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Monday, 27 February 2012
Page: 1929

Dr JENSEN (Tangney) (18:06): Defence have a record of getting things wrong and attacking detractors who tend to be accurate with data. Defence needs comprehensive reform and needs a defence minister with the guts to take it on. Unfortunately, of late—and I am not just talking about this government—we have not had defence ministers who have done this. When I was in the Joint Committee of Public Accounts and Audit, we would continually hear from Defence, when we were looking at projects, that they accepted that things had been awry six or 12 months in the past but that things were hunky-dory now. Then we would find, six months or 12 months later, that in fact things were not hunky-dory. The excuse would always be 'complex systems management'. Look at some of the gas trains in the north-west, for instance—they involve complex management, and yet they manage to get things right. Look at how quickly the motor industry manage to get a new car up and going without having a huge amount of problems at the outset. They are quite complex pieces of equipment.

I will go to the Joint Strike Fighter as a case example. First of all, let's have a look at the history of costs associated with this program and test how accurate Defence has been. The best estimate by the United States Air Force as of last year for the average procurement cost of a Joint Strike Fighter was $133 million. Defence have stated in the past that, as they will be buying early in the cycle, theirs will cost about 10 per cent more, so about $146 million. In fact, the Selected Acquisition Reports say that the cost will be about $154 million per JSF, which in the Australian context means about $170 million. Just to reiterate, USAF says $146 million; the Selected Acquisition Reports say about $170 million.

Now let's have a look at Defence's history on this. In 2005, Defence said that the so-called 'unit recurring flyaway cost' would be about $50 million, while the USAF at the same time said that it would be around $80 million. So, really, in the Australian context at that time, it should have been $88 million. Defence were out almost by a factor of two. A group called Air Power Australia said in 2006 the procurement price would be $165 million per aircraft. In 2009 Defence talked about $70 million unit recurring flyaway cost when the United States Air Force, using the same measure for what is called 'low rate initial production batch 6', had $117 million per. APA now estimates that in the acquisition they will probably cost around $215 million each. They do have various allowances, plus and minus, in their figures. As can be seen, Defence have been third rate in their costing estimates compared with Air Power Australia. Remember that Defence are supposed to have access to all of this good information directly from Lockheed Martin and that they have people in Washington DC working with the United States Air Force and congress. They have been hopeless with their costings. They have been third rate in their costings, but they have claimed that in fact they knew the true price. When you think about that, if they did know, then they have chosen to mislead parliament by what they have said.

Let us have a look at schedule. When are we going to get these Joint Strike Fighters? In 2005 Defence said that they would achieve what is called 'initial operational capability' in 2012-13—in other words, this year. In 2006, the year later, Air Power Australia said that IOC would occur in around 2020. In 2007, the year after APA was saying 2020, Defence said it would be around 2014-15. In fact in 2008, the then head of the Defence Material Organisation, Stephen Gumley, said on schedule: 'It is not something I lose much sleep about.' That is a real worry. In 2011 Defence said that initial operation capability would be in late 2018. Remember it was only back in 2005 that they were saying it would be in 2012-13. Once again, it was a dud projection.

We are supposed to believe their assurances when, by their own definition, with a 10 per cent increase in costs and a risk management matrix used by DMO being almost certain—in fact in this case it has eventuated, and then some—you have extreme risk. That is their own definition: extreme risk. The schedule has slipped by six years, from 2012 to 2018, and Defence says that that 12-month slippage is 'extreme risk'. Yet they are blithely going on as if there is no problem in the world with this. There are dud predictions wherever you look, but we are supposed to take Defence's word at face value and trust them.

The problem is that they have actually acted as Lockheed Martin's salespeople and simply accepted their assertions on cost, schedule and capability. Where is the supposed role of Defence acting with due diligence and accepting caveat emptor? With the JSF program in the United States, just in the last 12 months the director of operational test and evaluation has written a damning report on the Joint Strike Fighter. Similarly, a quick look review which was conducted was similarly damaging in its assessment. But Defence seem to be as happy with this program as pigs in mud.

