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Foreign Affairs, Defence and Trade Legislation Committee
28/02/2018
Estimates
DEFENCE PORTFOLIO

DEFENCE PORTFOLIO

In Attendance

Senator Payne, Minister for Defence

Department of Defence

Mr Greg Moriarty, Secretary

Air Chief Marshal Mark Binskin, AC, Chief of the Defence Force

Outcome 1: Defence Australia and its national interests through the conduct of operations and provisions of support for the Australian community and civilian authorities in accordance with Government direction.

Program 1.1: Operations contributing to the safety of the immediate neighbourhood

Air Chief Marshal Mark Binskin, AC, Chief of the Defence Force

Vice Admiral Ray Griggs, AO, CSC, Vice Chief of the Defence Force

Vice Admiral Tim Barrett, Chief of Navy

Lieutenant General Angus Campbell AO, DSC, Chief of Army

Air Marshal Leo Davies, AO, CSC, Chief of Air Force

Program 1.2: Operations supporting wider interests

Air Chief Marshal Mark Binskin, AC, Chief of the Defence Force

Vice Admiral Ray Griggs, AO, CSC, Vice Chief of the Defence Force

Vice Admiral Tim Barrett, Chief of Navy

Lieutenant General Angus Campbell AO, DSC, Chief of Army

Air Marshal Leo Davies, AO, CSC, Chief of Air Force

Program 1.3: Defence contribution to national support tasks in Australia

Air Chief Marshal Mark Binskin, AC, Chief of the Defence Force

Vice Admiral Ray Griggs, AO, CSC, Vice Chief of the Defence Force

Vice Admiral Tim Barrett, Chief of Navy

Lieutenant General Angus Campbell AO, DSC, Chief of Army

Air Marshal Leo Davies, AO, CSC, Chief of Air Force

Outcome 2: Protect and advance Australia's strategic interests through the provision of strategic policy, the development, delivery and sustainment of military, intelligence and enabling capabilities, and the promotion of regional and global security and stability as directed by Government.

Program 2.1: Strategic Policy and Intelligence

Mr Marc Ablong, Acting Deputy Secretary Strategic Policy and Intelligence

Mr Peter Chesworth, First Assistant Secretary Naval Shipbuilding Taskforce

Mr Dan Fankhauser, Assistant Secretary, Naval Shipbuilding Taskforce

Mr Scott Dewar, First Assistant Secretary International Policy

Ms Samantha Higgins, Acting First Assistant Secretary Strategic Policy

Dr Sheridan Kearnan, First Assistant Secretary Defence Industry Policy

Program 2.2: Defence Executive Support

Ms Rebecca Skinner, Acting Associate Secretary

Air Commodore Henrik Ehlers, AM, Director General Cultural Reviews Response

Mr Mark Cunliffe, Head Defence Legal

Mr Michael Lysewycz, Defence Special Counsel

Mr Adrian D'Amico, Defence General Counsel

Commodore Peter Bowers, Director General, Australian Defence Force Legal Services

Dr Thomas Clarke, Acting First Assistant Secretary Audit and Fraud Control

Ms Celia Perkins, First Assistant Secretary Security and Vetting Service

Mr Ciril Karo, Acting First Assistant Secretary Contestability

Mr John Geering, First Assistant Secretary Ministerial and Executive Coordination and Communication

Brigadier Jennifer Woodward CSC, Director of Military Prosecutions

Program 2.3: Chief Finance Officer

Angela Diamond, Acting Chief Finance Officer

Mr David Spouse, First Assistant Secretary Financial Services

Graham Weber, Acting First Assistant Secretary CFO, Capability Acquisition and Sustainment Group and Vice Chief Defence Force Group

Program 2.4: Vice Chief of the Defence Force

Vice Admiral Ray Griggs, AO, CSC, Vice Chief of the Defence Force

Program 2.5: Chief of Joint Capabilities

Air Vice-Marshal Warren McDonald, AM, CSC, Chief of Joint Capabilities

Major General Marcus Thompson, AM, Deputy Chief Information Warfare

Air Vice-Marshal Tracy Smart, AM, Commander Joint Health

Major General David Mulhall, DSC, AM, CSC, Commander Joint Logistics

Major General Michael Ryan, AM, Commander Australian Defence College

Program 2.6: Navy Capabilities

Vice Admiral Tim Barrett, Chief of Navy

Program 2.7: Army Capabilities

Lieutenant General Angus Campbell AO, DSC, Chief of Army

Program 2.8: Air Force Capabilities

Air Marshal Leo Davies, AO, CSC, Chief of Air Force

Program 2.9: Joint Operations Command

Vice Admiral Ray Griggs, AO, CSC, Vice Chief of the Defence Force

Program 2.10: Capability Acquisition and Sustainment

Mr Kim Gillis, Deputy Secretary Capability Acquisition and Sustainment Group

Mr Stephen Johnson, General Manager Submarines

Air Vice Marshal Leigh Gordon, AM, CSM, Head Joint Strike Fighter

Major General David Coghlan, AM, Head Land Systems

Mr Shane Fairweather, FAS Helicopter Systems Division

Commodore Scott Lockey, Director General Navy Aviation Systems

Brigadier Jeremy King, Director General Army Aviation Systems

Rear Admiral Adam Grunsell, AM, CSC, RAN, Head Maritime Systems

Rear Admiral Tony Dalton, RAN, General Manager Ships Division

Rear Admiral Gregory Sammut, Head Future Submarine Program

Air Vice Marshal Catherine Roberts, AM, CSC, Head Aerospace Systems

Ms Liesel O'Meara, First Assistant Secretary Commercial

Mr Ivan Zlabur, First Assistant Secretary Joint Systems

Ms Victoria Bergmann, First Assistant Secretary Procurement and Contracting

Mr Greg Divall, Group Business Manager CASG

Program 2.11: Estate and Infrastructure

Mr Steve Grzeskowiak, Deputy Secretary Estate and Infrastructure

Mr Chris Birrer, First Assistant Secretary Infrastructure

Mr Luke McLeod, Assistant Secretary Per- and Poly-Fluoroalkyl Substances Investigation and Management

Dr Mathew Klein, Senior Physician Occupational and Environmental Medicine

Program 2.12: Chief Information Officer

Mr Steve Pearson, Chief Information Officer

Mr Mohan Aiyaswami, Chief Technology Officer

Program 2.13: Defence People

Ms Roxanne Kelley, Deputy Secretary Defence People

Rear Admiral Brett Wolski, Head People Capability

Mr Richard Oliver, First Assistant Secretary People Services

Ms Justine Greig, First Assistant Secretary People Policy and Culture

Program 2.14: Defence Science and Technology

Dr Alex Zelinsky, AO, Chief Defence Scientist

Dr Todd Mansell, Chief Weapons and Combat Systems Division

Program 2.15: Defence Force Superannuation Benefits

Ms Roxanne Kelley, Deputy Secretary Defence People

Mr Richard Oliver, First Assistant Secretary People Services

Ms Justine Greig, First Assistant Secretary People Policy and Culture

Ms Rowena Bain, Assistant Secretary Culture and People Development Branch

Program 2.16: Defence Force Superannuation Nominal Interest

Ms Roxanne Kelley, Deputy Secretary Defence People

Mr Richard Oliver, First Assistant Secretary People Services

Ms Justine Greig, First Assistant Secretary People Policy and Culture

Program 2.17: Housing Assistance

Mr Steve Grzeskowiak, Deputy Secretary Estate and Infrastructure

Defence Housing Australia

Ms Jo Abbot, Chief Financial Officer

Mr Vern Gallagher, Head of Communication and Client Relations

Ms Jo Hobson, Acting Head of Finance

Ms Kelly Hunter, Acting GM Property and Tenancy Services

Mr Ross Jordan, GM Governance

Mr Brett Jorgensen, Acting GM Property Provisioning Group

Mr Rob Lafreniere, Head of Elective Accommodation Programs

Mr Jeremy Logan, Senior Executive Officer

Mr Steve Ryan, Acting Manager, People and Capability

Ms Jan Mason, Managing Director

Mr Shane Nielsen, General Manager, People and Corporate Capability

Ms Suzanne Pitson, General Manager, Portfolio Management Group

Ms Yvette Sims, Head of Strategic Planning and Valuation Services

Department of Veterans' Affairs

Mr Simon Lewis PSM, Secretary

Ms Liz Cosson AM CSC, Chief Operating Officer

Mr Craig Orme DSC AM CSC, Deputy President

Corporate and General Matters

Mr Simon Lewis PSM, Secretary

Ms Liz Cosson AM CSC, Chief Operating Officer

Mr Craig Orme, DSC AM CSC, Deputy President

Major General Mark Kelly AO DSC, Repatriation Commissioner

Ms Narelle Dotta, First Assistant Secretary, Business Support Services Division

Mr Graeme Rochow, Assistant Secretary and Chief Finance Officer, Finance and Property Branch

Ms Liane Pettitt, Assistant Secretary, Parliamentary, Governance and Information Branch

Mr Roger Winzenberg, Assistant Secretary, People and Security Branch

Ms Carolyn Spiers, General Counsel, Legal Services and Assurance Branch

Dr Ian Gardner, Principal Medical Adviser

Dr Stephanie Hodson, National Manager, Veterans and Veterans Families Counselling Service

Ms Lisa Foreman, First Assistant Secretary, Rehabilitation and Support Division

Mr John Geary, First Assistant Secretary, Claims and Operations Division

Mr Mark Harrigan, Assistant Secretary, Compensation and Income Support Policy Branch

Ms Amber Vardos, Acting Assistant Secretary, Grants and Advocacy Policy Branch

Mrs Janice Silby, Deputy Commissioner South Australia, Income Support Branch

Ms Gayle Anderson, First Assistant Secretary, Health and Community Services Division

Mr John Fely, First Assistant Secretary, Client and Commemorations Division

Mr Ken Corke, Director War Graves and National Manager—Commemorations and War Graves Branch

Ms Edel Kairouz, Assistant Secretary, Rehabilitation Policy and Reform Branch

Ms Leanne Cameron, Deputy Commissioner Queensland and Assistant Secretary, Client Access Branch

Ms Maralyn Newman, Acting Assistant Secretary, Business Improvement and Support Branch

Mr Tim Evans, Assistant Secretary, Service Access Branch

Ms Kate Pope PSM, First Assistant Secretary, Transformation and Engagement Division

Mr Richard Magor, Assistant Secretary, Veteran Centric Reform Implementation Branch

Mr Alex Gerrick, Assistant Secretary, Communications and Engagement Branch

Mr Neil Bayles, Assistant Secretary, Portfolio, Program and Assurance Office

Mr Matt McKeon, Executive Director, Veteran Centric Reform Program Management Office

Ms Andrea Jones, Assistant Secretary, Shared Services Branch

Ms Kylie Perrin, Assistant Secretary, Organisational Change

Mr Charles McHardie, Chief Technology Officer, Department of Human Services

Outcome 1—Maintain and enhance the financial wellbeing and self-sufficiency of eligible persons and their dependants through access to income support, compensation, and other support services, including advice and information about entitlements

Program 1.1: Veterans' income support and allowances

Program 1.2: Veterans' disability support

Program 1.3: Assistance to Defence widow/ers and dependants

Program 1.4: Assistance and other compensation for veterans and dependants

Program 1.5: Veterans' Children Education Scheme

Program 1.6: Military Rehabilitation and Compensation A cts: income support and compensation

Program 1.7: Adjustments to the Military Rehabilitation and Compensation Acts liability provisions—income support and compensation

Mr Simon Lewis PSM, Secretary

Ms Liz Cosson AM CSC, Chief Operating Officer

Mr Craig Orme DSC AM CSC, Deputy President

Ms Lisa Foreman, First Assistant Secretary, Rehabilitation and Support Division

Mr John Geary, First Assistant Secretary, Claims and Operations Division

Mr Mark Harrigan, Assistant Secretary, Compensation and Income Support Policy Branch

Ms Amber Vardos, Acting Assistant Secretary, Grants and Advocacy Policy Branch

Ms Maralyn Newman, Acting Assistant Secretary, Business Improvement and Support Branch

Mr Tim Evans, Assistant Secretary, Service Access Branch

Mrs Janice Silby, Deputy Commissioner SA, Income Support Branch

Ms Gayle Anderson, Acting First Assistant Secretary, Health and Community Services Division

Mr Alex Gerrick, Assistant Secretary, Communication and Engagement Branch

Mr Neil Bayles, Assistant Secretary, Portfolio, Program and Assurance Office

Ms Carolyn Spiers, General Counsel, Legal Services and Assurance Branch

Ms Leanne Cameron, Deputy Commissioner Queensland and Assistant Secretary, Client Access Branch

Ms Edel Kairouz, Assistant Secretary, Rehabilitation Policy and Reform Branch

Outcome 2: Maintain and enhance the physical wellbeing and quality of life of eligible persons and their dependents through health and other care services that promote early intervention, prevention and treatment, including advice and information about health service entitlements

Program 2.1: General medical consultations and services

Program 2.2: Veterans' hospital services

Program 2.3: Veterans' pharmaceutical benefits

Program 2.4: Veterans' community care and support

Program 2.5: Veterans' counselling and other health services

Program 2.6: Military Rehabilitation and Compensation Acts : Health and other care services

Program 2.7: Adjustment to the Military Rehabilitation and Compensation Acts liability provisions—health other care services

Mr Simon Lewis PSM, Secretary

Ms Liz Cosson AM CSC, Chief Operating Officer

Mr Craig Orme DSC AM CSC, Deputy President

Major General Mark Kelly AO DSC, Repatriation Commissioner

Dr Ian Gardner, Principal Medical Adviser

Dr Stephanie Hodson, National Manager, Veterans and Veterans Families Counselling Service

Ms Gayle Anderson, First Assistant Secretary, Health and Community Services Division

Mr Mark Garrity, Assistant Secretary, Mental and Social Health Branch

Ms Veronica Hancock, Assistant Secretary, Policy Branch

Mrs Robyn Kemp, Assistant Secretary, Program Management Branch

Ms Karen Pickering, Assistant Secretary, Provider Engagement and Assurance Branch

Ms Kym Connolly, Acting Assistant Secretary, Mental and Social Health Branch

Mrs Robyn Kemp, Assistant Secretary, Program Management Branch

Mr Paolo Kraushaar, Acting Assistant Secretary, Provider Engagement and Assurance Branch

Ms Leanne Cameron, Deputy Commissioner Queensland and Assistant Secretary, Client Access Branch

Mr Tim Evans, Assistant Secretary, Service Access Branch

Ms Lisa Foreman, First Assistant Secretary, Rehabilitation and Support Division

Mr John Geary, First Assistant Secretary, Claims and Operations Division

Ms Amber Vardos, Acting Assistant Secretary, Grants and Advocacy Policy Branch

Ms Maralyn Newman, Acting Assistant Secretary, Business Improvement and Support Branch

Mrs Janice Silby, Deputy Commissioner SA, Income Support Branch

Mr Neil Bayles, Assistant Secretary, Portfolio, Program and Assurance Office

Ms Carolyn Spiers, General Counsel, Legal Services and Assurance Branch

Mr Mark Harrigan, Assistant Secretary, Compensation and Income Support Policy Branch

Ms Edel Kairouz, Assistant Secretary, Rehabilitation Policy and Reform Branch

Outcome 3: Acknowledgement and commemoration of those who served Australia and its allies in wars, conflicts and peace operations though promoting recognition of service and sacrifice, preservation of Australia's wartime heritage, and official commemorations

Program 3.1: War graves and commemorations

Program 3.2: Gallipoli related activities

Mr Simon Lewis, PSM, Secretary

Ms Liz Cosson AM CSC, Chief Operating Officer

Mr Craig Orme DSC AM CSC, Deputy President

Major General Mark Kelly, AO DSC, Repatriation Commissioner

Mr John Fely, First Assistant Secretary, Client and Commemorations Division

Mr Ken Corke, Director, War Graves and National Manager, Commemorations and War Graves

Ms Carolyn Spiers, General Counsel, Legal Services and Assurance Branch

Australian War Memorial

Outcome 1: Australians remembering, interpreting and understanding the Australian experience of war and its enduring impact through maintaining and developing the national memorial, its collection and exhibition of historical material, commemorative ceremonies and research

Program 1.1: Commemorative ceremonies

Program 1.2: National memorial and grounds

Program 1.3: National collection

Program 1.4: Exhibitions

Program 1.5: Interpretive services

Program 1.6: Promotion and community services

Program 1.7: Research and information dissemination

Program 1.8: Visitor services

Dr Brendan Nelson, Director

Ms Leanne Patterson, Assistant Director, Corporate Services

Major General Brian Dawson (Retired), Assistant Director, National Collection

Ms Anne Bennie, Assistant Director, Public Programs

Ms Helen Petrovski, Chief Finance Officer

Committee met at 09:02

CHAIR ( Senator Reynolds ): I declare open this hearing of the Senate Foreign Affairs, Defence and Trade Legislation Committee and I welcome the minister, CDF and the secretary. The committee will begin its examination of the additional estimates for the 2017-18 with the Department of Defence. We will then move to Defence Housing Australia, followed by the Australian War Memorial, and will conclude today with the Department of Veterans' Affairs. The committee will examine the foreign affairs and trade portfolio tomorrow. The committee has fixed Friday, 13 April, as the date for the return of answers to questions taken on notice.

Understanding order 26, the committee must take all evidence in public session, and this includes answers to questions on notice. I remind all witnesses that in giving evidence to the committee they are protected by parliamentary privilege. It is unlawful for anyone to threaten or disadvantage a witness on account of evidence given to a committee and such action may be treated by the Senate as a contempt. It is also a contempt to give false or misleading evidence to a committee.

The Senate by resolution in 1999 endorsed the following test of relevance of questions at estimate hearings:

Any questions going to the operations or financial position of the departments and agencies which are seeking funds in the estimates are relevant questions for the purposes of estimate hearings.

I remind all officers that the Senate has resolved that there are no areas in connection with the expenditure of public funds where any person has a discretion to withhold details or explanations from the parliament or its committees unless the parliament has expressly provided otherwise. The Senate has resolved that an officer of a department of the Commonwealth shall not be asked to give opinions on matters of policy and shall be given reasonable opportunity to refer questions asked of the officer to senior officers or to a minister. This resolution prohibits only questions asking for opinions on matters of policy and does not preclude questions asking for explanations of policies or factual questions about when and how policies were adopted.

I particularly draw the attention of witnesses to an order of the Senate of 13 May, 2009, which specifies the process by which a claim of public interest immunity should be raised.

The extract read as follows—

Public interest immunity claims

That the Senate—

(a)      notes that ministers and officers have continued to refuse to provide information to Senate committees without properly raising claims of public interest immunity as required by past resolutions of the Senate;

(b)      reaffirms the principles of past resolutions of the Senate by this order, to provide ministers and officers with guidance as to the proper process for raising public interest immunity claims and to consolidate those past resolutions of the Senate;

(c)      orders that the following operate as an order of continuing effect:

(1)      If:

      (a)   a Senate committee, or a senator in the course of proceedings of a committee, requests information or a document from a Commonwealth department or agency; and

      (b)   an officer of the department or agency to whom the request is directed believes that it may not be in the public interest to disclose the information or document to the committee, the officer shall state to the committee the ground on which the officer believes that it may not be in the public interest to disclose the information or document to the committee, and specify the harm to the public interest that could result from the disclosure of the information or document.

(2)      If, after receiving the officer’s statement under paragraph (1), the committee or the senator requests the officer to refer the question of the disclosure of the information or document to a responsible minister, the officer shall refer that question to the minister.

(3)      If a minister, on a reference by an officer under paragraph (2), concludes that it would not be in the public interest to disclose the information or document to the committee, the minister shall provide to the committee a statement of the ground for that conclusion, specifying the harm to the public interest that could result from the disclosure of the information or document.

(4)      A minister, in a statement under paragraph (3), shall indicate whether the harm to the public interest that could result from the disclosure of the information or document to the committee could result only from the publication of the information or document by the committee, or could result, equally or in part, from the disclosure of the information or document to the committee as in camera evidence.

(5)      If, after considering a statement by a minister provided under paragraph (3), the committee concludes that the statement does not sufficiently justify the withholding of the information or document from the committee, the committee shall report the matter to the Senate.

(6)      A decision by a committee not to report a matter to the Senate under paragraph (5) does not prevent a senator from raising the matter in the Senate in accordance with other procedures of the Senate.

(7)      A statement that information or a document is not published, or is confidential, or consists of advice to, or internal deliberations of, government, in the absence of specification of the harm to the public interest that could result from the disclosure of the information or document, is not a statement that meets the requirements of paragraph (I) or (4).

(8)      If a minister concludes that a statement under paragraph (3) should more appropriately be made by the head of an agency, by reason of the independence of that agency from ministerial direction or control, the minister shall inform the committee of that conclusion and the reason for that conclusion, and shall refer the matter to the head of the agency, who shall then be required to provide a statement in accordance with paragraph (3).

(Extract, Senate Standing Orders, pp 124-125)

Witnesses are specifically reminded that a statement that information or a document is confidential or consists of advice to government is not a statement that meets the requirements of the 2009 order. Instead, witnesses are required to provide some specific indication of the harm to the public interest that could result from the disclosure of the information or the document. An officer called to answer a question for the first time should state their full name and capacity in which they appear and witnesses should speak clearly and into the microphones to assist Hansard record proceedings today. Mobile phones should be switched off or turned to silent. The proposed breaks for today are listed in the program. They are more than proposed; they will be taken as per the program today.

I warmly welcome Senator the Honourable Marise Payne, the Minister for defence. I also welcome the secretary for the Department of Defence, Mr Greg Moriarty; the Chief of the Defence Force, Air Chief Marshal Mark Binskin; and all officers of the Department of Defence. Minister, would you like to make an opening statement?

Senator Payne: Thank you, Madam Chair. I do have a few observations I wish to make in an opening statement. I also acknowledge what a pleasure it is to be in your safe hands as chair of the committee.

CHAIR: Thank you. It's a pleasure to be here.

Senator Payne: Ten days ago, the Chief of the Defence Force, Air Chief Marshal Mark Binskin, and I had the opportunity to travel to the Middle East. I wanted to make some observations about those engagements, particularly meeting with senior leadership of the campaigns in both Iraq and Afghanistan and meeting with our deployed troops in both locations. As we all know, the Australian government asks a great deal of the men and women of the ADF and civilian personnel when we send them on deployment. We ask them to serve in war zones in tough conditions and to leave their families and their friends for extended periods. So my view is that there are few, if any, more important aspects of my role than being able to thank our deployed service men and women and defence personnel for their efforts on behalf of the Australian government, and we certainly took that opportunity in the last visit.

While Daesh has, as has been observed, essentially been defeated in Iraq as a conventional—and I use that word advisedly as well—fighting force, our building partner capacity mission is continuing. It's continuing to train Iraqi Security Forces personnel and also local police. The ISF itself suffered very heavy losses during the fight against Daesh, and we are familiar with the terrible tactics that they used. The ISF will need to be reinforced. It will need to develop new recruits, and they will need to be trained to complement the veterans, as it were. Our mission at Taji will have an ongoing training role in that regard.

CDF and I met with both trainers and trainees at Taji. I was particularly struck by the very positive environment between them, the relationships between them and what a great effort Australian personnel have made in those training engagements over what is now a long time. We are at a tick over 30,000 Iraqi Security Forces personnel trained through that process. We also met with the leadership and members of the Special Operations Task Group, which continues to advise and assist the Iraqi Counter Terrorism Service. The CTS itself took over 900 casualties during the battle against Daesh, and our troops continue to advise and assist as the CTS builds its long-term capability as well.

I think it's important to note that that support which we are able to deliver is critical to ensuring that Iraq is able to prevent Daesh from re-establishing itself inside their country. That visit to Iraq and Afghanistan followed my attendance at a meeting of the small group of defence ministers in the leadership of the international defeat Daesh coalition, which was held in Rome. That was co-chaired by Secretary Mattis and Minister Roberta Pinotti from Italy, and was the first meeting of the small group of ministers since the Iraqi Prime Minister's December declaration in relation to victory over Daesh. It was a useful opportunity to discuss with the Iraqi government—and defence minister al-Hiyali was in attendance—and with our coalition partners as to how we are able to best support Iraq as it recovers from the experience it's been through in this particular conflict. We were also well briefed there by Major-General Gedney, who is the Deputy Commander of Operation Inherent Resolve—a British general who's key in the leadership. That was a very useful perspective in terms of the future.

The CDF and I also visited Kabul. In Afghanistan, certainly the security environment remains challenging, and I'm sure the CDF will have more to say about that. You would be more than aware of the violent attacks that the Taliban has resorted to in recent months, on civilian targets particularly, including the most recent attack in January which killed over 100 people and injured more than 200. I had the chance to meet again with Afghan President Ghani and certainly affirmed Australia's continuing support to Afghanistan. I also, of course, offered our condolences on the losses that had been experienced in those attacks. Our contribution in Afghanistan is specifically focused on supporting the Afghan national security forces and defence forces so that they can better defend their own nation from internal and external threats from other destabilising influences. Those with whom we met confirmed that Australian personnel are making a very significant contribution to Afghan security, whether they are embedded in NATO headquarters, providing training and support to the Afghan national defence and security forces or providing security, indeed, for our own forces. It was great to meet the teams who are on the ground and, with the CDF, present medals to some of our personnel and to generally hear their views, their perspectives on the experience that they are involved in. Across both of the theatres, Australian personnel are making a difference. They are building the capacity of the respective security forces, they're helping to create a more secure Middle East region and they're helping to prevent the export of terrorism to our region. I should also add that we were pleased to acknowledge the 15-year anniversary of continuous C130 service in the Middle East. A 15-year anniversary is a considerable milestone, and the CDF and I had the chance to jointly mark that with crews there as well. We met with the commander of the Resolute Support Mission, General Nicholson, and with the commander of coalition operations in Iraq, Lieutenant-General Paul Funk. Both commended the efforts of Australian personnel.

I'll finish by saying that, as we've seen recently in the Philippines, the risk of terror groups exporting their methods and ideology to our region and exacerbating existing activities of extremist groups in our region is very real. It is a reality with which the government in the Philippines has been dealing very recently. That is one of the reasons why it's so important that Australia continues to support international efforts to defeat terrorism at its source, and that's what those men and women are doing. I know the committee will join me in acknowledging that we are very proud of the efforts that our men and women are making to these important missions. I again extend the thanks of the Australian government to them and to their families, who make it possible for them to serve in that way. Thank you, Madam Chair.

CHAIR: Thank you very much, Minister. It's a great way to start these estimate hearings: hearing again the wonderful work that our men and women are doing in uniform overseas, as well as all those who support them. It's safe to say on behalf of the committee: congratulations and thanks from all of us to all of them for the work that they're doing. And thank you for that overview of the trip. Mr Moriarty, would you like to make an opening statement?

Mr Moriarty : No, Senator, but thank you.

CHAIR: CDF, would you like to make an opening statement?

Air Chief Marshal Binskin : I would like to. Thanks, Chair. I'd like to build on the minister's opening statement, if I could. One of the most rewarding aspects of my position as Chief of the Defence Force is spending time with our people. As those who have had the chance to be on the ADF Parliamentary Program and see the operations, or, indeed, been in the ADF, would know, the Australian Defence Force includes some of this country’s most impressive talent, and the calibre of our people is never more evident than when you are away from here and you see them working with our coalition partners. Visiting our deployed personnel gives me a firsthand view of the work they're doing and an opportunity to hear directly from them. If there's an issue on operations or back at home, I can guarantee someone will speak up. So, when I travelled with the Minister for Defence to the Middle East region earlier this month, our deployed personnel in various locations provided me with a full and frank operational update from the theatre—as only Australians can.

The first few weeks of 2018 remind us of the ongoing security challenges facing Afghanistan and its people, in what remains a very complex environment. As the minister said, we have seen four high-profile attacks in the capital, Kabul—two at the hands of the Taliban and two claimed by Daesh. These attacks are not a sign of strength, in fact, far from it. They are the desperate actions of terrorists and insurgent groups who are reduced to killing innocent Afghan civilians in highly visible attacks to incite fear and ensure maximum shock and propaganda value, in the country and globally.

They are resorting to these tactics because, over the past year, the Taliban has failed to deliver its stated aim, which was to retake a provincial centre. The Afghan National Defence and Security Forces have kept the provincial capitals safe under government control, deterring and denying Taliban attacks. The Afghan security forces are dedicated and courageous in the face of enemies who are resorting to desperate acts, and we get to meet a fair few of those Afghan forces when we are travelling overseas. In January, Daesh attacked an area near the Marshal Fahim National Defence University, where Australian personnel train Afghan security forces. ADF personnel based at the University provided medical assistance to those Afghans wounded in the attack.

We know there will be setbacks, but, with the help of the Resolute Support mission, Afghan security forces are on the offensive, and they are leading the fight against the Taliban. Australia’s contribution, through the NATO Resolute Support mission, is to work with the Afghans to further strengthen the Afghan National Defence and Security Forces. Our contribution is specifically focused on training, advising and assisting Afghan forces to defend their nation from internal and external threats as well as other destabilising influences, but coalition forces retain the capacity to surge in districts or provinces where and when additional support may be required. Our efforts, alongside our Resolute Support partners, are building a more secure and stable Afghanistan, to help contain the threat of international terrorism.

The Australian Defence Force has now filled the 30 additional positions that were announced in 2017, with new roles supporting the German led Staff Academy Advisory Team as well as a modest increase in the number of Australian advisors at Headquarters Resolute Support and the Train Advise Assist Command—Air, where they’re helping to develop the Afghan Air Force.

This complements our work leading the Sergeant Majors’ Academy advisory team, the Afghan National Officer Academy, Headquarters General Command of Police Special Units, the Kabul Garrison Command Advisory Team, and the ministerial advisory group. And we should not forget the specialist ADF personnel in Kabul who are providing medical and dental support to the Resolute Support mission or those staff in positions in Kandahar as part of the US led Headquarters Train Advise Assist Command—South.

In Iraq, training the local security forces is increasingly the focus of our work. Since the government declared the country liberated from Daesh control, the coalition effort has shifted toward supporting stabilisation operations, training and assisting the Iraqi Security Forces, as well as reconstruction efforts and delivering humanitarian assistance to rebuild the lives of those innocent civilians cruelly affected by Daesh atrocities.

My recent visit with the minister to the combined Australia-New Zealand task force, Taji, came shortly after the task group reached a major milestone. As the minister just noted, collectively over the past three years six task group rotations have trained more than 30,000 Iraqi security forces personnel. That’s a significant accomplishment. Through the Building Partner Capacity mission, we have trained officers and soldiers in weapons handling, building clearance and obstacle breaching techniques, as well as teaching them the tactics, techniques and procedures for urban warfare, and the laws of armed conflict.

We expect to continue to provide essential training and support to the Iraqi Security Forces throughout 2018 as Operation OKRA evolves in line with the Iraqi government requirements. We remain closely engaged with the coalition and the US planning to allow us to advise the government on any future contributions that this may involve.

Senators, as you would be aware, the six Australian FA-18 Super Hornets deployed on Operation OKRA, as a part of the last rotation, returned home last month, ending our air strikes operations in Iraq and Syria. The classic and Super Hornet deployments represented one element of the air task group and our overall contribution to the fight against Daesh. As part of the international coalition, we continue to work with the Iraqi security forces to contain the residual threat from Daesh in Iraq and across the border in Syria. A KC-30 tanker is refuelling coalition aircraft and has delivered more than 44 million kilograms of fuel in a little over three years, and our E-7 Wedgetail will return to theatre next month after a short respite period back here in Australia.

We know we must remain vigilant. As recent experience in the Philippines demonstrates, Daesh continues to recruit and inspire terrorists around the world. The liberation of Iraq from Daesh control, while significant, does not signal an end to Daesh in Iraq. Daesh remains active and, as such, continues to be a threat. Our work in Iraq is part of a broader international effort to defeat Daesh wherever it exists across the globe. That's why we've increased our practical engagement with the Philippines Armed Forces to further build capacity to counter terrorism in the region and why we continue to contribute to our combined maritime forces.

In the CMF, Australia is one of 32 nations patrolling 8.2 million square kilometres of international waters to defeat terrorism, prevent piracy and promote maritime security in some of the world's most important shipping lanes. As part of Task Force 150, HMAS Warramunga's crew seized and destroyed 11.5 tonnes of hashish and more than 1.5 tonnes of heroin in 37 days in its current deployment. It's an outstanding result for the ship's company, stripping more than $1 billion from terrorist cash reserves and preventing a significant volume of illegal narcotics reaching the global drug market.

Our work in the Middle East region does not detract from our efforts closer to home, though. Around 350 Defence personnel are assigned to Operation Resolute in support of the whole-of-government effort to protect Australia's borders and maritime interests. Since 2017, our contribution now includes the Royal Australian Air Force P-8 Poseidon maritime patrol aircraft. Operation Resolute is largely focused on our northern approaches, but we do have other operations, in particular Southern Discovery, that centres around Australia's interests in the Antarctic. We have one logistic support mission to complete for this summer, but since Operation Southern Discovery commenced in July 2016, our C-17 Globemaster crews have conducted more than a dozen airlift missions, including two drops and an aeromedical evacuation in support of the Australian Antarctic Division. And over the current Antarctic austral summer period a Navy commander commenced a 12-month posting as Casey Station leader, along with a Navy meteorologist who is supporting the Bureau of Meteorology, and a geospatial survey team of our four Navy members who are undertaking hydrographic surveys. Additionally, Army contributed two ground survey personnel, who are digitally mapping the terrain and surveying an airfield on the Antarctic plateau, while Air Force deployed a five-person mobile air load team.

Globally, our strategic airlift capability is in very high demand. As the minister just mentioned, while we're in the Middle East, our C-130 Hercules detachment chalked up 15 years of continuous operations in the region. For some statistics, the C-130s commenced operations in February 2003, when a detachment of 36 Squadron was deployed to transport Australian personnel and equipment into theatre. Over the 15-year period, the combined C-130 capability of C-130 H, and then later C-130 J aircraft, has achieved a 98 per cent mission success rate, which is quite remarkable when you consider the C-130s have flown more than 6,000 missions. Over 37,500 flying hours, they've carried more than 52 million kilograms of cargo and transported more than 271,000 passengers. The C-130s remain an integral part of our Middle East operations today.

Closer to home, over the last two weeks our C-17s completed seven flights to Tonga following Tropical Cyclone Gita, transporting Australian government personnel and delivering almost 149 tonnes of humanitarian supplies and equipment, including emergency shelters and generators. And today we have a C-130 ready to support the PNGDF in Papua New Guinea to undertake aerial damage assessments after the recent earthquake that they've experienced up there. In addition, we stand ready to assist our neighbours further, if requested.

Which brings me back to my opening remark, senators. The Australian Defence Force is achieving its mission across the globe because of our people. Their skill, their professionalism and their dedication is held in the highest regard by the forces that we work with and the forces that we support. Australians should be very proud of the Defence Force and the work our people do across the globe. Thank you.

CHAIR: Thank you. All I can say is hear, hear! We'll now go to Senator Kitching.

Senator KITCHING: Can I start by saying that we'd like to thank the men and women of the Australian Defence Force for their service. I was lucky enough, as you know, CDF, to go on a parliamentary program, and I saw the high regard with which those men and women are held. So, thank you.

Air Chief Marshal Binskin : Thank you.

Senator KITCHING: Could I go to some questions on current operations. I know, Minister and CDF, you've both mentioned Iraq and Syria, for example the Super Hornets coming home, and you've discussed, Minister, the role that we'll continue to have in Taji. What else will we be doing? What is our ongoing role in that region, in that area?

Air Chief Marshal Binskin : The mission previously built partner capacity with the Iraqi security forces, but it's now evolving more into helping Iraqi security forces develop the skills that they'll need to continue to secure the borders and internal security against the Daesh threat, which is still there—not like it was in the past, on the battlefield; it's now more into the smaller attacks and smaller groups. So, we're working with our Iraqi security force partners in doing that. For example, one of the skills that we're helping them develop and that we were watching very closely while we were over there is helping their Iraqi security forces' forward air controllers be able to integrate their air force assets into operations to help work in these small insurgent-type operations that they're doing.

Senator KITCHING: Was that at Taji?

Air Chief Marshal Binskin : Yes. And it was great talking to the Iraqi security force officers—young junior officers. They were brilliant. They were energised. They'd obviously been through a lot over the last couple of years and had worked to defeat Daesh on the battlefield, but they were quite open in the discussions of where they saw their country going, the skills that they were developing and how they were going to help their security forces into the future. It was very good not just to talk to our young men and women on the ground but to talk directly to the Iraqi security forces as well.

Senator Payne: We didn't distract him. He passed his assessment.

Air Chief Marshal Binskin : With flying colours.

Senator Payne: So to speak.

Air Chief Marshal Binskin : Yes—so to speak. So, that's the Taji mission. The other mission is the advise-and-assist mission that we do with the Counter Terrorism Service. This is still an essential mission that we have, and we have a small number that are there doing that. The mentoring, particular training and headquarters-type functions are there to help them be able to retrain and grow their strength again for the fight that they know that they will have to continue. And then the Air Task Group will continue to support the defence of Iraq as well, with the tankers supporting air operations over Iraq and the E7 doing the same thing.

Senator KITCHING: In Iraq, there's obviously the armed service, and then there seems to be other, smaller, not necessarily policing but certainly army-type units. Do you think that they'll eventually manage to integrate those elements?

Air Chief Marshal Binskin : Prime Minister Abadi has been quite open in where he would like to see these forces go. He would like to consolidate them under a command and control. You're probably talking about some of the militia forces—bringing the militia forces under a more government-aligned command and control. The fact is you don't need that many, now that Daesh has been defeated on the battlefield. I think, in time, after the next election, he will look to consolidate and maybe put a little bit of restructure in there.

Senator Payne: Certainly, the defence minister, al-Hayali, has been consistent in indicating that he recognises the need to develop the professional army that Iraq will need into the future, and he understands the importance of engaging with the international coalition to see where we, as members of that coalition, can best assist in that process. They're very cognisant of that. That's part of their long-term planning. Of course, they are also facing an election cycle in the relatively near term, so that's on the agenda as well. But they haven't lost sight of the issues that CDF was talking about.

Senator KITCHING: Until I went there, I didn't realise for example that the department of environment has its own force-protecting assets. I can understand how it happens—

Senator Payne: If you could not tell Minister Frydenberg that, I'd be enormously grateful.

