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Parliamentary Joint Committee on Foreign Affairs, Defence and Trade
Department of Defence annual report 2010-11

BINSKIN, Air Marshal Mark, AO, Vice Chief of the Defence Force, Department of Defence

BOTTRELL, Brig. Andrew, CSC and Bar, Chief of Staff, Army Headquarters, Department of Defence

CAMPBELL, Major Gen. Angus, AM, Deputy Chief of Army, Department of Defence

CHANDLER, Cdre John, Director General Submarines, Defence Materiel Organisation, Department of Defence

COLLEY, Mr Frank, Defence Security Authority, Intelligence and Security Group, Department of Defence

CUNLIFFE, Mr Mark, Head Defence Legal, Department of Defence

DAVIES, Air Vice Marshal Gavin, CSC, Acting Chief of Air Force, Department of Defence

FOGARTY, Major Gen. Gerard, Acting Deputy Secretary People Strategy and Policy Group, Department of Defence

GIBSON, Mr Mike, First Assistant Secretary Resource Assurance, Department of Defence

GRIGGS, Vice Adm. Raymond James, Chief of Navy, Department of Defence

GRZESKOWIAK, Mr Steven, Acting Deputy Secretary Defence Support Group, Department of Defence

HURLEY, Gen. David John, AC, DSC, Chief of the Defence Force, Department of Defence

JONES, Vice Adm. Peter David, Chief Capability Development Group, Department of Defence

KING, Mr Warren, Chief Executive Officer, Defence Materiel Organisation, Department of Defence

LEWIS, Mr Duncan, AO, DSC, CSC, Secretary, Department of Defence

LEWIS, Mr Simon, Associate Secretary, Chief Operating Officer Defence Support Group, Department of Defence

LINES, Mr Clive, First Assistant Secretary ICT Reform, Chief Information Officer Group, Department of Defence

McKINNIE, Ms Shireane, General Manager Systems, Defence Materiel Organisation, Department of Defence

MEEKIN, Mr Stephen, Acting Deputy Secretary Intelligence and Security, Department of Defence

MOFFIT, Rear Adm. Rowan C, AO, RAN, Head Future Submarines Program, Department of Defence

MORRISON, Lt Gen. David L, AO, Chief of Army, Department of Defence

OSLEY, Air Vice Marshal Kym, AM, CSC, Program Manager New Aircraft Capability, Department of Defence

OWENS, Mr John, Head Infrastructure Division, Defence Support Group, Department of Defence

PAULE, Air Vice Marshal Kevin, Head Military Strategic Commitments and Acting Vice Chief of Defence Force, Department of Defence

PRIOR, Mr Phillip James, Chief Finance Officer, Department of Defence

SARGEANT, Mr Brendan, Deputy Secretary Strategy, Department of Defence

SMITH, Air Vice Marshal Ian, AM, Deputy Head Strategic Reform and Governance, Department of Defence

SMITH, Mr James, Chief Projects and Requirements Division, Defence Science and Technology Organisation, Department of Defence

Subcommittee met at 08:06

CHAIR ( Senator Furner ): I declare open this public hearing on the review of the Defence Annual Report 2010-11 by the Defence Subcommittee of the Joint Standing Committee on Foreign Affairs, Defence and Trade. Today the subcommittee will inquire into a range of issues pertaining to the Defence annual report, including the strategic reform program, operations and personnel.

I now welcome representatives of Defence to today's hearing. I should put on record that there will be some disruptions, hopefully just minimal today, as a result of the sitting of the Senate. Although the subcommittee does not require you to give evidence on oath, I should advise that these hearings are legal proceedings of the parliament and therefore have the same standing as proceedings of the respective Houses. The giving of false or misleading evidence is a serious matter that may be regarded as contempt of parliament. The evidence given today will be recorded by Hansard. Do you wish to make any opening statements to the subcommittee?

Mr D Lewis : Good Morning. I would like to make a short opening statement and then discuss one administrative matter with programming for the remainder of the day.

This year in question, 2010-11, the subject of the report, represented one of the busiest years in recent departmental history. The department continued high-level participation in a range of major operations, in particular Afghanistan, and of course the other operations are listed in the report. We also provided substantial support to the civil community in response to extensive natural disasters both at home and in the near region and, again, you are familiar with the more spectacular of those disasters.

The department continued with the Defence Reform Program achieving its savings targets for the year. Work commenced on the Force Structure Review, which will feed into the next white paper. A range of reviews of culture and incidents across Defence were commenced in response to an incident at ADFA, and I will talk more about some of the reviews that were conducted in a moment. Defence achieved a large number of new capability approvals, while continuing to manage closely a small number of projects of concern. Turning to the reviews for a moment, during 2010-11 Defence underwent a number of reviews. The first was a review into shared services to shape the way that Defence manages service delivery and to allow the department to return additional funding to the budget. There was a major set of reviews into Defence's culture and treatment of people. The department's deliberative response to these reviews was the document Pathway to change: evolving Defence culture, which was released by the minister, the Chief of the Defence Force and me last week. This document will now become a central tenet for how we manage attitudes and cultural awareness in Defence.

This subcommittee was critical last year of Defence's performance in relation to questions on notice. I want to clarify that questions on notice are taken seriously by the department. The questions taken by the department are typically complex in nature. They usually require several elements of the department to consider them and to contribute to a response. Substantial effort is and has been made to ensure that all responses are accurate. At the last estimates hearing, I gave the statistics around the improvement that we had made in questions on notice. I do not have those statistics with me now, but it has been substantial and we in fact appeared at the last estimates hearing with all questions answered. I recognise that we have further work to do in terms of the timeliness. We do need to improve in that regard, but I do note for the subcommittee that the annual report, which we are discussing today, was this year tabled on time.

Finally, the administrative matter I wanted to raise is about managing the time of the senior officers that are here today for the last session this afternoon, which is reserved for further topics that members may wish to raise with the secretariat. We have all the group heads, the service chiefs, the CDF and me. At this stage, the CDF and I will, with your indulgence, remain until lunchtime so that we have got a good session this morning. Following that, we will go on to more of the DMO-related matters—the procurement and sustainment issues. I just wanted to test you early to see whether there was anything in particular in that last session so that I can have the right officers here to answer the questions. It would be our hope that we can get some of the more senior officers away during the course of the afternoon, but we are in your hands.

CHAIR: I will ask members to give me an indication by 11.30 am as to what topics they may wish to raise, if there are any, for this afternoon's block and to provide that information to you to have personnel available if needed. Are there any further opening statements?

Gen. Hurley : Good morning and thank you for the opportunity to make a short opening statement. I would like to concentrate on two aspects: the culture reviews, given that we are looking at the financial year 2010-11 report, and the outcomes of reviews that have come out in this financial year but the genesis and the terms of reference of which were in that financial year. I thought I would give you an update on where we were with those reports now, and that might help members of the committee frame their questions when we get to that agenda part of the session. I will also give a quick operational update, if that is okay.

This morning I would like to discuss the document that the secretary has just referred to—Pathway to change—and to provide you with an update on our current operations. As you are no doubt aware, last week we released the six cultural reviews and our response to those reviews titled Pathway to change: evolving Defence culture. At the time we released these documents I told the media that the suite of reviews was like looking into a mirror: As many of us normally do, when we look into a mirror we see strong points and flaws. There is no doubt that the reviews have drawn attention to Defence's many strong points, and these are strengths we must maintain. The reviews have also pointed out, however, that there are serious issues that we must address. Pathway to change: evolving Defence culture describes the challenge that Defence faces and, importantly, how we intend to meet that challenge.

The Pathway to Change integrates the recommendations of six reviews into a coherent, cohesive plan of action with responsibility for implementation allocated to specific senior Defence leaders. Importantly, the authors of each of the reviews have been part and parcel of the development of the Pathway to Change and are supportive of the approach being taken. At its heart, Pathway to Change is about behaviours—towards Defence and its institutions, and critically to each other. It is not acceptable for actions that affect the safety and well-being of our people, and compromise our capability, to be regarded in any way as normal. We should be surprised, angered, embarrassed and saddened any time there is a revelation about poor behaviour by a member of the Defence community. Our reaction should be: how could it have happened?; and not, `Of course things happen'.

The secretary and I accept that we are accountable for the overall success of this cultural reform program but we are both realists and we recognise this plan is not a quick fix. The type of deep and far-reaching reform we are seeking will take time and a sustained effort from all Defence staff over many years to achieve. But make no mistake, we are committed to tackling our cultural challenges at their source. To illustrate our commitment, we have already started work to implement some of the recommendations arising from the Review into the treatment of women at the Australian Defence Force Academy that was released in October. Earlier this month, a residential support officer scheme began at ADFA.

We have started discussions with an external expert to provide interactive education for ADFA staff and cadets regarding appropriate use of technology and respectful relationships and, in line with Ms Broderick's recommendation, we are developing an annual survey to measure levels of sexual harassment and abuse.

Some of the initiatives you will see in the Pathway to Change document are revolutionary, others are more subtle, but all will impact Defence daily life in some way. It is important to note that the Pathway to Change is not all about introducing a series of new policies. Most of our policies are sound but can be at times inconsistently applied. So part of our is to consolidate, modify and clarify existing policies so they are consistent with our cultural intent.

As Defence members we understand that we are quite rightly held to higher standards and greater scrutiny than the majority of Australian society and, while we strive for a clean record, if things do go wrong we must be able to demonstrate that we have the moral courage to act and the ability to respond in an appropriate and timely manner. The Australian Defence Force and the Defence organisation of the future will embody our cultural intent, and we will be trusted to defend, proven to deliver and respectful always.

If I could turn now to operational matters, in relation to Afghanistan you will all be aware of the recent, very tragic shooting incident that occurred at Kandahar involving the United States and Afghan civilians. On the whole, one can say that this was an isolated case and does not represent the overall relationship that Australians and indeed Coalition Forces have with the people of Afghanistan. We are very mindful of the possibility of reprisal attacks and, while we regularly review our force protection measures, we are monitoring the current situation closely to ensure the safety of our people. I will not go into to specific examples of how we do that for operational security reasons but, as I have said previously, Afghanistan remains a highly complex and dangerous environment and an element of risk will always exist. We aim to minimise that risk as much as possible.

It has been a particularly difficult winter weatherwise in Oruzgan province where the majority of Australian forces are based. Our operations have been constrained over the past couple of months due to these conditions. Many mountain passes have closed due to snow and in some cases the weather has limited our ability to operate our full capability of intelligence, surveillance and reconnaissance assets as well as making simple tasks like aerial resupply difficult. I also note the winter has also had an adverse affect on insurgent operations. Their resupply routes are closed and their mobility is also restricted. This has resulted in a lower combat tempo during the winter period.

Mentoring Task Force 4 has used the reduced combat tempo as an opportunity to conduct training with the Afghan National Army with a focus on core skills such as their planning capability and weapons training. We continue to see encouraging progress with our partners in the Afghan Army 4th Brigade. Over the past few weeks independent ANA patrols have uncovered a number of significant weapons caches. The Special Operations Task Group has continued operations throughout the winter but the harsh weather has also caused some disruptions. In the past two months partnered SOTG and Afghan security force operations have resulted in the death or detention of a number of insurgent commanders who were believed to be responsible for supplying materials to build IEDs as well as marketing or trafficking illegal drugs.

We are at a very important point in the transition from the International Security Assistance Force lead to an Afghan lead of security operations. The model for the operation is changing and this will be more clearly articulated by the NATO summit in Chicago in May this year where NATO and the government of the Islamic Republic of Afghanistan will shape the long-term strategic plan for Afghanistan, including the size and composition of the Afghan National Security Forces and the international community's enduring assistance. These decisions will inform decisions Australia needs to make about our role in Afghanistan beyond 2014.

In our other operations, as you would be aware, East Timor will hold presidential and parliamentary elections this year. The first round of presidential elections begin tomorrow. At the invitation of the government of East Timor, we maintain a force of about 390 people titled the International Security Force.

Since January we have consolidated a number of bases in East Timor. Our bare base at Gleno was handed back on 27 January 2012 and our forward operating base called Chauvel was handed over on 1 March. This increases our efficiency without affecting our ability to conduct our mission there. We do not anticipate any significant change to the level and force structure of this force until after the elections this year.

In the Solomon Islands, the government has agreed to maintain our existing commitment to RAMSI until at least mid-2013.

In Papua New Guinea, we are also assisting with the preparation for the national elections this year. Our government is considering options for an ADF commitment to support the PNG government in the successful conduct of these elections.

And finally, over the past two weeks the Australian Defence Force has provided assistance to flood affected communities in New South Wales and Victoria in the form of personnel, transport and equipment, and those operations ceased yesterday. That concludes my statement; I look forward to your questions.

CHAIR: Before I turn to others I might just ask some questions with respect to the flood assistance last year and also just recently. Firstly, may I place on record as a Queensland senator the many thanks for the support of all ADF personnel, particularly in Queensland, in one of the most extreme weather patterns this country has ever seen. I travel around a lot of areas throughout the state doing many functions. In many of those locations that were flood affected and where lives were lost, the appreciation is enormous from those citizens to the ADF. Could you explain the number of personnel, the capabilities that were provided, and also some of the issues that confronted the ADF personnel in those disasters.

Gen. Hurley : You are aware that most of this started occurring early January last. We made initial deployments out of 7th Brigade, which is based in Brisbane, to provide emergency support. There was a question raised at the time about when reserves can be called out and so forth. One of the points we tried to clarify last year was that if there is an immediate threat to life or property, the local force commander can actually call his forces out—he does not need to go up the chain to get approval; he might alert us that he is doing something—but I think there was some confusion how you access Defence assets.

Where there was local emergencies, the local commander can react straightaway. As the situation developed and the Queensland government, for example, was looking at its own resources and capacity to respond, where it became obvious that the situation was not something they could entirely handle by themselves is when the calls come through Emergency Management Australia into the government and back through Defence. I think our responses were quite timely in that way in that we delivered immediate aid where necessary and then responded to requests that came through the Queensland government to the federal government.

In terms of the overall period, we were there from mid-January for about eight weeks. We had a variety of forces allocated—a lot of troops on the ground, as you can imagine, out of the 7th Brigade. It was a mixture of regulars and reservists. We provided helicopter support in the forms of Kiowa and Black Hawk and that mix was important. Little Kiowas give you eyes-on so you can assess a situation before you bring something heavier into play. We are involved in a number of emergency issues where the helicopter crews should be commended for the bravery they showed winching people down into really difficult situations—housetops, people in trees, floodwaters and so forth. I think we saw some remarkable scenes there.

So, once the immediate crisis had passed, we committed a significant force to the cleanup operation, which continued for quite awhile. On top of the troops on the ground we made a contribution to the planning effort and, ultimately, the leadership effort in Queensland for managing both the immediate consequences and the reconstruction process afterward. General Slater was in charge of that up until about September last year, and then General Dick Wilson replaced him. Dick has now retired from the Army but retained that position with the Queensland government. We kept a couple of key planners at the lieutenant-colonel equivalent there for quite a while—some are still there—to assist in those processes. I will find the numbers for you in a moment, but I think that describes our general commitment over that period.

In parallel with that, we went up north to assist with Yasi Assist. For that, we were primarily helping with cleanup after the event, but again it was a significant commitment out of the 3rd Brigade in Townsville and the Navy as well.

I can find every operation bar that one.

CHAIR: We might come back to that later then.

Dr JENSEN: We are on the strategic reform program here. You talk about some revolutionary aspects of the cultural change. Can you mention what in your view are the key revolutionary aspects of the cultural change you want to undertake within the organisation?

Mr D Lewis : Your question is in relation to the cultural change as opposed to the SRP situation? It is slightly ambiguous.

Dr JENSEN: You are right. Cultural change I will get to later. You are talking about changing within the SRP the assessment of financial risk. How do you intend to do that? Have a look at a program like the JSF. That has blown out completely in terms of the cost of the program. I know that we are getting onto the JSF later on today, but I am indicating that as an example. At what stage do you say, 'This thing is now getting out of control, and we need to look at alternatives'? How are you looking at changing your assessment of financial risk?

Mr D Lewis : I will stay at the more general level, noting that you will come back to the specifics later on in the day. In a general sense, as you would know, in any large administrative enterprise there is always a balance to be struck between the risk that you take with any part of that enterprise and the very expensive part of the administration itself. We are trying to strike that balance. We do not have it right at present. We are in many respects quite deeply thatched. I have used that expression publicly. We need to de-thatch some of our practices.

Dr JENSEN: Could you please explain what you mean by deeply thatched.

Mr D Lewis : When you end up with administrative processes that are laminated one on top of another, I regard that as thatching when they are duplicative. The idea is to de-thatch that so you eliminate the duplication. You have one set of what I would describe as efficient-but-effective checks. They will not necessarily be checks that give you belt and braces. They will give you belt. The risk you take is that you do not have the braces on there. That is the point where the judgment needs to be taken—how much risk are you exposing yourself to? As you know, in any large organisation you do over a period of time end up with laminates of administrative checks and balances. Each time there is some form of slip if something goes awry, inevitably a new process will be designed to come in over the top of it. The acme of success, in my view, is to ensure that those additional laminates of administrative process do not burden the organisation down to a point of inefficiency. That is rather a long explanation for the philosophy behind the issue of taking a renewed look at the risk we are carrying.

Dr JENSEN: From what you are saying, you are talking about leaving the processes that you have in place there in essentially the same way. Let's say you have processes 1 to 10 and normally you would have all of those processes associated with a specific program. You are saying that with project A we will only use processes 2, 4 and 6. Is that more or less what you are saying?

Mr D Lewis : Not necessarily, but if it were the judgment that all the rest of the processes were in fact redundant, duplicative and wasteful then the answer is yes. You would reduce the number of processes in play to whatever was effective, having made a judgment on the risk that you are therefore exposing yourself to. We could be farcical and eliminate risk, but the department would grind to a halt and produce nothing. That would be true of any large enterprise. If you were speaking to the CEO of any large commercial enterprise, they would share that view with you. You can eliminate risk, but the cost of eliminating it to zero, in most cases, causes seizure within the organisation.

Dr JENSEN: I certainly agree with that, but my concern here is that, even with all the processes in place that are supposed to be putting in the checks and balances, we have seen blow-outs, schedule slips, programs cancelled et cetera. That indicates to me that there needs to be change at a fundamental level, not just looking at whether we decouple this procedure here from this program et cetera. I think there needs to be a far deeper evaluation of risk and the way in which you go about running a program—particularly something like a feedback loop, where you do not continue making the same mistakes.

Mr D Lewis : I agree with your proposition that it needs to be changed. I do not wish to be misunderstood there. That is why we have the defence reform program. The whole basis of it is to change and make things better. But I do think we need to be careful about the characterisation that this is defence, which just has one series of blow-outs after another, when the statistics quite clearly show that 97 per cent of DMO projects over the period of the life of that organisation have come in on time, on budget or better. With the three per cent that have not, of course, there are some spectacular cases. I concede that.

Dr JENSEN: I would say they are the huge-ticket items.

Mr D Lewis : I concede that. But I do reject the notion that everything that is done within the procurement chain leads to disaster, because that is not the case at all. But we do need to improve, and your proposition is both understood and being actioned through the SRP process.

Gen. Hurley : I would add to the comment. First of all, I think it will be an interesting conversation about cost when we do get to JSF, but we can leave that till later. I think we have taken some steps to help us understand better risk management at the portfolio level. We were directed last year to conduct a defence budget audit where we went out and compared the way we managed our budget at the portfolio level and below with major Australian and some international industries that had likenesses to defence: that would be capital expending, mining, logistics support, the major national distribution companies and so forth. Although that report has not been released yet, I think it would be fair to say that we compare very favourably with organisations of that size.

The other major thing in terms of projects is the development and refinement of the projects of concern list where we do have the indicators and warnings in place now that help us pick up early in the process where the capability cost is moving out of set parameters. They are then brought to higher-level management processes. Out of that whole system there is a lessons-learnt process that feeds back into project managers and DMO. So those loops are being generated. Whenever over recent years we have had a significant problem with a project, we have brought in people like the chief audit executive to do a thorough review of that process and produce the lessons-learnt document to help.

Dr JENSEN: My current concern is that we need to identify those problems earlier on.

Gen. Hurley : I think the indicators of warning are driving right back to those sorts of points.

Dr JENSEN: It is interesting that you talk about the projects of concern list. I recall when I was on the public accounts and audit committee that DMO and Defence, when that list was first brought into being, were not very enthusiastic about it—and I think that is probably putting it lightly. Now you are saying to me that that projects of concern list is working well?

Gen. Hurley : I think some of the objection was related to how it was seen to be employed and comparisons made with the UK system, trying to point out that through the UK system they had greatly improved their delivery of projects when the data did not support that. So it was how you used the projects of concern list, not the existence of one.

Dr JENSEN: Talking about the UK: how are you going to ensure that with the SRP there are not some similar unintended consequences?

Gen. Hurley : If you look at the governance arrangements we put in place for each of the reform streams, which are all considered and led at the highest level in the department—it is all at three-star or SES band 3 level—with a range of health checks that look at each of those reform streams, a significant part of that process is each of the capability managers, particularly the service chiefs, being able to report back to give an assessment of the effect of reform on capability in terms of output and safety. One of the top lines in the reform streams is that we will not compromise the safety of our people and our capability through the reform process. So that is built into the governance and reporting systems.

Dr JENSEN: Obviously with reforms that you want to put in you want to improve processes and outcomes. How are you going to measure this? What measures are you going to put in place where we can come next year or the year after and say you have met or have not met your KPIs?

Mr D Lewis : Are you talking about within the procurements base or across the board with the SRP in general?

Dr JENSEN: Across the board.

Mr D Lewis : I might get further technical assistance here in a moment, but the SRP has quite clear targets set out into the future. The measures of success are whether we meet those targets. Some of them are financial, some of them are structural and some of them are targets that preclude erosion of performance—for instance, in the operational space. We will conduct the reforms that we have in mind without degrading operational capability. So there are a range of measures of success. I might get Simon Lewis, the chief operating officer of the department, and Air Vice Marshal Smith to step through the specifics on this.

Gen. Hurley : I can dive into that question on the floods. I had a number but did not think it was right. If you look at page 72 of the report, it is 1,976.

