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Foreign Affairs, Defence and Trade Legislation Committee
06/05/2016
Estimates
DEFENCE PORTFOLIO
Department of Defence

Department of Defence

[09:03]

CHAIR: I welcome Senator the Hon. Marise Payne, Minister for Defence. I also welcome Air Chief Marshal Mark Binskin AC, Chief of the Defence Force; Mr Dennis Richardson AO, Secretary; and officers of the Department of Defence. Minister, good morning. Do you wish to make an opening statement?

Senator Payne: Good morning. No, thank you, I do not.

CHAIR: I now invite the Chief of the Defence Force to make an opening statement.

Air Chief Marshal Binskin : Given the limited time allocated for today's hearing, I would like to focus my opening remarks on the Australian Defence Force's recent deployment to Fiji in the wake of Tropical Cyclone Winston. The category 5 cyclone is the strongest known to have crossed land anywhere in the Southern Hemisphere, and it struck Fiji hard. Forty-four people were killed and up to 350,000 people were directly affected. Fifty-five thousand of those people lost their homes and were forced into one of the thousand evacuation centres.

The ADF was ready and willing to help our friends in Fiji when their government called for assistance. Like the devastating cyclone that precipitated it, Operation Fiji Assist rates as one of the ADF's largest humanitarian assistance missions. At its peak, around 1,000 Australian Defence Force personnel were deployed to Fiji and many more were supporting our operations from here in Australia. Our contribution to the whole-of-government effort focused on Suva, Koro, Taveuni, southern Vanua Levu, Rakiraki and other places where ADF personnel worked side by side with our counterparts from the Republic of Fiji Military Forces to assess damage, clear debris, repair generators and rebuild critical infrastructure.

We delivered more than 580 tonnes of humanitarian disaster relief stores, supplied almost 40,000 tonnes of food, 30,000 litres of drinking water and delivered almost 10,000 hygiene kits. We also provided close to 3,000 shelter kits and, together with our Fijian counterpart's deployed personnel, helped repair nine schools, two medical centres and a hospital, as well as several churches and community centres. The work that we have undertaken with the Republic of Fiji Military Forces has had added benefit. Over the two months we worked together, the ADF has helped impart new skills and strengthen the existing relationship and friendship between our two nations.

Operation Fiji Assist highlighted what the ADF can achieve when we operate as an integrated joint force. It also demonstrated our ability to deploy a range of high-end capabilities at short notice. HMAS Canberra's first operational deployment was probably the most visual representation of our contribution, but Army also provided a significant engineering element, plus four of seven MR90 multirole helicopters—Army's first deployment of those helicopters—while Air Force AP3C aircraft conducted initial aerial assessments, followed by C17 and C130 crews, who conducted 44 sorties that included transporting Army personnel and their helicopters. That is in addition to our aeromedical evacuation and our deployable medical capabilities.

In early March I had the opportunity to visit Fiji to witness the devastation firsthand—and the devastation was vast—and I got to meet some of the people affected by the cyclone. Everyone I met was deeply moved by the ADF's compassion and extremely grateful for our assistance. One of the most satisfying aspects of my job is being able to visit our people on deployment to personally thank them for their work. I am always impressed by what our people do on behalf of our nation, often at very short notice, and I am immensely proud of what our people achieved for our friends in Fiji under Operation Fiji Assist.

CHAIR: Thank you. Can you please table that report. We will go to questions.

Senator CONROY: I noted there was an announcement overnight around Singapore. I was wondering if you could give us some details, Minister.

Senator Payne: The announcement is in relation to the Comprehensive Strategic Partnership that Australia enjoys with Singapore. The work done by Mr Robb in his last role before he retires from this place has resulted in an agreement on defence engagement in particular. I am happy to ask Mr Baxter to go into further detail on that if you would like me to.

Senator CONROY: Perhaps I will just go to questions then. Media reports suggest that Singapore has agreed to spend $2.25 billion to upgrade facilities at Shoalwater Bay and Townsville. What will this money be spent on exactly?

Mr Baxter : The funding will be spent on a number of different aspects of upgrading the two training facilities. It will largely be spent on infrastructure—on roads, on upgrading the training areas themselves and on ensuring that there is capacity at the training areas for Singapore to have enhanced training in Australia, but at the same time not compromising on the ADF's ability to train in those areas.

Senator CONROY: Does that mean separate facilities or different facilities? I know you said 'enhanced'.

Mr Baxter : The focus of the development funding will be on Shoalwater Bay Military Training Area and Townsville Field Training Area. We expect that the funding will be roughly similar for each of those, in terms of the investment that will be made over the coming years.

Senator CONROY: You mentioned roads and training areas. Can you explain to us what that means. What is the actual infrastructure that is being put in place?

Mr Baxter : We have negotiated the agreement with Singapore in terms of the broad arrangements that will be in place. The details of what specifically will be funded and of the time frame for that funding is something that we will now negotiate with Singapore.

Senator CONROY: So we do not have any detail on what they are spending the money on at this point? We just have an overarching number?

Mr Baxter : It will be roads, accommodation and the facilities within the training area itself.

Senator Payne: It is an increase in numbers from the current level to 14,000 Singaporean troops. The necessity for enhanced infrastructure is a response to that increase in number and to the increase in time.

Senator CONROY: How many do we have currently?

Senator Payne: I think it is 6,000.

Senator CONROY: So we have gone from 6,000 up to 14,000. How long do they stay for when they are here? I am trying to get a picture in my head of whether we have to double the size of the accommodation for them. How does it work?

Mr Richardson : It is for a maximum total of 18 weeks in any one year.

Senator CONROY: Is that an expansion?

Mr Baxter : Yes—it is currently 13 weeks.

Senator CONROY: In what time frame will the money be spent?

Mr Baxter : The time frame for the expenditure of the funds is something that we are still to negotiate with Singapore in detail, but it will be spent over a period of years.

Senator CONROY: When will it start?

Mr Baxter : It will start when we finalise negotiations with Singapore, which we will now move to do as soon as we can. Certainly I expect that in the course of this year we will have all of the details negotiated with the Singaporeans.

Senator CONROY: So we do not have any time frame at this point in time about what is going to be spent and about when it is going to be spent?

Mr Baxter : We have reached an agreement on the expansion, as the minister said, of Singapore's access to training facilities in Australia. We have reached agreement that Singapore would fund any requirement that was needed to accommodate that increase in Singapore's training in Australia. We will now negotiate the details and the time frames within which that will happen. The agreement itself runs for 25 years, so it is obviously a long-term strategy between Australia and Singapore.

Senator CONROY: When does the agreement start?

Mr Baxter : The agreement has been concluded under the Comprehensive Strategic Partnership, which was signed by the Singaporean and Australian prime ministers on 29 June 2015. This is adding detail to the Comprehensive Strategic Partnership, which outlined that Australia and Singapore would intensify our defence engagement in a number of areas—training was one of them, but there are also areas like science and technology, intelligent sharing and personnel exchanges.

Senator CONROY: So we do not know when the first Singaporean dollar will be spent?

Mr Baxter : The expenditure will start when we have concluded the negotiations, which, as I said, will happen through the course of this year. We would expect the expenditure will start in the coming year.

Senator CONROY: Given it is Singapore money, could you explain to me how we will have oversight of what they are actually building? It is a Defence base—it is a sensitive area. Will the contracts be passed through the Department of Defence? Will you do the contracting or will the Singapore government do the contracting? How will it work?

Mr Baxter : They are Australian Defence Force training areas, as you mentioned, so we will work with the Singaporeans to have that expenditure undertaken as part of the broader development of our training areas.

Senator CONROY: So you will say, 'We need to build this, this and this,' there will be a tender for it, and Singapore will supply the money for it?

Mr Baxter : That is right. Singapore will identify the particular requirements that Singapore has, and we will work with the Singaporeans to ensure that the expenditure for those facilities takes place in accordance with our systems.

Senator CONROY: It will be in accordance with our systems?

Mr Baxter : That is right.

Senator CONROY: So it will go through proper tenders—

Senator Payne: Absolutely.

Senator CONROY: and go through all of your—

Mr Baxter : Yes, through our systems.

Senator CONROY: Through your systems—great. Is Australia providing any funding as part of these upgrades?

Mr Baxter : Not for the Singaporean enhanced use of our training areas. All of that will be funded by Singapore.

Senator CONROY: Are we upgrading at the same time? Are we spending money there? I know we have an ongoing—

Mr Baxter : We have an ongoing investment program into our training ranges. In the white paper, it set out that there are further plans to develop those training areas for ADF training.

Senator CONROY: Would we look to do a combined tender? I am looking to save money.

Mr Baxter : If it would make sense to do so, then obviously we would look to get economies of scale out of that.

Senator CONROY: Who will have ownership of the upgrades—the buildings and the like?

Mr Baxter : We will.

Senator CONROY: We will own them?

Mr Baxter : Australia will own all of the facilities.

Senator CONROY: Okay. Do we have access to them if for any reason we need to use them?

Senator Payne: Yes. The facilities will be available for use by Australia in our training areas in the normal course of events.

Senator CONROY: In what time period will the 6,000 to 14,000 grow? I am assuming we will not have built the facilities by next year—

Mr Baxter : Yes.

Senator CONROY: so next year it will still be 13 weeks to the 6,000. What is the phase up?

Mr Baxter : As the timing of the availability of the facilities becomes clearer, then Singapore will increase the numbers that come to Australia commensurate with that.

Senator CONROY: You indicated that you are going from 13 weeks to 18 weeks. That is extra training or an enhanced style of training? What is the plan?

Mr Baxter : It is building on the same sort of training that Singapore already conducts in Australia, and has done for a number of years, with the 6,000 Singaporean military personnel who come to Australia each year. So it is an extension of that program, rather than something different.

Senator CONROY: With the existing program, do they train with our forces or do they train separately? What would be the plan?

Mr Baxter : They do both. They do unilateral training and we also do a combined training exercise, and we expect that will continue.

Senator CONROY: Okay.

Mr Baxter : Part of the arrangements with the Singaporeans is to enhance our joint training. Can I just—

Senator CONROY: I saw that someone passed you a note. I thought there might be breaking news.

Mr Baxter : The increase is from the current program of six weeks to 18 weeks.

Senator CONROY: It is a six-week program?

Mr Baxter : Yes. I misspoke earlier when I spoke about 13 weeks.

Senator CONROY: So from six weeks to 18 weeks. It is a trebling of the actual amount of training that they do in Australia?

Mr Baxter : Yes, it is a significant increase.

Senator CONROY: I want to ask about the future submarines announcement made last week. I would like to get a better understanding of what was actually decided by the government. Minister, according to your joint media release with the Prime Minister:

DCNS of France has been selected as our preferred international partner for the design of the 12 Future Submarines, subject to further discussions on commercial matters.

Could you, Minister, or the officials with you, clarify exactly what has been decided at this stage of the process?

Senator Payne: Exactly what has been decided at this stage of the process is that we will acquire 12 regionally superior submarines, designed in partnership with DCNS of France, built in Adelaide in South Australia.

Senator CONROY: I note that over the last couple of weeks there has been an enormous amount of speculation around, both informed and uninformed commentary in the newspapers—

Senator Payne: You are so polite, Senator.

Senator CONROY: prior to the selection announcement. Mr Richardson, I note that you called in the police. I was wondering what caused you to call in the police.

Mr Richardson : It was an article in The Australian. I think it was an article by Brendan Nicholson. I forget the precise date. It was an article that claimed that DCNS had been selected. Given that that article appeared between the first and the second NSC consideration of the matter, I thought it was serious enough to call in the AFP.

Senator CONROY: Has the National Security Committee, to your knowledge, ever leaked before?

Mr Richardson : I do not think that government has ever leaked.

Senator CONROY: Have the National Security Committee considerations leaked into the media?

Mr Richardson : I cannot speak on behalf of—

Senator CONROY: You have been on it for many years in many different guises.

Mr Richardson : I am an official who is invited to attend meetings but I am not a member of the NSC. I cannot speak for the NSC.

Senator CONROY: I was not asking you to speak for it; I was asking you as a long-term participant whether you had seen such an egregious leak from the National Security Committee before.

Mr Richardson : I am certainly aware of matters in the past that have appeared in the media, which on first sight appear to have been from certain deliberations, but that is not for me to comment on.

Senator CONROY: We will go back to the decision. Are TKMS and Japan participating in the process any further or are they now completely removed from the process or are they sitting on the back burner in case the negotiations do not work out? Can you explain to me where we are at with that?

Mr Richardson : They are out of it.

Senator CONROY: Completely out. As part of this process, was DCNS required to provide a fixed price?

Mr Richardson : No. At this point the costing was, as the Prime Minister has stated publicly, 'rough order of magnitude'.

Senator CONROY: Okay. So DCNS were required to provide a rough order of magnitude—is that correct?

Mr Richardson : A rough order of magnitude.

Senator CONROY: Okay. Are the costs still subject to some negotiation and potential change—

Mr Richardson : The precise costing, yes.

Senator CONROY: So we have a ballpark figure and you get down to the nitty-gritty now—is that correct?

Mr Richardson : Rear Admiral Sammut might be the best one to answer, but in broad terms we have selected a design partner. The other decisions that the minister has just outlined have been made. We will now enter into discussions with the French to finalise a couple of matters, which we are very confident will be finalised. We will then have around a five-year design period and then a build will start after that. I stand to be corrected, but it is my understanding that it is during the design period that you would finalise your detailed costing.

Senator CONROY: Minister, is there a number that you can point to and say this will be the cost? Are you able to tell us what that ballpark figure, the rough one, was for the successful tenderer?

Senator Payne: It is in the white paper on the Integrated Investment Program.

Senator CONROY: There is a $50 billion number—

Senator Payne: That is right.

Senator CONROY: Are you suggesting the DCNS bid was $50 billion?

Senator Payne: No, I am saying exactly what Secretary Richardson just said in relation to the rough order of magnitude process.

Senator CONROY: I am inviting you to quell some of the stories in the newspapers. They have all speculated—either informed or ill-informed—

Senator Payne: Uninformed speculation, in many cases.

Senator CONROY: I am inviting you to kill it all off by saying, 'This was the ballpark figure. This was the order of magnitude of the DCNS bid.' Only the minister could take the decision to say that, Mr Richardson. I would not anticipate that you would.

Senator Payne: I have nothing to add to what the secretary has said thus far. The integrated investment program, the white paper, set out the framework. You and the secretary have both referred to the $50 billion program cost estimate that is there. That is a cost estimate over decades, multiple decades. It does not just include the costs of designing and constructing the fleet itself. It includes the costs of designing and installing the combat system in each of the submarines. It includes the investment in science and technology that will be required. It includes the design and construction of land based facilities, of infrastructure, which obviously needs to be established for a program of this nature.

That is the broad basis around which we have estimated the total investment value over 40 years. As the secretary has said, the refinement of this process is now the subject of appropriate commercial negotiations.

Senator CONROY: I appreciate that point you made, that there are costs other than the DCNS component in the 50. But surely, at this stage—you have made an announcement about a successful partner—there is no more national secret involved in saying, 'The order of magnitude that DCNS put forward was X.'

Senator Payne: I think you just heard me say this was subject to appropriate commercial negotiations.

Senator CONROY: I am just asking you what they put in, not what the final price is.

Senator Payne: Do you, completely, want to remove Australia's capacity to negotiate? Is that what you have in mind?

Senator CONROY: You only have one bidder, one design partner.

Senator Payne: Yes, absolutely. That does not mean we are not involved in commercial negotiations. I am happy for the officials to add anything they wish to. Mr Gillis is particularly experienced, in this regard. He may have some further comments to make.

Senator CONROY: The company has put in an order of magnitude. I am simply asking whether you are prepared to say what that order of magnitude is. I am not asking whether you accept it. I am just asking you what it was. You have accepted the bid.

Mr Richardson : No, we would not state that publicly.