Senator KITCHING: Yes, he could be dangerous!

Air Chief Marshal Binskin : And the Federal Police are pretty impressive!

Senator Payne: They're in the room.

Senator KITCHING: Minister, you've had some discussions with the Iraqi government with coalition partners recently. You have outlined some of the discussion, but are there any further changes or commitments that we're giving to that region going forward? Is there planning let's say for five years out, 10, 20?

Senator Payne: I think the defeat of Daesh in its broad form, after the battles of the last few years, was really only announced or claimed by Prime Minister Abadi at the end of last year. There is a great deal of work that the Iraqi government and the international coalition are doing to look at the timeframes that you've raised, not just in the defence context of course but in the broader context. At the same time as I was in Rome—and I'm sure this will come up in estimates again tomorrow—the foreign minister was in Kuwait, attending the meeting of foreign ministers as part of the international coalition, which talked in greater detail of what a reconstruction future looks like—rehabilitation; stabilisation and all the things that go with that; ensuring that there can be continuation of the return to their homes of people who have been displaced over an extended period; and those sorts of things. That is a very definite part of the international and the Iraqi discussion, and it will engage Australia for some time. There are obviously significant contributions that we make not just in the defence space but in the broader humanitarian space, which the foreign minister has articulated, and we will continue to engage in those. In some ways I go back to where I finished in my opening remarks: we know that ensuring that we support the development of a stable, sustainable Iraq, with the direction provided by the government of Iraq, is pivotal to avoiding the quite significant risks of terrorism export back into our region on a grander scale.

Senator KITCHING: Well, I won't ask this now; I'll wait for tomorrow, so I'll give you a heads up.

Senator Payne: Secretary Adamson will be all over it!

Senator KITCHING: I would imagine that the role of Turkey and some of its recent activities would be a part of those discussions.

Senator Payne: I'm sure, yes.

Senator KITCHING: Could I move on to the Russian navigation exercises. There was an incident that was reported over the Christmas period where there was a period of heightened alert at RAAF Base Darwin after Russian bombers conducted navigation exercises close to Australia. Is that report correct?

Air Chief Marshal Binskin : I wouldn't call it an incident. I think you're referring to the Tu-95 Russian Bears that deployed down to Biak in West Papua?

Senator KITCHING: Yes.

Air Chief Marshal Binskin : From our side, we're tasked with maintaining surveillance and situational awareness around our northern—in fact all our approaches. In this respect, that was an unusual event for Russian long-range bombers to deploy down close to us. We've had Russian military forces down here previously in recent times. Remember in 2014, October I think it was, around the G20 meeting, we had a Russian Surface Task Group that came down into the Coral Sea, and we monitored its movements during that time in our local area and in our region. Same with the Bear bombers. As we monitor them, we were postured, and I won't talk about operational postures in this forum, but we were postured in case those aircraft got airborne and came down closer to Australia.

Senator KITCHING: Would you say it's unusual?

Air Chief Marshal Binskin : For the Russian bombers to go to—

Senator KITCHING: To come so close?

Air Chief Marshal Binskin : In my time, I don't remember it happening before, no. So I think that the term 'unusual' is the correct term for it.

Senator KITCHING: Is there anything to learn from—I won't say incident—but is there anything to learn from this? Is there anything going forward that we're going to take out of that?

Air Chief Marshal Binskin : So any activity that we do, we always take learning points out of and we look to roll into future contingencies. This would be no different. But I am comfortable, very comfortable, in this case, that we were postured quite appropriately should those aircraft have come south and started to enter our EZ or come closer to our territorial airspace.

Senator KITCHING: Thank you. I'm going to move on to Pacific surveillance. At the end of January, 28 January, in fact, Minister, you issued a press release that talked about civilian aerial surveillance across the central and western Pacific. What is the program funded to do?

Senator Payne: It's a very good news story. It's part of our engagement across the Pacific, which includes the construction of the Pacific patrol boats of course. We do this with our partners in the Pacific range of nations—and I can get the full list, but I don't have it in front of me. Part of the whole Pacific maritime security program includes this aerial surveillance activity across the central and western Pacific region. It's a $2 billion program over 30 years. There are the replacement patrol boats, as I mentioned. There is the newly contracted aerial surveillance and growth in regional coordination and that is part of the process under development.

We entered a contract with a business called Technology Service Corporation, as you've seen in the media release. What we will end up with is up to 1,400 hours of aerial surveillance each year across those areas in the Pacific, which will be provided by two dedicated long-range aircraft in the region. And that gives us the ability, with our partners in the Pacific and the Pacific patrol boats, to provide targeted maritime patrolling and to, as the media statement says, enhance the ability of our Pacific island neighbours to defend against their regional maritime security threats, which would include illegal fishing and trans-national crime.

We are part of a small piece of regional architecture in defence. The South Pacific defence ministers' group which comprises Australia, New Zealand, Fiji, Papua New Guinea, Tonga, Chile and France from memory. That is very focused on addressing those regional maritime security threats and it meets every couple of years. It's quite youthful. I think it's only had three meetings since it was established five or so years ago. But it is an important engagement in terms of that coordination that I talked about. We obviously work very closely with other neighbours with whom we're very familiar, whether it's the Solomons or other countries in the region in that regard as well.

Senator KITCHING: Thank you. Is the $10 million the amount that has been—so the aerial surveillance service is funded to $10 million?

Senator Payne: Yes. That's funded by Defence. And the aircraft tasking is actually not coordinated by Defence or by Australia; it's coordinated by the Pacific Islands Forum Fisheries Agency, which is one of the primary agencies in the region and is recognised as such for its leadership. They do the day-to-day coordination and they facilitate communication with the regional maritime law enforcement agencies and so on.

Senator KITCHING: And how much is that?

Senator Payne: That's $10 million.

Senator KITCHING: How much money is being provided to Technology Service Corporation?

Mr Dewar : We signed the contract with TSC in December last year and, under that, they need to meet milestones in order to receive the payments. I'll have to confirm, but I don't think they've received a payment to date—not until they meet the first milestones.

Senator KITCHING: And when are the first milestones due to be met?

Mr Dewar : The contract is divided into phases. We're currently in what we call the definition phase. That involves some flights to start establishing the procedures the minister was talking about in terms of engaging with the Forum Fisheries Agency and communicating with boats and so on. It also involves identifying the infrastructure needs that are going to have to support the program so it can fly out of all the different countries. It also involves setting up the coordination positions in the Forum Fisheries Agency to do that communications coordination. That work is all part of the definition phase that's currently underway. That finishes on 30 April.

Senator PAYNE: Just to clarify: that's $10 million annually, and $68 million over the first six years, in round figures.

Senator KITCHING: I might leave it there, Chair. I'll come back to this.

Senator PATRICK: I want to go to an issue in response to a question asked by former Senator Kakoschke-Moore—question No. 66. I'm raising it at this point in time because I was actually quite disturbed by the answer. CDF, I know that you're very good in terms of culture and sexual abuse related issues.

CHAIR: We'll just grab the question.

Senator PATRICK: The question flowed from a report by the Director of Military Prosecutions in which they made the statement:

As sexual offences are often difficult to investigate, the perceived credibility of the complainant is important. However, how credibility is judged can be susceptible to social forces.

In your answer to former Senator Kakoschke-Moore, you said:

Credibility in this context is the quality of being trustworthy or believable when giving evidence about an allegation. "Perceived credibility" in this context is what others might believe about a person's credibility because of their particular station in life. For example, if a trainee was to make an allegation about a senior officer and the senior officer denied the allegation, the general perception might be that the senior officer would objectively and subjectively be a more credible witness.

I find that a really terrible starting point for a situation where there's a power imbalance and you have, say, a young female member of the ADF making an allegation against a senior member of the ADF and that becomes the starting point.

Air Chief Marshal Binskin : And so do I. I don't want to speak on how the language was used, but you've got to get around those perceptions when you do these investigations. It's not that you look at a perception and it colours your view. You've got to get around that and you've got to look at how you would investigate it. That's why, over the last few years since the Broderick review and all the work that we've done in Pathway to Change and all of that, we look at it through a victim-centric lens. We try and put any perception that might be there away. We'll talk to the victim and we'll pursue it in accordance with the victim's wishes. A lot of the issues that we have in taking these forward are because the victim may not want to take anything forward at that point, and therefore we're left with something hanging there for a little bit until the victim chooses to take it forward, or not. That's the way we work it in there. So I think the context of that—and, again, I'd have to talk to the director about the context—is that you've got to get around any of those perceptions and perceived biases that might be there. You've got to look at it clinically through the victims.

Senator PATRICK: Can you maybe have that conversation?

Air Chief Marshal Binskin : Yes.

Senator PATRICK: Just to get it on the record, I think it's important that we don't deter younger people or lower-ranked people from making an allegation.

Air Chief Marshal Binskin : I understand your concern there. In fact, if you look at what we've done with SeMPRO and everything that we've set up with the restrictive reporting and all that, it's gone the opposite way. I will take it on notice, I'll talk to the director and I will get some qualifying words from her on that if you like.

Senator PATRICK: As I said, I know you're on top of this and you're being very proactive. Just on that—and maybe you could take it on notice—last estimates you provided figures on the number of current serving members who had been accused of sexual assault outside the DART process under the headings of Navy, Army and Air Force. Could you give an update to those numbers?

Air Chief Marshal Binskin : I'll get those updated for you.

Senator Payne: Senator Patrick, Ms Kelly may have an observation which is timely at this point, in relation to SeMPRO in particular.

Ms Kelley : I think it's really important to know, because I think the story of SeMPRO is a really good one. It shows that there's an increased confidence with people actually using the service.

Senator Payne: You might want to spell out the acronym.

Ms Kelley : Defence's Sexual Misconduct Prevention and Response Office, which was established to offer advice, guidance and support to current and former Defence personnel who have been affected by sexual misconduct. Client numbers increased by almost 80 per cent between 2015-16 and 2016-17. This notable increase in personnel seeking assistance I think is linked to the fact that we've also been out and about and done enormous awareness and education programs through presentations made to over 29,000 personnel. So we're not only getting calls from victims but also getting calls from managers and people who are supporting those people. I think, in some ways, there is a bit of a good news story there, in terms of the increased confidence that members have in this service.

Senator PATRICK: Just to give me a feel for that, what does that mean in absolute numbers—the number of complainants?

Ms Kelley : I'll just see if I can find that for you. If not, we can take that on notice. I might have to take that on notice.

Senator PATRICK: Sure. Thank you.

Rear Adm. Wolski : In the last financial year, 2016-17, there were 136 victim service clients that called up SeMPRO. Since the inception of SeMPRO back in 2013, there has been a total of 406 victim service clients. So the numbers there back up that this is a service which is widely known in the Department of Defence and is being utilised.

Senator PATRICK: Thank you very much. I might now move on to just another issue that's sort of—no, it's not related. I just want to be clear, it's not related.

Senator Payne: Not even you can find the link here, Senator. Is that what you're saying?

Senator PATRICK: I can segue into it!

Senator Payne: I'm sure.

Senator PATRICK: No, I don't want to say they're related. Regarding relationships between senior officers and junior officers, on a ship or on a shore establishment, CDF, what are the rules in relation to a relationship between a senior officer and someone that's within their command?

Air Chief Marshal Binskin : There are policies in place, and I won't go through all of the policies. But, basically, if there's someone in your command chain, then the policies are quite strong in those particular areas. I think that's where you're going.

Senator PATRICK: Yes. In principle, how is that normally handled?

Air Chief Marshal Binskin : I'll get you the—

Senator PATRICK: There's a DI(G) PERS on it or something, isn't there?

Air Chief Marshal Binskin : Yes, there is, and I don't have the policy and the PERS in front of me. I'll get the personnel folk back to take you through it. But, in general terms, there are policies in place in regard to people in a command chain. You don't want to have, in a squadron or on a ship or in a unit, a relationship there between a subordinate and a senior person. I won't even say the commander, but I would just say in that command chain.

Senator PATRICK: You try to avoid that because it creates all sorts of complications?

Air Chief Marshal Binskin : There's conflict of interest. It can have an issue with the unit's performance per se. It depends on the size of the unit. If it's a small unit and something like that happens, then obviously it could affect that. That's why it's in place. But it's particular to the command chain. Because as you know, there's relationships in the Defence Force all the time. Some of them form at ADFA, as we read about. But there are many relationships in Defence where there are officers and other ranks, across the services, within the same services. I'm sure we could give you a percentage of how many there are, because there are far more than what you would have thought, and in some ways, it's natural.

Senator PATRICK: Like-minded people, yes. That does segue into the article that was in The Australian yesterday about the vice chief of Defence Force.

Air Chief Marshal Binskin : Not quite.

Senator PATRICK: Well, in that there's a relationship between a senior member and a junior member of the force. Can you just confirm for me, because it's clear that it sounds like you referred that to the Inspector-General. Did that relationship start when Vice Admiral Griggs was the Chief of Navy?

Air Chief Marshal Binskin : I'm just going to put the context of this for you first. Because I'm worried about where you are going with this.

Senator PATRICK: I'm not going to get —

CHAIR: As am I—

Senator KITCHING: I don't have the Clerk's advice in front of me but I can certainly get it. I understand there was a ruling in 1999 that estimates really goes to operational and the budgetary concerns. If Senator Patrick's question doesn't relate to those concerns then, I would ask you to rule that out of order.

CHAIR: Thank you Senator Kitching. I concur. I think, Senator Patrick, you are coming dangerously close to going into areas that are not appropriate for estimates. But CDF and the minister are aware of the guideline in terms of talking about personal issues in relation to Defence personnel and Public Servants.

Senator PATRICK: Let me perhaps just put my context. This is not about the relationships; it's a question about judgement—

CHAIR: Because you had actually named an officer.

Senator PATRICK: It's in the papers. And, in some sense, it gives an opportunity for Defence to respond to that.

Air Chief Marshal Binskin : So I can talk a little bit. But, if I can sort of step through it, and then any more detail, I would prefer to go into camera.

CHAIR: You can't do that in estimates. Let's be clear about that. We can't go in camera here, but we could have at another forum, we could have a private briefing if required, but I don't think it's necessary.

Air Chief Marshal Binskin : And I don't think it's required, Senator, so I'll just go through it.

Senator KITCHING: Sorry, CDF, chair, I do have that advice from the Clerk so I'm happy to read that into the record. If I could, on the point of order.

CHAIR: Another point of order?

Senator KITCHING: Well it's on the same point of order. I want to be clear, that, 'in 1999, the Senate resolved in adopting a report of the procedure committee that any questions relating to the operations of financial positions of departments are relevant questions for the purposes of estimates hearings. Any ruling of a chair in relation to the relevance of questions must therefore reflect this determination of the Senate'.

CHAIR: I am aware of that, and in fact, I read that out in my opening statement. But I think CDF is very well aware of what he can and can't say, and I understand CDF was about to go through the process more generally, rather than in relation to any particular person.

Air Chief Marshal Binskin : And—

Senator MOORE: Sorry, another point of order. It's also very clear about when things are on public record. So I think that, within that parameter, if something is on public record, they can continue.

Air Chief Marshal Binskin : So I'll address the public record side of it. I will step through it, Chair.

CHAIR: Thank you.

Air Chief Marshal Binskin : As CDF, I'm required to make the determinations on all manner of issues and you'd be surprised to know, it could be the most critical operational issue of targeting, right down to which trees get cut down on a Defence property. And that's the broader remit of the chief.

Senator Payne: He usually send the trees to me!

Air Chief Marshal Binskin : So the fact is I approach each decision the same way. I establish the facts, I seek expert advice, I assess each case on its merits and, if required, I take appropriate action. That's exactly how I've approached this particular issue that the senator is getting to. While the questions are related to a private matter and they have personal circumstances involved, there are a couple of issues on public record and I'll just sort of address each one of those.

As I said, we've got detailed policy with relationships. In this case, they're designed to accommodate a breakdown of a relationship, separation of families, commencement of new relationships or relationships within a command chain. The purpose of those policies, and the framework, is to make sure that any decisions that I, or any other commanders, make in the Defence Force are clear, they're objective and they're transparent. Those policies apply to all members of the ADF, from myself right down to the most junior member in the Australian Defence Force—all about 80,000 people there.

In this case, to be assured from my side that all the policies had been met, I directed a retired three-star officer, who was outside of the VCF command chain—someone who had been in Defence, or was in Defence but wasn't closely associated at all—to independently review the facts of the relationship you're talking about and the change in the personal circumstances, which is what occurred.

Separately, IGADF, who was also outside the chain of command, inquired into the handling of certain administrative matters that followed this change. It wasn't the point that the senator raised, but there was associated stuff. That's where the media article yesterday got it wrong. It talks about that report being directly related. It was administrative functions that were around how things were handled domestically. Both of those independently reviewed the information available at the time, and the advice I received from both was that there had been no breach—no breach—of Defence policy.

I'd like to leave it there, because we're talking about family separation. It's deeply personal. It's emotive and there are people outside the Defence chain of command here that have been affected. There's a family involved. I don't believe that it's in the best interests of those individuals, or the family, to then go into any of the details, except to say that two independent reviews provided me advice that there was no breach. I'll repeat it again: no breach of Defence policy.

Senator PATRICK: Is there some way, in terms of establishing parliamentary confidence in the conduct of those investigations, to be able to depersonalise things and just look to the substance of policies, and how it's shown that there are no breaches? There's been allegations raised and there's been a—

Senator Payne: Sorry, Senator, are you not taking the CDF's word?

Senator PATRICK: No. He's relying on independent—

Air Chief Marshal Binskin : I'm relying on the IGADF, who is the statutory—

CHAIR: Senator Patrick, given that you're now asking about the process—and I'm sure that you're not, as you said, in any way not taking the CDF's word for the outcomes of these inquiries—it might be possible to request a separate briefing for the committee on the process itself. I assume that's what you're asking about, how does the process work?

Senator PATRICK: It's not unreasonable for the parliament to have a look at a statutory officer and say, in terms of their conduct, are we satisfied? And that can be done in a sensitive way. I'm not asking for the release of the entire report, but just enough that shows how he or she has worked through the issues—desensitised if possible.

Air Chief Marshal Binskin : One of those I don't own, which is the IGADF report. He is independent and he is outside my command chain.

Senator PATRICK: Does he appear before estimates?

Senator Payne: No.

Air Chief Marshal Binskin : No. He's outside my command chain. As you would appreciate, I considered this in a very sensitive way, because it was a sensitive issue when it came up, and that was why I sought the independence. I'm happy to talk to you about the process, but because the privacy issues are for people outside the purview of this committee, and outside the Defence Force, I'm not comfortable in taking all that and opening it up to the committee. I'm sorry.

Senator PATRICK: Where I was approaching it from was not from a personal perspective; it was from a judgement perspective—having the confidence of very senior people and making sure that, from a judgement perspective, you have confidence in that, because you do make extremely important decisions.

Air Chief Marshal Binskin : Yes, I'm a bit worried you're questioning my judgement too.

Senator PATRICK: No, no, I'm not at all.

Air Chief Marshal Binskin : Okay. Can I take it on notice, and I'll have a look, but—

Senator PATRICK: I hold you in the highest respect.

Air Chief Marshal Binskin : I'm happy to talk through the chair on the process that went through, but because of the very personal nature of it for people who are outside of it, that would be as far as I would be willing to go.

Senator PATRICK: Okay.

CHAIR: Senator Patrick, what I would suggest is, given that you are clearly not in any way impugning the CDF's decision-making—

Senator PATRICK: No, not at all.

CHAIR: and judgement, and you are looking for a better understanding of the process, we will take that offline and seek a private briefing so these matters can be canvassed in a more appropriate venue.

Senator PATRICK: Thank you, Chair. Actually, I'll move to budget related issues in the appropriate time. Thank you.

CHAIR: Senator Carr. You're on.

Senator KIM CARR: I think my colleague should be allowed to finish her line of inquiry.

Senator KITCHING: Thank you, Senator.

CHAIR: Senator Kitching, over to you, then.

Senator KITCHING: Thank you, Chair. I want to go back to the aerial surveillance. We were looking at the press release. We were in the definitions phase of the contract.

Senator Payne: Mr Dewar was explaining that to you.

Senator KITCHING: Thank you. Thanks, Mr Dewar. So I'm just going to whip through some questions so we can do this quickly. The funding is $68 million over four years, did you say?

Senator Payne: Six.

Senator KITCHING: Six years. Thank you. And when was the program officially launched?

Mr Dewar : The contract was signed on 8 December.

Senator KITCHING: 8 December.

Mr Dewar : And the initial flight took place on 18 December.

Senator KITCHING: 18 December. Thank you. And the program was launched by the minister? Did you launch the program?

Senator Payne: No, I didn't launch it, as such. I announced its commencement. I didn't crack a bottle of champagne on it or anything like that.

Senator KITCHING: Well, that's a shame. And where did that occur?

Mr Dewar : The first flight took was from the Federated States of Micronesia.

Senator KITCHING: Thank you.

Senator Payne: So the surveillance services are intended to be available for the Federated States of Micronesia, Cook Islands, Fiji, Kiribati, Nauru, Niue, Papua New Guinea, Marshall Islands, Samoa, Solomons, Tokelau, Tonga, Vanuatu and Tuvalu, I believe. Is that right? I got all of those?

Unidentified speaker: Yes.

Senator Payne: So it's a fairly broad central and west Pacific activity.

Senator KITCHING: Thank you. And on 18 December there was a flight; that was the first flight?

Mr Dewar : That was the inaugural flight.

Senator KITCHING: And that was a surveillance flight?

Mr Dewar : We're describing that as the inaugural flight. It was the initial flight to launch the program.

Senator Payne: It tested, as I understand it, communications processes and things like that.

Senator KITCHING: So it was a sort of a testing. Has there been a surveillance flight?

Mr Dewar : There's been a total of six flights so far in addition to the one in Federated States of Micronesia. There's been five flights also out of Palau. Those flights include surveillance but also a testing component. As the minister said, establishing those communications processes and protocols. The flights out of Palau have been, for example, working with the Palau patrol boat to make sure that that ship-to-aircraft communication is working well.

Senator KITCHING: The Weekend Australian on 17 February said no surveillance flights had been flown. Is that the case?

Mr Dewar : So there was the inaugural flight on 18 December. The subsequent flights took place from—the aircraft departed the Federated States of Micronesia on 21 February.

Senator KITCHING: So it was a few days after that article?

Mr Dewar : Correct.

Senator KITCHING: Right. Okay. So there's been one?

Mr Dewar : There was one at the time of that article. Subsequently there's been a transit flight, then to Palau, and that means there's been six flights in total.

Senator KITCHING: But there was a surveillance flight on 21 February?

Mr Dewar : The 21st was the aircraft departing from the Federated States of Micronesia to Palau, and then from Palau, it's now flown a number of missions that are surveillance but also still testing and establishing those communications procedures.

Senator KITCHING: How is the communications? Is there further testing that needs to be done? Is that going well?

Mr Dewar : It is going well, but there is more work to do. The aircraft that's being used at the moment, for example, doesn’t have a full sensor suite. It's relying on visual observation and so on. The minister spoke at the end of the process. At maturity it's going to be two more sophisticated long-range aircraft. They will have surveillance pods and equipment on them. They will also have the ability to directly get data from the Forum Fisheries Agency based in Honiara and link that all up. That is not all established yet. That's all being tested.

Senator KITCHING: When do you expect that to be?

Mr Dewar : Under the contract, the company has to provide the first of the long-range aircraft and it includes the advanced sensors in May of this year.

Senator KITCHING: The Australia's ambassador to the Federated States of Micronesia has held some urgent meetings to rectify administrative issues that would be preventing further flights. Can you update us on those meetings?

Mr Dewar : Yes. What happened was there was some delay to the aircraft leaving the Federated States of Micronesia, and that was around delays to issuing permits. We had asked the ambassador to go in and engage with the Federated States of Micronesia government to try and work out what the delay was about and how we could get those permits issued. That happened so the aircraft could then depart on the 21st.

Senator KITCHING: Depart to Palau?

Mr Dewar : To Palau—correct.

Senator KITCHING: Who were those meetings with?

Mr Dewar : I don't have the names and positions of the people those meetings were with, but it was with a range of Federated States of Micronesia government officials who are responsible for that area of government.

Senator KITCHING: If you are able, could you provide those on notice?

Mr Dewar : Sure. I'm not sure if I'll be able to get that in an hour or two. It might take some time, but we can take that on notice.

Senator KITCHING: That's fine.

Senator KITCHING: That's an excellent time line, but, no, I don't expect it in an hour. Mr Fraser, our ambassador to the Federated States of Micronesia, has been quoted as saying he doesn’t understand why those permits are required. Could you enlighten as to what is going on there?

Mr Dewar : My understanding is that, for an aircraft to operate in the Federated States of Micronesia, as in other places, you need particular permits and approvals. There was some misunderstanding about the nature of the permit that was required for the aircraft to leave. We asked our ambassador to also engage to help clarify that situation and ensure that we could get the permits through, and that did happen. The Federated States of Micronesia explained to us then that there'd been a misunderstanding about the processes or the sorts of permits.

Senator KITCHING: So they had a misunderstanding of what we were wanting to do. Is that right? Yes. And we didn’t know to seek those permits before—

Mr Dewar : No, we had been engaging with them on the permits. It's around the process of getting the permits and what sort of permit was required. I should point out a couple of other things. Resolving that probably took longer than would have been normal. There were a couple circumstances there. One was about some key officials in the Federated States of Micronesia. You would appreciate that the government is a relatively small institution, and key officials were away so couldn’t be directly engaged with, and there was a state funeral in the Federated States of Micronesia that also led to government being shut down for some time. Sorry, I don’t know whether it was shut down but it was not transacting normal business, so that added to the delays in getting those permits sorted.

Senator KITCHING: And now it's all going to be smooth?

Mr Dewar : Yes. The aircraft departed and that's fine.

Mr Ablong : This is precisely what this phase of the process is for: to work with each of the individual countries and the forum's fisheries agencies to identify these sorts of problems and be able to resolve them so that, when the aircraft is doing its more mature surveillance processes, it is a regular thing and people understand what the diplomatic clearance requirements are, they understand what the aircraft is doing and they've worked through all of the details about how you get an aircraft into and out of their countries. This is precisely what this phase is supposed to do.

Senator KITCHING: So it'll lead to smooth—

Mr Ablong : Exactly right. There are 16 countries, as the minister said, involved in this. We will face similar problems over the next few months with other countries as we are introducing them to this new capability, working them through the processes.

Senator KITCHING: Just on the permits, was that an Australian government responsibility or was that the responsibility of the company's technology services?

Mr Dewar : The company was responsible for seeking those permits. When we identified there was a problem, though, we stepped in. As Mr Ablong said, what we're seeking to do at this stage is understand or identify any of these issues and make sure that we can resolve them, so we were keen to engage on that.

Mr Ablong : In the fullness of time, it'll be the Forum Fisheries Agency that has the responsibility for the diplomatic clearance process, not Australia. We're just helping them—the company, the Forum Fisheries Agency and the nations involved—to work through these issues.

Senator KITCHING: How long was the delay?

Mr Dewar : I'd have to take on notice when we first sought the permit. The facts I have are that the first flight was on 18 December and the aircraft did not depart FSM, the Federated States of Micronesia, until 21 February.

Senator KITCHING: In the definitions phase of the contract, are there any compensatory elements around that where the company might have to pay for the delay caused because the permits weren't sought?

Mr Dewar : Over the definitions phase, there are milestones that have to be reached and, if those aren't reached, then payments aren't made. The company is required, under the contract, to provide a certain number of flight hours and, if they don't meet that, then they haven't met the milestone and payments may not be made.

Senator KITCHING: Was there a date when the contract said the flights should begin or is that going into the next phase?

Mr Dewar : No, the contract didn't specify a day or a date when the first flight must happen. It's in that definition period. There's a required number of hours that need to be flown.

Mr Ablong : The contract says: 'Between the date of signing of the contract and 30 April.'

Senator KITCHING: Right, and that's been met?

Mr Ablong : We are going through the definition phase: 'You will do these things in order to meet the milestones that have been set in this phase.' If they don't do those, we will not compensate them for their efforts.

Senator KITCHING: Are there a certain number of flights that have to be undertaken before 30 April?

Mr Ablong : Yes, there are.

Senator KITCHING: How many is that?

Mr Dewar : It's a number of hours, and that needs to be 120 hours, not including transit flights. When it flew from FSM to Palau, that doesn't count towards the 120 hours.

Senator KITCHING: We've talked about different models of planes. When are they coming in?

Mr Dewar : Not until May; not until the second phase of the contract, and that's one initially. At the moment we've got one aircraft.

Senator KITCHING: What type of aircraft is that?

Mr Dewar : It's a Cessna 337.

Senator Payne: Ask the pilot.

Mr Dewar : Yes, CDF may be able to provide more.

Senator KITCHING: I have to tell you: I did 80 hours at school. We did aviation as a school sport. I did 80 hours in a Cessna 152, so I'm very—

Air Chief Marshal Binskin : I went to the wrong school! I had to do maths and science!

Senator KITCHING: We had to do some physics for the fly.

Senator Payne: If we must ask a pilot, there is more than one in the room!

Senator KITCHING: I would not try to fly with me! What's its operating range—the Cessna 337?

Mr Dewar : I'd have to take that on notice.

Air Chief Marshal Binskin : It will depend because of the various sensors that it has and the different tanks. But it'd be adequate to do the closer-end surveillance, I would imagine. This is without seeing the performance: I don't envisage it would have the same performance as the long-range King Airs that have been contracted.

Mr Dewar : No.

Senator KITCHING: Thank you. So that would do a closer-in range. What's the range that will be required to be done?

Air Chief Marshal Binskin : I think the best bet is to take that on notice.

Senator KITCHING: Yes, sure.

Air Chief Marshal Binskin : We'd be able to provide you with a bit of a map and show—

Mr Dewar : Can I just make one point, if I can? The focus will be on the exclusive economic zones of the countries, and that's 200 nautical miles from islands. So, just in terms of conceptualising, this is not about every square centimetre of the Pacific Ocean necessarily. The focus is on the exclusive economic zones of the—

Mr Ablong : And ultimately it's part of a broader system. So it's not just the aircraft flying out there themselves.

Senator KITCHING: Yes. It won't be in isolation.

Mr Ablong : Exactly right. They'll be targeted towards particular areas as a consequence of other capabilities the Pacific Islands Forum Fisheries Agency has, where the patrol boats happen to be located. It's no use being able to identify something and then not being able to respond to it. So there'll be an interconnection of the various parts of the equation to ensure that, when those aircraft fly, the Pacific patrol boat is able to respond to what's going on, and they build up a more normal picture of what's going on in their exclusive economic zones than they might currently have.

Senator KITCHING: I will ask some questions on Technology Service Corporation, and then I'll be finished with this topic. Have they done this sort of thing before?

Mr Dewar : Yes, they have done some aerial surveillance work before.

Senator KITCHING: And where are they headquartered?

Mr Dewar : They're headquartered in the United States

Senator KITCHING: They don't have an arm out here or a division in Australia?

Mr Dewar : No, they don't.

Senator KITCHING: Have they done any of this sort of work for us previously?

Mr Dewar : We, Defence, haven't contracted them previously.

Senator KITCHING: Do you know of anyone else—

Mr Dewar : I don't—

Mr Ablong : We'll take that on notice.

Air Chief Marshal Binskin : But no Australians tendered, though. Did any Australians tender?

Mr Ablong : There were no Australian companies in the tender process.

Senator KITCHING: That's all. Thank you.

CHAIR: Senator Fawcett.

Senator FAWCETT: On a similar theme of aerial surveillance, when you say no companies tendered, was that purely for manned aircraft? Did anyone tender to provide an RPAS?

Mr Dewar : When you say RPAS—

Senator FAWCETT: Remotely piloted aerial system.

Mr Dewar : Thank you. I'm not aware of anyone having proposed that as part of the tender process.

Senator FAWCETT: Did the tender specifically call for a manned aircraft or was it a purely outcome-based tender where you could use whichever platform you liked?

Mr Dewar : I'd need to confirm the wording. I'll have to take that on notice, but I think our assumption was that, given where we would be operating out of and so on, it was probably going to be an aircraft with pilots, but I'll need to confirm that for you.

Air Chief Marshal Binskin : Also there are some times where having a manned system is more advantageous. In this case, a manned system allows aerial riders from various nations to go on board, which they can't on a remotely piloted system, so there's a little bit more in the ownership for the various nations in being able to patrol their EEZs as well, but we can take all the other details on notice, if you would like.

Senator FAWCETT: Sure.

Mr Ablong : And there are some very remote locations that this capability is going to be flying out of, and a lot of that infrastructure you need for being able to do remotely piloted operations doesn't necessarily exist. So your ability to do real-time task changes is more difficult in those remoter areas.

Senator FAWCETT: So, CDF, coming back to your opening statement, you were talking about the RAAF proposing to send a C-130 to PNG for damage assessment. Again, was any consideration given to an RPAS solution? And the context of my question is the World Bank contracted an Australian company based out of Brisbane, with several days notice, to go to Tonga. The RAAF very kindly gave them a lift there, and they did that work very successfully, and they're now redeploying to Australia. But looking at the cost of that versus the cost of a RAAF asset, particularly one that is getting flogged, as you've highlighted, with lots of very good use in the Middle East, was that even considered in terms of looking at alternative platforms to send to do damage assessment?

Air Chief Marshal Binskin : For damage assessment for PNG, we had a C-130 up there anyway doing an exercise, so it's far more efficient to be able to just task it to that mission. As with many of these environmental issues that happen in Papua New Guinea, it does take a few days for the assessments to be done and ground truth—what's happening on the ground—before we normally get more requests. There were other assets up there doing it; it's just that that was an Australian asset that happened to be on the ground at the time that we'd use. It's not the asset that you would have dedicated to the task, but it was adequate for what they were after. For Tonga, we worked closely with the New Zealand Defence Force in coordinating the response—P-3s were best to be able to be responsive, to get in and do the mission. Down the track, when we have Tritons, you may well find that a Triton launching out of Edinburgh may be able to do the task more efficiently. But we don't have that just now.

Senator FAWCETT: In your opening statement, you talked about surveys down in the Antarctic. Was that surveying existing aerodromes, or was that looking at the potential for an all-year all-weather aerodrome option?

Air Chief Marshal Binskin : I'm aware of the Australian Antarctic Division proposals there. I'd have to get you details on the exact airfield, whether it was one of the remote strips that they go in and out of—which I think it was, from the description of where I had it—vice where the Australian Antarctic Division are looking at putting the airfield. But I will confirm that for you.

Senator FAWCETT: Thank you.

Air Chief Marshal Binskin : Sorry, the airfield they were doing was over near Davis Station.

Senator KIM CARR: Can I go to the question of the OPVs, please? Would you have a total value of the contract for the OPVs?

Rear Adm. Dalton : The out-turn contract value is $3.6 billion.

Senator KIM CARR: What does that include?

Rear Adm. Dalton : The acquisition of 12 offshore patrol vessels constructed in two sites in Australia, the first two in Osborne—the first one commencing construction on the contracted date of 15 November 2018—and the construction of 10 ships in Henderson from 2020.

Senator KIM CARR: The $3.6 billion is the construction cost. What are the through-life support costs?

Rear Adm. Dalton : We haven't got that figure at tender quality data yet. We will go out to market—

Senator KIM CARR: I understand that these are subject to contract negotiations, but you must have a rough estimate.

Rear Adm. Dalton : We haven't gone out to the market yet. We will release a request for tender later this year.

Senator KIM CARR: How long do you think these vessels will be in service for?

Rear Adm. Dalton : They'll have a life between 20 and 30 years.

Senator KIM CARR: So you have no estimate at all of what the cost, in terms of sustainment, would be?

Rear Adm. Dalton : There is a provision.

Senator KIM CARR: What would that be?

Rear Adm. Dalton : I'd have to take that on notice, to get you the figure.

Senator KIM CARR: That will be an accurate figure. But, with your many years of experience, you'd be able to make now a rough stab of what it would be.

Senator Payne: We're not going to make rough stabs.

Senator KIM CARR: I want to get the scale of this project clear in my own head. It's $3.6 billion just to build the vessels. It's usually a much larger amount of money required to sustain the vessels over the—

Mr Gillis : There are a couple of factors here. The first factor is how long the Navy intends to operate. This is part of our continuous shipbuilding strategy for Western Australia and so defining that specifically is a part of the Naval Shipbuilding Plan. I think what we can do is take it on notice, in this session, and we'll give you an order of magnitude.

Senator KIM CARR: Thank you very much. I'd appreciate that. The reason I'm asking the question, though, is that the total cost of this project then is going to be in excess of $8 billion, I would have thought. So—

Mr Gillis : Senator, that's your estimate at this stage.

Senator KIM CARR: Yes. You know, I've been doing this a while too, and it strikes me that it's not too far from it, but you'll correct me within a very short period of time. I read reports that this project, for instance, in regard to one particular company, is worth $3.5 billion over a period of 20 years. This is in media reports published last year, for one of the companies. These are serious questions. It's an Australian-stock-exchange-listed company. These are matters that are already floating around the market, as to what the consequences are for an individual company.

Mr Gillis : Yes.

Senator KIM CARR: So you'd agree that those statements have been published already?

Mr Gillis : I know that a number of media statements have been made about the OPVs, some of them accurate, some of them inaccurate—

Senator KIM CARR: As is always the case when it comes to questions of procurement. But this is an unusual procurement, is it not, Mr Gillis? When I read the reports last year of the announcement, it did strike me as a little unusual. Would you agree?

Mr Gillis : I would say that, in the context, we're doing something different. We are actually creating a naval shipbuilding industry in Australia. As a part of that, especially in Western Australia, we are looking at: how do we gain the best possible capabilities in Western Australia? That's the task that I've set the team and what the government's guidance to me has been. How do I obtain the best possible Australian capability to do these?

Senator KIM CARR: Of course. That's the stated policy objective. I've read the minister's statement, and the stated policy objective here is to build an Australian shipbuilding capability. And you are correct—it is different.

Mr Gillis : It is different. And I think that, at the last estimates, I gave an indication that using the purely traditional methods of a single project procurement may not necessarily get us the best outcome as a nation. That's one of the reasons why, in Western Australia, we are working with the successful prime, Lurssen, to look at those capabilities in the Western Australian precinct, to maximise Australian industry engagement and to get the best possible partnership and engagements. That's the strategy we're looking for. And I think that it's in the national interest to try to do that.