Mr S Lewis : I have recently assumed responsibility for the strategic reform program amongst a number of other interesting challenges. A comprehensive performance management and reporting framework operates for the strategic reform program. This framework monitors progress and provides robust information to Defence senior leaders and to the government to support decision making. The reporting framework focuses on cost reductions and investment funds, risks and dependencies, schedule, critical decisions and milestones, communications and culture change, and capability and safety impacts. Accurate and timely advice on these performance drivers allows stakeholders to better evaluate performance and encourages early identification and resolution of issues.

The integrated performance management model—IPMM—is the primary mechanism which monitors strategic reform program performance and is reported to the government biannually. The IPMM draws from financial, non-financial, quantitative and qualitative evidence to assess whether reforms and associated sustainable cost reductions are being delivered through the strategic reform program as planned by focusing on three key measures: are the reforms being implemented on schedule, are we living within our means and is capability being adversely affected by the strategic reform program?

A further element of the IPMM is the capability continuity reports, also called CCRs. The CCRs ensure a more holistic view of any significant capability impacts of reform is captured so it can be accurately assessed by decision makers and integrate the capability performance management systems developed by capability managers into the IPMM. Defence also draws upon independent mechanisms to provide a further level of assurance and advice on the performance of the strategic reform program.

Dr JENSEN: That sounds nice in concept. It sounds—excuse the French—like it is a lot of bureaucratese. What I am looking for is that you can draw up a list and say, 'This is the target we want to achieve,' whether it be a financial target, a capability target or whatever—even a behaviour target. 'This is the target we want to reach by such and such a date.' You can then report to this committee after that date, 'We have achieved it' or 'We haven't achieved it.' The problem is that what you have there is an awful lot of words but no specifics.

Mr S Lewis : It is a framework for us.

Dr JENSEN: I understand that, I am not talking about a pair of boots for a soldier, wanting them for $100 but paying $102. Whether it is scheduled cost or certain behaviours—'We have this many complaints about this sort of behaviour. This is how we resolved these issues.'—those sorts of specific measures, because what we are getting here to a certain extent is general. I understand that in a broad document you are going to have something general like that, but this is a little bit of a problem that I see with Defence. There is too much generalism and obfuscation with wording that is almost designed to put it into—I will not say the fog of war, but it will certainly give you some friction from our side.

Mr S Lewis : There is no fog of war or uncertainty about the fact that the cost reductions will be realised, because the budgets have been realigned. So the cost reductions attached to the strategic reform program have been removed from the budgets of forward years.

Dr JENSEN: I am saying that you have mentioned two almost-conflicting aspects to this. You have a certain budget that you are working with, but you also talk about not reducing capability. Let's just say that we purchase JSFs. We have heard this discussion like, 'Well, if there's not the budget for 100 JSFs, we'll probably just buy 75.' If 75 was going to do in the first place, why are we buying 100? Why are we spending all that extra? In terms of capability—

Mr D Lewis : The defence organisation is hugely complex and large. We have described to you the general situation with regard to the savings. As you switch from one issue to another—whether it is behavioural, a project, a process—there are checks, balances and measures in each one of those. We can show you all of that in enormous detail, but that is not actually going to satisfy the question you are asking. What we are saying is that within each of the 200-plus projects that are going on in the DMO right now there are all the checks and balances, the early warnings and indicators that we spoke about earlier. You are familiar with the early warning and indicator system, I expect.


Mr D Lewis : But there are all these checks and balances in each of the streams. So it is very difficult for us to answer the question you are posing without going right down to a specific.

Dr JENSEN: With some of the major projects, behaviours et cetera that you are talking about, I personally—I cannot speak for the rest of the committee—would like to see some of those measures, what the KPIs are and whether they are achieved or not.

Gen. Hurley : I think we are confusing a number of things—projects, SRP, whatever. They do work together; we agree with that. But, for example: do we have appropriate measurements in place? If you go into the logistics stream, which is not my responsibility anymore but may be run by the vice chief, that stream has a number of elements to it. Some are about behaviours. Some are about stock-standard data: how much are you holding, is it an efficient level of holding, how quickly are you distributing it, are we holding too much in cost terms, is it a value-for-money proposition? It has demand management. So we have changed the way people use our priority demand system to control the way people behave. We can measure that. If I need this widget and could really do with it in two weeks but will demand it tomorrow, that costs $100 compared to waiting and paying $20 if I get it in two weeks. So controlling that behaviour can be measured, and we can change it.

The other part of that logistics stream, for example, is new warehousing. That all goes to the beat of government approvals, PWC approval and contract delivery against the specification, as you would expect in a project, so we can measure performance of that. With warehouse management systems we can change the way our warehouses can be audited or have stock take as part of the audit process, control the amount of stock we have, have greater visibility of stock—all that is measurable, and we have set the levels we want to move to.

The streams are so varied. As the secretary sys, some are demand measures we have, some are behaviour measures we put in place—they are the more difficult, obviously—and some are the steps we are going through to develop a new system and then the efficiency and effectiveness of that system at the end of it. In each of the streams I think you will find that those measures exist. But to pull it all together to report we have the framework.

Dr JENSEN: In a broad way. I can understand that.

Mr S Lewis : Yes. Mr Lewis was referring to that. He was starting at the top level. You have to go down into each of the streams.

Dr JENSEN: One example you have is your shared service, where you are talking about transitioning some jobs from the military to the public service. That is something where one potential measure would be whether you have transitioned 1,000 military into APS positions. But there is another measure there in terms of capability: are we actually saving money doing that? You are going to the field in Afghanistan where you have APS, and I would assume that you have all sorts of costs that are associated with people in the APS in various positions that you would not have with the military. Things like overtime and so on. You can just order a soldier.

Mr D Lewis : Could we focus on the issue of civilianisation? You have about five issues running there. Could we describe to you your question about civilianisation?

Dr JENSEN: Go ahead.

Air Vice Marshal Smith : To answer your question on civilianisation of military positions: the target to achieve under the strategic reform program, as distinct from shared services—I will address shared services in a moment—is 535 military support positions that are non-combat or non-combat related. So they are administrative positions where the service chief has had an assessment saying that that position's functions can be discharged by an APS officer with no detriment to the military capability outcome and, indeed, that it is probably better in the longer run that a more stable APS officer is there to perform those functions and get more professionalisation. So that target was set right at the beginning. You can combine contractor conversions, which is a similar attempt to try to convert high-cost contractors that have been used to provide specialist skills and build core competencies in APS officers to perform those specialist functions at a cheaper rate because the day labour rate is much less for an APS than for a contractor.

The target for that is 881 over the SRP program. The success so far—I can get the figures for you in each category if you wish—for the program up to now is 80 per cent achieved against our targets. There was a phasing of that over a three-to-four-year period, and I just do not have that data with me today.

Dr JENSEN: Fair enough.

Mr D Lewis : The second issue you raised in that same question is about the variation in cost between a service member and a civilian.

Dr JENSEN: Yes. That is what I was going to get to.

Mr D Lewis : If you exclude SES officers and star ranked officers, I think the differential is about $150,000 a year for a uniformed member versus about $99,000 for APS. So it is about one-third less.

Dr JENSEN: So you are meeting that? You are finding that, on average, when you replace a uniformed person with a civilian, you are realising that $150,000 down to $99,000?

Mr D Lewis : We know that as a general figure for the cost of maintaining a service member and all the additional costs that go with maintaining a service member versus the cost of employing a member of the APS.

I am trying to narrow down all the aspects of the question that you have asked.

Ms BRODTMANN: First I have a comment and suggestion more than anything else. You mentioned that the SRP is your highest priority after operations in the annual report, but information about the SRP is scattered throughout the annual report. I know there are parameters and guidelines around how you do annual reports, but my suggestion for next year is to get one chapter on SRP. That would be incredibly helpful in terms of giving us an overview, because you do have those streams, and reporting against those streams in one chapter would be very helpful. That is just a suggestion.

Mr D Lewis : Instinctively, that seems like a good idea. We will certainly have a look at that.

Ms BRODTMANN: As I said, I am aware that there are guidelines and you do need to fulfil those, but it would be helpful.

On the SRP: there are five streams that you are addressing.

Mr D Lewis : There are more streams than that, but yes.

Ms BRODTMANN: My understanding is that it is ICT, inventory, smart maintenance, logistics, non-equipment procurement, preparedness, personnel and operating costs, reserves, shared services, workforce reforms and the Mortimer reforms. I know we do not have much time, but could I get a very broad update on progress against each of those in terms of savings? I know you have managed to get a lot of low-hanging fruit savings through that and are now getting into some tough decisions to make savings. I am interested in how you are going with that—where the soft spots are and where the difficult spots are going to be.

Mr D Lewis : Let me make an opening remark in the general with the savings, and then we will go specifically to the streams and the savings in each one. You would be aware that in the first year of SRP the savings of about the order of $790 million were achieved. In the second year of the SRP, where the target was just in excess of $1 billion, we achieved $1.016 billion or $1.018 billion; so that target was achieved. This year we have a target of about $1.2 billion, and there is nothing to suggest that that target will not be achieved in this current round. The targets then start to climb and it becomes very difficult, as you suggest—you used the expression 'low-hanging fruit'. There are some more easily achieved savings in the first instance and then it becomes difficult. The good news is that as it becomes more difficult we are better organised. We have had more lead time to lead into those savings. So we are achieving the targets to date. Now I might ask Air Vice Marshal Smith to give you the specific achievement by stream.

Air Vice Marshal Smith : If I could echo: the cost reduction ramp-up actually does take a significant step up from the next financial year. The secretary indicated that it is currently $1.283 billion for this financial year. To give you an indication, it then goes to $1.92 billion and the year after that it goes to $2.17 billion. It does step up quite substantially. The earlier part of the program was about identifying quick wins—or the 'low-hanging fruit', as you have described it—and also identifying the key reforms that you could get in play to put the processes into place, particularly where contracting was necessary to negotiate your way through that.

It was also important to do an evaluation of the value stream analysis of most of the activities. This is where you can identify, through Lean and Six Sigma processes, the waste and their variants so that you can remove a process without necessarily impacting on the quality and the timely delivery of the product that you are trying to produce. I am going into a general process manufacturing type analysis for you here. You do that by understanding your risk and looking at the value-adds, looking at the low value-adds and also looking at re-engineering the process. We have done a lot of that, particularly in the maintenance area, and we have also tried to do that in the administrative processes. Shared services comes in to be a feature there.

I will now break into the streams. The Smart Sustainment stream is the one that looks at maintenance and reduction of the maintenance costs of our military platforms and equipment. It also involves the inventory aspects behind it, and fuel and explosive ordnance. It has made good progress so far under our ratings system, our performance management system, which has a number of metrics underneath it, which we briefly mentioned before. Those metrics cover financial, capability, delivery and schedule of reforms, just as you would expect in any project. In effect, you could describe me as the program office manager.

Smart Sustainment is tracking green against all of those metrics, which means it is on target. Its target for cost reductions this year is $370 million. It will make it this year, largely through the adjustment of contract prices we have paid for maintenance services and through removal of excess inventory purchases that we have been doing over time. It will also do it by adjusting the maintenance levels to take account of the capability manager's decisions on changes to operational use of the equipment, such as using simulation rather than using operating hours of a platform.

So Smart Sustainment is making good progress, and there are a number of specific examples that I could provide to you to underscore that. It has been a central focus of all three services because the sustainment of their military capability is critical to the outcomes that they are accountable for. Each of the three service chiefs has had some signature successes to date. The Reserves program has a smaller contribution to make in cost reductions but not an insignificant one—$350 million, from memory, over the 10 years. At the design of the program—and this shows you the dynamics that we have in our program office and approach—the initiatives were to get further integration of the Reserves into the permanent forces and find some efficiencies in administrative support. As the Reserves program has gone through, as a department we have learnt that there are other opportunities to pursue the goal of the Strategic Reform Program—and I am sure VCDF would be a far more capable officer to describe those than I am. We have come up with a revised program which, at the end point, will exceed the cost reduction targets for Reserves. At the moment Reserves is showing that it is tracking behind the requirement and behind the schedule, but we do have a program in place to recover that. That is being managed through the Chiefs of Service Committee because Reserves are a critical component of our ADF capability.

Ms BRODTMANN: Just on that, you are talking about exceeding. You are looking at $350 million over 10 years.

Air Vice Marshal Smith : Yes.

Ms BRODTMANN: What are you looking at if it is going to exceed?

Air Vice Marshal Smith : There is a possible stretch target of just over $500 million, but that is combining first order—in other words, bankable—initiatives; second order, which are likely; and third order, which you might get. In our program we try to put out stretch targets rather than comfortable targets. I will tell you the stretch target, and the stretch target exceeds it. The first and second order targets cost reductions we should achieve will meet the initial SRP cost reduction target.

I will move on to Logistics. Logistics is again tracking exceptionally well. It has a cost reduction profile of about $360 million over the 10 years, which is heavily skewed towards the mid and back end of the period because it requires a lot of capital infrastructure to modernise the Logistics inventory management systems and infrastructure. To date it is meeting its project schedule. It is a defined project with a defined project schedule, and it is going quite well. Its moderate cost reduction target for this year of $8.3 million will be achieved.

Ms BRODTMANN: How are you tracking for next year? What are the targets for next year if they escalate?

Air Vice Marshal Smith : I will have to find that for you. I will get back to that. If I interrupt my rhythm I will end up losing a stream and I do not want to lose a stream. ICT has a challenging program. It is important that everybody understands that ICT reform is about providing the layers of the infrastructure for any organisation or business entity to deliver ICT. You have the core ICT components—the mainframe computers and systems, the software management systems, all added infrastructure. They are the reform programs. A major series of projects is under way to deliver that—for example, refreshing completely our desktop computer environment, centralising the processing facilities we have, data centre migration down from 200 data centres to fewer than 10. All those major step moves in the core infrastructure of ICT are tracking well. Many of them require major capital investments, so they are going through the ICT two-pass process. ICT is going well.

I think is also a critical enabler for the rest of the reform as well as the conducting of the business activities of the department—the business as usual. That is where we are finding that the cost pressures—which I am sure the secretary can elaborate on, if you wish—that ICT demand are outstripping the resources we have. We have a bit of a problem there, but ICT delivery of its core SRP functions is going well and indeed exceeding its cost reduction targets.

Gen. Hurley : I will just step in there. Sometimes there are some unexpected by-products of a reform program. As you actually improve the process and deliver more effectively, demand grows. A lever you have to watch very carefully there is that while, yes, we can deliver it more effectively, that is to meet our savings target; but now we have to control demand for the output of it.

Air Vice Marshal Smith : Now there is a pause, I have found the answer to your question on the cost reduction for logistics. It will be $18.6 million next year. The critical time for logistics is 2014-15 when the cost reduction per annum jump to $53.3 million. That is primarily driven by us getting out of a lease facility in Sydney, our Defence National Storage Distribution Centre in Sydney, into a purpose-built, modern, Defence-owned facility. That is a capital infrastructure activity which is project I was talking about.

ICT's cost reduction target for this year is $147 million. It will make that target. Its cost reduction next year is $182 million and the year after is $206 million. ICT is nearing its mature point now and it has an amber rating because of the relationship it has to providing systems to support the rest of the reform; so the centrality of it.

In terms of non-equipment procurement, this is a large reform program with some $3.1 billion in cost reductions over the 10 years. It is all about business support costs, which I am sure Mr Simon Lewis knows a lot more about having just managed it for a couple of years. It is also tracking an amber because it has a schedule issue. Some of the reforms in this area impact personal travel entitlements and arrangements and removal arrangements. Those have to be worked through quite carefully because of the implications to our broader definition of capability including people. We are working through those, but this program at the moment is meeting its cost reduction targets largely from some process reforms, from supplier reductions to contracts and through reduction of demand which is always a feature of this stream. We need to reduce our demand for travel and our demand for office equipment and supplies. Its cost reduction target for this year is $206.6 million, next year is $260.1 million, the year after is $338.1 million and it continues to climb. As I say, this one is an amber and faces reasonable challenges which the department, at the Defence Committee level, is wrestling with at the moment. Mr Lewis was a previous owner of that.

Mr S Lewis : I still am, of course. In relation to that program, one of the really big issues we are dealing with right now is the rescoping and preparations for tender in relation to our next round of garrison support contracts and comprehensive maintenance contracts. These are very big contracts. They have historically been disaggregated across 12 contracting regions split between those two major categories. We are looking at a significant rebundling arrangement. We are dealing with industry via several iterations of approaches to market and getting feedback from industry players. We are in a process of planning for an expressions-of-interest round about the second or third quarter of this year. We have a lot of eggs in that basket because of the nature of what we put to market in relation to our next round. The next round is possibly for three-, four-, five-year or longer contracts and that creates for us the potential to embed significant efficiencies in the way in which we are delivering the services at bases and regions around the country.

Air Vice Marshal Smith : If I could move to Workforce Productivity and Shared Services, it is another large cost reduction stream. It has a target over the 10 years of about $3.4 billion.

Ms BRODTMANN: Are we talking about shared services?

Air Vice Marshal Smith : Workforce and shared services.

Ms BRODTMANN: Are they together now?

Air Vice Marshal Smith : Yes. For the workforce component of it, the major elements are the contractor conversions I spoke about earlier and the military civilianisations. There are some additional lean efficiencies—so, when you lean an administrative process you would expect to find some efficiencies and therefore some workforce reductions also programmed in. The other aspect of it was shared services, and this is where there is a bit of a deviation. There is original shared services, as announced in the Strategic Reform Program in 2009, plus the extension of the shared services which was announced last year by the minister. I will split those for you—there is a bit of an overlap and we are trying to bring them programmatically into the same area so it will be simpler for us and for everybody else watching it. We are making good progress, as I said, on the workforce conversions, noting that they have another couple of years to go. In terms of the shared services, the central issue there is the transitioning of payroll and administrative functions into a single area, and that is tracking quite well with the services payroll staff moving across to Defence Support Group. The shared services in terms of career management and ADF postings, promotions, cycle-type activities, is programmed for a couple of years' time and it is going to be facilitated by the delivery of Joint Project 2080 Phase 2B1, which is a new ICT system for personnel. The current schedule for workforce and shared services is on track, it is making its cost reductions and it is also rated green.

In terms of the extension to shared services, on 6 May last year the minister announced that there would be an extension of shared services where 1,000 APS positions of future APS growth would be forgone and the department would find, through the greater application of shared services, the ability to absorb that growth through efficiencies in, largely, the administrative functions in HR, finance, ICT and central non-DMO procurement—so Defence Support administrative procurement. Those programs have been set up, like SRP, with accountable band 3 officers with a requirement to deliver a project schedule. That project schedule would have every element of scheduling that you would expect—it would have activities, it would have milestones, it would have accountable people to deliver against those activities within a governance structure and performance arrangement around it.

The first step for those is to have the implementation schedules in place. They are developed and they are going through the process of approval now by the defence committee. Pilot programs will commence progressively through this year to hone the practice, because this is not only a matter of functional transfer; it is a matter of working the process through the value stream analysis that I did before to find the efficiencies. Just a simple line transfer does not deliver a great amount of benefit.

Ms BRODTMANN: I thought a lot of it had been piloted already?

Air Vice Marshal Smith : In the shared services mark I—I am now in shared services mark II, which is the extension of that.

Ms BRODTMANN: I thought a lot of the 1,000 jobs were essentially programs that were not going to be coming online, or because there had been a time blow-out those jobs were not needed—this is in mark II.

Mr D Lewis : I would not characterise it as jobs not being needed. That was not the saving target. We would not recruit to the 1,000, which was the projected growth—

Ms BRODTMANN: Exactly—that was the projection but, because schedules had moved to the right, you did not need them at this point in time.

Mr D Lewis : It is chicken and egg here—because we reduced the recruiting target we have adjusted our processes so that those positions are not required. It is cause and effect. It is not that the jobs were not required—

Ms BRODTMANN: No—at this point of time, as I said.

Senator FAWCETT: You talked about posting and career management in terms of a shared service model. You specifically mentioned a new ICT system. Is the implication there that there is a new ICT system that all three services will use, or is the implication that the shared service will create a triservice, defence wide career management body?

Mr S Lewis : I can answer that, but do you want Major General Fogarty to come in?

Mr D Lewis : We will get Major General Fogarty, who is the absolute expert on this matter, to talk to it.

Major Gen. Fogarty : The information technology system is our HR enterprise system, so PMKeyS is being upgraded. There is some activity happening in the career management area in shared services. The three career management agencies are going to move to a back-of-the house shared service function. To give you an example of what that means, when they run promotion and performance boards, all three services use the same sort of administrative support. That will move to the shared service. The three services will still have separate career managers dealing face-to-face with their people. The upgraded PMKeyS system will provide the career management module, and it will be the one module that all three services use.

Senator FAWCETT: Would that move of the back-of-house administrative function involve a transfer of personnel from the services to a defence-wide or triservice organisation?

Major Gen. Fogarty : Yes, there are some savings to be made there and that is included in the SRP.

Senator FAWCETT: If we go back in history, this is probably the second time this wheel has turned, when the service has lost that individual stovepipe career management and it has been taken over by a central agency. I am open to correction, but my understanding is that many of those functions have by necessity flowed back to the services because they found it was not working for individual career management, but the actual size of what had become the centralised body did not decrease significantly in the number of people and it is still quite a large organisation, although I understand it now predominantly has a policy function. Does this mean that that organisation is going to reabsorb more people from the three services, even though when a lot of those functions went back to the services it did not decrease in size?

Major Gen. Fogarty : That is a big question. But the model we are moving to reflects our experience over the last eight or nine years. There is no shared service adjustment occurring in what the services consider to be the core career management function—that is, the face-to-face dealing with their people and the management of their careers. The big organisation that you referred to was the personnel executive. You are correct in that that now has a focus purely on policy and strategy. The numbers that are being realised when the back-of-house functions from the three service career management agencies consolidate are savings that are coming from the three services. It is not increasing by a significant amount the size of what is now People Strategy and Policy Group.

There will be some physical relocations. The three service career management authorities are going to physically relocate to the one area. This is a good thing because they will be able to experience each other's processes and over time we will move each of the three agencies to the best process because they are sitting, working and operating together as opposed to where they are now.

