZGIBBON —I want to ask you a couple of questions, but something Mr Robert said prompts me to ask one more question on the MRH90. I assume you have a degree of interaction with the end users of the aircraft.

Major Gen. Fraser —Yes, we do.

Mr FITZGIBBON —How would you describe the feelings of those who fly and operate the aircraft, particularly those working in CT, in terms of the transition to the MRH90? Are they excited, reluctant, happy or sad?

Major Gen. Fraser —I have used the analogy often that a Ford driver is a Ford driver and that if you have grown up in a Holden family you prefer that—that is, you are very comfortable with what you have been using. We face those issues. The onus is on us to get the reliability right on the MRH90 before we ask our users to operate the aircraft, and particularly CT, where everything has to work exceptionally precisely and right. We have seen the demands and we have lost people over time when it has not worked correctly. The work we need to do is to still not mature enough for them. I have asked the project team to mature our relationship with the end users and take the aircraft in and demonstrate to them. I have asked them to find the time, though, to make sure that we show how capable the aircraft is and work through the issues so that, collectively, we can develop a full CT capability using the MRH90.

Mr FITZGIBBON —It is phase 8, isn’t’ it?

Major Gen. Fraser —It is phase 8.

Mr FITZGIBBON —It is almost unfair to ask you questions about phase 8 because of where we are at in the processes of government. I would like to give my view on the key points of the comparisons between the two aircraft and you may or may not want to respond. I would have thought that the advantages of the Romeo are cost and risk. The risk is obviously lower because it is a fully developed and proven aircraft. The French aircraft also has cost and risk, obviously the costs are higher—I am not sure what that differential is—and obviously the risks are higher. I would have thought that the French aircraft offers more versatility because it can also operate as a ship-to-shore aircraft. It is obviously a very modern aircraft, constructed from composite materials rather than the older materials. I would argue, and I think most would agree, that in some areas it is more capable. Would you agree that that is a reasonable snapshot of the balance between the two aircraft?

Major Gen. Fraser —No. Mr Fitzgibbon, clearly your knowledge of both aircraft is pretty good. I think that is a fair summation of what has been publicly described. The task for us in Defence is to develop and gain the information for a full and accurate picture of both types. The Australian industry element is about the only other factor.

Mr FITZGIBBON —I should have put that out there.

Major Gen. Fraser —It is a value-for-money issue. We then need to provide those to government for the government to make an informed decision.

Mr FITZGIBBON —That is fair. I should have added jobs in Australia. Of course, the French aircraft offers much more in terms of Australian industry participation.

Major Gen. Fraser —We will gain that information on both options and how it is to be addressed.

Mr FITZGIBBON —Can you clarify the cost differential. There was an article in the Australian some time ago which suggested that there was an enormous gap. I forget what it was but it surprised me when I saw the figure. I know it is not an exact science. I think the French aircraft offers some possibility because of its versatility and using fewer MRH90s. Is that correct? Is that the form about putting it forward? In any case, can you give us a feel what the cost gap is?

Major Gen. Fraser —There is a cost difference. We have asked the contractor to look at this option and to look at alternative, innovative ways of approaching it. They are very different aircraft. One has different maintenance requirements to the other—that is, time taken to conduct that maintenance. I think it is probably more appropriate if I gain, with your concurrence, that information through this first- or second-pass process and bring it back to you.

Mr FITZGIBBON —That is a fair answer. I certainly do not mean to put you in a difficult position. You made a point I was not aware of previously—that is, it is not the just the capital cost; there are differences in the ongoing maintenance costs between the two aircraft.

Major Gen. Fraser —You are quite right. We are measuring this across the 30-year, whole-of-life cost. It is the acquisition and the through-life costs, particularly where you can move them between one or the other to a degree. From a Defence position, our recommendations will be on the information gained for the total, whole-of-life costs for the aircraft.

Mr FITZGIBBON —Can I assume that the ongoing costs are less for the French aircraft than they are for the Romeo, or are you not comfortable about going into that sort of detail?

Major Gen. Fraser —I would prefer not to answer that. We need to gain some more information.

Mr FITZGIBBON —The point I am making is that the person on the street would assume that the brand new aircraft—no, they are both new.

Vice Adm. Tripovich —It is never a truism that the new one is cheaper than the old one. That is almost never true for anything you buy—even for the car you buy, despite all the claims that the services cost more than those for the old vehicle.

Major Gen. Fraser —Mr Fitzgibbon, one of the cost drivers is on fleet sales, so it is important for us to keep it as off the shelf as we possibly can. Therefore, for the Romeo it is to take the benefits of the US navy and for the European benefits it is to keep it as close as we can to the most common one, which is the French navy variant in this case, and they are in the process of accepting their first aircraft now.

Vice Adm. Tripovich —It is important to say that they are in the process of accepting their first aircraft, which is only fitted for search and rescue. It does not have the weapons systems or a lot of the mission systems in it at this stage. That is not due to be delivered until sometime late in 2011.

Mr FITZGIBBON —Can I invite you to provide an answer to this question without nominating any particular aircraft: would you say that one particular aircraft has greater ASW capability than the other?

Vice Adm. Tripovich —No.

Mr FITZGIBBON —That was not a loaded question. I have no idea, but from my perspective ASW is a critical aspect and if one had a greater ASW capability then that would be—

Vice Adm. Tripovich —There are differences between the two aeroplanes in every sphere of warfare that they are able to do. The purpose of the request for tender process that we will go through is to get tender quality information—there have been lots of claims to date—that is backed by the company on which we can then make an assessment.

CHAIR —I might just finish off by commenting that a number of people here would be aware that the committee has had the benefit of separate briefings from the two competing companies as well as some earlier discussions with defence personnel and also the opportunity to look over the European configuration of at least one of the competing platforms. So there is a good deal of interest amongst members of the committee in this acquisition and, whilst there are the core requirements of government and defence, to some extent there is a feeling of comparing apples with oranges in this. I guess that then becomes a questions not only of cost but of the envelope of capabilities that government believes it is desirable to acquire. I am sure the committee will continue to take a pretty keen interest on that on. If there are no other questions on helicopters, I suspect that you are free to enjoy the rest of the day, Major General Fraser. Thank you for your evidence.

Major Gen. Fraser —Thank you.

CHAIR —We will move to naval major projects and the guided missile frigate upgrade implementation, which is something we have looked at on previous occasions. There was some contention about this last year or the year before—I am losing track of time. Where is that at now, Admiral Tripovich?

Mr King —It might be better if I handle that because that was under procurement. All four ships have now been accepted from the contractor. The Chief of Navy has provided initial operational release for the vessels and I think that project, which you know was troubled for many years, has been removed from the projects of concern list, as announced by minister Combet. They are now in the hands of the Chief of Navy and are being used as operational units.

CHAIR —If memory serves me correctly, one of the electronic suites on that upgrade was a matter of some contention 18 months or so ago. How was that resolved?

Mr King —That is correct. We did a thorough analysis of what the problems with that system were. There were a number of them.

CHAIR —Did we stick with the same contractor?

Mr King —Yes, we did. They ranged from physical problems with the antennae, reliability problems and software problems. It also required a lot of testing and trialling to understand the issues, which is a thing we often find. We went through that structured campaign, found the problems and corrected those problems.

CHAIR —The project is going to be about four years overdue. Is that about right?

Mr King —That is right. I could double check that, but it was certainly late.

CHAIR —As with a couple of these things, we are nearing the end of the project. It has been a painful extension with some of these, but I guess the good news is that there is light at the end of the tunnel by the sound of it. I have inadvertently skipped one on my list that is important—the Air Warfare Destroyer. That is another very substantial acquisition. There were some issues with some of the subcontractors and I am thinking there of the hull and what was going on in North Queensland with—I cannot think of the name of the company up in Cairns now—

Mr King —NQEA.

CHAIR —Thank you. Where are things at with the modules for the Air Warfare Destroyer.

Mr King —Progress overall is still very good. There was, as you say, Chair, difficulties encountered with the letting of the block subcontract, in particular with NQEA. That process was terminated for a number of reasons and, subsequently, that part of the block contract was let to BAE Systems operating out of Williamstown in Melbourne. I am able to report that blocks are under construction now at BAE Williamstown, Forgacs in Newcastle and fabrication work has started at ASC in Adelaide.

The other bits of progress that have happened since probably the last time we met: we completed the critical design review in December as planned; we have opened the ASC shipyard; and the common user facility in Adelaide has been opened. The facility is excellent and, while we lost time on the block subcontract relative to what I will call our challenge schedule, we have not lost the float that we had in the construction project. We are also working to get that float back because, like any big project, we know that many challenges will still remain towards the end.

Mr OAKESHOTT —You identified that there a number of reasons that NQEA fell over—can you detail those, please?

Mr King —It related to their offer and them post being selected as the preferred offerer changing their financial structure of the company and placing us in an untenable position.

Mr OAKESHOTT —So almost continuing the conversation that we had previously, on a major naval contract of the two preferred subcontractors chosen within a period of four months, one of them has fallen over and failed the due diligence test. With regard to the processes of DMO, what are the lessons learned with regard to avoiding that situation again?

Mr King —It is quite simple. We verified the offer by the company; the company changed its offer after it was accepted. I cannot be responsible for the way companies perform in that sort of environment.

Mr OAKESHOTT —Are you confident with regard to the financials of the company involved that proper due diligence was conducted by DMO in the pre-tender process? There are good companies that missed out on that work who are pretty frustrated by that and have almost had their noses rubbed in it by one of the successful subcontractors falling over and almost taking an opportunity from some of those companies.

Mr King —Just a couple of points of clarification: the decision was made by the AWD alliance, not DMO. ASC conducted due diligence of the company, and I was provided as a member of the alliance board with that due diligence report. The third company in the selection process was then given an offer to revalidate its bid, so no other company was disaffected by the process. If a company changes its financial structure after you have asked it to put certain conditions in place, there is very little that we can do in that sense.

Mr OAKESHOTT —I accept that point, but then the journey of going from a failed subcontractor to BAe.

Mr King —They had not been discounted, they were the non-preferred bidder when the first two preferences were selected. So they were not rejected, they were just the non-preferred bidder.

Mr OAKESHOTT —Did anyone else put in in the tender process?

Mr King —Yes, they did, but they did not make it to that stage.

Mr OAKESHOTT —Why not?

Mr King —Variety of selection criteria, technical, fiscal capacity—there was a whole range of reasons why other companies were not selected.

Mr OAKESHOTT —So are you hanging the hat on the fact that the company that was successful substantially changed its financial model after it had been successful in gaining the work?

Mr King —Yes.

CHAIR —I think it might be helpful if I just comment, and correct me if I am wrong, but the successful consortium included a number of shipyards and companies. Within that consortium one of the shipyards that was part of the successful bid failed to meet necessary financial benchmarks, which resulted in the consortium itself deciding that it was better to restructure itself to move forward and to meet the contract requirements.

Mr OAKESHOTT —I guess I am looking again at this question of taxpayers getting value for money through DMO and the work you do and how you do your due diligence and governance to achieve that. If companies change then there is not much you can do, but if there are lessons to be learnt in an exercise like this I am interested to hear from you what lessons have been learnt.

Mr King —I have a good lesson; it is a personal one. This is one for industry. If you make an offer to us acting in good faith and that offer is not sound, then it is probably about time we strengthen up some of our processes to take action against those companies. I say that in the general sense. I have the verification report from the chief financial officer of ASC making the point that it was the alliance that selected it. I supported that, I was on the board, but I personally asked for a financial assessment understanding the nature of the company. It was undertaken. I was provided that as a board member. We all on the board believed that undertaking. Subsequent to being nominated as the preferred tenderer, the company chose of its own volition to change its position. I think the taxpayer is owed an obligation by companies that when they say things to us—we certainly have a trust but verify regime in operation, but let me say there is an obligation on companies surely to not be footloose and fancy free with defence acquisition and taxpayers’ commitments.

CHAIR —In terms of the AWD, the actual tricky bit is what comes next, which is what you put inside the hull and the issue of the sensors and the communications and integration of systems and so on. I guess it is not in advance but on foot, but how are we managing that risk?

Mr King —Substantially it was set up to manage that risk. You would recall, I am sure, that we purchased the core combat system from the US Aegis system. That is the radar, the central command and control and the missile control system. Our first system actually completed trials in November and is now being disassembled ready to be shipped to Australia. We called it the Australianised combat system so that we could add some features that were particular needs for Australia. The first element selected with the sonar. That work is progressing satisfactorily. We are just about to complete the EW, electronic warfare, system down select and should be in the process in the next week or two of informing the minister of the alliance’s decision process. So I would say at this stage of the program we are obviously working very closely with the US on that integration. Kongsberg is doing what we call the Australian tactical interface, the interface into the Aegis system.

Progress is very satisfactory, but we never take our minds off that. It is a very big project. It is being undertaken substantially in Australia, and that does raise certain risks. I would say for this stage of the program we do not see any adverse indicators at all, but we deliver the first ship in December 2014. All the technical performance measures seem satisfactory. Financial progress is quite satisfactory. As I said, we did lose some scheduled progress, but it is within the float and we are working with BAe and Forgacs to regain that float on the ship construction. So there are no adverse indicators, but we are ever alert.

Mr OAKESHOTT —Is there consideration to acquire a fourth Air Warfare Destroyer? Do you want to make any comment about that?

Mr King —It is a government decision.

Mr OAKESHOTT —Is it being floated in any serious way?

Vice Adm. Tripovich —There are words in the white paper that say the government will continue to consider—

Mr BALDWIN —When does it become financially unviable to pick up a fourth Air Warfare Destroyer?

Mr King —We have not done any particular costing work on that. One of the substantial drivers in a fourth Air Warfare Destroyer would be the cost of the fourth Aegis system from America. They are very expensive. America has just announced it is going to restart its DDG 51 construction, and that would lead to them buying more Aegis combat systems. As our fourth one at that time would have been the very last Aegis after a break, it would have been potentially quite expensive. But it is possible now that the Americans will restart the Aegis production line the costs of that will come down. On the other side, you start to introduce inefficiency on the ship construction side of it. We have not done any detailed costing work on that for some time.

Mr BALDWIN —What is the time line—is it in three months, six months, 12 months or two years when you get to the point where buying a fourth Air Warfare Destroyer comes at a stand-alone cost rather than picking up the financial advantage of the other three?

Mr King —I have not really analysed it, but I would think we still have a couple of years probably because we are still ramping up into the fabrication phase and we will be delivering these ships right through till 2018. I cannot give you a firm date, but my sense is there is still opportunity.

CHAIR —We might move then to the amphibious deployment vessels, which I guess are a lower risk than a number of the other projects. Are they presently going according to contract?

Mr King —Yes, they are. The main part of the hull is under construction in Navantia in Spain. About 30 per cent of the modules of the first ship are now on the slipway. We have moved our project manager to Spain because construction is running at such a high pace. We expect the ship to launch in the first half of next year, although I would stress that I have certainly suggested to the company that, because construction on hard stand is a lot more efficient than when it is launched, they only launch it once they have completed all the necessary work—in other words, I am not keen on companies making demonstrations of major events if it is not efficient for the production. At this stage they are on their construction schedule and we see no adverse signs on that project at this time.