Senator KIM CARR: A very worthy objective and aspiration—to get the strongest possible industry capability in Australia—

Mr Gillis : Correct.

Senator KIM CARR: and one I couldn't possibly argue with. The question remains about what you say is not the traditional procurement practice.

Mr Gillis : No, no. We have not moved outside a normal procurement practice. What we have—

Senator KIM CARR: Sorry; you indicated to me just two minutes ago that this is not a traditional procurement practice.

Mr Gillis : No, no. What we've done is: we have gone through a normal procurement practice.

Senator KIM CARR: Oh, it is a normal procurement practice?

Mr Gillis : We have awarded a contract to the prime and then, post that award to that contractor, we've asked them to look at: how do they arrange their subcontractors? That has happened in the past. Primes have, post contract, looked at their subcontractors and made different arrangements to the ones as offered. A part of our contractual obligation—

Senator KIM CARR: That's fine—

Mr Gillis : is that, for principle subcontractors, they're required to get our approval to do that. But the strategy we're looking at in Western Australia is unique in one form, which is that, once we've awarded the contract to Lurssen, we've asked Lurssen to work with those bigger companies in Western Australia to see if they can get the best possible outcome.

Senator KIM CARR: Fair enough. So you have a contract value with the prime contractor?

Mr Gillis : Yes, we do.

Senator KIM CARR: And that's the $3.6 billion?

Mr Gillis : No.

Rear Adm. Dalton : That's the value of the contract out-turn.

Senator KIM CARR: What's the value of the prime contract then?

Rear Adm. Dalton : My understanding is that it's $3.6 billion out-turn.

Senator KIM CARR: Yes, out-turn. But you've signed a contract now with the prime contractor?

Rear Adm. Dalton : With Lurssen—yes.

Senator KIM CARR: What's the value of that contract?

Rear Adm. Dalton : That's what I'm saying.

Senator KIM CARR: $3.6 billion? And when was that signed?

Rear Adm. Dalton : That was signed on 31 January this year.

Senator KIM CARR: Right. Thank you.

Mr Gillis : And that was the stated date that we achieved.

Senator KIM CARR: No, no. That's fine.

Mr Gillis : And I'd just like to put on record that that aggressive date resulted in a team, both of Lurssen and of the Commonwealth, Navy, public servants, working very diligently, very long hours, to actually achieve that date, and it was a substantial achievement and effort to actually achieve that date.

Senator KIM CARR: No, no—that's fine.

CHAIR: Senator Carr, it is 10.30, so we will now suspend for morning tea, and you'll be in continuance when we resume.

Senator KIM CARR: Thank you very much.

CHAIR: We will now suspend.

Proceedings suspended from 10:30 to 10 : 45

Senator KIM CARR: Mr Gillis, I think I should advise the committee that I understand you are thinking about retirement and spending more time with your grandchildren.

Mr Gillis : We don't need to go there, Senator!

Senator KIM CARR: We do share this in common!

Senator Payne: Why don't we talk about your retirement, Senator?

Senator KIM CARR: Much to the chagrin of my colleagues, I'll be here for quite some time! I wish you well.

Mr Gillis : I'm not retiring imminently. I have a deal with the secretary and the minister that I'm required to find a successor and do a proper transition plan and all that sort of stuff. Because what we do is very important.

Senator KIM CARR: That exactly right. That's very good to hear. I think spending more time with your grandchildren does have some advantages, as well. I do understand that. I'd like to return to the question of what I see as the contradictory statements you've provided us with this morning.

Mr Gillis : I don't think they're contradictory. The issue we have is that we ran through a normal procurement process. We got to the end of that—

Senator KIM CARR: You told me it was different.

Mr Gillis : No. We got to the end of the procurement process and then we looked at the outcome that was being achieved and then we worked out—the unusual part is that because this is not a single project, this is not something that we're just going to be delivering an OPV; this is how do we grow and sustain a workforce and an industry in Western Australia for continuous shipbuilding.

CHAIR: Hear, hear!

Senator FAWCETT: To make up for a six-year gap where nothing was done.

Mr Gillis : That's the purpose. Therefore, the nuance here is that then, once we have made that selection, then we look at how Luerssen is going to operate then in South Australia and Western Australia. The task that I set the team was to look at what the best industry mix is in Western Australia. That's what they're working on at the moment. I don't think it's a contradiction.

Senator KIM CARR: I think it's a clear contradiction. You've said it was not a traditional procurement; it was different; and now you're saying it is a traditional procurement process.

Mr Gillis : There are some aspects of the way in which we are doing this post the contract award that are not purely traditional.

Senator KIM CARR: Let's go to that. Can you indicate to me, in regard to the build, which of the companies that were awarded the contract had submitted tenders that matched those awards?

Rear Adm. Dalton : Only one contract has been awarded. That's to Luerssen. The contract has been signed with Luerssen Australia. Luerssen Australia is a wholly owned subsidiary of Lurssen from Germany.

Senator KIM CARR: Did Luerssen's project bid match that contract at the time that it was submitted to you?

Rear Adm. Dalton : In what sense?

Senator KIM CARR: For instance, working with Austal. When did that come into it?

Mr Gillis : What we've asked Luerssen to do is to look at the available capability in Western Australia to try to maximise the best possible outcome for this national shipbuilding endeavour. At this stage, there are no contracts that Luerssen has with Austal, there are no contracts with Civmec, and they are still in contract negotiations with ASC in South Australia. That's very normal.

Senator KIM CARR: I appreciate the refinement you've just made for me. I'm interested to know, in particular, in terms of the negotiations around the awarding of this particular tender, whether the tenders that were submitted matched the bids which were actually submitted? Is there a variation? And who made the variation?

Rear Adm. Dalton : The tender was put forward in that competition. We have gone into the contract with Luerssen based on their tendered offer. That's what we have done.

Senator KIM CARR: That follows it closely, does it?

Rear Adm. Dalton : In terms of price and schedule, it follows very closely. What we've done in terms of their principal subcontractors is we've accepted their principal subcontractor for South Australia. We've asked them to look at whether they could expand and take advantage of the broader experience base at Henderson. At the moment, that's what they're doing. If the commercial negotiations that they're involved in now don't make commercial sense to Luerssen, then they will contract effectively on the basis of exactly what they tendered.

Senator KIM CARR: To who?

Rear Adm. Dalton : To Luerssen.

Senator KIM CARR: To who else? Who else will they contract to?

Mr Gillis : Luerssen could probably end up with 100 subcontractors.

Senator KIM CARR: Subcontractors? What you've announced is that one particular company, Austal, is being included in this arrangement.

Mr Gillis : No, I've not said that they are being included. I said that they are tendering at the moment. They are tendering to Luerssen, who is the prime contractor.

Senator Payne: Commercial negotiations are currently underway. I presume you're aware of that.

Senator KIM CARR: I'm very much aware of that.

Senator Payne: The officers have said that. There's a degree of latitude at the moment in terms of this discussion, but I don't think that it is appropriate to comment in detail on ongoing commercial negotiations. We do need to be careful about that. The government's objective, which is fully stated and has been repeated a number of times, including probably by me in the chamber ad nauseam, is that we intend to take full advantage of the capabilities of the whole Henderson precinct by using the skills of Austal and Civmec, subject to the commercial negotiations that are underway right now. None of us has a crystal ball. I can't tell you what the outcomes of those commercial negotiations will be, and I really don't intend that I or the officers comment any further on it.

Senator KIM CARR: What you've said is that the original tender arrangements in regard to South Australia, which was two of the 12 vessels, would follow the tender document, but for ten of the vessels, there's something different going to happen.

Mr Gillis : No. Luerssen will be the prime. Luerssen will build ten vessels in Western Australia. Luerssen will be accountable for that. They will then pick subcontractors. Those subcontractors are under negotiation at the moment. Luerssen is in negotiation with ASC as well.

Senator KIM CARR: So when the government—the Minister for Defence, the Prime Minister, the Minister for Defence Industry, various senior officers, naval officers—did they not go to Austal to make this announcement?

Senator Payne: I think that you'll find that the announcement was made at Russell.

Senator KIM CARR: Was that at Henderson?

Mr Gillis : It was at Russell offices.

Senator KIM CARR: I have pictures of them here. I have pictures at Russell, but there are also pictures here—

Senator Payne: There you go—pictures at Russell.

CHAIR: Senator Carr, rather than referring to pictures, would it help to table them so that the officials can see what you're referring to?

Senator KIM CARR: I'm just relying on media reports. I want to know this: has there been an announcement that the government has indicated that two of the vessels would be built by the Australian Submarine Corporation in Adelaide in the second half of 2018. Do you agree with that?

Mr Gillis : Yes.

Rear Adm. Dalton : The announcement was that Luerssen will build two of the vessels in South Australia using ASC as their subcontracted shipbuilder.

Senator KIM CARR: And ten would be built in Henderson, Western Australia, by Austal and Civmec?

Rear Adm. Dalton : Subject to successful commercial negotiations.

Senator KIM CARR: Subject to. And that is in fact the statement that is also being put to the stock exchange. Is that the case?

Mr Gillis : That's a matter for those companies. I don't comment on company's statements to stock exchanges.

Senator KIM CARR: Austal wrote:

Austal is pleased that the Government has indicated that Luerssen will use Austal to build the 10 OPVs designated to be built in Henderson, Western Australia, subject to the conclusion of commercial negotiations.

Senator Payne: Isn't that what we just said?

Senator KIM CARR: I'm just being clear about this. I'm not creating this as a matter of fiction. This is a public statement issued by Austal, a company announcement to the Australian Securities Exchange.

Rear Adm. Dalton : I can't comment on Austal.

Senator KIM CARR: But you have in the past contradicted their statements. You have in fact rung a whole series of suppliers when you thought it necessary to contradict their statements. Was there any public statement made by Defence officials after that statement was issued on 24 November?

Rear Adm. Dalton : On 31 January this year the contract was signed. The contract is with Luerssen Australia. They will build two ships in South Australia and ten ships in Western Australia.

Senator KIM CARR: We've got that. We're very clear about that. What I'd like to know is whether or not any action was taken to contradict this statement that was issued by Austal on 24 November 2017 in regard to the OPVs?

Mr Gillis : I'm not aware of any contradiction to that statement other than to say that Austal and Civmec are currently working with Luerssen and putting in tenders, and that's a matter for those commercial discussions to occur.

Senator KIM CARR: I see. That was not part of the original tender arrangement by Luerssen?

Mr Gillis : No, that's a matter that we've asked Luerssen to look at because, as I said earlier, we are trying to get the best possible outcome for the Western Australian industry and to get the best possible utility. If they can get to a successful commercial outcome, they will then put a proposal to the Commonwealth under the contractual terms of principle subcontractors. We will then review that and then we can make a decision.

Senator KIM CARR: I'm putting the proposition to you that the government has chosen an option for this project that did not match any of the tenders that were actually submitted.

Mr Gillis : We haven't chosen any option yet.

Senator KIM CARR: Have you gone through any offer definition or improvement process?

Mr Gillis : We went through an extensive offer definition and improvement of process.

Senator KIM CARR: Was there an option similar to the one that you finally chose being put to the tenders during that process?

Rear Adm. Dalton : No.

Senator KIM CARR: No? Why not?

Rear Adm. Dalton : It wasn't a requirement at that point, Senator. What we've done is sign a contract with Luerssen based on their tender to build two ships in South Australia and ten ships in Western Australia. We have asked Luerssen to look at their subcontractor base in Western Australia to build on the experience at the Henderson precinct, subject to commercial negotiations making sense to Luerssen.

Senator KIM CARR: When was the first time you discussed the final option or the one you'd like with any of the tenders?

Mr Gillis : Can you repeat that question?

Senator KIM CARR: When was the first time you discussed the final option or the option that you preferred with any other tenderers?

Mr Gillis : I had a discussion with Austal—I'd have to get the exact date; I think it was 22 November. I had a discussion with the Austal board then. I also had a discussion with Civmec. The discussion is exactly as per the ministerial announcement, which was that Luerssen would look at Austal and Civmec in Western Australia subject to commercial negotiations. That's the statement that was made.

Senator KIM CARR: What date was the meeting with Civmec?

Mr Gillis : I had a phone call with Civmec after the 22nd. I know that I met with the Austal board on the 22nd.

Senator KIM CARR: Was that before or after the cabinet subcommittee?

Mr Gillis : It was after.

Senator KIM CARR: So the cabinet subcommittee had already made a decision?

Mr Gillis : That's a matter for government.

Senator KIM CARR: I'll ask the minister: had the cabinet subcommittee already made a decision?

Senator Payne: I don't comment on the deliberations of cabinet.

Senator KIM CARR: You're entitled to comment on the decisions of cabinet.

Senator Payne: I'm not going to make a comment on the deliberations of cabinet.

Senator KIM CARR: The cabinet national security team met on the Tuesday.

Senator Payne: Are you telling me or asking me?

Senator KIM CARR: I'm just referring to a media report. I'm asking you, can you confirm that cabinet security—

Senator Payne: I'm not sure that I would take the meeting schedule of the cabinet and its subcommittees from media reports.

Senator KIM CARR: I'm just trying to get clear what processes were involved in terms of the decision-making process here for the three short-listed contenders to build the 12 vessels.

Senator Payne: Senator, I'm having some trouble identifying the point that you're trying to make.

Senator KIM CARR: You're having some trouble, are you?

Senator Payne: Identifying the—

Senator KIM CARR: Maybe I'll make it clearer for you.

Senator Payne: Can I finish my sentence, Senator?

Senator KIM CARR: You can finish your sentence.

Senator Payne: I thought that there was a reasonably broadly agreed position, across the breadth of the parliament, frankly, that it was a good thing to have a sustainable naval shipbuilding industry in Australia that responded to the challenges of the past by building the sort of shipbuilding industry to which this government is committed. Notwithstanding your political approach from time to time—I totally understand that; you and I have been doing this for a long time—I did think that that was a foundational position on which we probably agreed, that this was a good thing.

Senator KIM CARR: I've already stated that.

Senator Payne: We are endeavouring to ensure that we're able to build these 12 offshore patrol vessels across the two shipyards that we've named, Osborne and Henderson. We have a process underway which is the continuing subject of commercial negotiations. I don't imagine that you or anyone else sitting in this room wants to in any way prejudice the commercial negotiation process, and I don't think we should. The officers have made as many comments and assisted you as far as they are able, but I don't intend to comment any further on ongoing commercial negotiations.

Senator KIM CARR: So, you're having trouble following my line of questioning?

Senator Payne: Well, it wouldn't be the first time.

Senator KIM CARR: That's apparent. We've demonstrated that over the years.

Senator Payne: I've tried very hard though.

Senator KIM CARR: I suggest to you that it's not necessarily a fault from this side of the table.

Senator Payne: I'm not the only one.

CHAIR: Senator Carr, I have to say as Chair that I think it's not just those on the other side of the table who are struggling with your line of questioning.

Senator KIM CARR: Well, that's very good of you, Madam Chair. I've indicated to you that the question around the policy content to get a national sovereign shipbuilding capacity is a proposition that I personally support.

Senator Payne: Yes.

Senator KIM CARR: But I'm trying to get to the nub of the procurement decision-making process, how that's come about, where senators can be issued to companies and it would appear on the surface bears no relationship to the tenders that actually have been presented to the government.

Mr Gillis : Senator, no. We have awarded a contract to Luerssen on exactly their tendered price, their schedule, the vessel and the capability. The only thing that we're having a discussion about is who their subcontractors may or may not be.

Senator KIM CARR: Okay. Let me go to the nub of the issue, because I know how important you regard this issue.

Mr Gillis : Yes.

Senator KIM CARR: I'm not questioning your understanding of this. There is a fundamental issue here about the matter of probity.

Mr Gillis : Senator, at all stages we've had the probity advisers and the Australian Government Solicitor involved—I do not believe there is a matter of probity at all with this on the basis that we have just asked Luerssen to explore options in Western Australia with companies to better the outcome for the Commonwealth. If they—

Senator KIM CARR: I'll ask you some very specific questions then, given that you have this level of command of the topic. Who provided the advice in regard to the legality of the option that you're now pursuing?

Mr Gillis : That's a matter for cabinet advice. I'm not going to discuss it.

Senator KIM CARR: I see.

Senator Payne: Senator, Mr Gillis has indicated that we take advice from probity advisers which have consistently advised government over the years and continue to do so. Whether they are constituted through the Defence organisation, through AGS or whatever it may be, that advice is provided to government and taken into account.

Senator KIM CARR: Minister, I've asked a specific question. Who did you seek legal advice from in regard to the legality of the option that cabinet has pursued in regard to this contract?

Senator Payne: I've indicated previously that it's not my habit to comment on advice provided to the deliberations of cabinet, but I'll take that question on notice and I'll see what answer I can provide to you.

Senator KIM CARR: When did you seek that advice?

Senator Payne: Continuing to take that on notice.

Senator KIM CARR: And when was that advice provided?

Senator Payne: Continuing to take that on notice, Senator.

Senator KIM CARR: Was it the advice of your legal advisers that the options that had actually been presented to the government had met the legal requirements?

Senator Payne: That is a slightly different question, Senator.

Senator KIM CARR: It is a different question. I agree, it is a different question.

Senator Payne: I will examine it on the Hansard. I don't think it's a question which government would normally respond to in detail, but let me examine that.

Senator KIM CARR: Thank you. And I'd ask whether or not the department provided advice that there were consistencies in terms of the tender arrangements that have been entered into with regard to the tender documents that had been provided.

Mr Gillis : There hasn't been anything that's been entered into post that award. All we have is a number of subcontractors.

Senator Payne: It's a contract entered into with Lurssen.

Mr Gillis : We run hundreds of acquisitions. It is not unusual for a prime contractor to change its subcontractors post that. It happens. They usually advise government. It can be for a range of reasons. It could have been a price issue. It could have been an availability issue.

CHAIR: Senator Carr, I have to go to Senator Patrick now, but then I'll come back to you. A final question.

Senator KIM CARR: It's on that same question. You're saying that nothing has been decided, but in the original statement—

Mr Gillis : Senator, I'm not saying that. We have selected the prime contractor and that contract has been awarded.

Senator KIM CARR: Right. The original statement from 25 November states:

The project—

that is, that two will be built in South Australia—

will then transfer to the Henderson Maritime Precinct in WA where Lürssen will use the capabilities of Austal and Civmec to build ten OPVs, subject to the conclusion of commercial negotiations.

Senator Payne: That's correct, Senator. And that's what we have said, I think, multiple times on the record.

Senator KIM CARR: That's right. A decision has been made, and I'm suggesting it's been made by the cabinet. Is that correct?

Senator Payne: I've taken a number of your questions on notice. We've answered you in relation to the questions you've raised already about this, and I think the officers have been very forthcoming, Senator.

CHAIR: We'll move on, but we'll come back to Senator Carr. Just on this line of questioning on the OPV, I thought I was very clear about what the officials have been saying in relation to this. Would it be true to say that the prime contract has been awarded to Lurssen?

Mr Gillis : Correct.

CHAIR: Rather than dictating to them how they get the best out of their supply chain, rather than locking them into an arrangement that might not make best use of the companies available to them, they're now going through and doing due diligence to make sure they get the best possible contractors and value for money. Is that the nub of it in layman's speak?

Mr Gillis : That's a correct assessment. We are trying to create a national shipbuilding capability and a continuous build in Western Australia, and that is an amazing precinct with an amazing set of resources. We've asked them to look at the totality of these resources. This is not just an Austal and a Civmec issue. There are a range of other companies on the West Australian maritime precinct to ensure that we gain the best possible Australian industry capability numbers.

CHAIR: As someone who is very familiar with the capabilities we've got down there, we're spoilt for choice. So I've got to say I commend the department for making sure that we make the best possible opportunity and that as many companies as possible have the opportunity to engage in the project.

Mr Gillis : As a part of that, with Lurssen as a successful prime, we are making sure that they engage with those West Australian companies and Australian companies in general across all states to ensure that they target as much Australian industry content as we can possibly get that makes common sense and meets their tender requirements.

CHAIR: While Senator Carr initially in his questions was intimating that, just because it's not quite the same process as has been done before, there was something inherently suspicious about it. Whereas, what I see in the process and what you've said is that, yes, it is a variation of what's been done in the past, but it's something that actually makes a lot of sense. So 'difference' in this case means a good, innovative way of doing it.

Senator Payne: That's exactly right.

Senator PATRICK: The deal is you get the 10 OPVs and you don't touch GST. Is that how it works?

CHAIR: Don't push your luck!

Senator PATRICK: I have to try. I was going to ask some general questions about budgeting, but I will follow up on OPVs, because we have some people at the table. Minister, I congratulate you on the choice that Defence has made in relation to the Saab 9LV combat system. In some sense in line with Senator Carr's queries about changing arrangements, Mr Gillis, I draw your attention to a hearing of these estimates on 29 May 2017:

Senator XENOPHON: Will the 9LV be used on the OPVs? If not, why not?

Mr Gillis: No. That is not the level of capability that we are actually asking for. I will have to refer to the Chief of Navy in respect of the capability requirements.

Vice Adm. Barrett: The Deputy Secretary is correct. The level of complexity that we need in the combat management system for the OPV does not necessarily drive us to the 9LV. We are trying to minimise the differences in design on what comes in those vessels, so there will not be a bespoke combat management system.

Clearly there was a change.

Mr Gillis : The Lurssen proposal included the Saab combat system. It's a variant of the Saab 9LV. At that stage I didn't know what actual systems were being offered. It could have been one of many. I was trying to indicate that we were not at that stage mandating. Post that discussion at estimates, the Chief of Navy, the Vice Chief and I, through the investment committee, provided advice to government that if in fact we select the Saab 9LV combat system, it makes sense from a strategic perspective right across all the minor war vessels, LHDs et cetera. There was an evolution in that process, but at the time I answered that question I wasn't aware who was tendering what. Lurssen ended up tendering the Saab system.

Senator PATRICK: I'm trying to understand how we got from that point to where we are. As I said, I think ultimately it's a good decision. Chief, I don't know whether you want to comment.

Vice Adm. Barrett : I reiterate what Mr Gillis said. With the facts at the time, that's where we were going. We were not just in a process of reviewing the contenders for the OPV; we'd been looking towards enterprise management of a number of capabilities to strengthen our ability to provide lethality while doing it in an affordable manner. Information was provided to us during the process of reviewing both the OPV and other combat management system positions. We looked at it. I changed my view and thought it was appropriate that we look at an enterprise view, a 9LV, because we already operated it in the LHD and we will in the new tankers. There was an opportunity for us to take a prudent, enterprise, businesslike and sensible approach to future combat management development.

Senator PATRICK: Also an industry approach.

Vice Adm. Barrett : Absolutely.

Senator PATRICK: That's what I was trying to find out: how we got to that point. As I said, I think you've made a great decision in the end; I thank you for that. I have some questions in relation to overspend, probably for the chief financial officer, but Mr Gillis may wish to stay at the table. I know we had a discussion about that.

Rear Adm. Dalton : I would correct something I told Senator Carr earlier on. The actual contract value for the OPV with Lurssen Australia is $1.9 billion constant year dollars. That's actually $2.8 billion out-turned. The $3.6 billion is the total project provision. That includes contingency, project office costs and a range of other things.

Senator KIM CARR: Does that $3.6 billion go to sustainment?

Rear Adm. Dalton : No. I'm still looking at the sustainment costs. The sustainment costs—the cost of the company programmed in the line that supports Armidale—are a bridge that we will cross, then we will add to those costs in the future as the OPVs come in. We are a little sensitive about it, noting that we are about to release our request for tender to the marketplace and don't want to set a price in that marketplace by putting out the value of our provision in the public sphere.

Mr Gillis : But your assessment of the quanta is in the right order. The cost of sustainment is usually a multiple of the cost of acquisition, depending on the longevity of the vessel: 20 or 30 years makes a huge difference.

Senator PATRICK: I want to go to the Major projects report. I understand that we'll go into the details in the public accounts and audit committee, but this is quite a high-level discussion about the transparency of projects. With the acting chair's indulgence, I wouldn't mind tabling a document that I've provided to the secretariat, and to make that available to the officers, on the multirole helicopter.

ACTING CHAIR: Okay. We'll do some copies of that and then circulate it.

Senator PATRICK: When I read through the Major projects report, for each of the projects there is table that goes to the financial status of the project. I know there are a whole range of projects that are delayed, and I know from former statements and, in fact, from my own project management experience but also from people like Mr Stephen Gumley, who was one of your predecessors, that delay equals cost. Throughout the document, almost every project is within budget, even though many of them are delayed. Now, I appreciate there are scope changes in some of these projects, and there are currency variations in some of these projects that cause change, but it is not apparent to me that there are actually issues and problems with some of these programs.

Mr Gillis : I'll just go back to your question about why there is a disconnect between cost and schedule. One of the things is that the vast majority of the contracts that we enter into are fixed price. There are a whole range of other FMS cases that we take, but that's the bulk of the contracts. There have been a very small number of projects that have had real cost increases, and it is statistically very small. I would put up our acquisition strategy against that of almost any other industry in Australia. I'm happy to provide you with the data in comparison to the oil and gas industry, the IT industry et cetera. We contract fixed price and we have very strong liquidator damages, but we do have a significant issue with schedule slippage—and that's what part of theMajor projects report goes to, and it is a matter that we are dealing with—predominantly in developmental programs. We do have significant issues in developmental programs.

Senator PATRICK: I get that other people have problems with projects, but I put it to you that the shareholder absolutely knows what those problems are. It's very, very obvious.

Mr Gillis : I would say that our level of transparency through the Major projects report is comparable to anyone's in the world. I worked on this with the ANAO 10 years ago when we established this. This has evolved, and this provides government with a layer of detail which is probably more than anything I've seen in any other country in the world.

Senator PATRICK: Let's just go to the document I tabled that's now, hopefully, before the officers. In that document, on page 161, it has the financial tables, and it says that, when government first went to second pass, the project value was $953 million. Now I read the defence capability manual, which makes it very clear that it is second pass. That's the point at which you basically give the whole project, including the fundamental inputs to capability and their cost—

Mr Gillis : Senator, a number of these are going to be where we had gone back to government, or government had directed real scope changes.

Senator PATRICK: I understand that.

Mr Gillis : There are also multiple second passes that can occur. On a couple of occasions here, there was not just one second pass but multiple second passes. So they are government directed, real cost—

Senator PATRICK: I understand that. In this case, the first number only involved 12 helicopters, I think it was, and then there was a scope change to—

Mr Gillis : The 34 additional helicopters?

Senator PATRICK: Yes.

Mr Gillis : That was a government direction. We purchased a small fleet, we looked at that, and then we decided to buy a larger fleet—at government direction.

Senator PATRICK: Sure. But when I read the ANAO's detailed report, which goes through the history of it, it basically says that, at the very start of that project, one of the goals was to try and reduce the number of helicopters from I think it was 10 down to five.

Air Chief Marshal Binskin : Yes, that's right. That was a project [inaudible].

Senator PATRICK: Yes—all very sensible stuff.

Senator PATRICK: Just one of the issues I have is that when you go to second pass and you say to government, 'This is what we're going do,' at that point you knew you were going to deal with a whole range of helicopters, and I just have an issue. It's almost a similar story with the Joint Strike Fighter, where you went to government initially with 14 and the cost of 14, but, really, you knew you had to get 75, which was the number for the F-18s. I'm just suggesting that what happens is, you get into contract on these projects, the government—and the public—is blind, in terms of the budget, to what you know is happening and to what the total cost is. Once you get into one of these programs, it's hard to get out of it. In some sense, you're committing the government and the taxpayer on a portion of the project when, in actual fact, you probably know a lot more than—

Air Chief Marshal Binskin : No, I'd like to correct that. You'll find that the government knows and has approved the full scope as we have developed it, but what they're looking at is approvals for parts of delivering that contract. That's where F-35 has been. I'm showing my age, but I wasn't around for the approval, in government, at this stage, for this, but I assume it was a similar approach to this. This is the overall program, but up-front, with the cost, we'll approve this much as you continue to work with the contractor to develop the scope and the full costing of the full fleet.

Senator PATRICK: What I'm suggesting is that, as you go into second pass for any project—I know you do a lot of work on these things; it sometimes takes a year or two to gather the data—when you present to government, if you understand you're replacing the entire F-18 fleet, then, at that point, you would say, 'We're only approving 14. That was done for all sorts of sensible reasons. But the total cost will be something else,' so that everyone goes in with their eyes wide open as to what the commitment is for the taxpayer.

Air Chief Marshal Binskin : Yes, and I don't believe we do it other than that way; the government is aware. And I'll have to have a look at what happened with the helicopters.

Senator PATRICK: And maybe it's just a function of the reporting, then, and we need to adjust that reporting, because it doesn't do you any service when you see these things grow in size.

Air Chief Marshal Binskin : If you were trying to say, 'Lessons learnt from this for now?' I'd say: with what the process was in August 2004—which I think you're talking about here—and what's happening now, we've gone through how many reviews since then? The capability lifecycle process has all changed, so I would say that what we're seeing now is lessons learnt from back in the early 2000s and late nineties. So it's difficult to measure this and say, 'This is the way we're doing it now.'

Senator Payne: You're not really comparing apples and apples, in terms of processes.

Senator PATRICK: So, if we draw out that there is a change, that is a good thing, Minister.

Senator Payne: There's the first principles review, and a number of the flow-on effects from that, which the VCDF is able to speak to in detail, reflect a way of doing business that has provided significantly greater openness and engagement across the defence organisation and back to government as a result.

Senator PATRICK: That's good. Just moving to one of the other line items that you have in there, which is the increase in helicopters. Included in that was the Black Hawk upgrade. The Black Hawk upgrade, to my understanding, was only necessary—and once again, I have read the detailed review—because there was a delay in the program. So it gets reported as being a scope change, but, in actual fact, it's a cost that wasn't planned at the start, and it's not transparently presented to us. I've asked the ANAO to go through all of the major projects, because they have intimate knowledge. They, for example, have come out and said that that delay caused a $311 million cost to Defence. I am just saying that I get that sometimes you have delays, but I think they should be reported, and it's just maybe the way in which we have to approach that.

Senator Payne: I'm sorry, Senator, to be 'reported', what do you mean?

Senator PATRICK: Well, you're saying it's a scope change. I actually think it's a consequence, rather than a scope change. In the context of the Black Hawk upgrade, that really wasn't a scope change; it was a consequence of a delay in the program, and it should be labelled as that.

Senator Payne: There is a challenge when you're working with an auditor, self-evidently. Auditors have a particular style and way of doing business and they are trying to crunch that into the way the Department of Defence does business. So it's a fairly anodyne and unforgiving reporting process. It doesn't tell a story. You're quite right in relation to that. How you would adjust that to the satisfaction of an auditor, so that you could tell the story, I'm not exactly sure.

Senator PATRICK : And I am in conversation with the minister. I am just trying to draw out and get some transparency around some of these things.

Air Chief Marshal Binskin : The reason it is that way and it's tagged to the project is that, if a contractor is not delivering and we have to keep the in-service platform going longer, you tie it to the program so that the program will pay for it. The reason we do it in the program is that, for some of these, through liquidated damages from the contractor, that money goes towards keeping the current system operating. You wouldn't set up a separate flow. That's why it's tagged to that particular project. We're not trying to hide anything.

Senator PATRICK : I know these things are sensitive, but can you give me a feel for the amount of liquidated damages that you have obtained over the last three financial years? I don't want the details of who provided it, but just—

Mr Gillis : I'd have to take that on notice.

Senator PATRICK : Sure, I understand that. Flowing from what you've just said, let me give you another example of where I don't think you've been as forthright as you can. My understanding is that Defence does not know what the life cycle extension costs are for Collins. It's been asked a few times—and I might come back to that when we talk about submarines. That's not been calculated, yet, when we go to the future submarine program, we know the schedule of that. I think it's 2030-2032 before we get our first boat. So there is a cost associated with keeping Collins on past 2025, which was its original time. And there is going to be a cost involved in keeping those submarines and perhaps upgrading those submarines. But it's almost as though the decision that's gone to cabinet clearly didn't include that cost in the proposal that went to government. Do you see what I am saying, Chief? If you'd gone to government and said, 'We can get an off-the-shelf solution and come in at 2025 and that saves us some Collins cost'—

Air Chief Marshal Binskin : I think you're speculating on a meeting you didn't attend—about clearly it didn't. And that's incorrect. Again, when we put programs forward, we endeavour to provide the entire program plus the effects that this may have, so that the government has an understanding of that. The vice-chief would be able to take you through a couple more issues here.

Vice Adm. Griggs : There have been a number of examples of what you've just been talking about. AWD is a classic example where it incurred a knock-on cost to extend the FFGs longer than we'd planned. But that information, under the new capability life cycle is very, very clear. As the minister has just said, it's very transparent to not only government but also central agencies where, traditionally, there has been some contention about levels of transparency. The new capability life cycle is a much more transparent process internally inside the department, across the central agencies and in government. We don't want to have these things continue to happen, which is one of the reasons that we spent two years completely revamping the capability and life cycle.

Senator PATRICK : Is that new process public? I don't want any particular submission—

Vice Adm. Griggs : Yes it is.

Senator Payne: Yes it is.

Senator PATRICK : Where would I find that?

Vice Adm. Griggs : We can get it for you.

Air Chief Marshal Binskin : We can provide a brief for you, if you would like.

Senator PATRICK : I'm just having a conversation about ways of making this more transparent. I get that sometimes projects go adrift, but there's a nice thing about having that public because it keeps the pressure on everyone.

Vice Adm. Griggs : What we used to call the nett personnel and operating cost triggers. In the AWD, for example, because the delay was a bit longer than anyone wanted, the NPOC trigger for the new capability had already been allocated and approved by government but, of course, wasn't being spent on the new ships because they weren't there. But we were able, through the process to say, 'That money has been allocated and appropriated. We need to continue to run the FFG,' and therefore we offset that. Again, that is a transparent process.

Senator PATRICK: It would be interesting to see the differences. There might be a difference in running on the FFGs, because they're getting a bit on, versus running a ship that's under warranty and brand new.

Vice Adm. Griggs : I accept that.

Senator PATRICK: So it's just being able to see that difference. Thank you very much.

Mr Gillis : Can I make a final comment on this. We had a private meeting relative to this. Why I got so animated there was that the issue of the statement or the media reporting about a $21 billion cost blowout is the sort of thing that I think misrepresents the work that my staff do.

Senator PATRICK: I took that number from the ANAO's report.

Mr Gillis : If you look at this—34 additional aircraft, 750 additional vehicles, 58 additional aircraft, a real-cost decrease of $2.4 billion and $7.1 billion in price and exchange variation—it does not equate anywhere near a $21 billion cost blowout. That headline is not an appropriate thing that should be out there in the media, because it's not factual.

Senator PATRICK: The reality is that what I'm seeing here is every project running within budget. Everything is well within the state. Everyone gets a medal. It's like the Soviet Union. So yes, let's agree—

Senator Payne: It's not actually. Your reference to Leonid Brezhnev was one I might have expected from Senator Carr, but nevertheless it is totally unfair.

Senator PATRICK: He's my mentor!

CHAIR: Okay, you've had a fair run. I'll hand the call back to Senator Carr.

Senator KIM CARR: I wonder if perhaps you could help me, Mr Gilles. The valuation document that was published in regard to the OPVs specified a number of criteria that have to be met. I see here that at clause 11E 'The extent to which the Australian shipbuilder meets the requirements in clause 4.1 of the draft contract' is highlighted. I look to the Australian shipbuilder, and clause 4.1 says, (a) demonstrated capacity to build or deliver major upgrades to the vessels as close as possible to the Commonwealth requirements for the OPV—that is, the steel hull construction, indicative size of 80 metres to 1,800 tonnes—and (b) a current registration as an Australian registered company, having continuously maintained registration for at least 15 years.' Have the companies that you've mentioned today met all those criteria?

Mr Gillis : You're talking about the shipbuilders?

Senator KIM CARR: Yes.

Rear Adm. Dalton : We agreed on the teaming arrangements for the three tenderers with the three tenderers before the tenders closed, and we agreed that they substantially met the requirements that were laid out in the request for tender.

Senator KIM CARR: What does 'substantially' mean?

Rear Adm. Dalton : They met the criteria.

Senator KIM CARR: In regard to the subcontractors, do they all meet the criteria? Are they required to meet the criteria?

Rear Adm. Dalton : It was the shipbuilding arrangement that we required them to meet the criteria, and we assessed that all three of the tenderers met the criteria. They did it in different ways, but they all met it. Damen had teamed with ASC and Forjacs, which is a subsidiary of Civmec. Lurssen teamed with ASC and Forjacs, a subsidiary of Civmec, and Austal had a joint venture with Fassmer. We were satisfied that all three of those tenderers met the requirements.

Senator KIM CARR: With regard to Civmec, did they meet the criteria? Are they required to meet the criteria?

Rear Adm. Dalton : They all met the criteria at the top level, which is the requirement.

Senator KIM CARR: So it's not required at any other level. Is that what you're saying?

Rear Adm. Dalton : It was, 'Did they have shipbuilding experience?' They met the criteria.

Senator KIM CARR: Have they been registered in Australia for at least 15 years?

Rear Adm. Dalton : The entity they were teaming with was Forjacs, which is a subsidiary of Civmec.

Senator KIM CARR: Have Civmec been registered for 15 years?

Rear Adm. Dalton : The entity they were teaming with was Forjacs, which is a subsidiary of Civmec.

Senator KIM CARR: So you're saying they met the criteria? That's what I want to know.

Rear Adm. Dalton : That's what I've been informed—absolutely, they met the criteria.

Senator KIM CARR: Who informed you of that?

Rear Adm. Dalton : Clearly I have a project team who have gone through and done that. I've seen the letters.

Senator KIM CARR: Take that on notice.

Rear Adm. Dalton : We agreed on the teaming arrangements in the RFT.

Mr Gillis : We'll take that on notice.

Senator KIM CARR: I just want to be clear about that. You have said that these contract negotiations are ongoing and that the announcements made in November were subject to—

Rear Adm. Dalton : Subject to commercial negotiations between—

Senator KIM CARR: If the commercial negotiations fall through, who else in Western Australia is actually available to build the vessels?