Senator CONROY: You were doing a very good impersonation of the Prime Minister yesterday. The Australian taxpayer is entitled to know, roughly, what the bid's—

Mr Richardson : What the Australian taxpayers, I believe, are entitled to expect in a situation like this is that their representatives negotiate, on behalf of their government, to get the best deal for the Australian taxpayer. That would be compromised were we to put on the table, now, what is, commercially-in-confidence numbers.

Senator CONROY: When the Germans—I think they said it, publicly, themselves—put in a fixed price bid they said what it was. Was that breaching some national security, confidence, negotiating position? It seems like a very dumb negotiating position by the Germans.

Mr Richardson : I do not know what they stated publicly.

Senator CONROY: I am sure you do.

Mr Richardson : I am simply speaking on behalf of Defence and what our strong advice to government would be, in any situation of this kind.

Senator CONROY: Minister, are you embarrassed about the cost of the DCNS bid?

Mr Richardson : We would be embarrassed if—

Senator CONROY: I said 'minister'. I was speaking to the minister, Mr Richardson. The minister may choose to say it is for you, Mr Richardson, but I asked the question of the minister.

Mr Richardson : I am sorry.

Senator CONROY: Minister, are you embarrassed by the cost? I would not have thought there were a problem in saying, 'We accept this bid on the table.'

Senator Payne: Perhaps you do not understand commercial negotiations, Senator. Maybe that is the problem. I am happy to ask Mr Gillis to provide some more context around the process, which Australia is now required to undertake with DCNS.

Mr Gillis : In no negotiation of this type, of any piece of equipment, would we release a tendered price or a rough order of magnitude from a tenderer, at this stage. We would not do it. We have never done it before. I do not think it a sensible thing for us to be doing.

Senator CONROY: I am not asking you: what is the price that you want to pay; I am asking you: what price did they put in their bid?

Mr Gillis : Senator, any information that they provide to me, at this stage in the negotiation about their pricing structure, is commercially confidential information. I do not provide that to anybody.

Senator CONROY: If DCNS said that they were happy to put the number out, would you care?

Mr Gillis : That is a matter for them.

Senator CONROY: Minister, will you release DCNS so that they can say what the cost of their bid was?

Senator Payne: No, Senator. I will ask the department to continue in the process of commercial negotiations in the appropriate way.

Senator CONROY: You will not give DCNS permission to tell what their price was?

Senator Payne: No, Senator. As I have just said, I will ask the department to continue the commercial negotiations in the appropriate way.

Senator CONROY: Mr Gillis, why would there be a problem, if DCNS stated it?

Senator Payne: Mr Gillis just explained that to you, Senator.

Senator CONROY: No, he explained why the government would not want to. I am asking now why DCNS should not be allowed. The people sitting in front of me have the permission and the power.

Mr Gillis : It is not a matter of being allowed. This is a commercial negotiation and, in the commercial negotiation, it was not a position that I would hold that I should be directing or not directing them to do. I would expect that they would hold that information confidential during a negotiation. That is a normal commercial position that any company should hold.

Senator CONROY: The Germans were comfortable in putting their rough order of magnitude into the public domain during the process.

CHAIR: Senator Conroy, with respect, the minister has answered your question. I suggest—

Senator CONROY: I am just asking about the incongruity between the position that is being articulated and the fact that the Germans were willing to put their number on the table publically.

CHAIR: That is a point that you have made.

Senator Payne: You have stated the point, Senator. We have no comment to make on that.

Senator CONROY: Mr Gillis, were they sabotaging their negotiation?

Senator Payne: We have no comment to make on that, Senator.

Mr Gillis : I am not going to make a comment about another tenderer's bidding process. I do not know what was in their minds. I am not going to comment on that, and it is not appropriate for me to comment.

Senator CONROY: They put it out publically. I am not asking you to comment; I am just saying that they put it out publically.

Mr Richardson : Senator, I would not assume that what was in the media from any of the potential design partners was necessarily strictly accurate.

Senator CONROY: Well, you would say that. I am not in a position where I could possibly argue with you. I would not want the police to be called in on you, Mr Richardson, so say nothing. Was DCNS required to provide a detailed production schedule as part of the process?

Rear Adm. Sammut : Senator, in addition to providing ROM costs, all of the participants were required to provide ROM schedules.

Senator CONROY: Sorry, were to provide or were not?

Rear Adm. Sammut : Were required to provide ROM schedules—rough order of magnitude schedules.

Senator CONROY: In terms of design, could you just explain what stage the design is at? I cannot imagine that it would be described as mature, given that we are asking for a new one. What stage of the design process were you at that you made the decision on?

Rear Adm. Sammut : As we stated before, the competitive evaluation process sought pre-concept designs from each of the participants. We have those. They formed the foundation of any work that would proceed with the preferred international partner now as the basis for further design work which will commence in a preliminary way at the end of this year.

Senator CONROY: Sorry, what was that last part?

Rear Adm. Sammut : The preliminary design process that commences now will commence by the end of this year.

Senator CONROY: Sorry, I thought I heard you say, 'finished by the end of the year'. That is why I wanted to just clarify that. Commence at the end of the year?

Rear Adm. Sammut : Yes, by the end of the year.

Senator CONROY: That is subject to the commercial negotiations being finalised, I assume.

Rear Adm. Sammut : We will be proceeding with our discussions with DCNS and putting in place arrangements that allow us to commence the preliminary design process—

Senator CONROY: Even if you have not finished the actual tin tacks of the contract?

Rear Adm. Sammut : There will be ongoing discussions with DCNS because, as you can understand, there will be a range of contracts that are required to be negotiated with DCNS as we go forward. It is important, of course, that we put in place contracts that support both DCNS and Australia in delivering a successful program. We are confident, of course, as a result of the competitive evaluation process, that we will achieve those contracts and that will not preclude us from commencing preliminary design work by the end of this year.

Senator CONROY: The joint media release, Minister, states, 'Subject to discussions on commercial matters, the design of the Future Submarine with DCNS will begin this year,' which I think is what Admiral Sammut is indicating. Is it fair to say that the process so far, up until the announcement, was about identifying a design partner—not a specific submarine design—and that the specifics, such as cost, schedule and performance, are still to be worked out? I am just going off the press release that you issued, Minister.

Senator Payne: As you said in your previous question to Admiral Sammut, we are at the beginning of the design process, not the end. So, in selecting DCNS, the evaluation process identified that proposition, which they submitted, as the one which best met the capability requirements that Australia has for a regionally superior submarine. We will now proceed to work with the DCNS, as Admiral Sammut has outlined, to develop that design.

Senator CONROY: There has been a lot of robust public debate about the decision. I want to offer Admiral Sammut the opportunity to outline to the committee, and to the broader public who pay attention to these things, the basis on which the decision was made. We have established that we do not have the finalised costs, we do not have a finalised production schedule and we do not have a mature design, so what were the factors that you based your decision around in choosing the French submarine?

Rear Adm. Sammut : The consideration was around a range of factors. But, first and foremost, it was the ability to work with an international partner that would develop with us and help us to deliver a regionally superior submarine, and one over which we would have the sovereign capacity to operate and sustain throughout its life. With those principal requirements in mind, we considered a range of criteria, such as the capabilities offered—that is, the platform capabilities offered by the participants. We did look at their capacity to work with our combat system integrator to support the integration of the combat system into the submarine. These matters go to the heart of the capability that the future submarine will have in the future.

We did look at rough order magnitude costs and schedules to ensure that the participants understood the scale of the program that we were embarking upon and could give us insights into the manner in which they would manage costs and schedule throughout this long program.

Of course, we looked at matters concerning program management and we looked at a design and the way that safety is included in the design process, noting that, at the end of the day, even though Australia will be working with an international partner to design the submarine, Australia will have responsibility for certifying the submarine as safe and fit for operations, so we need to understand the safety philosophy.

We looked at the methods of sustainment and the matter in which each of the participants would support us in establishing a sovereign sustainment capability from the outset of the program. Of course, this was a key lesson from the Collins program and many international submarine programs as well. Connected with that was looking at the potential commercial arrangements in the government-to-government agreements that would support such a complex program over its long life. That went to matters such as the way in which technical data would be transferred to Australia and the way in which intellectual property would be managed.

We also looked at the participants' ability to manage risk, again, throughout this complex program. That was a very comprehensive process. It was conducted with a large team working within the Future Submarine program. The evaluation of those proposals took place over a long period of time and in accordance with the schedule that we set so that we could complete a very thorough and comprehensive evaluation of the very high-quality proposals we received from each of the participants. That process, of course, was overviewed by an expert advisory panel, which reported that the process was indeed sound and was defensible from an accountability and probity perspective, and that all participants had been treated fairly and equitably in the process.

We also invited peer review of our evaluation. External review of that, which has been announced, included review by experienced submarine program managers from the United States, who also concluded that our process was very sound and would properly inform the selection of the most suitable international partner. They made no recommendations to change the course of the process or the manner in which it was being conducted. We also had external review of our analysis conducted by RAND Corporation, and we also invited the US Navy to look at the manner in which we were assessing costs and the veracity of the ROM costs that were being provided to us. On the basis of that very thorough process, we believe we have come up with a firm recommendation to government, which government has made its decision on. That gives us confidence also now that we are best placed to enter contracts with DCNS for the design of the submarine and to work with us on the construction of that submarine as well.

Senator CONROY: Okay. I want you to pretend that I know absolutely nothing about what I am going to ask next, which should be easy because it is true. It is very easy for him to fake this, because it is true. There has been a lot of debate in the papers about the propulsion system—the French versus anybody else's. Could you tell us about the propulsion system, because there has been a lot of adverse discussion about it. I am interested in your perspective. Without revealing anything that you should not, are you able to explain to the committee?

Rear Adm. Sammut : We looked at the propulsion system, of course, offered by all participants. The propulsion system includes a range of systems in the submarine designed to propel it through the water and to do so quietly. Propulsion for any submarine, of course, has a large bearing on its stealth—in other words, how quietly the submarine moves through the water. We considered all of the proposals presented by the participants using a range of subject matter experts. It included assessment by the Defence Science and Technology Group, and we looked not only at what was proposed by participants, in terms of what sort of propeller they would put on the submarine and what sort of drive train they would have, but also at what their response was in terms of the performance of those systems. In the final analysis, we decided that the DCNS proposal best met our requirements for stealth based on our understanding of what would be required of a regionally superior submarine operating in the 2030s and beyond.

Senator CONROY: Thank you. I have been reading—as you would hope and expect—as much of the commentary as I can keep up with on this. The current French propulsion system is propelled by a nuclear engine. Is that the current Barracuda?

Rear Adm. Sammut : The submarine they are designing and building for themselves is a nuclear-powered submarine.

Senator CONROY: So it is a nuclear reactor that drives the propulsion system?

Rear Adm. Sammut : That is correct.

Senator CONROY: I think the Prime Minister said this, but can I just confirm from the expert panel: there was no consideration, and this was not a factor in any way whatsoever, about this mooted change to a nuclear submarine halfway through the process. I am inviting you to confirm that this bore no part whatsoever in the thinking of your group, you or any of the other partners.

Rear Adm. Sammut : I can confirm that categorically.

Senator CONROY: So if at some stage over the life build of the 12 we ended up with a nuclear sub as part of this process, it would be a mystery to you?

Rear Adm. Sammut : The competitive evaluation process was about the acquisition of a future submarine that was conventionally powered. That was purely the consideration upon which the proposals were assessed.

Senator CONROY: I understand the propulsion system of the French proposal is rumoured—again, if there are areas you cannot disclose, please say so—to work brilliantly quietly with the nuclear reactor at high speeds. It is very quiet. Is that correct?

Rear Adm. Sammut : The performance of all submarines operating at high speeds is largely about the manner in which the propeller works, somewhat independently of what is supplying power to the propeller.

Senator CONROY: But I understand one of the proud claims from DCNS of its nuclear-powered Barracuda is that at high speed with its nuclear-powered propulsion system it is very quiet in a submarine underwater signature sense.

Rear Adm. Sammut : The French would have goals, of course, for the noise performance of its submarines. I should add that it is not related just to the propulsion system but to the way the hull is designed, the flow of the water over the hull at those high speeds and how that is managed to reduce flow noise that emanates from the submarine at high speeds.

Senator CONROY: The French do not have this propulsion system on a conventional submarine anywhere, do they?

Rear Adm. Sammut : They do not have a nuclear reactor on a conventional submarine.

Senator CONROY: No, the propulsion system they are proposing for the Shortfin Barracuda is not powered by diesel; it is only nuclear powered.

Rear Adm. Sammut : DCNS has proposed to us a conventionally-powered submarine that includes—I think you are trying to get to the form of propeller we are talking about here, Senator.

Senator CONROY: Yes.

Rear Adm. Sammut : It is a pump jet, which is what DCNS has said is part of their proposal. That is just one element of the entire propulsion system. We were discussing before the fact that there are many elements to the propulsion system. There is the propeller, there is the motor that drives the propeller and the diesels that charge the battery that drives the motor. All of those factors combined lead to the propulsion system that is fitted to a submarine. When we consider all of those elements we look at what each contributes to the likely noise signature of the submarine and make an assessment about the overall performance of the submarine as far as its stealth is concerned.

Senator CONROY: I have read that the signature of the nuclear-powered sub with the propulsion system propeller that we are taking is very good at high speed. But at the speeds that a conventional sub will go—which by definition are considerably less than the speeds a nuclear-powered one achieves—there is a difference in the signature. Could you comment on that?

Rear Adm. Sammut : Only to say that there is an impact across all speed ranges of the propulsion system. It does not purely pertain to high speed.

Senator CONROY: But what I have read is that the propulsion system is, if you like, designed and attuned to perform against the nuclear-powered aspect, and that they swap the powering out and keep the same propulsion system, but they have not adapted it in any specific way. I am inviting you to comment. The two parts work beautifully together, but the conventional power that we plan to use does not create as successful a signature at the lower speeds—so above 20 knots versus below 20 knots. Would you like to comment?

Rear Adm. Sammut : Only to say what I said before. There is an advantage across all the speed ranges in the technologies that are being proposed by DCNS. You are right: there has to be a degree of adaption of any propeller that is designed for a submarine, whether it is a normal propeller or whether it is a pump jet. That always has to take place. The principles that underpin the quietness of a pump jet apply in any case.

Senator CONROY: I want to turn for a few moments to the decision-making process that led to that. In an interview with ABC radio on 27 April, the industry minister, Christopher Pyne, said:

I’m a member of the National Security Committee, and we received a recommendation from Defence which was very clear, and that was that the French bid was superior and that an Australian—all-Australian build with Australian steel, Australian jobs and Australian subs was a recommendation from the Department of Defence and that’s the one that we took.

So, Minister, did Defence make a very clear recommendation for an all-Australian build or did Defence also present an option for a hybrid build?

Senator Payne: I have already said to you, or to the chamber at least, Senator Conroy, that I am not going to canvass the deliberative processes of the NSC in public.

Senator CONROY: Perhaps I will rephrase. Does the decision by the government for an all-Australian build reflect the course of action recommended by Defence?

Senator Payne: I have nothing further to add to what I just said.

Senator CONROY: Minister, that would invite the suggestion that Mr Pyne was being a bit loose with the truth.

Senator XENOPHON: No!

Senator CONROY: I know that will shock you, Senator Xenophon, but that certainly is what it would imply.

Senator Payne: I think that is a most inappropriate reflection, Senator, and one you might want to consider withdrawing. That is a matter for you. I am not going to add anything further to what I have just said.

Senator CONROY: I am just inviting you to back up Minister Payne—I mean, Pyne. Apologies again. It does get a little bit confusing. I appreciate I am defaming you and I appreciate the lack of a writ so far. On the odd occasion, that has happened.

Senator Payne: You have done it twice, and always on the Hansard record.

Senator CONROY: I appreciate your restraint in not suing me for serious defamation of your character.

Senator Payne: Senator, I have nothing further to add.

Senator CONROY: How can you refuse to comment when Minister Pyne has publicly said that the NSC received a very clear recommendation from Defence for an all-Australian build? Either Defence did or did not provide that recommendation. Which is it?