Dr Gumley —And it is going okay on costs.

Mr King —Correct.

CHAIR —I notice that page 170 of the Audit Office report refers to some concern about our combat command systems on that ship:

… the Australian combat and communication capability requires integration work to be undertaken. The task of integration of the Australian elements, such as the combat system and internal/external communications systems, has proved to be more complex than initially thought.

Are these systems not common to other ships within the Australian fleet?

Mr King —The core combat system is; it is a derivative of the Saab system used in Anzacs. What that comment would be alluding to is that there are a very large number of systems to be brought together on an LHD from aviation systems through to naval systems and, potentially, Army systems. I think that span of work is quite substantial. I am not sure it is more than we anticipated, but it is a large body of work with a lot of systems to be brought together. But we are using Saab, which is a well-experienced system integrator in Australia.

CHAIR —I must say that I was a little surprised to read that because, whilst it may not be something that the Spanish built vessels made for themselves or other customers would have on them, I assumed that they were communications and combat system suites that we have on other vessels. I could not understand what the problem was with putting systems—

Vice Adm. Tripovich —It is the integration that will be the challenge. I would like to think that we have never underestimated the challenges in that.

CHAIR —But we are not putting new systems on these ships that do not already exist on other ships in the fleet, are we?

Mr King —The core combat system is a derivative of the Anzac ship combat system. It is not exactly the same because it does not control the same sensors and there is no ESM on the weapons system, for example. There is an L-3 Communications suite going on the ship, which is a more modern suite of communications.

Vice Adm. Tripovich —Some of them will be new because we would not be putting all the current technology from the current fleet of ships into the new ship. The integration, I think, is the issue—but that was always the case.

Mr King —It is the breadth of integration as opposed to the technical challenges. It is not like, for example, the integration of an Aegis combat system, which is highly technical and highly precise. It is the span of lots of systems. That is the point being made.

CHAIR —So you do not anticipate at this time that it should cause any significant delays or cost overruns?

Mr King —Not at this stage, but, once again, as with all these system integration challenges, we are monitoring it and going through the design processes very thoroughly.

CHAIR —There are no other questions on that platform. Armidale boats got a bit of bad press recently. What can you tell is about the Armidale?

Ms McKinnie —In the Armidale two issues have delayed formal operational release to Navy. They relate to fuel and water in the fuel as well as toxic gas issues in the austere accommodation compartment. Both issues have now been resolved.

CHAIR —That accommodation compartment is the area at the back that is not normally used by the crew; it is there for additional people who may be on the vessel for one reason or another. Is that the area we are talking about?

Ms McKinnie —As I understand it. Both issues have now been resolved through implementation of a number of design changes. They have been proven in Glenelg and will be fitted to all of the ships in the fleet with a view to them being able to meet Navy’s full operational release requirements by the end of 2011.

CHAIR —So everything is under control?

Ms McKinnie —Yes.

Mr ROBERT —Was that question or a statement, Chair?

CHAIR —It was a question with an inflection.

Mr FITZGIBBON —I was staying out of the line of questioning because I was never in doubt!

CHAIR —To be honest, there has been some media speculation about these matters and I think it is important in a public hearing like this for the parliamentary committee to have responses from the department in the public domain. The High Frequency Modernisation project is a matter that the committee has had interest in for some time and it is clearly important. We so often hear and talk about network-centric capabilities and network-centric warfare. It is good if we can all communicate with one another if we want to do that. Where are things at now with that High Frequency Modernisation project?

Ms McKinnie —I think the last time we appeared before this committee there was some uncertainty around the schedule. At that time we were negotiating a settlement with Boeing to look at providing them schedule relief in return for compensation to the Commonwealth. The major objective of those negotiations was to get schedule certainty. We completed the negotiations on 25 April last year and that adjusted the schedule in return for a net amount of compensation, both monetary and in kind, to the Commonwealth valued at $13 million. The new schedule, as a result of that, is that final system acceptance is due to occur in July 2010. At the moment Boeing is ahead of that schedule, with the contract completion due on 20 August.

CHAIR —In the DMO major projects report, page 237 provides some of that information. It also lists the capability performances of what I assume are the re-baselined requirements. My question is: what have we dropped off? What have we left out? You may want to take that on notice and provide it to the committee in confidence, but I can recall from our earlier discussions and indeed from your comments that the original expectations were unable to be met. They have effectively been redefined. We are now on target, as I understand it, to meet those redefined requirements. I would like to get some idea about what we wanted originally that we are now not getting and what that does to capability.

Ms McKinnie —Going into the settlement negotiations, we had a fairly substantial list of areas that Boeing was seeking us to waive in terms of either the level of performance or the function. At the conclusion of negotiations, most of those were taken off the table. Boeing will deliver all but a very small number of requirements—less than 10, as I recall—to the specifications.

CHAIR —I understand the full information on this would be highly classified, but if there is any more detailed information you are able to give privately to the committee I would appreciate it. Can I go to the question of the platforms for this. Does it include the tanks? Is that because the Abrams we have come equipped with suitable communication suites, or is there some other reason that we do not want the tanks to be part of this upgrade?

Ms McKinnie —The project was approved before we acquired the tanks. Having now got to the point where we have demonstrated the core system and where the final system is very close to acceptance, the capability development group is reviewing the platforms onto which we will place terminals for Navy, Army and Air Force. At this point in time I have not heard of any intention to put the HF system on tanks, but that is subject to the review.

CHAIR —What happens with things like the Tigers and the MRH90s that we were talking about before?

Vice Adm. Tripovich —HF is just one form of communication. There is VHF, UHF and satellite communication. It goes to how far the platform has to communicate, basically. VHF is—

CHAIR —Are we putting them on Black Hawks?

Vice Adm. Tripovich —My short answer to your question is that if there is no need to put HF on a platform because it already has sufficient communications to talk to where it needs to talk to then we would not.

CHAIR —That is what I want to get clear in my mind. This project involves this new communications capability being retrofitted to Black Hawks, to Chinooks, to Armidale boats and so on. In the case of our most recent acquisitions—let us say the Tiger, let us say the MRH90—do they have an equal or better communications capability?

Vice Adm. Tripovich —I would like to take that question on notice and get back to you later today.

Mr King —Maybe I am on the wrong track, but in HF modernisation the core project is how it is network managed and the main land based transmission system. If the platform is HF capable, it is HF capable with HF modernisation. The question remaining is: what elements of new capability might want mobile HF in addition?

CHAIR —Yes, I think that is the point I was trying to get to. I may rephrase my question or explain my concern about where this is. My interpretation when I looked at it was, ‘Okay, well, the Tiger helicopter is not there, I assume because we are getting it with communications suites that are at least as capable as this project is effectively retrofitting other platforms with.’

Vice Adm. Tripovich —Sufficient communications for the roles that the helicopter has to do, whether it is HF or not. As I said, I have to take it on notice.

CHAIR —My difficulty with that answer, which is an answer to a different question to the one I asked, is: why would we want a capability on Black Hawks that is different to the capability we are putting on a Tiger or an MRH90—or, for that matter, a Chinook, which we are fitting these to? Of all things, we are fitting them to the minehunters. I am not sure what we are doing with the minehunters now. I think they are all in mothballs. I do not think they are chasing fishing boats around the north-west anymore. So we are fitting them to minehunters, but we are not fitting them to Tigers and we are not fitting them to MRH90s. My interpretation of that information—and hence my question—is that that is because the Tigers and the MRH90s are able to do all those things that the modernisation would otherwise have enabled them to do. That is, because they are a much more modern platform they are coming with a communications suite that ticks all the boxes.

Vice Adm. Tripovich —That meets the requirements for that platform, yes. That is fair enough.

CHAIR —That then raises the next question. You may want to give that answer again, Admiral Tripovich. What would the difference be between the capabilities that we want the Black Hawks to undertake and the capabilities that we want the MRH90 to undertake?

Vice Adm. Tripovich —I need to take that question on notice. I promise I will come back to you today.

Ms McKinnie —The truth of the matter is that the delays in the project have caused the need for a review of the platforms to be upgraded. The platforms that are currently on the list are based on what was originally approved in the mid to late 90s. Now that we have demonstrated the system and we know what it is capable of, it provides us the opportunity to look at those platforms that can truly benefit from the additional level of functionality provided by the network versus those that just would benefit from straight HF communications. That review is currently underway by CDG.

CHAIR —Seeing as I mentioned it in passing and made some observation, I should get it correct: what is the status of our minehunters?

Vice Adm. Tripovich —I just happen to wear a Navy uniform. I am not sure what the status of the fleet is. But there are a number of MHCs in service.

CHAIR —Take it on notice. I would hate to have verballed the minehunters or the Navy in my comments before. If we can get the accurate information that would be good. Are there any other questions in respect of major projects?

Mr ROBERT —I turn to self-propelled artillery. Are you able to provide an update on where we are up to with our self-propelled guns?

Vice Adm. Tripovich —In conjunction with the DMO I will, yes. There was an offer definition activity going on to examine the tender responses from both tenderers. It is an ongoing activity. On completion of that work—and I will get the DMO to give you the time line—we will be in a position to give advice to the government about which self-propelled gun might be the recommended gun.

Mr ROBERT —My understanding is that this project was pushed back. Is that a fair statement?

Vice Adm. Tripovich —The project has been deferred to allow the definition process—

Mr ROBERT —To ‘move to the right’, in your parlance?

Vice Adm. Tripovich —Yes, that is right. It is until the offer-definition period is completed.

Mr ROBERT —And why was it moved to the right?

Vice Adm. Tripovich —To allow the offer-definition activity to occur so we can explore the claims made in the tender responses.

Mr ROBERT —For how long was it moved to the right? Six months? Twelve months? Eighteen months?

Vice Adm. Tripovich —I will have to check.

Dr Gumley —It is of the order of 12 months. At the moment, the self-propelled howitzers are planned for consideration for source selection by government in late 2010. It was going to be considered for second-pass approval back in July 2009, so it is probably about 15 months.

Mr ROBERT —A slippage of 12 to 15 months seems like a long time to get the offer documents right, Admiral.

Vice Adm. Tripovich —It is not the offer documents. There are a bunch of tests, trials and evaluations that need to be done. This is a proper Kinnaird first- and second-pass process. It goes to the point being made by the gentleman before: making sure we know what we are putting to government.

Mr King —The original tender process did not result in a conclusive assessment of either of the offers, so we went into this offer definition period before going to government to make a recommendation for the preferred tenderer. That has involved a number of tests and trials.

Mr ROBERT —So you are you saying that we went to market, got two tenders for the world’s two leading guns, had responses that were inconclusive for which gun we should get and have now extended the process by about 18 months so we can probably assess the best gun?

Dr Gumley —There is also systems integration involved, because the gun has to be able to fire the bullet and there is a bit of software involved as well. It is no longer as easy as just getting a gun, ramming the bullet down and going ‘bang!’

Mr ROBERT —It requires a shell!

Dr Gumley —You are right. I will be non-technical! We are very concerned about ensuring that the technical performance of the gun is appropriate with both the ammunition and the software that has to be used.

Mr ROBERT —Do we have a view from government as to whether we are buying a fifth C17 Globemaster. Has there been a request to buy a fifth one?

Dr Gumley —No.

Mr ROBERT —Has there been any discussion from Air Force about buying a fifth one?

Vice Adm. Tripovich —The white paper looked at the whole force structure, and there was no plan as a result of the white paper to buy another C17.

Mr FITZGIBBON —Can you refresh my memory? I am back to the self-propelled. There was a Korean gun and a German gun. At one stage there was doubt about the ongoing German participation? Is that correct?

Vice Adm. Tripovich —Those tenders are still being evaluated. They are both still on the table.

Dr Gumley —At the moment it is under tender evaluation. It could cause us a bit of difficulty if we go too far after one.

Mr FITZGIBBON —I have just realised. I will withdraw myself from this line of questioning.

Vice Adm. Tripovich —But both tenders are still live. That is the answer to your question.

Mr FITZGIBBON —Thanks.

CHAIR —One of the things that has interested me about that self-propelled artillery is that there are a few other platforms out there that are quite modern and sophisticated other than the two that have bid. Do you think there is any reason why some of those other suppliers have not engaged in this?

Dr Gumley —I would not know why they chose not to tender.

CHAIR —There are three or four that you commonly find out there in the literature with what appear on the surface to be comparable pieces of kit. I certainly have no problem with the two that have come forward, but I wondered why some of the others have decided not to bid. No feedback?

Mr BALDWIN —Can you update the committee on the progress of the Collins-class submarine, in particular the replacement of the generator?

Dr Gumley —I ask Mr Gillis to come forward. As you are aware, he is the program manager of the Collins class at this stage.

Mr King —Chair, could I just clarify a couple of points on AWAC while Mr Gillis is coming to the table? Mr Baldwin, you asked me what the duration of an AWAC mission was. I had said six hours—it is six hours in the training role; a full military mission is 10 hours, with one hour transition, one hour back and eight hours on task. We anticipate 98 per cent compliance with spec at final acceptance. And radar stability is now at around 10 hours. But obviously we welcome the opportunity to brief the committee on the full aspects of the performance.

CHAIR —Thank you. Mr Gillis has now joined other witnesses at the table. Mr Gillis, have you heard the question on the Collins-class submarines?

Mr Gillis —Yes. Just in respect of the generators on Farncomb, the original estimate was that it would take in the order of 23 weeks to undertake the repair of the generators. Just due to the physical dimensions, the requirement to get them in and out was a very big task. The Submarine Program Office—a combination of ASC, the Navy and the DMO—have worked collaboratively to produce a much better system of getting them in and out. We have worked with a company called Hofmann Engineering in Western Australia who are specialists in confined-space engineering. Hofmann undertook the challenge to have them removed, repaired and put back in a period of approximately 57 days. They are currently on track. The first of the generators will actually go back into Farncomb today and will then go through a process. We are very pleased with the work that has been undertaken to date. It has been an excellent example of the cooperation between the whole team, as well as of getting the best of breed within Australian engineering to help us get these Collins-class submarines back into operations.

Mr BALDWIN —As I understand it, the issue is that the windings failed on the generators—is that correct?

Mr Gillis —That is correct. We have worked with a company called machinemonitor who are specialists in this particular area. They are providing the quality control. We have now found the best companies in Australia to do vacuum impregnation, which was the failure of the first system—they were not done properly when they were originally manufactured. I looked at some photographs not 15 minutes ago of the vacuum impregnation and the process going in, and it looks a very impressive rework.

Mr BALDWIN —Are there any indications that generators on other submarines are likely to fail?