Senator Payne: I really have encouraged the officials to provide the information to you that they can. We are at a point in time where commercial negotiations are ongoing, and I don't think that it is in anybody's interests—most particularly not in the interests of the development of our naval shipbuilding industry—that we imperil those negotiations in my way.

Senator KIM CARR: I'm not interested in imperilling them.

Senator Payne: You might not be interested in doing that, but you may inadvertently be going there.

Senator KIM CARR: I'm interested in the process by which the government has made the decision about the expenditure of many billions of dollars.

Senator Payne: You, as a previous industry minister, would be very much aware of the sensitivities that are involved in a commercial negotiation process, and I would seek your assistance in respecting those.

Senator KIM CARR: Well, I would seek your assistance in getting a few straight answers.

Senator Payne: We've helped you considerably and we've indicated, where we don't believe we can answer things immediately here today, that we'll take those on notice and consider what answers we can provide. We'll continue to do that.

Senator KIM CARR: Thank you. Mr Gilles, in terms of the original contract, what is the date that the deliverables have to be achieved?

Mr Gillis : Construction of the first OPV will be in 2018 in South Australia.

Senator KIM CARR: When do you think work will actually start on the construction to meet that?

Mr Gillis : We have a contracted date of 15 November, but our assessment is that it may even happen earlier than that. My commitment to government is that it will happen in 2018.

CHAIR: You say that it might happen earlier?

Mr Gillis : I'd like it to.

CHAIR: That's wonderful it's even an option.

Mr Gillis : We've selected a very mature design.

Senator KIM CARR: That's in regard to South Australia?

Mr Gillis : In South Australia.

Rear Adm. Dalton : We're targeting 15 November.

Senator KIM CARR: I can see how that works. In regard to Western Australia, you were saying that the work will be completed by 2020?

Mr Gillis : No, commencing in 2020.

Senator KIM CARR: When do you expect it to be completed?

Mr Gillis : At the end of the construction of the 12 vessels, and we are determining that we will determine that date in line with the naval shipbuilding plan and how we construct the OPVs. The issue there is that it's really important that we balance out the spread of that work and the drumbeat of that work to fit in with a continuous naval shipbuilding strategy to maintain workforce.

Senator KIM CARR: Okay. And I think the minister has actually said you've brought forward the production process to do that. That's the case, isn't it, minister? You've actually told the parliament that.

Senator Payne: Yes, some time ago.

CHAIR: And why was that? Was there a gap in domestic shipbuilding?

Senator Payne: Funny you should ask, but—

Senator KIM CARR: Here we go. Now we get to talk to you about supply vessels. We can go through this routine, if you like.

Senator Payne: No. My favourite line was when I rhetorically asked you in the Senate what you did in the period in which you were in government in relation to naval shipbuilding, and you proudly and confidently told me that you kept Australia's shipyards full of activity. Guess what you did that with? Ships that the Howard government commissioned. The bottom line is that you did nothing.

CHAIR: In fact, how many were commissioned prior to this government coming in?

Senator Payne: In the period between 2007 and 2013? That would be none.

CHAIR: Thank you.

Senator KIM CARR: So then we decided that we'd buy them offshore. That's very good. Now, can I come back to the actual point of estimates.

Senator Payne: It's remarkably convenient when you choose to come back to the point of estimates.

Senator KIM CARR: I've asked you about the contingencies if the commercial arrangements don't follow through.

Mr Gillis : I'm not going to have those discussions because, as the minister said, they are commercially sensitive and they are in commercial negotiations. I'm not going to look at what ifs, wherebys et cetera; it serves no purpose and it actually muddies the waters in a commercial discussion, which is very sensitive. As you pointed out, there are multiple billions of dollars—

Senator KIM CARR: So there was no communications of potential risk to the government from the department?

Mr Gillis : I'm not going to discuss my advice to the government because that's commercial information.

Senator KIM CARR: And the concern that has been raised is about the sovereign capabilities here; that's the point of the exercise. So part of the sovereign capabilities goes to the issue of exports?

Mr Gillis : Yes. Sovereignty is not just exports.

Senator KIM CARR: No, I understand that. There's a whole series of issues that go to it—design. It goes obviously to the question of build; it goes to the question of sustainment. But I also put to you that it goes to the question of exports. Would you agree?

Mr Gillis : That is one aspect of sovereignty.

Senator KIM CARR: One aspect, I've indicated that.

Mr Gillis : But not all sovereign capabilities are required to be exported.

Senator KIM CARR: No, that's right. I see that. We're not going to be exporting too many submarines, I'd suggest to you.

Mr Gillis : That's your view, Senator.

Senator KIM CARR: I look forward to it. We will probably be well in our graves by the time we get to these things.

Senator Payne: Don't tempt fate! That's very dangerous.

Senator KIM CARR: The point though, we might well argue that the question of these OPVs does represent a real opportunity for exports. Would you agree?

Mr Gillis : That class of vessel is very in-demand from a range of navies around the world, and the export of those size vessels is far more likely than much larger combatant vessels or, as you said, submarines.

Senator KIM CARR: That's right. Would you put frigates into a similar class or category? Is there a big market for frigates?

Mr Gillis : There is a market for frigates in the world, but the countries that predominantly operate frigates—guess what—they're the same as us; they look at predominantly sovereign capabilities. But there are opportunities out there for frigate exports. We exported and worked with the Royal New Zealand Navy for the Anzac class frigates.

Senator KIM CARR: I presume you would argue that there design capabilities you might think would be part of an export opportunity?

Mr Gillis : No.

Senator KIM CARR: No?

Mr Gillis : Correct. I'd see that designing a capability would have utility in being able to export it. That's a statement. But you don't want to say that you could only do it with that.

Senator KIM CARR: No. The issue around the OPVs, though, is surely in a different class again.

Mr Gillis : Why would you say that?

Senator KIM CARR: What's that?

Mr Gillis : Why would you say that?

Senator KIM CARR: I'm saying it provides a much stronger case, opportunity, for exports—frigates or submarines?

Mr Gillis : Yes, Australia has been successful in smaller vessels and exporting smaller vessels in the commercial and the paramilitary and in the military sense.

Senator KIM CARR: So, Minister, can I ask you, how does your decision, or the government's decision—not yours personally—but the cabinet's decisions in regard to OPVs, support future export industries by OPVs?

CHAIR: At the risk of the chair interrupting and answering the question, I would like to invite Senator Carr, perhaps, to come to Western Australia and see our shipbuilders and our fabricators, who are exporting billions of dollars worth.

Senator KIM CARR: Thank you very much but I'm asking the minister.

CHAIR: I know that, and I said a bit of chair discretion. But Senator Carr, come to West Australia, see the capability that they're accessing in this program.

Senator Payne: I think in fact you've answered your own question again potentially. The government's position is quite clear. We want to ensure that Australia has the sustainable sovereign naval shipbuilding industry which it has lacked in the past. It has because of the way in which governments have traditionally approached it, gone in for want of a less naval term, peaks and troughs, and that has been very difficult for industry to managing—difficult to manage workforce, difficult to manage technology and capital and all of the things that go with that. So our plan to create a sovereign naval shipbuilding industry in Australia, one which operates on a drum beat that is sustainable, as Mr Gilles has pointed out, ultimately also puts us in a position where we can engage in export markets. And if you would like to see or share some time with my friend and colleague, the Minister for Defence Industry, I'm sure that he could illuminate you significantly on those issues.

Senator KIM CARR: Sure. I want to know what are the specific measures this government has taken in regard to this proposal.

Senator Payne: How long have you got?

Senator KIM CARR: Take it on notice then.

Senator Payne: No, no, I mean that, Senator.

Senator KIM CARR: And you can outline what the government's plans are.

Senator Payne: Right from the very beginning—

Senator KIM CARR: Let's just deal with a few specifics—

Senator Payne: Right from the very beginning, when we recognised that if we were to have a sustainable sovereign naval shipbuilding industry in this country we needed to make decisions that were guided by, for example, the RAND report into naval shipbuilding, which indicated, as I said, that peaks and troughs or fits and starts—whichever phrase you wish to use—are not amenable to doing that, and that needed to be addressed. It said we needed to streamline the number of shipyards. It said we needed to work strongly on a sustainable workforce, which we are doing right across the enterprise. It said we needed approach it as a national enterprise, which we are doing right across this country. It said we needed to ensure that defence industry in this country was able to contribute to the naval shipbuilding industry, which we are doing every single day. It said we had to make use of and engage with—for example, as we're doing in South Australia with ASC, once the air warfare destroyer build is complete—the shipbuilders there to work on the OPVs. All of those things are part of what this government has done, the decisions this government has made, to lead to a naval shipbuilding industry that enables us to grow it, to sustain it, and to ensure that it continues into the future and continues to develop vessels.

Senator KIM CARR: Minister, who will own the intellectual property for the design of the OPVs?

Senator Payne: Well, that is part of the contracting process. I'm sure Mr Gillis can go into the details of that. We are very, very aware of errors we have made in the past—I think the Collins class submarine is a good example of that—where we didn't do the work up-front to make sure that the intellectual property, and for that matter a well-developed design, was our starting point. We made a mistake with those and we've learnt from those mistakes. We will ensure that they are protected for Australian interests.

Senator KIM CARR: Mr Gillis, who will own the IP on these vessels?

Mr Gillis : The IP will rest with Lurssen Australia.

Senator KIM CARR: It will be only by Lurssen Australia? It won't be able to be sold offshore?

Mr Gillis : I'm not sure I'm following your question.

Senator KIM CARR: Who will control that IP?

Mr Gillis : In terms of being able to export it?

Senator KIM CARR: Yes.

Mr Gillis : They'll clearly have an ability to export designs based on it from Western Australia.

Senator KIM CARR: And they can also sell it off to someone else, can't they?

Mr Gillis : Subject to our defence export approval process.

Senator KIM CARR: So, the Australian government will effectively control the use of that IP?

Senator Payne: Under the Defence Trade Controls Act.

Mr Gillis : One of the things that will happen is that as we change this vessel, as we go through a Saab combat system in there and we make those changes that are sufficient for us, there will be both foreground and background IP developed and those parts of it are structured in the contract about what we can and what we cannot own. The part of that is that Lurssen is very motivated, and Australia shipbuilders are very motivated, to export out of Australia at this particular class.

Senator KIM CARR: Is an Australian design house part of this contract arrangement?

Mr Gillis : The one thing with this is that because we had to start construction in 2018 to work on the labour force in South Australia, we had to select a very mature design. That's one of the reasons why we can get into construction so quickly. Therefore, the design changes are not as significant as they would be if you were going from a first-principles design on a vessel. It is a mature design.

Senator KIM CARR: So, the design IP is already owned by someone else?

Mr Gillis : No, it's owned by Lurssen, and Lurssen is transferring that ownership to Lurssen Australia. It's a part of their sovereignty that they're transferring into this nation.

Senator KIM CARR: The only intellectual property that will effectively be controlled here through the Australian government will be those modifications?

Mr Gillis : Also, we need to have access to, and a licence to use, for 'raise, train and sustain' of the vessel, design changes in the future et cetera, which is very normal.

Senator KIM CARR: You say that the only reason we didn't have an Australian design house involved is because we needed to move really quickly?

Mr Gillis : As a result of trying to ensure that we maintained as much of the workforce as was sensible in South Australia at the completion of the air warfare destroyer, we put two OPVs in South Australia. To do that, we needed to commence that construction in 2018. As we signed a contract only on 31 January this year, and we had gone from the start of this process to there twice as fast as we'd ever done before in a ship program of this size, it's been an extraordinary effort to actually achieve these dates.

Senator KIM CARR: How many people does Lurssen have in Australia?

Mr Gillis : I'd have to take that on notice. But part of one of the things with it is that Lurssen is predominantly going to be contracting with Australian companies.

Senator KIM CARR: I see. But there is no substantive presence in Australia, is there?

Mr Gillis : They intend to establish a Luerssen Australia.

Senator KIM CARR: Right.

Rear Adm. Dalton : That's who we've contracted with.

Mr Gillis : That's who we've actually contracted with.

Senator KIM CARR: And the Australian industry content plan—was that part of the bid?

Rear Adm. Dalton : There was an Australian industry content proposal and that's been factored into the contract.

Senator KIM CARR: I'm sorry, Rear Admiral. A proposal? Was there a plan? What do you mean?

Rear Adm. Dalton : There is now a plan.

Senator KIM CARR: There is now a plan?

Rear Adm. Dalton : Based on what they tendered.

Senator KIM CARR: And that will be part of the contract, will it?

Rear Adm. Dalton : We have signed the contract with Luerssen Australia,

Senator KIM CARR: Yes, but it's got an AIC plan in it, has it?

Mr Gillis : And we are now working with Luerssen to improve those numbers and to engage with Australian industry in Western Australia and in all states in Australia to improve that. But one of the things we have to be aware of is that, because we are building this so quickly, to meet the requirements in South Australia to preserve as much workforce as we can, if we go through a design change of some of that equipment, it can actually have a schedule issue for us. So there is a trade-off that we have here, especially for the first two vessels.

Senator KIM CARR: Okay. And you're going to tell me then that there's a content figure in those first two vessels, are you—a signed contract?

Mr Gillis : I'd have to take that on notice.

Senator KIM CARR: Was there an obligation to produce a public version, as there was in the future frigate?

Mr Gillis : I'd have to take that on notice. You're getting into a range of details that's—

Senator KIM CARR: Yes, I know. But—

Mr Gillis : I'm happy to take that on notice.

Senator KIM CARR: And obviously the date of release, if possible.

Mr Gillis : Senator, I'll have to take all of your questions on notice.

Senator KIM CARR: With regard to Civmec, how much ships have they built?

Mr Gillis : What they did was that they tendered Forgacs Australia. They purchased the Forgacs company, and that's how they tendered this.

Senator KIM CARR: Through the purchase of another company?

Mr Gillis : Yes, through the purchase of another company.

Senator KIM CARR: And that's the basis on which you claim they've got the registration—

Mr Gillis : I'm not going to go into all of this. If you want to ask me questions on notice, I can give you detailed answers. It's not appropriate for me to give you details about tenders and all those sorts of things, especially as these companies are still tendering to Luerssen.

Senator KIM CARR: The media report concerning security—

Senator Payne: Which media report is that?

Senator KIM CARR: I'm talking about a media report here in The Australian, 18 November 2017, by Primrose Riordan.

Senator PAYNE: It's not like you to quote The Australian, Senator.

Senator KIM CARR: Is there any comment that you'd like to make about that report about Civmec's directors?

Mr Gillis : That's a commercial matter for Civmec. I'm not going to discuss that reporting in The Australian.

Senator KIM CARR: It's a commercial matter? National security is now a commercial matter, is it?

Mr Gillis : No, it's a matter where I'm not going to discuss the structure and board structure, other than to say that I'm aware of the issues and I am comfortable with the structures that Civmec has as an organisation. But, as you said, it was going towards a national security issue. I'm not willing to discuss that matter.

Senator KIM CARR: Let me put it to you this way: Minister, is there an officer here that can provide an assurance to the committee that they've met and refuted the national security concerns that have been highlighted in this article published in The Australian?

Senator Payne: I am sure the secretary and I can both provide you with that.

Senator KIM CARR: That is all I need. You will be able to provide that?

Senator Payne: Yes.

Senator KIM CARR: Thank you very much. I will now turn to the submarines. Mr Gillis, is this your area as well—the update on the progress of contract negotiations with prime contractors with regard to the submarine project?

Mr Gillis : I will pass over to Rear Admiral Sammut and Mr Stephen Johnson. They are the more appropriate officers, but I am happy to assist as required.

Senator KIM CARR: Could you give me an indication of what progress is being made on the contract negotiations for the prime contractors for the submarine project?

Rear Adm. Sammut : Just to make sure the context is set properly, we have contracts in place with both primes—Lockheed Martin Australia for the combat system for the future submarine and Naval Group for the design and mobilisation contract. Under those contracts, work is continuing on the Future Submarine Program. We are currently also in the process of negotiating with Naval Group the longer-term contracts over which the design will be completed and eventually proceeding to the production of the future submarines. Those negotiations are in progress and are continuing.

Senator KIM CARR: I am particularly interested in the strategic partnership agreements. When do those discussions start?

Rear Adm. Sammut : The strategic partnering agreement?

Senator KIM CARR: Yes.

Rear Adm. Sammut : We've been negotiating those in detail with Naval Group since November.

Senator KIM CARR: Do you have any expectation of how long it will take to conclude those negotiations?

Rear Adm. Sammut : I am anticipating that we will conclude those negotiations before the middle of this year.

Senator KIM CARR: How many meetings have you had on that matter?

Rear Adm. Sammut : We have had a number of negotiating sessions. We have completed four sessions.

Senator KIM CARR: How many have been held in France?

Rear Adm. Sammut : Two sessions in France.

Senator KIM CARR: And two in Australia?

Rear Adm. Sammut : And two in Australia.

Senator KIM CARR: What's the cost of those negotiations? Do you have a cost in terms of the airfares, the accommodation and all the rest of it that goes into it?

Rear Adm. Sammut : I will have to take that on notice.

Senator KIM CARR: Who represented the government at those meetings?

Rear Adm. Sammut : I represent the government as the lead negotiator for the Commonwealth with my team.

Senator KIM CARR: Were there any others apart from yourself?

Rear Adm. Sammut : Yes. I have a team of personnel comprising commercial staff, technical staff and legal staff.

Senator KIM CARR: But no contractors?

Rear Adm. Sammut : There are contractors amongst those personnel.

Senator KIM CARR: Which particular contractors?

Rear Adm. Sammut : I have contractors for legal support. There is a number of people within the Future Submarine Program as we have discussed in the past, who are secondees from industry. That includes technical staff. I have negotiation support as well, in a strategic negotiation adviser.

Senator KIM CARR: You may want to take these next questions on notice. I would be interested to know the Defence staff who are actually negotiating this agreement—the personnel involved. Are you able to provide that information?

Vice Adm. Griggs : Are you after the whole team or just the Defence staff?

Senator KIM CARR: No; I want the team and I want the contractors, because I want to know the price of the contracts.

Vice Adm. Griggs : I will have take that on notice with regards to the contracts and so forth. But we can provide all of that.

Senator KIM CARR: The list of your team that you've indicated, the defence staff, and then the contractors.

Vice Adm. Griggs : Yes.

Senator KIM CARR: Also what the contractors are engaged to do, the value of the contracts and the terms of the contracts—if you could, please? You are anticipating that the SPA will be signed midyear. Are you confident that that's right?

Vice Adm. Griggs : I am confident that we will achieve that.

Senator KIM CARR: What program elements depend upon the signing of that agreement?

Vice Adm. Griggs : As I mentioned, all of the program work is continuing under the design and mobilisation contract. The strategic partnering agreement will include terms and conditions that will apply over the life of the acquisition of the Future Submarine program, so it contemplates terms and conditions that will be applicable to matters that go into more detailed design of the submarine, which will be taking place in years to come, as well as the production of the submarines themselves. So having it in place by the middle of the year will mean that we will be in a position to progress to more detailed design once we complete the work under the design mobilisation contract, which will run until September.

Senator KIM CARR: You've said you're confident. Are there any obstacles you can envisage to meeting that time line?

Vice adm. Griggs : No. I don't envisage any obstacles. This is a very large contract, as you would appreciate. We're talking about a contract that will have to work for both parties—the Commonwealth and Naval Group Australia—over the period of the build of the future submarines which extends to the late 2040s. So therefore, being a long-term contract of that nature, it is necessarily complex and there are challenging issues that we have to deal with as we work through the negotiations. But we are making progress on working through those issues and, at this stage, I do not see any reasons why we will not be able to complete those negotiations before the middle of the year.

Mr Moriarty : If I could add, the admiral says he's confident that it will be done by the middle of this year. I share that confidence. But the government has also directed us to ensure that the contract that we deliver is best value for the Commonwealth over multiple decades. my guidelines to the negotiating team, of course, are that if it means another month or two on a contract of this consequence, then I think that we, the department, would get a reasonable hearing from the government if we told them that we needed a little bit more time.

Senator KIM CARR: No, you'd look awfully silly if you brought back a half-baked proposal. So I think that's very reasonable. But there are obviously contingencies that flow from here in terms of the build. Is that right?

Mr Gillis : When you say 'contingencies'—

Senator KIM CARR: There are some requirements that flow from these arrangements, because there's a separate contract for the build itself, is there not?

Vice adm. Griggs : Could I explain perhaps the contract architecture, just to give you an indication.

Senator KIM CARR: If you would, thank you.

Vice adm. Griggs : The strategic partner agreement is best described as a head contract, an overarching contract, under which there will be program contracts that cover various phases of the program. And given the complexity and length of this program, we do want the flexibility to make sure that we structure our contracts for various phases most appropriately so that we can properly manage risk and exposure of the Commonwealth as we proceed forward. That means that with the strategic partner agreement, the first program contract that will sit under that, will be the design contract, which will help us complete the basic design of the submarine. We then envisage that, after that, we'll be able to place a program contract, again sitting underneath the strategic partner agreement, under which the overarching terms and conditions have already been negotiated before we enter all of these contracts, a program contract following design for detailed design and production of the first boat. And then we have the option, of course, of placing further contracts for additional submarines that we can price accordingly and manage risk with the right pricing mechanisms and the right contract structure to best deliver those programs in a value-for-money way.

Senator KIM CARR: And so when do you expect to build the finalised contracts for the actual build portion of the project?

Vice adm. Griggs : We'll need to be putting those in place as we approach the end of basic design, so we're talking around the 2022 time frame and having in place, of course, with the SPA at the same time the first program contract being the design contract which will run until 2022.

Senator KIM CARR: Have you got any idea what the spend will be by that time in terms of this overall project?

Vice adm. Griggs : Well, I'd rather not go into what we want the spend to be or so forth because we're in the process of negotiating that with Naval Group, and you'd appreciate that we would like to ensure that, as we conclude those negotiations, that we're protecting the Commonwealth's financial position.

Senator KIM CARR: Right. I just want to refresh my memory regarding the actual build itself. Are you still planning to build 12 here in Australia?

Vice Adm. Griggs : That's always been the plans, and that's how the contracts have been structured—to build all 12 submarines in Australia, commencing with the first with a build start date of between 2022 and 2023.

Senator KIM CARR: And the original discussion was around a 90 per cent local content. Is that still the case?

Vice Adm. Griggs : There's been a lot of conjecture about percentages and so forth. There is no percentage fixed in terms of the Australian industry capability for the program.

Senator KIM CARR: I'm just relying on what Minister Pyne said on Q&A—that's all.

Vice Adm. Griggs : We are building the future submarines in Australia and we're expecting very high proportions of the labour cost for the build of the future submarine to be spent in Australia by virtue of the fact that they are being built here. I have mentioned in the past, in testimony to the committee, that we are looking at whether particular parts of the hull might be better produced overseas in the first instance. But all 12 submarines will be produced in Australia and built here.

Senator KIM CARR: At what point will we know how much the local content will be? We can go backwards and forwards about what the original statements were in terms of the DCNS's commitments—which have been recently reconfirmed, I might add—but at what point will we know what the local content provision will be?

Vice Adm. Griggs : We have a design process that will be in place until we commence the build. We want to start the build with a high level of design maturity. All throughout that design process, we'll be seeking to maximise Australian industry involvement in the program. That's already started, of course, with the engagements that we've had with industry to date. We've had eight industry days in Australia throughout the course of 2017. There were of the order of about 768, from memory, unique companies that attended those briefings, which took place in all of the major capitals of Australia.

We continue, of course, with the work to ensure that, as the design proceeds, we are providing opportunities for Australian industry to be involved and, as we now look to making sure that we migrate detailed design into Australia, those opportunities are further maximised to ensure that, as we start the build, we will have a good indication of what the local industry activities will be. I can also say that to date we've had 619 Australian companies register interest with Naval Group Australia on the Industry Capability Network and 207 Australian companies register interest with Lockheed Martin Australia on the same network.

Senator KIM CARR: So you won't be able to tell me what the percentage number is?

Vice Adm. Griggs : I can't tell you what the percentage number is today because we're in the process of maximising that as we go through the design process.

Senator KIM CARR: Do you have any expectation of when you will be able to tell the committee what the local content percentage will be?

Vice Adm. Griggs : As I mentioned, Senator—perhaps I wasn't very clear in my answer—as we approach the end of the design process, by virtue of the way design works as you prepare for production, we will have a clear indication of what the Australian industry content will be in the boat.

Senator KIM CARR: I'm sorry, Admiral; I'm looking for a date.

Vice Adm. Griggs : I would say between 2022 and 2023.

Senator KIM CARR: Thank you. I will turn to the question of staffing. An answer to a question on notice indicated there was a standing office in France—an office of 50 people. How many people are there at the moment?

Vice Adm. Griggs : As we've established the office with its permanent staff, we currently have around 31 personnel with another six to join over the next two months.

Senator KIM CARR: How senior are they?

Vice Adm. Griggs : That staff is headed by a one-star officer and includes a number of industry secondees to the program as well as Australian Public Service personnel up to EL2 level.

Senator KIM CARR: Could you give me a breakdown of those staffing positions on notice, please?

Vice Adm. Griggs : We'll take that on notice.

Senator KIM CARR: Thank you. Presumably, that will provide a list of APS staff or ADF staff based in France and what the budget is for that?

Vice Adm. Griggs : Yes, Senator.

Senator Payne: Just associated with the submarines, Senator?

Senator KIM CARR: For the submarines, yes. How many staff have you got in France?

Senator Payne: Well, we have defence advisers, we have—

Senator KIM CARR: Yes. You've got a few others. I know. You've aroused my interest.

Air Chief Marshal Binskin : And they're all working hard and doing a fantastic job.

Senator KIM CARR: I'm sure they are. I've been to the embassy there as well, and I can understand what a shocking hardship post it is.

Air Chief Marshal Binskin : They do a lot with the Centenary of Anzac.

Senator KIM CARR: They do.

Senator Payne: The Chief of Navy might have some other observations.

Vice Adm. Barrett : There is a captain who sits in the naval headquarters within the French Navy who assists us as well in strategic matters.

Senator KIM CARR: Right. I'm being facetious. Don't take it to heart. Could I get an indication of the budget for the French staffing? In regard to Australian industry that are working in France, who is paying for that?

Vice Adm. Griggs : In terms of the industry secondees who are part of the Future Submarine program ops, that's part of the budget for the Future Submarine program, so Defence funds that. Naval Group Australia will have its personnel proceeding to France, which forms parts of its accounts.

Senator KIM CARR: Ultimately it's part of the contract though, isn't it?

Vice Adm. Griggs : It's all part of the contract so, quite naturally, the work that has to be done on the Future Submarine program is funded as part of the program.

Senator KIM CARR: There was a question you took on notice last year about one of the roles of the contractors. You were paying for them over there to monitor the junior APS naval architects. Is that right? Is it part of the contract?

Vice Adm. Griggs : I don't think that was precisely the way we responded.

Senator KIM CARR: How would you like to phrase it then?

Vice Adm. Griggs : I think we talked about the mentoring program we had in place across the Future Submarine program for all of the junior staff that we bring through the Public Service and we talked about the role that we want our industry secondees to play as part of that mentoring process.

Senator KIM CARR: When will the junior architects be able to take over from the contractors who are—

Vice Adm. Griggs : It's not just architects. There is a range of junior personnel in the program across a range of engineering disciplines. We are increasing our approach to take in, not just to the Future Submarine program but to all naval construction programs, graduates that will have an ability to develop a career in the naval construction programs that we have. That process is commencing. That's alongside, of course, the recruitment activities that we have for other APS personnel who will join the program.

We've commenced a graduate mentoring program. That is starting as a pilot program, because, as we said earlier today, we're in the process of establishing a naval shipbuilding enterprise and we're putting in place a number of programs that give not just industry but the Commonwealth the capacity to deliver these programs well into the future. We are getting the assistance of the Defence People Group to put in place that mentoring program. With the support of personnel from industry and so forth, doing that with both ships and submarines, we're going to be training our mentors in the best way to lead these young graduates and other personnel who join the programs from the Public Service. Those who receive the mentoring will be able to get assistance in their goal-setting and also making sure that we're holding regular meetings and monthly sessions to track the progress of the junior people to provide them with lectures and to capture lessons learned. There is a positive learning process out of their experiences in the program.

Senator KIM CARR: I might ask then—

CHAIR: Just before you do, I understand, Senator Patrick, that you had a question on the French office?

Senator PATRICK: In the spillover hearing on 15 December we talked about an investigation that was in relation to that particular building. I was just wondering: has that investigation concluded? If it has, what were the findings? What was the outcome for the person involved? And what were the lessons for Defence?

Mr Moriarty : The investigation is still ongoing. It's very much ongoing.

Senator PATRICK: Fair enough. I'll leave it there. Has it grown into other areas or it's just complex?

Mr Moriarty : No, we're doing it absolutely appropriately. It's into alleged inappropriate conduct, and therefore it needs to be done properly, needs to be a very appropriate protection of privacy because there's potential for procedural fairness issues if it was handled inappropriately. But within the department, it's been given very serious attention.

Senator PATRICK: Thank you, that's appreciated.

CHAIR: Senator Carr had the call.

Senator PATRICK: Sure.

Senator KIM CARR: If I could turn to the Commonwealth program office, I'm just wondering, is there anyone here who can help me with the functions and role of the Commonwealth program office?

Vice Admiral Griggs : Are you referring to a question on notice, and a responsibility again, so that I can—

Senator KIM CARR: I'm referring to a couple of tenders that you've issued in regard to the Commonwealth Program Office. I can give you numbers if you like. But essentially they're registered on AusTender for, 'A capacity to provide qualified and experienced secondees to perform a number of roles with the Australian government's Future Submarine program.' The most recent tender closed on 12 February this year.

Vice Admiral Griggs : Yes.

Senator KIM CARR: So that's the one?

Vice Admiral Griggs : Yes.

Senator KIM CARR: We're right, okay. So can you tell me, what's the function and what's the role of this program office?

Vice Admiral Griggs : The Future Submarine program, as you would appreciate, is a very complex program. It's one where we need to make sure that we have a strong program office that can manage the engineering, the program management functions, financial accounting and so forth. So the office in France is not the only part of the Future Submarine program office. We have part of the program office here in Australia. A large part of that is based in Adelaide. It's the technical component of the office where we have our engineering expertise and where we are assessing the design work that's being done by both Lockheed Martin Australia and Naval Group. We're involved in the designed process, where we do things like cost capability trade-offs, make sure that the requirements are tracking in line with the way the design is progressing, all of the functions that go with managing a program of that size. And of course, in that office, we are also building up the capacity to one day make sure that we can accept and certify the submarine as safe and fit for operations. So that, in broad, is the set of functions that we conduct in Australia supported by, if you might think of it, as our forward post in France so that we have direct interaction with the designers in France as the submarine is designed, and are able to share that information back with our experts in Australia to make sure we fulfil all of our responsibilities for execution of the program here.

Senator KIM CARR: So just to be clear about this, this is a Department of Defence facility?

Vice Admiral Griggs : Yes.

Senator KIM CARR: There's public servants?

Vice Admiral Griggs : There are some public servants there. There are also industry secondees as well as military staff.

Senator KIM CARR: So you've got ADF, Lockheed Martin, Naval Group all part of this.

Vice Admiral Griggs : No, Lockheed Martin Australia and Naval Group are our primes. We contract with them. I need a program office to manage our interaction and all of the work we do with them.

Senator KIM CARR: I see.

Vice Admiral Griggs : And as part of my office, I have gone to industry to bring in the expertise that is necessary to have the technical acumen to engage properly and authoritatively with our primes. We do that as we continue to build up the skills and expertise of the Public Service members and those that we recruit, hence the mentoring program that we spoke about, so that we can do more of that within the Public Service, as opposed to relying on industry secondees, to the extent that we do these days, to execute the program.

Senator KIM CARR: But in time, they'll be able to provide the supervision of the contract. Is that what you're saying?

Vice Admiral Griggs : We all supervise the contract as part of the program office.

Senator KIM CARR: I'm sure you do but this is for the technical expertise. You want to know that you're getting what you paid for, presumably.

Vice Admiral Griggs : And not only that, we understand the design. We can ensure that it meets our technical requirements as far as safety is concerned, as far as operational capability is concerned—all of those things.

Senator KIM CARR: How many people are in this group?

Vice Adm. Griggs : At the moment, I have a total staff of 154 people.

Senator KIM CARR: That's just the group in Adelaide?

Vice Adm. Griggs : No, this is my entire program office staff, some of which are based in France.

Senator KIM CARR: I see. I'm sorry. You've told me that you've got 31 in France at the moment, plus six, so you've got 37, presumably within two months?

Vice Adm. Griggs : Yes.

Senator KIM CARR: And the remainder—

Vice Adm. Griggs : The remainder here in Australia.

Senator KIM CARR: That's right. How many will be in Adelaide?

Vice Adm. Griggs : I'll have to get the exact breakdown, but the majority are in Adelaide. I can tell you that I've got 38 public servants at the moment, I've got three ADF personnel and I have 113 contract staff.

Senator KIM CARR: Thank you. I'm trying to get a sense of how big this Commonwealth program office in Adelaide will be.

Vice Adm. Griggs : Our program office will probably approach 200 people as we get into the full build of the submarine—sorry, the full depth of the program. The majority of those will be based in Adelaide.

Mr Johnson : It might be helpful to observe that the design process ends. The design is a five- to seven-year process—it depends exactly how you define it. The process of building, testing, certifying and delivering will go on for 30 years, starting from today—more than 30 years. That's the workforce that we're growing, that long-term workforce, and we are using the people from industry—many who come from ASC—to strengthen the program office during the design phase. That's a phase where we don't have, inherently, experience—the last design done in Australia.

Senator KIM CARR: No—I think that's a perfectly reasonable approach.

Mr Johnson : So there is one peak and a growth, and the admiral gave you the peak moment of that.

Senator KIM CARR: And we'll have to change over time. That's what you're saying, isn't it?

Vice Adm. Griggs : The balance will shift over time as we get more Australian Public Service personnel with the expertise to take on more senior roles in the program.

Senator KIM CARR: That's right. Mr Johnson, you said some of these people were from ASC. How many, do you think?

Vice Adm. Griggs : Again, can I provide that on notice.

Senator KIM CARR: Thank you.

Mr Johnson : It changes every couple of weeks.

Senator KIM CARR: You must be able to give a—

Mr Johnson : We'd really like to give you one day where the numbers are correct—

Senator KIM CARR: Thank you very much—you'll need the point of time conversation.

CHAIR: Senator Carr, we're breaking in seven minutes. Senator Patrick has about five minutes of questions before we conclude with portfolio and budget overview. Have you got any more questions of these officials before lunch?

Senator KIM CARR: Yes, I do. I've got to ask more questions on ASC.

CHAIR: Well, you'll have to come back after lunch.

Senator KIM CARR: I certainly will. I'll be delighted to come back.

Senator PATRICK : Going back to facilities in France, my understanding, Admiral, is that you've bought a number of bikes for personnel in France. Is that correct?

Vice Adm. Griggs : That's correct.

Senator PATRICK : Where were those bikes purchased?

Air Chief Marshal Binskin : They're Australian.

Senator PATRICK : Purchased in Australia? Okay. You've got these bikes—

Air Chief Marshal Binskin : Do you want the exact shop?

Senator PATRICK : No, not at all! Look, I'm just concerned these bikes are now in France. How did they get to France?

Senator Payne: They rode them!

Senator PATRICK : They rode them. Fantastic! That is a fitness program!

Mr Gillis : As part of the construction, a large proportion of the building—the actual materials—were exported out of Australia, and we did that for a whole range of reasons, including security. As we were freighting mass volume, somebody decided that it would be a good idea to have a bike to ride around—I think it was fewer than 20 bikes—

Senator PATRICK : Nineteen.

Mr Gillis : 19 bikes to ride around a very large facility. As you know, I used to work in Boeing. If you go into any of the Boeing big facilities, there are bicycles everywhere for people to ride around, because it's efficient and effective.

Senator PATRICK : No problems—I don't have a problem with buying the bikes.

Senator Payne: We loaded them up, put them with the freight and we sent them to France.

Senator PATRICK : So they've been airfreighted to France?

Mr Gillis : I don't know how they were freighted, but they were freighted to France.

Air Chief Marshal Binskin : As part of the broader equipment that was transported.

Senator KIM CARR: They were made in Australia, were they?

Senator PATRICK : No, my understanding is that they were bought in Australia—

Senator KIM CARR: Bought in Australia, from China!

Senator PATRICK: Probably!

Vice Adm. Griggs : Let's try and put this in context. We had about 180 tonnes of material that had to be procured from Australia to do the fit-out of our section of the office in France. Amid all of that freight, bikes were included as they were sent across.

Senator PATRICK: I'm all for buying Australian, but, as Senator Carr points out, it's not Australian. I don't think they make bikes in Australia any more.

Senator Payne: That would be a good start.

CHAIR: That would be a logical reason, then, why they weren't—

Senator PATRICK: Well, I'm wondering why—

Senator KIM CARR: They said 'procured in Australia'. They didn't say 'made in Australia'.

Senator PATRICK: That's right. I've seen a race on television; I reckon they've got bikes in France. I'm just wondering why we took this particular approach.

Senator Payne: Because you would have said, 'Why did you buy bikes in France?' if we didn't!

Senator PATRICK: No, I wouldn't have said that.

Senator Payne: I'll place a small bet with you on that! If I were a betting woman—and I am—I would place a small bet with you on that!

Senator PATRICK: I'm not allowed to bet!

Senator Payne: I can write the script, frankly!

Mr Gillis : The issue is we were freighting 180 tonnes of stuff. If you add 19 boxes to it, it would have been in the kilos. The cost associated with it is infinitesimally small, and it is normal practice in large facilities to have a bicycle. I think it's a non-event.

Senator PATRICK: Can you get me the cost of the bikes and the airfreight?

Senator Payne: Sorry, can we clarify: do you mean the cost of the total freight of the 180—

Senator PATRICK: No, just the bike. Generally, airfreight is—

Mr Gillis : I don't know whether they were airfreighted—I only know they were freighted—and I don't know whether we can break down the cost of 19 bikes and 180 tonnes of freight that was sent to France.

Senator PATRICK: Okay. My understanding is, when they got to France, the bikes were put together and there was an accident on one of them. Are they chained up at the moment?