Senator FAWCETT: Please clarify whether when services did reinvigorate their ownership of that there was a drawdown of the number of people in the personnel executive. If so, to what extent?

Major Gen. Fogarty : I do not have those figures.

Senator FAWCETT: Can I put that on notice, because I think that is a really important question. We have gone through one round of what was not called shared services but essentially that is what it was. If that organisation has not shrunk as those things are transferred back then there is an obvious question about the efficiency of what we are left with.

Mr D Lewis : We will take that on notice and come back to you.

Major Gen. Fogarty : As you know, that occurred over a 14-year period.

Senator FAWCETT: Sure.

Ms BRODTMANN: Can we go back to finishing off the shared services update?

Air Vice Marshal Smith : Did I give you the figure on workforce and shared services cost reductions? The target for this year is $237.6 million. For next financial year it is $292.5 million. For 2013-14 it is $363.2 million. To go back to your question about the 1,000, the program was set up to implement shared services in the administrative functions, not the core acquisition and procurement functions of the DMO. If there has been program slippage, for whatever reason, and those jobs are not needed, that does not excuse the task of finding shared services cost reductions or efficiencies within the back shop, and that is what we are about to go and pilot.

The program is more aggressive than the SRP original. It is a three-year program, and year 1, the current year, saw 631 positions removed from the funded APS base. So it is a very aggressive program that the minister placed on us to force through the greater uptake of shared services—and I need to stress that. Shared services use is not foreign to the Department of Defence. Our pay system and our ICT system are largely shared services. So this is the extension of shared service into other business areas, and it is being led by accountable band 3 officers—the Chief Finance Officer; the Deputy Secretary, Defence Support Group; the Deputy Secretary, People Strategies and Policy Group. It is a program that I am also running, as program manager, and will fold in, because in a Venn diagram sense there are overlaps, as you picked up. The original shared services program is tracking along quite well, and Major General Fogarty just explained a component of that.

That completes the cost reduction streams, except for the 'other'. The 'other' is a compendium of initiatives that were put in place at the SRP time frame which saw various efficiencies and different strategies applied to take forward provisions out and pass accountability and responsibility down to organisations and individual people. So there were, in effect, some central reserves, and those central reserves, as an example, were removed and we had an expectation under our revised budgetary model that the budget holders, the accountable officers, had to deliver the budget that they required and not rely on a central reserve. So that was forcing accountability.

Ms BRODTMANN: So it was the top-up system?

Air Vice Marshal Smith : Yes, the top-up system. That was forcing accountability.

Ms BRODTMANN: What happened with the preparedness, personnel and operating costs stream? Has that been merged into shared services and workforce?

Air Vice Marshal Smith : No, it has not. If I take you back in time to when the Strategic Reform Program was set up, there were 15 reform streams. Seven reform streams were cost reductions, and I have just gone through the seven cost reduction reform streams. There are eight non-cost-reduction reform streams, and they are about transforming our business processes in those other areas, which will bring medium to long-term sustainable efficiency improvements and, in my view, ease future cost pressures. But they were not for the initial achievement of efficiencies in terms of cost reductions.

Ms BRODTMANN: It would have been really helpful if that had been explicitly stated in here, in one chapter. You have got achievements—you have got a good story to sell by the sounds of it—and it is not clear. I am finished.

CHAIR: Before we move to the next lot of questions, we have media in the room and I want to seek a resolution from the committee that it be permissible for them to film.

Mr O'DOWD: I so move.

Mr ROBERT: I second the motion.

CHAIR: There being no objections, it is so resolved.

Senator FAWCETT: Gentlemen, thank you for your evidence to date. I am just following up a couple of things on the SRP. ASPI, in their comment on this annual report and the budget cycle have questioned why there is not a publicly available benchmark for the SRP streams that can be reported against so that the public and, to a certain extent, even committees like this have an easier reference to progress. Could you comment on that?

Mr S Lewis : I have seen ASPI comments, and in the light of Ms Brodtmann's comment I think we might look to see. If we did have a chapter in the next annual report which dealt with SRP we might be able to pick up some of the sentiment in that.

Mr D Lewis : I was thinking, even just as we were speaking, that if it cannot be a chapter then perhaps it could be some sort of annex that makes it quite clear that there is a section you can go to that would reflect much of the material that Air Vice Marshal Smith stepped through.

Air Vice Marshal Smith : I would reflect that it is our intention to update these books, which are publicly available. There was a book announcing the program in May 2009 and a book that moderated the program in May 2010. By design, Mr George Pappas, the chair of the Defence Budget Audit, said, 'These are our views and Defence, like any organisation, should do a comprehensive diagnostic.' We did that diagnostic and we introduced risk assessments and some adjustments, and we endeavour to produce a book in the next month or two. I have it in draft, but I have to finish that off and get it processed. That will then provide a better benchmark for Mr Thomson and this committee to look at. But I agree with the Secretary's suggestion of an annex in the report.

Senator FAWCETT: You have mentioned a couple of times various metrics that you use to measure performance, and you have talked about costs and schedule and also the delivery of capability. Costs and schedule I understand are relatively simple to quantify and, perhaps, to have a certain amount of contingency and still stay within your bounds. Could you talk to us a bit about how you evaluate whether capability has, in fact, been delivered, and particularly about the transparency of feedback that you receive from people on the receiving end of capability?

Gen. Hurley : In parallel to the reform program we have had a long-standing system in the department called the Defence Preparedness Assessment system, in which I receive a monthly report from all the contributors to Defence capability. It gives me today's capacity of the ADF to respond to tasks it has and the time sequences we have—we have readiness notices for a number of tasks: assets available, manning to support and so forth.

That report looks from today out to five years. We take that every month in what is known as the Strategic Command Group. I review that and it is linked with a quarterly strategic review. It has inputs from the capability managers in terms of their ability to maintain and sustain capabilities, train them, prepare them and allocate them. It also points out where our pressure points are and any actions I need to direct to enable those systems to continue to function effectively.

I think we are reasonably well-knitted there on a very regular basis for me to understand the temperature in the organisation and whether or not capability is fit for purpose for tasks set out by government.

Senator FAWCETT: I accept that at that global level; I guess my question also applies to a more micro level. You referred before to one of the SRP saving streams around garrisons and looking at the garrisons for poor contracts and perhaps going to more—I am assuming—nationwide holistic contracts. The feedback that we often get on the ground when we visit bases is that people see that the more centralised contracts become then the less responsive the local deliverers are and the less scope they have actually to respond to local needs and changing situations. There is a degree of dissatisfaction there. I guess what I am asking is: when somebody at that level, around something like cleaning of barracks or catering et cetera, does not believe the capability being delivered is what was promised, what transparency is there that that concern can be floated up and can be audited as opposed to just being swept under the global, 'it's cheaper, and therefore it's good'?

Gen. Hurley : There are two aspects to that. I think that the other Mr Lewis can answer one part and I will just touch on another one of those.

Mr S Lewis : The part is in relation to feedback from individuals or from people in line roles about lack of delivery in relation to services or products delivered on a base. We have several reporting mechanisms which we use and track on a daily basis. I could give you detail on that in a more substantive way, but we have tracking systems. Those tracking systems are monitored very closely. In the particular space you refer to Brigadier Short would receive reports in relation to alerts coming from base support managers or senior ADF officers on any base in relation to significant issues affecting performance on that base. Individual complaints would also be lodged through our reporting systems. Those are tracked. We have KPIs in relation to performance of our contractors. We know our better ones and we know our worst ones. We have regular performance discussions with our contractors on a six-monthly basis and at a national level for those contractors where we have multiple contracts. We sit them down and go through where they are tracking well and where they are not tracking well.

We work very hard to do that because it is a very largely outsourced model, as you have alluded, and it is unlikely it will ever be anything other than that. Therefore we need to ensure that our contractors are performing well. Where they are not, they get our feedback directly where we see they are missing out in their performance or where we pick it up from others. We track that and have records. It does affect their standing when we re-compete for tenders. They are very aware of that and are very sensitive to that.

I will provide you the assurance, Senator, that we understand the importance of this feedback because it affects our standing and our reputation as well as that of the contractor. We are very focused upon making sure we get that level of service because, ultimately, we are about trying to deliver the best service we can with the available funding. The only way we are going to do that is by making sure those feedback loops are working. Occasionally when I travel around I pick up a little bit of the feedback as well. My first question is: are you working through the reporting systems and feedback mechanisms that we actually have in place? Usually they are, but sometimes they are not, so I encourage them to make sure they do that, because, by making sure we get the feedback we can act on it.

CHAIR: In respect to your definition of 'significant' how would you deem something significant cases of a requirement to report back?

Mr S Lewis : The senior ADF officer is the senior ADF member on a base. It is unlikely that, if it is a very minor matter, he is going to raise that through the system. Individuals they will raise it. If they think we have had lousy meals three days running, they can lodge that. It may not be something the senior ADF member thinks worth raising within as he might have thought the meals were fine but, if an individual had a problem with it, they can lodge their concern.

Gen. Hurley : It is an important question because this is a reform program and many of the changes that will come through it are not going to be everyone's liking. So it is important, as you would appreciate, to distinguish between complaints which are about the substantive issues that evolve from the reform program to 'I don't like it' complaints. In the case of messes, for example, when I joined the Army we all had unit messes and they ran in a very traditional mould. Now, if I walk into the Army, I do not recognise part of the way that functions. I may not like that either but, if it is an efficiency and we do not believe it is pulling at the fabric of our ability to develop combat power, then we will keep moving that way. I think sometimes you get that. As we have gone through these programs, there is no doubt that people will look at quality of delivery on service on bases and say that it is not what we expect or not what we requested, so what are you doing about it. That is the issue that Simon is there to address.

Mr S Lewis : We received some feedback not long ago. We took a decision recently to close the three Russell messes. We did that because utilisation was very low and we have commercial facilities available at each of those places, and they are costly to run. We have achieved an ongoing saving of over half a million dollars per annum, putting aside the fact we have also got space that is now available which we are turning into a videoconference centre, so hopefully we can drive a lot more utilisation of that facility and a lot less travel. I will start to monitor travel patterns in light of having this videoconference centre as a way of operating more efficiently in terms of people's time as much as anything else but also the cost of travel. Did we get some complaints about that? Absolutely, particularly from youngsters about Friday evening drinks.

Gen. Hurley : And the senior officers!

Mr S Lewis : I haven't heard too many of those!

Senator FAWCETT: Can we leave the drinks and come back to perhaps more serious issues. We have all these checks and balances in place and I noticed one of the successes that were mentioned in the report was savings in the area of garrison support. Yet in October last year the secretary and CDF had to send a fairly strongly worded letter out to bases around the country asking why they had not acted upon fairly clear directives around base security. If this model is working and the system is in place why do the two senior leaders in Defence have to intervene in that way, which is quite a public intervention around quite a serious issue?

Gen. Hurley : First of all, the request for information was not SRP related. There was a base security improvement program in place and there were initiatives that base commanders and senior defence officers could have taken that were not resource intensive, implementations of plans and so forth, and some of those had not been done. That is what we are addressing. For some of these you should not be waiting for further direction from on high; they are in your remit to respond to. We did not see that, so that is why we made the statement.

Senator FAWCETT: Okay. Just coming back to the issue you touched on right at the start with culture. I commend the review. I note particularly, CDF, the words that you used, that on most days our people exemplify many good things. I remain concerned that from the tone of the discussion it still appears, sometimes in Defence material and particularly in the media, that there is a causal factor between the defence environment and some of these incidents occurring, whereas if you look at the data from, for example, the White Ribbon Foundation and a number of American universities where they do surveys on sexual assaults and violent assaults on men and women, the numbers are quite horrific, well over 50 per cent, in tertiary institutions. The figure for physical assaults is some 290,000 women in American universities. But if you look at the statistics here, in a very good reporting culture, they show that we are dealing with a broader population with a significant percentage of issues that come into Defence and the percentage of occurrences is actually lower. It is still not acceptable, we still need to address it, but the fact that they are in Defence does not make it a causal thing—Defence is not the cause of it. How do we address that and make sure that the message is getting out there that, yes, we do not accept it and, yes, we are addressing it, but the fact that it occurs within Defence is not a causal factor?

Mr D Lewis : I would just start by saying we cannot account for how the media reports on these issues. But, in your own words, it is not acceptable and needs to be addressed. That is the proposition that we are working from. We are held to a high standard of account, and that is correct, so we are acting in that way.

Gen. Hurley : I would echo your comments and reinforce them. To express it another way, these incidents do not define Defence, but that is what people are using them to do. A lot of external commentary defines Defence by these incidents. I utterly reject that. I do not believe it holds.

When I look at some of the incidents that come across my desk, they really come down to behavioural issues. If we just say, 'These are the odd bad apples,' we will not look at it as a whole to try to put programs in place to grow people. We are about growing people, not damaging them. We are about taking young kids off the street and giving them a great opportunity to develop life skills and career skills and be part of a great institution. The programs we want to put in are not saying, 'You're very bad people.' They are saying, 'To improve, to grow, these are the things you should be thinking about and dwelling on as you go through the organisation.' So our approach is not to say, 'You're bad; we're going to make it better.' Our approach is to say, 'We're going to help you grow as people and give you opportunity in the organisation.' It has to come out in that really positive sense.

I was going to put this in my opening comments or raise it when we got to the culture reviews, but one of our problems at the moment is that every time a defence issue pops up we get beaten around the head unmercifully—absolutely unmercifully. What we need is community support for what we are doing. You have a leadership group here that wants to make a significant difference. You have an organisation that is performing magnificently around the globe. I think in organisations like parliament our members should be out mixing with our people in the ADF reinforcing what they want from them in a positive way. And these people will respond.

Senator FAWCETT: I think Sally Sara's article about her time in Afghanistan should be front and centre of most of your publications. It is a very good story to tell.

Mr ROBERT: In terms of the way you present the budget, I think the last few years have shown that the presentation of the budget—not its data but how it is presented—is bad and getting worse in terms of readability. Everyone waits for Mark Thompson's treatise to come out to understand what the hell is in the budget. Can you commit this year that your budget will actually be readable? Or, if it cannot be readable, can you present an addendum that makes the budget makes sense?

Mr D Lewis : I find the budget also equally perplexing when I am trying to read it. It is a complicated account, as you know. With complicated accounts, you can go one of two ways: you can have complicated budgets or you can have overly simplistic ones. But trying to strike the right balance is the way to go.

Mr ROBERT: Or you can have a readability guide.

Mr D Lewis : We accept the point you are making; it is difficult. I can assure you that at every turn we try to make it as simple and readable as it can be. But there are obviously some accounting bar heights that you need to clear. I might get the CFO to talk a little more about your question. It is a good question.

Mr Prior : In response to your question, one of the constraints that we have with regard to our budget documents is that the format is controlled by the department of finance.

Mr ROBERT: You are stuffed then, aren't you?

Mr Prior : I would not characterise it that way. We naturally try to abide by those guidelines because the department of finance are obviously trying to get consistency amongst agencies in how they present their budget documentation. As the secretary said, we of course will take on board your comments. They are difficult documents to read, even for a person like me. After many years of dealing with these documents they are difficult to follow. A density of information is contained in those documents but, as I say, we are to some extent constrained by the way in which those guidelines from the department of finance are—

Mr ROBERT: In last year's budget I had to go to six different sections and seek advice from the minister's office personally, who then sought advice from your office to find out what the operational spend was. Surely, there is a place were we can have an executive summary or something to say, 'Here is the operational spend of all the bits and pieces, the foldbacks, the budget transfers and the movements.' I have an MBA and I get this stuff. But at four o'clock in the morning I just give up, so does the entire press gallery and then everyone waits for Mark Thompson's treatise to come out a month later. Is there some way to present a guide, an attachment, an addendum—something that says, 'We've presented the budget document in good faith along Finance's guidelines but here is actually what it says.'

Mr Prior :  Of course, we will take that on board. I have also got an MBA and I also have the same difficulty. In terms of your question as to the costs of operations, there is a table in the budget papers about the net costs and additional costs of operations, as there is a table in the annual report about additional costs of operations. It is a common question that I get asked, particularly on budget night from journalists and so on, and one problem we have is: how do you satisfy everyone's information needs? With the greatest of respect, the guide that we prepare that would satisfy a particular set of needs may in fact not be a guide that satisfies other needs. But we will certainly take on board your comments and I will engage with the department of finance and discuss ways in which we might be able to provide some more clarity for the particular issues that are raised. But, as I say, the difficulty I face every year is: which sets of information are the ones that people want to focus on and therefore how do you make those prominent in a budget paper, as opposed to other information sets?

Mr ROBERT: I accept that.

Mr D Lewis : If you just turn to the very first cover, you can see there is a very elementary guide to where the big numbers are. That has been an addition this year and I hope it is helpful. But I understand your point.

Mr ROBERT: Air Vice Marshal Smith, could you let me know what your savings under the SRP have been for travel, since 1 July. Do you have those figures? I will give you a hand: from 1 July 2010 to 31 October, Defence flew 378,472 flights under the new whole-of-government travel arrangements. Out of those, do you have an idea what percentage savings you have achieved by using the whole of government, as opposed to your traditional Defence way of doing things in isolation prior to whole of government?

Mr S Lewis : We could properly get you some data on that. I do not have it ready to hand. The savings have been fairly significant as a consequence of the P side of the P times Q, because we now have five categories of travel in economy, which has given us more choice, and our online percentage of travel booked has gone up quite substantially.

Mr ROBERT: Can I assume from that that you are measuring the savings?

Mr S Lewis : We are. I just do not have it ready to hand.

Mr ROBERT: You are saying you are measuring the savings and you can provide the committee with a list of the savings under the whole-of-government travel arrangements for Defence?

Mr S Lewis : I think you are trying to draw a comparison, which may not be that easy to provide. I can tell you that we are tracking our costs under travel. As to how that compares to how we would have travelled and would have spent not under a whole-of-government arrangement, I think, is fairly difficult. You are asking me: are we tracking what we are spending? Are we tracking the number of trips? Are we tracking the number of economy trips versus business trips? Categorically, are we tracking it by destination? Yes.

Mr ROBERT: You have just said that Defence had its own way of doing travel. You have moved to whole of government. You have just said you have no way of knowing whether, under whole of government, you are actually saving money?

Mr S Lewis : We know that we are saving money, compared to our price per flight, because we are tracking them by flight. We are tracking by volume of trips, which has been down. Is your comparison between our last year prior to whole-of-government travel to the current year? Is that what you are suggesting? Because other factors will come into play.

Mr ROBERT: Absolutely. How do you know whether the whole-of-government arrangements are delivering you the savings or whether it is simply the general trend in competition that is delivering you the savings?

Mr S Lewis : The general level of competition?

Mr ROBERT: You are saying you cannot compare the savings between your previous arrangements under whole of government, that you are tracking the flight costs and in general they are reduced but that reduction could be because the general cost of an airfare has reduced in terms of domestic and international competition.

Mr S Lewis : I am not into causality. Where are you taking this?

Mr ROBERT: I am trying to work out—Defence has gone to whole of government—

Mr S Lewis : The price has gone down per flight. You are asking me why has it gone down?

Mr ROBERT: My contention is, based on what you said, we have moved to whole of government but we do not know whether we are actually saving money under the new whole-of-government arrangements because of the whole-of-government arrangements. We know that the price of fares has come down, because you are quite rightly tracking that. But your own words were that you actually do not know whether the whole of government or the move from Defence into whole of government is actually delivering you savings.

Mr S Lewis : I am just going to the point of causality. I am making the point that we are saving money and you are asking whether it is due to whole-of-government arrangements—

Mr ROBERT: I am asking—

Mr S Lewis : We are part of the whole-of-government arrangement and we are saving money. I do not know whether it is directly due to that. It is likely to be. But the price is down. You made the very point yourself that maybe competition has increased in the market and that has brought down the overall level of prices. I have not done that analysis. I am not sure you could readily do it. I mentioned the five categories of choice we had, including our fixed price, no flexibility, quite cheap rates through to fully flexible fares which cost more.

Mr ROBERT: Of those 378,472 tickets, 43 per cent have actually put an exception code in to say they did not take the cheapest flight. That would seem like an enormous number of flights—43 per cent not taking the cheapest option, which is a requirement under whole of government. Is there any particular reason why almost half of Defence flights are not taking the cheapest option?

Mr S Lewis : That does seem a lot; I will need to look into that. You will expect that there will be a proportion that will not take the cheapest available flight. In fact, there will be significant numbers—the fact is you may have to change your flights; I changed my flight just last night. If I was in a flight category which did not allow me to adjust that flight, the cost would have been a heck of a lot higher than what it was because I adjusted by one flight. If you cannot have that degree of certainty, you need to tick that box and say, 'I'm not going to take the cheapest one because there is significant risk that I'm going to have to change it,' and the Commonwealth will be paying more if you are stuck in the cheapest fare available.

Mr ROBERT: I agree. I am glad you raised it because 90 per cent of the exception codes of those 43 per cent have been the exception code that covers 'require flexibility to change bookings'. When I speak to the major airlines such as Virgin and Qantas both have exactly the same flexibility in bookings. So if both say they have the same flexibility—in fact, Virgin are saying their flexibility is higher; and I do not know if that is so, I am simply saying that—how is it that the 43 per cent of flights that Defence take are not lowest fair; and of those 43 per cent, 90 per cent tick the exception code: I did it for flexibility?

Mr S Lewis : Are you suggesting we change airline because of that issue rather than change category of fare?

Mr ROBERT: I am simply saying that where someone has chosen a more expensive flight, the exception code they have put in is: because I require flexibility to change booking. Yet that flexibility is inherent—so the airlines tell me—in all of their fares.

Mr S Lewis : In all of their fares? It is not in all of their fares, Mr Robert, I can assure you. Some of the fares actually are quite restrictive. They are very cheap but they are quite restrictive. Perhaps the best way to deal with that would be if you me specifically give me what the concern is. If you have identified something that I need to look at further, terrific, because I am in the business of reducing the spend on travel.

Mr ROBERT: The question is, if you look at it: 43 per cent not taking the cheapest flight out of 378,000 flights would seem high.

Mr S Lewis : It could be.