Mr Gillis —As to the generators that are on Collins, the original ones were actually manufactured in France. The inspections on those would indicate that they are very solid and we are not expecting to have a failure on those. The remainder of the Collins-class submarines that had their generators manufactured in Australia are susceptible to this particular failure. We are monitoring those. We are looking at the way in which we can ensure that we do not get the same sort of failure. We do have three generators on each submarine. The normal requirement is to only operate two. So what you can do is: by operating them at about 80 per cent of their normal operating profile, you restrict the likelihood of a failure. We have now also been able to prove a world’s best practice way of doing this work. We are also going through the following process: from now on, in the normal process of doing their midcycle dockings, their intermediate dockings or their full-cycle dockings, we are undertaking this work. We will be changing out the complete set of generators in the submarines.

Mr BALDWIN —That was my next question. So on the Collins you are doing all three generators?

Mr Gillis —On Farncomb we are only having to do two because we had already swapped out one of them.

CHAIR —Is there any liability that the original supplier of these faulty generators is exposed to? Have we looked at that?

Mr Gillis —We are talking about some 10-plus years. It would be like owning your own vehicle, having it for 10 years and then going back to, as the general referred to, Holden or Ford, and saying, ‘You’ve given me a—

CHAIR —I was simply relying on your advice of a few moments ago that the original job was, I think your words were, ‘not done properly’.

Mr Gillis —Correct. It was a standard—

CHAIR —And it would not matter how many years after—if they were not done properly then there would be a liability attached to that.

Mr Gillis —I do not believe that we actually have a case where we could go back to the original manufacturers to claim a recompense. I will seek some advice from my general counsel but, at this stage, it is unlikely that we would be able to actually get some recompense for that.

CHAIR —I just make the observation that, if we are in the business of handing out money to Australian or American businesses or anybody else in the development of things, we should sure and hell be in the business of making sure what they provide has been delivered properly and in accordance with the contract. I appreciate that you were giving off-the-cuff testimony and what you said may not have been a considered assessment. But, if that was indeed a considered assessment, it seems to me we were not supplied with what we ordered and we should not bear the total cost of making good the repairs.

Mr Gillis —I think it is a matter of the quality of the product that was demonstrated at the time. Its warranty was for a certain period of time and it had exceeded the original warranty period. When an item like that has passed its warranty period, you do not have very much recourse. We would have liked it to have lasted longer and to an indefinite fit, but it is very unlikely that most companies will warranty a piece of manufacture like that for the life of a submarine.

CHAIR —I fully accept that. My line of questioning then was based solely on your comment earlier that it was not done properly. If that was, on reflection, not a considered view, then I understand that happening in oral evidence, but, if that is a considered view, I would simply ask you to take that on notice.

Mr Gillis —Thank you.

Proceedings suspended from 12.22 pm to 1.10 pm

CHAIR —We will resume the hearing of the Defence Subcommittee of the Joint Standing Committee on Foreign Affairs, Defence and Trade. I invite Vice Admiral Tripovich to again join us at the table. He may have some information to assist the committee with some matters that were raised before lunch.

Vice Adm. Tripovich —I have sought advice from the Chief of Navy. I can report that there are six MHCs in the fleet. Four of them are what I call ‘in service’ and two of them are in an extended availability period of 180 days notice. If you need any more information, I will have to defer to the Chief of Navy.

CHAIR —I am glad you corrected the record from my somewhat flippant remarks.

Vice Adm. Tripovich —In relation to a question from Mr Baldwin in which I think he referred to a congress report outlining some costs, I have had a look at the provision that we have in the DCP, and the numbers mentioned in that report do not cause me any concern and they are still within the provision that we have in the DCP.

CHAIR —Thank you, Admiral. There were a couple of items that Mr Oakeshott has an interest in in relation to the Defence Materiel Organisation, major projects, which we did not get to prior to lunch, so we will go to those matters now.

Mr OAKESHOTT —Thank you. It was really an opportunity to explore what was in the Defence annual report. It is a rare opportunity, from a member of parliament’s point of view, to explore of some of those principles, organisational structures, what you have seen from me today with regard to governance and due diligence and where that all sits in the equation. I do think it is a fascinating relationship that DMO has as part of the Department of Defence, which has a military focus. It is mostly covered by the Australian Public Service and so is covered by basic administrative law principles. There has also been your appointment in the last five years. Then there is the interface that DMO has with the private sector, which raises the issue of where the business acumen and business arm of Defence, and therefore government, sit in that relationship. There are hats of military, public service and business all sitting at various times. Therefore, I acknowledge before I ask some pointed questions that it is a difficult relationship and I hope the questions that I will be asking are taken in the right vein—that is, in the interests of taxpayers and making sure that we get that difficult relationship right.

You would know that I have been asking some questions on notice about DMO over the last six months, and there has been some good feedback. In fact, the journey for me started in some feedback that the member for Paterson got with regard to issues of over budget, under budget and around budget. I have been asking some questions in that regard. The issue that is of concern to me is based on the feedback you have provided. Rather than the last five years being a period of reform and progress, the figures say that we are still shipping backwards in relation to the reform agenda. The reason I say that is that the figures that you have provided me are that pre-February 2004, of the projects that were over budget, they were 12 per cent over budget; post-February 2004 that has gone up to 25 per cent over budget. Those figures are based on your answer to question No. 1,064 to the Minister for Defence Personnel, Materiel and Science. Projects that have come in under budget have slipped from 74 per cent in 2004 down to 51 per cent. The only area where there is good news is with those that are around budget, having gone up from 14 per cent to 24 per cent. This covers 240 projects, big and small, and it is working specifically on the issues of the original budget together with all the adjustments for indexation exchange and scope change. So it is as close as possible to comparing apples with apples. I would like a response to why, in the last five years, those percentages have been slipping.

Alongside that, where are you at with the Mortimer review? In an answer to another question, we heard that there seems to have only been half a million dollars spent at this stage, out of an allocation of $28 million and an allocation of $69 million over the forward decade, for the implementation of Mortimer and the acceptance of the 42 recommendations. If we are going to get fair dinkum about reform, it does not sound like we are there yet. Please respond and try and correct me.

Dr Gumley —I will try and take the questions one by one. I have not done the same statistical analysis as you have done on the pre-2004 and post-2004 issue. What I will do now is take the analysis you have done on the data that the department provided to the minister and the minister has provided to you, through the question time process. If possible, I would like to come back to you with some analysis on that question you have just asked. I would refer you, though, to page 113 of the Major projects report, which is a longitudinal analysis of the top 15 projects. They are the big ones. If we look at the cost change in the projects after you take account of inflation, foreign exchange and scope changes authorised by government, the net variation is about 0.2 per cent. That is at the bottom of that column. So I will stand by the statement I have made on several previous occasions that cost is not proving to be the really difficult issue for us; it is schedule.

The area that I am most concerned about is that we are running schedule delays on the big projects of typically between two and three years, which is broadly equivalent to the United States and Britain—I think we are on a par with them. I believe we have better cost performance than those two countries, but that is partly because we do not do as much development work as the Americans. When you are in the highly developmental stages of projects, there is more chance for costs to go out. So we are reasonably safe when we buy products like the Abrams tanks or the C17 aircraft or the Super Hornet aircraft because we are buying towards the end of the production line and the financial risks are significantly less. When we take on a highly developmental project—like Wedgetail, which we discussed this morning, or like FFG upgrade for the ships, like we discussed this morning—we find that the schedule delays become even greater. The thing that concerns me most is working on schedule performance—how well are we able to predict, before a project starts, when the military will get their military capability. That is still the biggest problem we have.

Mr OAKESHOTT —I will happily hand over the analysis I have done, and if you could provide feedback to the committee—

CHAIR —If you could take it on notice and let the committee secretariat know, that would be great.

Mr OAKESHOTT —That would be great. In the annual report, organisational charts are at the start of both volume 1 and volume 2. Are you willing to give some feedback on the level of comfort test and the level of confidence test on the jurisdictional boundaries between where DMO sits, where the CDF sits and where the secretary of the department sits and are there issues of contention within that organisational structure? Do you think it is the model for the future? On the latter point, about where the DMO sits, do you still adhere to public sector principles in the delivery of DMO practice?

Dr Gumley —I will take that question in parts. I am comfortable with DMO being a prescribed agency. The secretary has delegated, as first delegate, a number of HR responsibilities to me, which gives a reasonable control over elements of workforce management that are necessary to have a project management purchasing culture for an organisation that does about $10.8 billion a year of business. About 93c in the dollar of what we spend goes to the private sector; about seven per cent is kept for internal staff, running costs, project management, purchasing, auditing and assurance.

If you were to look at major construction companies in the private sector, typically people like project managers and architects would take eight or nine per cent of a large building if it is being constructed in the CBD. DMO is running its business on about a seven per cent ratio. Could it be done a little better and more efficiently? Yes, and we are continually working on that. Is it wildly out of whack with the rest of the community? No, it is probably somewhere in the middle. So I am reasonably comfortable with the level of resources being applied to deliver these very complex projects and the sustainment of fleets.

In terms of where we fit with the secretary and the CDF, I am very comfortable with the relationship at the moment. It is professional and constructive. We also have a good relationship with Matt Tripovich, who is running the Capability Development Group. One of the great reforms I think that were enacted through the Kinnaird process back in 2003-04 was the separation between the Capability Development Group and DMO. I often specify, perhaps a little too simplistically, that to get the customer, which is Vice Admiral Tripovich and his people, to write down what they want and be able to specify it fairly precisely is a very important thing for managing cost and schedule control and improving the delivery. So, as the delivery organisation, it is very useful for CDG to work through their specifications and interpret what the military want for operational deployment and through that mostly military determination to tell the DMO what it needs to acquire.

I am quite comfortable with that separation. It works through the first and second pass process. Between first and second pass Kinnaird said you should spend up to 10 per cent of the project funds on risk reduction. We are not spending the whole 10 per cent. We do not need to on some projects and other projects we push towards the 10 per cent. Every bit of risk reduction you do always pays back. When you get towards the end of the project it is in a much better condition because you have done that risk reduction up front.

Mr OAKESHOTT —There is a perception that you—and DMO—generally work on different principles than any other public servant in Australia. I want confirmation from you that DMO is part of the Public Service of Australia, it works on the procedural fairness and natural justice principles under that public service banner, and the business tag that goes with DMO is in fact mythology—DMO is a leadership arm of the Australian Public Service and you have a leadership role in the Australian Public Service as a consequence.

Dr Gumley —The DMO is certainly part of the Australian Public Service; there has never been any question about that. As a prescribed agency we have FMA Act responsibilities, and they are taken very seriously. We are audited by the Audit Office. All of our employment and other conditions are under the PS Act other than for the quarter of the staff in DMO who are military people that are effectively outsourced to us by the military organisations—they are hired under the Australian Defence Act.

DMO is certainly part of the Public Service, yes. When you are dealing with $10.8 billion of public money expenditure it is in the interest of taxpayers to get the very best value for money that you can. To do that you need a cadre of executives and others who understand the way the private sector think and are able to sit down at a table with them and talk their language to get the best deals for the taxpayer.

Mr OAKESHOTT —And there is my point. Can we put one thing to bed: in most media reports when you are mentioned it says that you are the highest paid Australian public servant. I do not know whether you have seen that, but are you willing to comment on that—confirm it or otherwise?

Dr Gumley —I know what I am paid roughly, but I have no idea what anyone else is paid—

Mr OAKESHOTT —And it is a public figure, I would imagine.

Mr ROBERT —I think I am paid less than you, Dr Gumley.

Mr BALDWIN —I would like to be paid as much as you.

Mr OAKESHOTT —I think we all know figures. Therefore, do you see your role as a leader within the Australian Public Service or do you see your role as challenging the Australian Public Service through private sector enterprise principles?

Dr Gumley —No, I am very much an Australian public servant and I try to offer leadership for DMO by getting as many DMO people as possible to think as commercially as they can within the APS boundaries, because that is the way you get the best deal for the taxpayers.

Mr OAKESHOTT —Therefore, the principles of procedural fairness and natural justice apply in the way you deal with your daily business?

Dr Gumley —That is correct, and they apply equally if you are working in the private sector. I do not see how there is any difference.

Mr OAKESHOTT —There is a substantial difference under administrative law—for example, pre-hearing tests. In the public sector, you have got to give people the opportunity of knowing decisions before you make them. There is the bias rule. You cannot have personalities or fear or favour entering into the decision. So there are some critical legal principles that apply to the public sector that do not apply elsewhere. You are this really interesting interface between the two, and I just want to get feedback from you on what you see as your role, on a daily basis, as—as is reported—the highest paid Australian public servant.

Dr Gumley —As I said, I cannot comment on what my pay is relative to anyone else’s, so I cannot go there.

Mr OAKESHOTT —But the point still applies, and I would not mind feedback on it.

Dr Gumley —I am an Australian public servant.

Mr OAKESHOTT —Right.

CHAIR —I am not sure what the question is, I am sorry.

Mr OAKESHOTT —There is the tendering role, which I have been raising on a regular basis. But in the Defence annual report there is a reference a one-sentence reference, to the dismissal of Jane Wolfe, and that I think is therefore an issue that is of interest to, again, the Australian taxpayer and this committee. In chapter 2 of the report, it states:

In March 2009, Ms Jane Wolfe’s employment with the DMO ended.

 There is no such legal term as ‘employment ended’, as far as I know. Do you agree with that?

CHAIR —Just for the record, we have been joined at the table by another official from the department, Mr Harry Dunstall. I am assuming you have joined us because you have some information about the matters that have been raised.

Mr Dunstall —We are heading into a matter that is still before the courts and we just need to be very careful about what we do and do not say in this forum, particularly because it could also reveal personal information about an individual. We just need to be careful about that.

Mr OAKESHOTT —But is anything I have asked not careful?

Mr Dunstall —I am just joining the table because we are about to head into a discussion about an individual.

Mr OAKESHOTT —Okay. There is a line in the annual report that says the employment of Jane Wolfe ‘ended’. The last time I looked at industrial law, there was no such term as ‘ended’. A layperson reading this annual report could take that as being killed. What does ‘ended’ mean?

Mr Dunstall —I was in fact the one who cleared that text. I am not giving it any term. Her employment ended at a particular point in time in the organisation.

Mr OAKESHOTT —And you believe that is an appropriate descriptor, ‘ended’?

Mr Dunstall —Yes.

Mr OAKESHOTT —Do you?

Mr Dunstall —Yes.

Mr OAKESHOTT —In the future, what about having some reasons behind why someone’s employment ended? Regardless of court matters that may be underway right now, don’t you think there is an obligation on the part of the department to provide more detail than the one word, ‘ended’?

Mr Dunstall —The circumstances of that employment were published in the Commonwealth Gazette, as required by law.

Mr OAKESHOTT —And you don’t think that should have been in the annual report?

Mr Dunstall —It was already in the public domain—it was already in the Gazette—and we were sensitive to that individual and we were trying to be as generic as possible in terms of how we were treating that person’s employment. I think it is an appropriate way for us to treat individuals: being sensitive to the circumstances in which their employment was undertaken—and ended.

Mr OAKESHOTT —I am aware, you are aware and everyone is aware this matter is before the Federal Court—

Mr Dunstall —Correct.