Vice Adm. Griggs : No, the bikes are all serviceable and they're being used by our staff.

Senator PATRICK: But you got someone to safety-check them, or to fix them? Is that right?

Mr Gillis : We had them assembled in France by a local bike assembler, so—

Senator PATRICK: Can you give me the cost of that, please? I'm all for building stuff in Australia and technology transfer, but I just wonder if we've gone to some point that's extreme—particularly noting the bikes were not made in Australia.

Mr Moriarty : We will do our best.

CHAIR: Just to be clear: I don't think anybody has actually said where the bikes were made. But I think they've taken this very serious issue on notice, Senator Patrick, and they will provide whatever information they can on this issue—possibly after lunch. You have three minutes before the lunch break, Senator Patrick.

Senator PATRICK: Keeping it light, and noting that lunch is coming, what about fridges in France? My understanding is you've bought some refrigerators, for staff in France, that were pretty expensive.

Vice Adm. Griggs : That's not my understanding.

Senator Payne: We'll check.

Vice Adm. Griggs : I can say there are fridges, in the cafe in France, where our people are able to store their lunch if they bring it to work.

Senator PATRICK: They're lockable, aren't they? Is that right?

Vice Adm. Griggs : I understand that they have compartments that can be locked, so people's lunch doesn't go missing—it may be particularly appetising to others, perhaps! I'm not sure. I don't know whether we use all those locks.

Senator Payne: Clearly your tour of Cherbourg was more interesting than mine!

Senator PATRICK: I was only given 10 minutes, so I'm just dealing with some light issues. My understanding is you're now retrofitting those fridges so that they're not lockable. So you've bought these very expensive fridges, and you're now modifying them so that they are just regular fridges. Is that correct?

Vice Adm. Griggs : I think it's a case of we're not using the locks all the time. Again, I will find out if that's what we're doing.

Senator PATRICK: I'd appreciate that. I will come back to your strategic partnering agreement after lunch—something a bit more substantive!

CHAIR: I think we'd all appreciate taking the discussion up a level from fridge locks and bikes! We will resume at 1.30 with outcome 1.

Proceedings suspended from 12:29 to 13:31

CHAIR: We are now on outcome 1. I will go to Senator Whish-Wilson.

Senator WHISH-WILSON: Thank you, Chair. If these questions have already been asked, please let me know. I understand Senator Kitching has asked some questions about Australian troops in Iraq, deployment numbers. Could you tell me what the current deployment numbers are.

Air Chief Marshal Binskin : In Iraq?

Senator WHISH-WILSON: In Iraq.

Air Chief Marshal Binskin : Okay.

Senator WHISH-WILSON: And also Syria—Australian troop deployment numbers in Iraq and Syria.

Senator Payne: Syria is zero.

Senator WHISH-WILSON: Zero?

Air Chief Marshal Binskin : Part of our Okra deployments. Let me just get the figures for you.

Senator WHISH-WILSON: And Task Group Taji 6—is that separate?

Air Chief Marshal Binskin : The numbers haven't changed since the previous. The Taji Task Group is about 300. I will get you the exact numbers for the record. We have about an additional 50 to 60 in headquarters positions and some other tasks in Iraq. Then you look at the AA mission, which is the advisers who assist with the counterterrorism service. It's currently about 80 but reducing slightly. The Air Task Group is down to about 150 when the Hornets came out. That's really about the Okra numbers.

Senator WHISH-WILSON: Yes.

Air Chief Marshal Binskin : I'll get the exact numbers for you and put them in the record.

Senator WHISH-WILSON: Thank you.

Air Chief Marshal Binskin : But for where I think you're going, Senator, it's no major change in what we previously had.

Senator WHISH-WILSON: Okay. Is there any information you can provide on when this rotation for those different segments is due to end? Has that even been set?

Air Chief Marshal Binskin : No. So it's conditions based at the moment, and so we're working with the Iraqi security forces—and this was an answer we gave previously—to build their capacity, to allow them to secure their borders and their internal security.

Senator WHISH-WILSON: Okay. Rather than, I suppose, looking at when those forces might leave altogether, are there any plans for rotation of existing personnel within those groups?

Air Chief Marshal Binskin : Yes, as we've been rotating now. Each of the groups is on a different stagger for rotation but, yes, we do rotate the forces—sorry, the personnel—through those particular task groups.

Senator WHISH-WILSON: On what basis?

Air Chief Marshal Binskin : The basis is that we have a policy of rotation links. For the formed bodies, like Task Group Taji and that area, it's just over six months. For the Air Task Group, it depends on the aircraft. It'll vary between three to four months. Similar for the AA mission with the counter-terrorism service, that's just over a six-month rotation as well.

Senator WHISH-WILSON: Sorry, CDF, could you remind me, if you're down to 150 in the Air Task Group after the Hornets have left, what function are those remaining 150?

Air Chief Marshal Binskin : We still have the air-to-air refueller on operations and the E-7. We'll be looking to rotate back into theatre after a short operational pause back in Australia. We're expecting the E-7 to go back in the next month or so.

Senator WHISH-WILSON: And you expect that number will stay around 150, then?

Air Chief Marshal Binskin : Yes. I will check the exact number for that when the E-7 goes back in.

Senator WHISH-WILSON: Is the department aware of a report by Amnesty International in July last year titled, At any cost: the civilian catastrophe in West Mosul, Iraq? Perhaps I could start by asking whether you're aware of that report or whether you've read it?

Air Chief Marshal Binskin : We're probably aware of it. Do I have it here? No.

Senator WHISH-WILSON: Did you brief the minister on that report?

Mr Moriarty : I am aware of the report. The report was provided to the department. The minister gets briefed by the department based on a range of sources. Human rights concerns in Mosul and in other parts of Iraq are, as a matter of course, included in briefings that we provide for government.

Senator WHISH-WILSON: I suppose why'd like to know, Mr Moriarty, is whether the Department of Defence has responded in some way, shape or form to that report and some of the allegations in that report. For example, page 6 says, 'Pro-government forces,' which included Australia, 'failed to take feasible precautions to protect civilians during the battle for West Mosul.' Given we're obviously implicated in that, have we responded to that?

Mr Moriarty : No, but I think the ADF and the broader defence organisation has very robust arrangements in place around targeting.

Air Chief Marshal Binskin : And we do. So I would contend that, if there's an allegation that we haven't taken all measures to minimise the risk to civilians, that would be wrong, because we do—right through the approval chain to the actual execution of the mission.

Senator WHISH-WILSON: I was going to get to that question, but I will perhaps ask you that now. What sorts of processes do you commit to when assessing the risk to civilians during drone raids?

Air Chief Marshal Binskin : The same ones we've briefed to this committee on numerous occasions. So it hasn't changed.

Senator WHISH-WILSON: Unfortunately, CDF, I'm not able to be there for all the briefings.

Air Chief Marshal Binskin : No, but it's on record.

Senator WHISH-WILSON: If you'd perhaps—

Air Chief Marshal Binskin : I will take you through it. The primary approach that we take is we have robust rules of engagement. They're in accordance with laws of armed conflict. We have a structured approach that is proportionate and discriminate in the targeting. There is a detailed assessment that we go through to look at any collateral damage estimates or potential, including civilian casualty. We look to minimise the risk to civilians and to be, as I said, discriminate and proportionate for the mission that's required.

There are numerous points within that approval chain, including where, for an Australian and any weapon dropped in Iraq, the Iraqi government representative making the assessment and approvals. You have the ability to say, 'The risks there don't outweigh the military benefit of engaging in that particular target,' or 'There's a risk of a civilian casualty.'

Senator WHISH-WILSON: But the risks of civilian casualties exist, but they're weighed off against the potential benefit of the operation?

Air Chief Marshal Binskin : Our approach, when we're looking at the way we prepare to do strikes, the pre-planned strikes and all that, is that, if there is a risk of a civilian casualty, they won't engage.

Senator WHISH-WILSON: That's for Australian F/A-18 Hornets?

Air Chief Marshal Binskin : Yes, the F/A-18. In a defensive situation, you've got to weigh up the potential and then what the military benefit is of doing that. Right up until the time of our air crew releasing, they're always, always looking to minimise the potential for a civilian casualty.

Senator WHISH-WILSON: You talked about a potential approval process before an operation. Do you ever go back and audit the events?

Air Chief Marshal Binskin : Always. When the mission is complete, they will come back. There is a number of measures they take. They will always do a full debrief. They'll look at what we call the tapes, but it's basically the digital recordings they have from the strike. They'll look to do a battle damage assessment. As a part of that battle damage assessment they'll review whether there was a collateral damage or the weapon didn't go as planned. They will look to assess anything that might be abnormal in there.

There will be a phase 1 and a phase 2. A phase 1 will be done in theatre almost straight away. A phase 2 will tend to be done either back here or at the air operations centre where they'll look at it in a lot more depth. Then, if there are any reports down track—as I've said to the committee on numerous occasions—if something comes up later on, we'll go back and reassess whether it was a mission we were involved in or not. Then, when we look at that, we take out any lessons learned and we look to roll that into future sorties that may be going on or future operations where we can improve the way that we do it.

Senator WHISH-WILSON: In general, without being specific, are you confident that those precautions that you put in place, based on looking back on operations, have minimised the risk?

Air Chief Marshal Binskin : I think they have minimised the risk. But, as you know—and as the reports rightly say—it's a pretty complex environment there.

Senator WHISH-WILSON: It is.

Air Chief Marshal Binskin : We are fighting against a very ruthless enemy—an enemy that doesn't care about civilian casualties. That makes it very difficult there. It's in close, urban environment. We know, and you've seen examples where, the enemy have booby trapped buildings and they've put hostages in the buildings. That's very difficult for us to see in the targeting process. We fully investigate any report that comes back. That's a part of the coalition, not just Australia, but a part of the way the coalition works.

Senator WHISH-WILSON: That would be my next question, in terms of the amnesty report and whether the coalition responded to it. Amnesty International estimated that, between 19 February and 19 June 2017, 5,805 civilians were killed by Iraqi and US-led coalition forces. Are you aware of any response from coalition partners or the Australian Defence Force of that specific estimate?

Air Chief Marshal Binskin : I will have to look at the estimate. The coalition estimate is not near that. The way the coalition estimate works is they take all allegations and put it through a credibility assessment. I'll have the numbers in here. I do have the numbers. In fact, you've got them up.

Mr Ablong : I don't have them up. The government of Iraq is also aware of the report and it launched its own investigations into human rights violations alleged to have been perpetrated by members of the Iraqi Security Forces during the liberation of Mosul. That investigation is currently ongoing. We understand that the Iraqi Prime Minister is currently reviewing initial results from that investigation. The Australian Ambassador to Iraq has also made a number of representations to the Iraqi government about concerns that we heard about alleged abuses by both state and non-state actors during the conflict.

Air Chief Marshal Binskin : We do have the numbers. From August 2014 to January 2018—to give you the figures of where we sit against what you just had—we conducted 29,070 air strikes. It resulted in 218 credible reports of civilian casualties—this is the whole coalition.

Senator WHISH-WILSON: Yes.

Air Chief Marshal Binskin : The current assessment from the coalition Operation Inherent Resolve task forces is that it's likely there's been 841 civilians killed. I just want to emphasise again that there is a robust system that goes here. It's interesting, when you look at what's going on across Iraq and Syria, a lot of these organisations have given up on trying to get the Syrian and Russian forces to accept this and try to look at this. A lot of focus goes on the coalition, because we put a lot of effort into this.

Senator WHISH-WILSON: I respect that, CDF. That's another issue in itself, around Russia—

Air Chief Marshal Binskin : I agree.

Senator WHISH-WILSON: that we've got into before. Amnesty International obviously want to appear credible as well. You're open about the numbers that the coalition has assessed and published. Have they commented on the assessment processes and why their numbers are so divergent from yours? Is there some kind of consultation process where you sit down with groups like Amnesty International and say, 'Wait a second, we calculated it this way—you're overestimating because of this'? Is there any feedback loop?

Air Chief Marshal Binskin : I think some of this is the complexity of the situation on the ground; the close infighting that Iraqi security forces have had in those particular areas. I'm not sure of the exact process, but I know that they do take input from Amnesty International, Red Cross and also Airwars. If the information comes through, they will do a full credibility assessment. Sometimes it's difficult to know exactly what may have occurred on the ground in that particular area. As I said, it's a robust situation. In some cases, it might even be that it's assessed that it's credible that there was likely a civilian casualty, because you just can't confirm it.

Senator WHISH-WILSON: You say it's sometimes hard to determine what happened on the ground in any particular area because it's a complex situation?

Air Chief Marshal Binskin : Yes.

Senator WHISH-WILSON: Mr Ablong, you suggested the Iraqi government is looking into this issue of allegations against their forces. Do we have any evidence to support the fact that these civilian deaths were more a result of the Iraqi security forces than of other coalition security forces?

Mr Ablong : We don't. As the CDF said, it is a very dynamic environment. It is often difficult to figure out whose shell landed where. What they are doing is going through their records of the battles and making some assessments about where they think there is a credibility factor. But I don't think we'll ever get to the point of being able to definitively define it one way or the other.

Senator WHISH-WILSON: Okay. Obviously, what happens on the ground with our coalition partners impacts us and our reputation as well. The 841 you mentioned, CDF—that's from 2014 through to 2017?

Air Chief Marshal Binskin : That's right.

Senator WHISH-WILSON: Amnesty's were just for six months in 2017. Was there much activity in West Mosul prior to early February 2017?

Air Chief Marshal Binskin : No. If you track back the fighting and the way it has unfolded, early on, it was more up the Euphrates River, working out towards Ramadi and Fallujah—out that way. Then there was progress up to Barshi, up the highway towards Mosul. Late 2016 was East Mosul, you may remember. Then, I would say around February/March last year, the clearance of West Mosul started. Everyone acknowledged that West Mosul was going to be the most difficult, because it's quite an old city in the centre. It was seen as the heartland for ISIL. You may remember that the mosque that was in the middle of Baghdad had transmitted the vision of, 'We're establishing the caliphate,' and all that. So it had a lot of emotional value as well to ISIL, or Daesh.

Senator WHISH-WILSON: Any idea when that Iraqi government report is going to be released?

Mr Ablong : No, not at this stage.

Senator WHISH-WILSON: Could I ask one question that's probably a bit unusual—a bit left field.

Air Chief Marshal Binskin : We've had a few of those today!

CHAIR: I was going to say: you might not be the first one! We've had a range of unusual topics discussed.

Senator WHISH-WILSON: There's been debate amongst many of the NGOs around the deployments in the Middle East and whether any of the deployments since 2003 have been approved by the Governor-General. Minister, I don't know if you want to have a crack at that one. Has the Governor-General actually approved any deployments in the Middle East since 2003?

Senator Payne: I've been the minister since September 2015, so I can't comment in relation to that, and also responsible for overseeing a continuing deployment. I don't believe that that is the nature of the system, but I can take the details on notice for you and come back to you.

Senator WHISH-WILSON: Particularly whether the RAAF combat aircraft in the 2014 deployment were authorised.

Air Chief Marshal Binskin : No, that was government approval.

Senator WHISH-WILSON: Executive approval?

Senator Payne: That's my recollection as well, but I will take that question on notice.

Air Chief Marshal Binskin : And obviously a part of that approval process would be telling people about it. The opposition were fully briefed as each decision was made before the announcements and all that as well. But from a formal point of view I act under the approval of government.

Senator WHISH-WILSON: It's a bigger legal issue, as you know, but I'll take what you've got on notice. That's it from me. Thank you.

Senator KITCHING: There was a report in The Sydney Morning Herald on 24 February called 'US to boost marine forces in Australia'. How many marines are currently based in Darwin? Is it 1,200?

Senator Payne: It is a rotation. They don't stay in Australia. It's a rotation, which, by its definition, goes in and out.

Senator KITCHING: Okay.

Senator Payne: They are due to return in April. On the last occasion there were 1,250, if I remember correctly.

Air Chief Marshal Binskin : On this occasion the increase is to around 1,600.

Senator KITCHING: And there's going to be an increase to 2,500?

Senator Payne: The original engagement, which of course was undertaken between then Prime Minister Gillard and then President Obama, if I remember correctly, indicated an ultimate outcome over time of 2,500.

Senator KITCHING: The incoming American ambassador has been announced, Admiral Harris. Maybe we can discuss this tomorrow, but do you feel, given regional concerns, that they might be looking to increase that presence or expedite the increase?

Senator Payne: I'm not sure that what I feel is particularly relevant, but what I can say is that the engagement between Australia and the United States is one which is managed very closely between the two governments, between the two defence organisations—the ADF and Defence, and the Pentagon and the Marines. Lieutenant General Berger, the Pacific commander of the Marines, was here recently on matters associated with the deployment. Ultimately it will be a matter for the United States to raise with Australia if they see a need to adjust that in any particular way, but what has happened in the last three years, as I've been observing the rotations, is that the numbers have increased and the development of the enhanced air cooperation activities has increased, and that has been a mark of and a reflection of the US engagement in the region, as you might expect.

Air Chief Marshal Binskin : I meet regularly with Admiral Harris—MILREPS is the meeting. As a part of that we look at the next year's rotation, what the structure of that may be and how we will slowly, through a structured presence, take it to 2,500. He has not raised with me, ever, going to more than 2,500. I've seen General Joe Dunford three or four times this year and not once has that been raised.

Senator Payne: I of course meet regularly with Secretary Mattis, and the same goes for that.

Senator KITCHING: Thank you. The chair and I discussed earlier that we might invite Admiral Harris, when he comes into his new role, to come to speak to the joint standing committee.

Air Chief Marshal Binskin : He doesn't like talking, so I'm not sure you'll—sorry, that was tongue-in-cheek.

Senator Payne: I think having key diplomatic representatives visit the joint committee is a very good idea.

Senator KITCHING: We might keep you informed.

Air Chief Marshal Binskin : I will warn him when I see him in a couple of weeks—sorry, I will prepare him.

Senator KITCHING: Thank you.

CHAIR: I have one issue. Minister and CDF, you both raised Operation MANITOU and the Warramunga's success. Can you give us a further update and a bit more detail about MANITOU and Warramunga's activities?

Air Chief Marshal Binskin : I gave pretty much the basic details of Warramunga's success. But I guess if we talk about the history with MANITOU, we've been doing that since 2014. We're a part of the Combined Maritime Forces; they're 32 nations. But our rotations into theatre have been going for much longer. So Warramunga is I think the 66th frigate or 66th ship that we have had rotate in. We have, I wouldn't say a continuous presence, because there's some weather periods where it's not worth having the ship in there, but pretty much almost a continuous presence in the time we've been doing this since 1991. It's a valuable operation for us in there. And in addition to the frigate, we do have a number of Royal Australian Navy personnel that serve in the multinational headquarters as well in Bahrain and that's very valuable for us as well. We occasionally command the various combined taskforce whether it be: 150, which is the maritime security; 151; counter piracy; 152, which is Persian Gulf security and cooperation. It's a valuable operation for us. What we've done over the last couple of years is adjusted how we deploy so that we get the maximum value out of the ships deploying in there. Before, it used to be shorter rotations of ships in and out.

CHAIR: Is it nine months now?

Air Chief Marshal Binskin : Yes, just under nine. And so the efficiency there is we don't lose a month going in—it's not quite that long. But with three weeks sailing in, three weeks sailing out, we're actually in there for the period and we get maximum value in there. That required us to change our approach to crews. So the crews now are very much treated like we do for those longer term deployments into Iraq and Afghanistan where they get relief, leave and all that. And so we cycle that through some various periods where the ship is in port. But it's working out quite well for us.

CHAIR: Perhaps this is one for the Chief of Navy. Are there any other lessons for Navy given it's been such a long period of sustained deployment? Are there any other lessons, apart from f the cycles of deployment, in terms of the operation itself? Is the amount of drugs that are now being interdicted a result of an increased flow of trafficked drugs or is it also you have learned a lot about how to do it?

Vice Adm. Barrett : There are some lessons we have learned. Firstly, I would state that whilst all of our ships have been progressively increasing the number of takedowns they've had in terms of drugs, there is some speculation we are merely finding 10 per cent or so of the trade. That said, the methods that we are using have become more precise over the last few deployments. We are very good at doing that particular role. We are selected to do it by CMF and other commands in the area because of our proficiency at doing it.

One big lesson for me is we're not only seen as a navy that can do boarding operations; there are many other things we have to do. But as the chief has said, we changed the pattern of rotation as well, which has been important because we have increasing levels of engagement in other parts of the world as well. So I have had to balance the frigate force between that enduring operation and what we do in other parts of the world.

In terms of the crew itself, they are motivated, they are just about to or they just started their latest patrol but they will then go in for the period that the chief mentioned, where they will have a period of respite and recreation. But then they will still have another four months to go after that, which means we put a lot more effort now into how we accommodate family matters on their behalf whilst they're away. So we have an organisation, and work through that defence committee organisation to make sure the families are supported in the absence of their loved ones.

Senator Payne: CDF and I visited the first nine month deployment last year with HMAS Arunta over a couple of days and a night, just as they came out of the six week maintenance period in Bahrain. It gave us an opportunity to not only visit the commander of the CMF at the time, Vice Admiral Donegan but also to hear the feedback from the ship's company from top to bottom, some in technicolour detail, of their perspective, and that's exactly the sort of feedback that CN was talking about.

Vice Adm. Barrett : And we've made changes as a result—of course I'd say that, but we've made changes as a result of that feedback, together with what our sailors have told us, because it was not the first time we'd had deployments in that area for that long but we haven't done it for a little while. And so we did need to make some changes in our own practice, which we've done and will do for future deployments.

CHAIR: But it's clearly working?

Vice Adm. Barrett : It is working, I think. I think the evidence of what they're doing demonstrates that. But, as I said, there are a number of roles that they seek to perform in that area. Interdiction for drug smuggling is but one. We need to make sure that as a navy we don't just become enamoured or known only as the world's best border protection navy.

CHAIR: Thank you.

Senator MOORE: I just have a question for the minister.

CHAIR: Please, Senator Moore.

Senator MOORE: Tomorrow, in detail, we're asking about getting a briefing about the recent humanitarian action both in Tonga and now immediately in PNG. I'd like to get that across the two portfolios if I could, so I just wanted to put that on notice.

Senator Payne: It doesn't quite work that way, Senator.

Senator MOORE: I know. I will ask you.

Senator Payne: If you want to ask about defence engagement now, please do.

Senator MOORE: Well, I was going to put it on notice rather than take more time. Air Chief Marshal Binskin mentioned it in his opening statement.

Senator Payne: Yes, he did.

Senator MOORE: But I'd really like to get some more detail on that, and I'm happy to put that on notice and actually suggest having a briefing. So I'm putting that on record for you today.

Senator Payne: Sure. We'd be very pleased to do that.

Senator MOORE: And I'll do the same thing with DFAT tomorrow.

Senator Payne: I appreciate that.

Senator MOORE: I think it's easier to do it together.

Senator Payne: We'd be very keen to provide that update to the committee. We could do that, absolutely, very happily. So we'll again organise a separate briefing for the committee.

Senator MOORE: That'd be really good, and joint to do it with DFAT.

Senator Payne: Yes.

Senator MOORE: Thank you very much.

Senator Payne: Thanks very much, Senator.

CHAIR: Senator Patrick, you have questions on outcome 1?

Senator PATRICK: Yes, just supplementary to your questions, Chair, to the Chief of Navy. I recall probably 10 or 20 years ago we had a focus up in South-East Asia. We've obviously shifted to the Middle East. Is there now an intention to start refocusing back on South-East Asia?

Vice Adm. Barrett : I'll make two points. Firstly, I don't think we've ever moved from South-East Asia or that we've moved to the Middle East at the expense of South-East Asia. As the chief has said, this is about the 66th rotation since 1991, but we were still present in that area even before 1991. I recall being there in 1981, in the same area, for about seven months. But it is right to say that we have, over the last two to three years, put more ships into the region to the north of us—in part, I would argue, because that's what government requires.

Secondly, we are in a position to be able to do that now with our development of a task group philosophy within Navy. We are starting to spend more time in that area and to put—I wouldn't say more effort—more capability into some of the exercises that we conduct with our regional partners. This was manifest in Indo-Pacific Endeavour 17, which occurred at the back end of last year. There were six ships led by HMAS Adelaide, the LHD. We had a very successful deployment. We engaged right across the area with many of the nations we normally engage with, but we were able to do a more substantial engagement with them because we had a higher number. But it was also efficient, because we move from one engagement or one exercise to another rather than doing single-ship deployments, which has really been the mark of what we've done over the last decade or so.

Senator PATRICK: Thank you.

Air Chief Marshal Binskin : There was an article—I think in October last year—that said we need to focus more on the region—I think it was Andrew Shearer and James Goldrick who wrote it.

Senator PATRICK: Yes.

Air Chief Marshal Binskin : And I thought, 'This is interesting.' I went and had a look at our disposition in that couple-of-week period, and we had the six ships from Indo-Pacific Endeavour. We had, at the time, a couple of patrol boats up working around the region. We had a patrol boat, I think, in Apia, moving east at the time. HMAS Choules was in the Solomons with the volcano. We had P-3s and P-8s around the region. It was one of those things where you think, 'I don't know what we're missing here.' We've had far more focus on the region in the last few years. We had a bit of a—not a lull, but probably we were spread around a little bit more. But now we've got the frigates coming out of their upgrade. We've got relatively good patrol boat serviceability. We've got the P-3s and P-8s around the region. We're working well with a lot of the regional navies. We do a lot of building partner capacity, working in partnership with regional navies and other forces. It's actually a good program. So we're delivering pretty much what we said we would as a part of the white paper when it came in in 2016.

Senator PATRICK: I think it was Admiral Goldrick's paper that affected me.

Vice Adm. Barrett : During that period with IPE and those other deployments we had just under 10 per cent of Navy deployed during that period.

Senator PATRICK: Thank you.

CHAIR: Thank you. Any other questions for outcome 1? If not, outcome 1 has now concluded for today.

[14:05]

CHAIR: We will proceed to outcome 2. We've got several hours now for outcome 2. I will be going to program 2.1 first and then 2.2 and 2.3, and that will probably take us up to the afternoon tea break. Then we'll go into programs 2.4, 2.5, 2.6, 2.7 and 2.9 concurrently so that we can have a sustained look at that block of issues. So, first of all 2.1: Strategic Policy and Intelligence.

Senator FAWCETT: I want to go to the outcomes of the L'Estrange review, particularly ASD and the Australian Cyber Security Centre. I notice the recommendation was for that to be absorbed within the ASD, and that's located in Defence. I don't see anything in the Defence PBS for that. I notice PM&C's PBS has about $51 million for relocation and a bit over $38 million, I'm assuming, for recurrent operating costs. Is that arrangement going to continue, where PM&C will transfer that? Is that transferred to Defence to manage, or is Defence essentially just the host for that Cyber Security Centre and ASD?

Mr Ablong : The machinery-of-government change involved with the Australian Cyber Security Centre moving into ASD sees some resource allocation move in the first instance to reposition the organisation within the Defence portfolio. It won't continue after that point. That's just the transfer of the resources that PM&C usually spend on ACSC and its activities. It then becomes part of the portfolio. There is a one-off transfer and that's it.

Senator FAWCETT: In the rest of the forward estimates Defence will get additional funding for that measure?

Mr Ablong : No. The provision that was in PM&C's budget for ACSC, which includes the three additional years, will transfer across as well. Over the period of time that they had a bunch of allocation for ACSC, that transfers across to Defence year on year.

Senator FAWCETT: Sure, but what I'm trying to get to is this: is this going to be a government decision that results in a measure that Defence has to absorb in the long term out of its budget, or is this now going to become part of your budget submission to government for the operating?

Mr Ablong : It becomes part of our budget submission going forward.

Senator FAWCETT: In terms of the practical integration and stand up of the organisation within the Defence framework, how has that gone?

Mr Ablong : It's going very well at the moment. We have worked through the legal issues associated with ACSC's new role within the Department of Defence and the way in which that integrates with the Australian Signals Directorate's activities. We are in the process of completing the facilities that the ACSC will need in order to be able to operate within the Defence department, and we look to be able to take ownership of those facilities and do the physical move of ACSC very soon. The head of ACSC is part of the new Australian Signals Directorate senior leadership group, as of today, and contributes to the decisions in terms of their ongoing reorganisation of ASD for its new existence.

At the moment, everything is going reasonably well in terms of bringing ACSC into line. There does need to be some legislative change in order to effect some elements of it. The formal changeover of responsibilities will occur when that legislation is passed through the parliament, but, for all practical intents, it is underway at this point in time.

Senator FAWCETT: What are the practical implications for Defence of ASD becoming a statutory authority?

Mr Ablong : The ASD remains within the Defence portfolio, and our large portions of its business, which deal with the delivery of war-fighting effects, continue to be effected through the normal processes the Department of Defence has for those activities. They will broaden the scope of their role to account for other national taskings that may come from the Office of National Intelligence when it's established, or from other portfolios under whatever legal mandate those portfolios have to conduct activities that might involve the Australian Signals Directorate's capabilities. Inevitability there will need to be a very strong prioritisation process to ensure that the mandates that we have in a war-fighting sense, from a Defence perspective, and the mandates that might come from other agencies can be managed within what is not an overly largely growing resource.

Mr Moriarty : If I could add, I think there's been very good work done to make the arrangements to stand up ASD as an independent agency within the portfolio. We've had really strong collaboration from the new Director-General of ASD, Michael Burgess, who would be known to many of you. We've been working with the ASD team to help them set up their new corporate government processes. They'll have to have new workforce and policy arrangements. I'm very reassured that the new Director-General is absolutely committed to maintaining the indispensable connection between ASD and the broader Defence organisation, particularly in support of military operations. But the government's decision to make ASD an independent agency within the portfolio will give ASD greater autotomy to ensure that it can continue to meet its responsibilities to the broader national intelligence community, and also to the new Home Affairs portfolio beyond that intelligence community.

We've had some very productive early meetings with the Home Affairs portfolio. ASD, as you're aware, has for a long time provided national intelligence support, not just to the defence mission. That broader support has been done in accordance with proper intelligence legislation and with the oversight of the Inspector-General of Intelligence and Security. Those really robust oversight arrangements are going to continue in place, but ASD will be able to look at its broader mission for countering terrorism, countering serious organised crime, its cyber role, advice to the broader business community and other important stakeholders that are really looking for enhanced cyber advice. We're working through those things. ASD are very strongly committed to taking on that broader range of responsibilities while maintaining a core focus on the defence mission. I've been very pleased with the work we've done so far and I am optimistic that we'll be able to stand up the organisation as an independent statutory agency by the middle of the year, as the government is seeking to achieve.

Senator FAWCETT: I'm glad you're very supportive of a whole government approach. I think it's clearly going to be a good thing. We're in Defence estimates, so I guess my key question on the objective was around the issue of priorities, in terms of the ability for CDF to still get the information he or she needs in a timely manner for Defence operations. I'm just interested to understand the framework that's been put in place to ensure that as Defence hosts this organisation it still gets what it's traditionally had in terms of that timing.

Air Chief Marshal Binskin : The principal deputy director of ASD is an ADF three star. We've promoted Lieutenant General JJ Frewen into that position the other day. That was a recommendation of the review based on my concern of not losing focus to ADF operations globally, whether it be support in the cyber domain or intelligence domain. I don't want, as a part of the priorities that happen here, for us to forget ASD is our primary non-kinetic cyber warfighter on operations. So I'm comfortable with the processes that are currently in place and as this develops that the Director-General of ASD and his principal deputy know what needs to be done to make sure we get that prioritisation.

Mr Ablong : As you know, it's important that there be a great deal of synergy between the other defence intelligence agencies and ASD in terms of the Australian Geospatial-Intelligence Organisation and the Defence Intelligence Organisation, as well as the services who conduct some intelligence functions at a tactical and operational level. We have pulled into place a forum in which we bring all of those players together to talk about the nature of our requirements for the coming year, what the priorities need to be, and how those can be addressed by the system as opposed to individual agencies. So we're taking an enterprise view to defence intelligence and looking to make judgements about how the enterprise is able to deliver on Defence's intelligence priorities as well as to meet the national intelligence priorities. We've invited other agencies—Home Affairs, the new Office of National Intelligence when it's stood up—to participate in those processes so they can understand and be aware of our priorities and factor those into the broader national system.

Senator FAWCETT: You've described a fair bit of whole-of-government interagency work coming out of the L'Estrange review. What other areas does Defence have carriage of in terms of implementation, and what's your progress on those?

Mr Ablong : The principal area is the move of ASD. That's the number one priority in terms of what we're doing. The other elements of the L'Estrange review were mainly focused on ensuring that there was appropriate resourcing and priority for the intelligence priorities of the Australian government. In the main, that means looking at the Integrated Investment Program and the intelligence capabilities that are being developed through the IIP, and ensuring that where those capabilities have a war-fighting focus they are still maintained within the IIP framework and given the appropriate level of scrutiny and consideration through that process. Where they have a more national focus—so where ASD had a Defence project that was effectively delivering for the Australian intelligence community—that those are made available to the new intelligence capability investment fund as part of the work that the new Office of National Intelligence will need to do in terms of allocating resources to the intelligence capability requirements of the broader system. So rather than unpick the system, what we're doing is ensuring that there's an appropriate recognition of the criticality through the war-fighting or for the Australian intelligence community of those projects and then making the appropriate adjustments as necessary.

Senator FAWCETT: I have other questions in outcome two, but not 2.1.

Senator WHISH-WILSON: I have some questions around the Defence Export Strategy that was announced in January. When it was released, the media release was entitled 'Launch of job-creating Defence Export Strategy'. It says:

The Turnbull Government is unlocking more jobs and investment in Australia’s defence sector … This strategy is about job creation.

How many jobs do you anticipate will be created by the strategy over the coming year or the coming five years?

Mr Ablong : We are not making a judgement about the number of jobs that will be created as part of the export strategy. What we're ultimately looking to do is to build the capacity and capability of Australian companies to export, and providing them with tools, techniques and resources to make it easier for them to export into the world marketplace. We have not done an assessment of the number of jobs that might be created from that, but it is inevitable that a more resilient, robust and sustainable defence industry base that has exports into the world market will result in additional jobs and prosperity for the Australian community at large.

Mr Moriarty : Obviously the government does have a jobs focus in this, but when the government announced its export strategy, it spoke about five objectives: strengthen the partnership between the government and industry to pursue defence export opportunities; sustain Australia's defence industrial capabilities across peaks and troughs in domestic demand; enable greater innovation and productivity in Australia's defence industry to deliver world-leading defence capabilities—that's including for us here; maintain the capability edge of the ADF and leverage defence capability development for export opportunities; and grow Australia's defence industry to become a top-10 global defence exporter. It's a much broader strategy.

Senator WHISH-WILSON: I've got some questions about the top-10 target in a second. The government's announcement was clearly about jobs, and I've heard Senator Payne and others in the Senate repeatedly refer to the job creation strategy. You may be right, Mr Ablong. I won't shoot the messenger here, but if you came to a panel of parliamentarians and said, 'Here is one taxpayer dollar—how would you maximise creation of jobs?' I'm guessing that we would look at where would be the best bang for our taxpayer buck. And I'd like to see what evidence that it's going to be in creating defence industries, when there are so many other ways we can grow jobs. That's my job: to hold you to account on this. So there's been no calculation of figures based on other models overseas with the establishment of defence industries?

Mr Ablong : We certainly took account of them and analysed how other countries that do defence exports manage their processes to learn some lessons from that. But we didn't look to compare the nature of the job creation element of that. We really looked at how we could deliver those five priorities the secretary just talked about and what the best methodology was to do that. As the secretary said, if you are growing defence industry, there will be jobs associated with the growth of Australian defence.

Senator WHISH-WILSON: I have no doubt there will be. I'm interested in whether it's the most cost-effective way to create jobs with government assistance and taxpayers' money. I think that's a very important consideration. I'd say all political parties would agree with that point.

Senator FAWCETT: Secretary or Minister, I'm wondering whether you could explain to the committee the First Principles Review concept of industry being a fundamental input to capability and for the land commander, air commander and maritime commander to have the assets they need available when they need them in a configuration fit for war, they need a sustainable industry.

Senator WHISH-WILSON: That has nothing to do with my question.

Senator FAWCETT: It has, because—

Senator WHISH-WILSON: Can I finish my line of questioning first before we go—

Senator FAWCETT: It goes to the heart of the fact the value is around sustaining a fundamental input to defence capability through exports, not just the jobs that come out of it.

CHAIR: Senator Whish-Wilson, are you moving on to a different point now?

Senator WHISH-WILSON: On a point of order, I made it very clear I want to talk about creating jobs here and claims about creating jobs. I have no doubt at all there are other elements to this policy and Senator Fawcett is welcome to explore those. But could I finish my line of questioning?

CHAIR: You finish, and once you've finished that line we'll come back to Senator Fawcett.

Senator WHISH-WILSON: Would it be fair to say there's no evidence that this is a cost-effective way of creating jobs in Australia?

Mr Ablong : It's up to—

Senator WHISH-WILSON: Or that's not your priority.

Mr Ablong : It's up to other agencies to determine whether there are more cost-effective ways for the government to spend the government's resources. The job we have in the Department of Defence is to ensure the strategies and policies we put in place deliver on the government's commitment to the defence of the nation, protection of its interests and its people. In order to do that we recognise that an Australian industrial base that is robust and resilient gives us both a defence benefit in terms of having industries that are able to support the service chiefs to deliver the capabilities that they need, as well as—

Senator WHISH-WILSON: It might be more fair if I direct the same question to Senator Payne.

Senator Payne: If you have actually read the Defence Export Strategy, which would be a condition precedent for this conversation—

Senator WHISH-WILSON: I read your media release.

Senator Payne: You haven't read the Defence Export Strategy?

Senator WHISH-WILSON: I read your media release, which said it's going to create lots of jobs, so why don't you tell me why that's going to happen?

Senator Payne: That's an interesting approach to take, to read the media release and not the strategy itself.

Senator WHISH-WILSON: You made the statement, not me.

Senator Payne: I understand that.

Senator WHISH-WILSON: So defend it.

Senator Payne: I would draw your attention to the contents of the Defence Export Strategy, which clearly sets out the basis of the government's plan along the lines that Mr Ablong has stated in his remarks.

Senator WHISH-WILSON: About jobs? That's what my question is, Senator.

