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Building combat capability in an uncertain environment, Defence Procurement Conference, Canberra, 2 June 1999,



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The Hon John Moore, MP

Minister for Defence

 

 

Building Combat Capability in an Uncertain Environment

Defence Procurement Conference

Canberra

2 June 1999

Introduction

  • It is a pleasure to be here tonight, among so many familiar faces.
  • I know many of you from my time as Industry Minister, and I’m getting to know many more of you as Minister for Defence.
  • This conference is a highlight for most leaders in the Defence community and everyone doing business, or wanting to do business with Defence.
  • So it is a p leasure to have this opportunity to speak about my priorities as Defence Minister, and in particular, my priorities in the area of defence industry.

A Stronger Australia

  • The defence of Australia has been a major priority of the Howard Government and conti nues to be so during our second term.

• We are strongly committed to building a stronger and more secure Australia.

• An Australia that’s able to defend itself, and able to take its place confidently in an uncertain world.

  • During our first term, many of o ur efforts were directed to rebuilding the economy.

• The fruits of those efforts are now plain for all to see and there are direct benefits for Defence.

• At a basic level, a stronger national economy is a prerequisite for a stronger Australia.

  • The Gover nment takes the challenge of rebuilding Defence capability just as seriously as it took on the challenge of rebuilding the national economy.
  • We are also committed to obtaining the greatest value possible for each Defence dollar spent.

• We are therefore building a Defence Force that is sharper and more combat-focused.

•  Defence Force that is better-equipped and more mobile.

• And a Defence Force that is more capable and operationally-ready.

The Environment in Which We Operate

  • The reason we are committed so strongly to this approach is because the Government believes Australia’s strategic environment is becoming much more demanding.
  • One just has to pick up the newspaper every day or turn on the television to understand that.
  • At the same time we are also witn essing an increasing call on the defence forces to provide civil related assistance in our region, be this drought relief, disaster mitigation, peace monitoring or a wide range of other activities.
  • Because events in our region are unfolding rapidly, Austra lia is regularly reviewing our strategic circumstances to ensure that our judgements and consequent force structure decisions are as accurate and as current as possible.
  • We are currently preparing a new Strategic Assessment.
  • This will consider recent devel opments and provide advice to the Government on whether adjustments are required to the force structure, capabilities and preparedness.

• I expect to make a statement about our revised assessment to the Parliament in the next few months.

Where We Have Co me From

  • The Strategic Assessment will build on the policies introduced by the Government over the last three years which have been aimed at placing Defence on a sounder footing.
  • As you all know, we quarantined Defence from the Budget cuts which were so nec essary to get Australia back on the road to prosperity.
  • In fact, we have maintained the Defence Budget in real terms for four years now.
  • And we propose to continue this level of commitment through the life of the forward estimates in this year’s Budget.
  • S econdly, we made a serious effort to improve the quality of Defence management by cutting unnecessary administration and duplication.
  • Thirdly, we revitalised our key alliance relationships, both with traditional allies such as the United States and with ou r regional neighbours.
  • Fourthly, we made major efforts to support Defence personnel and their families.
  • And finally, we have started the process of re-investing the savings from Defence Reform into Defence capabilities.
  • The Reform Program is on track and the targeted savings will be achieved. By the end of 1998-99, the reforms will have achieved $280m in on-going annual savings.

• That’s $30m ahead of plan.

  • These savings are expected to increase to $455m per annum in 1999-2000 and to $866m by the end of 2 002-2003.
  • In other words, the DRP is on target and is working.
  • The efficiencies and savings generated by the Reform Program have allowed Defence to meet - within current funding levels - the Government’s requirement for increased preparedness.
  • A key priority has bee n to maintain the Defence Force at 50,000 personnel. This represents a key investment in a critical element of capability, namely people.
  • I announced recently that a second brigade-sized group and supporting naval and air units would be brought to a higher state of preparedness.
  • These and other Reform Program initiatives will give the Government and our Defence Force greater flexibility to respond to current and emerging events.

Defence Funding

  • With the increasing uncertainty in our strategic environment a nd our progress in implementing the reform program, it is understandable that I am frequently asked about the future level of defence funding.
  • Let me make a number of points with regard to defence funding.
  • I do not intend to approach Cabinet on the issue o f defence funding until I am satisfied the Reform Program has achieved what it can. I can say that I am pleased with progress to date.
  • I am, however, aware of the significantly increasing demands and pressures on Defence and the potential for this to furth er expand, rather quickly.
  • The Prime Minister has stated that he does not rule out an increase in defence funding in the future. Neither do I.
  • But that does not mean that the Government will ease off on its commitment to realise the efficiencies and effect iveness of the DRP.
  • Nor does it mean that Defence will be spared from having to make very difficult choices in allocating priorities for our Defence budget spending, especially with respect to the future investment program.

