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Tuesday, 14 June 2011
Page: 5972

Mr CLARE (BlaxlandMinister for Defence Materiel) (17:24): I thank the member for Tangney for his question and his long and sincere interest in this matter, in this particular project and in reform of defence procurement more generally. Perhaps I can provide you with some general information here and, if necessary, I am very happy to provide some more specific detail in answer to your question at a later time.

Australia has adopted a conservative approach to the cost estimates for the Joint Strike Fighter project. The advice from Defence is that it uses the official estimates provided by the United States Department of Defense as the basis for our own estimates. Defence also advises that contingency funding has always been included in our estimates. Australia is mitigating any cost increase for the early aircraft by buying the minimum aircraft necessary to meet our training commitments. This staged acquisition strategy, which commences with 14 aircraft, allows time for the refinement of and the reduction in costs. Based on currently available information, no changes to Australia's Joint Strike Fighter funding provisions are required at this stage. On current plans, our first two aircraft will be delivered in 2014, to commence initial pilot and maintainer training and to take part in operational test in the United States. The balance of our first 14 aircraft will be delivered over the 2015-17 time frame. With the program's extended test program it is likely that the United States Air Force will delay its in-service of the Australian variant from mid-2016 to 2017, possibly to early 2018.

The Australian Defence Force is making good progress with the United States Air Force in ensuring that information from the United States operational testing is available to Australia to mitigate pressures on Australia achieving its planned in-service date of late 2018.

The member for Tangney talked about processes. I said in my introductory comments and in my answers to the member for Fadden that one of the great challenges we have in defence is delay and that, more often than not, projects run over schedule and the nature of the project often determines how far it is over schedule. If you buy something off the shelf, on average, it is delivered on time and on budget. If you buy something that is modified, Australianised, customised, then, on average, it is about 23 per cent late or 23 per cent over schedule. Where you are purchasing something which is first of type or developmental, on average, it is late by about 66 per cent. Across all of our major defence projects, the delay is in the order of 20 per cent. As I have said, that figure is better than that of the United States with respect to its major capital acquisition program. It is better than the United Kingdom's figure, but it is not good enough. Many of the reforms that I announced last month go to ensuring that we get projects right at the very start. An example of that is ensuring that, where we do not purchase a piece of military equipment off the shelf, proper due diligence and a proper cost-benefit analysis is undertaken and incorporated into the cabinet papers for National Security Committee of Cabinet justifying why you would divert from an off-the-shelf option.

It is important that we make the right decisions at the start of a project. It is also very important that, where problems do occur in projects, as invariably they will, they are identified early so that we can take action. An early-warning system that we are now establishing in defence is a very important part of this. It includes hard triggers to make sure that, where a project is looking like it is going over schedule or over budget, reports are given to senior Defence officials, as well as to the Minister for Defence and me. With respect to schedule, which is an abiding concern of mine, those early-warning triggers are 10 per cent for off-the-shelf projects, 20 per cent for modified or Australianised projects and 30 per cent for developmental projects. Where those triggers go off, that will trigger me writing to those companies, saying, 'We have an issue here; I want you to help us address it.' If the issue is serious enough, then it can lead to a gate review, an independent diagnostic analysis of the project, to provide advice and recommendations to me as the Minister for Defence Materiel and to the Minister for Defence on what action should be taken to rectify the problems that appear to be emerging in that project.

Whilst not directly using the early-warning system, the action that we have taken with the air warfare destroyer is a good example. (Extension of time granted) That is a good example of a project where evidence exists that the project will go over schedule but, by taking action and modifying where blocks are built, it enables us to reduce the schedule slippage. That is an important thing to do.