Senator Payne: Senator, you are engaging in a political debate. That is a matter for you. I have nothing further to add.

Senator CONROY: Mr Richardson, are you prepared to call in the police, given this very egregious leak of information by Minister Pyne of NSC? Brendan Nicholson got a visit from the plod. Surely Minister Pyne deserves one.

Senator Payne: I do not think you need to involve the secretary in your political commentary.

Senator CONROY: He called the police in because NSC information has been leaked.

Senator Payne: He is more than capable of standing up for himself, but I do not think you need to involve him in your political commentary.

Senator CONROY: Minister Pyne has leaked just as egregiously, publicly.

Senator Payne: You just did it again, didn't you?

Senator CONROY: I know. It is late; I am tired. We are all a little overwrought.

CHAIR: Senator Conroy, could I suggest you take a break for a little while and I will go to Senator Xenophon?

Senator CONROY: I would just love to hear a response from Mr Richardson as to why he has not called the police in yet about the leak from the NSC. He seems keen on doing it.

Mr Richardson : There is an old Maasai saying: ants should stay away from the grass where elephants trample.

Senator CONROY: That conjures images I will need a cup of coffee to get over!

Senator XENOPHON: Yesterday, at the Finance and Public Administration estimates with the ASC, they indicated that they had not been briefed by Defence in relation to the announcement made last week with respect to the Future Submarine contract. That surprised me. They are not aware of when there will be a briefing from Defence with respect to the Future Submarine Project. When do you expect that to take place?

Mr Richardson : We would not have even thought of briefing them at this point. We have discussions which are commencing with the French about commercial arrangements, which the minister has mentioned. We expect to finalise them before the end of the year. We will have a five-year design process and we would expect a build commence in the early 2020s—around 2022 or so—so it is a bit premature to be sitting down with ASC just yet.

Senator XENOPHON: It is just that yesterday, after a series of questions from Senator Wong and me, it was established that something like 640 jobs will be going from ASC by the end of 2017. You are aware of what Defence itself has said in its Future submarine industry skills plan in 2013 and RAND Corporation that the stop-start nature of naval shipbuilding in this country 'will cost tens of billions of dollars over a 30-year period'. Has any analysis been carried out in terms of what the costs will be of laying-off hundreds more workers in the coming 18 to 20 months and then restarting for the OPVs, Future Frigates and the submarines?

Mr Richardson : I will pass that question on to Mr Gillis. We have started an examination of the infrastructure that will be required. There will be a need for significant investment in South Australia—

Senator XENOPHON: Sorry, significant investment in?

Mr Richardson : In South Australia in infrastructure relating to the submarines and relating to other platforms and the like.

Senator XENOPHON: But that was not my question.

Mr Richardson : In relation to your specific question, I will pass that to Mr Gillis.

Senator XENOPHON: If I can move to Mr Gillis, my question is: it is acknowledged that the stop-start nature of naval shipbuilding in this country, which this government and all of us in a bipartisan fashion agree is a bad thing, actually cost taxpayers a lot of money—as well as the human cost of laying-off people and then reskilling and restarting. What will the cost be? It will end up being about 1,300 or 1,400 workers probably by the time that the OPVs start—or more, because there have been about 1,000 jobs lost and there will be another 640 by the end of next year. Has Defence and has CASG calculated what the likely cost of that stop-start nature of naval shipbuilding is?

Mr Gillis : We are working with all the Australian shipbuilders and with the designers to work out what is the best strategy between now and 2018 and between now and 2020 to mitigate that transfer of the starts of both the OPVs and the frigates. We have contacted all of the shipyards and we are in consultation with them. We have written to them. We have asked them for their views of how do they mitigate that risk and how do they work with us in mitigating that risk to ensure that we have the best possible outcome.

Senator XENOPHON: Hold on, Mr Gillis—it is not a question of mitigating risk; it is also the work being there. You do acknowledge that there is a significant cost involved in the stop-start nature of naval shipbuilding at the moment—correct?

Mr Gillis : It is a matter that has been going on probably for the last six to 10 years.

Senator XENOPHON: I am not asking you about the last six to 10 years. I am saying that if the ASC is going to be laying-off another 640 workers by the end of next year and something like 1,000 jobs have already been lost at the height of the AWD program, does not that itself involve enormous costs? With shutting-down, starting-up, laying people off, redundancy payments, reskilling—there are significant costs involved?

Senator Payne: Senator, at the risk of repeating myself, I am not sure where you are heading—I could predict but I will try not to be a crystal ball reader—but you and I both know that the prime reason for this problem is that no orders were placed for Australian ships built in Australian shipyards between 2007 and 2013. Mr Lamarre is on the record as saying there is an inevitability attached to the downturn in jobs because of that. He said that two estimates ago, if I am not mistaken.

Senator CONROY: You sent two ships to Cadiz.

Senator Payne: He, to a large degree, reiterated that yesterday. I am not sure where you want to go any further, but that is the bottom line, and you know that.

Senator XENOPHON: You inspired me to go in a particular direction as a result of your helpful—

Senator Payne: It's a long time since I've been called inspiring! That was very nice of you.

Senator CONROY: Move on!

Senator XENOPHON: There's inspiration and then there's inspiration! The naval shipbuilding plan was promised last year, was it not?

Senator Payne: Yes. I think there was an indication that it would be delivered with the white paper. The government decided not to proceed with that. We discussed this at last estimates. It will be produced before the end of this year.

Senator XENOPHON: So there has been a delay in respect of that coming out. That would have given some certainty. The very nature of the plan axiomatically is to allow shipbuilders in this country to make plans for their future and for their workforces.

Senator Payne: That is part of the process we are in with the announcements that have been made and the government's decision in August of last year to bring forward the construction and delivery of the offshore patrol vessels and bring forward the construction of the future frigates to a 2018 and 2020 commencement respectively. That being done, the down select process having been undertaken through the competitive evaluation processes for both of those, which were announced on—I cannot remember what date we announced the surface ships, but I think it was about three or four weeks ago.

Mr Richardson : Yes.

Senator Payne: So that process is underway. That will be incorporated into the development of the naval shipbuilding plan as will now the announcement of DCNS as the preferred design partner for the future submarines. They are all major, fundamental components of the naval shipbuilding plan and will be required to produce the ships that are part of the government's commitment.

Senator XENOPHON: Usually a plan comes before implementation. Obviously these contract announcements are very welcome—

Senator Payne: In fact they are running in parallel. You have to know what you are going to acquire to put the plan around it, and that is what we have been doing.

Senator XENOPHON: Some would argue the other way around, but I will not labour the point any more. I am trying to understand whether there has been any analysis, any modelling, any back-of-envelope figures that say laying off hundreds and hundreds of people at the ASC and then restarting for the OPVs in 2018 comes with a cost?

Mr Baxter : You might recall that we commissioned work from the RAND Corporation last year to look at the naval shipbuilding industry and looking specifically at the cost of a stop-start approach to the naval shipbuilding industry in Australia. It included analysis of the so-called 'valley of death' and what impact that was likely to have over time.

Senator XENOPHON: So you knew the valley of death was coming.

Mr Baxter : What RAND found was that the valley of death had already started and was well underway and that there were decisions government could make to ameliorate some of the impacts of the valley of death but not to eliminate it, because of the failure to commission ships in the previous several years.

Senator CONROY: Like the supply ships.

Senator XENOPHON: I understand that. I think the RAND Corporation report came out in about April last year, correct?

Mr Baxter : Yes.

Senator XENOPHON: And I had a good look at it then. As Senator Conroy pointed out, there are the supply ships. The contracts have not yet been signed for that. Is that right?

Mr Gillis : The contract for the supply ship was signed yesterday.

Senator XENOPHON: Yesterday?

Senator CONROY: Ha ha.

Senator XENOPHON: Was there—

Senator CONROY: They are too embarrassed to admit they have just sent 3,000 jobs to Spain.

Senator XENOPHON: Was there a media release that went out on that yesterday?

Mr Gillis : There will be a media release going out this morning. It was an agreement between Navantia and the Commonwealth that the appropriate time for them to make the announcement and for us to make the announcement was to do it this morning.

Senator CONROY: The day before the election is called. Is there an election being called, Senator Xenophon?

Senator Payne: This has been underway for some time. We have had this discussion. You know we have had this discussion. You know that the capacity, particularly in South Australia with the ongoing completion of the AWDs, did not allow for the supply ships to be built. You know that. You know that you also announced in 2013 that you had four or five options up your sleeve for the supply ships. Those included a hybrid build, an overseas build, a domestic build and maybe even a lease arrangement.

Senator CONROY: And we announced we would build them in Australia.

Senator Payne: And you did absolutely nothing.

Senator CONROY: And we announced prior to the last election we would build them.

Senator Payne: Australia will actually have two fully-capable supply ships in an appropriate time frame no thanks to you.

CHAIR: Both of you.

Senator CONROY: I accept your admonishment.

Senator Payne: We will also have the construction of Pacific patrol boats underway in Henderson as well, because that contract has also been signed.

Senator XENOPHON: Thank you for advising us of that. I am actually quite shocked about this news, because the people I speak to within the defence industry are saying that there is real hope. There is a capacity to do similar to what occurred with the LHDs. I understand the capability gap argument, but the hulls could be built overseas and the blocks built in Australia, as happened in Victoria. Can you give us some details in broad terms about whether the contract will allow for some significant local build component for the supply ships?

Air Chief Marshal Binskin : Can I hop in for a second? Often this gets missed in the discussion, but there is a capability requirement here for the ADF to be able to operate and sustain our forces.

Senator XENOPHON: I understand that.

Air Chief Marshal Binskin : I know, but I need to give the context before we go down the path you are going to go, because I think it sets the context as to why—

Senator XENOPHON: You do not know which path I am going down.

Air Chief Marshal Binskin : I have a good idea.

CHAIR: Allow the CDF to answer the question.

Senator XENOPHON: He is accusing me of saying I am going down a particular path.

CHAIR: Please.

Senator CONROY: I think it's called verballing!

Air Chief Marshal Binskin : I think it is important to understand the capability requirement behind the new oiler and supply vessel, because that allows us to understand why the contracting method and delivery path were taken. The Chief of Navy can talk about the issues he has in Navy and the capability requirements as the capability manager.

Senator XENOPHON: With respect, I asked questions of Mr Gillis. I am trying to understand: of the contract that was signed yesterday, which we have only just found out about now, how much of that involves local content? Can we please find out?

Air Chief Marshal Binskin : I think the capability requirement will help you understand that answer.

Senator XENOPHON: Obviously it is important to know about the capability requirements, but I am trying to ask a very direct question.

Air Chief Marshal Binskin : This is all about capability. That is what we are here to deliver.

Senator Payne: I will ask Vice Admiral Barrett and Mr Gillis both to answer your question.

Senator XENOPHON: I am trying to understand the local content.

Senator Payne: I understand that.

Vice Adm. Barrett : The original decision to replace the tanker was driven around the requirements that we have on sustaining the current tanker HMAS Success, which has now been in operation for over 30 years, and also for the replacement of HMAS Sirius, which cannot replenish stores; it can only transfer fuel at this stage. The requirement was to do so as quickly as possible because the costs that I have to bear in sustaining Success in particular at the moment are increasing rapidly as it comes to the end of its life. The view then was to look at where this could be developed. We looked for a ship design that was already in place that was of proven ability and was in service somewhere else. As a consequence of that, a decision was made by government to proceed overseas. With the process of tender and contracting that has been conducted over the last 18 months, we are in a position, having signed a contract, to commence build and to introduce both of those ships, in my understanding, a little earlier than we had originally anticipated, so I will be able to relieve the current capability deficiency that exists with the two existing tankers.

Senator XENOPHON: Earlier than anticipated by how many months? In other words, you had an anticipated date for the oilers, as you called them.

Vice Adm. Barrett : I think we were originally expecting 2021-22 for the first ship and 2023-24 for the second ship.

Senator XENOPHON: And now?

Vice Adm. Barrett : We now believe, I think it is—

Mr Gillis : We will have ship 1 delivered in 2019 and ship 2 delivered in 2020. That is a materiel release. There will be an initial operating capability in 2021 and a full operating capability in 2022.

Vice Adm. Barrett : That is being done because the ships are being built largely in parallel, which allows us to accept them earlier.

Senator XENOPHON: So there is no misunderstanding, because this is very important: Defence was willing, though reluctantly—and I understand why; the older they are, the more maintenance they need and the like—to live with the 2021-22 for the first—

Air Chief Marshal Binskin : Senator, just to correct you: we were not prepared to live with it. We had no choice at that stage. We were forced into that situation. The issue is that the oilers are already beyond their planned withdrawal date, so any delay on that was a concern to us.

Senator XENOPHON: Perhaps 'prepared to live with it' is not the right phrase—

Air Chief Marshal Binskin : No, that is not the—

Senator XENOPHON: and I am sorry that I said that. Defence had in its plan that it would have the supply ships replaced in 2021-22 and 2023-24 even though it was by no means ideal from Defence's point of view—correct?

Air Chief Marshal Binskin : That is right. We were forced into that due to funding constraints previously that had forced this project right a number of years.

Senator XENOPHON: But the important issue here is that initially, up until recently, it was 2021-22 for the first replacement ship and 2023-24 for the second. That is not controverted?

Air Chief Marshal Binskin : That was in the program—

Senator XENOPHON: That was in the program.

Air Chief Marshal Binskin : but we always would have liked to have it earlier.

Senator XENOPHON: I just want to know: that was in the program, so we are now going to have supply ships coming on-stream to be in the water in 2019 and 2020—correct?

Mr Gillis : No. That is the delivery. There is a difference between delivery to me as the capability acquirer and then me transferring that over to an initial operating capability of the Chief of Navy, and the Chief of Navy then—

Senator XENOPHON: Okay, but this—

Vice Adm. Barrett : You have mentioned it is ideal for Defence. At the moment, as the owner and the operator of these tankers, currently—

Senator XENOPHON: I said it was not ideal but you could have—

Vice Adm. Barrett : The issue is: we were working to a program where we expected the best delivery date that we could with the dates that I just explained. As a consequence of that I will be managing, as the Chief of Navy, a level of risk in continuing to maintain older ships. If there is an opportunity, through contracting, to retire that risk earlier by introducing them earlier then I will accept that, because I am carrying that additional risk.

Senator XENOPHON: But the fact is you have factored that risk in; the supply ships will now be delivered two or three years earlier.

Vice Adm. Barrett : I may have factored the risk in, but if I could retire the risk earlier by finding a contractive solution to introduce them into service earlier then I will do that.

Senator XENOPHON: Okay. What about the risk to thousands of Australian jobs? What about that risk?

Vice Adm. Barrett : The issue is that a government decision was made to do this overseas. I did not make that decision. If the opportunity through contracting allows us to introduce them earlier, as the operator of those ships I would seek to retire that risk earlier.

Senator XENOPHON: Perhaps we can go to the question I asked 15 minutes ago of Mr Gillis: what will be the local content of these two supply ships, which will now be delivered several years earlier? How many jobs will that cost? How many local jobs will be involved in the supply ships?

Mr Gillis : The Australian industry capability which has been agreed between the Commonwealth and Navantia totals $134 million, which is approximately 20.2 per cent of the total contract value.

Senator XENOPHON: Of the contract value? So the 80 per cent of that is about $900 million?

Mr Gillis : No. The actual contract that we signed with Navantia was—

Senator XENOPHON: Sorry; it will be five times that, so about $700 million.

Mr Gillis : It is $646 million.

Senator XENOPHON: What does that $130 million comprise of?

Mr Gillis : A number of attributes: primarily the supply of the communication systems, the supply of the combat systems, the supply of onboard cranes and a range of other local activities still to be contracted. The deal that we have constructed with Navantia is that they are to achieve a minimum of $130.4 million, and the trade-offs that they will make are that if they get a better price on the combat system or they get a better price on the communication system they are to try to look at alternative Australian industry to actually get that saving.