The Industry Outlook

  • The curren t and prospective climate of increased uncertainty in our strategic environment poses particular challenges for Defence-related industry in Australia.
  • But it is also creating very real opportunities for the private sector.
  • Those here tonight from internati onal companies can bear witness to this fact.
  • Corporate restructuring among North American defence companies has progressed at a lightening pace and European companies are now also consolidating.
  • And no doubt we are likely to see further consolidation of Australian defence-related industry through mergers and acquisitions.
  • While the size and shape of that industry is largely for the market to determine, I believe the Government has a role in facilitating and encouraging sensible consolidation.
  • It is in th e Government’s longer term interests to support a process of consolidation that results in the creation of a smaller number of financially secure prime contractors who are better placed to meet Defence’s demand for increasingly sophisticated systems.
  • But w e need to strike a balance between the development of a critical mass to ensure sustainability, and the maintenance of a competitive environment.
  • We also need to ensure that our procurement process keeps up with these changes in industry.
  • And I am pleased to say these are issues which the Defence and Industry Advisory Council will be looking at very early.

Defence Industry

  • I would now like to turn to the important issue of developing defence industry and to say something about my priorities for defence ind ustry in Australia.
  • I am committed to the development and sustainment of a local defence industry.

• Local industry of course includes overseas companies operating in Australia under our procurement rules.

  • I want to see a competitive and innovative local d efence industry with continuing access to the latest technology.
  • I want to see Defence-related industry that can provide contractor support to the Defence Force when it is deployed overseas.
  • And I want to see closer and more long-standing partnerships dev elop between Defence and key industries.

Defence and Industry Strategic Policy Statement

  • That brings me to the Government’s defence industry policy. A year ago the Government unveiled the first truly strategic statement of Defence policy for industry.
  • That statement was a watershed in Defence policymaking. I would like to impress on you the importance that I place on continuing the work begun last year.
  • For the first time, defence industry policy fits into the framework of our broader strategic policy, and the strategic reforms which we are making.
  • Defence self-reliance means having a Defence policy and an industry policy working together to support Australian capability.
  • The Defence and Industry Strategic Policy Statement recognised the need to develop an appropriate partnership with industry to ensure the Australian Defence Force acquires the capabilities we identify as vital.

•  I remain committed to this important objective.

Communicating with Industry

  • Potentially one of the most far-reaching initiativ es in the policy statement was the decision to establish a peak council, the Defence and Industry Advisory Council.

• I was pleased to be able to formally announce this morning, the membership of the Council and the first issues it will consider.

  • I will ch air the Council as Minister for Defence. It will consist of senior Defence and industry managers, with industry representation from both the defence and civil sectors, and all three levels of industry.
  • It is the Government’s peak consultative defence-indus try body and will advise me and the Government on key strategic issues related to Defence policy for industry.
  • I expect the Council to play a pivotal role in building the new relationship we must have between Defence and the private sector if we are to dea l successfully with future uncertainty.
  • Defence now has a network of bodies for dialogue with industry. The DIAC will act as the "first among equals" in this network and will formalise links between them as another of its first tasks.
  • The Capability Develo pment Advisory Forum provides a very real opportunity for industry to influence Defence where it counts most - at the capability definition stage of the procurement cycle.
  • The Industry Policy Consultative Forum involves the private sector in the developmen t and practical implementation of defence industry policy. It is one of the most representative bodies possible because it involves people from the wide range of industries that deal with Defence, most States and Territories and other Government agencies.
  • I am also pleased that Defence is taking a more systematic and disciplined approach to communicating with small and medium enterprises in Defence business.

• Many of Australia’s most strategically important industry capabilities are resident in small and medium companies, which are often both highly innovative and highly vulnerable.

• And one of the great challenges is how we influence the relationship between prime contractors and small firms.

  • However despite the advances made in implementing the policy statement during the past year, we should remember that it is but a step along the road in preparing Australia to meet an uncertain world.