Mr OAKESHOTT —but there are still some questions that can be asked around the edges. An article in the Sydney Morning Herald, for example, on 25 February, stated in regard to Ms Wolfe:

… the DMO breached dispute settling procedures by refusing her request to refer the dispute … to a mediator.

Is it correct Ms Wolfe requested that a mediator be engaged?

Mr Dunstall —Again, that article was taken from public documents. There was a statement of claim issued by Ms Wolfe and there was a defence that was filed by DMO, and all of these issues are in dispute.

Mr OAKESHOTT —So the issue of whether there was a request for a mediator is in dispute?

Mr Dunstall —Yes.

Mr OAKESHOTT —As, therefore, is the question of her legal entitlement to seek mediation?

Mr Dunstall —Correct, yes.

Mr OAKESHOTT —Has the Minister for Defence Personnel, Materiel and Science been briefed on the matter?

Mr Dunstall —I am aware of a number of briefs that have gone to ministers.

Mr OAKESHOTT —Are you comfortable that that briefing is providing all sides of the dispute?

Mr Dunstall —We have tried to be as objective as possible in relation to our briefing, obviously to keep the minister fully informed of positions being put by both sides and what the potential outcomes might be.

Mr OAKESHOTT —In the same Herald article, there was a comment that nine warnings that she could be dismissed were issued to Ms Wolfe. Are you not willing to comment on that either?

Mr Dunstall —I am not sure if it was nine. I do not have the Commonwealth’s defence, but that would have been stated in the defence, which is a public record.

Mr OAKESHOTT —A Canberra Times article on 8 April last year stated:

A spokeswoman for Defence Personnel Minister Warren Snowdon said yesterday, “The Government is confident that the Public Service Commissioner …, together with the CEO of DMO, have complied fully with their legislative responsibilities and acted with due regard to fairness, natural justice and privacy.”

Mr Dunstall —As the CEO said, we are bound by the Public Service Act and we are bound by the principles of administrative law. Certainly, in the undertakings process, we did our very best to ensure that we complied with all of those obligations. In terms of the Public Service Commissioner, that is obviously a conversation you will need to have the commissioner.

Mr OAKESHOTT —Are you willing to comment on the implications of the options for DMO and Defence generally if Ms Wolfe wins on 8 April?

Mr Dunstall —As I said, we are in the middle of seeking to resolve that dispute. It is the subject of live Federal Court proceedings and—

Mr OAKESHOTT —Which she is either going to win or lose. If she loses, I would imagine that is the end of the road.

Mr Dunstall —I am not sure—

Mr OAKESHOTT —If she wins, do you have a—

Mr Dunstall —There are a range of potential outcomes as a result of either scenario and we are trying to work through those.

Mr OAKESHOTT —Okay. Thank you.

CHAIR —I should explain that before we broke for lunch I was working off a penultimate agenda and there were a couple of items that were drawn to my attention after we broke for lunch. That is why we have this slightly different list of items and we have not gone on to those legal matters that I know people came earlier for. There is one other matter: civilian based programs through Defence engineering. Mr Oakeshott?

Mr OAKESHOTT —I do not think that is a DMO issue.

CHAIR —If you ask the question, we will have somebody here now who can make some comment about it, I am sure.

Mr OAKESHOTT —There is a program of assisting communities in need through the School of Military Engineering with civilian based programs, and there are some issues that I want to explore.

CHAIR —Is there anyone here who feels capable of answering some questions about Defence aid to the civilian community and, in particular, engineering activities? No?

Mr OAKESHOTT —There is the broader question of superseded or outdated assets.

Air Chief Marshal Houston —Perhaps if we just take it on notice for now, I will come back to you later in the afternoon.

CHAIR —Okay. If someone in Defence could note that issue has been raised, we have a couple of hours before we will conclude. If it is possible to get some information that can be conveyed to us this afternoon, that would be appreciated.

Mr OAKESHOTT —To assist you in that process there are, allegedly, 19 outdated line-of-communication bridges that are sitting in a disposal store somewhere and various councils around Australia want to get access to them to assist in bridge maintenance programs. There seems to be an ongoing dialogue between Defence and councils about what is commercial activity and what is civilian assistance.

CHAIR —I assume somebody in Defence has taken note of that and will endeavour to get us some information. I would like to welcome to the table the Chief of the Defence Force.

Air Chief Marshal Houston —Perhaps I can run through the issue that was just raised, Chair, with your indulgence?

CHAIR —Sure.

Air Chief Marshal Houston —Army has a surplus of 11 line-of-communication bridges over and above our capability requirement. Army had originally planned to dispose of those bridges through gifting six bridges to regional neighbours as part of our regional engagement strategy and selling the remaining five bridges through standard disposal procedures. So that is where we start.

Mr OAKESHOTT —A local council in my area put forward an application to have access to some of those bridges on a temporary basis because they have a 1902 bridge and a 1925 bridge, both failing. The exercise was a fascinating one in that Defence officials came up and looked at the bridges, and expectations were raised somewhat about access to the Defence bridges. There is on the website an ability to apply for the use of these bridges. At the end of the process everyone was let down by a letter that came back saying, ‘If there is a commercial alternative, Defence will not provide assistance under category 4 of that program.’ A few people felt that it was a pretty sour way to end the process, particularly when people had come to have a look and when the council itself, which has $100 million worth of backlog in roads and maintenance, is seen as being that commercial alternative. I would have thought that reasoning would apply around Australia. There are councils everywhere; either we have this program or we do not.

Air Chief Marshal Houston —I take it that this is the Greater Taree Council. I cannot comment on what happened in the circumstances that you have detailed. Let me put on the record what we can and cannot do. The option exists for the Taree City Council to compete to purchase the bridges on their disposal by Army. It would then be the responsibility of the council to transport and install the bridges at the sites. Gifting the bridges domestically is not our preferred method of disposal because it includes an expectation of engineering assistance. Obviously, such a program would require the approval of the minister for finance and an analysis to determine the most appropriate recipients for the assistance. So that is where we stand. The long and the short of it is that these bridges still retain some value and we cannot just give them out. We are required to dispose of them and try to recover some of the costs.

Mr OAKESHOTT —Category 4 is for exactly that purpose: the temporary use on a civilian basis. So either we have it and can use it or we get rid of it. I would have thought those would be the two options.

Air Chief Marshal Houston —Defence assistance to the civil community is a program that can be used to provide assistance, but it would not normally pertain in circumstances such as this unless, for example, you had flooding in Taree and the bridges had been taken down, then we might put up one of these bridges to ease the situation in the community. But using them for a standard infrastructure requirement over a number of years would not normally be on the cards.

Mr OAKESHOTT —Why, then, did Defence officials actually come and visit the site if that is the known principle behind it? If that could be looked at, that would be good.

Air Chief Marshal Houston —I will certainly come back to you on that.

Mr OAKESHOTT —Expectations were raised and it sounds like somewhat unfairly.

Air Chief Marshal Houston —Yes.

CHAIR —While we have the Chief of the Defence Force at the table, I am going to suggest we jump to the operational matters. We welcome the Chief of the Defence Force to the hearing. One of the matters the committee was hoping to obtain some information on was an update of our engagement overseas and in particular in Afghanistan and Iraq. We would appreciate some advice from you about the current status of our overseas deployment.

Air Chief Marshal Houston —Perhaps if I start with Afghanistan. Afghanistan is at an interesting stage. You would be aware that General McChrystal’s strategy has been embraced by President Obama and the Secretary-General of NATO and his strategy has resulted in a major operation in southern Afghanistan called Operation Moshtarak. Operation Moshtarak was centred on the town of Marjah, which is in the central Helmand valley. The initial part of the operation was designed to clear the Taliban out of that particular area. While the coalition had to contend with a large number of IEDs, the objectives were eventually achieved and that part of Afghanistan is now in the hands of the coalition. A number of shuras have been conducted with the local community and the idea is that we now go into the hold and build phase and essentially establish good governance and restore services to that particular area. Our process is ongoing and I think it is true to say the most challenging part of the process is effecting that hold and build program, particularly establishing the right level of governance, good policing services and delivering the appropriate services.

From here, COMISAF would plan to go on to Kandahar. He wants to essentially get into the Kandahar province and do something similar to what he has done already in Operation Moshtarak in and around Kandahar City. Obviously that will be a larger operation but essentially it is already starting to take shape and a lot of effort is going into engaging the population. I think the way it has been put we will conduct shura after shura after shura to engage the people to ensure the success of the operation. That is the big picture and that is where COMISAF is focused for the immediate future.

Where does that leave Australia? Essentially Operation Moshtarak we had forces in support of Operation Moshtarak. I mentioned in an interview the other day that our special forces are put in a block to the north of Marjah in the province of Kandahar. That was an important part of the support operation. The other thing we did was provide intelligence, surveillance and reconnaissance support through a couple of platforms, our new Heron uninhabited air system and also through the P3 Orions. I think you would be aware that we also have a number of embedded people that were probably involved, most particularly in the various headquarters that are in the ISAF chain of command. In terms of the upcoming operation in Kandahar, obviously that is much closer to Oruzgan and much closer to where we conduct normal operations. There has been some sort of suggestion in the media that we have not operated in Kandahar before, but I would remind the committee that over the last couple of years we have operated in the contiguous zones in both Helmand and Kandahar and indeed into Zabul and the province of Paktiya when we have needed to.

The example I would forward as being pretty typical is the time we went down to repair the bridges on Highway 1. We repaired two bridges in Zabul and another bridge in Paktiya. That was after they had been partially disabled by Taliban action. Our engineers went down there with suitable protection—because they can look after themselves—and they did a magnificent job in a contested environment. They restored the bridges and then came back.

I would also remind the committee that our Chinooks have operated continuously over the summer side of the season, over the last four years, right across Regional Command South—Helmand, Kandahar, Oruzgan, Nimroz and Zabul—without restrictions. We also have some artillery people in Helmand.

So, for the upcoming operation, Australian forces will be available in the normal way. The Chinooks have just re-established themselves for the rest of the year. They will be there until October. They have achieved their final operational capability and they are already flying all around the south, so they will be available to support the operations. Similarly, our special forces will do what they have done often before: they will go down and operate into northern Kandahar. And of course, if requested, a Kandak from Oruzgan might be transferred from what they are doing now to support the operation, with Australian mentors. I guess that gives you a feel for the employment of our forces.

How is it going from my point of view? I am very pleased with what we have been doing. We have had great success in the province of Oruzgan in recent months. We are involved in a very comprehensive operation, where we started a shaping campaign followed by more conventional clearing operations where we removed the Taliban from the Mirabad Valley. Mirabad has been a sore under the saddle for a long time. I was basically very happy when we got in there and established a presence in a community that had been a problem for us for a long time. A lot of the attacks that we have seen on our people have originated in that valley.

Our special forces have continued to do great work disrupting the operations of the Taliban. They have a very sharp focus on protecting the population. They have conducted an awful lot of shuras with the local community, and they have been very successful in identifying and targeting Taliban leaders and Taliban bomb makers. Their operations continue in a very impressive way.

In terms of the threat that we face, I think it is true to say, as the minister made plain in his statement to the Senate the other day, that we face a very lethal improvised explosive device threat. We have put an awful lot of effort into this. We have invested a lot of money. Obviously, the government has invested a lot of money in doing everything we can to enhance our force protection status. Essentially, we get more and more attuned to that threat. As you saw, there were 10 incidents over the weekend involving IEDs, including four IED strikes on Saturday and another IED strike on Sunday. Those improvised explosive devices went off as our troops mentored Afghan-Australian patrols in the green belt in Oruzgan.

I might leave that there for you. I have just recently been to Timor Leste and the Solomons. I am sure you would want to ask me a few questions on Afghanistan first and then I would be delighted to go on to the other places.

CHAIR —We appreciate that. Mr Baldwin.

Mr BALDWIN —Can you update us on the current position with the Dutch and who is likely to be taking their role in the province?

Air Chief Marshal Houston —We were hoping that the Dutch would remain in the province. They have been very good partners. They have done a good job with their provincial reconstruction team, and they have been very reliable partners to us. We were hoping that they would be able to continue. With the collapse of their government in February, I guess, all bets are off. The advice we have is that they will cease their leadership role on schedule on 1 August this year and we will start to see their forces drawing down. My expectation is that most of the military people will be out of the province by the end of the year.

We have been engaging NATO at all levels, from the minister down. Ministers put a lot of effort into it and we are assured by NATO that they will come up with suitable arrangements which will take care of our needs. Fundamentally, I suppose there are three aspects to this. The aspect that is the biggest concern is to ensure that the combat-enabling role that was performed by the Dutch with their battle group is replaced by NATO with a similar capability which delivers the same effect. That is being worked on. We know it is being worked on in Afghanistan at the superior headquarters—ISAF and obviously ISAF joint command, and also NRC South. My expectation would be that that one will be resolved in the not too distant future, certainly well in advance of the Dutch leaving.

The other aspect is: who leads in terms of the PRT? Again, that is some that is being worked and we will see where that ends up. We have made it quite clear that being a non-NATO nation we do not expect to lead in Oruzgan. Then there is the issue of the base—Tarin Kowt. It is now referred to as a multinational base. I guess that reflects the fact that there is a large number of Americans on the base. An aviation battalion resides there, alongside our people and also the Dutch. Who runs the base is probably another issue.

I did not mention our training role. We are making very good progress in the way we train and mentor our Afghan colleagues in a number of areas. If you want to go there, I can answer any questions of detail.

CHAIR —I should welcome to the table, the secretary of the department, Dr Watt. Mr Gibbons.

Mr GIBBONS —You mentioned there has been an expansion of IED incidents. The figures at the weekend probably show that. Have the apparatus being used by the Taliban gained in sophistication? Are we having any more difficulty in detecting them now than we did in the past? Are they more lethal now than what we experienced in the past?

Air Chief Marshal Houston —There are a number of aspects to that. What I would say is that we are seeing an increasing use of non-metallic improvised explosive devices, which means that it is more difficult to detect them with conventional detection methods.

Mr FITZGIBBON —Just thinking ahead to the coming operations in Kandahar, given Oruzgan has often been a safe haven or a place for pause for the insurgents, do we believe the operation in Kandahar could cause us problems in Oruzgan? Has that been considered as the insurgents retreat to a safe haven? If that is a possibility, what consideration has been given to dealing with that threat?

Air Chief Marshal Houston —That has certainly been considered. You cannot think about Kandahar without considering the adjoining provinces, so you cannot think about any operations in Kandahar without considering Oruzgan, and to a large extent that is where our special forces were involved in the operations in Helmand. What they did was prevent leakage of insurgents in the fight either in Marjah or out of Marjah into the province of Oruzgan. I would anticipate that what we will see is a very sharp focus on the security of southern Oruzgan as well as a focus on Kandahar, and I guess it is really up to the operational commander to decide where he puts his available forces.