Senator XENOPHON: These are not shipwright jobs, are they? These are not actual shipbuilders on the ground, in ASC or elsewhere, are they?

Mr Gillis : No.

Senator XENOPHON: So how much of that $130.4 million is going to involve the cost of labour of Australian workers working on these supply ships?

Mr Gillis : In that $130 million there are Australian companies, there is Australian labour, there are Australian jobs—there are a whole range of things in there.

Senator XENOPHON: But not shipbuilders.

Mr Gillis : Senator, my task is to—

Senator XENOPHON: Please answer the question: not shipbuilders?

Mr Gillis : No, not shipbuilders.

Senator XENOPHON: So there will be no Australian shipbuilders building these supply ships?

Mr Gillis : No. They will be fitting out.

Senator XENOPHON: You are aware that ASC is laying off hundreds of workers between now and the end of next year, but there has been no attempt to maximise Australian industry involvement as there was with the LHD?

Mr Gillis : The issue here is one of capability. We required the ships in a certain time frame, and we are achieving that for the Commonwealth.

Senator Payne: We have also—

Senator XENOPHON: Not one Australian shipbuilder for a billion-dollar contract?

Senator CONROY: There are 3,000 in Cadiz in Spain, I understand.

Senator Payne: We have also previously discussed—and I will ask the officials to speak further to this—that if you were to build the supply ships in Australia now, in Adelaide, the amount of infrastructure upgrade that would be required to build two ships of that size and the interruption it would bring to the Air Warfare Destroyer program is another factor. That is a statement of fact; you know that.

Senator XENOPHON: Minister, in December this year, the AWD: there will be lots of space at ASC. You know that.

Senator Payne: There will not, and I will ask the officials to talk about that further.

Mr Gillis : One of the things with building a ship of this size is the block size. We do not have the infrastructure at ASC to construct the blocks. We cannot—

Senator XENOPHON: And the South Australian government is willing to help with that.

Mr Gillis : We cannot launch the ship, because we do not have a launch facility for the size of that ship in Adelaide.

Senator XENOPHON: And you know that the South Australian government was willing to play ball with you on that.

Senator Payne: So, do you want to stop the AWD program again now, interrupt that, to build the infrastructure upgrade? Is that what you want to do?

Senator CONROY: I think you are being verballed!

Senator XENOPHON: You are verballing me, Minister.

Senator Payne: You tell me how you would do it.

Senator XENOPHON: I am just relying on those within the defence industry who tell me that they can do both.

Senator CONROY: And the evidence from the ASC itself.

Senator Payne: The officials are indicating to you that that is not the case.

Senator CONROY: Those poor people at the ASC; they really should stop telling the truth!

Senator XENOPHON: Can you tell me whether Australian steel is going to be used?

Senator Payne: Those 'poor people at the ASC', Senator Conroy, are still reaping the rewards of you doing absolutely nothing between 2007 and 2013, quite frankly, and the contrast is that—

Senator CONROY: They are reaping the rewards of you sending the first two supply ships offshore.

Senator Payne: this government is making commitments to the Offshore Patrol Vessels, the Future Frigates program of $35 billion and the Pacific Patrol Boats currently underway in Western Australia. That is the fundamental difference and that is the reward they are reaping, the one you gave them, and you know it.

Senator CONROY: Your government's first decision was to send two major surface vessels offshore and refuse to allow Australia to even—

CHAIR: Senator Xenophon, you were about to ask about Australian steel. In about two or three minutes I will go to Senator Fawcett, until morning tea.

Senator XENOPHON: Well, this is a dramatic revelation about these supply ships.

Senator Payne: It is not, Senator Xenophon, and your—

Senator CONROY: What, you signed the contract the day before the election?

Senator Payne: grandstanding on this matter will not get us anywhere. You know exactly what the commitments of this government are. You know exactly the difference that it will make to South Australia and Adelaide.

Senator XENOPHON: You signed a contract on the eve of the election.

Senator Payne: And you trying to play games with this—

Senator XENOPHON: You signed a contract on the eve of the election.

Senator Payne: That is the process which is underway. You know that.

Senator XENOPHON: Not one Australian shipbuilder.

Senator Payne: We discussed it at the last estimates meeting, and you know it.

CHAIR: This is not getting anywhere, anyone.

Senator XENOPHON: Can someone please tell me whether Australian steel is going to be used in these ships.

Mr Gillis : We have negotiated with Navantia that they will contact the Australian steelmakers to identify cost, schedule and capability and whether they can do that.

Senator XENOPHON: So, you have given them the phone numbers of Arrium and BlueScope?

Mr Gillis : No, they have already—

CHAIR: That is an insulting question, Senator Xenophon. You know that.

Senator XENOPHON: Well, it is insulting not to have any Australian shipbuilders in this contract.

CHAIR: The answer that was given is that Australians will be given the opportunity.

Senator CONROY: It is not insulting; it is a scandal!

CHAIR: Colleagues, let's keep this at a professional level. Senator Xenophon, do you have a further question before I go to Senator Fawcett?

Senator XENOPHON: Has an Australian industry participation plan been released? Will that be released?

Mr Gillis : The Australian industry capability plan will be released.

Senator XENOPHON: When will that be released?

Mr Gillis : I am expecting within the next few days.

Senator McEWEN: Have you asked Navantia what steel they will be using?

Mr Gillis : We have asked Navantia to contact and to negotiate with Australian build.

Senator McEWEN: Have you asked them what steel they intend to use? If you have signed this contract, you must have some idea of where they are going to source the steel for these two ships.

Mr Gillis : Part of this contract was that we have asked them to contact Australian steel manufacturers and to look at it on the basis of cost, capability and schedule.

Senator McEWEN: That means nothing. Where do Navantia normally source their steel for these types of ships from?

Mr Gillis : On the international market.

Senator McEWEN: And what does that mean? What countries?

Mr Gillis : They source it out of Korea, they can source it out of China, they can source it out of Europe. They have sourced some out of Australia in the past. But if you look at what we are looking at, on the Pacific Patrol Boats: Australian steel; on the OPVs: Australian steel; on the frigates: Australian steel.

Senator McEWEN: But these are ships that are going to be built now, in Spain, not using Australian steel. Isn't that correct?

Mr Gillis : I do not have that information yet. We have asked Navantia to make contact with the Australian steel industry, to look at cost and capability—

Senator McEWEN: Do you know whether Navantia have made those approaches?

Mr Gillis : Yes, they have.

Senator McEWEN: And do you know what the response has been—from Arrium and BlueScope, I presume?

Mr Gillis : Not yet.

Senator FAWCETT: Could you talk to the committee about the risks that were identified in the RAND review about short-run ships in terms of the premium paid if you do not build a larger number? We have seen with the Air Warfare Destroyer that productivity on first of type is low but then improves. What is the cost premium we would be paying if we did only a short run of one or two ships?

Mr Baxter : RAND found in its report that if you adopted a continuous-build philosophy such as the government has announced for the OPVs and the Future Frigates you could reduce the premium from around 30 to 40 per cent over US prices for constructing the same ship down to roughly half of that—15 to 20 per cent. But you had to have the learnings of a long production run to be able to maximise productivity within the shipyard and be able to drive down those premiums. So, the risk of building short-run ships was that you would be paying the premium for first of class and you would not have a long enough production run to actually be able to harvest the productivity gains you would get from a longer production run.

Senator FAWCETT: Sure. Perhaps I could just take you back to a statement you made earlier that in the six years between 2007 and 2013 there were no orders placed for vessels. I do not actually believe that is correct. I believe there was an order placed for 12 LCM-1Es. Is that correct?

Mr Richardson : That is right, but I think Mr Gillis might have the details.

Mr Gillis : I will just have to get the specific data on the LCM-IEs. I understand that some of those were constructed in Spain and some of them were constructed in Australia, but that was prior to my arrival, so I will have to get the specific details on that for you.

Senator FAWCETT: But my understanding—and I was looking for clarification here—is that there was an order and that the bulk of that work was actually sent to Spain. So, if you could confirm that.

Mr Gillis : All 12 were built in Spain. These are ancillary small boats that support the LHDs.

Senator FAWCETT: But they involved classic shipbuilding work in terms of welding construction. So, for the one decision that was taken between 2007 and 2013, all the work was sent to Spain; nothing went to any Australian shipyard?

Air Chief Marshal Binskin : I think part of the decision making there was risk, and being able to deliver within a short time frame so that those vessels would have been ready for the LHDs when they came into service, because they are an integral part of the LHDs.

Senator FAWCETT: So, it is a capability based decision, a bit like the supply ships.

Air Chief Marshal Binskin : That is exactly right.

Senator FAWCETT: Interesting. Thank you.

Proceedings suspended from 10 : 23 to 10 : 39

Senator CONROY: Minister, during an interview with the ABC's 7.30 on 26 April, the Prime Minister was asked how much of each submarine would be built in South Australia, to which he responded:

But the majority, the bulk of it, will be built in Australia and indeed here in South Australia.

For the benefit of the committee, would the minister or perhaps the officials quantify what the Prime Minister meant by 'the bulk of it'. Is that 51 per cent or 100 per cent?

Senator Payne: You already know that the combat systems and the arrangement for the Mk 48 torpedo are a partnership with United States. So that, for example, is one example of componentry—for want of a better word—that is not Australian. But I will ask Admiral Sammut to speak further to that.

Senator CONROY: So Admiral Sammut is going to clarify the Prime Minister's comments?

Senator Payne: I am sorry.

Senator CONROY: I read that: the Prime Minister's—

Senator Payne: The Prime Minister's comment is in relation to, I think you said—I do not have the benefit of the transcript in front of me—'the overwhelming majority'—

Senator CONROY: No, he said 'the majority, the bulk of it' would be built at the ASC—

Senator Payne: The majority—that is absolutely accurate—of the submarines will be built in South Australia.

Senator CONROY: And I asked you to qualify what 'the bulk of it' meant. So you are happy for—

Senator Payne: It means the majority. What I was trying to say to you was that there are aspects of the construction of the submarine which are not capabilities that we have in Australia. We have already made arrangements and are involved in a limited tender process now in relation to the combat system. You know that. But the overwhelming majority of the build of the submarine in its totality is in Adelaide.

Senator CONROY: Has the government secured any legally binding commitments from DCNS about the level of Australian industry content and, if so, what is the level of the content?

Senator Payne: As we canvassed in this morning's discussions, we are still involved, obviously, in the commercial negotiation process, and this is an aspect of the commercial negotiation process. DCNS were required to produce an Australian industry involvement plan as part of the CEP, if I am not mistaken, as of course were the others. In conjunction with that, in the negotiation process itself and with the framework set out in the government's defence industry policy statement, which we announced with the white paper in February, that is all part of working towards that Australian involvement that you are talking about. That is the framework under which we are operating.

Senator CONROY: Minister, will you mandate a minimum of 70 per cent Australian content in your negotiations with DCNS? Will you give a commitment that you will put that into the contract?

Senator Payne: That is not very ambitious. Why don't you ask me to mandate 95 per cent or 99 per cent? That is absolutely what we are aiming to do: to maximise Australian industry involvement, engagement and capability in the construction of the submarine, which will of course be built in Adelaide.

Senator CONROY: I am not quite as trusting of your negotiating statement as I would be of you saying, 'We will guarantee; we will mandate, in the contract, 70 per cent Australian content.' Will you mandate that in the contract and give us a guarantee today?

Senator Payne: Why wouldn't we aim for higher?

Senator CONROY: I am happy to press some more if you believe—

Senator Payne: The government will make the—

Senator CONROY: I said minimum.

Senator Payne: quantity as high as it possibly can.

Senator CONROY: Well, you can put a floor under it: a minimum of 70.

Senator Payne: We will make it as high as we possibly can.

Senator CONROY: I would have thought, given the claims that have been made, that you would be willing to mandate a minimum of 70 per cent.

Senator Payne: I will be asking the department to aim higher than that.

Senator CONROY: We welcome you aiming higher, but let us put a minimum of 70 per cent on it.

Senator Payne: I will also be reminding you and everybody else that the submarines themselves are being built at the shipyard in Adelaide. That is where they are being built—in Australia.

Senator CONROY: If you are confident you can exceed 70 per cent, you can state right here and now that there will be a minimum of 70 per cent Australian content and you will mandate that in the contract with DCNS.

Senator Payne: Thank you for your advice on the commercial negotiations.

Senator CONROY: I am offering you an opportunity.

Senator Payne: I said thank you for your advice.

Senator CONROY: So I will take that as you declining to make that commitment.

Senator Payne: No; you would be most mistaken in doing that.

Senator CONROY: No. You can say, 'We will write into our contract that there will be a minimum of 70 per cent.'

Senator Payne: Actually, I intend to aim for higher than that.

Senator CONROY: And I will support 100 per cent. But what we want to ensure is that there is a minimum that you cannot go below and that DCNS cannot go below.

Senator Payne: We will be going higher than that.

Senator CONROY: How will 'Australian content' for the future submarines be defined? For example, does 'Australian content' mean that it will be 100 per cent Australian made or could it be made elsewhere and just assembled in Australia? Can someone help me. We did have a bit of a discussion around this type of issue in March and, at the time, Defence was unable to explain how it classified 'Australian content'. I am sure you remember that conversation, Mr Gillis. What is our definition of 'Australian content'?

Mr Gillis : I can give you some details of the Australian industry capability policy if that would help.

Senator CONROY: If an Australian subsidiary buys an item from its foreign parent, will that count as Australian content, or foreign content, or some mix of local and foreign? As an example, you can help me understand how you would classify that under those guidelines you were referring to.

Mr Gillis : You are getting into some really—we live in a global economy, where parts and pieces of subsystems are purchased in a number of different locations, and when the assemblies come together it becomes difficult to actually define. What we try to do is to source from Australian registered businesses and work out what their capability is. So it is not purely just the sourcing equipment; it is the capability they bring, the engagement with workforce and the training and skills. So our policy is an Australian industry capability policy. It is not specifically structured purely around content. Content is a very difficult process to identify.

Senator CONROY: That is why I am asking you to clarify.

Mr Gillis : Your telephone that you have in your hand would probably come from 10 different countries around the world.

Senator CONROY: I will come back to my question; thank you for that. What about when an Australian subsidiary buys an item from its foreign parent? Will that count as Australian content, or foreign, or a mix? It is a very straightforward question. Under the guidelines, how is it counted?

Mr Gillis : We define things under the Australian industry capability. We do that on the basis of where the company that we actually source from is registered. So if they are an Australian company—

Senator CONROY: So if it is an Australian subsidiary who simply makes a purchase from its own foreign parent and import it, you then go, 'Tick—it's Australian'?

Mr Gillis : We would look at that. But, if you took that to its logical extension, we would then be looking at every subcomponent of every piece of every equipment that the Defence department purchased. The administration of that would be impossible.

Senator CONROY: It is pretty straightforward. If an Australian subsidiary just buys from its own parent company, imports it and then just presents it to you, you go, 'Yes, that's Australian; you're an Australian company,' even though it is 100 per cent imported.

Mr Gillis : That is a very simplistic way—the policy that we have is the Australian industry capability policy, and that is how we define it.

Senator CONROY: The Prime Minister has repeatedly said that the future submarines will be made using Australian steel. What percentage of the future submarine will be made using Australian steel, Minister?

Senator Payne: I am not a submarine designer, as you know, but the Prime Minister has made it very clear and the department is more than aware of the government's requirement in that regard. So negotiations, I presume, and discussions will be had with Australian steel manufacturers to that end.

Senator CONROY: I watched your press conference, I have listened to Minister Pyne and I think you may even have said these words as well: 'It is going to be Australian steel in the submarines.'

Senator Payne: That is what I said.

Senator CONROY: So what percentage will it be?

Senator Payne: We will be having discussions with Australian steelmakers.

Senator CONROY: Are you mandating Australian steel?

Senator Payne: Australian steel will be used in the construction of the submarines, yes.

Senator CONROY: Which parts? You must know. If you know that Australian steel will be, you must know which part, so illuminate us.