Mr ROBERT: I would be keen to know if that is normal. If that trends normally and that is just the way we do business, that is the way we do business.

Mr S Lewis : I think it is a very good question you have put to me, Mr Robert, and I will do my best to give you a good answer.

CHAIR: We have two questions on notice: one from Dr Jensen and from Senator Macdonald.

Dr JENSEN: I was talking earlier about KPIs. If you could give a list of the strategic reform programs key performance areas, the key result areas, the key performance indicators. I will give you one:

Creation of a trial single desktop environment using 'thin client multi-level security' technology by 2012 where the Unclassified, Restricted and Secret domains can be accessed from a single 'box';

Has that been achieved—and going through the list in that way.

Senator IAN MACDONALD: I am not sure that I want to get this on notice, but we have run out of time. I was just going to ask: what are your most difficult challenges in seeking efficiencies in the area that you handle? If I ask that in writing you will probably write me a 100-page tome. I realise you have challenges, not the least of which will be local members of parliament having various interests in the sorts of things you do. Perhaps, if you can briefly give the committee an idea of the challenges you face in trying to get the savings that you are being required to make. That is one—and while I am here and we are talking about flights: my office runs its own travel budget in the same way as you do. It is not easy, I acknowledge. For personal selfish reasons, I am shattered that Virgin have stopped their direct Townsville-Canberra flight and I was always disappointed that the Defence Forces did not seem to be using that direct flight between Australia's largest army base and the national capital as much as perhaps they might. I have got some questions on notice about that. Perhaps my question would be: do you negotiate with the two airlines flight schedules to places that Defence are very big users of? You would be aware, of course, that Airnorth now have a direct flight between Townsville, your biggest army base, and Darwin, one of your biggest military cities. I would be hopeful that your flight work takes account of that very convenient direct service. I will put that on notice. They are things we could chat about but we have not got time.

CHAIR: The next area is on personnel. Mr O'Dowd has a question on housing.

Mr S Lewis : Let me just paint a picture a little bit on Defence housing and then we will see if we can help you with your question. We procure the majority of our Defence housing through the Defence Housing Authority. DHA is a separate authority. I do not believe they are here today. Obviously they manage that program via a contract that they have with Defence.

CHAIR: Let's see what the question is.

Mr S Lewis : Sure.

Mr O'DOWD: It is to do with the Northern Territory housing at Eaton and their 395 houses there. I want to talk to about the future of those houses, what is happening and that type of thing.

Mr S Lewis : I know a bit about that; I may be able to help you.

Mr O'DOWD: Are they currently owned by the Defence Force?

Mr S Lewis : The housing is owned by Defence and it is managed by the Defence Housing Authority. In fact, I received several questions on notice in relation to this not that long ago. I think we either have responded or are in the process of responding to questions asking, for example, how many of those houses are currently occupied, how many are available for occupancy and how many are sufficiently derelict that they cannot be brought back up to standard. The answers to those questions on notice either have gone or will be going very shortly, firstly.

Secondly, there have been questions about the housing stock. The intent would be that where those houses could be relocated that the housing would be transported off site. That has already happened to a number of houses at Larrakeyah where the houses were of sufficient standard. They were sold for a figure in the tens of thousands of dollars and relocated to other places and then re-established with infrastructure connections. The same would apply here. Then the plan would be that DHA would be constructing new houses which meet the housing standard which must apply to all housing used by ADF members by 2017. So there will be a construction program to build new housing on that site which must be completed, as I said, by 2017.

Mr O'DOWD: Is there a big difference between the new standards for 2017 and community standards?

Mr S Lewis : I am not sure I could offer you a great deal on that one. What I can advise you on is that there is no way that the current housing stock could meet the standard. It just could not. If there were some economical way that that could happen then that would clearly have been the most expeditious way from a taxpayer perspective to deal with the issue, but that is not possible. That is why DHA has this housing program. I believe they either have or shortly will get PWC concurrence for the bill program.

Mr O'DOWD: I am aware that the questions have been asked before but the answers have not seemed to be forthcoming. I do not come from the Northern Territory—I come from Queensland—but this is causing a big concern for my colleagues in the Northern Territory.

Mr S Lewis : I understand. There is a significant housing pressure.

Mr O'DOWD: That is right. There is a huge shortage of housing. Is the Northern Territory government involved in negotiating some sort of deal between—

Mr S Lewis : I believe the housing was actually offered to the Northern Territory government but I do not believe they have taken an interest. I would need to check, but I am pretty sure of that.

Mr O'DOWD: Have you been approached by the Northern Territory government?

Mr S Lewis : In relation to houses?

Mr O'DOWD: In relation to taking over some of those houses.

Mr S Lewis : On taking over the houses and relocating them, I might have Mr Grzeskowiak give some more detail. But the key thing would be that the housing footprint, the real estate, is going to require new housing being built on site for ADF members into the future. On the existing housing, I believe there have been offers made to the NT government in relation to that stock on the lines of, 'Would you like them to relocate?' I believe that has happened. I have just been advised that I am exactly right.

Mr O'DOWD: So there is no way those existing houses could be brought up to the standard that you require with maintenance?

Mr Grzeskowiak : Many of those houses are quite old. As Mr Lewis was saying, they do not meet our current standards and the investment to bring them up to the standards we require by 2017 would be significant and in the order of $50,000 per house for some of those houses. For example, our new standards would require increasing the size of the bathrooms, adding ensuites, increasing the size of the lounge rooms and bedrooms. If you are into those sorts of modifications on houses you would know that that is very significant. Some of the houses also need a significant amount of other work such as rewiring or structural work on some of the steel parts of the structures. It is uneconomic to repair those houses. They have been offered for sale to the Northern Territory government and they have not expressed an interest in taking that offer up.

Mr O'DOWD: Some of the houses that have been demolished so far—it might be only around 10 or a dozen—were only 10 years old too. It seems like a little bit of waste.

Mr S Lewis : I do not think we are talking about the same place. In fact, I am not aware of any houses that have been destroyed which are 10 years old. There was some housing stock at Robertson Barracks which were older than 10 years but certainly not anywhere near as old, not within decades, of the age of the houses we are talking about which have been destroyed for accommodation for singles on Robertson Barracks.

Mr O'DOWD: How old would these houses be?

Mr Grzeskowiak : I am not aware of the specific age of those houses but I would imagine they would be some decades old.

Mr S Lewis : We can provide that detail, but they are quite old.

Mr O'DOWD: As long as we get the answers.

Mr S Lewis : We would be happy to provide them.

Mr O'DOWD: You have the questions. If you are working through the process of answering them, that is fine.

Mr S Lewis : Understood.

CHAIR: I have some questions. Firstly, with the Indigenous participation I understand there has been a modest increase in numbers. Can you give me some feedback on what those numbers have been compared to previous years.

Mr D Lewis : I would not portray it quite as positively as you have. I am personally quite concerned about the issue of Indigenous participation and also disabled participation within the Department of Defence. We have been set a target of 2.7 per cent Indigenous employment by 2015 through the Council of Australian Governments. It is a government-wide target. We allocated in this financial year $11.8 million to the Indigenous program. The Defence records currently indicate that Indigenous people represent about 0.89 per cent of the total Defence workforce. It is a little higher in the ADF—0.96 per cent. So it is just under one per cent in the ADF. It is 0.53 per cent in the APS. Despite being committed to Indigenous programs, Defence is not making any long-term progress in that area. There is a great deal of work to be done around this and I personally have just joined the council of secretaries which has been set up right across the Public Service to directly address the issue of, among other things, Indigenous participation. I might get the acting deputy secretary of PSP to talk a little more about this. It is not where I would wish it to be. We have work to do.

Major Gen. Fogarty : I will just add to some of those comments. One of our signature programs is the Defence Indigenous Development Program which we run up in Katherine and Cairns at the moment in partnership with some other government agencies. Each of those programs has about 30 participants in it. Whilst we have not been successful in securing all graduates of those programs to the ADF, many do go on and gain employment in other areas.

Whilst our particular numbers are not increasing significantly, we are taking young Indigenous Australians from their community and putting them back into paid employment within their community. I reiterate what the secretary has said—we have focused on this for some time and we are not making any significant headway in total numbers. We do have an issue with our recording of numbers. It is a self-reporting requirement and our Enterprise HR system shows the numbers, but we know when we do a non-attributable census our numbers are higher. So we are also focusing on reporting so that we get an accurate count as to what our Indigenous population is within the defence department. Like other agencies, we are looking for new ideas where we can have some marked change in our participation rates. The secretary is now participating in a council with some of his colleagues to harness new ideas and develop a new approach, which we hope to get to this year.

CHAIR: So what is your recruitment net? You mentioned Katherine and Cairns. I take it is a lot broader than that—they are just the centres where you are doing the courses, are they not?

Major Gen. Fogarty : Yes, that is right. As you would know, for Army's regional force surveillance units we have a greater percentage of Indigenous participation. In terms of trying to increase the Indigenous participation throughout the total department, I mentioned one of the signature programs. We run a number of Indigenous pre-recruit courses throughout the country, not just in the north, aimed at improving performance in our recruiting process. I do not have the actual numbers to hand of graduates of the pre-recruit course who have gone on to successfully enlist. I know that tomorrow, down at HMAS Cerberus, there are eight Indigenous Navy members graduating who came through a recent Indigenous pre-recruitment course. We run a number of ADF familiarisation courses throughout the country, targeted at those who express an interest in joining the ADF. We run two defence Indigenous students study tours, and in the APS workforce we have made provision to engage, through the various graduate programs, cadetships and traineeships, 49 Indigenous graduates over the next year. That is just setting up the targets. As I said, I do not have to hand our actual performance with those who have come through into either the ADF or the APS.

CHAIR: Moving to people with disabilities, with the review and improvement in reasonable adjustment policy, does this take into consideration returned personnel from Afghanistan who have been injured and who now have a disability? Are they considered under that program?

Major Gen. Fogarty : No, they are considered under a completely separate program. The broad heading for that program is the Support to Wounded, Injured and Ill Program. The ADF in particular has done significant work in the last three years to revisit its policies to provide much better focus on rehabilitation for members who acquire injuries or illness or a disability and seek to retrain them and keep them in the ADF as opposed to what we would have done five years ago, which was give them a year's notice to try to rehabilitate to a particular standard and if they did not reach that standard then to separate them from the ADF. Now we would have a period of up to five years and progressive reviews and focused rehabilitation throughout that period. If at the two-year mark it looked like the individual would not be able to rehabilitate to a standard where they could be retained in the Australian Defence Force, we would focus, with the Department of Veterans' Affairs, on vocational training so that they could be positioned for success outside the ADF.

CHAIR: So what are the results you are seeing in that particular area now?

Major Gen. Fogarty : The program has been running, focused, for about three years. We hired some consultants 18 months ago to have a look at our end-to-end process to identify where there were gaps. They came and told us that we had a very successful return to work program but there were certain individuals who were falling through the gaps, particularly with our engagement with the Department of Veterans' Affairs. We had a focus on having a continuity of care. In the last 18 months we have had a much stronger relationship with the Department of Veterans' Affairs and getting them involved much earlier in the process. We have been very successful at retaining people in uniform in the ADF. It is as much to do with a change in philosophy, whereas 10 years ago, if you were not deployable, we would have said you were not employable, and we would have separated you. Now we have reconsidered what deployability actually means. If you are a certain rank and a certain skill set we are far more discerning now. We do not expect you to be kicking down doors and doing things that you might have done when you were much younger at a different rank. That has enabled us to say, 'Actually, you can still be deployed. You can work on a headquarters in a particular area as opposed to a forward base and therefore we will retain you.' So my answer to your question is that we have been very successful at retaining members in uniform who have acquired disabilities.

Mr D Lewis : Chair, to go back to the first part of your question, General Fogarty has separated the issue of folks that are injured while in uniform as opposed to the department in general. I can say to you that we compare favourably with the APS stats across the board. In a recent survey 14.4 per cent of our workforce identified as being a person with disability; 14.8 per cent is the APS-wide figure, the community-wide figure. So we compare quite favourably in that regard.

CHAIR: Can you give me some stats on the record of those disabled ADF personnel who are integrated or retained?

Gen. Hurley : This is as a result of operational service or injury during just normal—

CHAIR: Maybe both. If we can separate those it will give us an indication. For your knowledge, we are about to embark on a review of that particular area of care for ADF personnel as well, so it would be great to have that information, if we can get it before we commence that later on in the year.

What is happening with regard to retention in general? How many people are you losing to the mines and resource area? Are you getting any back who are returning as a result of feeling that it is not for them?

Major Gen. Fogarty : For the financial year in question, the ADF went into 2010-11 with the highest retention rates that it has experienced in its history. In May 2010 the separation rate for the ADF was 7.1 per cent. It has never been that low. The 10-year rolling average is about a 10 per cent figure. At the end of the financial year in question the ADF separation rate was 7.9, so it had started to increase. Today as we talk the separation rate is about 9.3 per cent and is expected to be 9.4 per cent next month. So it is rising. Our separation rates are a cyclical phenomena. They do tend to rise over a seven-year period. In 2005-06 we were talking about a recruiting and retention crisis. Seven years later we are back into a period where our separation rates are increasing. The people who are leaving leave for a variety of reasons. They are not all being drawn into the resources sector. Those who are leaving are a mixture of technical and non-technical skills. Many are going to the construction sector, which of course is booming as a result of the resources boom. We have a number of our trades, ones which we watch very carefully, that we are concerned about. Those numbers for trades have reduced significantly over this period that I have spoken about when our retention rates have been very high. But we still think we will struggle attracting people to do certain things going forward because, like the general Australian labour market, we have the same pressures, so medical specialists, dentists and engineering skills are the areas where we have difficulty in attracting people with the skills and retaining them. We are doing a number of things to improve our performance in that regard but we think that they will be the trades and skill sets that we have to watch very carefully for the next three or four years. Our separation rate today, at 9.3 or 9.4 per cent, is still below the 10-year average which sits around 10 per cent. My personal feeling is I think we can sustain quite comfortably a separation rate of about 10 per cent for the ADF.

Senator IAN MACDONALD: Going over those areas again, I have a short question about housing. The Indigenous people in NORFORCE are highly regarded by the Army and they are highly regarded by their own people as well. How much involvement do they have in the recruitment of new people into the ADF. I am particularly talking about non-urban Indigenous people.

Major Gen. Fogarty : Unless Chief of Army wants to come out and talk about this, I would say the beauty that we have had from having Indigenous participation in the regional force surveillance units is that they come from their community, they participate in a military environment and then they go back to their community. When they go back to their community, they go back as developed, stronger individuals. They become role models and then they attract other members of their community to want to come and enjoy the same experience. So we have found that to be a self-sustaining way of improving our recruiting performance in the regional force surveillance units. We have used those members to go back to their community to help us pull people into those programs that I have spoken about, the Defence Indigenous Development Program and the pre-recruitment courses for full-time service in the ADF. So we have used them as particular role models to attract people.

Senator IAN MACDONALD: It is not for us at this level to tell you guys how to do your job, but do you have people sitting down with Indigenous leaders? Do you have that with Indigenous kids, talking through with them what you could offer them that would make them want to be knocking at the door to get it in? You would appreciate as well as I do that the biggest problem with Indigenous people at the moment is lack of employment opportunity. Some would say that for cultural reasons they are not always punctual and reliable in turning up, but things change. There are leaders in the Indigenous communities now who understand the importance of leading disciplined, if I might say, regular lives for the future good of the Indigenous people of Australia. So I am just wondering if you do that or if you send university trained sociologists from Canberra up to work out what is best for these people in the military forces.

Major Gen. Fogarty : We do that. We do have an Indigenous recruitment strategy.

Senator IAN MACDONALD: But it is not working though, as you have said yourself.

Major Gen. Fogarty : That is true, but the initiatives within it have been developed by a council reference group that has Indigenous elders from the country and who come and meet and provide us with specific advice. So we are not using sociologists from universities, to use your term; we are actually using Indigenous leaders to tell us how to engage with members from their community and what it is that they actually want.

Senator IAN MACDONALD: And do you do that with young people themselves, so send out some knock-about warrant officer to the communities to sit around a fishing line and talk to the young people about what it is about?

Gen. Hurley : My recollection of this—and I am a bit out of date—is that a lot of recruitment in the communities is done through the senior leadership, the eldership. They are the ones who nominate the people to come in. It is very much, as you say, sitting down with them in their decision-making environment and allowing them to have the discussion, identifying how many we might want, or how many they think, and then letting them absorb it, think about it. Then they come back and tell us: 'These are the people we will be nominating to come to you.' The history of the operation of all those regional surveillance units is that we very, very much interact and integrate with the communities and the leadership to identify and develop people in the organisation. So it is not imposed. It certainly comes up with them and through them.

Mr D Lewis : It might be useful to invite Chief of Army to try to reinforce some of these points.

Lt Gen. Morrison : I have only a few things to add to what the CDF and General Fogarty have had to say. We have been successful over time in Indigenous recruitment into the Regional Force Surveillance Units, but it has been uneven. NORFORCE is very successful in relative terms. The 51st Battalion, The Far North Queensland Regiment, has been almost, but not quite, as successful, and the Pilbara Regiment has been in relative terms less successful—but I think that is largely to do with geography and the way the Pilbara Regiment was set up.

The first point I would like to make, though, is that it has been a process that has been conducted over a number of decades, and its slow and incremental approach has been, I think, a hallmark of the success. It has been achieved through engagement at a personal level with tribal elders and with Indigenous communities, particularly those in remote locations. I would describe it as quite groundbreaking but I would also describe it as fragile, so we treat it as such. The policies that General Fogarty has covered are certainly of great help, but it is the interaction at a personal level, both with Indigenous members of NORFORCE and with those Regular Army people who are posted to the region for surveillance units and who, over time, have developed the expertise to interrelate with tribal elders and the local communities, which has been the real success.

In the Regular Army, certainly initiatives like the Indigenous development program and the Indigenous pre-recruitment courses have gone some way to meeting what is a very challenging situation. The type of service that Indigenous members can undertake in the Regional Force Surveillance Units, based in part in home locations, to a great extent meets their own personal desires, and we are getting great service from them. Service in the Regular Army, leaving a remote community to travel to Kapooka or Duntroon, has been seen as a very significant hurdle for members of our Indigenous communities. I think the Indigenous Pre-Recruitment Course has been pretty successful in assuaging some of the concerns that individuals have and in showing them that they have all the requisite skills the Army or the Defence Force is looking for and that they can be made great use of. But the take-up rate has been, probably, less than what was hoped for. It is a very valuable commitment that the Defence Force is making to increase the number of Indigenous people in our Army, Navy and Air Force, but it is still very low.

Senator IAN MACDONALD: Is there no significant movement from NORFORCE, from the regional surveillance units, to the Regular Army?

Lt Gen. Morrison : There has been some, but in the main the type of service that the Regional Force Surveillance Units are able to have and to offer for the Indigenous members is very much meeting both the needs of the individual and the needs of the organisation.

Senator IAN MACDONALD: It seems to be a great opportunity, and very often things that Indigenous people are naturals at. But I do not know what the solution is, and clearly the best brains do not know either. It is just a shame. Anyhow, keep trying.

I am hearing from around Townsville that there is concern that soldiers are not getting the sort of financial and life skills advice that perhaps might be expected in the Army. Some of the diggers go to Afghanistan and come back with a lot of money. A guy I know has put money into a house in Townsville and one in Darwin, into investment property, and is doing very well. But I hear there are others who get pocketfuls of money, get back and just blow it on good times. It was suggested to me that while there is help available it is not a terribly obvious. I am wondering if there is some way where it can be a compulsorily ordered process—for example: when you come back you will sit down and have some courses on what to do with your money. Perhaps it could even be to the extent of quarantining big money that they receive when on active duty, which is a separate issue—

Gen. Hurley : You'd be in court, Senator!

Senator IAN MACDONALD: Well, voluntarily quarantined. You have been through all this before, I take it.

Gen. Hurley : I remember my youth, Senator! Chief of Army can answer that question.

Lt Gen. Morrison : Senator, if you wanted to give me instances where an individual has approached you or a family has approached you to express a concern, then I will certainly take that on board and try and deal with the particular the incident or situation. But, generally, all soldiers who are involved in deployment receive mandatory financial counselling.

Senator IAN MACDONALD: Before they go?

Lt Gen. Morrison : Correct, and when they return. That is made available for them and they are given the opportunity to do that.

Senator IAN MACDONALD: Made available, or is it compulsory?

Lt Gen. Morrison : No, they all attend it.

Senator IAN MACDONALD: It is like an Army volunteer: you will volunteer!

Lt Gen. Morrison : No, on this one we are quite happy to leave the voluntary status to the side because we realise that there is a responsibility here.

Senator IAN MACDONALD: What does that involve? Is it a half-hour Army officer saying this is what you might do?

Lt Gen. Morrison : No, not at all.

Senator IAN MACDONALD: Do you get in professional financial people?

Lt Gen. Morrison : We do. They are accredited and operate through the ADF council as well which has been set up to look at this. That financial awareness is made available to everybody.

Senator IAN MACDONALD: What is it involve?

Lt Gen. Morrison : It involves an indication of how much money will be received, how money should be treated while they are deployed, so for many—

Senator IAN MACDONALD: But is it a half-day lecture or an hour a week for the previous four weeks?

Lt Gen. Morrison : I can send you the program, if you like.

Senator IAN MACDONALD: Yes, if you could.

Major Gen. Fogarty : Five years ago we set up the ADF Financial Services Consumer Council with the specific objective of increasing the financial literacy of our members. It has won national for its programs. It has a continuum of education that starts when people join our organisation. It teaches them budgeting skills and gives them information about how to seek financial advice and how to select a good financial adviser. It has a website with a range of different tools on it to help individuals identify whether they do or do not need insurance. They run the programs that the Chief of Army is speaking about. They will come into a predeployment program and run a number of different programs depend on what type—

Senator IAN MACDONALD: These are individuals in the commercial world, I take it.

Major Gen. Fogarty : It is chaired by an Air Force reserve officer who is a pre-eminent accountant. It has an independent financial expert who sits on the council and it has representatives from the three services. They draw on material from ASIC and ACCC. They are truly independent. They provide objective advice.