Future Directions

  • To prepare for that uncertainty we need to ensure that we have a modern procurement system that ca n ensure the timely fielding of urgently need capabilities.
  • We also need a procurement system that can take into account rapidly changing technologies during the time between capability definition and entry into service.
  • So let me reaffirm the priority I p lace on achieving a much more commercial approach to Defence procurement as part of my agenda.
  • One of the Government’s policy goals is to achieve international best practice in Defence procurement.
  • The Defence and Industry Advisory Council will have a sign ificant role to play in assisting the Government to achieve this goal.
  • Defence is making some headway in its efforts at reforming the capability planning and acquisition processes.
  • Through a Capability Management Improvement Initiative, it is working towa rd a closer integration of industry, acquisition and support considerations in the earlier stages of the capability planning process.
  • In the Defence Acquisition Organisation, the reorganisation of project Divisions along technology lines is now starting to pay dividends.
  • The Defence Acquisition Program’s Business Process Re-engineering project also will bring a continuous improvement approach to the acquisition of new platforms and systems.
  • But there is still much more to be done.
  • The Mackintosh/Prescott Review into the Su bmarine Program will be the next step in this process.
  • The Review is due to report to me in about a month and the Government will obviously need to consider the implications of the Review for the way in which we manage major projects
  • Implementing the next stage of reform, however, will raise additional challenges as Defence embarks on increasingly complex reform initiatives, such as market testing the more technical and operational aspects of support to Defence.
  • As part of the reform process, Defence is nur turing more innovative and long term relationships with the private sector.
  • These include greater use of practices such as partnering and integrated project teams, which will deliver better outcomes for both sides.

Partnering

  • As you would be aware, one of the other major initiatives of the Defence and Industry Strategic Policy Statement is to reinforce the concept of partnering throughout Defence.
  • Partnering is about a more integrated team approach focused on shared risk and reward, relationships with lon ger time horizons, and transparency and communication.
  • Various forms of partnering agreements are used already in Defence, but I see their wider application as desirable because this will increase certainty on both sides of the defence-industry relationshi p.
  • Used properly, partnering can reduce overall contract costs, disputes, delays and claims.
  • But without genuine commitment on both sides, it is just another management fad.
  • Our business relationship is too important to our future security for us to allo w that to happen.
  • I am conscious that there is no ‘one-size-fits-all’ template for Defence purchasing arrangements - so we will not prescribe partnering arrangements for all purchases.
  • As one of its first items of business, the Defence Industry Advisory C ouncil will formalise a strategic framework for the introduction of partnering across Defence.
  • I expect that Defence will commit to formal partnering for all complex, high value or high risk purchases. This will be applied across major and minor capital eq uipment, facilities projects and long-term support arrangements.
  • I also expect partnering will reflect the particular needs of each relationship, and stand alongside the contract, but not modify the rights and obligations of the parties under the contract.
  • Defence is at an advanced stage in developing guidance and tools to help its people facilitate the practice of partnering.
  • It also will work with industry to develop procedures, and review lessons learned from experiences already gained.

Public/Private Pa rtnerships

  • One aspect of partnering which I intend to pursue is the use of public/private partnerships through the use of Private Finance Initiatives.
  • Maintaining technological excellence in defence is an expensive business. Defence is facing ever-increasi ng demands for additional resources to maintain and to enhance capability.
  • While the DRP is one response to this situation Defence must also find more innovative solutions to procure assets and infrastructure.

• Private Finance Initiatives may help Defence meet these demands.

  • PFI can best be seen as an extension of the main Commercial Support Program focus to date, with greater concentration on the areas of materiel, materiel support, facilities and infrastructure.
  • PFI has been used or is being examined by Defence organisations in a number of countries including the United States, New Zealand, Japan, Canada and the United Kingdom.
  • Extensive use of various forms of PFI has also occurred within other Commonwealth, State, Territory and Local Government agencie s.
  • The recent lease agreement with INCAT is an excellent example of how Government and industry can work together to find innovative ways to fill gaps in our short-term capability needs. The Air to Air Refuelling Project and some Training and Simulation pr ojects may offer other opportunities.
  • The use of PFIs, however, raises important questions for both Defence and industry. These include:
  • the effect on the overall portfolio funding position
  • the tax implications
  • management and transferral of risk
  • the ability for industry to provide surge cap acity when required, and
  • the relationship between military and contractor personnel.
  • To investigate options for the greater use of private financing within Defence - and to answer these questions - a Steering Group, at the 2 star level, has been formed to oversee a Defence review into private financing initiatives.
  • This group will assess the capacity for Defence to increase the range and level of services being provided by the private sector.
  • It will also ensure that all relevant and interested parties wi thin and outside Defence have the opportunity to contribute to the process.
  • The review will present its final report by the end of the year.

Conclusion

  • I would like to conclude by re-emphasising that the Government’s priorities are firmly directed at build ing combat capability to meet our uncertain strategic circumstances.

• We have adopted a strategic approach, in which Defence policy and industry policy must work hand in hand to meet this objective.

  • It is only by bringing both into partnership that we can work as one team to prepare the Australian Defence Force for its mission in an uncertain future.
  • And in doing so, we serve not only our immediate interests, but most importantly of all, contribute significantly to the national interest.

Ends

 

 

jy  1999-08-20  15:22