Senator Payne: Eliminate you—

Senator CONROY: It would be hard I know.

Senator Payne: or illuminate, did you say?

Senator CONROY: Illuminate. I know it will be hard, but please give it your best shot.

Rear Adm. Sammut : Perhaps I can assist. The steel for the submarine is largely the steel that is used for the frame and the pressure hull. There are some secondary structures as well. As we work through the design process with DCNS, we will be clarifying the specifications of the steel that it uses in its design and construction of submarines—submarines that, as the minister has stated, will be built in Australia.

We are also in discussions with Australian steelmakers—preliminary discussions at this stage. DCNS is also exploring the capabilities of Australian steelmakers to get ready for preparing for the manufacture of Australian steel. As we have stated, Australian steel is going to be used in the construction of the submarines. I think we should recall that we did use Australian steel in the construction of the Collins class.

Senator CONROY: I am familiar with that. I have been lucky enough to visit Cherbourg, as I know you have many times by now. DCNS explained to me particularly about the nose. They showed me where they made it and how they were making it. They impressed upon me, and I am not critical of this, that they believe that for the nose particularly—for important reasons to do with the design—it would be wise for it to be built in France. I repeat: I am not being critical of this. You are familiar with that? This is even in an Australian built sub. Are you familiar with this?

Rear Adm. Sammut : Are you talking about the construction of the domed front of the submarine?

Senator CONROY: Yes.

Rear Adm. Sammut : Yes, I am familiar with what a domed end of the submarine is.

Senator CONROY: I was asking you if you are familiar with their point that they believe that, even with full construction overseas, that part of the submarine needed to be built in Cherbourg. I repeat: I am not being critical of that.

Rear Adm. Sammut : I am not familiar with the view that it needed to be built in Cherbourg. I think they have demonstrated their capability to do this in Cherbourg. As you would except, they can build entire submarines there. We need to look at the capacity of Australian industry to be involved to the maximum extent in this program and explore the capabilities of Australian industry to do all parts of the construction of the future submarine, which will be undertaken during the design process.

Senator CONROY: As I said, I would not be critical, if that was where the decision was to end up. What I would be interested in is whether or not Australian steel would be in that part of the—you indicated the pressure hull, so again helping me out as someone who does not know. I am just trying to understand whether the dome at the front—or the nose as I inelegantly call it, as a completely inexperienced person in this area—needs to be made of the same steel as the rest of the pressure hull.

Rear Adm. Sammut : It would be advisable that the submarine is constructed of the same steel throughout.

Senator CONROY: Right; thank you. What volumes of steel are required for each submarine and at what intervals?

Rear Adm. Sammut : Oddly enough they are not significantly large volumes. I believe about 40 to 50 per cent, by weight, of the submarine is the pressure hull. We are talking about submarines that are nominally around 4,500 to 5,000 tonnes. So it is not a large amount of steel per submarine. That would have to be manufactured at a rate that would complement the build rate of the submarine and the delivery rate.

Senator CONROY: Is there a specific standard type requirement for the steel to meet? I would imagine this is a very specific—

Rear Adm. Sammut : There are requirements for any submarine steel to meet just as there were for the Collins class. Those requirements can be met a number of ways, and that goes down to the manner in which the steel is manufactured: the metallurgy, the way it is alloyed, the chemical composition and so forth.

Senator CONROY: I will go to the minister next, but are you prepared to guarantee that the steel in the newly designed Australian submarines will be Australian steel?

Senator Payne: I am, Senator, yes.

Senator CONROY: How much? All of it?

Senator Payne: To the extent—

Senator CONROY: Admiral Sammut is indicating that it pretty much needs to be all steel from the same place.

Senator Payne: Yes, Senator. To the extent that that is what the design requires, as Admiral Sammut has set out, yes.

Senator CONROY: There are two suppliers in Australia, Admiral Sammut: Arrium and BlueScope.

Rear Adm. Sammut : I think we need to be careful about when we are talking about suppliers for submarine steel. Submarine steel requires particular processing. It is a higher tensile steel—in other words, a higher strength steel—than steel used in other parts of industry, and, again, we need to determine the capability of Australian industry to determine where that is best produced.

CHAIR: But we can be satisfied—can we not?—that Australian steel manufacturers have the capacity to manufacture to those specifications.

Rear Adm. Sammut : We are exploring, of course, all of the capabilities of Australian steelmakers and, of course, making sure we understand what those specifications are during the design process.

Senator Payne: That is what we are working with them on, Senator—yes, you are exactly right.

Mr Gillis : We are already in contract with the Defence Materials Technology Centre, which is an organisation that looks at matters of steel. We will also be working with the Defence Science and Technology Group to ensure that the quality and capability of Australian industry is there to be ramped up for that steel manufacture.

Senator CONROY: Do we need Dr Zelinsky at this point?

Senator Payne: Do you have a question for Dr Zelinsky?

Senator CONROY: Mr Gillis was just referring to what is necessary. I was interested in what is necessary in that process.

Mr Gillis : Primarily, we are contracting with the DMTC. That is the organisation, and I would work through the Defence scientists who work for Alex Zelinsky. So, it is one of those things: we are looking at—

Senator CONROY: Where is he hiding? Is he out of the room? I have never actually called him to the table before. I was just going to talk to him for a few minutes and send him away.

Mr Richardson : He has probably just fallen off his chair, has he?

Senator CONROY: No, it is all right; I am joking. It is okay. I will move along. But just coming back to Admiral Sammut, I said that there are two known suppliers that I know of that have been talked about publicly, and you said you have got to be careful. Are there more than two, or are there only two?

Mr Gillis : There is another company, Bisalloy. They are in Wollongong. They manufacture and specialise in grades of steel at 400 and above, which is high-tensile, very specialised steel.

Senator CONROY: Is it 400 and above? Can it be anywhere in there?

Rear Adm. Sammut : It is the higher tensile steels.

Senator CONROY: Is it just 400 or, for a sub, in particular, is it even more?

Rear Adm. Sammut : It is a grade of steel that is not used in ships. It is a higher grade of steel, and, since we have spoken of Bisalloy, that was the company that was involved in manufacturing the steel for the Collins class.

Senator CONROY: Would you envisage that the Shortfin Barracuda will be the same tensile strength as the Collins, or will it need to be a different one?

Rear Adm. Sammut : We will work out the design specifications of the steel, because it is particular to the design of the submarine, and those specifications will be determined during the design phase. We can expect it, though, to be a submarine grade steel, yes.

Senator CONROY: Has Arrium ever produced submarine grade steel?

Rear Adm. Sammut : Not to my knowledge.

Senator CONROY: Or BlueScope?

Rear Adm. Sammut : I understand that BlueScope may, in fact, provide the source material for Bisalloy. I am not to be quoted on that; that is my broad understanding.

Mr Gillis : Senator, that is correct. I was talking with the CEO of Bisalloy recently. He sources from BlueScope.

Senator CONROY: Arrium have never produced? Do they have the capacity to produce the tensile strength that you need?

Rear Adm. Sammut : Not the tensile strength that we need. Whether they can provide the source material, I am unsure of.

Senator CONROY: If you could help me understand the difference between the source and—

Rear Adm. Sammut : There is further work that needs to be done to steel, once it is produced to a certain standard, to harden it. Now, I am not a metallurgist or a mechanical engineer—

Senator CONROY: Dr Zelinsky has arrived. He may be able to help us.

Rear Adm. Sammut : But there are a number of processes that are undertaken, such as tempering and quenching the steel, which makes it harder and more capable—sorry, a higher strength of steel that is used in submarine hulls.

Senator CONROY: I am not sure that steel tempering is your specialty, Dr Zelinsky, but—I am happy for you to take it on notice—just for the interest of the committee, what would be that process? Is there someone at the back who could just give us an explanation of what you would have to do?

Dr Zelinsky : I will take that on notice. I am not a steel metallurgist, but we employ very good ones who have considerable knowledge.

Senator CONROY: Minister, coming back to you, you are prepared to guarantee that there will be 100 per cent Australian-produced steel, not steel that is imported and then treated?

Senator Payne: Yes.

Senator CONROY: It will be sourced in Australia?

Senator Payne: Yes, and we will work with all the organisations which Admiral Sammut, Mr Gillis and Dr Zelinsky are familiar with to get to that point.

Senator CONROY: Will you require that in the contract?

Senator Payne: I am not sure whether that is a matter for contractual negotiations or not, but I have made my position—the government's position—explicitly clear.

Senator CONROY: You can say one thing, but unless the contract specifies it—again, would you specify this in the design contract, Admiral, or would this go into the construction contract, which is down the track a little bit?

Rear Adm. Sammut : The design contract would talk about the design of the submarine and the activities that need to take place to develop the design, and that would inform the requirements of construction. Methods of construction are actually determined during the design contract, and we would expect that, in the process of specifying the steel, preparations would also be made for its manufacturing in Australia.

Senator CONROY: I think my understanding of what you said—and, again, please help me if I am wrong—is: yes, the design contract will be where you specify that it has to be 100 per cent Australian steel.

Rear Adm. Sammut : We need to determine what are the best commercial arrangements to put in place with the company to make decisions at the appropriate time to support the inclusion of Australian steel in the submarine.

Senator CONROY: If DCNS maintain their position that the nose dome needs to be built there, would we—

Rear Adm. Sammut : I am not familiar with the claim that they have a view that it needs to be constructed in France. I am not familiar with that view.

Senator CONROY: All I am reporting is my conversations as I have walked around.

Rear Adm. Sammut : Sure. I am just clarifying our understanding of that. Again, in keeping with what we said earlier, to maximise Australian industry involvement, we will be exploring the capacity to do all parts of construction of the submarine in Australia.

Senator CONROY: Sure. If that were to be the case—and I am not saying it will be—we would have to, to be consistent with what you said earlier, take the steel over to France for them to work on over there if that were where it ended up. We could not just get another supplier, say, 'Yes, it's the same,' and stick it on the front.

Rear Adm. Sammut : I understand it would be advisable to use the same steel throughout.

Senator CONROY: It would be advisable. Thank you.

Rear Adm. Sammut : If there were a change to that, I could let you know, but my understanding is that our intention would be to use the same steel throughout the submarine.

Senator CONROY: Thank you.

Senator FAWCETT: Just to clarify, in terms of Australia's demonstrated competence, my understanding is that, with the construction of Collins, there was a similar statement made at the start that Kockums needed to do the bow sections, but in fact the quality control issues with that meant that that work was repaired and then substantially maintained in Australia, demonstrating that we do actually have the capacity to do that work here in Australia.

Rear Adm. Sammut : That is correct. Two sections of HMAS Collins, the first of the Collins class, were built in Sweden. We had some issues with the manner in which they welded the steel that we provided them from Australia to build those sections. We have since managed those issues, and we continue to manage them in Australia. All sections of all other submarines were built in Australia.

Senator FAWCETT: My understanding is that one of the reasons that the government has committed to its Defence Industry Policy Statement and the continuous shipbuilding is to build on the legacy we have here of the ability to produce high-quality steel that is suitable for submarines and the kind of construction techniques and know-how that Australia has demonstrated in the past. So when the government says it intends to use Australian steel and build the submarines here, there is actually a track record whereby that has happened in the past.

Rear Admiral Sammut : Indeed, we did use steel produced in Australia that met the exacting demands that we had of that steel. That is in the Collins class today.

Senator FAWCETT: I would like to go back to the supply ships. I am very conscious that there are potentially some hundreds of South Australian workers who are going to be laid off, who will be very concerned about what may have been a future for them. Can I clarify that, even if a decision had been made, the contract that had been signed yesterday said we were going to build in Australia. When would that building have started? Could it have started before the end of this year?

Mr Croser : The AOR falls under my portfolio. If we had signed a contract yesterday for an Australian build, it would be a hypothetical question. The infrastructure required would have had to have been started two to three years ago. If we started that infrastructure now, we would probably need two years to get that infrastructure in place. It is a large ship with large blocks and a large amount of equipment that needs to be dealt with. That would take some time to plan and either one of two ways to build: by either changing the block size, which would mean the design of the ship would have to change to accommodate the size of blocks that we can handle in Adelaide; or we would have to design the infrastructure, including the sheds where the blocks are manufactured and fitted out, so that those blocks could be managed and prepared for consolidation. The other impact would be that right now we have two air warfare destroyers—DDGs—for the Navy on the hard stand in Adelaide being consolidated, with the second of the ships to be launched in December this year. So there are limitations at the moment with respect to space on the common-user facility to actually construct and consolidate. An estimate of how long it would take to build those ships and start that infrastructure would be about a six-year period, including infrastructure plus construction of the ships, so we would be looking at a 2024 period for delivery to Navy of an IOC for the first ship and subsequently the second ship. That is an approximation.

Senator FAWCETT: I guess the core of my question is: if the contract was signed for an Australian build yesterday, when would people start actually cutting steel and doing shipbuilding work? I am taking from your comment that it would be at least two to three years.

Mr Croser : Two to three years. Every design that has to go to a new yard has to be productionised for that specific yard's capabilities. The workforce skilling would have to be adapted to manufacture that ship. We would have to send people to the designer to understand how to construct that ship, so if it were a Cantabria class we would be sending people to Spain. There is the infrastructure. You would be looking at a two- to three-year start.

Senator FAWCETT: So if we were to prevent the job losses that we are seeing as air warfare destroyer work comes off at the moment, decisions would have had to have been made by government around three years ago?

Mr Gillis : I would expect more than three years ago. The other impact is that that would then have coincided with the construction of the two OPVs in Adelaide. It would have then had a direct impact on the frigate. When you are starting to talk about those time frames, it would have had a direct impact on the commencement of the submarine. It would not have been a sensible approach in any aspect.

Senator FAWCETT: I completely accept that. I am just trying to establish what peace of mind workers who are facing being retrenched can have, and that they understand that no decision this government took could have prevented the job losses that are occurring now, because the decisions for an Australian build of supply ships would have had to have been made in the term of the previous government.

Mr Gillis : That is correct.

Senator FAWCETT: That did not occur. This government has done all it can in terms of bringing forward the Pacific patrol boat contract. When was the Pacific patrol boat contract signed?

Mr Gillis : Yesterday.

Senator FAWCETT: That was signed yesterday. Can I also clarify that Australian industry did in fact provide unsolicited proposals to the former government? Where did they propose to build the supply vessels?

Mr Gillis : One of the proposals—the only one that we actually had a look at—was to build the first two in Spain and then have a potential third built in Australia. I think the belief was that it was illogical to build a ship of this size and class with the construction methodology in Australia in the time frames that we had. That was a proposal from Australian industry.

Senator FAWCETT: So the workers in Adelaide today who have heard about this contract being signed should understand that no decision of this government would have changed the outcomes that they are now facing.

Mr Gillis : Those decisions should have been made multiple years before.

Senator CONROY: I want to touch on the time lines of submarines. I will move into rolling acquisitions shortly. The head of Australia's DCNS bid has said publicly that construction of a factory will start very shortly this year, with submarine construction to start in a few years. I want to test your understanding of this. When does the government anticipate that the contractual arrangements will be signed?

Mr Richardson : For the design or the build?

Senator CONROY: The design. I think Admiral Sammut indicated that towards the end of the year was your best estimate.

Rear Admiral Sammut : We will have arrangements in place to be able to commence design by the end of this year. We will be putting further arrangements in place, noting that this is a long-term program that will run over many years and is, without question, a complex program. It is important that we take the time to ensure that we have the correct commercial arrangements in place from the outset so that the program is set up for success from the beginning and there is a clear understanding of the way in which the DCNS Australia and other industry partners will collaborate. It does take time to ensure that those arrangements are properly in place.

We also talked about the time line and that we would have preliminary design activities commencing by the end of this year. We have about five years of design work to undertake to get the design to sufficient maturity. Again, learning from the lessons of programs in the past, we need to commence construction of the future submarines with a clear understanding of what the design requirements are, having the construction process properly informed by the way the submarine has been designed and then undertaking the construction of the submarines that will ensure that the first submarine is ready for operational service by the early 2030s, as stated in the Defence White Paper.