Five years ago, in trying to improve the literacy of our members, we would invite people to come onto bases and talk to our people. We realised that what they were doing was selling product and we did not want that. We want truly independent objective advice and we are increasing the financial literacy of our people. We will always have anecdotes where people come back and spend money from overseas on buying something rather than investing in a property or shares. We always hear that. To give you some level of comfort, the senior leadership of the ADF are challenged routinely now by an increasingly financially literate force about superannuation and all sorts of things which seven years ago they never used to engage us on.

Senator IAN MACDONALD: You are talking about the diggers, the privates?

Major Gen. Fogarty : Yes.

Gen. Hurley : I often get emails from leading seamen and so forth asking me to answer a question about something in this area. So it goes from their desk to mine.

Senator IAN MACDONALD: Clearly, it is something you are right across. It is contrary to the anecdotal evidence I am picking up—very often not from the guys who need it but perhaps from the guys who know what they are doing that are saying, 'I know my mates have just blown theirs.' I will record this brief discussion, acknowledging that it is only very, very brief—it is the tip of the iceberg—and send that out. Some of my constituents will be surprised to hear what you have been telling me, but that is good.

Gen. Hurley : Just to reinforce what General Fogarty said: the program we have and the way it is delivered against national benchmarks has won national awards for the approach it takes, the quality of the work and the depth it goes to. The product is fine. We deliver it in a mandatory way, but individuals make their own decisions.

Senator IAN MACDONALD: Well done. I am delighted to hear that and that you are about 20 years in front of me. By the same token: a comment has been made to me that people who are in for only four years—they join at 18 without any life experience, spend the next four years in the biggest and the most supportive family perhaps in Australia, which is the defence forces. They are fed. They are clothed. They are told what to do. Then at the end of four years, they leave and suddenly they are out in this big, bad world where someone does not tell them what to do, how to do it or what time they will get up in the morning. The suggestion came to me, while there are apparently some courses—and I have looked at the manuals; it think there is a term for it: transition to civilian life—but, again, it does not seem to be working. Is there a brief comment you could give me that, again, I can refer back?

Major Gen. Fogarty : We have a range of programs and activities that our members can access to assist them to prepare themselves for transitioning out of the Australian Defence Force. That includes vocational training where they can access that. We had a discussion about MBAs before. I did my MBA when I was a younger officer through this vocational training.

Senator IAN MACDONALD: It is suggested that if you are in there for 12 years or an officer, that is fine. I am talking about the grunts.

Major Gen. Fogarty : Your point is valid. You increasingly access these programs the longer you serve. A lot of people in our organisation do leave between the four- and six-year mark. The initial minimum period of service in the three services generally is between four and six years. They, too, attend transition seminars that are aimed at positioning them for success, to get them to start thinking about their transition and what they need to do. They normally attend this within the year before they transition. The transition process itself includes access to a range of programs to help them transition. I have been in the people area for a long time, and I am the Acting Deputy Secretary. I do not hear routinely from our people that they feel hopeless when they transition—I hear it is the opposite. Many industry players actively seek our people because of their confidence and their resilience. So I am hearing the opposite.

Senator IAN MACDONALD: That was my answer when the matter was raised with me. My impression is that in the commercial world, if there are five people going for a job who are all roughly equal, the one with the military service will be the choice. I agree with that, but that is not what is being told to me on the ground. I appreciate what you say, and I will pursue that through the sources a little further.

Major Gen. Fogarty : Of the three services, the Army transitions more people than others because of its size. They are generally young—generally in the four- to six-year period and they average between 23 and 26 years of age. Army has taken an approach where it has developed a capability called Army personnel coordination detachments. These are warrant officers who sit at the transition centres to take these young members and say, 'Look, I know this is a transition process and you're focussed on leaving, but this service is being offered to you and you really should do it'. There is a bit of mature guidance given to them so that Army, and the Chief of Army in particular, has some comfort that people are transitioning well.

Senator IAN MACDONALD: Following Mr O'Dowd's question, can you encapsulate what is happening with the houses at Darwin RAAF base? Mr O'Dowd and I and others share the concern that there seem to be perfectly good houses that in the wider community people would knock each other down to rent or buy. But you need the land for base activities. Can you encapsulate what the strategy is? We have been through this at estimates.

Mr S Lewis : We went through it last estimates and also I think you put something on notice, so we are responding in writing to some of those questions as well. Hopefully that will help paint the picture. Briefly, there is an enduring requirement for the land for defence, for a number reasons. It is an important mounting base for defence and in the context o our increasing focus on the north and north-west, in view of the US force posture review and their intention to do more in the region, it would be unwise of us to reduce our footprint at RAAF Darwin. We intend to use this land into the future. An important part of it will still be for housing purposes, and the housing that we intend to have on the site will be appropriate for ADF members beyond 2017. There is no prospect of being able to use the existing stock beyond 2017, so the issue for us is how we manage the transition from the old stock to new stock via a building program which would be managed by the Defence Housing Authority. We are finalising arrangements with the DHA in relation to that right now. Of course it will need to go through the Public Works Committee, if it is above the threshold. I do not know precisely what the amounts are. In relation to the existing stock, which will not meet the standard, we have been making the offer to relocate that housing. Some of the housing at Larrakeyah Barracks, as I mentioned to Mr O'Dowd previously, was relocated offsite. It was put on those big flat trucks and shifted off somewhere else to be put on new piers and new connections and re-established as housing. We have made the same offer here. Some of this housing stock is probably not of a standard where that is actually feasible. Some of it is, and we have made that offer. At this stage, the NT government has declined our offer to take on that housing. We have made a similar offer to FaHCSIA, who at this stage has also not taken up our offer. We are also working with DoHA so that the prime contractor who takes on the job of the new construction program for the housing on this site will also be making the opportunity for this housing to be available to meet the housing shortage problems that exist in Darwin at the present time.

In a nutshell, that is where it is. As I said, I might touch on some of the other questions you have raised in my response on notice. You have asked for the total number of houses, the number that are currently occupied, the number that are not occupied but that would be available for members and their families if they want to relocate on-base, and the number of those essentially beyond redemption, which are in the process of being programmed for disposal, removal and rebuilding onsite.

Senator IAN MACDONALD: Perhaps you might also send those answers to the estimates committee to this committee.

Mr Lewis : I am not exactly sure of the process for that, but we will work out a way to make sure it happens.

Senator IAN MACDONALD: Thank you.

Ms BRODTMANN: I have three questions. The first is on the multicultural policy that you were developing a number of years ago. I would like to know about any progress on that in terms of getting greater diversity in the ADF. I know that you are behind the rest of the APS on that and I would be interested to hear about your progress. My second question is on the Indigenous cadet program—the little cadets. I know you employed Indigenous liaison officers to manage that program and I would like an update on that. Finally, I would like an update on the women's action plan. I know there has been an update on that in light of the recent round of reviews, but a progress report on that here would be appreciated.

Major Gen. Fogarty : I do not have any material here that is available on Indigenous cadets. The VCDF Group might be able to get you an answer on that.

In terms of diversity in the ADF, we have had a recruiting strategy to increase diversity in the ADF so that it is more representative of the community to which it serves. We have had limited success in that regard. It is very difficult for us to gauge on the metrics because it is a self-reporting mechanism. When people come into the organisation they report what their heritage is or is not, and we find that when we run a census every three years we get a totally different answer. We know that we are improving, but we are certainly not improving to the extent that we would like. The Director General for Defence Force Recruiting is re-invigorating his strategy. I am not talking now about diversity with women—that is a separate subject altogether.


Major Gen. Fogarty : We have engaged with community leaders to try to improve access so that we can go 'where the fish are' rather than into our traditional recruiting areas. But it is difficult for us, and I cannot give you any exact figures because I do not have them to hand. It still sits highly as an objective in our recruiting strategy. As I said, the Director General for Defence Force Recruiting has just re-invigorated the strategy back to the earlier information I provided. We think the numbers that we will need to recruit in the future are generally increasing, because of our increasing separation rates, and we see that as another opportunity to make sure that those we bring into the organisation are more representative of the Australian community.

With respect to the women's action plan, the CDF may wish to make some comments here. We have been trying to increase the participation rate of women in the ADF for some time. Again, we have had limited success. The figures have stayed around 13.6 and 13.8 per cent for some time, and you would know that in September last year the government announced that we would open the remaining seven per cent of trades which were prohibited, as to women joining them. The government will shortly take our implementation plan for how we intend to do that, so that over the next five years service in the ADF will be based on your ability to do the job with nothing to do with gender. We do not anticipate that that in itself will cause a significant increase in women wanting to join the ADF. We are realistic about that. The experience of many of our allies is that there will only probably be about a three or four per cent participation rate in those combat trades, so that is the reality. But we are doing this because, to sustain the workforce into the future, we want to access our fair share of the talent in the Australian labour market, which is increasingly female.

But in terms of your specific questions about the Women's Action Plan, it had a number of different objectives. One was recruiting more women. The gap year one has been a very successful program for the ADF. We went and targeted all women who would join the organisation through the gap year, because we had had a 50 per cent participation rate for women in their gap year, as opposed to what is a 14 per cent general participation rate. We asked them, 'Why is it that you wanted to come for the gap year?' and it then was, 'Because it's only a 12-month period and I can sign up to anything for 12 months.' So we have been looking at our trades to see whether or not we can reduce a four-to-six-year engagement period to maybe a two-year period and therefore attract more women, so we are doing that as part of getting more women to the organisation. If we want to increase the participation rate of women, success is about getting more people to our organisation. We are already doing a significant amount of work through the other objects of the action plan to retain those we already have. The retention rate for women in our organisation is actually now as good or better than that for men—which it was not before the action plan started—and I can talk about specific policies around what we are doing in that regard. But if we are going to increase our participation rate to something markedly different, it is about attracting more women to us, not doing more with the ones that we already have.

Gen. Hurley : I might just step that up a little and say I think the action plan that Air Chief Marshal Houston introduced was groundbreaking for the ADF at the time and it has driven us a long way, and Major General Fogarty has just made a couple of comments about that. But I think in a sense that program has run its course. So taking the outcomes of Ms Broderick's reports into ADFA and her second-phase report that we are about to get—and I have been in discussion with her about that—and also the work that Carmel McGregor produced in looking at women in the APS—I think we are about to make a step change. I think Ms Broderick will not mind me saying that she has looked at that—and so has Carmel—and said, 'Well, that's been good but you need to take another step because it is not going to drive you far enough.' I think the outputs of Ms Broderick's second report are going to be very important to us in the next step. So in that sense I am reframing it. In fact, next month we celebrate the closing of the women's reference group taking in the women we had helping with that and we are creating a new secretary-CDF gender equality board which will have a lot of external representation, male and female, from industry leadership and the thought leaders in this field and so forth, to help us take both the McGregor and the Broderick report and the work we have done and recast that and say, 'What's the next step?' Some of the steps we will take are laid out in Pathways to Change, because we have already taken things out of the Broderick No. 1 report and Carmel McGregor's report but I think there is still more to be done. I think I have the final meeting with the women's reference group early next month, April, and then we will announce the new organisation and take it forward. But what is really coming across, and I think you will see this in Ms Broderick's next report, is that a lot of this is about gender equality and it is not just women specific because when we talk to our women we do get pushback to say, 'If it's good enough for me it's good enough for all of us.' Certainly within the ADF there are three generations of women serving, and each of those generations have different needs and different views of career progression. So we are sensitive to the need for change. I cannot put my hand on my heart and say today I know what all the steps are, but we are certainly engaged with the people who will help us drive this forward.

Ms BRODTMANN: In terms of the last version of the women's action plan, you were attempting to do quite a lot of work in relation to part-time work for women, particularly those who had just had babies. I know that has been a challenge, just from talking to those women in the past, in terms of them getting quality jobs and continuing to progress, having being on mat leave to begin with and then being in the part-time loop. It is across the APS and every workforce—that part-time challenge. I want to know what you are doing on that front and whether you will ratchet that up. That is a real soft spot for everyone. Will it be ratcheted up in this next round of programs?

Major Gen. Fogarty : I think you are right. Part-time, leave without pay and those sorts of things were introduced as tools to do this, but the implementation and take-up rate and the management oversight of that let us down to a degree. But it goes broader than that. I go back to the comments we were making about the Strategic Reform Program this morning and the Reserve stream, and how we utilise reserves better. What this is really about is utilising our workforce in a better way—so moving from, for example, pure civilian to full-time ADF, what are the work graduations in between? It can be full-time but casual, or casual but coming in to do full-time work or part-time work or whatever.

In our look at the Reserve stream, we have had a very broad recast of how we employ people in the APS and the ADF across about seven streams. This is coming up for consideration at committee level in defence very soon—it is a plan called Plan SUAKIN. That really translates to both genders in the Defence Force. It is a different way of looking at how we employ the people we have rather than the gender they are. There will be programs that support women in the organisation. To go back to General Fogarty's key point, when we get women in the ADF our retention rates are good—it is a matter of getting them in. Making sure people understand how good an employer we are, or can be, is the big message for us.

Ms BRODTMANN: From memory there is quite an attrition rate after that first baby.

Major Gen. Fogarty : That is not the case now. It certainly was. Five years ago, the biggest growth in the Australian Labor market was women returning to work after family breaks, and we were failing terribly in that regard. You are right, we would attract women to the organisation and at the age of about 28 they would leave and not come back. That is no longer the case—they are coming back and that is a direct result of the action plan and the policy adjustments that have occurred

Ms BRODTMANN: So what proportion are coming back?

Major Gen. Fogarty : I can I cannot give you the exact figure, though I can get you the figures.

Ms BRODTMANN: That would be useful.

Major Gen. Fogarty : It goes back to my point about retention rates for women. They were falling behind their male counterparts but that is no longer the case. I think in Army but certainly in one of the services if you join as a woman you are likely to stay longer than your male counterpart.

Ms BRODTMANN: So you will get us those comparative figures, and also that information on the Indigenous cadet program.

Major Gen. Fogarty : Yes.

Senator FAWCETT: Mr Gyles in his report into HMAS Success made an observation that military commanders maybe gun-shy about taking action to maintain discipline, the perception being that the pendulum has swung too far towards individual rights. Would you care to comment on that, and if that perception is correct what steps do you feel you are able to take to redress that imbalance—or is there any role the parliament needs to take in adjusting those broad policy settings?

Gen. Hurley : Just on where we are at with the Gyles part three report, we received that about a month ago. We have looked at the report from a number of perspectives. There are obviously some recommendations in there that we can move on fairly quickly. To make a response is normally the way. The question he raises about the distinction between command and management and whether the pendulum has swung too far, whether commandos are gun-shy and so forth are not questions that can be answered simply. What I am doing to respond to that is to get all my senior leadership, all the three-stars and me, to meet in the first week of April with Mr Giles to talk through—and I have discussed this with him—the genesis behind those ideas and the philosophy that he has adopted that led him to those observations and findings. As you will recognise some of his findings, as he says in the document, would run counter to what the trend has been in pushing military justice over recent years. Frankly we need to tread carefully in relation to that.

I think I would be right in saying that there is a lot of sympathy in the ADF for that observation. But we really need to understand how far we should accept that and how we will respond as a group. I cannot tell you now what that response will be, because we have yet to have that discussion. But it is a very important discussion. It is really talking about creating the discipline environment for the ADF. If you look at all the surveys of units that the Inspector-General of the ADF does, our discipline environment is very good. But the report is pointing out to us areas of confusion in our processes, entry into processes of inquiry and response and so forth, and whether that leads to uncertainty in the way commanders respond to things. There will be some truth in that and there will be some conjecture. We need to work our way through that. I do not have a ready answer, other than his report poses a very big question for us, as the senior leadership, to work our way through.

Senator FAWCETT: I appreciate the complexity and that there is no simple answer. The point remains that it is to a large extent a cooperative development between the legislators and the leadership of the ADF. I would appreciate it if there could be some feedback via this committee. Obviously you have your own channels to the minister, but if we could get some feedback we could be across the role that this place could play in making that path forward more effective and achievable for the solution you come up with.

Gen. Hurley : Just to finish on this from our perspective, that report asks us all to sit back and reflect on the journey we have been on for the last seven years or so, and the treatment and direction that military justice has taken. It gives us an opportunity to look at that calibration and hope that we have made the right judgment calls.

Senator FAWCETT: I have two questions on recruitment and retention, particularly in specialist areas which was of some concern before the GFC hit us. We had to think about whether we could sustain recruitment in areas such as submarines, fighter pilots and pilots for things like the ARH platform. Obviously the GFC has or will come to an end. Where are we at in our trends towards recruiting and sustaining the workforce we need for those pieces of capability?

Major Gen. Fogarty : I have mentioned in other forums what our path has been in addressing and remediating what we call critical categories. At the moment we have 15 critical categories, a year ago we had 20 and 12 months before that we had 32. We have been successful at remediating these categories. They have been in the skill sets and categories that you mentioned. We have been successful because we have attacked recruitment in a number of ways. We have tried to improve our supply by being innovative. There is a range of initiatives in the recruiting organisation that has had targeted recruiting teams, specialist recruitment teams engaging with industry peak bodies like Engineering Australia et cetera. We have been investing in scholarships at year 11 and 12 level to try and attract Australia's youth to the types of subjects that are required to move in to engineering degrees. We have also focused on our training pipeline. Most of these skills require long periods of training, and we did have a high wastage rate in that training. So we have focused on either setting up mentor programs or redesigning the training to focus on a greater success rate, having won them at the front door, to make sure we actually get them through the training so that we get a return on our investment. Also, we are looking at how we can restructure the work and reduce the demand for those particular skills to that we can balance what we can actually get in the front door. And our journey over the last three years has proved that we have been successful.

We have also offered a range of financial incentives to try to anchor those we already have from not leaving. As I said before, I think we are going to move into a difficult period over the next three or four years. People leave our organisation for a variety of reasons, so we need to have a very broad suite of initiatives that can motivate people to stay. Pathway to Change and the culture of the organisation is a very, very important anchor that keeps people in our organisation. They come to us for a variety of reasons, but generally they stay because they love being part of the organisation and they love the quality of their immediate leadership.

We are increasingly looking at how we can differentiate the offer, to use that language. So we have a range of tangible and intangible components of our value proposition to our membership—everything from remuneration right through to the quality of the leadership they will be subjected to. We think the way to target these particular skill sets into the future, for which we know we are going to struggle, is to try to differentiate that offer—to be able to ramp components of it up and down to motivate individuals to stay with us or to attract people to those particular trades.

That is just work we have started in the last six months. It is really just a concept, but we are seeing how we can make it tangible and bring it back in to Defence's committees with some examples. And it will not just be about giving bonuses. It will involve changing a range of different policy approaches and understanding exactly what it is that those particular segments of our workforce value most in the Defence employment offer and then adjusting it to try to motivate them to stay with us for longer.

Senator FAWCETT: An inquiry into Defence procurement at the moment is highlighting that there is significant concern within industry that many of the people who work in the procurement and engineering streams have no understanding of commercial drivers and pressures. They are saying that the people they like to work with best are those who have had some time. Perhaps they have gone out into industry and then come back to Defence. Likewise, a lot of Defence people I speak to—and here I am thinking particularly of people at the supervisory level, flight commanders and flying instructors—go who go off to the airlines, the helicopter companies and the resource sector, partly because the grass is greener. But some of those end up coming back. Are you looking at a strategic engagement within industry whereby we can facilitate movement between industry and Defence in a more programmed, planned manner that benefits both us and industry as well as the individual?

Major Gen. Fogarty : The short answer is no. We have talked about this for some period of time. I can give you examples of where we have done it, where the single services have done it. But I could count the examples on one hand. In a systemic sense, no, we have not.

Senator FAWCETT: Is there a body of evidence that would indicate that it is not an effective way for us to go?

Gen. Hurley : I think it is a good point that you raise. Gerard says we have looked at this for a number of years. I recall talking about this five, six or seven years ago when I was with the development group, and engaging with industry on this. I spent some time with the US forces at the time, looking at their programs. They had engaged with industry to do these sorts of grooming programs there and come back again. My recollection is that they did not make a significant difference. That is just my recollection. I am quite attracted to the idea that we have, if not sponsored positions, a deal that is struck with industry: 'We train them, we employ them and you guarantee them a job when they finish so that they can move into that, ' or 'We bring them into your industry for a while, don't poach them and we give them back to you later on.'

The issue is in getting to that bit about not poaching them when we have skilled them. I have had conversations with industry as well, about this. I see pretty much on a monthly basis people disappearing because they are being poached. So it will take a better quality conversation than I have seen in the past, and certainly an ability to tie the trust in to make sure that when we invest and send them to industry they come back. There has to be some way of doing that. I do not think we have that; maybe we should examine it further. I have heard a lot of conversations about that.

Senator FAWCETT: There are some good benchmarks. Qantas is one. Qantas poach a large percentage of Air Force's pilots but in particular areas they have, on a regular basis, allowed them to take 12 or even 24 months. They still accrue their seniority et cetera, but they come back on full-time service to Defence for a particular project or a particular need. That is just one example of a model that I think would be worth investigating more broadly.

Gen. Hurley : To go back to that discussion about the categories of employment of the ADF, that may provide us with more opportunity to do that. Certainly, we need to continue the change in the message we send to our people in that if, for example, you go off and spend two or three years in the mining industry in north-western Australia, at the end of that time, when you may be sick of the fly-in-fly-out life and so forth, you are more than welcome back in the ADF. In the past we would have said, 'You've made your choice.' I think that message really has to change.

Senator FAWCETT: The last topic is the transition of administrative functions from military to civilian. A number of years ago this occurred and the shopfronts started appearing around Defence. I have noted a number of units that have now started to bring military people back into that mix in the workforce. I wonder if you could comment on how extensive that reintroduction of military people at the management level has been. What has driven that? Is this target of further transfer of administrative functions just at the working level? Is it at the management level? How much have you looked into the factors that have caused some of that push-back?

Major Gen. Fogarty : The transfer of administrative functions from military to civilian, purely equates to the civilianisation program under the strategic reform program, which was addressed earlier by Air Vice Marshal Smith. Again, they are not in combat related areas. You receive the number—535—over a three-year period. It is purely for cost reduction in the overhead related to the cost of a military person versus the cost of an APS member.