Senator Payne: Across the entire export strategy. It's actually self-evident—and I can understand why you might not be able to see that—that if you—

Senator WHISH-WILSON: Please answer my question about how you claim that this is a job creation strategy.

CHAIR: Senator Whish-Wilson, you have asked a question. Allow the minister to answer.

Senator WHISH-WILSON: No-one is answering my question.

CHAIR: She is answering the question.

Senator Payne: By virtue of the size of the government's commitment over the decade in terms of investment in the Defence portfolio, which is a $200 billion commitment, by virtue of the need to underpin that with a strong defence industry in Australia as a fundamental input to capability—going back to Senator Fawcett's question, which you didn't allow Mr Ablong to answer; that underpins it as well—there will be a significant growth in defence industry jobs in this country. That is another one of the reasons why we are, for example, pursuing the ''Workforce behind the Defence Force' campaign as part of that—because we know that we need—

Senator WHISH-WILSON: So you are pursuing that after you've announced it's going to be a large job-creating exercise?

Senator Payne: No, you have the timing wrong on that.

Senator WHISH-WILSON: Why can't you tell me about it now then?

Senator Payne: I am telling you.

Senator WHISH-WILSON: You are not giving me any numbers or any evidence at all about your job creation.

CHAIR: Senator Whish-Wilson, you have asked questions. Allow the minister to answer before you talk again.

Senator Payne: Maybe if you read the Defence Export Strategy and then come back to us we can assist you further.

Senator WHISH-WILSON: I would actually like you to ask my question please. What gives you the basis to go out in your media release and talk about creating jobs. You say: 'This strategy is about job creation'. I have asked you specifically—and I will ask you again—about cost-effective ways of employing taxpayers' money to create jobs.

Senator Payne: Let me take you through it very slowly and we'll see if that helps. The $200 billion defence spend which was set out in the Defence White Paper and the integrated investment program over the next 10 years underpins defence activity. It is predicated on a force structure review and so on.

Senator WHISH-WILSON: How many jobs will that create? Tell me how much $200 billion of investment—

CHAIR: I don't want to have to keep asking you to let the minister to answer your questions before you talk over the top of her. She is clearly answering your question.

Senator Payne: Senator, I am happy to take your question on notice and go business by business in Australia already employing extra people in the defence industry and come back to you.

Senator WHISH-WILSON: It would be appreciated if you could do that.

Senator Payne: I would be very happy to. And I'm sure I'm joined in my enthusiasm by the Minister for Defence Industry.

Senator WHISH-WILSON: I would like you to tell me, business by business, how many jobs you expect $200 billion—

Senator Payne: We will tell you across a whole range of areas. For example, if I recall correctly, you have spoken in the chamber about the Future Submarine program and we have spoken to you about the number of jobs, direct and indirect, which will be created in that.

Senator WHISH-WILSON: I don't believe I have.

Senator Payne: Okay. I'm sorry if I've confused you with—

Senator GALLACHER: I have.

Senator Payne: Senator Gallacher!

Senator WHISH-WILSON: I'm sure Senator Patrick has.

Senator Payne: Members of this committee have spoken in the chamber about the Future Submarine program. We have indicated the jobs growth that will result, both direct and indirect, in relation to that. That is just for starters. It is the same in relation to the OPBs and it is the same in relation to the Future Frigates. The work that is being done by Australian businesses to support the Joint Strike Fighter program is only possible through the creation of extra jobs to do that across Australia. We are very happy to provide you with further details on that. I'm sure that, even in your home state of Tasmania, that will be music to your ears.

Senator WHISH-WILSON: Senator Payne, $200 million is a lot of money. That money could be spent anywhere else in the economy and create lots of jobs. So I am very interested in why—

Senator Payne: Ah, so that's the threshold of your concern: you actually don't support the government's policy. It is no surprise to me that you don't support the government's policies in relation to the Defence White Paper and the—

Senator WHISH-WILSON: I have made the premise of my question very clear, Minister.

CHAIR: You are now both talking over the top of each other. Again, Senator Whish-Wilson, let the minister answer the question.

Senator Payne: It's a shame that the Australian Greens and Senator Whish-Wilson are not able to join in the positive aspects of this particular strategy and the work that has been done in Defence across Australia. It is profoundly disappointing yet again.

Senator WHISH-WILSON: My premise is very simple and I framed it up for you. I want to look at cost-effective ways of spending taxpayers' money. I want to know what evidence you have that this is going to be an effective job creation strategy. Perhaps I can give you an economics lecture—

Senator Payne: It wouldn't be the first time.

Senator WHISH-WILSON: That involves looking at the opportunity costs of taxpayer funding. That's what I want to know. What evidence can you present to me and the Australian public that this is an effective way of creating jobs in this country?

Senator Payne: Let's be clear here. You come to the table absolutely not supporting the Defence Export Strategy. You come to the table absolutely not supporting the government's confidence in defence industry in this country. It is self-evident. Let's be clear about that—

Senator WHISH-WILSON: You can say whatever you want to try and distract away from answering my question. That's exactly what you are doing. What evidence do you have—

Senator Payne: I am not putting a number on jobs, nor is Mr Ablong. Nor did—

Senator WHISH-WILSON: It seems as though you don't have any at all. Is that correct?

Senator Payne: What number would you like to use? We could use the 403,000 jobs that were created in Australia in the last 12 months through the efforts of businesses in this country and the support of the government in terms of creating the economic conditions to do that—that's a good number.

Senator WHISH-WILSON: Why don't you provide something. You make claims in a media release that 'this strategy is about job creation'. Where is your evidence to prove that this is a strategy about job creation?

Senator Payne: I know it's difficult.

Senator WHISH-WILSON: 'This strategy is about job creation'. Where is your evidence to prove this is a strategy about job creation?

Senator Payne: I have gone through the fundamentals that underline the defence export strategy, that underline the development of the white paper and the integrated investment program that goes with it. The significant investment that government is making in relation to supporting the ADF to do its job, the creation of a continuous naval ship building industry, and countless other examples. The challenge we have here is you don't accept them because you don't agree.

Senator WHISH-WILSON: It's not the challenge that we've got right here in front of us now.

Senator Payne: Well, self-evidently it is.

Senator WHISH-WILSON: This is a very old tried-and-tested strategy to try and distract away from answering questions—paint the senator as being unpatriotic because he's questioning the use of taxpayer funds to develop an industry, where the money could be deployed elsewhere and still create jobs. You need to be responsible.

Senator Payne: You're already on the record, as I recall, using language that characterises your views of this strategy. I understand that.

Senator WHISH-WILSON: My views are on the record; you're correct. I want your views on the record. I want your views on record about why—

CHAIR: Senator Whish-Wilson, if you have questions to ask—

Senator WHISH-WILSON: I'd like them answered, Chair.

CHAIR: Senator Whish-Wilson, you are making political points, which is your right to do as long as you can frame them somehow as questions. But you have repeatedly now asked the minister questions. She has clearly been on point in answering your questions.

Senator WHISH-WILSON: She hasn't been on point at all. She has been anything but on point, Chair.

CHAIR: You might not like how she's answering them, but please let the minister answer the questions.

Senator WHISH-WILSON: Will you provide a report that underpins your statement about this being a strategy of job creation?

Senator Payne: If you have asked a specific question on notice that you don't believe has been responded to here today by Mr Ablong or myself or by any other official

Senator WHISH-WILSON: No, Mr Ablong did respond the question.

Senator Payne: —then I'll answer the question.

Senator WHISH-WILSON: He was very direct with his response to me and I appreciated it. He said they had no estimates about how many jobs this would create.

Senator Payne: So I am not diverging from what Mr Ablong said.

Senator WHISH-WILSON: My question is: how long until you can provide the Australian people an estimate of how much $200 billion brings them in job creation?

Senator Payne: So you know that you are now conflating the $200 billion in relation to the government's commitments across the Integrated Investment Program?

Senator WHISH-WILSON: They're your numbers.

Senator Payne: Yes, indeed, they are.

Senator WHISH-WILSON: So how long until you can provide the Australian people an idea—

Senator Payne: I've said I'll take your question on notice and I'll provide you with some information.

Senator WHISH-WILSON: I'd also specifically like you to talk about the $4 billion that's going into the export facility of taxpayers' money?

Senator Payne: If you have a specific question in relation to that.

Senator WHISH-WILSON: I can put it on notice to make sure it's very clear.

Senator Payne: Good, please do.

Senator WHISH-WILSON: I like to know how many jobs you expect to do that.

Senator Payne: I look forward to it.

Senator WHISH-WILSON: Then we can take the debate from there, and look at other industries. There's a whole body of evidence that's come out internationally that putting money into the military industrial complex is a very poor way of creating jobs compared to other industries. At least we can have a debate in this country about it.

Senator Payne: You philosophically don't agree with this; I understand that.

Senator WHISH-WILSON: You're repeating the same—

CHAIR: Senator Whish-Wilson—

Senator Payne: That does not mean that it is wrong.

Senator WHISH-WILSON: —old lines. She's repeating the same old lines.

CHAIR: There are other venues to have monologues.

Senator WHISH-WILSON: You might be surprised, there are lots of Australians that philosophically disagree with what you're doing, and I'm here to represent them today.

Senator Payne: Indeed.

Senator WHISH-WILSON: You might be surprised, so let's have the debate.

Senator Payne: I very much appreciate the perspective you bring, but again, I don't agree with it.

Senator WHISH-WILSON: Why didn't you consider this when you were putting together your Defence Export Strategy?

Senator Payne: Why didn't we consider—

Senator WHISH-WILSON: Why didn't you consider what kind of job numbers would be created? You have this assumption—

Senator Payne: Because we're talking about an extraordinarily dynamic range of industry, and we could take time to talk about whether it's the businesses that make deployable battlefield medical hospitals, for example, or Thales, and the supply chain behind Thales that makes the Bushmaster and the Hawkei or our Pacific patrol boats being made in Western Australia which enable countries in our region to do a range of work that they would otherwise be unable to do or the Life Raft Systems Australia, which of course you may be familiar with, which is based in Tasmania, that's been awarded a contract to supply United Kingdom designed and built ships with a marine evacuation system.

Senator WHISH-WILSON: Senator Payne, with all due respect, I did ask you the question in the Senate and your response was very similar, that I wasn't around my brief, and that you had spent four years getting this export strategy together. I would have thought four years gave you plenty of time to look at the employment.

Senator Payne: I don't think I said you weren't around your brief.

Senator WHISH-WILSON: You did, that's exactly what you said.

Senator Payne: I think you absolutely understand your brief. I think you absolutely understand your brief. And you know what it's called, it's called 'Left turn at Batman', that's what it's called.

Senator WHISH-WILSON: You can say whatever you want, Senator Payne, but you're not answering my question or the question of many Australians: how is this a good bang for our buck?

Senator Payne: When's the by-election? Can we come back to reality after that?

Senator WHISH-WILSON: No, this is actually not about the by-election. I didn't even mention the word Labor in this, but I presume they're in lockstep with the Liberal Party as usual on matters relating to defence.

Senator Payne: I don't think I'm in lockstep myself, but that's another story.

Senator WHISH-WILSON: That's fine; it's always been with Labor. I tell you what, the culture of silence is not good for this country. Someone has to come in and ask you questions.

Senator Payne: No, I'm very happy to answer your questions.

Senator WHISH-WILSON: So far you haven't.

Senator Payne: We have a difference of opinion on that.

Senator WHISH-WILSON: Okay. So could I ask you—

Senator Payne: And that's why the Senate is such a fabulous place to be, because we can engage in a robust differences of opinions.

Senator WHISH-WILSON: Exactly, and we both agree on that much. You will provide me and this committee with—let's not say 'clear evidence', because that is subjective—a report that looks at estimates and job numbers.

Senator Payne: Almost everything you've said is subjective, but, nevertheless—

Senator WHISH-WILSON: You will provide us with an estimate of job creation.

Senator Payne: I will respond to your question on notice. That's what I said.

Senator WHISH-WILSON: Can I ask you then about defence export strategy and about controls, which I have also asked you about in the Senate.

Senator Payne: There is no change to the Defence Export Controls centre.

Senator WHISH-WILSON: One of the goals is to make us a top ten global arms exporter; is that correct?

Senator Payne: That is part of the challenge that the government has taken up.

Senator WHISH-WILSON: Where did you get that number from? Did it just sound good or was that justified on the basis of investment dollars, a number of jobs or capability? I'm just throwing a few things at you.

Senator Payne: We've looked at where we think we currently sit, and there are differing views about whether it's closer to $1.5 billion or $2.5 billion per year in defence exports. As the strategy notes—which, if I understand you correctly, you haven't looked at—that is a broad assessment which is, by virtue of the nature of the field, based on imperfect information. There is a lack of robust defence export data, and the defence industry hasn't previously been set aside, characterised as a distinct industry, with a clear definition of what it constitutes, so part of the strategy will address that. But that assessment is informed by a number of inputs. It's informed by export permit data, and, in that context, we acknowledge that the number of permits has increased over recent years. But permits don't actually equal exports; they equal permits. It's informed by what factual information is available on current export achievement and also survey responses that have been received from companies that are part of Australia's defence industry and are achieving exports in defence and civil security areas. So as the strategy also notes, what we want to pursue, as a priority, is to ensure that we establish a robust and repeatable mechanism that enables us to accurately assess export achievement and review the settings within the strategy.

Senator WHISH-WILSON: That may well be the case, but where did the top ten thing come from?

Senator Payne: I'm just going on to say. Data published by the Stockholm International Peace Research Institute currently says that we are ranked 20th amongst the world's largest defence exporters. Defence, in the work that it has done in preparation for the strategy—and Mr Ablong and Dr Kearnan will correct me if I'm wrong—doesn't believe that that accurately states or reflects Australia's defence export achievement, based on the data that we know about. They very narrowly define how they measure exports, particularly by capturing, as I understand it, major platform and subsystem export data which is consolidated from public sources. So part of our ambition is to better record and better analyse and develop that robust and repeatable mechanism I referred to, and then to reach, as far as Australian defence industry exports are concerned, to the top ten.

Senator WHISH-WILSON: Dr Kearnan, do you have an idea of where we sit globally, if the Stockholm peace institute's—

Dr Kearnan : Australia currently sits at number 19 on that ranking.

Senator Payne: As far as the Stockholm—

Dr Kearnan : Yes.

Senator WHISH-WILSON: I was asking because Senator Payne thought that that was a potentially narrow definition and that Defence didn't agree with that assessment. What do you agree with?

Dr Kearnan : That's currently where we sit on that ranking, but the data isn't as robust as it could be, which is why we are going to establish more outreach to understand where we will be sitting. We're going to be undertaking a series of surveys into the future.

Senator WHISH-WILSON: Where are we sitting now?

Dr Kearnan : It's very difficult to analyse. The best area that you can go to, from international understanding, is the SIPRI, but there is no international beyond that that gives you a more detailed understanding of what countries' defence exports are.

Mr Ablong : The amount of export dollars that Australia is generating through defence industry—and as Dr Kearnan points out, even the SIPRI data across various countries is not recognised as being authoritative—would put us somewhere closer to 16 or 17 than 19. But, again, we're making a judgement about what those other countries' export capabilities are and there is no objective source of that data.

Senator WHISH-WILSON: On what basis would we have a competitive advantage to be a top 10?

Mr Ablong : We've got a lot of competitive advantages in Australia. We produce some world-class capabilities that are unavailable anywhere else in the world that have provided the ADF with some very advanced capabilities. We would be looking to offer those capabilities, at an export variant version, to the world market. There are a number of competitive advantages that we have with respect to operating in Asia that countries in Europe don't have in terms of proximity and understandings of markets.

Senator WHISH-WILSON: If these industries are so successful, why do we need to use taxpayer money in funding $4 billion of loans? Is this because markets have failed to provide them with finance on their own?

Mr Ablong : It's a facility; it's not a loan. It is an ability for companies who might not be able to provide financing themselves.

Senator WHISH-WILSON: That's my question: why would that be the case?

Mr Ablong : There are a number of small-to-medium companies that provide world-class capabilities but their market capitalisation is not such that a bank would normally give them a loan for any activities such as an export opportunity, which is a little riskier than some other contracts.

Senator WHISH-WILSON: So they're risky?

Mr Ablong : The Efic does that for Australia companies across the board. The Efic, Export Finance and Insurance Corporation, provides that to any company in Australia is seeking an export market. What we've done is recognise that for some companies that operate in the defence industry sector, who have not traditionally used the Efic process, because they were either unaware of it or they did not believe that their particular company did not qualify, to provide them with a route into that capability.

Senator WHISH-WILSON: Part of that Efic model is to loan money to people so they can buy your products and goods. Will we be loaning money to businesses in the Middle East, for example in Saudi Arabia, to buy our arms exports?

Mr Ablong : We will be supporting companies to identify appropriate financing arrangements for them to participate in global exports. What we will be doing is working with Australian companies to help them to identify appropriate financing arrangements.

Senator WHISH-WILSON: Appropriate financing arrangements?

Senator Payne: Did you have further questions in relation to Efic, Senator? They will be appearing on Thursday.

Senator WHISH-WILSON: Yes, on Thursday evening. I'm interested in the strategy here. The strategy here is what we're discussing—

Senator Payne: I understand that.

Senator WHISH-WILSON: I'm wondering why, with such potential, these companies—I understand risk reward—need taxpayer money?

Mr Ablong : To be able to take advantage of the amount of resources that they can draw from our financing arrangements in the market.

Senator WHISH-WILSON: But there's risk capital they could access. Other companies don't get the same—

Mr Ablong : In some cases there are and in some cases there's not, so what we're doing is providing an alternative mechanism to make it easier to facilitate companies working in the defence export market. It's important here to understand the relationship between the work being done in the Defence Export Strategy and what might be done as part of the defence national account within Efic and the export control arrangements, because in order to be able to export—

Senator WHISH-WILSON: Sorry, I've only got one minute left, so I'm genuinely not being rude to interrupt. Where did the $4 billion target come from?

Mr Ablong : That's our assessment based upon what we understand the likely project values are for exports that we're aware of being likely to happen over the next two to five years. We polled the market.

Senator WHISH-WILSON: It may be upgraded depending on how many small businesses?

Mr Ablong : Or it will be prioritised, so those companies with the best chance of being awarded an export contract are provided an opportunity to do so.

Senator WHISH-WILSON: I have other questions, which I'll put on notice.

Mr Moriarty : The government made clear that that $3.8 billion facility was an upper limit on the National Interest Account, so that's the understanding that we in the department are working on.

Senator WHISH-WILSON: An upper limit?

Mr Moriarty : That's it: across the 10-year period.

CHAIR: Thank you very much. I don't have any other senators for program 2.1 and I don't have anybody listed for 2.2 or 2.3. If that is the case, we will go now to program 2.4.

Senator Payne: Senator, can I confirm that officials who are engaged in 2.2 and 2.3, if they're not required, are able to leave?

CHAIR: They are. If they're not required—

Senator Payne: For other components; understood.

CHAIR: in any of the other programs, then, yes, they can.

Senator KIM CARR: I've got some questions, Madam Chair.

CHAIR: Senator Carr, let me finish clarifying things with the minister.

Senator GALLACHER: Because otherwise we'll come back another day and finish it then.

Senator Payne: I was just checking, Senator. If you want them to stay, just tell me; it's neither here nor there.

CHAIR: Minister, I've just had a discussion with Senator Carr, and we are sticking to the program. So we have finished outcome 1 and program 2.1, 2.2 and 2.3, because I've had no senator indicate interest in those.

Senator GALLACHER: We have questions for the chief finance officer.

CHAIR: Deputy chair, do you want to go to the chief finance officer now or go on to 2.4?

Senator GALLACHER: I'm happy to go to Senator Carr to let him complete his examination.

CHAIR: Okay. We will now go through 2.4 to 2.7 and then we'll go back to—

Senator GALLACHER: Point of order. There is a standing order which means—

Senator KIM CARR: We'll come back another day, if that's the way you want to play it, Madam Chair. But this committee has worked in a very flexible way. These officers here have been very responsive. I've got some simple questions here. You know I've got another commitment, but if it can't be done today I'll come back another day and do it, and by that time I'll have substantially more questions.

CHAIR: Senator Carr, I'm actually sitting here. So, if you are actually addressing the chair, I'm sitting here; I'm not the camera down the back.

Senator KIM CARR: I'm not interested in the camera down the back. But, I tell you what, the cameras will be here for quite some time if you're going to continue to try to chair a meeting in this obstructionist way.

CHAIR: Senator Carr, let me point out a couple of things to you. You have had 47 per cent of the time today, so the chair has absolutely paid the homage that you think you are owed, and we are exactly on schedule. I understand from our conversation that you have to leave, so I'm very happy to move the program down a little further. Then you can ask your questions and leave, and then we will come back to the chief finance officer for Senator Gallacher after this.

Senator GALLACHER: I'd just like to say, Chair, that there is a resolution of the Senate which supersedes all of our good work in attempting to get an efficient program in place, and that is the caveat overriding all of this attempt to work to a program: any senator can call any witness at any time during the day. That is not our intention. We've tried to work very carefully and give appropriate notice to people. I would just ask that if Senator Carr can complete his work, we will then do our best to get back on schedule.

CHAIR: And I have already said I'm happy to accommodate Senator Carr's schedule. However, I would point out that that is not quite the standing order. The standing order says we will continue until there are no more questions on the agenda. I have specifically gone through each agenda item and confirmed that we have nobody else.

Senator KIM CARR: I was on the series of questions and you chose to go to another area. You chose to go to another area. I don't think you've interpreted the standing orders accurately. But if you want to pursue this in the chamber I'm more than happy to accommodate you.

CHAIR: Senator Carr, I'm very happy to take a suspension if you'd like to get the Clerk up, but I don't think that is a good use of anybody's time. We are exactly in accordance with the program that was actually proposed and agreed by the committee. So, if you've finished this discussion, I will happily hand the call over to you. If you don't have anything else to get out of your system, I will give you the call.

Senator KIM CARR: I was asking some questions about the shipbuilding program. I'm particularly interested in the advisory board. I appreciate that you've provided me with a question on notice in regard to the meetings of the board which goes up to October 2017. Have there been further meetings since that time?

Mr Gillis : The advisory board met last week, and that was the most recent that I'm aware of.

Senator KIM CARR: That's the only meeting?

Mr Gillis : And December. They're actually meeting very regularly, every couple of months.

Senator KIM CARR: Have there been changes to the membership of the board?

Senator Payne: Mike Burgess left the board when he became the director of ASD.

Senator KIM CARR: Is that the only one?

Senator Payne: As far as I'm aware.

Senator KIM CARR: Is Martin Bean still a member?

Senator Payne: He was never a member.

Senator KIM CARR: I think he was. For 2016 he's certainly listed as a member.

Mr Fankhauser : Martin Bean was named as a member of the board. However, due to a change in his personal circumstances he didn't take up the appointment.

Senator KIM CARR: Are there any others that were listed in the original 17 December release that didn't take up their appointment?

Mr Fankhauser : No.

Senator KIM CARR: And there's been only that one change as a result of a change in personnel—is that the only change?

Mr Fankhauser : Just Mike Burgess, who recently resigned to take up his new appointment.

Senator KIM CARR: I see the cost of the board is now at $1.69 million. Is that correct?

Mr Fankhauser : There would have been additional costs incurred in December and then the meeting that occurred last week. I don't have an update—

Senator KIM CARR: Could you give me an update on that figure, then?

Mr Fankhauser : Yes.

Senator KIM CARR: Seven of the 10 members are actually out of the United States. Is that right?

Mr Fankhauser : That's correct.

Senator KIM CARR: Why is that? Why have you selected seven out of 10 from the United States?

Mr Gillis : Predominantly because the United States has a very longstanding continuous shipbuilding program. This is a transition for Australia from project by project to something that has been a longstanding program in the United States. Therefore that skills base is the most appropriate for us.

Senator KIM CARR: I'm not surprised that you say that the United States has a longstanding shipbuilding program but it's not the only friendly country in the world has a longstanding shipbuilding program.

Mr Gillis : There are lessons that we're trying to learn from those countries that have had continuous shipbuilding. There are very few of those countries, the United States being the lead.

Senator KIM CARR: How long have the British been building vessels?

Mr Gillis : Probably 300 or 400 years. But they have not been doing it continuously. They have been having a start and stop process with their projects. They are now moving and transitioning, as we are, into more of a continuous build program. But they are also a significant tenderer. One of things we don't have with the United States at the moment is that they're not tendering a vessel or a submarine into these programs. Most of the other countries that we would traditionally deal with would be at some point compromised.

Senator KIM CARR: I see: a conflict of interest. Is that how you see it?

Mr Gillis : Potentially.

Senator KIM CARR: You've got 10 board members, 16 days, two telephone hook-ups, according to the figures you've given me, and $1.7 million.

Mr Gillis : We'll take on notice the specifics of the work. We need to give you the actual activities of the board members, the travel and the level of engagement they have. It's not just the meetings they have here; they have other meetings that occur in between the meetings that occur in Australia.

Senator KIM CARR: Thank you. It just seems to me an extraordinarily large amount of money.

Mr Gillis : My observation has been that the advisory board has been absolutely critical and valuable to me in my role, and I know that Stephen Johnson and the remainder of the team have got that, and also in providing advice to government. This is a very large endeavour for Australia. Having that independent advice, being led by Professor Don Winter, the ex-secretary of the navy, has been invaluable to us.

Senator KIM CARR: I accept that you need serious people. How did you determine the fees and the costs of this board? Are they externally set?

Mr Gillis : I'd have to take that on notice. That occurred a number of years ago.

Senator KIM CARR: I have raised already with you the question about this being paid to companies. You tell me that that's a normal process for your advisory positions.

Mr Gillis : Some of these people might be paid through a company but that company might be their own entity. They retire as the secretary of the navy and they set themselves up. They do that for tax reasons; they do that for—

Senator KIM CARR: Yes, exactly, for tax reasons.

Mr Gillis : or for structuring themselves, so that they become a legal entity for insurances et cetera. That's not an abnormal thing. It's most people who—

Senator KIM CARR: You've told me that all of them have been paid in that way. All of them are paid through a company structure?

Mr Gillis : I would have to take that on notice. But I would say it's not abnormal for retired, eminent people of that skill base to have set themselves up as a company structure, especially in the United States.

Senator PATRICK: The answer provided to me talking about specialist pre-eminent experts suggested that they're the only people that're paid above about $4,500 per day. Is that the rate these people are being paid at?

Mr Gillis : I'd have to take on board the specifics, but some of these people are.

Senator Payne: I'm not sure if you're comparing apples and apples, are you?

Senator PATRICK: I think this comes from things like the DMOSS panel, where you have different levels, and it says, 'Specialist pre-eminent experts—which are the words that Mr Gillis was using—can get paid more than $4,500 a day,' but the answer I've received said that that only typically happens for short-term contracts.

Mr Gillis : It's very unusual to get rates that are getting into the $4,500-plus. Usually it's only for eminent people. For example, Professor Don Winter, the ex-secretary of the United States Navy, providing very short-term pieces of work for us. I'm not aware of the individual rates but I can take those on notice.

Senator KIM CARR: This is not short-term now; this was announced in 2016.

Mr Gillis : There's a big difference between paying someone to do a day's work here, two days' work, three days' work and then not doing work and then picking up work. What you're doing is you're buying their expertise and resources for very short windows and then you're getting their high-level experience.

Senator KIM CARR: How many boards do you have that get paid these sorts of rates?

Mr Gillis : Within the whole of Defence?

Senator KIM CARR: I'd like to know in the government, but you can't answer that. In Defence, how many boards would you have where people are getting these sorts of rates?

Mr Gillis : I'd have to take that on notice. I'm not aware of the costings.

Senator Payne: I think there're some very important aspects of this discussion that are worth putting on the record. For example, the Future Submarine program plus the Offshore Patrol Vessel build plus the Future Frigate undertaking are programs which, when combined, represent the most significant naval shipbuilding enterprise in the world in contemporary times. That is not an exaggeration, although—

Senator KIM CARR: I'm not arguing with that.

Senator Payne: We have sought the most senior and experienced advisers to form part of the Naval Shipbuilding Advisory Board, some of whom were part of advising government in the development of the CEP process, making sure that that evaluation process for the submarines itself was carried out in a way that would deliver the capability we were after, based on experience that they had in the United States—bearing in mind that Australia has not developed a new submarine since the development of the Collins Class submarine.

There are a range of people who have experience and bring experience to the table from the most senior levels of the international community, in this case the United States, that we don't have in Australia. There are a number of Australians who are sitting around the table who bring their experience here to the board, which blends with the international perspective. It is very valuable advice. It is very valuable checking and balancing, if you like, as those three programs, in particular, are developed. The infrastructure develops at Henderson and the infrastructure develops at Osborne. Australia, in fact, has never built a 21st century shipyard, to be honest, so we are using external advice and advisers for that. Odense Maritime Technology would be another example of where we've gone afield.

Senator KIM CARR: I'm not arguing about the seriousness of the project you have undertaken; that's not the question. The question is: is this value for money?

Senator Payne: I'd like to be in a position where leading experts in the international community were able to volunteer their time to Australia, but the reality is that that is not the case.

Senator KIM CARR: I won't go to individuals on this board, as I think that would be unfair, but frankly, I know some of these people quite well. Who selected these people?

Senator Payne: On the advice of senior defence officials.

Senator KIM CARR: Advice from the department? Is that what you're telling us?

Senator Payne: Senior defence officials.

Senator KIM CARR: This department recommended these appointments?

Senator Payne: In part.

Mr Gillis : We proposed a range of names and in consultation with government we concluded a very broad panel.

Senator Payne: We seek advice from our counterparts as well. Some of those people are very well known in the Pentagon, as you might imagine.

Senator KIM CARR: The Submarine Advisory Committee I see has been appointed. A press release was issued on 22 January. But it's by way of reference to this committee. It's not an announcement for this committee. It's almost in passing. What is that?

Senator Payne: The Submarine Advisory Committee is similar sort of expert-level advice, but I'll ask the officials to go into that detail further.

Senator KIM CARR: We need another body expert body, do we?

Mr Gillis : I'll let Admiral Sammut answer the question.

Vice Adm. Griggs : The Submarine Advisory Committee is a specific committee that's looking at submarine capability and our ability to manage that as we introduce the future submarine into service. It has much more detailed and technical knowledge of the Future Submarine Program and is part of the critical peer review that we are continuing to make sure that the work that we are doing is assessed independently and reported independently.

Senator KIM CARR: Fair enough. We now have two advisory committees on shipbuilding, do we?

Vice Adm. Griggs : The Submarine Advisory Committee doesn't advise on shipbuilding. It advises on submarines.

Senator KIM CARR: So it's a very specific area.

Vice Adm. Griggs : Yes, it's a very specific area of focus.

Senator KIM CARR: And the other advisory board can't do that?

Vice Adm. Griggs : We have submarine specialists on the Submarine Advisory Committee.

Senator KIM CARR: How much are they being paid?

Vice Adm. Griggs : There are varying rates for the members of that committee as well.

Senator Payne: Can we provide you with an answer on that on notice?

Senator KIM CARR: Thank you. Who appointed these persons to the committee?

Vice Adm. Griggs : The minister appointed those on the recommendation of the department.

Senator KIM CARR: Membership of the committee, please—would you be able to provide that?

Vice Adm. Griggs : Yes.

Senator PATRICK: It's only three people, isn't it?

Vice Adm. Griggs : No, it's four.

Senator KIM CARR: When was it established?

Vice Adm. Griggs : The appointment was finalised on 4 December.

Senator KIM CARR: You said that you would provide the detail of their payment. I take it they would have different rates of pay. Is that correct?

Vice Adm. Griggs : There are varying rates of pay depending on the members engaged.

Senator KIM CARR: Is that within the normal Remuneration Tribunal approach, or is there a special arrangement here?

Vice Adm. Griggs : This is based on an assessment of their capabilities and their positions and whether they are eminent people or people with particular skillsets that apply to the program.

Senator KIM CARR: Are the people paid individually or to a company?

Senator Payne: We'll answer that on notice and get those details.

Senator KIM CARR: And if it was to a company, what's the AusTender reference?

Vice Adm. Griggs : I don't know what the reference is. I'll have to find that for you.

Senator KIM CARR: Of course you will. I don't expect you to carry that with you. Professor Winter was appointed chair of the Shipbuilding Advisory Board in October. His contract details appear to have commenced on 31 March 2017. October 2016 is the date of the announcement. What was the date on which he was paid?

Mr Gillis : I'd have to take that on notice.

Senator KIM CARR: I see that according to the contract note the remuneration was $1.26 million. Is that correct?

Mr Gillis : I'd have to take it on notice. I don't carry those with me at all times.

Senator KIM CARR: If you would, please. What's the purpose of the payment? Was it solely for shipbuilding advisory work?

Mr Gillis : Again, I'll have to take it on notice.

Senator KIM CARR: Does the contract for that payment have an end date?

Mr Gillis : I'll take that on notice.

Senator KIM CARR: Is there any other work that he's undertaking for the department?

Senator Payne: He has in the past. When I referred to the supervisory—that's probably the wrong word—advisory work that was done in relation to the comprehensive evaluation process, he was part of that.

Senator KIM CARR: The $1.26 million that's referred to in contract number CN 3415499, is that specifically for the work that's undertaken for the advisory board?

Mr Gillis : Again, getting to the specifics of the specific contract, I'd have to take it on notice and get back to you.

Senator MOLAN: As I try to understand the oversight and audit roles of this committee I would like to conduct a discussion, if I could, and finally ask a question on strategic policy as it relates to air, CDF. Could we have Chief of Air Force, please, or an air adviser?

Air Chief Marshal Binskin : We'll get Chief of Air Force.

Senator MOLAN: I'm really talking about the importance of the link between strategy and tactics through some form of operational concept. I have been presented over the last couple of years with a series of moving arguments, arguments which move over time in relation to my ability to understand them or the truth of them. One has come to my notice recently which I think has been passed to the Chief of Air Force. Air Marshall, have you seen the diagram that has come from—could I pass that diagram out to you now? Could you pass it to members of the committee please? Really the first thing to notice about this diagram is that—

Air Chief Marshal Binskin : It's simplistic.

Senator MOLAN: Absolutely. It's very simplistic, but is also goes up much higher than any other Army aviator has ever gone up.

Air Chief Marshal Binskin : And come back.

Senator MOLAN: I'd get a nose bleed.

Air Chief Marshal Binskin : Some have gone higher, but I don't think they've come back.

Senator MOLAN: It's an interesting diagram and it goes to three questions. The three questions are—before I very quickly go through the diagram—what is a realistic tactics scenario against which we can judge the effectiveness of our air capability? Is this a realistic scenario? Third, if it's not a realistic scenario, can you tell us what is? If it has realism anywhere, what are the implications for deterrence? They're the general three or four questions I'm getting to.

If I could explain the diagram, the diagram is, as the CDF said, very simplistic, but given the level of access that I guess this committee has, and given the level of access most voters get as they make a decision on governments in relation to defence, I think it or something like it may have value. The physical aspect of the diagram is that it supposedly concerns the approaches to Australia from north to 65,000 feet and about 800 nautical miles out from the north of the country. It talks about the F-35s and the Growlers and the E7As and the KC-30As and our current and future air defence capability. It has an opposing force—I guess this is where we get into the simplistic aspect of it—equipped with Su-57s and Su-35Ss. It indicates that there is an altitude deficient between what we are buying, the F-35s, and what we believe or certainly the person who constructed this believes the Su-57s and the Su-35Ss have. It implies a speed element, in that super cruise of opposing forces will lessen the ability of missiles. And it also implies judgements about the impact of missiles. As a committee which doesn't have the expertise that you have, I'm very interested in those three questions. Could I repeat the first one? What is a realistic tactical scenario against which we can judge our air capability?

Air Marshal Davies : This is part of the evolution of F-35 and really is now several decades worth of evolution. In there we have studied the physical characteristics—of aircraft and weapons, of radars and sensors. Around those you can build a set of tactics and capabilities that allow you then, in this case in the air battle, to make decisions.

What I would offer here is that this diagram, in a single snapshot of a particular situation, is just that: a snapshot. It is not at all indicative of a scenario that we would want to either design or—I think CDF would agree with me—end up in. What's not characterised here, of course, is the entire kill chain. What's not characterised here is the ability for us to detect early through many other sensors—JORN, air warfare destroyer, intelligence from coalition partners. All of those go into defining this particular battle space well before this simplistic diagram.

Senator MOLAN: That's good. That certainly makes sense to me. Are you saying this diagram is not possible or is unlikely?

Air Chief Marshal Binskin : I could draw you a thousand diagrams. I'm a combat instructor, I can draw. I can draw you a thousand different scenarios and differences, depending on the elements at the time and the mission. The reason it is quite simplistic is that if you compare it to the high fidelity 3D modelling with the proper models of the aircraft and the missile systems, whether it be kinematic radar cross-section, all the elements of it, the high fidelity modelling that goes into our assessments, and through all different scenarios—multiple aircraft scenarios; where we're outnumbered; where we have an advantage in numbers—all the different scenarios take us down a path that we then use to develop the tactics we then may use to employ the aircraft. Or in the case of this, what are our advantages and disadvantages? It doesn't matter whether you're in the Army, the Navy or the Air Force, you don't fight someone on their terms. You fight them on your terms. That's how you try and structure the fight to be. In simplistic terms: where did they come from 800 miles away to attack Darwin?

Senator MOLAN: Absolutely.

Air Chief Marshal Binskin : Would we sit there? There are so many what ifs that a simple diagram like that is not going to take into account.

Air Marshal Davies : These are the type of scenarios that we do take on board as being potentially the situation. We run these at realistic ranges. It's why our attendance at Red Flag in the US, for example, and the upgrade of our Woomera facilities is so important, so that we can then grow some fidelity around what we have made assessments for and test these. But at the moment I would say this is not only unlikely; it would be a very remote scenario that we would find ourselves in this situation.

Air Chief Marshal Binskin : That's this diagram.

Senator MOLAN: How do you express in some way that non-specialists can understand it—people who don't have the depth of knowledge that you have—your level of confidence in the system, which I assume aims to produce air superiority, air control—whatever the words are that you use?