Senator CONROY: I would like to drill down on that little bit. Page 89 of the Integrated Investment Program lists the Future Submarine Program design and construction as commencing in 2018. Is that still the time line for the design process to commence, or is it subject to the negotiations?

Rear Admiral Sammut : My understanding is that that is a nominal time frame that will not prevent us from commencing design work earlier. As we stated, we intend to commence preliminary design activities by the end of this year and we need to be in a full design process as we progress through 2017.

Senator CONROY: I have heard a couple of different time periods for the design process itself. Five, six, seven years—what is your best estimate?

Rear Adm. Sammut : We said around five years, and that would enable construction to commence by around 2022-23. There will be a little bit of design work that carries on after we commence construction, as is always the case, but what you want to achieve is a large part of the design completed—in other words, a high level of design maturity—before you actually commence the construction process. That, of course, prevents a situation arising whereby the design changes during construction and you have to do a lot of rework during construction which leads to schedule delays, cost overruns and, invariably, capability compromises.

Senator CONROY: I know this has been the subject, before the decision, of a lot of speculation and arguments backwards and forwards and I am not interested in revisiting any of that. What is your estimate of when the first submarine is in the water?

Rear Adm. Sammut : By the late 2020s, so that it can undertake contractor sea trials and be available to Navy for the next phase of trials, which are known as operational and test evaluation, that will explore the full operational capability of the submarine before it can be assigned to operations by the early 2030s.

Air Chief Marshal Binskin : Senator, that is where you often get the confusion about in the water—

Senator CONROY: I was always going to qualify my own statement of 'in the water'—but thank you; that does help. How long would that process normally take, sorry?

Rear Adm. Sammut : Which process?

Senator CONROY: That couple of years between 'in water' and 'in service'.

Rear Adm. Sammut : We generally have between 12 and 18 months of contractor sea trials, for a first-of-class, and up to two years of operational and test evaluation for a first-of-class, which is quite common with international submarine programs.

Senator CONROY: At what intervals will the subsequent submarines be put in the water? I will stay with 'put in the water' rather than the secondary issue.

Air Chief Marshal Binskin : What you are trying to define is the drum beat—

Senator CONROY: Yes, I am just trying to get a feel for it.

Rear Adm. Sammut : We would expect: around two years. We have not worked that out precisely, but about a two-year drum beat for being able to, at the end of the day, have submarines delivered to the Royal Australian Navy for operations. Of course, the length of the build will improve over time as well, as you would imagine.

Senator CONROY: Sure—I would hope.

Rear Adm. Sammut : The first-of-class would have a longer build period.

Senator CONROY: It would take a bit more time—sure.

Rear Adm. Sammut : We would get better at that with subsequent builds.

Senator CONROY: I think we might have touched briefly on this once before: that the advantage of 12 and the advantage of sovereign capacity is that the design can evolve. What we think we want today may change through the twenties and the thirties as technology changes and many issues impact on what we are at. What capacity have you built into the process that you could revise? I am not talking nuclear now; I am just talking: the way warfare is taking place below the surface now is a bit different when you combine it with that above the surface. So how do you build that in? That is not trying to be tricky by saying, 'Oh right, it will be longer because you have changed the process mid-design.' That is not what I am about. I am interested in how you can evolve the design as new challenges emerge.

Rear Adm. Sammut : It is quite common in long-run programs such as this to take an approach whereby you would build submarines in 'lots', if you like—'batches' is another word—which means you will build a particular number to a certain design that takes account of what the predicted performance requirements are, in the time those submarines will be operating. Of course, an important part of that design is to build in the margins. Margins are things such as the extra space that may be required to put more equipment in the submarine, the extra cooling that is required to cool that equipment and the extra power. So you have all those preconditions in place so that, when you update the design to account for emerging threats or changes in technology and so forth, you do not have to completely redesign the submarine to incorporate newer technologies. That is a common process. Perhaps one of the most successful examples of that is the US Virginia program, and that is how we would expect to be undertaking a program such as this.

Senator CONROY: I was probably even thinking of the next stage. Again, this is not about trying to say there will be a blow-out or a lengthy time. But all the things you have described, and please correct me if I am wrong, are within the same existing—

Rear Adm. Sammut : Envelope of submarine design?

Senator CONROY: Yes. If what we need evolves because of other countries—if China designs a new type of submarine that is controlled remotely, or is that sort of next generation—have we the capacity to adapt as well in the process?

Rear Adm. Sammut : I think we have the capacity to adapt as fast as we see technology coming. We understand from future threat assessments and so forth that submarines will continue to be an important part of our force structure. Therefore, it is important that we design our submarine within an envelope that is able to incorporate technologies that go forward, to take into account what emerging threats in the region might be. So I do not see it as being a situation where we would have to rip up the design and start all over again, if that is what you are suggesting. It is a case of evolving the design that we would have—again, by incorporating appropriate margins in the submarine so we are able to update it and upgrade it through its life. In some cases that might lead to a situation where we can back-fit earlier submarines with changes we make to subsequent lots or batches of submarines that we build.

Air Chief Marshal Binskin : A part of this process is developing our own design capability for seaworthiness and to have the ability to do exactly what Admiral Sammut was just talking about. So it is not just focusing on the boats themselves.

Senator CONROY: Thank you very much. I want to move on to the rolling acquisition. I note that paragraph 4.28 of the defence white paper states in part:

… the Government has decided to implement a rolling acquisition program for Australia's submarine fleet.

You think the two-year drumbeat for the subs fits the bill of a rolling acquisition?

Rear Adm. Sammut : I think 'rolling acquisition' is more broadly defined in the white paper, to be able to take account of those steps we were just talking about—to be able to update and upgrade the submarine throughout its life so that it remains regionally superior and maintains its capability over the long life that it will have. So it is about keeping the technology current.

Senator CONROY: Just because the terminology has chopped and changed a little bit—not necessarily by you—I am trying to understand the difference between a rolling acquisition program and a continuous build program. Is there one or is it semantics? Is it just that there are two phrases that are interchangeable?

Rear Adm. Sammut : Part of rolling acquisition is the ability to build up our skills, as the chief of Defence Force was just saying, to be able to incorporate new capabilities into the submarine that would see them evolve over time. Of course, those capabilities would contribute to our ability to replace the Future Submarine when it is time to do that in the next 40 to 50 years or so.

Air Chief Marshal Binskin : That is in comparison to the continuous build. So you have the continuous build of major fleet units and the continuous build of minor war vessels, so in that continuous build you might have a block of nine frigates, then you will do the next major vessels, then the next major vessels, rather than the continuous development and rolling build of submarines.

Rear Adm. Sammut : We would certainly expect the submarine after next to build on the capabilities that were put into the Future Submarine and to use the skills that we have developed in designing and delivering the Future Submarine so that we do not have substantial changes. Of course, this will depend on what the state of technology is in the future as well. But most successful submarine programs build on the experience of previous classes, and that is what will lead to the ability to sustain a submarine capability as long as it is needed in Australia.

CHAIR: I will ask a couple of specific questions on naval shipbuilding. We have now made the decision on the Future Submarines, the Future Frigates and the offshore patrol vessels, all to be built in Australia, leading to a continuous build of naval warships. CDF, can you or one of your colleagues please comment on the scale of what this means for advanced manufacturing generally in Australia? In terms of scale, can you give us some comparators so that we can understand the size and scale?

Mr Gillis : This is one of the largest national endeavours that Australia has undertaken, given the size of the programs and putting them together, not just in monetary terms but in capability, technology, infrastructure and creation of skills. It is a major national endeavour, probably one of the most significant in my lifetime.

CHAIR: There has been discussion today about the release, hopefully fairly soon, of the naval shipbuilding plan. Can you give us some details on what Defence is up to at the moment in developing the plan? Would you answer the criticism that the plan has not yet been released, given some of the earlier announcements?

Mr Baxter : We have been working on shipbuilding for well over a year now, initially as part of the development of the defence white paper. You would recall that a full force structure review was conducted as part of the white paper process, and one of the core recommendations of that force structure review was the need for a major modernisation program for the Australian Navy. As a result of those findings, the government obviously considered the best way in which to acquire that naval capacity, but the scale of the modernisation program that was set out in the white paper provided the opportunity for the government to announce a continuous shipbuilding program.

The naval shipbuilding plan continues to be developed. We have a dedicated task force within Defence that is working on a number of aspects of the naval shipbuilding plan, including looking at the infrastructure investments required in the two Australian shipyards where the builds will be carried out, looking at the skills that will be required in the workforce and how we can assist with training the workforce to acquire the skills. The plan itself will seek to maximise naval capability within the agreed budget framework. It will deliver value for money. It will provide certainty for the shipbuilding workforce and Australian industry. It will build commercial confidence and it will open increased opportunity for Australian innovation and promote the use of global best practice.

The government's announcement on shipbuilding and submarines is obviously the core of the plan—the commitment to a continuous build. The government has announced the location of the two builds, focused on two shipyards—Henderson in Western Australia and Osborne in South Australia. We are now going to work with DCNS from France and, as part of the competitive evaluation processes for frigates and OPVs, with the down-selected partners for those builds to identify the specifics of the investments that we will need to make across skills, training and infrastructure.

CHAIR: Is the fact that the plan has not yet been released in any way holding up the development of infrastructure, particularly in Adelaide? I understand Henderson well enough. Obviously Adelaide has the challenge—the first OPVs, the Future Frigates and then the submarines. So is the delay in the completion of the plan holding that infrastructure development up? Secondly, what is needed in Adelaide in terms of infrastructure? You also mentioned personnel and their skills development.

Mr Baxter : No, it is not delayed. As you know, the government has made a commitment to commence production of the OPVs in 2018. All our efforts are aimed towards meeting that commitment by government. As you would know, the government recently announced the down-selected three designs for further consideration before making a final decision on the design and build partner for the OPV.

In terms of the jobs that will be created through this massive program, as Mr Gillis outlined, the government has announced that more than 3,600 direct shipyard jobs will be created. That is broken down into: 1,100 direct jobs in submarines; 400 direct shipyard jobs for OPVs; 2,000 direct shipyard jobs for future frigates; and 130 direct shipyard jobs for the Pacific patrol boats. In addition to that there will be thousands more jobs created in the supply chain.

CHAIR: So, Mr Baxter, can you tell me whether there are transferable skills between vehicle manufacturing and the sorts of skills that will be required in the complexity of what you have just described.

Mr Baxter : The government is actively developing plans to provide the opportunity for people to acquire the skills that they will need to work on these shipbuilding programs. I am not an expert on the car industry and the skills required in the car industry, but my understanding is that there would be significant retraining required for people to move from one industry to another.

CHAIR: But we do think that there are personnel, potentially, there that could and would become available as these programs are implemented?

Mr Baxter : People will have the opportunity to enter training programs. The government announced, last year, its intention to establish a maritime technical college as part of that skills development program.

CHAIR: Is that the state government of South Australia, or the federal government?

Mr Baxter : The federal government. But we will clearly work with the states and with industry in the development of the facility.

CHAIR: Good. Speaking of the OPVs, can you give us an update on the progress of the competitive evaluation process.

Mr Baxter : I will ask Mr Gillis to do that.

Mr Gillis : With respect to the OPVs, we are about to go into contract with the three downselected parties to undertake the risk reduction and the design studies. That is the next phase. That will close in December 2016. Then we will go through a process of an RFT for acquisition to be released in January 2017. That will close in June 2017. Then we will go through an ODA—an offer definition activity—in the third quarter of 2017, if required. That would only be if we end up with a process where we need to run two designs off against each other. We are expecting to go back to government for a second pass in the third quarter of 2017, a contract signature in the fourth quarter of 2017, and then into a commencement of construction in 2018.

CHAIR: So, that is the reason for a delay in any contractual arrangements being in place; you are, simply, still making final decisions.

Mr Gillis : No, it is not a delay. We are exactly on plan.

CHAIR: There is not a delay?

Mr Gillis : No.

CHAIR: Okay. The government's decisions have, presumably, been conveyed to the designers. There is no gap in that process?

Mr Gillis : No. We have written to the designers. We have also written to all the Australian shipyards. We have sought their input into how we would do the transfer of the two OPVs from South Australia to Western Australia, and we have received responses from the majority of them so far.

CHAIR: Do you see that as being a seamless process, Mr Gillis?

Mr Gillis : Starting a design in one location and moving it to another location is always going to be a difficult process. We have to look at how we mitigate that risk, and that is one of the reasons we are having detailed discussions with the Australian shipbuilders at the moment: to ensure that we make that transition. But I am confident that, if we plan it well, we can make that transition.

CHAIR: Okay. Can I move onto the future frigates and ask you the same question: what is progress of the CEP for them?

Mr Gillis : We are expecting, in July 2016, that the risk reduction and design studies and the RFT will be released to the three downselected companies—designers. August 2016: the request for tender and the release for design and build. August 2016: commencing the risk reduction design studies. December 2016: project update to government. We have undertaken to go back to government again to give them an update on where we are. In June 2017: a downselect to government—and in December 2017: a radar update to government. This is in respect of the selection of the combat system, the integrator and potentially the cooperative engagement—that part of the frigate. There are two parts to this: there is the build of the actual vessel and there is the combat system and communications.

CHAIR: Is that a US sourced combat system? Or is it Australian?

Mr Gillis : We have made an announcement that we are going to be using the CEA radar. We are potentially sourcing an Australian combat system, but that has not been confirmed yet. We will still have to work with the Americans on the cooperative engagement—that is the link into Aegis. That component will be American.

CHAIR: Is that work well advanced?

Mr Gillis : Yes, we have been working with CEA on that, and other Australian companies have been looking at that integration. We are going to be leveraging off the work from anti-ship missile defence program—the ASMD upgrade program that was undertaken in Australia recently—to make sure that we have learnt from that experience. Construction starts in Adelaide in 2020—that is the time frame.

CHAIR: Can you give us some sort of comparison between the complexity of the various technologies that you are putting into the future frigates and the OPVs?

Mr Gillis : I will ask the Chief of Navy, who is the chief of capability, to answer that.

Vice Adm. Barrett : There is a significant difference in complexities. Clearly, as was highlighted by Mr Gillis, the fact that we are looking at dedicated combat system integration contracts to manage it would demonstrate that there is more complex arrangement that has to be put in place. The ships are physically bigger; the weapon systems are significantly larger, more advanced and there are more of them. Clearly, the way that all of those are tied in together is highly reliant on the combat system that brings them altogether. It is a significantly greater undertaking than the OPV.

CHAIR: I say with some pride that Austal shipping, based out of WA, builds 15 per cent of the U.S. Navy's vessels in Mobile, Alabama. The feedback that we get is that the U.S. Navy regard them the top of the wazza in terms of their products. My question is: what does the future for Australian naval shipbuilding look like for export opportunities—OPVs, future frigates, Pacific patrol vessels, submarines? Where is the blue sky for our naval shipbuilding industry?

Mr Gillis : Australia has actually been quite successful in exporting, and Austal has been one of those companies that has done that. They have just recently exported a high-speed vessel into the Middle East. We are going to be building the Pacific patrol boats. That is an aid program, but effectively it will be exporting that through to the Pacific. The long-term rationale behind a naval shipbuilding strategy and a naval shipbuilding plan is to enable Australian shipbuilding to become internationally competitive. Once we become internationally competitive we can compete on the international market. Historically, it is a process that has been for commercial vessels and some patrol boats. Australia has exported patrol boats to a number of countries around the world, but the transition is a much longer transition for naval shipping. Let's get it right in Australia and make sure that we have our efficiencies and then potentially we can be exportable and competitive on the international market.

Senator McEWEN: I want to ask about the enterprise bargaining process, Mr Richardson. I refer to an email that you sent on Wednesday of this week, advising staff of the results of the vote for the proposed enterprise agreement. I think your email says that 84 per cent of the staff voted; of those 54.86 per cent voted 'no' and 45.14 per cent voted 'yes'. How does that result differ from the last vote in March?