Of course, with the surge of American and NATO forces into Afghanistan and also the increasing numbers of Afghan soldiers that are available, there is a lot of combat power that can now be applied to the problem. What you will see is the same clearing sort of activity and after that another hold and build operation to establish governance in the province of Kandahar. Of course all of that will be preceded by an extensive amount of shaping which will engage the population and prepare the conditions for the subsequent operations.

Mr FITZGIBBON —And any participation by Oruzgan based Kandaks in Kandahar I suppose will be seen as a good opportunity and an experience likely to assist in their training efforts?

Air Chief Marshal Houston —Yes, I think that that is true. Kandaks have been deployed into Marjah for the period of the operation. The intent is to redeploy them whence they came, and I would anticipate that that will be the same next time around. The experience that they gain from that is probably valuable. I would be very quick to add that in the province of Oruzgan, as was demonstrated through the weekend with the joint patrols in the green belt, our Kandaks are in the fight all of the time anyway. Ten incidents through a two-day period demonstrate that there is quite a significant threat to be dealt with within the province of Oruzgan.

Mr OAKESHOTT —Just in layman’s terms and with me trying to sell your message and our message in an electorate such as mine, am I right—and correct me if I am wrong—that Australia will be engaged in this exercise until the same time as the US, July 2011, and then we will start pulling? Is that correct?

Air Chief Marshal Houston —No, that is not what the Australian government has established. Essentially the Australian government has not established a withdrawal date or an exit point. What the Prime Minister has indicated is that our prime focus will be on training the 4th Brigade of the Afghan National Army, and once that job is complete we will be in a good position to pull our training forces out of Oruzgan.

Mr OAKESHOTT —From your perspective as well, seeing all the side outcomes, the goals of this operation as they stand today are more focused on democratisation and trying to get governance up and running in Afghanistan alongside the constant chase of the Taliban. Are they essentially the two arms of this operation that are left?

Air Chief Marshal Houston —Again, at the highest strategic level, the government, like our American friends, is very focused on denying Afghanistan to terrorists and other groups that might shelter terrorist groups—the sort of situation in Afghanistan before 9-11. At the highest level that is an objective. Another objective is to train and develop Afghanis to enable them to take care of their own affairs, particularly their own security. In terms of where we are now, we are training the Fourth Brigade. There is a huge training effort going on right across Afghanistan that is being conducted by the NATO training mission. There are partnering arrangements with all of the operational Afghan National Army units. Obviously, we have operational mentoring and liaison teams that are fully involved in that. We also have other elements that are training the police. Probably the biggest challenge for the coalition is training the police and establishing the right sort of policing culture out there in the provinces.

In terms of where Australia is, as the Prime Minister said on 29 April: we are sharply focused on the training of the Fourth Brigade and we think that that is a substantial contribution for us to make to the huge effort that is going on right across Afghanistan.

Mr OAKESHOTT —I certainly understand and accept that the second objective is a valuable and noble cause. Are you willing to comment on the first in terms of: are we involved in something that has been around since Russia and the Mujaheddin? Are we chasing rabbits up holes strategically in relation to that first objective, because it is an all but impossible task? If we can get a version of democracy established, that would almost be a pat-on-the-back, as-good-as-possible job done by the coalition forces. Are you willing to comment on that?

Air Chief Marshal Houston —I think this is ‘mission possible’, I really do. I think what we have now is the right strategy. The strategy is an integrated military-civilian strategy, which looks at establishing security, providing governance and providing development right across the board. With the approach being taken by General McChrystal and its emphasis on protecting the population, we have a lot of optimism that we will eventually prevail. Indeed, I would submit that the tide is starting to turn. We are seeing the coalition starting to get on top of the insurgents. However, I would not overstate that; there is a long, long way to go. Also, as I said earlier on, in terms of Operation Moshtarak in the central Helmand valley, the big challenge is in establishing governance and delivering the right sorts of services—not the right sorts of services that you might have in an Australian setting but those where a heavy emphasis is put on getting the provincial governance sorted out, the right governor, the right support for the provincial governor and a very robust local police force. Clearly, if you can establish that and back that up with the Afghan National Army, you can start to create the conditions for success.

I would have to say that, thus far, the way we are going as a coalition with the training and development of the Afghan National Army is going particularly well and I would submit that it is quite a bit ahead of the training and development of the Afghan national police. But, having said that, the Afghans themselves are acutely aware of what they have got to do in terms of the development of the police and the Minister of Interior, Mr Atmar, has a very good strategy for the development of the police.

Mr OAKESHOTT —Thank you.

Mr FITZGIBBON —CDF, I would not necessarily invite to agree with me—but agree with me if you see fit. It is a very important point that Mr Oakeshott makes, because there is a very widespread misconception in the community. If we go back to Alexander the Great or to the Great Game with the British or to the war between the Afghans and Soviets, we are in all cases talking about state-on-state conflicts; in the case of Afghanistan versus Russia, of course, Afghanistan backed by the United States of America. This is not a state-on-state conflict. This is a conflict in which we are working with the democratically elected government of Afghanistan. There are many things that make this a different conflict from the earlier three examples, which people like to dwell on when coming to the conclusion that it is an unwinnable war, but I think that is a very critical difference between what we are doing there now and what other nation states were doing there, in historical terms.

Air Chief Marshal Houston —I guess all I would say is that I think we have got the right strategy at the moment. I think we have the right leader in General McChrystal, and recently Mr Mark Sedwill has joined him as the NATO senior civilian representative. He is a most impressive individual. I think together they have formed a very good partnership and they will provide the right sort of leadership. Finally, the strategy that is in place is being fully resourced. That it is important because up until now I think you could characterise the operations that have been conducted in Afghanistan as economy of force operations, and economy of force operations are not going to enable you to prevail in a conflict such as Afghanistan, where you have got a very well-developed insurgency going on.

CHAIR —I am mindful of our time constraints. I know there are some members of the committee who have flights to catch and we have a number of personnel issues. Rather than necessarily getting a briefing on each of the deployments, if there are any particular matters you wish to raise I would not want to cut that off.

Air Chief Marshal Houston —Perhaps I could give you a few thoughts about Timor-Leste, if the committee wishes.

CHAIR —Certainly. The committee had a very quick one-day visit to see firsthand some of the activity there, so I think the committee would welcome your thoughts on that.

Air Chief Marshal Houston —I was very pleased with what I saw in Timor-Leste. There is a feeling of normality, a feeling of stability, there right now and of course that is creating the conditions for our ongoing drawdown. We are now down to about 400 Australian troops. That has been a very pleasing process because, if you remember, at the height of the troubles in 2006 we had over 3,000 people there. So, over time, we have drawn down. In my interactions with senior people in Timor-Leste I think there is a confidence and a certainty that things are going to be different this time around. Everybody recognises that there will be challenges from time to time, but there is a confidence that they can provide the stability that is required to take the nation forward.

In security terms, what we will be involved in is a gradual transition from our stabilisation force into a very large and comprehensive enhanced Defence Cooperation Program, which is all about capacity building. Already the ISF is starting to become involved in some of those capacity-building requirements. That completely complements what we are doing in the Defence Cooperation Program.

The four main pillars in the Defence Cooperation Program are maritime security; peacekeeping; engineering, with a view to giving the F-FDTL a nation-building capability out there in the villages; and, finally, a very big English language program. We have 200 English language places for East Timorese soldiers this year. We are also continuing with the specialist training at the training establishment at Metanaro. So it is all going well. I am very hopeful that, in the not-too-distant future, we will see the ISF in a position where it is able to leave. We will continue with this very large Defence Cooperation Program, which will still involve a large number of Australian troops, but it is all about capacity building rather than about providing security and stability.

Mr FITZGIBBON —How are the East Timorese going with their maritime security and their patrol boat program?

Air Chief Marshal Houston —They have not yet taken delivery of their Shanghai class patrol boats. But I was very encouraged by the fact they are very seized with the need to develop the right professional standards within their maritime force. Recently, we had very successful navy-to-navy talks. What they seek from us is to adopt a lot of our processes, a lot of our professional standards and, indeed, they want to leverage off our naval culture. I think that is all to the good. I guess that, when they get their Chinese patrol boats, they will use them quite effectively, provided we can give them the necessary professional training that is needed in the immediate future.

CHAIR —I am going to suggest that, unless there are other questions on operations—and we can come back to those if need be—we move to some of the personnel issues. To begin with, perhaps we can look at the question of recruitment and retention and, whilst that is a broad ambit, in particular at the areas of shortage. I know there has been a fair bit of some commentary, as always, about submarines. Your advice on those matters would be appreciated.

Air Chief Marshal Houston —In terms of recruitment and retention I think things are going very well. Currently, we have 57,212 people in the Australian Defence Force. Our long-term target, as you know, is 57,800 and, to a large extent, we are overachieving in terms of authorised funded strength. Our recruitment has been very successful. Year-to-date recruitment is running, essentially, at 96 per cent. Our target, as at 1 February, was 4,288. We achieved 4,113, by 1 February, which is 96 per cent of the target. Just to give you a feel for how that is compared to the past, it was 86 per cent at the same time last year. So that is a substantial improvement in recruiting performance.

The number of inquiries in our recruitment process is up 15.3 per cent. The number of applications is up 14.8 per cent and we have the lowest separation rate that we have had for years. It is very pleasing indeed that Air Force is running at an all-time record of 5.1 per cent separation rate. That compares to 6.9 per cent this time last year. Army is running at 8.1 per cent, compared to 10.6 per cent this time last year and Navy has had a dramatic turnaround, at 8.6 per cent, as compared to 11 per cent last year.

Overall, our separation rate is 7.5 per cent. If you go back to where we were in March 2007, we are running now four per cent lower than we were then because at that stage our separation rate was 11.5 per cent. I would say that in terms of recruitment things have turned around quite well. Our retention is much better. Whilst I would say there are external factors that are probably assisting us, I think that the global financial crisis has probably assisted our circumstances but at the same time we are doing okay at the moment. Whilst we still have a number of critical employment categories, there has been a marked improvement in that area as well. I will not go into the detail of each category, but the trend is all in the right direction. I am very pleased with how we are going.

Mr BALDWIN —Could you choose one category and detail for the committee how the recruitment and staffing levels are for submarines?

Air Chief Marshal Houston —Submarines are going very well. I am very, very happy with the work Chief of Navy has been doing and indeed the work that Phil Minns and his people have been doing on recruitment and retention. In terms of where we are at the moment, we have had an increase of 25 in the submarine force since July. Our target this year is to increase from the current 468 people in the submarine force to 500 by the end of the year. Essentially, if we make that target and then we qualify 100 people a year, we will be well on the way to restoring the submarine force to where it needs to be. That will enable us to establish a fourth crew by the end of next year. Right now with the 468 people, we have three submarines fully manned. I visited one of those crews very recently with the Chief of Nay—HMAS Dechaineux, which is coming out of full-cycle docking in Adelaide. I was really taken with the high morale on board that vessel.

The other thing that I think is crucial as we go forward is to keep our separation rate with the submarine force below 10 per cent. If we go back to 2008, you will recall that the Chief of Navy put in place a submarine sustainment project under Admiral Moffitt. Admiral Moffitt made a number of recommendations which were all accepted by the Chief of Navy. Since that time, we have gone forward on a very positive and constructive platform. I am very confident that the major problems are behind us. Having said all that, if the economy goes into another boom condition, we are always going to have challenges for both our recruitment and our retention. But at the moment, it is looking good and we are seeing a lot of interest from junior recruits in the business of being a submariner.

Mr BALDWIN —At what stage do you consider you will have six fully qualified crews to man six submarines?

Air Chief Marshal Houston —I talked to the Senate committee about this the other night. Nobody in the world maintains six for six or 50 for 50 or whatever. Submarines just are not like that. Submarines are the most complex weapons system that defence forces operate, and what you should anticipate is that, of those submarines, at least 50 per cent will be in some form of maintenance servicing at any one time. We have benchmarked against all of our friends and allies, and I can assure you that the way we run our submarines is consistent with the way all of our allies run their submarines. Nobody has one crew for each submarine they possess. What they have is sufficient submarine crews to sustain the capability that is defined by the government that owns that capability. In our case, we could not employ six submarine crews.

Mr ROBERT —Chief, I have some questions about the reserve, specifically, as well as rebalancing the Army.

Air Chief Marshal Houston —The vice chief will come up and join me. I would like to make sure that I am across the Army language.

Mr ROBERT —Where is the Review of the Army Reserve Approved Future Force up to with respect to the Defence Force producing it and submitting it to government?

Lt Gen. Hurley —You are referring to the rebalancing of the Army project that the Chief of Army is running at the present time?

Mr ROBERT —If the Army Reserve Approved Future Force, which is how the Army—

Lt Gen. Hurley —It is part of the rebalancing.

Mr ROBERT —The Army Reserve looks at part of that?

Lt Gen. Hurley —Yes. In shorthand, the Chief of Army has just about completed his review and produced the papers on that. They will go through processes in the department to be presented to government.

Mr ROBERT —Do you have a time by which it will be presented to government?

Lt Gen. Hurley —I do not but I can find out. He is driving that process, not me.

Mr ROBERT —Thank you. With respect to rebalancing the Army, my understanding is that the rebalancing is 1,721 soldiers, which would include officers out. Is that a fair statement?

Air Chief Marshal Houston —It is a very long and involved process. Yes there is a need to consider that number of people who need to be adjusted, but it is not a simple matter of saying that we have to cater for 1,721. There are a lot of other factors involved in the rebalancing, but certainly that figure is around.

Mr ROBERT —Noted. That means, on my understanding, that Army will have to find savings for numbers in and around that figure; is that a fair statement?

Air Chief Marshal Houston —No, I do not think it is a fair statement. This is where it gets quite complex. I think what you have to understand is that, for Army, we are talking about, first of all, the increases associated with hardening and networking the Army, which is an increase of 1,486. Then there are the increases with enhancing the land force, which as you know gives us two battalions plus. In effect it is a substantial increase in the Army in the order of about 4,000—I do not have the actual figure to hand. So all of that is going on. On top of that we have this rebalancing activity which involves not just the permanent side of the Army but also the reserve side of the Army. It is not easy to say, ‘It’s this number,’ and that sorts out the issue. It is quite a complex relationship between a number of projects running concurrently—that is, hardening and networking the Army, enhancing the land force and then the rebalancing of the Army. In addition, the vice chief is running another project under the Strategic Reform Program which relates entirely to reserves, not just to reserves in the Army but to reserves across the board.

Mr ROBERT —In layman’s terms, my understanding is that Army obviously went forward with two extra battalions. However, there are always people coming in, people going out and people going on courses, and those numbers were not properly considered. So there is a process now where Army will have to look at how it saves over 1,000 people in some capacity. Is that a fair statement?

Air Chief Marshal Houston —No, it is not. The numbers were comprehended all the way through the process. Again, it depends where your starting point is, but the size of the Army has expanded quite dramatically over the last few years. The permanent Army at the moment is just under 30,000—in fact, 29,017. If you go back just three or four years, we were down around 25,000. So it is quite a dynamic process and it is quite hard to excise out each particular element of it. Perhaps we could get General Hurley to cover the reserves part of it, because I think that will give you some feel for the complexity of what is happening on the Reserve side of the house and then, if you wish, we can come back to the—

Mr ROBERT —Just before you go to the reserves, can you explain how Army intends to rebalance the Army, how it intends to find positions to achieve that rebalance with the two new battalions.