I think that program is different to what you are referring to, Senator, which is the practice in the past of the creation of shopfronts, where we moved military capability away from providing administrative support and reinvested it into combat, and used what was established as the Defence Support Group to provide administrative functions. That continues.

You heard Air Vice Marshal Smith mention the transfer of pay-in-purse administration from the services. There were certain training establishments in our history over the last 10 years that were administered by the Defence Support Group. The rest of our units and establishments were actually administered by people in uniform. That is all transitioning to a shared service function and will occur under the strategic reform program over the next three or four years.

There will still be some uniform people that exist in some of those functions. Let me use an Army example. Army will still have a requirement to generate resource managers. Their current way of generating that capability is through the Royal Australian Army Pay Corps, but essentially the pay corps will not be required anymore because pay will be delivered from a shared service, which will be an APS function. There will need to be some specialists in uniform embedded in that so that the Army can grow a capability for resources managers back in the unit, and also so that we can have a deployable capability to deliver pay-in-purse admin on operations. So there will be some investment of the military into those functions.

Senator FAWCETT: Finally, with this last part of the rollout of shared services, one of the discussions we have had previously is whether there were any benchmarks going back a decade or 15 years with which you can compare the efficiency of current service delivery. The answer has been no. As you roll out these further tranches of shared services, are you putting in place a recording mechanism so that you can in 12 or 24 months compare the cost and efficiency of delivering the service versus the current benchmark?

Major Gen. Fogarty : I am not in a position to answer that question.

Senator FAWCETT: I am happy to take that on notice. The Chair is giving me the evil eye.

Gen. Hurley : We will take that on notice and get back to you.

Senator FAWCETT: The context of my concern is that I look at the Western Australia government, the South Australia government and at least one government on the east coast where they have now started to collapse their shared service because they have realised it has not actually saved the money they hoped it would. If we are not measuring ourselves effectively then how can we make that assessment?

Gen. Hurley : I understand.

Air Vice Marshal Smith : Under the shared services enhancements that were announced by the minister on 6 May last year, each of the functional specialists or, as we refer to them, the domain specialists—the Chief Financial Officer, the Deputy Secretary of People Strategies and Policy and CIOG, to name the three main ones—will have a discrete program that measures a baseline of the service delivery at this stage. Underpinning that there needs to be a discussion with the customers of that shared service, and we will get their requirement clearly identified. As part of that you will have the financial guidance agreed—in other words, addressing the affordability of the services—you will have the linkage to the capability of support clearly understood and you will have metrics to get agreement that the service is being delivered against the agreed statements.

CHAIR: Ms Brodtmann had a question on notice.

Ms BRODTMANN: It was more a comment on industry engagement with DMO. I understand there is a range of programs—I have just been having a look in the DMO annual report—in which industry people are learning about DMO and DMO people are learning about industry and engagement. That may be something for the DMO this afternoon with Warren King.

Gen. Hurley : They can talk about that.

Proceedings suspended from 11 : 13 to 11 : 21

CHAIR: I now formally reopen the hearing after the suspension. This part deals with reviews into the Defence culture.

Dr JENSEN: I would like to talk first about the review of the Defence accountability framework by Black. I want to go back in history somewhat. This is going back quite a way. General Hurley, you had communication from Peter Goon of Australian Flight Test Services in 2005, when he said that within defence and industry the department is 'diligently working to kill off the F111 capability' and you replied to him saying that he would be taken off the distribution list and that 'your comments offend both my personal and professional integrity'. In effect, that killing-off of the F111 is exactly what happened. But, moving on a year, you asked Mr Goon for advice on what should be done to fix what ails Defence and he spoke to you for quite a while, I believe. What I would ask is how, given chart A7 in Review of the Defence Accountability Framework, how that differs from advice that Mr Goon of Australian Flight Test Services and also, for instance, Defence Teaming Centre Inc. and so on gave you and also gave to the then secretary of defence, Dr Allan Hawke, back in 2000 and 2002. How is there any difference between what is in the Black review and the advice that was given then? Why wasn't this advice taken earlier on?

Gen. Hurley : That is a huge question to answer.

CHAIR: I remind members this is dealing with a review of the Defence culture. There has been a paper circulated in respect of that, so I ask people to stick to that program, thanks.

Gen. Hurley : Chair, I do not think I can answer that in this format. That is history over 10 years. Dr Jensen, you are asking me to do an analysis of systems that were in place for which I had no responsibility in 2001 or 2002 as to a study that has come in in 2011. If I take advice from anyone that does not mean I have to apply it. I might be interested in their point of view as to why. I am not beholden, because I speak to anybody, that I will actually implement their advice.

Dr JENSEN: But, General, is it correct that you sought out his advice at the time—

Gen. Hurley : I am one of the few people, Dr Jensen, who have actually gone down to visit him in Adelaide and had a discussion with him. I asked him about his views. I speak to lots of people about views of the ADF. I get them unwarranted and uncalled for every day. So I think you are drawing a long bow, that I have somehow ignored him or whatever. All I would say is that I had a conversation with him, I was in communication with him and I heard what he had to say. I do not know, frankly, if I borrowed bits and pieces of what he was saying or not and put those into play. This is a long journey that you are talking about. I think the first point of your question, that somehow I killed off the F111—

Dr JENSEN: No, I am not saying you personally—

Gen. Hurley : No, but you made a comment—

Dr JENSEN: I am saying in effect that Defence did.

Gen. Hurley : You made a comment that he had a discussion with me about killing off the F111 and after the discussion the F111 died.

Dr JENSEN: No. I am saying that he sent an email to you, Senator Fawcett, me and some others saying that he had advice from within industry and Defence that Defence's plan was to kill the F111 to ensure that there was only one solution—and that solution was the one that—

Gen. Hurley : Chair, that is an opinion.

Dr JENSEN: But your—

CHAIR: Order! I am going to rule that question out of order. Once again, unless there are some questions that are relative to this area, which is a review of the Defence culture, I will move to the next person to raise some questions in this area.

Dr JENSEN: Okay. I have a couple of other things. You have in your Defence statement—Pathway to Change: Evolving Defence Culture—this:

We are trusted to defend, proven to deliver, respectful always

How are those statements to be measured? Do you have definitions of what is meant by, for instance, 'trusted to defend' and 'proven to deliver' and 'respectful'?

Gen. Hurley : I think we could go down to minutiae about what every word means and if you can measure it. But there have got to be certain levels of statement of intent that are aspirational or inspire our people about how we want them to behave.

Dr JENSEN: In other words, motherhood statements.

Gen. Hurley : No, they are not motherhood ones, so it is so, if I go out to see people, I can say, 'Look, we need to be an organisation that people can depend upon.' So how do I measure that over a year—that we did not make one mistake and that every Australian was perfectly satisfied with what we did, or 90 per cent of them were?

Dr JENSEN: I am not suggesting that at all. I am suggesting that it has got to be measurable.

Gen. Hurley : There has got to be a framework. There is a statement that sits at the top and says what type of organisation we want to be and this is what we want to be recognised for. Okay, let us go down below that and say, 'Okay, how do you build that organisation?' That is when you get the six levers, the reports with the recommendations that we follow through to build it up so that that will be where the reporting mechanism is. If I can say that the organisation is a dependable organisation and it needs to be dependable, I can have that conversation with my people. I do not need to be able to measure that process.

Dr JENSEN: I am not trying to be clever here. This is a small example of it, but there seems to be resistance to being held to account in—

Gen. Hurley : I think that is wrong, frankly. I think that is fundamentally wrong. The secretary and I have signed this thing and said we have made a commitment to it. I am actually offended, Chair, that that should be said in this committee room.

Mr D Lewis : Chair, if I may make a comment—

CHAIR: Over to you, Mr Lewis.

Mr D Lewis : I was about to say that I am the co-signatory of that document. It is the product of what has been some extraordinarily hard and some very testing work, work that has been accompanied by anguish on the part of both the leadership and many, many members of the department. The matters that have led us to the production of that document are very serious matters. Sometimes they have been very sad matters. To regard it as a motherhood statement, I find objectionable.

CHAIR: I agree. Before we go any further, I should have commenced this part of the hearing with respect to hearing from you with regard to the reviews that are meant to be discussed and questions raised of you and the culture of the Defence Force. Would either of you like to make a statement in terms of the outcomes of those reviews.

Gen. Hurley : I would like to make one statement to draw the committee's attention to figure 3 on page 7: leadership and accountability—Defence Lead: CDF and secretary. We cannot say any plainer who is accountable for the outcome of this program.

Dr JENSEN: On the DLA Piper review, a concern that I have is that DLA Piper is tied in very closely with Defence and particularly Defence legal and yet it is supposed to be an independent review. One of my concerns is that there are cases—and I phoned DLA Piper and registered that I was aware of abuses. I was never contacted again. I am aware of other people that have put in complaints where they were dealt with quite rudely, quite frankly. I know that is DLA Piper and not Defence.

My concern is that there seems to have been no clear guidance on what constituted an abuse, what was in or what was out of scope. People have been told, 'Your complaint's out of scope' and other people have had complaints that have been accepted where, fundamentally, at their basis the issues are the same. Could you define precisely what was meant by abuses; and what would have been in and out of scope? Because I am very concerned that this seems to be something where a decision has been taken on an individual basis without an actual framework and based on personalities.

Mr D Lewis : I will take this. The report is something that is at least in part with me, not in its entirety, but I have one part of it. It is not with the Chief of the Defence Force. I will also ask Mr Cunliffe to make some addition comments in a moment. When, as I recall—and it was prior to my coming back into the department—the public notices were made with regard to people bringing their issues to the DLA Piper review, there were some definitional measures put in place about what constituted abuse and what in fact people could, should or may ring up and make representation about.

Quite obviously, the triaging of that into those things that were in scope or out of scope would be, as you correctly point out, a matter for the DLA Piper review team. It is not something over which the department has had any control.

Dr JENSEN: The department did commission it.

Mr D Lewis : No, I am sorry: the department was not taking the submissions; they were coming into the DLA Piper team.

Dr JENSEN: Yes, that is correct.

Mr D Lewis : The department has not seen most of these cases. I have not in my possession the detail of the cases.

Dr JENSEN: I am saying that the department did commission DLA Piper the conduct the review.

Mr D Lewis : Yes. I do not deny that but what I am saying is that I have no idea of the detail of which cases may have been in scope or out of scope. I know that some were out of scope, and the reasons for that, I assumed, had been on the basis of timing. It might have been the nature of it. It may have been individuals withdrew their complaint or did not wish to pursue it further. I really cannot comment.

Dr JENSEN: In certain cases that I am aware of, most of that certainly was not the case. They did not review it. It was made within time. No reason was given why it was out of scope. They actually asked: why is it out of scope? Quite frankly, DLA Piper was quite rude about it in certain cases and they just said, 'It's out of scope.'

Mr D Lewis : I cannot answer your question, Dr Jensen.

Dr JENSEN: I would appreciate it if you took that on notice and got onto DLA Piper.

Mr D Lewis : It is not something that I can answer; it is not an area of responsibility that I hold. The review was done by a contracted law firm. The way in which that law firm went about its business is something that I cannot comment to you about now. I am not in possession of the report in its complete form.

Dr JENSEN: No, but the point is that Defence did commission DLA Piper to conduct the review.

Mr D Lewis : That is correct.

Dr JENSEN: So I am assuming that Defence would have given DLA Piper guidelines in terms of what, in Defence's view, constituted abuse.

Mr D Lewis : I might get Mr Cunliffe to speak to this to see if we can give you a little more detail. Just to reinforce, I am not in a position—and I am not being unhelpful—

Dr JENSEN: I am aware that you were not the secretary when this was commissioned.

Mr D Lewis : No, even if Dr Watts were still sitting in the chair here, he would not be in a position to answer your question, because we are not in receipt of the complete report.

Mr Cunliffe : First, if I can start with some general comments, then I might come back to the specifics. I think you are aware that there are terms of reference which are available and those terms of reference were the basis on which I understand the consideration by the review team proceeded. They are available publicly. They were settled in conjunction with the minister's office. The guidance was guidance to reflect the minister's perspective because, although the work was commissioned literally through the department on behalf of the former secretary, it was directly related to the minister's direction. So the work comes from that source. I assume you have looked at them, but for those who may not have, those are still available, certainly probably most easily through the DLA Piper site. In fact I went to it this morning. I am happy to hand up a copy if that would be of assistance to the committee. They are publicly available and continue to be publicly available as we speak.

If I can start from that—and I will not read the terms of reference, but I will, I suppose, relate to the opening paragraph, that the minister announced that the external firm would be engaged to review the allegations of sexual or other forms of abuse that have been drawn to the attention of the minister's office. That was the initial characterisation. From that it was necessary to move to other matters. But bearing in mind the origins of the plan, it was certainly the forms of sexual abuse, harassment and intimidation that derived from that context, I imagine. That is how DLA Piper has approached its work.

I would make two comments. First, I cannot—and nobody in Defence can—answer your question about what has been included, because we do not know what has been included. The matters came within a range of categories. In some cases they were matters which had been drawn to our attention or to the minister's attention. All of those matters that we had on hand or that became available to us progressively we passed to the DLA Piper review structure and they either took it further or did not, depending on what view they took of it. Equally, in response to the public notices and the provision of a 1800 number, there were a range of direct approaches.

I know—on the basis of advice, not on the basis of having seen them—that a number of complainants or a number of those who raised their concerns were quite explicit that they did not want the information passed to Defence, for whatever reason. So, clearly, we have no useful advice at all in terms of what the content of the great bulk of matters was that were included. We do have some role. I have mentioned this previously in another committee in the Senate estimates context, that there was a process for reviewing those matters which the DLA Piper team found out of scope. Only that category—the category where the initial view was, 'These do not come within our role'—were then provided to us, to our general counsel and to the Ombudsman's office, and if either of us said, 'We think they are,' they were looked at again. There were certainly a number of matters where I know that happened from our work. It may well be that there were others that happened from the Ombudsman's work. So, if I can put it on the record, because I think it is quite an important point, in relation to the great bulk of the numbers the minister has mentioned—the in excess of 770—we cannot know and we do not know with certainty what matters they are.

Dr JENSEN: My concern is that one person whose company was blacklisted has been defined as being 'in scope' and another person whose company was blacklisted was defined as being 'out of scope'. Another concern I have is that I registered as being aware of—yet, quite frankly, DLA Piper had no further contact with me. If they do not even have contact with a member of parliament to find out what abuses they are aware of, you have to wonder how diligent they have been outside of that process.

Mr Cunliffe : Can I just verify that this is the contact you had with them on 17 June last year.

Dr JENSEN: Correct.

Mr Cunliffe : I have a copy of an email in reply to your approach, which is dated Monday, 27 June. It was addressed to you. I have also a copy, if you seek to review it—because this issue has been raised previously at the request of the minister's office we have pursued it—

CHAIR: Can I get some clarity around the email you have there. Is the email from the law firm Piper?

Mr Cunliffe : From Dr Rumble of the law firm.

CHAIR: To Dr Jensen's office?

Mr Cunliffe : To

CHAIR: I am mindful of the time. I and other members also have questions in this area to take us through to midday.

Gen. Hurley : Chair, I do not think we can leave standing on the record that the Department of Defence blacklists companies. I do not think that is a statement that really should resonate with any of us.

CHAIR: I certainly do not think that is the case, either.

Mr Cunliffe : If I could make one parting comment, I mentioned that when this matter was raised in August last year we took some action. I also have an email that I sent to Dr Jensen on Friday, 12 August drawing his attention to the previous advice and seeking to respond to his concerns at that stage.

CHAIR: We might have you table a copy of that email.

Mr Cunliffe : Certainly.

CHAIR: Just before I go to Mr Robert, I wanted some feedback on the alcohol management strategy that the Defence Force is dealing with. Would you summarise the evidence that was provided in part in making that review occur?

Air Marshal Binskin : The strategy will be based on an evidence based review. I do not have the actual evidence here in front of me. I can get you a lot more detail on what we have approached so far, except to say that we had actually put it on hold because of Professor Margaret Hamilton's review. Now we have got that, we are starting to roll again with that particular strategy.

Gen. Hurley : When we initiated the program with the Australian Drug Foundation in mid- to late-2010, that evolved into focus groups talking to groups of young men and women in that age group and starting to draw some empirical evidence and statements from people to get attitudes and so forth. Once we started this review process, with the same team, they went out and spoke around the country to our people at all levels to get an understanding. I do not have the data from those conversations and how that was analysed handy, but we can certainly get that for you.

CHAIR: I would appreciate that. Could you take that on notice. Would that be in the form of a summary of each focus group?

Gen. Hurley : We would take their report and go back to Dr Hamilton.

Air Marshal Binskin : Is that what you would like?

CHAIR: Yes, please, and also some feedback in regard to the matter of the pricing of alcohol available in defence establishments.

Air Marshal Binskin : Yes.

CHAIR: Would you be able to comment on what is happening in that area?

Air Marshal Binskin : In some messes on various bases, the actual price of alcohol is not reduced, but it is a reduced cost because the actual cost of the service—no staff and all that to serve it—and the facilities, all those overheads, are reduced simply because the staff are already in the messing contracts we have. Because of that, in officers' and NCO messes, the price of alcohol is less than it would be in an airmen's or soldiers' mess and it is less than it would be outside in the community. As a part of this review, we are looking at the pricing of alcohol, but also as a part of the shared services review. SRP were looking at the price of alcohol and looking at what would normally be referred to as full cost recovery for that. So it will not be subsidised per se in the future. But we are currently looking at how we do that.

CHAIR: Is the price also a consideration in looking at the volume of consumption? Is that part of it?

Air Marshal Binskin : Yes, we are looking at that. This is where you come to the debate of how much you would control and how you can control. We are talking about adults and we are talking about people that we send to war, trust to fight, trust to win and trust to be successful in operations. So we have to roll that back as we trust them to operate within the community norms as well.

That being said, our bases are a bit of a mix. We do have accommodation and recreational areas on bases, but we also have workplaces on bases, so, when we have the unit barbecue, for example, which is down round the workplace, we have to look at: do we have low-alcohol beer and beverages for those sorts of social functions? Does that translate across to the normal accommodation and recreational areas as well?

The other interesting thing is that, on a ship, where you work is actually where you rest as well, so how do you handle that? A ship is a workplace day in and day out, but it is also where people go to relax.

So, rather than just say this is simple and just cut it all to low-alcohol beer or cut the availability of it, it is broader, because when you look at the defence context it goes right across from a workplace right back through to accommodation and recreational areas.

Gen. Hurley : In table A2, in the Pathway to change document, it does talk about data collection and audit and reporting systems to be put in place. We get data about alcohol sales per establishment, per capita calculations and so forth, so we get better data available to make decisions about areas of high alcohol consumption, periods where alcohol consumption might be higher and so forth, so that is certainly part and parcel of the process.

CHAIR: I have one last question before I move on. Four of us here in the committee in front of you were privileged to go to Afghanistan last year. Before our departure, the program of—if I can use the term—integration back into society when the ADF personnel come back to Australia was spoken about. Could you update us about where that program might be at?

Air Marshal Binskin : The program is evolving. Last year we ran a trial in theatre on the base at Minhad. That comes with some difficulties because you are actually trying to run this in a workplace where there are a lot of other people who are not reintegrating and looking to come home. Also, there are cultural sensitivities in running a program like that with alcohol in the country that it is in. So we are looking at a far broader approach at the moment where we do look to run the program but we run the program at home, where we bring the families into this integration or reintegration as well. For formed bodies that makes a lot of sense and is easy to do, but, for those personnel who are attached to some of those formed bodies when they come back, that makes it a little bit more difficult. We are working that as well. But we do have a structured program. I will get you more details on where we are going with that.

Ms BRODTMANN: My first question is about the website that caused so much offence just recently—and particular offence to me, as you know. I am just wondering where that is at. Has that been shut down? Are you in a position to shut it down? Also, what is actually happening, as far as you can tell us, in terms of responses to those offensive remarks?

Lt Gen. Morrison : I will take the lead on this, as I have had dealings with the administrators of the website and we have been investigating Army involvement in it. The website itself is called RAR Buddies. It is a website that is populated largely by men who have served in the Royal Australian Regiment or who are currently serving in the Royal Australian Regiment, an infantry organisation within the Army. The purpose of the website was both social and charitable. It had about 1,300 members. It was set up as a place to exchange information and raise money, and indeed they have raised $20,000 for Legacy. A very small group, during the course of last year, began to make use of the website in an inappropriate way, but because the website was closed—that is, you had to have a password to get into it—the Defence Force and certainly Army remained completely oblivious to the details that were being posted and the corruption of the site. We became aware of the type of material that was being posted only at the beginning of this year. We then, through an Army member who identified himself as a member of the RAR Buddies group, got access to start to see what the material was.

I am on public record, as you probably know, expressing both my concern and my disgust at what material had been put on there by a small group of people. At this stage we think there are no more than about 30 in a total population of over 1,300, and we have only been able to identify one serving Army member as a contributor to that inappropriate material. The remainder were former service personnel. I have undertaken to deal with that individual. I have to, of course, ascertain their involvement, and that individual is currently not as easy to interview—I will not go into the reasons why; I am happy to talk about it privately. But I want to establish whether that individual was who we think he was and that he has done it. If he has, I am intending to take administrative action against him. As soon as I have ascertained that there is only one serving Army member, I will make the details—less his name—available to those who have expressed an interest in the site.

That does not stop the need for us to be deeply conscious of our responsibilities in whatever way we express an opinion when we are in uniform or in the service of the country. Not only have I written to all the members of the RAR Buddies website, whether they were serving or not, to express my concern about what occurred but I have also sent out to all of the members of the Army the need to stress again the fact that we are all individually accountable for our actions.

Ms BRODTMANN: I have just been looking at the social media elements of this. You can take this question on notice. I just want to get a sense of what you are doing in terms of the treatment of ADFA women in response to this. I will just put that on notice.

Gen. Hurley : The treatment of ADFA women?

Ms BRODTMANN: You can take this on notice. It is just about what, in response to all these reviews, you are doing in terms of the treatment of women at ADFA. You mentioned it before in your opening address.