Mr Richardson : The 'no' vote is higher and the 'yes' vote is lower. I think on the first vote the 'no' vote was 50.9 per cent, from memory, and the 'yes' vote was 49.1 per cent.

Senator McEWEN: And the number of people voting?

Mr Richardson : The number of people was a little bit higher, because 81 per cent of people voted the first time; about 84 per cent of people voted this time.

Senator McEWEN: What changes were made to the proposed agreement following the 'no' vote in March?

Mr Richardson : Very little. We took up one suggestion relating to access to training funds by people in the regions. There were some typos in that, but, beyond that, there were not changes—consistent with the advice we have provided to staff: that we put on the table, first time round, the best offer we could.

Senator McEWEN: So there was no change to the wage offer?

Mr Richardson : That is right, because we had offered the maximum allowable, which was three, plus two, plus one.

Senator McEWEN: Did the minister have to approve the changes that were made?

Mr Richardson : Not the changes that were made in this instance. They were too minor. We had to get approval from the Public Service Commission. That is the process—the Public Service Commission.

Senator McEWEN: Does the minister approve the actual draft agreement?

Mr Richardson : No.

Senator McEWEN: In both votes?

Mr Richardson : No.

Senator McEWEN: So the minister has no oversight of what is in the agreement?

Mr Richardson : No. We work within a framework determined by government, and what we propose is subjected to scrutiny by the Public Service Commission.

Senator McEWEN: Did you anticipate that the second vote would go down as well?

Mr Richardson : No. I had an entirely open mind about it. In fact I was very open with people in saying that. Indeed, in meeting with SES and with others, I consistently stated that we should not assume anything. The experience of other departments is that sometimes a second vote gets up, sometimes a second vote goes down by a greater margin. There is no consistency across departments in that respect, and I had a totally open mind.

Senator McEWEN: Did you get any feedback from staff about why the 'no' vote increased?

Mr Richardson : No. The percentage of people voting overall was good. We actively encouraged people to take part in the vote, whether they intended to vote yes or no. We have been consistent in saying that to staff: 'Actively participate. Don't leave it to others, regardless of what way you intend to vote.' I suspect the major reason for the 'no' vote is a view that certain things have been moved from the agreement across into policy. That appears to be the big point of contention.

Senator McEWEN: Just remind me: what were the key things that have come out of the agreement and that you propose to implement as policy?

Mr Richardson : Some of them relate to consultation. Some of them, I think, are quite uncontroversial—for instance, relating to workplace health and safety. The fact is that workplace health and safety requirements are determined by legislation, not by the agreement, and legislation always overrides an agreement, where there is conflict.

Senator McEWEN: So what now? What are you going to do now?

Mr Richardson : Now we follow the process. First of all, decisions need to be made about when we might return to the bargaining table. Beyond that, decisions would need to be made about when we might have another vote. We have not engaged in decision making on either of those two things at this point, bearing in mind that a return to the negotiating table does require agreement between the two parties.

Senator McEWEN: Does the fact that we will shortly be in election mode have any bearing on what you are able to—

Mr Richardson : Technically, no. As you know, the caretaker period is a convention. Theoretically, as you know, a government could declare war during the caretaker period—it would not, obviously. There is nothing to prevent a return to the negotiating table during the caretaker period. However, the unions might have a view on that, and others might have a view on that. So while technically there is nothing to prevent us from returning to the table, nothing to prevent us from having another vote during the caretaker period, obviously that is a matter of judgement and we have not yet broached that.

Senator McEWEN: But you, as secretary of the department, will not use these fact that we are in an election to forestall any further negotiations?

Mr Richardson : I have not turned my mind to the next round of bargaining. As I said—

Senator McEWEN: I understand that you have not thought about dates, consultations and stuff like that. But, as the secretary of the department, are you going to use the fact that we are in election mode to say to the unions and to the workers they represent and to the workers themselves that you cannot negotiate because we are in an election?

Mr Richardson : I have not made any such comment.

Senator McEWEN: I know you haven't, but what is your view?

Mr Richardson : The only comment I have made is the comment that I have put to staff; and I will communicate to staff directly, I will not communicate to staff via Senate estimates.

Senator McEWEN: I think you do from time to time.

Mr Richardson : Not to staff, I don't.

Senator McEWEN: You mentioned earlier in your evidence that you thought one of the reasons for the increase in the no vote was the issue of matters being taken out of the enterprise agreement and put into policy. Who made the decision to take that bargaining in the workplace?

Mr Richardson : The framework within which we negotiate is determined by government. That framework is interpreted. The official interpreter of that is the Public Service Commission.

Senator McEWEN: You mentioned that dispute resolution procedures were being removed from the agreement.

Mr Richardson : I said some elements of consultation had been.

Senator McEWEN: Does that include the right of employees to take matters to the Fair Work Commission?

Mr Richardson : I will leave that to Ms Skinner.

Ms Skinner : Employees have a right to take to the Fair Work Commission matters for which the head of power resides in the agreement. The overriding right for employees to be consulted on matters relating to their jobs and employment remains in the draft agreement that staff have voted on twice.

Senator McEWEN: Are you saying that the latest draft agreement presented to employees does include the automatic right of employees of Defence to take dispute resolution procedures to the Fair Work Commission?

Ms Skinner : For matters which are covered by the agreement.

Senator McEWEN: And some of those matters have been taken out of the agreement or are proposed to be taken out of the agreement.

Ms Skinner : Some policy, and mainly process, has been removed from the agreement. It is managed in Defence's workplace relations manual, within which we have the ability to resolve disputes or disagreements around policy within the department.

Senator McEWEN: The Canberra Times reported in April that Defence Department staff have been misled by Defence management about this particular issue. And I am not hearing anything from your evidence to refute that assertion made in The Canberra Times.

Ms Skinner : The statement that Defence made to its staff was to clarify that matters relating to the agreement remain able to be taken to the Fair Work Commission. The discussion in the Fair Work Commission was around the interpretation of the word 'enforceability'. Matters relating to the agreement can be taken to the Fair Work Commission. That is a definition of enforceability. In our department we would also argue that matters relating to policy are enforceable through the requirement for staff and supervisors to comply with policy. We have a range of grievance mechanisms and review of action mechanisms that can ensure that matters that are inconsistent with policy can be remade or that the policy can be enforced.

Senator McEWEN: Why did you have to issue a statement in DECA News No. 67 that 'For the sake of clarity, there will not be an automatic right to access the agreement's dispute resolution procedures regarding a dispute about a workplace policy'?

Ms Skinner : We had discussions with the Fair Work Commissioner and we clarified that point. But we also clarified the points around general enforceability in a large organisation like ours that puts significant resources into ensuring we have a strong policy framework for which consistent decisions shall be taken.

Senator McEWEN: Clearly the employees of Defence were not satisfied by this so-called clarity.

Ms Skinner : We sought to ensure that employees in Defence were well informed and that they made their decision on their vote based on the facts. That is why we communicated those points a number of times to staff, including in our information sessions.

Senator McEWEN: Some posters were put up in Defence saying 'Anything in policy will continue to be enforceable and Defence will continue to consult with you.' Is that right? That is what The Canberra Times tells me.

Ms Skinner : We understood that staff had particular concerns around enforceability of policy. That had been a matter of a lot of discussion. We were simply putting forward that staff in Defence are well protected by both the opportunity to take matters to the Fair Work Commission, where that relate to the agreement, and the opportunity to deal with other disagreements in the workplace that relate to policy through the mechanisms available in Defence.

Senator McEWEN: But subsequently you had to retract what was put in those posters.

Ms Skinner : We did not retract—

Senator McEWEN: You did. You had to say there was not an automatic right to access the dispute resolution procedures in the agreement, didn't you?

Ms Skinner : The poster does not say that all matters would be enforced through the Fair Work Commission—

Senator McEWEN: It said 'anything in policy'.

Ms Skinner : That is right. Anything in our policy is enforceable in the department through the departmental arrangements. It has the authority of the secretary's delegation run policy.

Senator McEWEN: Through departmental arrangements but not through the Fair Work Commission?

Ms Skinner : As I said, matters related to the workplace agreement for which the head of power resides in the agreement can naturally be taken to the Fair Work Commission.

Senator McEWEN: But not all the issues that used to be able to be taken to the Fair Work Commission. Your evidence has been a bit tortured really.

Ms Skinner : We are being clear that—with the strong frameworks that we have in our department around policy development and policy management, as well as the authority that the Fair Work Commission has to hear disagreements or disputes—staff in the Department of Defence have available to them policy that is enforceable.

Senator McEWEN: Mr Richardson, in your email to staff of 4 May you say:

We will advise next steps over the coming weeks.

What are the steps?

Mr Richardson : I have already told you—

Senator McEWEN: You have not turned your mind to it?

Mr Richardson : No. What I said is that there is a question of (1) returning to the bargaining table, there is the—

Senator GALLACHER: So you are suggesting you may not return to the bargaining table?

Mr Richardson : I have not said that. I have answered your questions very clearly. First of all, you asked me what the steps were; I told you. You then asked me whether I would not do it because of the election. I told you I had not turned my mind to that. You asked me another question, and I said I was not going to communicate with staff through Senate estimates. I have answered each question you have asked me.

Senator GALLACHER: Let us hope that the answers you have given in Senate estimates convince your employees to vote for your position.

Mr Richardson : I am not communicating to officers in the Department of Defence through this Senate estimates, and I am not seeking to convince anyone. I have been respectful in the way I have engaged with staff. I have been respectful of the unions, of which I used to be a member. I am not going to be verballed.

Senator McEWEN: Mr Richardson, the offer on the table was three per cent for the year 30 June 2014 to 30 June 2015, is that right?

Mr Richardson : That is right. Well, if I can say, I think you will find the agreement does not relate to financial years. The three per cent would kick in from—

Senator McEWEN: I understand that. If the agreement had been agreed to commence on 1 July 2014, it would have been three per cent for that financial year, and then two per cent for the next financial year?

Mr Richardson : At that time.

Senator McEWEN: I know there is no retrospectivity.

Mr Richardson : Yes.

Senator McEWEN: So what I want to know is what was the dollar value of that three per cent and then the two per cent?

Mr Richardson : The dollar value depends upon the salary you are on.

Senator McEWEN: I understand that. I mean the dollar value overall to the Department of Defence? What have you avoided in having to pay in wages increases?

Mr Richardson : The chief financial officer might have the precise detail on that.

Senator McEWEN: You must have known, when you made the offer, how much that was going to cost Defence?

Mr Richardson : Yes, but I do not have it in my head.

Mr Prior : I do not have that in my head either. I do not have that detail with me. We could certainly seek to get that.

Senator McEWEN: Can you make a rough stab in the dark.

Mr Richardson : We can get you that very—

Senator McEWEN: There is five per cent that has not been paid from 1 July 2014. What is that as a proportion of the Defence—

Mr Richardson : No. We are not going to stab in the dark. We will give you a precise figure.

Senator McEWEN: Can you do that before half past 12?

Mr Richardson : We could pretty much be able to do that. If not, we can give your office a ring and give it to you. That is readily available.

CHAIR: I understand that yesterday a Pacific patrol boat contract was signed. Could the committee have some details on that.

Air Chief Marshal Binskin : Yes, it was. I will get Mr Gillis to come and take you through that.

CHAIR: Thank you. You are earning your income today, Mr Gillis!

Air Chief Marshal Binskin : While Mr Gillis is coming, this is a significant part of our international engagement program with South Pacific nations, so this is not what we would look at as just as a patrol boat to get out there. This is a capability that will be sovereign capabilities of these Pacific nations, and it is a key part of their ability to patrol their own economic zones and protect their own sovereignty.

CHAIR: Thank you.

Mr Gillis : Yes, we did sign a contract yesterday with Austal ships for 19 vessels with the option of a further two—for, as the chief said, the Pacific engagement program. Contract value was $282.3 million in the base date or $321.1 million out-turned, creating 130 jobs, as has been stated before, with an Australian industry capability target of in excess of 80 per cent.

CHAIR: Are they aluminium or steel?

Mr Gillis : Steel. There was an issue relative to the steel on the Pacific patrol boats. The minister actually correctly announced that we did not manufacture that particular grade of steel in Australia. We have subsequently been in contact with a number of the steel manufactures to ensure that we get that grade of steel manufactured. So we have now contracted with Austal to source their steel from Australia.

CHAIR: Excellent. Thank you.

Senator XENOPHON: Can I go back to the issue of the supply ships. Mr Gillis, can you advise on the $130 million in terms of the local content for the supply ships? Can you give us a further breakdown of what that would involve?

Mr Gillis : The integrated logistics services package—I would have to say 'potential subcontractors' here, because we have been given an indication of the two, all of them are Australians and so they are sourcing from Australians but they are still doing some trade-offs between which company, company A or company B, would be best to provide the equipment. So integrated logistics services are approximately $4.2 million and $1.7 million, for supply of the communications systems approximately $65 million, for supply of the combat system $59 million—

Senator XENOPHON: Could we pause there. For the $59 million in the combat systems, obviously it is an Australian based company that will be supplying that or fitting it out. Is that right?

Mr Gillis : That is correct.

Senator XENOPHON: But is the combat system itself built locally or is there an imported component of that?

Mr Gillis : There will always be a small component that is imported, but we are contracting with an Australian company, and so it is an Australian sourced combat system.

Senator XENOPHON: So $65 million, $4.2 million and $1.7 million? What are the others?

Mr Gillis : Then we are looking at the elements of onboard cranes, and then there are a range of other smaller items that Navantia is actually negotiating with.

Senator XENOPHON: Of the $130 million, a proportion of that would involve some imported, non-locally-manufactured content?

Mr Gillis : As I stated before, in the purchase of any piece of equipment, because we work in a global supply chain, you will have those components that potentially come from other sources. But equally, in the remainder of the Navantia purchase, there will be, potentially, Australian content in that, which is not clearly identified. So there is a trade-off in that. If in fact you look at the steel, if in fact they do source the steel from non-Australian—and that is not our direction at this stage—they could have sourced the base content for that from Australia. So we could spending years tracing down the original source of every piece of technology and its source code or its source base or its source product, and we would be going around in circles.

Senator XENOPHON: So there is no easy way to work out what the local content actually is?

Mr Gillis : We target an Australian industry capability, but it is not just purely the contractual value; it is ensuring that those companies are actually training people and that there is a technology upgrade or a demonstration of investment in technology in Australia. So we require a much broader engagement with them in respect of capability. If you get stuck purely on content issues, you can drive the wrong behaviours by industry.

Senator XENOPHON: Thank you. Mr Richardson, back on 17 March—it seems a long time ago, but it was not that long ago—you conceded that taking more than 20 months to make a decision on an off-the-shelf supply ship was too long, or words to that effect. Do you remember that?

Mr Richardson : I cannot, but I will take your word for it.

Senator XENOPHON: I do not want to verbal you. You expressed concerns about the length of time to get to that point for a decision?

Mr Richardson : We have certainly on occasion taken too long to get to decision points.

Senator XENOPHON: Right. Rather than reading that back, I think that is a summary of what you said. The reason I ask that is that you said there was an urgent need for supply ships, and that was the basis of the overseas build, but I am advised by defence industry experts—including those I spoke to today after we heard the news about the contract being signed—that the infrastructure to build the supply ships in Adelaide could have been completed well within the 20-month time frame it took to make a decision. In other words, that infrastructure upgrade could have occurred in parallel with the AWD program. So my question is: has the defence department ever requested information from Defence SA on the upgrades needed for a supply-ship build?

Mr Richardson : I will pass that to others but let me say, by general reference, first of all, that the capability requirements for these two vessels have been clearly outlined by CDF and Chief of Navy. Second, you questioned the time frames this morning; I think Kim Gillis and Chief of Navy also answered that. What precisely has transpired with South Australia, I cannot answer—

Senator XENOPHON: There was a direct question—

Mr Richardson : but Mr Gillis might be able to.