Air Chief Marshal Houston —What is driving the Army is not the need to find 1,700 positions. What is driving the Chief of Army is to find the best way to deliver the capability that he has to deliver to government through me. He is seized with the need of basically coming up with the best configuration, in terms of both permanent positions and reserves, to deliver the capability effect required by government.

Mr ROBERT —As the chief moves to reconfigure, obviously there are winners and there are losers. There has to be if there is a reconfiguration. If positions are moving from one area to another, someone is going to lose and someone is going to gain. Does Defence have a view as to what positions will be lost in what areas?

Air Chief Marshal Houston —I think it is probably premature to go there, because the Chief of Army is in the process of going through that rebalancing exercise, and final decisions on what the structure will be have not gone to government yet so it would be premature of me to lay any of that out before you.

Mr ROBERT —Vice Chief, what impact does that rebalancing reconfiguration have on the reserves?

Lt. Gen. Hurley —It is the work that the chief is doing at the present time. The task on him is to enhance the capability of the Reserve and the contribution it makes to the Defence Force. So, if you look at his top-level objective, he has to work through that in the rebalancing process. So how does he get the best out of the full-time and part-time elements of the Army?

Mr ROBERT —Defence Reserves Association’s Major General Barry seems to think that as many as half, perhaps 500 to 600 ARA staff would be removed from Army Reserve units. Is the DRA correct?

Lt. Gen. Hurley —I think he is prejudging a decision the government will not make, if he comes to that point, because the Chief of Army’s position has not been put to the department yet, let alone gone forward. So there is a lot of speculation out there.

Mr ROBERT —There is always speculation. I will move on to Army Reserve training. The Defence Reserves Association report in September last year said that the Commander 2 Div. stated that the training days will be reduced by 20 per cent and that there will be a range of other cutbacks. The Chief of Army quite rightly responded to that to indicate that funding for Defence Reserves days had increased, but, of course, there were more people in the Army as a whole to use the great pot of money. So whilst money to the reserves had increased, there was in effect less—that was, the reduction in training days.

Ms Debra Perry, whose husband serves in 5th/6th Battalion, Royal Victorian Regiment, has indicated in writing to the minister as well as others that her unit, 5/6 RVR, has been cut down to two days training a month. Indeed, for April it was down to one day, with no weekend training. Her concern was that soldiers would not have 20 days to meet the requirements for their subsidy for housing, but of course the chief came out to guarantee 20 days, which was great.

The wider question is: where is the Army going with these significant cutbacks to training days for reserves? Is this a permanent thing for the next 12 months? Is it a temporary aberration? What can the reserves expect in terms of training days?

Lt Gen. Hurley —I think it is a mischaracterisation to say there has been a tremendous reduction in the training days available to the Reserve, particularly in the Army. I think you characterised it a bit better when you started, in your preamble, in that we have had to reorganise how we distribute the days to make it more effective, because the buying power of a Reserve day has changed. So what the Chief of Army has done in particular is to put his resources where he gets the best bang for his buck. But what he is saying to soldiers is: ‘You’re required for honest employment by the Reserve and, if you need 20 days to qualify, you’ll get your 20 days.’ So he has made that commitment. In relation to the Defence Home Ownership Assistance Scheme, I think he has also said quite clearly that if they cannot get their 20 days for legitimate reasons under the regulations then he will provide a waiver for people so they can access it.

Mr ROBERT —I agree. The question was, though: is this a temporary aberration with respect to—

Lt Gen. Hurley —This is a management issue for the Chief of Army at the present time, to manage his manpower, salary and buying power. ‘Temporary’ is a word that is fairly ill defined. He needs to do that until it is resolved, until he has got his rebalancing through, until what he needs from the Reserve is defined and how that fits into his salary vote and so forth. So it is not temporary—that is, just for this year. It is hard to me to say what ‘temporary’ actually means in that sense.

Mr ROBERT —Can you make any comment, Vice-Chief, on the future force disposition of the reserves? Where are the reserves going in terms of their role, their task, their force disposition on the ground?

Lt Gen. Hurley —Again, that is contained in the rebalancing of the Army work that the chief is doing, and again he will be conscious of the requirement to enhance the capability of the Reserve commitment to the ADF.

Mr ROBERT —My final question is: do you have a comment on how the High Readiness Reserve is going? I asked the minister how many soldiers had received the tax-free bonus of $10,000 after two years service and, to the Army’s credit, in 2008 it was one because it had just commenced and in 2009 it was 471, which clearly shows that quite a number of people are staying in the High Readiness Reserve and are receiving that two-year bonus. As at February, there were 12 for 2010. So the numbers look healthy. What is your professional opinion of how that High Readiness Reserve is looking and going?

Lt Gen. Hurley —I believe the High Readiness Reserve has been quite effective in the tasks it has been asked to undertake. I do not think it has met its overall goal in terms of the number of people in the High Readiness Reserve—again, I can take that on notice. But I think that in that function and in the training they have met what we have asked them to do.

Mr ROBERT —Thanks, Chair.

CHAIR —Mr Baldwin.

Mr BALDWIN —I think we briefly touched on pay and conditions, and there were a couple of pay issues that were resolved over the period of the annual report. My first question is: have they all been resolved now, CDF?

Dr Watt —We might get Kieran Gleeson, acting head of our Defence Support group, to talk to that one.

Mr Gleeson —Concerning the payroll, as has been mentioned on a number of occasions, we have quite a complex—

CHAIR —Perhaps the question could be restated.

Mr BALDWIN —During the period of annual report there were a number of issues that were brought to the front—whether it was the SAS or indeed some Air Force pay. Have they all been resolved now?

Mr Gleeson —The ones that were raised in relation to SAS have been resolved, to my knowledge. The Air Force ones from the previous year have also been resolved, to my knowledge. It fits in with a whole range of issues that we are looking at for the Defence Force payroll system and we have an ongoing program that is part of our Strategic Reform Program to look at how we position ourselves to improve payroll right across the system. Part of that will be implementing a technical refresh which improves the software over the next couple of years. At the same time we will also be looking at our business practices in the payroll space and then moving to a complete upgrade with what we refer to as JP 2080 2.1 and over a five-year period that should bring us up to a modern payroll system which will support the men and women of the ADF and the whole organisation.

Mr BALDWIN —So at this point in time there are no outstanding pay issues?

Mr Gleeson —No, right across the board that would be a very difficult statement to make at any one time.

Mr BALDWIN —I am not talking about one individual; I am talking about a unit or across a whole range of people where there has been an error in pays.

Mr Gleeson —As you might appreciate, as in any organisation of this size, we pay in excess of 100,000 people on a fortnightly basis and I think that compared to industry at large we have less than a one per cent operational error rate. But I do not think that I could ever say that there are no unresolved pay issues. Similar to any other large organisation, there will be issues that crop up from time to time. Our challenge is making sure that we address those quickly and we put system processes in place that will do the best to mitigate that so it does not reoccur.

Mr BALDWIN —So you can reassure us that people like reserves have had all their pay and entitlements paid to them?

Mr Gleeson —Again, there is nothing that I am aware of at the moment that is a major issue in the reserve space. I should also point out that we are on a very outdated CENRES pay system and by introducing the technical refresh that will actually do away with the old system and bring us up to date with the very modern reserve pay system.

Mr BALDWIN —How is your task force with military pay going?

Mr Gleeson —The task force is moving ahead quite well with the task that the government has set for us, and I am happy to go through some of the key issues that we have achieved to date, if you would like me to do that.

Mr BALDWIN —That I would, but I would also like you to address the point that was in the Canberra Times on 26 March about how recently appointed Defence Support deputy secretary Martin Bowles and a number of other Defence people had been seconded across to the department of environment to address the insulation issue, please.

Dr Watt —I might answer that. Yes, Mr Bowles has been seconded at the request of the head of the Department of Prime Minister and Cabinet to work on insulation issues. It is a temporary arrangement. Mr Gleeson is ably filling in for Mr Bowles in the short term and Mr Bowles will have a more permanent replacement after Easter, someone from the Department of Finance and Deregulation.

Mr BALDWIN —How many people from Defence had been shifted across on secondment to work on the insulation package issue?

Dr Watt —I think that the thought of a vast number is grossly exaggerated.

Mr BALDWIN —That is why I thought I would ask the question and get a quantified answer.

Dr Watt —Apart from Mr Bowles, I think that he has taken his executive assistant with him—

Mr Gleeson —That is correct.

Dr Watt —He has also taken a senior officer whom he has worked with for a long period of time, someone who is very close to retirement and who is going to put in a short period prior to retirement. I perhaps will not name the individual because I am not sure how widely he has publicised his retirement.

Mr BALDWIN —You do not need to name him.

Dr Watt —And we have one other, a clerical officer. While Mr Bowles is an extremely able officer and we are always sorry to see him out of the department, it is a temporary transfer. He will be returning to the department and I think we have the depth to deal with our pay issues even in Mr Bowles’s absence.

Mr BALDWIN —If you did not need Mr Bowles there, then why did you employ Mr Bowles particularly to take up the job with the pay task force, given the number of issues that have occurred with pay over a recent period of time?

Dr Watt —I think the point is Mr Bowles can be backfilled, and under the circumstances we agreed to his release.

Mr BALDWIN —I am not casting any aspersions on his ability to do his job but I am saying to you that he had only recently been appointed to the job in Defence.

Dr Watt —No, Mr Bowles has been head of the Defence Support Group inside the Department of Defence for about five years. Five years?

Mr Gleeson —No, since September 2006.

Dr Watt —About 3½ years.

Mr BALDWIN —According to this report, he was appointed to the permanent task force about a month ago.

Dr Watt —Yes. There are two separate things here. Mr Bowles has been inside the defence department for 3½ years, I am reliably informed.

Mr Gleeson —Since September 2006.

Dr Watt —Since September 2006—nearly four years. As part of that, he has been responsible for payroll arrangements, just as the VCDF is the co-chair of the payroll task force and he does that amongst many other jobs—many, many other jobs in the case of the VCDF’s role. So Mr Bowles worked on the payroll task force amongst many other jobs. Really for Mr Bowles it was a little more than putting one hat on and taking the other off but not a huge amount more.

Mr BALDWIN —Can you advise the committee in what time frame the payroll system will be updated and finalised?

Dr Watt —I think there is a point to make here. The problem with payroll is about a system. It is about a system from the time that an action occurs to the time a payment is made, receipted and checked by the individual. It is not predominantly about an IT system, which people often think. While we have an old and antiquated IT system, the problems we have had with payroll have not been because of that IT system. It is a system which has human intervention all the way through the line, and that is where we have the difficulties.

I do not think it is appropriate to say we will have issues resolved at date X or date Y, as Mr Gleeson said. It is a very large organisation. We pay an enormously complex number of allowances, many of which are structured in the most difficult way possible for them to be paid accurately, because they are on-occurrence allowances—not time allowances, not competency allowances but on-occurrence allowances. So you go on them and you go off them. There will always be an issue or two in the defence payroll system. However, as the minister announced in February, we are committed to doing our best to improve this system, to make it work better, and that is an ongoing process. What I can say to you is Mr Bowles’s absence should not in any way deter us from that.

Ms GRIERSON —You were just speaking about the complexity of the structures of pay and allowances. I know the task force is still in operation, but are there any early indications of ways that can be changed, how complex that would be and what timescales that might occur over?

Dr Watt —At this stage we have done some background work on the complexity of pay and allowances. We do have some arrangements that we are working on, but it is very early days yet and I do not think we will see anything in the near term. I might ask Mr Minns, who was looking after that aspect of pay and allowances, to speak to that. Mr Gleeson pays them; Mr Minns structures the arrangements.

Mr Minns —Depending on the way someone earns an entitlement to an allowance, if you add them all up with all their permutations, there are in the order of 200 different pay points available. In the longer term I think what we would be seeking to do is to look at a remuneration strategy that sees the base pay as a fairly common and consistent payment for members of the ADF, and then looks at some standard allowances, if you like, that reflect what we typically require of ADF members and, in the process, minimises the number of on-occurrence and, particularly, triggered allowances.

It will take us quite a considerable time to work through that process to generate equity and fairness and to have a transition approach. We do not see it happening within the next year. The key timing for us is to sync that process with the work we do on JP 2080. We have time, in that five-year time frame that Mr Gleeson has outlined, to make it possible.

Ms GRIERSON —Because this is a major undertaking, are you also taking the opportunity to look at linking the recruitment and retention strategies with skill bases and competencies and therefore pay structures? Are we trying to marry those at the moment?

Mr Minns —Yes. The current ADF pay model does have a very strong competency link within it. When the secretary is making reference to the idea of the pay system, sometimes what we suffer from is data living in two systems. So the competency data about individuals, the currency of their training and the extent to which they hold any necessary annual certificates to remain competent is held in one pay system database called PMKeyS and at the moment ADF pay is a separate system with a separate database. What we want to do over time is generate just a single pay and human resources system so that data entered once flows through the entire pay cycle. There is a very heavy competency framework already in ADF models. In fact when the special forces pay issue arose it was a result of reviewing competency arrangements and looking at how those pay points should be structured. There is a long tradition of doing that in the ADF. Part of our issue is the way that the two systems do not communicate with each other.

Ms GRIERSON —That has been an ongoing problem that I know we all want to see addressed.

Dr Watt —So do we.

Mr BALDWIN —At the time of the SAS pay issue it was pointed to that the reason the problem occurred was the antiquated IT system, but from what you are telling me today it is not the IT system as much as operator error because of the 200 variables or allowances across the broad range. So which is it? Is it the IT system or is it operator error?

Mr Minns —I think it is both, in the sense that some of the complexity that we have in determining a pay approach, and then in the case of the special forces looking for a retrospective payment of that, crosses over the issue of the administration of the two separate databases. Finally, at the point where you have an evident problem, the age and the lack of agility of the IT systems come into their own because the ability to run specific query based reports and to quickly identify where you may have anomalies, where you may have an issue, is where it is not a modern system. You then find yourself engaged in manual audit—or Kieran does in Defence Support Group. So I think it is the two things coming together across the whole business process.

Dr Watt —The important thing to remember is that the pay problems are not because the IT system spits out the wrong results. People often blame IT systems for the output of the system. The IT system does not give you incorrect answers. It is cumbersome, it is slow, it is old, it is not as easily interrogated as a modern system—all that is true—but if you change just the IT system and do not change the way we operate, professionalise and deliver information into the pay system and the way we follow it up then you will not get a fix. You will have a system that is more agile, that is a bit less cumbersome and that is easier to interrogate, but you will not have a system that serves you a whole lot better.

Mr BALDWIN —I recollect that when I was on public accounts we were at Holsworthy and Rick Smith was giving evidence. The issue around Defence’s inability to provide unqualified financial reports was blamed on the IT system and the need for an urgent upgrade of the IT system.

