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Tuesday, 18 June 1996
Page: 1712


Senator MICHAEL BAUME(4.58 p.m.) —by leave—I move:

That the Senate take note of the document.


Senator MICHAEL BAUME —This is one of the most disgraceful episodes that I have come across, not in terms of what the Australian National Audit Office has done but in terms of what the audit office has discovered. This relates to one of Australia's major defence projects, a multimillion dollar project, a project that is central to Australia's defence and which was grossly and disgracefully mismanaged by the Labor government.

It involves $1.1 billion and relates to an over the horizon early warning system. I will not deal with that at great length. Senator MacGibbon knows more about this than I do anyway, and he will be following me in dealing with this matter.

What concerns me is not only the massive cost over-run but also the failure to deliver this project on time. It is massively over time and over cost and is not working. It seems to me that there is no confidence at the moment that it will work. Some of the major issues that have yet to be resolved have not apparently been resolved.

But what concerns me particularly is that, when Senator MacGibbon and I have raised this matter in the past in Senate estimates committees, when we have been concerned about how this has been going along, we received no indication at those committees about the extent of the problem that the audit office has now revealed. Of course, it is now up to this government to fix this mess. The extent of the deception of the people of Australia and of this parliament is evident in the Defence Annual Report 1994-95. The audit report states:

1.14   The Defence Annual Report 1994-95 commented that JORN—

that is, the Jindalee Operational Radar Network—

design activity was nearing completion, confidence that the specifications would be met was high and radar hardware was in production. The ANAO queried the basis for these comments since, at the time of the annual report, Telstra—

who is the major contractor—

had submitted less than 20 per cent of the JORN configuration item critical designs for review by the JPO. Defence explained that the comments were made in good faith . . .

They were totally wrong, totally incompetent, totally hopeless but they were made in good faith. I take them at their word. This means that they were incompetent rather than deceptive, in which case I withdraw the earlier word `deceptive' and replace it with `monumental incompetence'.

The minister involved at the time, Senator Ray, must be very embarrassed by this audit report. I know he certainly had a deep sense of integrity about his role as minister, and I hope he may at some time come into this chamber and explain his knowledge of the extent to which this parliament and the people of Australia have been misled. The report states:

Defence explained that the comments were made in good faith on the basis of advice before Telstra's JORN Technical Audit Report became available late in 1995. The ANAO considers that Defence needs to pay more attention to public accountability for expenditure of public funds and the basis of its comments about JORN in its published annual report.

Amen to all that. The defence department gets a caning in this report and it deserves it. What I find fairly difficult to understand is that it is evident from other parts of the audit report that Defence recognised there were problems long before the annual report was presented but seemed to hope that they would somehow go away.

I will read a few extracts from this leaflet because two problems emerge from it. Firstly, the monumental mess of this project and, secondly, the impact on Telstra, which I do not think Telstra ever advised us of. The fact is that Telstra is going to carry some very large losses out of this arrangement unless some changes are made. It states:

The . . . (JORN) Project is a Defence initiative designed to provide significant strategic advantages for Australia. It requires the construction of a long-range sky-wave over-the-horizon radar (OTHR) network at an overall project cost of $1.1 billion. JORN will be used . . . for military purposes.

. . . . . . . . .

Defence, through its Jindalee Project Office (JPO), is responsible for overall management of the Project. The JPO's main function is to ensure that Telstra (the project's prime contractor) delivers JORN as agreed in the contract. Telstra is to be paid over $800 million for designing, developing, installing and presenting for acceptance two integrated radars—one at Longreach in Queensland and the other near Laverton in Western Australia. Both are to be controlled from a central facility at Salisbury in South Australia.

The Project began in 1991 and—

to use a polite expression—

has progressed more slowly than expected.

In other words, it is way behind schedule. It continues:

In 1994 Telstra rescheduled JORN's completion from 1997 to 1999 and is proposing a further rescheduling, possibly to June 2000.

I would not be prepared to cross my fingers in the hope that it will be finished by then. The leaflet goes on to state:

The necessary contract amendment to change the original completion date still needs to be negotiated with Defence.

The important points made by the audit office are as follows:

At the outset Defence knew that JORN was a high-risk development project and that Telstra was inexperienced in OTHR technology and defence system full-scale development methods.

So you had an inexperienced contractor and an incompetent person putting out the contract. According to the audit office:

In order to prompt satisfactory performance, progress payments should have been applied to better indicators of progress and payments withheld until their value was earned.

Instead, money kept on being churned out basically on the principle from Defence that they had to spend all their money by 30 June otherwise they would not be able to carry it forward. So whether or not the work had been done, whether it had been delivered or whether the project was going ahead, Defence kept churning the money out to these contractors with a disastrous consequence. That is, a great bulk of the money has now been spent on the project but only a relatively small proportion of the project appears to have been delivered. This report goes on to say:

The ANAO considers that this has led to significant misalignment between the value underpinning the project's originally-planned progress milestones and the value of progress payments made. If current payment trends continue Defence's JORN full-scale development budget will be spent by mid-1997 . . . but there will still be two or more years of system development work to be done, including the high-risk, high-cost, systems integration phase of the project.

. . . . . . . . .

With 80 per cent of the JORN prime contract target price of $814 million spent . . . less than 18 per cent . . . of JORN's 129 configuration items had passed critical design reviews . . . Of the 23 configuration items reviewed, only 5 per cent or 5 of the 94 hardware configuration items had passed through a `first-article-manufactured' test.

This is a total mess. It goes on to state:

Overall, about 28 per cent of JORN's software has now been produced. The . . . software joint venture has produced about 19 per cent . . . of the . . . source lines of software . . . Telstra's other major JORN subcontractor has produced about 49 per cent . . . of the . . . source lines of code now estimated to be required . . .

In other words, only a relatively small proportion of the stuff has been delivered but 80-odd per cent of the money has been spent. It continues:

Defence said in response to the audit that there was little doubt that JORN's cost will exceed the ceiling price and the loss will be borne by Telstra.

We did not hear anything about that from Telstra. It is not in its annual report as some contingent or expected liability.


Senator Calvert —It never is.


Senator MICHAEL BAUME —It never is. Telstra's response to this report, as stated in the audit report, was:

Telstra's initial inexperience served only to compound this situation. As such a fixed price, fixed schedule contract was clearly inappropriate and Telstra believes it will continue to incur unreasonable losses until this issue is resolved.

It is about time Telstra came clean and told this parliament, and certainly our estimates committees, what it is up for here. This is one of the great disasters of the Labor government. (Time expired)