Gen. Hurley : Okay, we will do that.

Ms BRODTMANN: This one is a bit left field. I know that with your Reconciliation Action Plan and your Indigenous program you were looking at incorporating welcome to country into all the speeches that you make at bases and elsewhere. I just wondered whether that had actually happened.

Gen. Hurley : Not in an official sense yet, no.

Ms BRODTMANN: Are there plans for that?

Gen. Hurley : There certainly will be now, if there are not!

Mr ROBERT: CDF, in your first week of taking over command you spoke at the ASPI dinner, where you made the astute point that, in terms of the various reviews you were facing, you could not just turn red traffic lights to green and be done with it. So you said that you would tackle the challenges you have as a whole unit, which you have subsequently done in your Pathway to change. You and your organisation should be commended for that. I think it is a solid path forward and it is to the organisation's credit.

The first question is: when do we sit back and say, 'Let's review what you've done.' You have put in a great deal of work. You have a pathway forward. You should now have the freedom to implement that. At what stage do we actually say: 'Let's review it. Let's have a look at it. How have we gone? How is the direction going? Is that in a year or two years?

Gen. Hurley : I think if we come back to the committee in 12 months time, we will be happy to discuss how we have progressed.

Mr ROBERT: Great: 12 months. Major General Fogarty, you might want to join the table. The DSCA study into the relevant biometrics, fitness levels and standards and so on for the incorporation of all people—men and women—is ostensibly in the area of combat arms but it is also across all areas of employment in the military. When is that study being given to the military and to the government?

Major Gen. Fogarty : The physical employment standards study is one that we have been participating in for a long period of time. Originally it was focused on rehabilitation to identify exactly what physical standards we needed to give to medical practitioners so that we could rehabilitate injured personnel.

Mr ROBERT: I hate to interrupt, General; I know what it is. When is it going to be delivered?

Major Gen. Fogarty : There was a change in the focus so that we could get the combat related trades done. That has been completed. And now we are progressing into some of the other trades. That will extend over the next three years.

Mr ROBERT: So the combat trades have been completed and handed to Army?

Major Gen. Fogarty : Components of it. There are still matters related to testing. The study itself produced a body of work and then we had to go and identify a range of testing and we are continuing to trial that over the next 12 months.

Mr ROBERT: So is it reasonable to say that government will not have the final or completed piece which says: 'Here is what it looks like; here is how we have tested it; therefore, we are happy with it' for 12 months?

Gen. Hurley : I would approach it the other way and say that we have developed an implementation plan to move from our current policy position of opening all combat categories, employment categories, to women. We have a five-year implementation plan which takes account of the outcomes of this report over the next 12 months to gear up our recruitment schools and the way we do our courses. As you would appreciate, when you look at your course design and so forth, a response to that takes a bit of time. We have the data, as General Fogarty said, and we need to do some further testing on it, but that is part of the implementation plan to get to the end point.

Mr ROBERT: My next question was in terms of the implementation plan. You are cognisant of that and you have said that that is the case. If I can put a question to General Morrison about Army: I am cognisant of Pathway to change and the direction Army is taking. Does this have any impact on where you are going in terms of SUAKIN and Beersheba?

Lt Gen. Morrison : Is this in relation to cultural change generally or to the employment of women? If I could be clearer on that?

Mr ROBERT: Take it as a whole but especially refer to the employment of women. The chief just said that there is an implementation plan coming to government—which is great. What impact is that having on where you are going with Beersheba?

Lt Gen. Morrison : I can honestly say that it is only going to have a beneficial impact. Beersheba is about trying to be a more efficient and more effective force. The message that I have spoken continually about in Army is that a diverse and culturally rich workforce is in fact a capability enhancer. I have to say that my interaction with the soldiers of the Army over the last two months has seen very positive feedback in that regard. I do not sense at all any resistance to the types of changes that are actually caught up in the Pathway to change. It has great support at the grassroots level, and that is a terrific thing for all of us.

In terms of Beersheba and SUAKIN, making the Reserve an even more vital and essential component of a total army force is the objective. The cultural reviews and the objectives that are set within them are, I think, not just complementary but intrinsic to where we want to go with both of those of projects.

Mr ROBERT: Excellent.

CHAIR: It being midday, I formally adjourn proceedings until 12.30. We shall commence on operations.

Proceedings suspended from 12:00 to 12:32

CHAIR: I formally recommence hearings in today's Defence Subcommittee review of the Defence Annual Report 2010-11.

Mr Lewis : Chair, I might just follow-up on an issue. Right at the beginning of proceedings we asked if there were any matters that you or the committee members were contemplating discussing towards the end of proceedings so that we could have the right kind of team here. The CDF and I had planned on departing at one o'clock. CDF may need to stay longer if you are going to go through the operational issue, but if it is possible to finish by then that would be great for the two of us.

CHAIR: I do not have any issue with finishing at one o'clock for operations. And as no-one has approached me in respect to any outstanding matters for the further topics, we will be finishing at 15.45. Dr Jensen has a statement to make.

Dr JENSEN: I made an incorrect statement about contact with DLA Piper. I had said that they had not contacted me subsequent to my submission to them. I was incorrect. In fact, DLA Piper and Defence Legal had responded to me. So I would like to put that on record.

CHAIR: Considering that you have made some opening comments on matters concerning Afghanistan, East Timor and, I think ,the Solomons, do you have any subsequent statement to make?

Gen. Hurley : I am happy to take questions.

CHAIR: I will start with one and then I will go to other members of the committee. I recall when we were in Afghanistan last year that there were some discussions about the possibility of increased outcomes with IEDs—that is, the possibility of greater explosions as a result of their techniques. Can you explain any concerns in that area?

Gen. Hurley : I could make some comments about that; but, frankly, the implications of that are important to us in terms of our force protection system. I am happy to have a private conversation about what we see occurring but I would not want to explore that in public.

CHAIR: Sure.

Dr JENSEN: I was very pleased with progress that was being made when we went to Afghanistan and saw the situation on the ground. In your view, is that progress being maintained? Certainly from your initial statement, General Hurley, it appears that it has in terms of the mentoring task force and the Afghan National Army and the Afghan National Police being able to conduct operations independently. Is that correct? How close are some of those units to being fully capable in an independent manner, without mentoring?

Gen. Hurley : Under the ISAF performance management framework, for want of another term, within Oruzgan province, the 4th brigade of the ANA is classified as a whole as 'effective with advisers'. What does that mean? The initial model was partnering the ANA, so if they had a company you would have roughly a company. We never got to that level, but the ratios were quite high.

'Effective with advisers' means that they are capable of undertaking operations—conceiving operations, planning operations and executing them—by themselves, but we will plug into certain parts of that process, help lead them through the planning process but not necessarily do it for them. The key to that is that they are now, under the better utilisation of the intelligence and so forth, initiating plans to go into particular areas and determining what needs to be done in each of those areas by themselves. We then support them and make sure that the enablers are available to support them in the operation and so forth.

We are seeing good progress there. Three of the Kandaks—the infantry battalions—are capable of that level. One of them is pretty much capable of doing independent operations in its own space, and certainly within Oruzgan province the brigade commander now has very clear ideas about how he is distributing his forces, the frequency of operations and so forth. All those are good positive signs.

We still have one Kandak which was formed later than the others and which needs to be brought along—that is the 6th Kandak. Then with two of the Kandaks, the combat support Kandak has the engineer capability and the artillery capability and that artillery capability has now been declared able to operate by itself, which is good. Engineers which do route clearance for the infantry Kandaks are still developing the skill set, so they need mentoring and advising. And the combat service support, which is logistics support, resupply and so forth, still needs, I think, some fairly good hands-on stuff from us to help them along, but they are developing.

I think they are positive signs. Within Oruzgan province last year—and I think overall if you look at the ISAF summation of the year—the Taliban at the start of the year declared Operation Al Badr, in which they declared a number of objectives that they intended to achieve at the operational level during the year. None of those operational objectives were achieved.

So at the operational and tactical level there has been a good two years of hard work put in by ISAF and the Afghan forces. You see the strategic implications of all this, though, playing out now. The reconciliation processes, the thinking through about transition and what the state of the ANSF and the coalition force will be in 2014 are all playing themselves out as a consequence of that work.

Dr JENSEN: One of the things that I found very promising when I was there and that I would like to get an update on what the situation is, is that, in my view, the assessment of the Afghan people seemed to be that we were winning, in effect. This was particularly with regard to when you looked at the fact that the Afghan people were reporting insurgents, reporting arms caches and reporting IED caches and so on. Is that continuing at the level it was 12 months ago, or has it increased, hopefully?

General Hurley : What I think we have seen there, as we have been able to put more competent ANSF forces in the field, is that they obviously interact with their own people and so people will come forward probably more frequently than they would with us. So that continues. If the Koran burning incident had not occurred, I would say right now the trajectory would have continued. We do not know the full consequences of that yet, but with the impact of that resounding around the country the dust is still settling and we need to be cautious. In Oruzgan we have good working relationships with the majority of the population. There are pockets that we will never win over in terms of who we are and so forth, but those relationships are maintained. The Taliban, for example, will use the Koran burning to influence people and change views. That will happen in patches, I would think. That is what we really need to see. But I think our working relationships on the whole are positive.

Mr ROBERT: General, I will ask some strategic questions and then one completely 'in the weeds' question out of complete self-interest. In the last 18 months we have seen a significant change in the media embedding with the military really opening up its forces to allow journalists and cameraman in, which I think is outstanding. How is that going, from your point of view? Is it adding benefit? My hope is that it would actually present the heroes of our Defence Force to our nation, which I was critical that we were not doing in previous years.

General Hurley : I think it has been a positive program. We are getting to understand each other better—that would be one way of putting it. The journalists have a job to do and each of them goes in with a perspective that they will either be looking to reinforce or perhaps see things differently. On the whole, it has to be positive because it does get a message out and help an informed debate, if nothing else, about what is happening in Afghanistan.

Mr ROBERT: Is it your intent to continue that level of embedding?

General Hurley : Yes, we have a program for the next 12 months. Journalists have been identified—who goes in what month and all that sort of thing. That is laid out.

Mr ROBERT: What is the level of retention of the ANA kandaks after their initial engagement of contract is up? Is that improving?

General Hurley : I think retention is still an issue. I do not have the exact figure; I will get that for you. It is a problem because of the construct of the ANA at the present time. There are many factors, as we were discussing, as there are in the ADF. As we improve conditions they get more equipment and more confidence in their ability to do jobs and you see a turnaround in attitudes. We are building a barracks for them and so forth. They have been living in fairly difficult conditions at times. I think those things will pay a benefit, but the ANA is a very young organisation. It is an army that is four years old, so it lacks the depth of leadership at the senior NCO and warrant officer levels and competent junior officers on the whole. It has some very good people, but uniformly it needs to improve. So I think the retention rate will continue to be an issue until some of those cultural issues in the ANA itself are addressed and it gets more confidence in its ability.

Mr ROBERT: What impact is the community engagement in development having—for example, sealing the road to the Chora valley?

General Hurley : That has been a good success. When the villagers come in and say, 'This is great; we can travel from Chora to TK to the markets or go to the hospital,' that shows a significant improvement for them. It lessens the risk of IEDs and so forth against civilians travelling because it is a bit harder to do it, but the enemy are not stupid and there are certain ways you can get into that road. But on the whole it has been quite a positive venture.

Mr ROBERT: The minister in his last ministerial statement, which I responded to, indicated that an interrogation capability was being put into Tarin Kowt. As a former interrogator, I am asking how it is going?

Gen. Hurley : It has been implemented. It has been going for about a month now. It has been very carefully constructed and supported. There is now recording of interviews and CCTV usage and so forth. It is watched minute by minute. We were very careful about this process. Already, it has produced some good results in terms of identification of personnel who are of interest—and have been moved on to Parwan—and whom we may not have picked up under the previous arrangements.

Senator FAWCETT: Post-2014, assuming that is the date where we see a draw-down, what is your impression of the viability of ongoing AusAID programs?

Gen. Hurley : The government is obviously still in consideration of what the post-December-2014 whole-of-government effort will be in Afghanistan. There is no doubt we will continue with a major aid program to Afghanistan, because that is fundamental to the three dimensions: security, governance and development. The mechanisms by which that will be delivered are under discussion at the present time. So, as we are looking at the transition path to December 2014, obviously the security force will be changing. Its task is changing. Then there is the draw-down of the PRTs, the provisional reconstruction teams, and the transition of responsibility for programs to the Afghan government. But in that you would need to have some oversight and assistance still being maintained. I cannot speak for AusAID in terms of exactly how it will be delivered, but they are certainly working with us on their transition period and then looking at how you might, for example, deliver a nationally focused program out into Afghanistan.

Senator FAWCETT: With the CH-47D that was lost in Afghanistan, has a report been released into the cause of that? If you are able to discuss it.

Gen. Hurley : The accident investigation has been conducted. That is now part of the broader inquiry process. That inquiry is running towards completion now. So it is not too far away from release.

Air Marshal Binskin : I do not have the exact date—

Gen. Hurley : Completion is very close.

Senator FAWCETT: Could I ask that the committee receives a briefing on the outcome of that when it is available.

Air Marshal Binskin : Yes.

Senator FAWCETT: Regarding the maintenance work for the Chinooks, 12 months ago they were under considerable strain, in terms of the operational tempo of the number of times they have been deployed. Where does that currently sit?

Gen. Hurley : We changed our maintenance approach to the CH-47s, the Chinooks, over this winter period. In the past we have been bringing them back home and doing the maintenance here and then sending them back again, in the January-February period. We decided—and I think it has been very successful and a good decision—to leave them in-country and do the deep-level maintenance onsite, which meant that we had continuity of people with our equipment, but we could send people back home, as well. So I think we have been able to treat the workforce more effectively and reduce the cost of that whole process of maintaining the capability.

Senator FAWCETT: Has the deep-level maintenance ever been done by contractors, or has it been done by uniformed personnel?

Gen. Hurley : Primarily contractors.

Senator FAWCETT: Regarding the Chinooks, have you been able to maintain the raised training function here in Australia given the commitment we have had over there, or is that still under some stress?

Gen. Hurley : I could answer a degree of that on behalf of the Chief of Army. Having a small fleet, six birds, has always been an issue. Growing that to seven with the purchase of two, after the accident, will help alleviate that. But that is not something that will happen overnight. It is still fair to say that keeping crews adequately prepared and so forth and maintaining two birds in Afghanistan out of a fleet of six is a challenge.

Senator FAWCETT: The last question goes to Pakistan Assist II. I am aware that it is some time since they rolled up. That was in the reporting period of this report. Again, I am conscious that you may not want to go to what I am asking in public. Our success in Afghanistan has been linked by many commentators to the attitude and actions of both authorities and those operating perhaps on the verge of authority in Pakistan. Given the experience of Pakistan Assist II, is it of value for the Australian government to seek further engagement with the Pakistan military, to work with them to try and shape that environment, or is that something that we predominately just work on—protecting the force and being in Afghanistan?

Gen. Hurley : We have a good mil-to-mil relationship with the Pakistan armed forces. I was over there last November for a 1.5 track dialogue track dialogue with my counterparts, General Wynne and General Kearney, the other service chiefs and senior leadership in the Pakistan military, looking at regional issues, obviously, and the quality of the relationship. Australia is the second-largest provider of individual training to the Pakistan military. We offer about 140 positions a year across all ranks and in all types of courses. They take up about half or more of that. That is not because of a lack of willingness, but English language is often the drawback. It is very strong in that sense. They like working with Australians. They see that we are good in the field. They like a professional ethic and our professional standards and they like to interact at that level. We do senior officer visits quite frequently into Pakistan. I have presented at the National Defense University, for example, and so forth. We will certainly work to keep that level of interaction up into the future. On the theme of ping-pong diplomacy, I am working at the moment on a three-way or a four-way cricket competition, with limited overs, between Pak mil, ADF and ANA—and, if I can get the Indians in, that would be good. We are just discussing where it might be—in Kabul, Islamabad, or somewhere like that. There is a willingness to have that sort of interaction. I am mindful of the strategic issues involved in the relationship. We just have to keep working on that.

Mr Lewis : On a strategic level, obviously the Australian government is very conscious of the importance of Pakistan and the relationship. It is not for me to speak of the government's position per se, but I can tell you that the aid to Pakistan has more than doubled in the last couple of years. That is on an upward trajectory. I have open and direct engagement. I had my first meeting with my opposite number, the secretary of the Department of Defense, at the end of last year. I was in Pakistan a number of times last year and the year before. My sense is that the importance is being paid due recognition. It is important for us.

Gen. Hurley : One of the values of Operation Pakistan Assist II, and the first Pakistan Assist—it is the same message that comes out of our Pacific Assist operation in Japan—is that nothing speaks louder than action in a relationship. The fact that we were prepared to put boots on the ground in Afghanistan to assist the people resonates really strongly in Pakistan.

Mr O'DOWD: I have two questions. How will the security role of the ADF in Timor be transitioned to the Timorese? Do you expect that to happen this year?

Gen. Hurley : At the moment the FFTTL, the armed forces of East Timor, are not dependent on us for their capability and so forth. They are quite capable of doing independent operations and so forth. So it is not as though we are mentoring them in that sense. They will, for example, take responsibility with the PNTL for security during the presidential and parliamentary elections. We are really a third- or fourth-tier force behind the UN police force and the national forces.

We will remain at our current strength and force structure until after the September elections, and then we will go into discussion with the government of Timor-Leste about the form of Australia's future security or defence engagement with that country. I could not really prejudge what that might look like at the moment. There are a number of options. They might just say, 'We are happy to have a smaller force stay there for a while,' or they may just want to move to a traditional defence cooperation program where we help out with training courses and those sorts of things. As I said, we will maintain what we have there until after the September elections and then have a discussion about what the future will look like.

Mr O'DOWD: This might be a weird question. I do not know whether this is right but has in the past or present layout plans of our military bases in Australia been put on a website for all to see? Would that be right?

Gen. Hurley : Do you mean the planning diagrams of the layouts?

Mr O'DOWD: The planning diagrams and the plans for the internals of those buildings et cetera.

Gen. Hurley : Not that I am aware of directly. I am sorry, but I do not know the answer to that. There was reference to an incident, I think, at another committee meeting.

Mr O'DOWD: It has been brought to my attention, so I was just—

Mr S Lewis : Can I ask you to repeat the question, please.

Mr O'DOWD: Has in the past the layout plans of all our military bases in Australia been put on a website for all to see?

Mr S Lewis : No, not all. What I should point out to you is that when capital development projects in Defence are above the Public Works Committee threshold we need to supply evidence to the PWC, and much of the PWC evidence is made public. Obviously we carefully screen that information in relation to evidence provided because we recognise that will be on publicly available websites. So there is material in relation to some bases, particularly those where we have major capital projects, that involves some information about the plans for significant construction projects run by the infrastructure division inside Defence.

Mr O'DOWD: It was a concern of some RSL clubs in my electorate.

Mr S Lewis : We are always trying to get the balance right between providing transparency and information to the Public Works Committee of the parliament on the one hand and ensuring we maintain security in relation to defence bases at the same time.

Mr O'DOWD: That is comforting, thank you.

Dr JENSEN: When we were in Afghanistan and also when we were at Holsworthy it was reported to us that there was concern about the night vision goggles that the special forces particularly were equipped with. They were concerned that they were somewhat behind current state-of-the-art technology. Has anything been done to remedy this?

Gen. Hurley : I am aware that the issue has been raised within the Army. I do not know where they are at in handling that right now, but we can certainly get back to you with information from the Chief of Army. I do not think this is so much a generational difference as that there are different systems out there, as you are well aware. I will ask the Chief of Army to give you the details on where they are at in their consideration of that.

Dr JENSEN: I would appreciate that, thank you.

CHAIR: Thank you so much for your evidence here today. It was great to see you again. If you have been asked to provide any additional material would you please forward it to the secretary. Also, you will be sent a copy of the transcript of your evidence today to which you may make corrections of grammar and fact.

Gen. Hurley : Thank you very much to the committee. I think we are on wood for a couple of reports back next year at this time, so we look forward to that.

Mr D Lewis : Thank you very much, Chair and committee members. The Chief Operating Officer is now taking my chair and the CEO of the DMO is here too.

CHAIR: We have now come to the second part of today's proceedings, starting with the witnesses from the DMO and Navy. I will repeat my formal statement. Although the subcommittee does not require you to give any evidence on oath I should advise you that these hearings are legal proceedings of the parliament and therefore have the same standing as proceedings of the respective houses. The giving false or misleading evidence is a serious matter and may be regarded as contempt of parliament. The evidence given today will be recorded by Hansard. Do you wish to provide any opening statements to the subcommittee?

Mr King : No, Chair.

Vice Adm. Griggs : No, Chair.

CHAIR: We will go to questions, starting with Dr Jensen.

Dr JENSEN: Firstly, I have a question that relates to one I asked earlier about the civilianisation of some roles that are normally carried out by military personnel. How much further are we going to go down the track of civilianising particularly the maintenance and support of assets? We are losing a significant amount of capability, in my view, in terms of the military themselves being able to do some of the maintenance and support work that is required. In addition, it means that there is a loss of skill set among the military. Also, the military has traditionally been quite a large component in training people in trades where those trades were transferable outside. If you have maintenance being undertaken on, say, the engines of a Collins class submarine where you have an outside contractor doing the work, they will normally worked nine-to-five hours. I am assuming that if you want them to work longer you have got to pay all sorts of penalty rates and so on, whereas with a person in uniform you can just tell them, 'Sorry, you're going to have to spend some more hours at it.' So the other part of my question is: how much money are we actually saving in civilianising this area compared with keeping it in house, within the military?

Mr King : Obviously Chief of Navy will speak to the Navy aspects. I am not sure that your opening premise, that we are civilianising to an extent more than in the past, is entirely correct. There were a number of reforms put in many years ago now, but if you actually go back to even the seventies and eighties, when we had naval shipyards, they were still a very heavy component of civilian workforce. They might have been a permanent government workforce, but it was not entirely manned by military folk. There were definitely naval officers and naval technicians in there.