Then the focus changed a bit: ‘It’s actually operator error and whether we determine a base cost and over what period for the amortisation.’ What confuses us as members of parliament is when it suits it is an IT system that is to blame and other times when it suits it is operator error, and it can be a combination of both. We need a clear and concise story as to what it actually is and what action is going to be taken to address the issue.

Dr Watt —I appreciate your concern to get good advice and how we are going to deal with it. I think this is an area where people do use inaccurate terminology generally. I do not think it is just Defence. When people talk about systems problems, it is all too easily translated into IT system problems. That is what often appears in people’s minds. When you have a system problem, the reality is that it is rarely just an IT problem, and indeed it is often not much of an IT problem or only some of the IT problem.

Mr BALDWIN —Whether it is IT or operator training, how long will it be before we see a reduction? You mentioned a figure of one per cent as being somewhat acceptable. I am sure those 1,000 people do not think it is acceptable, though admittedly you will always get some error. How long before the training of the operators is upgraded so you reduce the amount of error? How long before the pay scales are fully adjusted across all the service and the public service? How long before the IT is tweaked and adjusted to reduce the delays that are occurring in processing the information?

Dr Watt —Not an easy question to give a simple, definitive date answer to, as you would appreciate. Why don’t we undertake to take that on notice and give you a response?

Mr BALDWIN —That would be good.

Mr FITZGIBBON —I would challenge that IT systems alone were ever solely blamed for the special forces pay issue. If I remember it correctly, the terminology often used was ‘IT and other systems’—other systems being the whole systemic approach to delivering ADF pay. I put it to you—and I think it is important point because the committee would be seeking reassurance—that something else has changed and that is the fact in the special forces pay dispute the third tranche of the problem was that people were being paid for competencies they never held, either because of the way the independent defence force review tribunal’s decision had been implemented or indeed because of a nudge and a wink.

I suspect there were special forces soldiers out there who were competent in some areas but had never gained the formal competency for a number of reasons. The third area in which the committee members would be seeking some sort of reassurance is the area of accountability and ensuring that in the future it is simply not possible for competencies to be recognised when they do not formally exist.

Dr Watt —Some of the lead-in comments might merit comment. One point about this is that when we talk about professionalising the pay system this is not just training the operators; it is actually getting a more professional approach to pay which we do not have throughout the organisation yet and which we need. Incidentally, if we do not get that, the IT system will not make the difference because it is only as good as the data you feed into it.

Air Chief Marshal Houston —I think we are on top on of the competency issue and the accountability for competencies. If we look at the remediation of the circumstances surrounding the special air service, all of that has been completely remediated. I would like to assure the committee that that is the case.

Mr BALDWIN —I would like to go to the gap year program because a couple of issues have been raised with me. I note the number of inquiries you have had for this program have been absolutely amazing. Your forward projections are for 700 per year. Could you advise the committee what your current numbers are this year for the gap year program?

Air Chief Marshal Houston —We might take that on notice because I do not have the precise numbers with me. But let me just say that one of the realities of our present circumstances when you look at, say, Air Force, with a separation rate of 5.1 per cent and with inquiries and applications through the roof, is that the gap year does not actually help us because we are oversubscribed. I think there needs to be a flexible approach to the gap year. That is where we want to go and that is where we will be making recommendations to the government, so that we have a program available that is another tool in our toolbox and essentially we can use the gap year in a flexible way to respond to the labour market conditions that prevail at any particular time. Simply put, the Air Force, for example, currently does not need a gap year. We have got huge issues with accommodating a gap year, given the circumstances we have at the moment. Have you got the precise figures, Phil?

Mr Minns —I have some figures for 1 July 2010, so they will be an update in status on what was in the annual report. Gap year, financial year 2009-10—

CHAIR —What date did you say?

Mr Minns —January 2010. Did I say July? Sorry.

CHAIR —We’re really getting ahead of ourselves now!

Mr Minns —As at 1 January, 2010, we had an achievement of 82 in the Navy. That would have gone up from now as there are phasing issues about how they are introduced into each of the services across the year. In Army the achievement for 2009-10 as at 1 January was 34. In RAAF they had none for the 2009-10 intake at that point.

Mr BALDWIN —Just to be sure on that: you got 82 in the Navy, 34 in the Army and none in the RAAF.

Mr Minns —Yes. That was at 1 January 2010, and they would have increased.

Air Chief Marshal Houston —Can I just say that 1 January is not a good—

Mr BALDWIN —It is the start of the year.

Air Chief Marshal Houston —Nothing happens on 1 January.

Mr BALDWIN —Perhaps if you go back to December 2009 and what your numbers were then.

Air Chief Marshal Houston —I think we need to come back to you on that, because most of our people on the gap year would be recruited—

CHAIR —The annual report does have the figures at 30 June 2009, so if you can give us any advance on that that is meaningful.

Air Chief Marshal Houston —We will do that.

CHAIR —Clearly the January figures are not that relevant.

Dr Watt —We will see if we can get some figures.

Mr BALDWIN —I will leave that at that. What interests me is the amount of people who have actually switched across from gap year to join the military as part of a recruitment campaign. I think the figure is 74 per cent of all participants that transferred to either permanent or reserve forces were in the gap year.

Mr Minns —That sounds potentially possible.

Mr BALDWIN —The number that has been provided to me is 465.

Mr Minns —I can tell you about the number of people, ex-gap year, currently serving in permanent services as at 1 January. There were 51 in the Navy, 258 in the Army and 28 in the Air Force.

Mr BALDWIN —So it would appear that it is an effective recruiting tool. I know you have got capacity problems with accommodating a gap year in the Air Force, and I accept that. What do you see as the long-term future of the gap year program? Are you looking at holding the numbers, restricting the numbers or expanding the numbers as part of an effective recruiting campaign?

Air Chief Marshal Houston —We will adjust the numbers. We would like to have a flexible approach. We use the program in response to the market conditions and the demand for that program out there in the community. As you pointed out, it has been quite successful in some areas but right now we have an embarrassment of riches. We have so many people that we have overachievement in terms of authorised, funded strength, particularly in the Army and the Air Force; the Navy is about where it needs to be. In those circumstances, having a large number of people on the Gap Year puts a huge strain on the budgets of the services that are affected.

Mr BALDWIN —Is there any intent to close down the Gap Year program?

Air Chief Marshal Houston —No, there is no intent to close down the Gap Year program. We would like to have a flexible approach that takes account of the labour market conditions and the amount of funding that is available in the services. Where our recruitment and retention has been spectacularly successful, as it has been in the last 12 months, running a Gap Year program with a large number of people in it does not make any sense.

Mr BALDWIN —So I would be correct in saying there is no ministerial submission to actually shut down the Gap Year program.

Air Chief Marshal Houston —No, there is not.

Ms GRIERSON —Has your success in retention and recruitment been spread across skill base, gender and ethnicity or is it still sticking to a narrow base?

Air Chief Marshal Houston —I guess the principal requirement was to fill the slots in Army. We were growing the size of the Army. We had the 1,486, which were primarily people to go into battalions, and on top of that we were enhancing the land force. So our target has been to recruit people for the battalions. We have also of course continued to put an emphasis on recruiting the people who are capable of transitioning into the highly skilled areas where we have some shortages. In terms of groups we have had an increase in the number of women in the Defence Force. In terms of Indigenous participation, unless Phil has the numbers, I would like to come back to you on notice. Phil might be able to provide some detail on women.

Mr Minns —The rate for women separating from the ADF in the most up-to-date data set has come down to 7.9 per cent compared with a rate of 9.2 per cent at the end of the last financial year. For men it has come down to 7.4 per cent from 9.4 per cent at the end of the financial year. So the improvement in separations has been there for both men and women in the ADF. I do not have any more detail for other equity groups.

CHAIR —I am going to move on to the litigation issues, a different topic. The committee spent a considerable amount of time doing its review of outstanding litigation matters on the F111 and reporting to the parliament. The committee made clear its desire to be briefed on progress in settlement of outstanding litigation. What is the situation? Of those claims that were in existence during the course of that inquiry, have any been settled and what is their status? It may have engendered a few more claims as well.

Air Chief Marshal Houston —In terms of where we are at, the report has been taken on board. Both we and the Department of Veterans’ Affairs have been working on the issues that have been raised by the report. Some of those issues are quite complex, as you would be well aware. We are in the process of finalising the advice to government. The government will consider and take action on the departmental advice as provided.

Separately, I think you would be aware that there are a number of common-law claims raised by a number of Air Force personnel in Queensland. Those were put before the Supreme Court of Queensland and a significant number of those cases have been settled through mediation. That is another aspect of where we are at.

CHAIR —that is the specific aspect to which I am referring. If the information is not available here, I ask you to take on notice the exact numbers of cases that are outstanding, what progress has been made in settling those matters since this committee reported to the parliament and whether there have been any additional cases that have been commenced since this committee reported to the parliament. There was a serious issue surrounding the extent to which the Commonwealth was a model litigant. The government’s guidelines require it to be so. The committee took a good deal of evidence to suggest it was not behaving as a model litigant. I am aware from information outside of the formal hearings as well as information given at the hearings that during the course of the inquiry there were changes in the approach and behaviour of defence. From the perspective that I was viewing it, it improved dramatically, but I want to be assured that, now that that spotlight of the inquiry is no longer on the daily or weekly oversight—which it seemed to be, at least from my office—progress is continuing. Please give us the exact details of common-law claims.

Air Chief Marshal Houston —I have some of the detail here. I will give it to you. If you need anything else, we will come back to you. Thirty-one former deseal-reseal maintenance workers and three of their spouses lodged writs with the Supreme Court of Queensland, seeking damages. We have attempted to resolve the claims without the need to proceed to full litigation. Twenty-one of those have been mediated since November 2008 and 17 of those claims have now been settled. Obviously the discussions of the settlements are confidential, which is normal practice. I think that probably gives you a good idea of where we are at. If there is anything else I can help you with, I would be delighted to take it on notice.

CHAIR —No, that is exactly the information I was after. I commend those engaged in that process. I think that is a significant improvement on what had been the case prior.

Senator FORSHAW —I have a quick follow-up question. Without divulging the settlements, do I take it that none of those claims were rejected—that there was some veracity to the claims? I was wondering if there were claims made that were completely rejected.

Air Chief Marshal Houston —I am not aware of any that have been rejected but, again, I am not across the detail of the process. I am not even aware of the precise outcomes of each case.

Senator FORSHAW —I do not want to know the outcomes. One of the issues that kept coming up during the inquiry was claims that were not successful. There were issues of whether or not claims were genuine in the first place. Across the board there were lots of claims that clearly had substance to them. I think what you have said is fair enough.

CHAIR —I am pleased to hear that two-thirds have gone to mediation and that most of those have managed to settle to the satisfaction of both parties.

Senator FORSHAW —Why I ask the question is that if it goes to mediation there is at least an assumption that there is a successful outcome to some degree.

Air Chief Marshal Houston —Seventeen settled suggests that.

CHAIR —The committee, as it foreshadowed in that report, will be seeking that advice on a regular basis until the matters are part of our history. Another legal issue that is listed—Lane versus Morrison—has two aspects. One is how we are now handling the implications of it. Because we have to deal with legislation concerning some of it, we in this place are all aware of it. The other is the question of legal costs. What were the costs to the Crown and have we yet settled the payment of the applicants. I understand costs were awarded and there was earlier this year a dispute about the payment of the costs of the applicants.

Air Chief Marshal Houston —The question relates to Mr Lane’s legal costs?

CHAIR —One part of the question relates to that. The other part of the question is more broadly how we are going in administering the disciplinary system.

Air Chief Marshal Houston —I will take the payment of Mr Lane’s legal costs first. First of all, with regard to the professional solicitors’ fees Mr Lane’s costs there was an amount of $30,191.64 paid to the plaintiff on 15 February 2010. There was an additional amount of money: a certificate of taxation for the total amount of $38,250 for the counsel’s fees component of the cost was issued by the High Court on 1 February 2010 and received by AGS on 18 February 2010. These were paid on 22 February. The full amount paid to the plaintiff under the costs order was $68,441.64.

In terms of the broader question you raise, I know you are all familiar with the Military Justice (Interim Measures) acts Nos 1 and 2, which were pushed through on 22 September. Since then we have gone back to running courts-martial and military tribunals. In terms of where we go in the future, we have had extensive discussion with a number of people and agencies and we are well advanced in developing a concept for a chapter 3 court. This is something that clearly needs a leading role from the Attorney-General’s Department, but we are working very closely with them and, in the fullness of time, will be in a position to jointly go to the two ministers—the Attorney-General and the Minister for Defence—with a proposal which will give a solution to the chapter 3 court. I think that is about where we are at at the moment. We are consulting with the Law Council of Australia early in the process. I met with the Judge Advocate General, who is a Federal Court judge, and also with the Chief Justice of the Federal Court, Michael Black, who has since retired. We have also had extensive discussions with the Solicitor-General. I think it is all going along quite well and, in the fullness of time, we will be able to share with you the decisions that the government has made.

CHAIR —Mr Fitzgibbon has a question. Then I want to come back to the specifics of the costs for Lane’s council.

Mr FITZGIBBON —I have two questions I invite you to take on notice. If they have been asked in estimates, for example, I would be happy for you to relate to us your responses in that forum. Could you provide the committee with updates on the Sea King accident and Black Hawk accident—in particular, with respect to the Sea King, outstanding issues including disciplinary issues that you are in a position to share of course us? For the purposes of brevity and sensitivity, I would be very happy for you to take that on notice.

Air Chief Marshal Houston —In terms of the Black Hawk, what particular aspect and which Black Hawk: the recent Black Hawk accident?

Mr FITZGIBBON —No, the one involving Goodall—the SAS training exercise. There were still some outstanding issues.

Air Chief Marshal Houston —Yes. Could I just ask the question in relation—

Mr FITZGIBBON —A general update with respect to Sea King specifically anything you can share with us in terms of action taken against those who were found to be responsible in some way.

Ms GRIERSON —Adding to that: changes in any procedures or protocols as a result—maintenance, whatever—of the accident.

Air Chief Marshal Houston —Certainly. I will take it on notice but in terms of maintenance, Navy put an incredible amount of effort into reviewing the way they did aviation maintenance. Of course the Director-General Technical Airworthiness is an Air Force officer who works for the ADF Airworthiness Authority and all of that was fully audited by DGTA. I think the maintenance organisation, the maintenance process is very robust now.

Mr FITZGIBBON —I suppose I would be very keen specifically on Nias and Sea King to ensure that this committee is doing all it can to ensure that the familles involved are getting all the information available to them that it is possible for government to provide to them at this stage. As you know, there were difficulties relaying some of the information because there was still administrative procedures being followed through within Defence. I accept that and understand that. I am keen to ensure that Defence is doing everything it can to provide them with the closure that they are looking for.

Air Chief Marshal Houston —Thank you.