Air Marshal Davies : Part of it starts with our selection of our equipment and the ability for that entire ADF order of battle—the things that the Vice Chief of Defence Force would characterise in our contemporary capability development cycle. It is no longer a consideration of a single element: it is the combined effect of the entire ADF. In that construct for the air battle we value highly the ability for us to operate, not just with the ADF, but with coalition partners. Therefore, some of the system design that we recommend to government includes that very piece, which allows us to be significantly advanced in not only our equipment but also our techniques and our training that allows our teams to do that. Operation Okra is a fine example of an upgraded classic Hornet that did a fantastic job for E-7 Wedgetail teams and tanker teams and are the choice of those that operate in Okra.

Air Chief Marshal Binskin : I don't want to downplay the potential threats that are out there. This is a highly complex battle space. It's not something that's happening at six knots or 20 knots; it's 600 knots-plus either way. So you're working at 2,000 kilometres per hour closing and greater in these scenarios with multiple aircraft and multiple systems, and your decision of win-lose is made in seconds, not minutes. It is a highly complex battle space, and the threats that we could potentially face are quite real out there. So we take it very seriously in trying to get the best equipment that we can for our people. This is an F-35 argument. We're looking at the best aircraft available for us in what we see as our tasking. When you look at some of the other specialist aircraft out there, the E-7 is best in class. In fact, it's an aircraft of choice for what it does at the moment in the Middle East as is the KC-30 tanker. So we're looking at the best equipment that we can get out there to give our crews and the ADF the best chance of success.

Finally, when you look at that, you look at the quality of the people, the quality of the training and the quality of the exercises that we do. We don't go out and do scripted exercises anymore; we go out there and the exercises are full-on. In this sort of scenario in the exercise you get shot, you go home. You go home and sort out what happened there that got me to that particular point and what the lessons are. That then gets fed back into the force design—what do we need in the enablers to be able to combat the system that we might be going against? It could be better cyber capability or more investment in the Growler capability. So it's not that one-on-one fight that it used to be. It really is a system-versus-system fight.

Senator MOLAN: I take those points. They are good points. Is there relevance in the difference between high capability? Is there any truth in that?

Air Chief Marshal Binskin : If you've got an aircraft that can go higher and faster it's something you have to count. Some would say it just runs into your missile quicker—but that's being overly simplistic. You would look at: how do I get first shot? I think this is simplistic. It indicates the F-35 will only fly to 35,000 feet, and that's wrong. Does the F-35 have super cruise? No, it doesn't. Does it have better radar cross-section? Yes. Does that mean that it might not be up there at that height and that speed but it's going to get earlier detections to be able to employ its weapons and how it employs the weapon? Does the adversary have a clean shot? Is it getting jammed? Another factor is if it's a long-range strike and they are a long way from home and they're worried about fuel. There are all these factors that will be there that, as a system-versus-system, will need to be taken into account.

Senator GALLACHER: I want to return to the future frigates. We explored some of the questions in an earlier OPV section, so we don't need to rehash those. We'll seek an answer and move on. I understand that all the tenders for the C-5000 have been received?

Rear Adm. Dalton : That's correct.

Senator GALLACHER: So obviously they're now under consideration with the government.

Rear Adm. Dalton : We've completed the substantive tender evaluation and the decision is being formulated and discussed with government.

Senator GALLACHER: Would you be in a position to say when the successful bid will be announced?

Rear Adm. Dalton : I think the position is that it's up to government. We've said in public that that will be announced before the middle of the year.

Senator GALLACHER: The original date was before the middle of the year. Have we been given any indication of whether that's changed?

Rear Adm. Dalton : That's on track. We're on track to support a government decision by the middle of the year.

Senator GALLACHER: Are you able to say what the most impressive feature in the bids—

Mr Gillis : No comment whatsoever about any of the three tenders. It would be inappropriate. You can look at the front pages of newspapers—they seem to be advertising fairly comprehensively.

Senator GALLACHER: Are you able to talk about the selection criteria?

Mr Gillis : In general terms, yes.

Rear Adm. Dalton : In general terms, it was to possess an anti-submarine warfare capability, to remain affordable, to commence construction by 2020 and to be the colonel of a continuous shipbuilding program.

Senator GALLACHER: There is probably quite a comprehensive effort going on with various embassies and navies showing their wares. I declare an interest, I suppose: I was on the HMS Sutherland the other day. So that's the type of vessel it is?

Rear Adm. Dalton : The HMS Sutherland is a type-23 frigate. So it is an older frigate. But anything that informs the public debate around what frigates do and how they're used is beneficial to the overall program.

Senator GALLACHER: So you're not able to talk about features in the bid. I will turn to an earlier thorny question that Senator Carr was exploiting or exploring in respect of intellectual property. Can you brief us on how the intellectual property for the design of the future frigates will be dealt with?

Rear Adm. Dalton : Again, all three tenderers have offered slightly different intellectual property plans, and that would be going to what they have tendered.

Senator GALLACHER: But the general principle is that they have a design which we are not capable of replicating, so we need their design. Then, as we build it or add on to it, we get some intellectual property rights. Is that how it works?

Rear Adm. Dalton : The intent is to be able to design a capability in Australia.

Mr Gillis : One of the other significant criteria is to gain sovereignty in Australia so that we can do that design and build for the next class of vessels in Australia.

Senator PATRICK: Who do those rights pass to?

Mr Gillis : It varies between the three tenderers, and the three tenderers have given us different responses. But, in a competitive environment, I am seeing some very good responses.

Senator PATRICK: Do they pass from, for example, Fincantieri—which is an Italian headquartered company—to Fincantieri Australia, or is it being transferred to existing Australian entities?

Mr Gillis : I don't want to discuss that on the basis that they do vary significantly and goes specifically to the evaluation criteria.

Rear Adm. Dalton : Suffice to say, all three bids provide us with an opportunity to develop a strong design capability in Australia.

Senator PATRICK: Sure. What I am trying to get at—and this is really a policy question, not related to the responses—is: how do we secure that sovereign capability if you're passing it to a daughter company of a foreign entity? That's a different proposition to passing it to an Australian company that's headquartered here in Australia, who will—

Mr Gillis : Because of the nature of the responses received and the fact that they vary so much, I don't want to comment about that other than to say that I am very comfortable that the three tenderers will offer us sovereignty and we will probably get an outcome that is better than we've seen in the past.

Senator GALLACHER: So, when the bid is announced, will there be transparency and clarity about the intellectual property?

Mr Gillis : After the bid is announced and we have another estimates, I would be happier to answer some of those questions because we can then start discussing the specific nature of the successful tenderer.

Senator GALLACHER: The two ministers have announced this export capability. We might be jumping to conclusions but, if we are going to export something, we've got to be able to build it. So who owns the IP is a very central issue to all that.

Mr Gillis : I am not trying to obscure here; I'm just protecting the tender process, because of the variations of the tenders.

Rear Adm. Dalton : And there is a difference, Senator, between ownership and having the rights to use it. You don't necessarily need to own it to have the right to use it or even export it.

Senator GALLACHER: The Bushmasters are always put up as the great example of where we've done really well with having the capability and then improving it in actual real life to the extent where it is a sought after piece of equipment. Are we going to see a similar sort of arrangement here? Is that our intent? Is that sovereignty?

Mr Gillis : Our intent is to gain the maximum level of sovereignty. But, because of the nature of the tender responses and the fact that we're at this critical stage in the tender, I really don't want to discuss the nuances between what they are actually offering, other than to say that I am very pleased with the tenderers.

Senator GALLACHER: You are being consistent with the other responses.

Senator PATRICK: I have two definitions of what is sovereign—one in the export strategy, which talks about just having an ABN classifies you as an Australian industry. There is another, I believe in the OPV frigate, which talked about a current registration as an Australian registered company having continuously maintained that registration for 15 years. So that's another definition. We're awaiting some other definition from the department about sovereign capability. So, without reference to the tender—so this is a generic question—are we able to answer what is sovereign yet?

Mr Gillis : I would wait for that sovereign industry capability policy statement and the definition of that. It is being worked on by the Centre for Defence Industry Capability, the department and other government agencies, and it will have a much more fulsome determination of what sovereignty actually means. We want to make sure that we are getting that capability in Australia—the ownership in Australia and that ability to export in Australia.

Senator PATRICK: Will that definition come out before the decision on this particular frigate, so that it informs this program? This is the last of all the ships being announced and we haven't got to the idea of what sovereign is—and it is a sovereign shipbuilding program.

Mr Gillis : That's still to be announced by government, so I am not going to pre-empt when that's going to be released.

Senator PATRICK: Most people when they undertake a particular task for the Navy or for any organisation work to a project plan which has a schedule wrapped around it. That's a very normal process. Are you telling me that there is no project management plan for the defence sovereign capability plan, which will have that definition?

Mr Gillis : A sovereign industry capability strategy is where we define which of those capabilities that we are going to define as sovereign and what we are going to do around them et cetera. For example, the plan that we have for the sovereign industry capability of shipbuilding is quite comprehensive and public.

Senator GALLACHER: Chair, can I just draw our attention to the fact that I am quite happy for someone to ask a supplementary question during my examination of the department, but I would like to get back to my brief with some time left.

Senator PATRICK: Sorry.

CHAIR: That is a very timely reminder of the time. We now have two minutes left before we break. Senator Gallagher, you have about another minute and a half or would you like to break now and resume when we come back.

Senator GALLACHER: I have one question and then we can break. Is a solution that incorporates an Australian design house part of consideration in the tender document?

Mr Gillis : Which tender are you talking about.

Senator GALLACHER: Frigates.

Mr Gillis : No, we have selected three international designs and they may or may not contract with an Australian design house. That's still a subject matter of their tender response.

Rear Adm. Dalton : But they will generate an Australian design capability.

Senator GALLACHER: But there is no incorporation of an Australian design house?

Mr Gillis : It's not mandated. What we are asking them to do is to generate that capability in Australia and for that to be sovereign in Australia.

CHAIR: Just before we break, I want to raise something for the committee and a point of clarification for the department. Previously, Senator Carr raised questions—as did Senator Gallagher—about standing orders. I just wanted to confirm that we have in fact been proceeding exactly in accordance with standing orders. We have a committee approved program and we are working through that program. I will keep confirming after every outcome and program whether there are any more questions and, if there are no further questions, we will move on. At the end of the day, if there are still outstanding questions in any of those programs, a spill-over day can be requested. But we will keep to the program and, if there are questions that run over time, they will be for another day.

Proceedings suspended from 15:30 to 15:46

CHAIR: We will now resume. Senator Gallacher, you have the call.

Senator GALLACHER: We have had a look at our brief in the break and we will put the rest of our questions on the C5000 on notice. We would now like to move to an update on the projects of concern. We note the press release about the OneSKY program. Could someone give us a snapshot of what has happened there? I understand OneSKY has been brought to a stage where it may no longer be a project of concern.

Rear Adm. Dalton : I think there is now some active consideration in government to remove it from the Projects Of Concern List.

Senator GALLACHER: Have your costs in respect of that program increased?

Rear Adm. Dalton : There has been an increase in the overall cost for OneSKY. Thales and Airservices entered into contract for the OneSKY program last week.

Senator GALLACHER: And that is at $1.2 billion?

Rear Adm. Dalton : The target cost for the program is $1.2 billion.

Senator GALLACHER: Airservices say they are up to $690 million.

Rear Adm. Dalton : That would be about right. The share between Airservices and Defence is roughly 60-40. The precise cut for the share between Defence and Airservices on the OneSKY program is 57-43.

Senator GALLACHER: What does that do with the figures that were published in the audit account and the first-pass approvals for early estimates of Defence's expenditure in this program?

Rear Adm. Dalton : This project gained second-pass approval in December 2014. The total approval for that was $906 million. That includes Defence's contribution to the common elements of OneSKY and the Defence unique elements of OneSKY, as well as a range of other products and services that go beyond phase and provide services into Air 5431 phase 1 and 2. So that one figure is not all directly attributable to OneSKY.

Senator GALLACHER: We heard last night—at least from Airservices—that there will be considerable efficiencies achieved in the commercial aviation sector as a result of this new platform, for want of a better word. Where are your efficiencies, your savings, going to be?

Air Marshal Davies : The efficiencies come in our ability to operate a single air traffic management system. We need to manage the efficient flow of civilian aircraft in Australia, as you may have heard the night, in what will be a growing civilian air-traffic expectation over the next 10 years. Defence will need to operate in restricted airspace to operate aircraft and systems that will require more airspace and a more dynamic use of airspace—the F-35 is a case in point. We will be able to do that more efficiently. Currently, we need to shut down large blocks of airspace, in both dimension and height, for reasonable amounts of time, which is of course inefficient. OneSKY will allow us to be more efficient.

Senator GALLACHER: Using Williamtown as an example, your capability there would be enhanced?

Air Marshal Davies : Yes—our ability to use the amount of space. The sensors on an F-35 will require us to have our training often at ranges in excess of what we currently use for the F-18. It would be difficult to ask a growing civilian sector to allow us to block off more airspace for two or three hours while we did that particular training evolution. Our expectation is that we will be able to still do our training but allow a civilian flow through that that is still safe.

Senator GALLACHER: This is particularly relevant to Amberley and Williamtown?

Air Marshal Davies : This will apply to just about all flight operations both military and civilian. I would add that there is a growing need to be able to cater for an unmanned aerial systems industry that is growing.

Senator GALLACHER: Can we go to the Air 900 phase 2, 4 and 6. The ANAO major projects report says that the program is 60 months behind the original plan final operational capability. Is that correct?

Mr Fairweather : That would be correct. That is where it is to date.

Senator GALLACHER: What was the original date for FOC?

Mr Fairweather : The original FOC at first pass was 2013 for Navy and 2016 for Army.

Senator GALLACHER: I understand that you received the final aircraft in the middle of the year. So all the aircraft are here. How far are we from FOC at this point?

Mr Fairweather : The Chief of Navy has just declared OCL 3, which is Operational Capability Land, and we are waiting to confirm OCM 2, for maritime operations. The issue waiting for resolution on that is the Electronic Warfare Self Protection Suite. It has just been through a range of testing and we are waiting for the final feedback from that report on the effectiveness of the system to understand the risk to deploy it into threat environments.

Senator GALLACHER: Would that be months?

Mr Fairweather : We are expecting to get that feedback before the middle of this year.

Senator GALLACHER: How many aircraft are in service right now?

Mr Fairweather : There are 47. The 47th aircraft was provided by AAP as a training aircraft. There are 47 aircraft that rotate through the 46 operational.

Senator GALLACHER: Was that our expectation at this point in time?

Mr Fairweather : To have 47 aircraft?

Senator GALLACHER: Yes.

Mr Fairweather : It is actually one more; it was out of the deed 2 settlement; a 47th airframe was provided.

Senator GALLACHER: Is it correct that the Chief of Army agreed to delay the introduction of the MRH-90 into the 6th Aviation Regiment by three years?

Mr Fairweather : That’s correct. The Chief of Army has just made the decision for the introduction of the platform in the 6th Aviation Regiment in early 2019. That work is underway now through Plan Palisade.

Senator GALLACHER: And that meant extending the Black Hawk to 2022?

Mr Fairweather : Or thereabouts.

Senator GALLACHER: Longer or shorter?

Mr Fairweather : That's the current plan—2022.

Senator GALLACHER: When will the MRH-90 be fully introduced? It is in play now, is it?

Mr Fairweather : For Army it is delivering the full capability to OCL 3. We are waiting for OCM 2 for the Navy.

Senator GALLACHER: You expect that in the middle of the year?

Mr Fairweather : It depends on the final report on the Electronic Warfare Self Protection Suite.

Senator GALLACHER: Do we have any costings on the Black Hawk extension?

Mr Fairweather : I would have to do take that on notice.

Senator GALLACHER: Is it correct to say that Defence is operating at 100 per cent of its plan rate of effort for the MRH-90?

Mr Fairweather : At the moment, they are operating at 106 per cent. They aim to achieve 100 per cent by the end of the year for the Taipan.

Senator GALLACHER: How would you characterise that measure? Is that where you thought you would be?

Mr Fairweather : It is achieving the planned rate of effort for this time. But there is still a lot of work to do on the maintenance burden and the supply chain to support that.

Senator GALLACHER: The report also notes that the project officer is experiencing challenges delivering the fully expected capability? Where is it falling short?

Mr Fairweather : There are a couple of issues there. One is the Taipan gun mount. It is required for all but, particularly in special operations, there is a rappelling device that needs to go through. Both of those are going through initial design and development now, and rappelling device certification. And there are a number of other issues around that. We are about to go under contract to have all that capability ready for trials this year and the commencement of operations in February next year.

Senator GALLACHER: What does the rappelling challenge mean in terms of the people who operate it? Are they still able to operate it? Or are they not operating in it?

Mr Fairweather : At the moment, there is a limited rappelling capability for one person. This is the ability to do multiple rappelling. Prototypes have been developed and it will go through certification later on this year.

Senator GALLACHER: Is that impacting on training as we speak?

Mr Fairweather : Not yet. But if we don't meet the schedule it will. I think it is due in August this year. We need to have a prototype available.

Senator GALLACHER: I understand that the MRH-90 project has had contingency funds applied in 2016-17. What did you apply that contingency to?

Mr Fairweather : I would have to take that on notice because that is before I arrived and I don't recall a contingency call from last year.

Senator GALLACHER: What was the value and how much of the contingency remains?

Senator Payne: We will come back to you on those questions.

Senator GALLACHER: I want to move on to the Australian Defence Satellite Communication Capability Terrestrial Enhancement.

Mr Gillis : That is 2008 phase 3F. We signed a settlement deed with BAE in November last year. That was for the completion of the ground base station west. But we have terminated the east coast requirement. The terms of the settlement are a full recovery of all those costs et cetera. Ivan Zlabur, the head of Joint Systems Division, is here if you have any specific questions about that one. We consider that one as having been removed from the Projects of Concern List.

Senator GALLACHER: There are a few questions here. One of them is particularly lighthearted. Mr Gillis, I believe in 2017 you said that this was the one project that kept you awake at night. How many nights' sleep have you lost?

Mr Gillis : I think I'm losing more sleep at night looking after my grandchildren than looking after this at the moment. But this now is a matter that is behind us. It has not been a good project, but I think the fact that it has been among the projects of concern so long has driven the right outcome for both the Commonwealth and BAE.

Senator GALLACHER: So you're advising the committee that it is completed?

Mr Gillis : No, we've completed the west coast installation. We have terminated the requirement for the east coast because we didn't see it would get value for money considering the lateness of the schedule. There is another project that will take on that capability, and we have now sought, through a settlement deed, a full recovery of those costs from BAE. That's been finalised.

Senator GALLACHER: I appreciate that you've briefed the committee on this project at a private briefing. Are there formal lessons learned? Is this a case study in how not to do things?

Mr Gillis : It is. It's one of the ones that I've tasked my team to actually have a look at, and one of the core lessons with this was the selection of a company that did not have a strong history in certified ground based links to the WGS system. So, in hindsight, it was a poor selection.

Senator GALLACHER: Are there any consequences that flow to Defence or industry participants as a result of this project?

Mr Gillis : I'd have to get my capability manager. VCDF would be the appropriate person relative to the operational outcomes.

Senator GALLACHER: Okay. I want to quickly run through some figures on the OneSKY project. It's just numbers. Minister, the government-approved budget for CMATS, according to the ANAO, is $731.4 million. Is that the correct figure?

Rear Adm. Dalton : There are a number of numbers associated with it: the ANAO reports, the element of the approved budget that's assigned to the—

Senator GALLACHER: Sorry, Rear Admiral. If I ask the three questions together, it might avoid us repeating stuff. Is $731.4 million correct? According to the ANAO, in June 2017 the unspent component was $669 million. What is the remaining unspent budget at 31 December, if that makes any sense?

Rear Adm. Dalton : The $731.4 million is the value of the project allocated to the Capability Acquisition and Sustainment Group to progress Air 5431 phase 3. The amount of money left in that project at the time of the report was correct. We have spent some money against that project. There has been some early work done ahead of the contract signature between Airservices and Thales to try to protect the schedule as much as possible. So those two figures that the ANAO reported in the major projects report at the time that that was published are correct.

Senator GALLACHER: Does that leave an unspent budget allocation at 31 December 2017 of the difference between the two?

Rear Adm. Dalton : On that particular date, yes.

Senator GALLACHER: The ANAO also stated that Defence would be seeking approval for a significant real cost increase for the project and it would be considered by government in February of 2018. Has there been an increase sought?

Rear Adm. Dalton : The government has approved an increase to the project.

Senator GALLACHER: Do we know how much that is?

Rear Adm. Dalton : $243 million.

Senator GALLACHER: The contract with Thales was originally due to be signed in October 2015, so we're well away from that. You did sign a contract last week—is that what the press release said?

Rear Adm. Dalton : Airservices signed a contract with Thales. We don't have a direct commercial relationship with Thales. We have what's called an on-supply agreement with Airservices through which we contribute our share for the common elements of OneSKY, and we also pay for the Defence unique parts, and Airservices deliver them to us through the on-supply agreement.

Senator GALLACHER: What date does that contract that Airservices have signed, and which you're obviously aware of—I think we would have had this at Rural and Regional Affairs and Transport—say the project will be delivered by: 2020?

Rear Adm. Dalton : At this point in time, I can say we should have an initial operational capability in the fourth quarter of 2020. That's a capability for defence. And we should have the full operational capability in the fourth quarter of 2025.

Senator GALLACHER: How would you characterise the fact that—

Air Chief Marshal Binskin : 2022.

Rear Adm. Dalton : Sorry, it's the fourth quarter of 2022.

Senator GALLACHER: That's consistent with what we were told the other night. How do we characterise a project for which it took two years longer than expected to sign a contract?

Rear Adm. Dalton : Late.

Senator GALLACHER: Got me! Apart from being late, was it tortuous or with the wrong instructions or not the right capability?

Air Chief Marshal Binskin : I'll jump in a little bit to give the admiral a bit of a break. Part of that delay was to make sure we got the best value for money from Thales and the contract. There was a lot of: 'Here are the contract costs.' We worked a lot with Airservices to make sure that we understood the costs and brought the costs down as much as physically possible before we went ahead with the contract so that we understood the risks and we had a good understanding of the timelines that were going to be delivered on.

Senator GALLACHER: I've had experienced with Airservices at the Public Works Committee where it varied from them forgetting to refer projects to not being able to complete projects referred within 12 months of their due date, and also in the regional and rural affairs and transport area a whole litany of matters were discussed. Are you confident that Airservices have got this right from a Defence perspective? They're leading your effort.

Air Chief Marshal Binskin : They're leading now. The work that we did over the two years has given us the confidence to get a really good understanding of where the project's at and what we need to do from a defence force and capability point of view to introduce it. Based on all that, I've got high confidence that we're now in a position to deliver it.

Vice Adm. Griggs : We've got much more engagement with the Airservices board as well. Both the Chief of Air Force and I attended a board meeting late last year and one of the things that I was encouraged by was that the questions the board members were asking were the questions we were asking. They were focused on the right issues. We effectively have a standing invitation to attend any board meeting and I think that's been quite a useful development.

Senator Payne: I think it's fair to say—and I think Mr Gillis alluded to this earlier—that we did use the period during which the matter was on the projects-of-concern list to address some of those issues and concerns. That is in part what has enabled us to come to this point.

Mr Gillis : One last issue on this one is that two years ago we released one of Defence's most senior program managers, somebody who had been involved in a lot of quite contentious programs over a number of years, and he's now working—

Air Chief Marshal Binskin : Not 'involved with'; 'in there to resolve'.

Mr Gillis : He was the resolver; he was the fixer of some of our worst projects. To be very clear, he was the fixer. He didn't cause any of them; he fixed them.

Senator GALLACHER: Why should we expect smooth sailing from here, given the history of this project?

Senator Payne: Smooth flying, Senator, rather than smooth sailing!

Rear Adm. Dalton : The answer to your question is based around the time it's taken to get into contract. We have a very robust understanding of the contract. We've also had a number of advanced work orders happening ahead of the contract. So, by the time we actually signed the contract, we had completed the systems requirements review, which is something you don't normally complete until well after you enter a contract. The definition of what Thales have to deliver is very well described and we have the contract in place now to be able to monitor what Thales does and ensure that they deliver on the schedule that they have developed. There are a range of incentives in the contract. Airservices have moved to a target price incentive contract. If it does start to cost more it will actually start to cost Thales more. So there's an incentive on Airservices, Defence and Thales to now deliver the product. This contract model is a better contract model than what we had at the outset of the negotiations. One of the reasons the negotiations have been so challenging was around how to best manage that risk—the contract architecture we needed to put in place to best manage that risk.

Senator GALLACHER: The ANAO have found that there were organisational differences which had contributed to the delay. You're assuring the committee that they have been resolved as organisational difficulties or differences?

Air Chief Marshal Binskin : Organisational differences. There were differences in views in some of the risks that were there, and I think the two years of work that we've done has reduced those risks quite markedly.

Senator GALLACHER: Thank you for that. Chair, I still have some more questions.

CHAIR: That's alright; I'll come back to you.

Senator WHISH-WILSON: For clarification, have there been any questions on the Joint Strike Fighter?

Air Chief Marshal Binskin : Yes.

Senator WHISH-WILSON: Okay. If they've already been asked, I'll go straight to the Hansard. I was looking through the late-2017 assessment of the F-35's development program by the US Department of Defence's director of operational test and evaluation and the statement that the F-35 has over 200 defects. Has the department—

Air Chief Marshal Binskin : Just to clarify, these answers haven't been given yet. You are going down a different track, so we'll get the appropriate people.

Senator WHISH-WILSON: I just wanted to get a comment in relation to that report.

Air Marshal Davies : The annual report captures the status of a number of parts, if you read the report, that indicate where the project was in the year that they were evaluated. This report is a continuation of many of those. They go around logistics about aircraft performance and systems performance, and they categorise them separately into A model, B model and C model F-35, which are not the same for each of those models. What I would say is that the trend of reporting has been very useful but also one of retirement of those risks. The observations and the assessments made in the report—apart from the ongoing logistics and the mission data evolution, which is taking longer and is more problematic than we would have preferred at this point, the practical elements of the program that are mentioned have been subsequently retired in following years.

Senator WHISH-WILSON: Those data elements you refer to, and I honestly don't know—although I did initiate the inquiry into this a couple of years ago, I don't understand the technicalities of it. The deficiencies included kill chains, weapons integration, combat survivability, shipboard operations, maintenance, operational documentation, mission planning, ALS functionality, operational test implementation and cybersecurity. Are the F-35s that we're ordering affected by these deficiencies?

Air Marshal Davies : Senator, I'll get Air Vice Marshal Gordon to comment in a second, but from a capability manager's perspective these are not all resolved as of today but they are being resolved. What we have grown to understand by being in the program as an early partner is having people in the program that are able to make those assessments about progress. The first two aircraft we acquired in 2014 are not the same as the three newest aircraft we got from lot 10 just recently in the last few weeks. The progress of the aircraft against the combat criteria that I would be seeking is at a rate that I'm comfortable with.

Senator WHISH-WILSON: Okay. Did you want to add to that?

Air Vice Marshal Gordon : There has been significant progress in the F-35 program since the data that generated the report was pulled together. Indeed, there has been some progress on US Air Force certification of the capabilities in the F-35A. I think that they address a number of the shortcomings that were identified in the report. I guess the other comment I would make is that the IOC for Australia is December 2020, so we've still got two years, effectively, to address some of those issues if, indeed, the US have challenges addressing them across that period.

Senator WHISH-WILSON: Perhaps you could tell me if this is relevant. The assessment also said:

As of late October—

you said pooling the data together for that report. This specified:

As of late October 2017, the program had 263 Block 3F unresolved high-priority (Priority 1 and Priority 2) performance deficiencies, the majority of which cannot be addressed and verified prior to the Lot 10 aircraft deliveries, with only 88 of these 301 deficiencies being actively worked.

Is that of concern to us?

Air Vice Marshal Gordon : They have progressed a number of those deficiencies since October last year. There have been additional software loads delivered. Again, we're looking for a resolution of these issues, in some instances, by December 2020.

Senator WHISH-WILSON: In relation to the software upgrades, what has the cost been to Australia of those, or are those covered by the company itself or by the US—by our allies?

Air Vice Marshal Gordon : We haven't paid any more into the joint program for that work to occur. It's part of the ongoing effort of the project.

Senator WHISH-WILSON: Could I confirm in relation to costs: the most up-to-date figure I could find is that each aircraft costs around US$90 million to produce—is that the kind of number that Australia's paying?

Air Vice Marshal Gordon : The US$90 million is our estimate of the average cost of our 72 aircraft. The most recent aircraft that the US contracted with Lockheed Martin for were lot 10 aircraft. The cost of those aircraft and engines was in the order of $96 million. That's a reduction from earlier lots. We do expect there to be a reduction in aircraft cost, through both learning and a focus by the US on reducing the production costs.

Senator WHISH-WILSON: Through increased scale of production or—

Air Vice Marshal Gordon : And also introducing efficiencies in the production process.

Senator WHISH-WILSON: What about operational costs? Have there been any changes to your assessment of the operational costs of the F-35s when they're in action?

Air Vice Marshal Gordon : The F-35s have flown, if I remember correctly, about 130,000 hours as a global fleet, which is still fairly early. We're monitoring the operational cost of the aircraft. The US joint program office has, I guess, a focus on reducing the cost of ownership of the F-35 and has a number of initiatives in place. We're certainly monitoring US service experience on the operational cost.

Senator WHISH-WILSON: Based on your expectation—because I think the committee heard that over the life of the project the costs were also quite substantial in relation to the capital costs of purchasing the aircraft—you're confident that they're not going to blow out with all of these software upgrades?

Air Vice Marshal Gordon : That's the sort of activity that we anticipated would occur as part of the life of the program.

Senator WHISH-WILSON: Have you actually done internal estimates in terms of the life of the program—estimates for the operating costs of the fighter based on what you know now?

Air Vice Marshal Gordon : We have a cost model that we're maintaining and we're looking for increased fidelity data out of the US joint program. They've offered to provide us with that as they're getting more experience.

Senator WHISH-WILSON: Just a clarification, because I was supposed to ask this but I didn't: the software of the first two F-35As that we received, was that block 2B?

Air Vice Marshal Gordon : It was block 2B. The aircraft were subsequently upgraded to 3I and they were operating at the 3I configuration—indeed, aircraft 2 is currently operating at the 3I configuration. Aircraft 1 is currently in the depot having the physical upgrades to allow it to operate 3F. It will go back to the training school. When it's appropriate for that aircraft to be upgraded to 3F, based on the needs of the training school, we'll look at upgrading the software in that aircraft.

Senator WHISH-WILSON: You can assure the taxpayer that we won't be running two substandard F-35s—they'll all be upgraded?

Air Vice Marshal Gordon : I can assure you that we will have the best F-35s in the world.

Senator WHISH-WILSON: Thank you.

CHAIR: For the purposes of the officials here, the committee has had a quick meeting and changed the program around slightly so that DHA, who I understand were going to be here at five o'clock, can be excused. Questions will be put on notice for DHA. We're going to use that half an hour to continue this current line of questioning. We will go after the dinner break to the Australian War Memorial and to DVA as scheduled.

Senator PATRICK: I just want to work through a number of questions and then maybe get to submarines. If I don't get across that then I'll only have one topic to deal with. I don't even know who to address this to. This is a question about the musical instruments. I'm not sure if that's a capability acquisition or not.

Mr Gillis : I'm happy to start addressing those with General Coghlan.

Senator Payne: Only because they'll be trying to stop me answering the questions!

Senator PATRICK: Fairfax has reported the Department of Defence has spent more than $2.3 million buying musical instruments since 2015. This includes $25,000 of handmade flutes, $62,000 worth of bagpipes and dozens of woodwind instruments priced well above $10,000. There are 743 full- and part-time musicians in the ADF, who receive instruments worth on average $5,500 each. That's what the article said. You can either suggest that it's wrong or maybe comment on it.

Mr Gillis : I'll get Major General Coghlan to answer the question.

Senator Payne: I had Brendon Gale in my office this afternoon. That was a better pass then I've seen him do!

Air Chief Marshal Binskin : What we'll do is give you the context and the policy side of it, and then the procurement side and some of the things that we've learnt in this evolution. Before you get to it, there are a couple of instruments that are on that list that, actually, if you looked at it logically, you would not purchase, and we don't agree that that should have been the case. What it's done is put us to a point where we'll look at the policy and align all three services across a single policy, which is what we didn't have in the first place. But there have been a lot of myths and legends around this, and I'll get the major general to take you through some of that and then the policy side of it.

Major Gen. Coghlan : I'm responsible for the purchase of musical instruments for Army. Air Force and Navy at this stage purchase their own. The instruments purchased for the Army are purchased with three considerations: the forecast for beyond economic repair and instrument replacement, the ARA musician graduates from the Defence Force School of Music on a yearly basis, and known Army Reserve transfers to the Australian Regular Army. The way we work it is that we have subject matter experts who give us advice on the quality of the instruments to be provided on a three-year rolling prediction. We take the procurements in accordance with the Commonwealth Procurement Rules, and anything over $10,000 is publicly reported by AusTender. The standard of musical instruments we buy is the same as for the United States military and the UK military—that is, entry- to mid-level professional quality—and they are procured at commercial rates. Most of those examples you quote had three tenders or three RFTs put out for those that Army bought. I would make the point that on AusTender quantities are not put in. For example, you see a large volume for a range of instruments, many of which I can quote—for example, the French horn accessories for $114,000. That was actually for 10 complete musical instruments. At the end of their usable life, we sell them by auction, and in the last 12 months we have recouped $76,000 by selling instruments by auction. Currently there are a range of instruments in stock. They are on the Military Integrated Logistics Information System. When a requirement comes in for a clarinet, everyone gets the same clarinet and we purchase those, and in the recent purchase they've gone to most of the bands in the Australian Regular Army by location, depending on forecast.

Mr Gillis : I'll add one thing just in continuation of what the CDF said. There are some of these instruments that were purchased that I can't defend. The prices we paid were not reasonable. So one of the things is that, working with the service chiefs, we will centralise the procurement of all musical instruments, and the general has volunteered to take on that responsibility.

Senator PATRICK: And you'll march to the tune, so to speak.

Air Chief Marshal Binskin : Thank you.

Senator PATRICK: That's good. When you come up with a policy, can you send that through to the committee just to say, 'This is how we've closed that off'?

Air Chief Marshal Binskin : Army have a very robust policy in this space, so what we're doing is aligning that policy across the ADF, but we can provide that.

Senator Payne: We will provide you with some more information on notice in due course.

Senator PATRICK: And I think the journalists might be interested in that as well.

Air Chief Marshal Binskin : I'm not answering to journalists.

Senator Payne: My interest is in the interests in the committee, you'll be amazed to hear.

Senator PATRICK: Perfect. One of my advisers seems to trawl through AusTender. That says more about him than probably needs to be said.

Senator Payne: As a former adviser yourself, senator, that would be a graceless observation.

Senator PATRICK: That's true; guilty. There was an ANAO report that talked about lack of transparency and miscategorisation of tenders. I've got a couple of examples here. I'll put this one on the record. The tender number is CN3486055, which is not important unless you need to go and look at it. The category is live animals. It's for $75,000, and the description is education. Unless that's a black op, and the whole thing's—

Air Chief Marshal Binskin : We need the specialists here to—

Senator Payne: On a specific tender, why don't we take those details on notice and provide a response to you.

Senator PATRICK: Sure. There's another one here, which is CN3483208, live animals, and then the description is 'computer stuff'. It's not super helpful.

Air Chief Marshal Binskin : Ms Skinner will be able to take you down this path, and I think you'll find they are categorisation issues that we've discovered in this.

Ms Skinner : You're quite right. There are some data integrity issues with the way some of the tender data has been classified. We are having a look at that and updating our internal controls to ensure that we have better categorisation. I understand that, when you choose something from the drop-down menu, the first thing at the top of that drop-down menu is 'live animals'. That might be why we have a range of items classified as live animals Clearly, Defence does have live animals. We have some monkeys and we have working dogs. They are appropriately classified, from what I could see, on the AusTender data. However, there are some other items, as you point out, that are not.

Air Chief Marshal Binskin : We're working on the problem.

Senator PATRICK: Just moving now to contracting and a continuation of the discussion we had that originally started with ICCPM and the $4,500 cost. You have come back to me with an answer to portfolio question No. 146, on Hansard page 28. You have said that you established panels and some of the daily rates are $4,500. The contract is reported on AusTender when it goes above $10,000, obviously, so that's three days work.

Mr Gillis : That would be three days work at a very high rate. Some of these rates are as low as $900. It varies between levels 1, 2, 3 and 4. The task we have is to drive those rates down and drive the average rate down to the low.

Senator PATRICK: You said that you were working on a policy on that. How are you progressing?

Mr Gillis : The first phase of that was, in the transition out of the old DMO into CAS, there were the old DMO panels, which consumed about 50 per cent of the contractors. They weren't just contractors that CAS Group used; they're the contractors the CAS Group used, the rest of Defence would use and other agencies would use. So we've gone through a process over the last 18 months to again go through that process, and we have significantly reduced those rates to average rates that have gone down to approximately 30 per cent. That's only the start of the process. The process then has to go into the discipline over how we actually engage those people. We've now elevated that engagement to the band 1 level inside the Defence organisation for the eminent people which we discussed before. That is a decision of the secretary, so that only the secretary and CDF could be making those types of decisions relative to those very high level individuals at those high rates.

The next path of it is working with the associate secretary and the enterprise business committee to then look at the remainder of the panels that we have right across to Defence, and to ensure that we are consistent right across the whole of the defence organisation and that we bound that. Public servants and other organisations can use panels; we want to make sure that we've driven the Defence structural cost to as low as we possibly can get, and also to get the right people at the right skill base.

Senator PATRICK: I heard Admiral Sammut talking about how he had 130 contractors on board. I don't need the specifics of the submarine project, but that would be done through the—

Mr Gillis : The DSS panel. A lot of those contracts were done before we finalised this, but any new contractors or anyone transitioning will go onto the new DSS panel.

Senator PATRICK: Moving to the Future Frigates Program, I came across some scuttlebutt, and I just want to kill this off, that one of the tenderers—I won't name them—had initially considered the idea that to hit the 50 per cent mark they could do a first build of a ship in their home country and then repatriate that task to Australia and do eight ships here. That's not on your radar, is it?

Mr Gillis : That is not in any of the tenders. I've not heard that at any stage in this process. I've had no Commonwealth or government official or Defence personnel make that comment to me. I've had no industry person make that comment to me. It's the first time I've heard it. And if somebody did propose that, they would not be successful in this tender.