Due to the Super Hornet purchase, this dud decision to purchase the Joint Strike Fighter has already cost us billions. By Chief of Air Force's own optimistic admission, the Super Hornet will be overmatched in the region by 2025, yet this is Defence's plan B. I recall discussing this in committee with DMO head Stephen Gumley. He said about the schedule slip with the JSF, 'It hasn't cost us anything', forgetting about the opportunity cost associated with the Super Hornet. We would not have needed the Super Hornet if the Joint Strike Fighter had arrived on schedule. The problem is that, apart from cost increases and schedule slippages, Defence has given us no idea whatsoever. Where they would say, 'Hang on. This now is unacceptable and this is something we shouldn't proceed with', they were assuring us that capability is good; whereas analysis that I have seen, having looked at the data myself, this capability is certainly nowhere near what it should be. Similarly, when looking at another Defence acquisition debacle, the Super Seasprite, you have a waste of over $1 billion. This helicopter ended up being scrapped. They had numerous warnings, notably again from Air Power Australia, from 1998 that they had to spend 20 per cent to 25 per cent of acquisition budget on test and evaluation or else abandon the project. The project was very, very risky and this was deemed to be the level of spending required. Defence ignored the advice and carried on for around 10 years on this project and, as I said, it was scrapped. If the advice had been heeded there would have been over $1 billion in savings.

How do Defence treat those with expertise who give good and timely advice? In the case of Air Power Australia's Peter Goon and his company Australian Flight Test Services the answer is to blacklist the company. This has been confirmed by retired Air Commodore Garry Bates, who similarly, along with the likes of Air Vice Marshal Peter Crisp, have felt the ire of the Defence hierarchy for daring to question.

In the case of Australia Flight Test Services the Blunn review said that they must be paid for the work that has been done. Years later this has still not been paid, as Defence are wanting non-related issues signed away by Australian Flight Test Services before they will pay them. This is an unconscionable action. Defence should engage their critics professionally and thereby save a lot of money for a small outlay. Instead, they state that they will not professionally interact with, for example, Air Power Australia, despite their clear historical superiority to Defence in costing and schedule at the very least.

Defence have similarly acted negatively towards RepSim, despite Mike Price, one of their principals, having been written a commendation by General David Hurley, now Chief of Defence Force, for simulation work that they have done. RepSim similarly have dared to question the Defence line, showing that the joint strike fighter will be shot down at a rate of three to one by Russian designed Super-Flankers, and this is not even the Russians latest design.

We have also seen a problem with communications within Defence—for instance, with night vision goggles. When I went to Afghanistan and also when the committee met with the commandos, they stated that their night vision equipment was outdated and they needed more up-to-date gear. Yet the Chief of Army, when he spoke to the committee, was unaware of any concerns.

We find similarly that the DLA Piper review that was similarly supposed to look at abuses in and by Defence seems to be used as a cover-up mechanism rather than as a mean to transparency. I know of two cases of abuse, and I registered with DLA Piper, yet they ignored me in my role as a federal MP letting them know of abuses with prejudice. How much more would they ignore others with prejudice who are not MPs? Indeed, there was a little rudeness in my dealings with them, and I am aware of far worse with others. So much for Defence wanting to clean up their act. The problem was highlighted by ex-Chief of Air Force and ex-Chief of Defence Force, Angus Houston, who stated:

I cannot and will not do anything that would cause embarrassment to former and present senior Defence portfolio officials.

Causing embarrassment to senior officials as opposed to getting good acquisitions, good capabilities for our men and women who are out fighting in war zones at the moment! Defence needs to put feedback loops into their organisation and engage professionally with those with demonstrated expertise as a matter of urgency.

It is interesting that in a report from the Australian National Audit Office in 1998 they were talking about life cycle costing. The report said:

Defence policy has been set for life cycle costing for some time, but there appears to be little top-level enforcement or encouragement at present for the use of LCC throughout the acquisition life cycle. There are also few incentives for the middle management to adopt life cycle costing principles by making investments now to save operating costs later.

We are now 14 years past this and nothing has improved—in fact, if anything it has got worse. Defence really need to clean up their act. They need to reform. They need to put processes in place whereby they can interact with those out in industry who do have the expertise required. The security of Australia and the lives of our troops, our sailors and our airmen depend on it.