CHAIR —I will quickly return to the issue of the costs for Lane’s counsel—and thank you for the advice you gave about the payments. I do not want to spend too much time on this and it may be that this is also something that should be taken on notice. In round figures $68,000-$70,000—my understanding is there was a senior counsel, two juniors for about a week’s case in the High Court. It has been a while since I have had need to engage senior or junior counsel but I know enough to know that—

Mr FITZGIBBON —I have done it very recently; it is very expensive still.

CHAIR —That is right. You will not get too far on $68,000. What were our costs? I will put the cards on the table: my concern is that we are playing hard ball with Lane and his legal counsel. The amount we have paid I understand is the taxed amount. I am not a lawyer; other people in this room are but taxed amounts are seldom what the market cost would be. To realistically say that you can get a senior counsel and two juniors to conduct a High Court case for $60,000-70,000 would not fly very far in any legal chambers. We may well be able to justify it on the basis of the taxed amount but in any court of fair play you would have a hard time, I think, convincing the public; indeed—and this maybe is the question that I will put on notice—what were our costs; how much did we pay? I would hazard a guess that it will be somewhere between five and 10 times the amount we are willing to pay for the defence. In fact it may well be more than 10 times because I can remember looking at the legal costs associated with another case involving a female naval officer a couple of years ago in Western Australia and the amount of money we offered to provide her, which at the time was $10,000—when I say we: the system—when in fact Defence had paid out well in excess of $250,000 for the other side to take the other side into court.

To extend the point I was making earlier about being a model litigant, if we are going to be a model litigant, it is not to be just in the matters that we were talking about a moment ago; it is behaving as the public would want us to behave—fairly, and not just because we have a legal right. I am seriously concerned about the approach that has been adopted. If I am wrong, I am happy to be corrected now. If you can take both the comment and the specific question on our costs on notice, I would appreciate advice about that, but my belief is that it is still an issue of contention as to the payment. And it has, not surprisingly, caused a great deal of hardship to the legal representatives involved who are now, at least in one case, in serious financial difficulties as a result.

Senator FORSHAW —Chair, you are seeking the High Court costs—

CHAIR —The fact in all of that that I am seeking is the actual costs we incurred for our legal representation for the—

Senator FORSHAW —For the High Court proceedings.

CHAIR —defences to the High Court proceedings. I clearly wrapped that up in a bit of opinion and, if there is any response to the opinion as well as to the question, I would be quite happy to receive it.

Air Chief Marshal Houston —Thanks, Chair. We will respond to your question and we will take it on notice.

CHAIR —There was some media coverage recently that I know Mr Baldwin wants to draw your attention to, and I think it would serve everybody’s purpose if some of that was on the public record.

Mr BALDWIN —Thank you, Chair. This is particularly directed to the Secretary of Defence. I discussed it with him last night and thought I would provide the opportunity for him to clear up the issues raised in an article in the Sydney Morning Herald by Linton Besser on 9 March in relation to phantom contracts—in particular, one of $33,000 paid to a North Queensland horse riding company, another of $30,000 for ‘stuff’, and some duplication of contracts, such as the rather infamous Chandler Macleod contract. I would appreciate your explanation of these so-called phantom contracts.

Dr Watt —I should say, Mr Chairman, that Mr Baldwin was kind enough to flag these issues with me yesterday, and I thought it would be worthwhile bringing along our chief audit executive, Mr Geoff Brown, who has looked into each of the ‘phantom contracts’ raised by Linton Besser in the Sydney Morning Herald. We took this very seriously, as you can imagine. Therefore, I have had the chief audit executive go over a large number of our contracts, particularly the ones that Besser claimed to be phantom contracts. I will get the chief audit executive to talk on the subject.

Mr Brown —Following directions from the secretary, audit went in and pulled out a number of the issues that were raised in the article. Specifically, we have looked at five that were referred to as being, if I may use the term, interesting. In all cases we have had satisfactory resolutions to them, and I will go through them, if that is acceptable to you.

Mr FITZGIBBON —Don’t tell me that you are going to tell us that something the Sydney Morning Herald wrote was not true!

Mr Brown —I am just clarifying the issues that were presented.

Mr FITZGIBBON —You can understand our surprise!

Mr Brown —I am new to government, so maybe I am a tad naive. The first issue was the Q20 Standard Aero. This relates to a contract to maintain the engines and propellers for the C130 Hercules. In that case we confirmed the payment with them, and the way that contract runs is that it is based on profit linking back to performance. If I might give an example, if the supplier—in this case, Standard Aero—does a job that meets all the kpis in terms of efficiency, effectiveness and time then it will receive a payment commensurate with the terms of the contract, which provides them a certain amount of profit. In this case the original contract was for $437,340. The actual payment made to them was $308,278.

The interesting thing here is that, in AusTender, the requirement is that we put in the expected amount of the payment and then we make payments up to that—so the delegate has authority spend up to that amount. If they go over that, they need to go back and update AusTender. If they spend below that, then the requirement is that you do not amend AusTender. That is why you will quite often find a difference between the contracted amount and the actual payment. Where it was less than the contract amount, then you do not adjust. That is actually a requirement for AusTender.

Dr Watt —In this case it is worth reporting that sometimes you have an estimate that is very close to the ultimate contract amount. You might have a tender, for example, and you get something that is almost spot-on. In this case obviously it would depend upon how satisfactorily the firm fulfilled the contract requirements—the more satisfactorily they did it, the closer you would get to the KPIs and therefore the closer you would get to full payment. Clearly that is hard to predict in advance.

Mr Brown —The second one concerned Pel-Air. They have an ongoing arrangement with us to supply Learjets that we use to test equipment. I note here that it can be for both ships and air. In this case, the actual contract was established but never exercised. We actually terminated that contract, so the contract remains on AusTender but is there is no money spent against it.

The third one was to do with the Hyatt Regency. We had some problems with this because the Hyatt Regency have taken over that establishment from another company, and the expenditure was during the time of the other owner. Having said that, we have confirmed the payments to the best of our ability. They relate to a seminar that was planned to be run there, followed up by a workshop. The seminar was subsequently cancelled. The workshop was still run. The participants in that workshop were then charged $9,000 each for the accommodation. So the amount actually paid on this occasion was substantially less than what the contracted amount was.

Mr BALDWIN —What about Blazing Saddles, who were paid $37,000 in March 2008 for stockhorses and transport from Cairns to Darwin? When the newspaper contacted the operator, he said there was no business between the two of you.

Dr Watt —We will get to that one.

Mr BALDWIN —Sorry, I thought you had finished.

Air Vice Marshal Harvey —No. There is more. The next one is Bentley Suites. This is an organisation that we use in Canberra. On this occasion we had six Melbourne based DMO staff who used the facility. There was a deposit paid. There was subsequently a second payment and then a final amount settled with the organisation. The receipt of that payment has been confirmed with Bentley Suites.

The final one is Blazing Saddles. This one was—as you quite rightly point out, Mr Baldwin—related to the provision of six horses to test up with NORFORCE in Northern Australia as a means of having our Indigenous members of the ADF move into a territory that cannot be accessed by motor vehicle. Blazing Saddles was the winner of a tender for that contract. They supplied the horses and subsequently transported them up to the Northern Territory. We have actually confirmed receipt of the moneys by Blazing Saddles.

Mr BALDWIN —But in the article by Linton Besser he quotes the company as saying, ‘This is definitely not in our system.’

Dr Watt —We think we have an answer for that too.

Mr Brown —I think I have an answer for that. The payment was actually made to the wife of the owner of the organisation and paid directly into her bank account. That was at their request.

CHAIR —I hope someone has told the tax office!

Dr Watt —We might emphasise that that payment was made at their request.

CHAIR —All the more reason to tell the tax office.

Mr BALDWIN —The final one that was of interest in there was the one for $30,000 worth of stuff.

Mr Brown —I do not have the details of that one with me, but that one had been investigated and part of the issue was that, with the way the system worked, people were transcribing information and, if they could not understand it, they would just write something in. I do not have the details of that one, but I can certainly get back to you on that.

Dr Watt —There are two separate issues: the phantom contracts and the inaccurate descriptions in AusTender. As far as we are aware, there is no doubt that that contract was executed and quite properly. The difficulty is that we have not paid enough attention to our descriptors in AusTender.

Mr BALDWIN —To your what?

Dr Watt —To the descriptions put into the contracts we enter into. We will confirm this very quickly for you, because we do not want any shadow at all over this. As far as we were aware, it was simply a case of a very junior officer not understanding what they had been asked to put in the system and taking a shortcut, and the shortcut was a five-letter word.

Mr BALDWIN —I am glad you could clarify the situation.

CHAIR —Thank you for a that. Now, there is a very limited amount of time available. I want to move to the Defence estate area if we can, because there are a couple of items there. Mr Robert, you had some questions?

Mr ROBERT —If I can refer you to the Defence portfolio budget statement, page 31—I understand you would have memorised it!

Mr Gleeson —The report or the PBS?

Mr ROBERT —The portfolio budget statement 2009-10. Page 31 looks at net capital receipts. Under ‘Property sales’ it says that proceeds from the sale of land and buildings for 2009-10 is $229.6 million. What was that number based on? What did you intend to sell?

Dr Watt —Perhaps I can talk a little bit about that, and we might have to take some of the details on notice. The PBS is put together primarily by our CFO, and on this it would probably be useful if we had him with us but unfortunately we do not, so we apologise for that. The estimate is put together roughly like this. In each budget process, we are asked by the government for an estimate of sales of Defence property likely to be made during the coming year. The numbers that go into the PBS are based on that estimate. They are usually only tentative because there is always an element of conjecture in what is projected to be sold and what is projected to not be sold. I would anticipate that most of those sales were relatively small amounts of property by our standards, not anything particularly large. John, do you want to go on and see if you can explain a bit further?

Mr Owens —I would have to look at the details, Mr Robert, but I think that we had projected the sale of one property, West Wattle Grove. It went on the market but we received no tenders that went close to market value so that is not actively on the market at the moment.

Mr ROBERT —It might be easier if you could just provide to the committee in writing where the $229.6 million budget estimate was based on.

Dr Watt —We can do that. We can provide you, I think, with the property names. The only caveat I have got is that, for commercial-in-confidence reasons, we might have some difficulty in providing you with the amounts that we set against each property, particularly if they are still in negotiation or something. We will provide what information we can.

Mr ROBERT —I am confident there is some detail behind it—as opposed to Immigration, who said we would have 200 boat people this financial year.

Dr Watt —I am sure there is a lot of detail behind it. In Defence, there invariably is!

Mr ROBERT —If you can answer a question about Blazing Saddles, you can answer anything, frankly! Of the $229.6 million in property sales that was forecast, do you know what you have actually sold this financial year?

Dr Watt —We might have to take that on notice. We could probably give you what we have sold so far and we can probably give you our best projection for the financial year as well.

Mr ROBERT —That would be great. Thanks for that. Looking again at ‘Net capital receipts’, under the column ‘2010-11 forward estimate’ you have got for the next financial year, which obviously starts in a quarter, $102.2 million. I would have thought any sale would actually require you to be ramping up for it now. Again, if you could let the committee know—and we are cognisant of the restraints—what the $102.2 million was based on.

Dr Watt —We can let you know what that was based on when it was done—also cognisant of the fact that we are updating that estimate as part of the budget estimates process. So it is updated now, but of course we will not be able to provide details on that until after budget night.

Mr ROBERT —I accept that. At point 4 in the same net capital receipts is ‘Proceeds from sale of infrastructure, plant and equipment’, which for the current financial year was $37.3 million and for the next financial year is $38.5 million.

Dr Watt —I am happy to provide the same information as best we can. They were probably a large number of small things—that is the only thing I would say.

Mr ROBERT —If it is a large number of small things I am happy for you to say—

Dr Watt —‘a large number of small things’?

Mr ROBERT —Yes, pretty much. However, if it is something worth $20 million, that would be of interest.

Dr Watt —No. We will not use that to hide.

Mr ROBERT —If it was 10,000 nuts and bolts, yes.

CHAIR —Are there any other questions on estate matters? Because I have skipped through a couple of things, are there any other matters that members of the committee wish to raise?

Vice Adm. Tripovich —I want to just close out the thing on HF mod and helicopters you expressed an interest in. You asked whether we were fitting HF mod equipment to ARH and MRH. As I suspected and indicated, both of those helicopters already come fitted with equipment that allows them to interoperate with the HF mod system, so they will not be—

CHAIR —That was my assumption. I just wanted to be certain about it.

Vice Adm. Tripovich —I can confirm that for you.

CHAIR —Thank you.

Mr ROBERT —This might come under the Vice Chief’s issue. The last Defence Reconciliation Action Plan was signed in July 2007. I note that the new one is due at some stage. In fact, the cracking read the Defence magazine issue 6 of 2009 has in a little box under the heading ‘Coming soon’:

The Defence Reconciliation Action Plan 2007-09 report is due out soon.

That is great. Could you advise when ‘soon’ is?

Mr Minns —We do coordinate the Reconciliation Action Plan through the Fairness and Resolution Branch in my group. I have seen work on this, but I just cannot tell you exactly when ‘soon’ is. I will get that information to the committee.

Air Chief Marshal Houston —I think it will probably come out June-July. That is when it came out last time. It usually comes out each year about then. That is aligned with the date in July.

Mr ROBERT —Some of the outcomes out of the last one have been very good, to Defence’s credit. You may wish to take this on notice. I refer to the range of objectives in the ‘Recruitment and retention’ section. I am keen to know where you are with objectives 2.2 and 2.6. Objective 2.2 is:

New cadet units are established in remote northern communities.

The timeline is January 2009 and the performance indicator is:

Two new units are commissioned with an expected 20-25 cadets per unit.

It would be nice to know how you are going with that. And objective 2.6 is:

Encourage Defence Aboriginal and Torres Strait Islanders in Defence to identify on PMKeyS to inform policy development and implementation.

It would be good to know from July 2007 until now whether—and my understanding is on PMKeyS you actually say, ‘I am of that background’; it is a box that you tick—more people are identifying as Aboriginal or Torres Strait Islander and, if so, what the percentage has been over the last two years. How are we going in encouraging people to report their lineage?

Mr Minns —Yes.

CHAIR —I thank all of the witnesses who have appeared before the committee today. We appreciate your time and your testimony. You will be sent a copy of the Hansard transcript and given the opportunity to review it. A number of matters have been taken on notice. We look forward to getting those answers at the earliest opportunity. If there are any other issues that the committee wishes to raise with you, we will do that expeditiously. I do not anticipate at the moment that there are but, if that is the case, we will follow it up in good time.

That brings the hearing to a close. I think we may well be setting a record this year in being able to deal with the annual report so soon after it was made available, and maybe in one hearing. That sets some sort of a new benchmark. I am not quite sure that says whether we are not doing our job properly or you are doing yours properly. Perhaps it is a healthy sign for both sides. Thank you very much for your attendance today.

Resolved (on motion by Ms Grierson):

That this committee authorises publication, including publication on the parliamentary database, of the transcript of the evidence given before it at public hearing this day.

Subcommittee adjourned at 3.40 pm