Senator Payne: Indeed they wouldn't!

Senator PATRICK: Thank you very much. So nine ships in South Australia?

Mr Gillis : Nine ships in South Australia, Senator.

Senator PATRICK: Just going back to the 'sovereign capability' definition, just to help me out: where are you forming that policy? Is that part of a document or part of a policy statement when we're talking about the definition of 'sovereign capability'?

Mr Gillis : Mr Ablong can answer that question.

Mr Ablong : We first spoke about the need for a sovereign industrial capability assessment framework in the Defence industry policy statement that was released with the 2016Defence white paper. We've been working on that as part of a document called the 'Defence industrial capability plan', which is still being developed by the organisation, and the Sovereign Industrial Capability Assessment Framework will come out in that document.

Senator PATRICK: I think I got an answer back from you guys this morning on that which actually gave me a date.

Mr Ablong : Mid-year. But that's dependent upon government decision-making and a number of other factors. Our current expectation is around mid-year.

Senator PATRICK: There's no chance you could give us a snippet of what 'sovereign' was before that, noting—

Mr Ablong : As you would expect, there are a number of different views on what 'sovereign' might mean and they're being worked through at the moment. I wouldn't like to make a statement until after the government's had a chance to have a look at it.

Senator PATRICK: Although that does raise an issue in that you are currently—Admiral Sammut is negotiating, for example, the strategic partnership agreement for the Future Submarines. There are now OPV contracts being negotiated. Central to this whole program is 'sovereign capability'. If you haven't defined that, some of that 'sovereign'—whatever you define 'sovereign' to be—I would have thought needs to be built into those contracts.

Mr Ablong : In the Naval shipbuilding plan we did talk about what 'sovereign' meant in terms of the sovereign Australian shipbuilding industry. It was the ability for major surface combatants and minor war vessels to be able to design, construct, sustain and dispose of major surface combatants and minor naval vessels. In the circumstances of submarines, it was the ability to construct, sustain and dispose of submarines. Now obviously the individual elements of each of those projects that need to be sovereign or not will depend upon a number of circumstances, including the economic value associated with trying to do something here in Australia that we might not have done before and those things that are critical in a supply chain for our ability to access in times of in extremis. There are a number of those elements.

Now the principles that underpin our definitions of 'sovereignty' are well known within the department. They've been socialised at the working level. The KSG officials who are working the submarine program work very closely with the defence industry policy division people, who are pulling together the 'Defence industrial capability plan'. So it's not as if we will lay something down in a policy sense that has not been discussed, consulted on and fits within what they're trying to do in the submarine program, and vice versa.

Senator PATRICK: And are you involving industry in that conversation and that socialising?

Mr Ablong : Yes, we are.

Senator PATRICK: In what way? How are you actually doing that?

Mr Gillis : We're doing that through consultation through the Centre for Defence Industry Capability in consultation with industry in the broad. I've also had a discussion with the Australian Industry Group, the Ai Group, and have sought their input, as have the policy people.

Senator PATRICK: I'm now going to move to the topic of submarines. Chair, do you want me to break now and come back?

CHAIR: You've got five minutes.

Senator PATRICK: Can I break and then come back to another section?

CHAIR: You can.

Senator KITCHING: Minister, on 14 February, as you'll remember, I withdrew an order for the production of documents that related to—

Senator Payne: Senator, I believe I was in Iraq on 14 February, so I might not be familiar with that.

Senator KITCHING: I tabled an order for the production of documents that related to the details of any special purpose flights taken by members of the executive in 2017. I withdrew it, but on the agreement that we would get the 2017 SPAs.

Senator Payne: Which was then tabled.

Senator KITCHING: I've got up to 30 June 2017, but I don't have the second part of 2017.

Senator Payne: That is the point at which the documentation is currently available, so you have what is currently available.

Senator KITCHING: So we don't have the second part of that?

Senator Payne: No.

Air Chief Marshal Binskin : Normally, because it takes a few months to get all the information in and validated and worked on, you look at January to June being provided in December or January. There's about a six-month delay in tabling.

Senator KITCHING: And that's under the document—

Senator Payne: The finance guidelines.

Senator KITCHING: Yes. But the agreement was reached for the whole of 2017; however, if it's not available, I'll understand.

Air Chief Marshal Binskin : It's not available.

Senator KITCHING: Just on that, on Monday Senator Cormann tabled a letter from the Prime Minister to Mr Parkinson, and then one from Mr Parkinson back to the Prime Minister in relation to an investigation into the former Deputy Prime Minister under the Statement of Ministerial Standards. That investigation has been terminated, but there is still ongoing an Independent Parliamentary Expenses Authority inquiry. I'm wondering if they have accessed the special purpose flights documentation up to current day? Can you let us know about that?

Senator Payne: Certainly I would not be aware of that; I wouldn't expect to be aware of that in the context of an IPEA inquiry. I presume, and stand to be corrected by the secretary if this is not correct, the Department of Defence and its constituent parts would not rate in any way with the requirements of such an inquiry.

Mr Moriarty : We certainly will, Senator, but I'm not aware of any approach to the department as yet. But we stand willing to assist, obviously, with those appropriate inquiries.

Senator KITCHING: I want to move on to a special purpose aircraft, which is the Prime Minister's new jet. I understand that Defence is repurposing a KC-30 jet to serve as the Prime Minister's new private jet. Is that correct?

Air Chief Marshal Binskin : No. I think you've simplified it. It's not as simple as that. It's repurposing a KC-30 as an ultra-long-haul VIP aircraft that will allow government to do the longer trips overseas and still be able to conduct the business of government. There is a lot going into that fit-out. It will also be able to take staff and media on board the aircraft—and the Governor-General as well. So it's not just for the PM.

Senator KITCHING: Is it just one KC-30?

Air Marshal Davies : The work we did through a number of years to determine the number of tankers we required to service overall Air Force needs had us at more than six, but, as we progressed through that tanker acquisition, we needed to fit the budget and the growth of aircraft, therefore we were at six. We made application then for a subsequent two aircraft. We made that submission to government based on what was a quite outstanding opportunity, given that Qantas was retiring two of its older A330s—and not just any 330s. They were of the same build, same engine, same class, if you like, as the first six that we had acquired—excuse me, those five aircraft. The two extra aircraft that we are acquiring, that's aircraft 6 and 7—sorry about the numbers mess-up there—are being fitted currently. The sixth aircraft has actually arrived in Australia and is being used as a tanker. It arrived in September of last year. With the seventh aircraft, there was an opportunity for us to add to its tanker capacity and its multirole capacity to be able to do ultra-long-range VIP. This is, for any ultra-long-distance VIP transport service, where it has an ability to have increased communications, so that work can be done during the trip, and an ability to rest and work appropriately, but it is still primarily a tanker. It will be based at Amberley with the 33 Squadron for the vast majority of its time.

Senator KITCHING: When will the repurposed jet be put into service?

Air Marshal Davies : That aircraft is going through its modification in Spain at the moment. We expect to have that aircraft in Australia by late 2019.

Senator KITCHING: Is it at a preliminary stage of the refit?

Air Marshal Davies : I will get back to you with the specifics, Senator, but it takes us about a year and a half to do the upgrade because the air-to-air refuelling part takes about a year and a half to do. That only began about six months ago.

Air Vice Marshal Roberts : We've just finished the tanker upgrade, and it has gone to corporate jet in Lufthansa in Hamburg. It's going through the GTC upgrades as of about a week ago. It has actually commenced that upgrade in Hamburg in Germany.

Senator KITCHING: What's the total cost?

Air Vice Marshal Roberts : The total cost of the GTC upgrades is $187.7 million. That includes a number of critical capabilities, including the improved communications suite and the cabin modification. There is an additional cost for logistic support for the capability as well, and an element of project management to deliver that capability with Airbus in Madrid.

Senator KITCHING: Has it been purchased or is it being leased?

Air Vice Marshal Roberts : The KC-30 has been purchased. It's one of the ex-Qantas aircraft. It was modified in Madrid for the tanking purpose and is now having the other upgrades done.

Senator KITCHING: And that's in Hamburg with Lufthansa.

Air Vice Marshal Roberts : Yes, Lufthansa Technik.

Senator KITCHING: What's the additional cost of refitting the jet to serve as a special purpose aircraft?

Air Vice Marshal Roberts : The actual cost for this government transport communication modification is $187.7 million.

Senator MOORE: And the original cost of the plane?

Air Vice Marshal Roberts : The original cost of the plane I don't have at the moment, but I can take that on notice and let you know.

Air Chief Marshal Binskin : Just to clarify, the aircraft wasn't purchased as a special purpose aircraft. It was purchased as a tanker against a tanker requirement, and then the modifications done were additional so it can serve two missions here, seen as the most efficient way to be able do it.

Senator MOORE: Could you table that?

Air Vice Marshal Roberts : We'll provide that. The tanker, the original aircraft cost was in the order of about $320 million just for the pure aircraft, and then the modification for the air-to-air refuelling was on top of that.

Senator KITCHING: So is it an ex-Qantas A330? It is. And they cost $320 million plus around about and then the refit cost in the extra.

Air Vice Marshal Roberts : It was 680 for two.

Senator GALLACHER: Can I just check, are you saying an A330 costs around $320 million?

Air Vice Marshal Roberts : A second-hand A330.

Senator KITCHING: Can I just ask about the fit-out? So how is the interior being fitted out?

Air Vice Marshal Roberts : The interior is being fitted out with a basic—and in fact the majority have second-hand business- and first-class amenities—configuration that allows support for long-range operations, including a sleeping area and a bathroom, a conference room and some reconfiguration of the rear cabin.

Air Chief Marshal Binskin : And the standard that was chosen for this was the Qantas standard. From memory, there were two first class pods up front, which are the Qantas one, and then the business-class seating was the Qantas business-class seat. We thought we'd go with that as a standard everyone knew and it worked, and then we fit it out. Then you've got the economy class right down the back to make out the seating to be able to do the job.

Senator KITCHING: So it's kind of like a commercial aircraft so two in first class, a business-class section.

Air Chief Marshal Binskin : And I won't go into the actual layout, because people get worried about that from a security point of view, exactly where it is.

Senator KITCHING: Yes.

Air Chief Marshal Binskin : But there is a large conference area for business to be conducted in the centre of the aircraft as well.

Senator KITCHING: So you don't want to go into the—

Air Chief Marshal Binskin : Not exactly where it is. Normally we don't allow photography on board.

Senator KITCHING: No, I can understand that.

Air Chief Marshal Binskin : And we don't have the exact positioning from a security point of view. But that's the general layout.

Senator Payne: So there's a first-class equivalent space, a business-class equivalent space.

Air Chief Marshal Binskin : And a conference area in there as well.

Senator KITCHING: Is that a meeting area? And it's similar to the current layout of an A330.

Senator MOORE: Yes. It's not identical. But just the way you describe it, there's the front with the first class and a meeting area.

Air Chief Marshal Binskin : If you saw the different classes of amenities on a current A330, and they don't have a first class on a Qantas, but if you saw a 380 first class, it's just a little cubicle, basically, and a wider seat; that's about it. It's not like some of the other high end ones; it's a modest Australian first class—not talking about Qantas—and then the standard oyster-type shape, I think, for the business class.

Senator KITCHING: There are two first class. How many business class? And then I'll ask how many economy.

Air Vice Marshal Roberts : It currently has 24 Qantas business-class seats and 54 Qantas economy-class seats.

Senator KITCHING: Who would typically travel in the first-class cabin?

Air Chief Marshal Binskin : It's not a cabin.

Senator KITCHING: Sorry, the oyster pod?

Air Chief Marshal Binskin : That would be the principal on board.

Senator Payne: So that's the Governor-General, the Prime Minister or another dignitary.

Senator GALLACHER: What model was this plane you paid $330 million for? What year was it?

Air Chief Marshal Binskin : I think it was only driven to Brisbane on Sundays.

Senator GALLACHER: You can get a 2012 Airbus 330 for US$70 million.

Air Chief Marshal Binskin : With engines? We've got to be careful. I've learned with aeroplanes, you've got to be careful what you order on eBay.

Senator GALLACHER: I'm just curious.

Air Vice Marshal Roberts : I can take that on notice as to the exact year, but I think the internet search might not give you the fidelity in terms of the life of the aircraft. These were very low life aircraft, which gives us—

Senator GALLACHER: As is this one: like new, in and out with only 600 total hours from new—$70 million.

Air Marshal Davies : Senator, I'd like to correct the record. Senator Gallacher is on the money here, as it turns out. That $320 million figure that we grabbed from the sheet was what it would have cost for a new A330, for us to begin the process of a tanker. The actual costs for these two were $60 million each.

CHAIR: There you go: they got even a better deal.

Senator GALLACHER: I thought it was a bit expensive.

Senator KITCHING: So the A330 was $60 million.

Senator GALLACHER: Yes. We've got it down to $60 million.

Senator KITCHING: That's good. Are the first-class seats the equivalent of an A380 first class?

Air Vice Marshal Roberts : The first-class seats are second-hand Lufthansa first-class seats.

Air Marshal Davies : In essence, yes.

Senator KITCHING: Equivalent to the A380?

Air Marshal Davies : That's correct.

Senator KITCHING: Will the seats be able to be laid flat? They're in that oyster configuration?

Air Marshal Davies : That is correct.

Senator KITCHING: Will they have an in-built entertainment system?

Senator Payne: They'll have what comes with the regular seat.

Senator KITCHING: Is there a private bathroom in the first-class part?

Air Marshal Davies : It's the same bathroom but it is accessed by the two first-class pods. They have access to that bathroom.

Senator KITCHING: Just to clarify, that's ex Lufthansa A380 first-class seats?

Air Vice Marshal Roberts : No.

Air Chief Marshal Binskin : We can take that on notice. What we're trying to do is give you an indicative layout and level of amenity there.

Senator KITCHING: That would be good. There's a conference facility. Is there a lounge and bar facility?

Air Chief Marshal Binskin : No.

Senator KITCHING: Would the principal have their own office on the plane?

Senator Payne: That's what the conference area is meant to double as.

Senator KITCHING: Who would typically travel in the business class cabin?

Air Marshal Davies : It's up to the principal to determine the number of staff and support teams. Also, from our experience, VIP travel gives opportunities to take media, business representatives and those that would support a long-range trip. We expect the business class area to be something of a work area during the trip. It really is dependent on who is supporting the VIP.

Senator KITCHING: Are the seats typical of the A380 business class?

Air Marshal Davies : They are typical of the Qantas business class seat that you would experience on an A380.

Senator KITCHING: Who would typically travel in the economy class? Is that up to the principal, again—or the purpose of the trip? Is that similar to an A380 economy layout, economy seat?

Air Marshal Davies : Yes. In an indicative sense, that's what we're trying to portray here: that it is typical Qantas A380-style seating and is not a start from scratch, decked out, personalised aircraft internally.

Senator KITCHING: Could you repeat that?

Air Marshal Davies : If you walked onto this tanker, this KC-30, the seat representation is what you would see—representative—walking onto a Qantas A380.

Senator KITCHING: And does it have Wi-Fi capability?

Air Vice Marshal Roberts : It will have Wi-Fi capability. We need it to conduct business.

Air Chief Marshal Binskin : So a part of the upgrade for this tanker is the ability for the principal and support staff to be able to continue to work during the trip.

Senator KITCHING: This is probably not possible but are there any diagrams or design schematics that you'd be able to provide me?

Senator Payne: No.

Senator KITCHING: And these are additional planes, aren't they? There's no impact on the capability of the RAAF?

Air Chief Marshal Binskin : It improves it.

Air Marshal Davies : No. As I mentioned earlier, we had five aircraft in the fleet. To provide an air-to-air refuelling capability for the future—that is, a concurrency factor, numbers of tankers in the right place at the right time—we had a desire in Air Force for more than five tankers. When the Qantas jets that were not $320 million each became available, this was a great opportunity to convert them to air-to-air refuellers, multirole tanker transport. We took that opportunity and, in addition to be able to fill what is currently a deficit for VIP transport for ultra-long range, we worked on that option and we've converted one tanker to be able to do that role. But as I said earlier, it will primarily do the air-to-air refuelling role and be based at Amberley.

Senator KITCHING: I'm looking at an extract from December 2016 estimates. Senator Carr asked a question of Mr Richardson about the cost involved and it says the additional cost is around $150 million. So now it's $187 million. Has that increased by about $30 million?

Air Vice Marshal Roberts : I don't believe the cost has increased. The secretary said 'about', 'around'. It was an estimate, not an exact price.

Senator KITCHING: He said 'the additional cost is around $150 million. The major part of that is the communications that we need to put into the aircraft'.

Air Marshal Davies : Yes.

Senator KITCHING: I go back to the IPEA inquiry. Is Defence doing its own investigation about whether there's been any misuse of the special purpose flights that might run concurrently with IPEA's investigation into the former Deputy Prime Minister's use of travel entitlements?

Mr Moriarty : The department at this stage is not undertaking any such inquiries.

Senator GALLACHER: Can I just follow up on that. All politicians in this building are fully cooperating with as early reporting as we possibly can. I think we're down to three months now. So whatever I've done in the last three months of 2017 was published today, so to speak. What about Defence? Can you get your processes down to a three-month report from where you're saying it is now six months?

Senator Payne: We table in accordance with the Department of Finance guidelines. If there is a view that that should be changed, then I presume that direction would come through the Finance processes.

Senator GALLACHER: I think the view that's accepted in this place is that earlier reporting is good for transparency and clarity. My question is in respect to the special purpose aircraft: is there a view of the department or Defence that they would agree with an earlier disclosure period than six months?

Senator Payne: That hasn't been raised with us prior to this discussion as far as I'm aware but I am happy to take that question on notice.

Senator GALLACHER: Thank you.

CHAIR: Have you got more questions on this issue?

Senator KITCHING: Not on this issue. I have a bit of a hodgepodge.

Senator GALLACHER: Is there someone who will be able to answer questions on foreign investment ports, infrastructure, that type of line of questioning?

CHAIR: Is that for the estates which is coming up next?

Senator GALLACHER: Yes.

CHAIR: We've got a number of issues for the estates people.

Senator GALLACHER: I suppose, Chair, we're trying to ask the ones that we need to ask without needing to consider whether we need to come back.

CHAIR: Depends on what the issue is, Senator Gallacher.

Senator Payne: We might start with strategic policy and intelligence and go from there.

Mr Gillis : Chair, on the issue about the live animals, we've done the check. As the associate secretary said, it was an error in the coding. It was actually for a submarine training course in the UK, and it was under the listing of education, but it is exactly as described; it was just a clerical error of misrepresentation.

CHAIR: The wrong number.

Mr Gillis : The wrong number; that was all it was. We've just clarified it.

CHAIR: Thank you very much.

Vice Adm. Griggs : I saw Senator Gallacher looked quizzical at the mention of monkeys. At the ADF malaria and infectious disease institute in Brisbane is where the monkeys reside.

CHAIR: Thank you. I think there were a couple of us who were wondering. Thank you very much for that clarification.

Senator GALLACHER: Basically, we're interested in any activity in the past 12 months where Defence has had a view or has been asked for a view about prospective investment by foreign firms. I suppose it's a bit of a revisit of the port of Darwin issue where that apparently proceeded without full transparency and clarity—my words, not yours. Have there been any specific infrastructure sites or projects that Defence has had to give a view on in relation to security?

Mr Ablong : There are a number of different ways in which that might occur. If it's a matter that's coming before the Foreign Investment Review Board which the treasurer has the lead on, Defence is consulted on matters of national security with respect to proposals going through the Foreign Investment Review Board. If it's a matter of critical infrastructure which is under the responsibility of the Department of Home Affairs, Defence will provide advice on the national security issues associated with critical infrastructure. So there are a number of different pathways under which that might occur.

Senator GALLACHER: So, in the last 12 months, have you been asked to provide advice in respect of prospective investments by foreign firms or interests in Australian infrastructure or infrastructure projects?

Mr Ablong : Yes, we have senator.

Senator GALLACHER: Would those specific infrastructure sites or projects include a port in South Australia or a port in Western Australia?

Mr Ablong : Senator, I will take on notice those two specific examples. We are aware, in terms of the port of Adelaide, that there is some interest, but we're not aware of any plans for Landbridge to acquire that, which I think is the issue, and we don't believe that the South Australian government has been presented with any such proposal. We are keeping an eye on that, but we haven't specifically been asked, with respect to the port of Adelaide at this point in time.

Senator GALLACHER: Are you able to say which specific infrastructure sites you have been asked to give a view on?

Mr Ablong : I'd prefer not to answer that question. We can deal with specific sites that might be in the public record in terms of the foreign investment review activities, but there are a number of different proposals and issues that come up that don't eventuate in a sale or a transfer of ownership, in which case those remain relatively confidential.

Senator GALLACHER: What sorts of risks or implications do you provide advice on then? You can't see every transaction in the country. Is there a—

Mr Ablong : The current system requires transactions of a certain value or of a certain nature to come before the Foreign Investment Review Board. The criteria for those sorts of transactions are on the Foreign Investment Review Board website, and, where a transaction or a proposed investment will hit the marks that the FIRB looks at, we will be asked as a matter of course to look at it from a national security perspective.

Senator GALLACHER: I think from memory it's, like, $1 billion is no problem if you're German or US or UK—

Mr Ablong : There are a number of different qualifications associated with our free trade agreements.

Senator GALLACHER: and it's $100 million if you're a state owned entity from mainland China.

Mr Ablong : Indeed; that's correct. There are a number of those criteria.

Senator GALLACHER: Are you saying that trigger mechanism involves you?

Mr Ablong : It involves us providing advice to Treasury and to the Treasurer on the national security implications of that. But those proposals don't come to us; they go to the Treasury and the Foreign Investment Review Board.

Senator GALLACHER: So you're not able to give us any information about specific infrastructure sites where you've been asked to give advice on the specific risks or implications?

Senator Payne: That's not normally the sort of thing that we would discuss on the record in the context of a hearing like this.

Senator GALLACHER: I'm just making sure. We've asked it three times. You can answer it the same way.

Mr Ablong : No, I can't.

Senator GALLACHER: You are not then able to say which countries or foreign entities these proposals would emanate from?

Senator Payne: No.

Mr Ablong : No.

Senator GALLACHER: How would one who's not following every decision of FIRB know that the Defence advice had been acted upon? How does anybody follow this process? Is it only through FIRB that you would get any transparency or clarity?

Mr Ablong : The nature of a transaction that will go in front of the Foreign Investment Review Board usually doesn't result in a yes or no answer as to whether that transaction is supportable. It usually results in the Treasury issuing what are called Treasurer's preferences where they will look at a sale or a piece of infrastructure and say the government's preferences, laid out as the Treasurer's preferences—say, that a potential sale should look like this: it should have 51 per cent Australian ownership or it can be sold to a hedge fund but not to have direct control of the day-to-day business of the nature of the infrastructure. There are usually Treasurer's preferences issued prior to any sale. But, unless you're following the FIRB process and the sorts of activities that concern company transactions, you probably wouldn't see day-to-day visibility of any of those things.

Senator GALLACHER: There's a process there that you could follow with FIRB, there's an act and there are criteria there. Without getting what you would consider confidential, is there a mechanism that's laid out in a Defence manual that says what you shall do? Do you have to be formally contacted or are you part of the process? Do you examine it?

Senator Payne: If you're talking about an investment process which triggers a FIRB interest, the process is run by FIRB from Treasury.

Senator GALLACHER: In that event, then, if a process hasn't come to your attention for advice and it does have security implications, how do you deal with it?

Mr Ablong : If a matter is raised through other sources, either through the Critical Infrastructure Centre—which is an element of the Department of Home Affairs—or through other avenues that might include the media, we would not necessarily be aware of it. There are formal processes that exist which companies, individuals and others are required to follow. If they don't follow those criteria and they seek to sell an asset without reference to fair processes, there are penalties applied under the legislation.

Senator GALLACHER: I was in the port of Darwin with the public works committee when there was an expenditure on a 24-hour, 7-day-a-week barge access facility, which was funded by Defence. One of the questions I asked at the time was, 'What happens if the port's sold?' The answer was, 'It's not going to be sold.' Within a reasonably short space of time it was sold. There was a substantial investment of taxpayers' money in there. Probably now, I would imagine, if someone's bought the port, that is an asset for them as well, because you didn't use it 100 per cent. The port of Darwin was still able to access that ramp at the same time. I have read the media reports that allegedly there were negotiations about the port of Adelaide. You're a big user of our ports. How do you formally get across all of these potential sales which may have security implications?

Mr Ablong : In terms of the port of Darwin, I think it's important to say that, as we've mentioned in this committee before, the lease of the operation of the commercial port of Darwin to Landbridge did not present us with any security concerns. Therefore, we weren't particularly concerned in a security sense about the relationship between the barge entry point and the port's activities. We would do the same thing today in terms of the criteria that we use.

Senator GALLACHER: The very broad question is—

Mr Grzeskowiak : To clarify, the barge ramp area is outside of the area that was part of that selling process. In fact, we still have full access to that ramp. It's working well for us. It's been used by the ADF on a number of occasions, and it's proving to be a very useful capability addition up in the north there.

Senator GALLACHER: There was a substantial development proposal right behind it too, which would be much enhanced by the presence of that very effective piece of infrastructure.

Mr Ablong : To answer your general question, though, we, as do the Critical Infrastructure Centre in Home Affairs, keep lists of the parts of the Australian national infrastructure that we believe to be critical to our ability to operate and where changes in the nature of that infrastructure may cause us security concerns. We keep an eye on the commercial media as well as other media to try and identify if there are issues that are emerging in that. The Critical Infrastructure Centre in Home Affairs has the responsibility to alert the government system that that might be the case if it hasn't come in through a formal mechanism. But it's fair to say that, from a Defence perspective, we do our own assessments of the critical infrastructure nodes for us, and we do keep an eye on these things.

Senator GALLACHER: Given that they are either state owned or privately owned, there is no formal requirement to involve you in any disposal or transfer of those assets?

Senator Payne: It depends. It depends on the location. It depends on our equities—a range of issues. But certainly the government is acutely aware across the board and at the national security level of the importance of addressing Defence equities and addressing the security and intelligence issues more broadly.

Senator GALLACHER: Is Defence aware of any foreign investment decisions in the past 12 months that have adversely affected Australia's national security or defence interests?

Senator Payne: Again you're asking questions in an area where we would not be making public comment in discussing those sorts of issues. We are, as a government, focused on addressing those issues and ensuring no circumstances like that arise. Defence is a significant presence in that area of the intelligence discussion, and we make the appropriate contributions.

Senator GALLACHER: Isn't that question fair—are you aware of anything in the last 12 months that's adversely affected Australia's national security or defence interests? That'd be a matter of fact, wouldn't it—a yes or no sort of thing?

Senator Payne: If you think about the way you were casting the question, I think I would say that the government has ensured that any issues that might arise in relation to those sorts of concerns are addressed.

Senator GALLACHER: Has Defence had to change any operational procedures to mitigate operations in respect of foreign investment in specific infrastructure sites or projects?

Senator Payne: Have we done what? What was the beginning of the question?

Senator GALLACHER: Have you had to change any of your operational procedures?

Senator Payne: I think the approach that government takes as a whole is a very dynamic one to make sure that we are able to address circumstances as they arise that may involve change to procedures from time to time. I'm not saying that we have. I'm not saying that we haven't. But we ensure that our procedures address the issues that need to be dealt with and that we remain relevant, indeed.

Senator GALLACHER: I will finish with this, Minister: should there be a formal requirement to inform Defence of private divesting of assets by state or private entities where you have security concerns?

Senator Payne: If you mean security concerns that relate to Defence, then certainly, if we are doing our job, we are addressing those. In terms of formal requirements, there is a range of requirements at the national security level around these issues, some of which involve the FIRB, which we've spoken about, some of which involve other intelligence agencies and others with equities in the area, and we very much as a government take this extremely seriously and approach it in a whole-of-government way.

Senator GALLACHER: Thank you. Now I can move right along if you would prefer, or have you got someone in respect to Maribyrnong? Has anybody got a view on—

Senator KITCHING: That would be the Deputy Secretary Estate and Infrastructure.

CHAIR: Because Senator Gallagher has moved on to estate and infrastructure already, if there are no more questions at this stage for capability and if Senator Gallacher is amenable, because I know you and Senator Watt have a number of questions, we will formally move on—as we unofficially have anyway—to 2.10. Then we can let the other senators know we can move on formally into estate.

Senator Payne: What does that mean in relation to the—

Senator GALLACHER: Where does cybersecurity fit?

CHAIR: It's 2.11. That's the one after estate.

Senator Payne: Cybersecurity?

CHAIR: It's 2.11, so that's after—

Senator GALLACHER: Okay, so we're going to go to estate?

Senator GALLACHER: Just let me finish Senator Kitching's line of inquiry on the SPA.

CHAIR: As I understand it, we have another lot of questions on the SPA, and then, after Senator Kitching, we'll formally move into estate and infrastructure.

Air Chief Marshal Binskin : So, Senator, more special purpose aircraft?

Senator KITCHING: Yes, but it's more about the process and the signing-off process and the forms—the authorising et cetera. The first step is that a requester would have a form, a special purpose aircraft request form.

Air Chief Marshal Binskin : I'll just wait till we get the Chief of Air Force in.

Senator KITCHING: Thanks, Air Marshal Davies. This is to get an understanding of the process of how the authorising works. The first step would be to have the appropriate form, the special purpose aircraft request form. Is that correct?

Air Marshal Davies : That's correct.

Senator KITCHING: Then who is that form submitted to?

Air Marshal Davies : The coordination of the special purpose aircraft flights is through VIP ops. So we have a cell established.

Senator KITCHING: It's VIP ops, is it?

Air Marshal Davies : That's correct.

Senator KITCHING: Then what happens?

Air Marshal Davies : There is an established authorisation position. There is then an allocation of the five aircraft availability for the task. So, because on a single day it might just be the Governor-General who requests a special purpose aircraft, there is then one BBJ. That's relatively straightforward. Of course, if there are multiple tasks, then one of the actions is to determine the priority and the sequencing of those aircraft.

Senator KITCHING: Who are the approving authorities?

Air Marshal Davies : Sorry, Senator?

Senator KITCHING: Who approves? Who are the authorities who can approve?

Air Marshal Davies : The approving authorities are the Governor-General, the Prime Minister and the Minister for Defence.

Senator KITCHING: So you get the form. That request goes through VIP opposite, and then it goes to one of the approving authorities. Is that right?

Air Marshal Davies : Senator, it's a bit of a combination, depending on, as I said, the number of requests. There is a sequence of requests. The first piece, if I'm not mistaken, is for VIP ops to do the, 'Yes, this is straightforward,' and then it would go to one of the approving authorities to then be tasked to No. 34 Squadron. No. 34 Squadron is the RAAF squadron that runs the five special purpose aircraft.

Senator GALLACHER: Does it mean that the Governor-General, the Prime Minister or the defence minister have to literally sign off on each approval at the time or do they do that as a bulk lot at the end of the month?

Air Marshal Davies : Senator, it is part of the process—approval for each. If you look in the schedule, it has who the authorising officer is.

Senator GALLACHER: So they have to be found at any time of the day or night or on the weekend and they have to sign it off?

Air Marshal Davies : I'll take on notice the intricacy of the timing of that, Senator, but, in effect, yes.

Senator GALLACHER: I understand they would sign it off, but they might do it procedurally once all the checks have been made and you've said okay. They might do it when they're next in the office, I suppose. I don't know.

Air Marshal Davies : Whilst I can't be 100 per cent sure here, I will clarify for you on notice if we need to. There are some that are relative straightforward. If the task comes in at a point where one of the authorising officers is not available to sign immediately and there are still five hours or one day or two days to go, we can go through the actual authorisation prior to the event taking place, not necessarily at the time of request.

Air Chief Marshal Binskin : A lot of these don't come up overnight. They're planned in advance where you have time to go through that process. That also allows VIP ops to schedule the appropriate aircraft to the task.

Senator KITCHING: What happens once the authoriser has authorised the request? Sometimes that authorisation might be done quite quickly, depending on what's needed, and then at other times it's planned in advance. I guess resources can be moved around or whatever needs to happen.

Air Marshal Davies : That's part of the art. That's why No. 34 Squadron operate and why we have established the VIP ops cell: to be able to coordinate that process. So, rather than a request for our service going directly to No. 34 Squadron, they receive what is a somewhat distilled priority list in order to then determine time and space issues—which aircraft needs to be at what place—because some of these flights are for three or four people and some are for 23.

Senator KITCHING: How is the requester, whoever has requested the special purpose aircraft, notified? Does No. 34 Squadron notify them? No—that would be the VIP ops cell.

Air Marshal Davies : That's correct.

Senator KITCHING: What's the usual time frame if you need a plane at the end of February or in April, for example?

Air Marshal Davies : That's a cascading effect. That initial approval could be given within a matter of hours or days for an event that is one month down the track, but at some point that could be adjusted by either aircraft type or, indeed, timing. One of the intricacies of the VIP ops cell working with No. 34 Squadron is to allow the VIP, the principal, to be able to adjust. If a request comes in for an aircraft to go from Canberra to Sydney in a month's time for an event with a specific time, it is possible to then ask whether, if you went a little earlier or a little later, that would affect the outcome that you seek. So it is a rather close relationship with VIP ops and the principals who would use 34.

Senator KITCHING: So there might be a bit of going backwards and forwards?

Air Marshal Davies : Indeed, Senator. At times, yes.

Air Chief Marshal Binskin : That's quite usual.

Senator KITCHING: Minister, are you responsible for approving requests for domestic travel?

Senator Payne: Broadly speaking.

Senator KITCHING: So the Governor-General or the Prime Minister could do domestic travel. Anyone could? Any of the three of you would be able to?

Senator Payne: I imagine so, but they probably have better things to do with their time.

Senator KITCHING: For domestic travel, you would receive the request and determine whether it is appropriate. Is that part of the determination?

Senator Payne: A number of matters are taken into account. They include the purpose of the event, the availability of commercial flights, the availability of special purpose aircraft themselves, the priority of the person who is making the request, the importance of the occasion and a number of other things. There is a specified form that covers off most aspects of those.

Senator KITCHING: Do any of the criteria revolve around the breakdown of the manifest—who might be travelling?

Senator Payne: There is a requirement to provide the names and the positions of all passengers who are requesting travel.

Senator KITCHING: Is it possible for a requester to amend that list at some point or does that not really happen?

Senator Payne: If circumstances change. I presume that would happen from time to time to any of us who may be engaged in using the special purpose aircraft, for a range of reasons. A staff member may stay at the originating location and another staff member might replace them. A staff member might stay at the destination and not come back on the return, or whatever it may be, but there will be, in my experience, relatively minor amendments to manifests from time to time.

Senator KITCHING: I was told that, in the past, there was a process in place to recover the cost of flights from people who aren't either ministerial or APS staff. Is that right?

Senator Payne: I don't personally become involved in the cost management and cost recovery process. Perhaps Air Marshal Davies has a view.

Air Marshal Davies : There is a list of entitled persons. In addition to those directly entitled persons are the staff who would directly support them. They are also included on that list. Outside of that, if there is a requirement and then approval for an individual not entitled by that list, where seats are available, they're able to travel on a cost recovery basis. A believe it is around the going economy airfare for that particular leg.

Senator KITCHING: Does it happen very often?

Air Chief Marshal Binskin : It occasionally occurs with media. That's the one that comes to mind, where you have media accompanying, so they'll be charged at that rate.

Senator Payne: There is one category which you haven't asked about and that is the transportation of guests of government. We also use the special purpose aircraft for those.

Senator KITCHING: Let's say there was a delegation. That might include those people—the delegation?

Senator Payne: It might be a defence minister from another country, a head of government from another country, a head of state, a visiting Prime Minister—whatever it might be. Guests of government are also users.

Senator KITCHING: Have there been many cost recovery invoices issued in the last calendar year?

Air Marshal Davies : The schedule covers all the flights and passengers, but, to answer your question broadly, there are not very many passengers on board who would require a cost recovery process.

Senator KITCHING: Do any of the invoices remain unpaid? Are people pretty quick to pay them back?

Air Marshal Davies : To be accurate, I'll take that on notice. But my experience is that I'm not aware of any invoices that are not paid.

Senator KITCHING: Minister, do you ever decline a request?

Senator Payne: They will depend upon availability, for example, so we may have to decline a request. It may be that there are commercial flights available and, in discussions with the applicant, it's suggested that if there are commercial flights that it's appropriate for them to take those. You might call that a decline.

Senator KITCHING: But it's more a negotiation around—

Senator Payne: It's an application of the requesting procedures, basically, to make sure that those procedures are being met.

Senator KITCHING: The rule states, 'In certain circumstances, the Prime Minister will be the approving authority.' Why is that?

Senator Payne: Particularly for overseas travel also for guests of government as well, it will often be within the purview of the Prime Minister.

Senator KITCHING: The next six months we should get1 July 2018. Is that right,?

Air Chief Marshal Binskin : Yes.

Senator Payne: Or thereabouts.

Senator KITCHING: Yes, I understand. Given the understanding that was arrived at—and I appreciate you were overseas—about the order to produce that had regard to any special purpose flights taken by members of the executive in 2017, would you be able to furnish us anything earlier than 1 July or thereabouts this year?

Senator Payne: What are we on, 28 February? There is a significant amount of data to be reconciled and to be verified, and it's verified by using officers from the Office of the Governor-General, by Prime Minister and Cabinet, and so on. That has to be collated first before it is reconciled. We are literally eight weeks into the post term period, relatively short into that period. I presume, I stand to be corrected, that that verification work would not have happened in the bulk of the January period. So I will take on notice your obvious desire to receive the end of the second half of 2017. We will respond on notice.

Senator KITCHING: The only other thing I would like to know about is: what are the rules around the use of special purpose air flights during elections or by-elections, for example?

Senator Payne: The arrangements operate from the day before the government's policy speech is the nominal date in accordance with the provisions of the Parliamentary Entitlements Act 1990, I am advised.

Senator KITCHING: Sorry, what was that?

Senator Payne: The Parliamentary Entitlements Act 1990 so, in practice and subject to availability, the approach that is taken is that one aircraft is reserved for the use of the Prime Minister, one aircraft is reserved for the use of the Leader of the Opposition, an aircraft is reserved for the