Senator XENOPHON: and I think I gave a fair context to it. I want to find out: has Defence, has CASG, ever requested information from Defence SA on the upgrades needed for a supply-ship build? Can someone help me with that, because I know the South Australian government have indicated their willingness to be involved in any infrastructure upgrade, if needed.

Air Chief Marshal Binskin : Senator, while you were out, we actually went through a lot of this in relation to the AOR vessel. If you would like, we can get Mr Gillis to repeat it all.

Senator XENOPHON: No, please don't, because it is already on the record.

Air Chief Marshal Binskin : It goes down the time lines, it goes down previous bids, it goes down a lot of this sort of research.

Senator XENOPHON: Sure. I appreciate that, and that is on the record. I am just trying to understand whether Defence requested information from Defence SA on the upgrades needed for a supply-ship build. It is a very direct question. In other words, what level of communication was there between Defence, CASG and Defence SA, who are there to make things happen in terms of local defence projects?

Mr Croser : There are couple of factors. In 2013, Defence contracted FMI, a royal benchmark organisation, to analyse the shipyard capacity and capability in infrastructure skills for future ships, including oilers, future frigates and OPVs, as they were imagined then. You mentioned earlier, Senator, the skills plan for the submarines that came out at about that time. That fed the information into that skilling plan or that plan, and it identified that there were large infrastructure changes needed in the yard, cranes. We have worked with the South Australian government continuously throughout the AWD program and continue to do so about what infrastructure changes could be made funded by state governments and also in requirements for future programs.

Senator XENOPHON: Are you in a position to provide that information—table that information?

Mr Croser : That report has caveats on it for the reason that industry have supplied data which is commercial-in-confidence to the industry, and one of the agreements that were made with Defence and industry was that they would supply that information to FMI to do that analysis in confidence but not supply it—

Senator XENOPHON: I am going to run out of time. So can it be provided on the basis that any commercially sensitive national security information is redacted in respect of that?

Mr Croser : No.

Senator XENOPHON: I understand the commercial considerations. But, in terms of the supply ships, one aspect that was put to me is that, even if the hulls were built in Spain, a lot of the blocks and modules superstructure work could have been done at Techport. So I am just trying to understand what communications, what discussions, there were between Defence SA and Defence in respect of that.

CHAIR: Senator Xenophon, if I can, I urge you to go back when time permits and have a look at the Hansard of the evidence from Mr Croser and Mr Gillis in response. It was, really, very helpfully explained.

Senator XENOPHON: I will put that on notice. I appreciate that. Mr Richardson, on 17 March in estimates, when I asked you questions about the likely time frame for the contracts you indicated that it would be sometime in the middle of the year—sometime in June. I said, 'So is June a reasonable—', and then I was cut-off. You said, 'Around the middle of the year, yes.' I just want to know: in terms of the negotiations, where the negotiations in any way accelerated given the likely election date was to be July 2 and the writs would be issued very soon?

Mr Richardson : I am not aware of that. I will pass that on to others. I was giving a broad indicative figure—June, May.

Senator XENOPHON: I understand that. But you said about the middle of the year.

Mr Richardson : I will pass that on to others. I am not aware of it being accelerated.

Senator XENOPHON: I am just trying to understand—because of time constraints: has negotiation of the contract been accelerated? Has that acceleration of the contract for the supply ships led to a reduction or a lack of proper consideration of local content?

Mr Gillis : You mentioned those Senate estimates of—

Senator XENOPHON: 17 March.

Mr Gillis : You criticised us for our speed in actually getting—we were too slow. So one of things that we were able to achieve is: 13 months and five days from the RFT release to the actual contract signature. No, I do not believe that this compressed the negotiation. We ended up with a very good outcome. We actually increased the Australian industry capability in that time frame. A part of that negotiation was to actually ty to target greater levels of Australian industry involvement in this process.

Senator XENOPHON: In terms of the timing of the contract, how was the timing of the contract determined? Obviously, it would seem that we are looking at it again. Mr Richardson made it clear that we are looking at the middle of the year—

Mr Gillis : I think in a context here: May, June, the middle of the year. One of things is that my objective, as the provider of the capability to the capability manager, is very much around the timeliness of this process. This was all about getting a supply ship into the services of the ADF in a timely manner. So, therefore, there was always a time constraint that we were putting on ourselves to do it as efficiently as we possibly could relative to our ability to deliver it to the capability managers.

Senator XENOPHON: But Navy had said, even though they did not like it, they were expecting that the first—in terms of the supply ships—

Air Chief Marshal Binskin : As it has been said before, Navy is wearing significant risk in this capability at the moment. Anything we can do to reduce that risk is important to us to be able to deliver capability that the government and the people of Australia expect.

Senator XENOPHON: Just so that I can understand this, the ships are being brought forward to 2019 instead of 2021-22. Does that mean delivery date or in-the-water date?

Air Chief Marshal Binskin : We did have that before, but we will clarify that for you again now. It is important.

Senator XENOPHON: I think it was delivery. I understand for the first part of it, for 2019 and 2022, for delivery. But for the 2021-22 earlier date, did that mean delivery or in the water?

Air Chief Marshal Binskin : What we have been using before is: what is in the water; then you will have material release; then you will have IOC—in service.

Vice Adm. Barrett : The dates I was referring to were IOC—from my memory. I will confirm those and pass them to you. The point I was making is: there has been a significant bringing forward of those dates from what was originally expected.

Senator XENOPHON: What triggered that bringing forward?

Vice Adm. Barrett : The ability for CASG to negotiate an earlier time line. As I indicated earlier, part of that has been through that ability for Navantia to be able to produce these in parallel—

Senator XENOPHON: Following directly from that, it gets to the minister. Given that Navantia is one of the bidders for the Future Frigates, has any consideration been given to a request of Navantia a stronger local content—in other words, local shipbuilding jobs in respect of the supply ships?

Senator Payne: We have been through that before with you, Senator—what Mr Gillis said—and I do not think there would be anything to add to that.

CHAIR: Thanks, Senator Xenophon. Just for clarity: the two of you are talking about 17 March. My recollection is that 17 March was when we had our 29-hour continuous debate.

Senator McEWEN: And the spillover.

CHAIR: Yes, we had the spillover that same day.

Senator McEWEN: I apologise if this has been traversed—I am sorry; I was distracted. I wanted to ask about the third supply ship, which was raised in the spillover estimates on 17 March. Where are we at with that? Is that included in the contract with Navantia?

Air Chief Marshal Binskin : No, that is not in this contract with Navantia. The third ship is later in the integrated investment program. I will have to get the exact dates for that. But it is a white paper consideration that we would eventually like to go to three vessels. Mr Baxter will be able to answer that for you.

Mr Baxter : The white paper sets out that we would seek to acquire a third vessel in the first part of the 2020s.

Senator McEWEN: Were there any discussions, arrangements or heads of agreement or anything with Navantia as part of the contracts for the first two supply ships that deals with the third supply ship?

Mr Baxter : Not that I am aware of. I will just check with Mr Gillis. But I do not think that third ship that is canvassed in the white paper is part of the current contract.

Mr Gillis : No, it is not.

Senator McEWEN: Nothing at all about it?

Mr Gillis : No.

Senator McEWEN: No in-principle agreement to negotiate or discuss a third supply ship?

Mr Gillis : Not that I am aware of.

Mr Croser : There is no contemplation at all of a third ship within the contract with Navantia.

Senator McEWEN: I now want to move to the Pacific patrol boats. I know Senator Back has asked some questions about this. The press release about the contract with Austal said that conduct of deep maintenance will be in Cairns, Queensland. Does that mean that all maintenance is going to be undertaken in Cairns, or will some maintenance be undertaken at other Austal facilities, such as in Western Australia?

Mr Gillis : The plan in the contract is for the maintenance to be undertaken in Cairns and that that would be the primary source, and Austal has a subcontractor for that work. I think the reference of some work in Austal as the builder, if there was some maintenance, there may be a requirement to do some minor stuff. But the reality of Pacific patrol boats and the size of them and the size of our nation and the location that we are actually deploying these vessels is such that the logical place to do the deeper maintenance in Australia would be in Cairns and also into the region. There is a considerable amount of work that needs to be done in the region, collocated with where the ships are deployed.

Senator McEWEN: What do you mean by 'in the region'—apart from Cairns?

Mr Gillis : When the ship is operating out of Fiji—

Senator Payne: Our neighbours, the countries through the region.

Senator McEWEN: I know that. So some of them are going to be able to do deep maintenance?

Mr Baxter : There are varying levels of maintenance that will be conducted. Routine, low-level maintenance will be conducted in the nation which operates the ship in the Pacific. For deeper level maintenance the principal place for that to occur will be Cairns.

Senator McEWEN: Are you saying that the majority of the $400 million in sustainment work over the life of these vessels will be done in Cairns?

Senator Payne: Yes.

Senator McEWEN: Is there any portion of the $400 million being done in the regions, as you say?

Mr Gillis : The fact that these ships are deployed into the region means a layer of maintenance work is going to have to be done in country. So, of the expenditure, the contractor will actually be required to provide support and training to the Pacific Islands and to the islanders to maintain their vessels and to support them in maintaining the vessels. A proportion of that would come back into Cairns, and that is where we would be doing the deeper maintenance and the heavier work.

Senator McEWEN: Is the financial support to assist our neighbour countries to undertake the maintenance of these vessels coming out of that $400 million mentioned in the press release?

Mr Gillis : Yes. It is actually a part of that contract.

Senator McEWEN: How much of the $400 million is it?

Mr Gillis : I would probably have to take that one on notice in respect of the breakdown between each of the nations and what would actually be required in respect of the lower level maintenance and of the higher level maintenance.

Senator McEWEN: Alternatively, can you answer it this way: how much of the $400 million will go to Cairns?

Air Chief Marshal Binskin : We will take that on notice. There is also a lot in the sustainment costs of the vessels in the program. That sustainment cost will factor in a lot of the regional maintenance that we are talking about here. So rather than get misquoted and mixed up here, we will take this on notice to provide you with the breakdown.

Senator McEWEN: By half past 12?

Air Chief Marshal Binskin : No, not by half past 12.

Senator McEWEN: Do you see where I am coming from here? The press announcement is $400 million worth of deep maintenance for Cairns, but what I am hearing is—

Air Chief Marshal Binskin : No. I would think that that is a correct statement, because then the in-region work would be a part of the sustainment costs, which are the other part of the program. That is why we need to take this on notice and be able to break that down for you.

Senator McEWEN: The minister's statement says:

The total investment in support and sustainment of the vessels, including the conduct of deep maintenance in Cairns, Queensland, is estimated at more than $400 million—

Senator Payne: Yes, that is correct.

Senator McEWEN: I understand that, but the way it is framed means people in Cairns, Queensland, are probably thinking, 'Beauty, we're getting $400 million worth of investment in Cairns'.

Senator Payne: That is correct. That is the location of the deep maintenance.

Senator McEWEN: But they are not, are they?

Senator Payne: It is a larger program than that. I am just trying to find the full description. The full program includes the engagement with the regions, the staffing, the crewing, the training—those aspects of it. I will provide you with a breakdown as soon as I can, but the $400 million relates directly to the deep maintenance of the Pacific patrol boats in Cairns.

Mr Gillis : In the acquisition costs, it is $282 in base date for Austal. There are also agreed minor infrastructure upgrades to each country to support the disposal of the old vessels, project office contingencies et cetera. There are a number of other aspects that are undertaken in the acquisition side of the contract. What we need to do is provide you with a breakdown of the difference between what is in the acquisition contract and what is in the sustainment contract.

Senator McEWEN: Cameron Stewart in The Australian on 6 January this year reported that the Armidale patrol boats would undergo:

… a progressive mid-life refit in Singapore rather than in Cairns or Darwin.

Is that correct and what is the status of that contract?

Rear Adm. Grunsell : We have currently got a structural remediation program running in Singapore at ST Marine. We have four boats that have moved through there, and they are currently undergoing a range of high-priority structural remediation to overcome cracking that has been evident in the hulls and to overcome some systemic deficiencies in some of the ships' systems.

Senator McEWEN: When does that contract end?

Rear Adm. Grunsell : We have contracted for four of the Armidale class, which started in October last year. They are the only four to date that have been contracted. Our aim is to complete the entire program through the fleet of the Armidales by 30 June next year to ensure the return to capability and availability for the Chief of Navy as quickly as possible.

Senator McEWEN: Is it all of the four or all of the Armidale class by 30 June?

Rear Adm. Grunsell : The entire fleet of 13 is the target.

Senator McEWEN: So that work will not be coming back to Cairns?

Rear Adm. Grunsell : There is no capability in Cairns to conduct that level of deep structural remediation.

CHAIR: Or Darwin?

Rear Adm. Grunsell : Or Darwin, no. We are currently going through a review of Australian providers—in fact, we have gone out to tender through our prime contractor Serco to assess the domestic capability and we are evaluating that tender as we speak.

Senator McEWEN: So the new patrol boats will be the first ones delivered in 2018; is that right? Will there be any maintenance of the existing patrol boats between 30 June 2017, when that contract ends, and the delivery of the new ones in 2018?

Vice Adm. Barrett : For the new patrol boats—the OPVs, the offshore patrol vessels—which will replace the Armidales, we will cut steel in 2018 but the first delivery of the hull will not be for several years after that. In the meantime we will be operating and sustaining the Armidales.

Senator McEWEN: Where? After 30 June 2017 where will that be done?

Vice Adm. Barrett : The remediation program that they are going through at the moment is to restore them to a condition such that they will be able to remain on station and be operated where we have been operating them in the past, principally from Darwin and from Cairns

Senator McEWEN: So the maintenance that is being done on them now will enable them to fulfil capacity until the replacements come? There will not be any major maintenance?

Vice Adm. Barrett : That is the intent.

Senator McEWEN: I would like to ask about the journey to China by former Assistant Minister Stuart Robert. Can somebody help me with the facts about this matter? Did Mr Robert take his Defence issued mobile phone overseas?

Mr Richardson : I think we have answered that question on notice previously.

Senator McEWEN: I am sorry I have not caught up with that, but you must know the answer.

Mr Richardson : Yes, I am trying to think here. The answer to that is I believe he did.

Senator McEWEN: Has any action been taken to assess the security risk posed by that?

Mr Baxter : In February an FOI request was made seeking access to the records of Mr Robert's departmentally issued BlackBerry for the period of 15 to 22 August 2015 and on 6 April Defence provided the applicant with the records which showed the usage of the phone on 15 and 16 August. Our records showed that no telephone calls were made from the device during this time.

Senator McEWEN: What about text messages?

Mr Baxter : The only activity we found was a small amount of data that was used during the period, which may be attributed to the device synchronising with Defence email services. As you know, synchronisation is a regular occurrence on mobile electronic devices.

Senator McEWEN: So the device was accessing Mr Robert's Defence emails?

Mr Baxter : No, the synchronisation was just updates that happen automatically. That was the only activity that was found on the phone. Subsequently, the BlackBerry was wiped and issued back to Telstra for destruction, as per standard procedures with all returned BlackBerry devices.

Senator McEWEN: Is there any other investigation by any security agencies into the use of the mobile phone?

Mr Baxter : I am aware of media reports that the Australian Federal Police are looking into some related matters but, as that is a current investigation, it is not appropriate for me to comment further.

Senator McEWEN: That is fine. Has Defence reviewed whether any other government ministers, current or former, have similarly taken their Defence issued or government issued mobile phones to China?

Mr Richardson : That would not be an issue for Defence unless the devices were provided by Defence.

Senator McEWEN: Have any other devices issued by Defence been found to have been taken inappropriately to overseas countries?

Mr Richardson : I am not aware of any.

CHAIR: That now concludes the committee's examination of the Department of the Defence. I thank the minister, the CDF, Mr Richardson and your officers for your attendance. We will now suspend for lunch for one hour and return at 1.30 with Defence Housing Australia.

Proceedings suspended from 12 : 30 to 13 : 31