So I am not sure that it has moved dramatically away from the mix of civilian and military staff. For example in DMO, which is a shared service to the service chiefs, 17 per cent of my workforce are military officers. Apart from obviously the professionalisation they get in the Navy doing Navy tasks and navy jobs, serving on ships, they also get, as they used to 20 or 30 years ago, experience in working in shipyards—AWD, construction sites, maintenance yards, maintenance planning—by coming through the DMO. We need to get some data but just at face value I am not sure that it is that much different.

Dr JENSEN: I am not just talking about the heavy components—I am talking about outsourcing and contracting for instance at Fleet Base West, where I have a little bit of experience. There were certainly quite a lot of outside contractors—

Mr King : That is true. I am just drawing the difference between civilianisation and military within government, and then outsourcing to contractors, which we do do. Once again, though, if you went back to the O-boats, they were heavily contractor supported originally out of Cockatoo dockyard and then in later days out of Garden Island dockyard. Maybe the Chief of Navy would want to comment on the notion that service personnel could be just used harder than contractors, because we can make contractors—

Dr JENSEN: Yes, but at a cost.

Mr King : I will leave it up to Chief of Navy, but it is also a cost to a military person in terms of their lifestyle if you are asking them to work very long and protracted hours outside their normal commitments.

Vice Adm. Griggs : I think the CEO is right in that it is not as simple as saying I can order someone to work longer. I can do that, but I still have to balance their overall fatigue levels and their quality of life, otherwise they walk and become a contractor. It really is not that simple. Part of your question was aimed at the perception of perhaps dumbing down the technical workforce in uniform. I suspect that was the underlying theme of your question. I think to a certain extent that had occurred. I think the pendulum is coming back the other way. We have just undergone two of our continuous improvement programs within Navy as part of the Strategic Reform Program—one into the submarines themselves, and one of the key planks of that program is to make more use of the fleet support units, intermediate maintenance units ashore, not just in submarines but across the whole Navy. We will see them doing more work, which in many ways is to the contractor's benefit because we start to get back some of the skills that may have been eroded slightly over the last decade or 15 years. It is still fundamentally critical for me for our technical people to be able to fix things in the middle of the ocean and keep things running. I do not want to see an erosion of those skills. I think greater use of our fleet support units, not just in submarines but across the board, is going to be an important part of that. We are moving forward with that as we speak.

Dr JENSEN: How many Collins submarines are operational at the moment? The problem with the Collins as far as I am concerned is that they are a great boat when they are working but they are awfully unreliable.

Vice Adm. Griggs : There is no doubt there are reliability issues in some key systems, and that is causing us some availability issues. My mantra is I need three running. What does 'running' mean? We can get into definitional warfare about that but, effectively, I need three in their operating cycle.

Dr JENSEN: So that if you need to deploy them in a week's time, you can?

Vice Adm. Griggs : We have set preparedness, readiness notices that we are required by government to maintain and we do that. Currently, we have two running. We will be back to three later in the year and up to four by the end of the year.

Dr JENSEN: How do you define 'running'? Is it where the boat and the crew are worked up and they will be ready to go at short notice? What exactly does it mean? How many boats do we have that are ready to go at short notice? I am obviously talking about boat and crew here versus boats where you would have to do some work with the crew and also some work on the boat itself in order to get it to go.

Vice Adm. Griggs : I would not like to give you the exact preparedness situation at the moment because of the classification of that. I am not trying to dodge the question. We can do it in camera, if necessary. We are meeting government's preparedness requirements at the moment.

Dr JENSEN: Fair enough.

Mr King : I think your observations about reliability are very valid. You are probably aware that we have a program of work to improve that. Some of that is long-term work, fixing up fundamental problems with major pieces of equipment that trace right back to the construction/design period. The good news is that, against a lot of extra funding and work, the provision base, as I have as my commitment to Navy, is to provide so-called 'material ready days'. A target is set by Chief of Navy in order for him to bring all those other matters together so he has these operationally capable boats. The trend is upwards at the moment, which is good. In 2009-10 we were up to 35 per cent of our target and, more recently, in the last three months we have been up to 80 per cent. So it is a growing. We do have a serious problem with getting Collins much more reliable and much more available for Navy. But I have seen a trend building over the last 18 months that is taking us in the right direction.

Dr JENSEN: Hopefully, we will not see any more stories where submarines performed very well in operations when they never actually got there.

Mr King : We would hope not, but this year is a difficult year because some of the major remediation work has to be done in long dockings. So you cannot do it until that cycle comes around.

Dr JENSEN: You are talking here about Henderson or—

Mr King : No. Some of the work has to be done—it is both. My point is that we have a program of work. We know the key bad players and we are seeing improving trends in the data. So that is good news. I think Chief of Navy and I would both recognise that we have a fragile capability until all that work is completed over the next few years. We very much want to be in that space so that whenever the Chief of Navy needs to do something, he can do it.

CHAIR: Could you provide some information about the status of the Collins Reform Program. Could you give some in-depth detail on it.

Mr King : We had the first part released before Christmas. Mr Coles and a team—it is not just Mr Coles; he is supported by industry and other data that we are collecting—should have the second-phase report, which is the detailed phase of the report by the end of April. We have extended the work a little because we are very fortunate to now have the support of various international navies, which are prepared to share some of their information with us. That is very sensitive information, but they are prepared to share some of their information and experience of boat availability investment costs. That will also be brought into the Coles report and the output of that should be a serious piece of work on benchmarking areas of activity to improve the levels of availability of the Collins program. So we should have phase 2, the meaty part of the report, in late April.

CHAIR: In respect of benchmarking, what sort of benchmarks are you considering with regards to meeting—

Mr King : They will be doing some work based on the design—so what should we get out of that design—but we will also be comparing it to information that is being released by Sweden, Germany, the UK and USA. So we will get not just a view about what that boat should intrinsically be able to have in terms of availability, but also how that looks as a comparator to other submarines. It is always difficult, because each submarine comes with its own design limitations or impacts and of course the way each parent navy operates it.

CHAIR: In terms of the smart sustainable program, how is that progress towards delivering those savings that have been identified likely?

Mr King : Collins is not one that is going to deliver savings. We have got two areas in the maritime area that need investment. One is Collins and one is amphibious capability and work stemming from the Rizzo report and , while we are looking to how to get long-term sustainability savings, our first step is to improve availability.

In the broader area of sustainment, the SRP has delivered savings every year. We have a very active program, totally in conjunction with the capability managers because they are ultimately responsible for delivering the capability and we had to work with them to identify ways to continue to make these savings. The program has been very successful and, given the way we are going—putting aside those two capabilities I spoke about, Collins and amphibious—I think the smart sustainment program will meet its goals.

Vice Adm. Griggs : I can just add to that, if I may. While we might not get dollar savings in the submarine area, it is not to say that there is not going to be considerable reform in that area. The new contract, for example, is one element of it. The Navy submarine continuous improvement program, which I alluded to earlier, is another feature including more use of our fleet support units and adopting a more condition based maintenance approach. These are areas of significant reform in the way we do the maintenance. But we are up against an increasing cost base, so if we did not do these reforms the costs would go up considerably, and these will help level that out.

Mr King : The previous maintenance contract for Collins was basically a cost-plus contract, with the best endeavours. We have all but finalised a new contract, the in-service support contract, and it is a performance based contract. As the Chief of Navy says, part of that performance base—although we have got to invest now to make up for some previous deficiencies—is not just improved boat availability but that also reduced costs on, let us say, a per materiel-ready day cost basis over time.

CHAIR: Mr King, earlier you mentioned availability as one of the key factors—is that part of the implementation issues that you may face?

Mr King : The boat availability?


Mr King : That is part of the detailed planning that we have to-do. It becomes a restriction, for example, on some of the bigger repair tasks that require longer than an intermediate docking, ones that need a full-cycle docking. In those cases it does become a constraint because we obviously cannot remove a boat from service to do that work until it goes through that cycle into that longer maintenance period. That cycle is every eight years so it can take up to eight years to get a boat in to go through that full remediation program.

Senator FAWCETT: On smart sustainment, one of the SRP streams, we had a brief earlier this week from the Air 87 team, comprising the operators and DMO and capability development. Something they were talking about that has resulted in a real issue for flying rate was the sustainment model, with the SPO run by Australian Aerospace, difficulty with RIs, difficulty of relying on a single line going back to a country that is itself at war so a lot of the spares for that particular aircraft type were being diverted into theatre. How is smart sustainment in future projects going to take account of the Air 87 lesson? I am thinking particularly here of the global partnership with Boeing and C17, and, as we look at the model for JSF, we are increasingly locking ourselves into fairly singular channels, and yet we have seen a fairly spectacular not necessarily failure but dysfunction that has caused a great deal of hurt in terms of flying rate. Strategically where are we going?

Mr King : I will take it to start with, and then I will pass to Ms McKinnie to talk about smart sustainment. There is a specific issue that we have with the European supply chain on helicopters. In fact, we have had very strong conversations with the supply base and, as you are aware, at least one of our helicopter programs is on a 'project of concern' basis. It seems to us that the way the European defence industry is structured, with tiered work and work being passed out to different countries as part of consortium operations, is adding a very heavy overhead in terms of decision-making times, supply chain and, as you say, when there is a demand. In fact, there are two demands we see in the helicopter space that impact us. One is operations of their own fleet. The second is that they have a good order book in Europe, and the parts are getting, naturally, some priority into the production line. It has in my mind raised serious issues about how we deal with the European industry going forward and securing a focus on our needs in Australia. As I say, we have raised that at the highest levels in Europe, and I will be continuing to do that, because, if this were to become an established norm, it would really seriously challenge Australia's ability to source future capabilities if the European suppliers could not address that fundamental issue.

Senator FAWCETT: Is your contention, though, that it is only the Europeans suppliers? I look at today's media announcement by Minister Clare, about the 'Romeo' project, about an Australian subcontractor in Brisbane getting a contract to manufacture external stores mission kits, which is fantastic. But what it indicates is that the American industry is also going down the path of a global supply chain, of trying to outsource to various places around the globe for cost efficiencies and different things. What it means is that, as an end user, potentially we have multiple failure points in the supply system that is essential to sustaining our capability. The Joint Strike Fighter will be another example of that. I am interested to know strategically where your thinking is at. As I see it, it is not just Europe. I would be interested in your comment.

Mr King : It definitely applies in the US too, where they are using supply chains. As you point out, it is sometimes to our advantage. Our participation in global supply chains has been one of our initiatives to get industry in work. I think—and this is an observation rather than a data-rich position—the US still run very much in the prime contractor model and the total integrated logistic support model. More often than not, the quantities they are buying and the quantities they are supporting, either in America or around the world, are significantly larger than the same European breadth of supply. At this stage—and we have some global support for C17 as well, and Super Hornets, which certainly use a distributed supply base for a good many parts of what they supply—we are not seeing that impact. I think the global budget constraints that we are going to see—we have seen it applying to the US and Europe—are going to be a seriously important area for us to concentrate on in getting our sustainment right, our supply chains right and a very clear awareness for our suppliers about what we are looking for in terms of supply quality.

Senator FAWCETT: You may need to take this on notice but it is to try and get on the record some history. My understanding is that during the Gulf War when there was a very high rate of effort of American forces in theatre that our supply chain, particularly in parts for aircraft that were of American origin, actually suffered. I do not expect you have the answer now but if you could perhaps come back to the committee and indicate whether there is any substance to that; and, if so, on what scale. Obviously, as we look forward, that becomes just another factor that we have seen recently with the European supply but, as we try and have a sustainable base of support for our capability, it is a factor.

Mr King : We will certainly look at that data. My experience of what is happening in Iraq, for example, has been a little contrary to that. The US and other partners have been very supportive of everybody keeping operational capability there because it is in everybody's interest. We will look at that question you raised. I think it is very valid.

Senator FAWCETT: Where we have common equipment in theatre, I think your latter point has proven true but where there is equipment that is deployed by the US that we have not necessarily deployed, my understanding is that perhaps there has been some tension in the past.

Mr King : We will certainly take that on notice and have a look.

Ms McKinnie : To answer that question a bit further, what we seek to do is maintain diversity of supply to the extent that we possibly can. One of the key things that we try to ensure is that in the acquisition phase we do not get locked into a particular supplier through restrictions in intellectual property, for example.

In the case of ARH and MRH, we did not in the acquisition phase secure as much intellectual property as we probably should have to give us the ability to compete in the event that the company was not delivering. We are currently tying to fix those issues in the existing contract and are in negotiations with Australian Aerospace.

I think the other issue we have had with ARH is that it was far more developmental aircraft than was originally understood. We are experiencing, if you like, the early parts of the bathtub curve in terms of defects. In doing the spares assessment, we simply did not have data on which to base the assessment of how many repairable items we should have. A lot of the estimation was not done on historical data but rather on engineering assessments of what the quantities should be. It is just a fact of life when you are in the developmental stages of buying any sort of complex equipment.

Dr JENSEN: Just on the European issue and problems related to projects due to the fact that they are European: shouldn't those problems have been factored in right at the very beginning? I remember speaking to Ian McLachlan when he was defence minister a long time before I was in politics. He was talking about the problems with European military project supply chains and so on. Mr King, you are saying that you have got these problems that are related to European industry, but surely these should have been factored in right at the beginning.

I was not there in the decision-making period—I am not trying to remove myself from that. There are some things that, at the time, might have looked quite attractive—for example, a distributor's supply base, the best of the best in Europe supplying into a supply chain. I can imagine that being, at face value, an attractive proposition.

Dr JENSEN: I guess the thing that I am saying is that then Minister McLachlan was already, when I spoke to him back in 1998, aware that there were clear issues with this. My understanding is that industry more generally was aware of some of these problems within the European supply chain system.

Mr King : Could be. I cannot comment on what decision making went on then. I was not part of it and I do not know what all the considerations were.

Dr JENSEN: I would be interested, on notice, in getting some information on that, because clearly this is a problem that is recognised now. But my concern is that it was not recognised at the outset, and what is to stop a similar problem occurring again in terms of lack of identification of problems early on rather than later?

Mr King : Certainly, and we will do that. As to how much we can produce—because obviously some of these matters were cabinet-in-confidence matters that the government of the day made decisions on—we will certainly see what we can find out. The only thing I can say to you now is that both at a government level and a departmental level we raised these concerns with European countries and European suppliers. I made this very clear, as at a government-to-government level. We will certainly be factoring this in, as Ms McKinnie said, at product maturity, which has been overclaimed on a couple of occasions at the start, and also on supply chain.

Dr JENSEN: On that, Ms McKinnie, is it fair to say that risks associated with both the ARH and the MRH90 were brought to DMO's attention prior to the signing of those contracts?

Ms McKinnie : I do not know personally. I was not involved in the ARH and MRH decisions in terms of what risks were identified at the time. I just do not know.

Senator FAWCETT: I know a preview evaluation was done of the aircraft that actually documented, prior to contract negotiation, the vast majority of issues that have subsequently come into play. I come back to your comment about IP and that those early contracts did not actually garner, if you like, for the Australian Defence Force, sufficient IP to guarantee contestability or competition. Romeo, C17, Super Hornet, JSF—have any of those contracts given us any more capacity to deal with anyone other than the OEM around the maintenance of the aircraft?

Mr King : I co-chaired the joint executive steering board yesterday, and that is very much in the JPO's current thinking about how the program is structured to ensure—and certainly I made it very clear that from Australia's point of view we would want to see it—that we do get an ability to keep competitive pressure, if you like, alive so that the costs of the program can be generally kept under control. That is definitely the case in JSF. I cannot comment on C17. I would have to get some advice on C17.

Senator FAWCETT: I guess the thrust of my question is that the contention was made that that lack of contracting to get suitable IPs so that we had alternatives was the bad old days. My question is: with this current tranche of contracts, have we actually increased our options any further? I am happy for you to take that on notice. The second question around that is that we are in the middle of the Senate Foreign Affairs, Defence and Trade References Committee inquiry into defence procurement, as you are well aware. A fairly consistent comment that we are getting from both industry and from SPOs that are maintaining equipment, particularly those in the maritime and air space, is that longer term relationships with industry result in lower risk and lower costs to the Commonwealth and more investment by industry. That is obviously in some tension with what we have just been discussing about having options when you have an industry partner who does not actually perform. What measures, what development, what innovation is DMO seeking to try and find contracting models that will provide that partnership but with a competitive element such that we have some options to make sure we are getting value for money and that we have some redundancy options if one supplier not living up—

Mr King : I can start with that and maybe Ms McKinnie would like to add some other examples. I can give you a live example. The in-service support contract for Collins is almost a classic. The number of companies that could viably compete to maintain Collins effectively is very small. But we had a non-performance based contract with ASC, which was cost-plus. We felt it was not delivering value for money for the Commonwealth. ASC's management got together with us and we mapped out exactly that question: how do we give you a reasonable surety of work so you can invest in people and equipment while we also keep the competitive tension at least available if we got to an in-extremis case?

There are two elements that we have put into the contract. The first is that we have committed to ASC that, provided they do a good job in accordance with the KPIs that we establish—which deal with costs and performance and so on—they will be the maintainer of Collins to the end of Collins. But with regard to that other element, we have basically introduced a five-year window of work, for which we look to get efficiency dividends and so on established in that period. At the three-year mark of the five, we provide formally to ASC a rating about how they have performed relative to objective KPIs, and three conditions can emerge. The first is green: they are doing very well and we are very happy. We will then extend the window. So at that point they really only have two years of work left ahead of them. We will reset. We call it 'reset'. Then there is another five years of work so that once again they can invest and there is a certainty of workforce and so on.

The second is amber. In other words it is very marginal, in which case we would put them on notice that unless within one year we got a really serious performance improvement we would go back to market. That fifth year of the five-year widow would be the year in which we test the market.

The third case would be red, in which case we would put them immediately on notice that we intend to test the market. We have a transition plan arrangement and we would test the market to see who can manage that business better. Of course, we would all hope that we will be in the green and will be able to keep rolling the program.

That is how we are keeping the competitive tension: the need for the company—not just ASC; any company—to perform. The second element within the structure is make-buy decisions. So what we want ASC to do in a large number of areas is to be contestable internally about whether they should do it internally with a vertically integrated capability or bring in other elements of Australian or international business that are much more effective at getting answers. So, those are the two elements we are introducing. From my own business experience I think that would be an acceptable sort of model for anybody who wants to be a prime in Australia. We have got contestability within the contract and ultimately the ability to step outside it if we need to.

Senator FAWCETT: So, with ASC obviously there is a unique relationship, almost, in that they belong to the government and the government needs them et cetera. So there is a fair leverage on both sides to come to an agreement. What confidence do you have that, where we are dealing with a large overseas based prime—we might represent a very small fraction of their customer base—that we could export that model of contracting and performance risk management?

Mr King : The same basis was put in place, broadly, for the Wedgetail support contract. For the performance based contract, the first couple of years was giving the company the opportunity to learn and for us all to benchmark of what it was going to cost. It also has a program of contestability, review and improved performance, and Boeing have joined in on that program.

Senator FAWCETT: Where we end up purchasing a capability via FMS, how do you see this kind of thinking being applied in that situation where we do not have that same contracting leverage?

Mr King : Sometimes it will be hard. If we only buy a few items out of a very large US fleet, then the capacity to do some of that could be quite difficult. I have been working with the US head of acquisitions, Mr Carter, and then more recently Mr Kendall and we want to be more involved and they have agreed in exactly these discussions about how. When we are negotiating the FMS case and when the US are negotiating the support case with their supply base we will be involved. We will be allowed to be involved in the discussion about how to set that up and what will work in our circumstances. I think that is a really significant step forward and that has come about in the last 18 months. Of course, the US is a big organisation, so it takes a while for that to become established practice, but we have what are called the ADAC meetings and this is a regular topic of conversation.

Senator FAWCETT: Could I ask that this committee receives in whatever basis some feedback as to how that is progressing. Aspiration is one thing but, as you have identified, the US is a big, slow, process-driven beast. I would love to see the outcome to fruition, but I think it is incumbent on us to also monitor it.

Dr JENSEN: On the specific issue of the IP with the JSF, it concerns me that we are 10 years into this process, yet it staggers me that we still do not know exactly what the potential IP issues are.

Mr King : It is a big program and it is a work in progress, and I cannot move away from that position. That is where we are. We could maybe handle it when we come to that section on the Joint Strike Fighter. I think all the partner nations and the FMS customers—there are now two FMS customers who have joined the group—at the executive steering board yesterday noted this was a big topic to be defined in more detail. Work has been done on it and there are a number of working groups working on it. It is to be finalised. There are economic decisions to be made about what assets should be held where. One of the benefits of that joint project office is that the best available price will be available to all.

Dr JENSEN: It staggers me that 10 years down the track we should, according to the initial estimates, have had them in service pretty much now, yet we do not know the complete IP implications.

Mr King : I do not think we know the complete IP implications but we are working to that position. We are only just starting to buy our first two aircraft.

Air Vice Marshal Osley : As far as the intellectual property for the Joint Strike Fighter, we have an increasing amount of visibility of that data as we go along with the program. The nondisclosure process is well under way. We are looking at exactly how we embed our people into the software development facility. The software development facility will provide the emission data for the aircraft, the smarts for the aircraft. We have a proposal under way whereby we will have Australians embedded in that with full visibility of how the software comes together and exactly how we program the aeroplane and what the capabilities of the aeroplane are. At this point in time, we get approximately 11,000 pages of information every month from the program. That includes a lot of the data that we need to assess the aeroplane. We have obviously been getting that for years and we have a very good understanding at this point in time, I feel, of the aeroplane. Yes, there are some aspects that we are still getting the data on, but we have a request-for-information in for those and we are anticipating having full access to that information.

Ms BRODTMANN: Back on sustainment, I am going to page 22 of your DMO annual report. You have mentioned here that you are focused on improved maintenance processes that reduce waste and overservicing and a range of other areas. Can you give us an example of where you have identified waste and overservicing, how you identified it and what you have done in response to that.

Ms McKinnie : In the case of the vehicles that we support for the Army, through conducting a reliability, availability and maintainability analysis we were able to identify that we were overservicing. From that analysis we have changed the maintenance regime and that has resulted in savings. It has also assisted in increasing availability because we actually have the vehicles offline for less time and so they are available more often. Also, we have changed the servicing regime for FA18s and, through that, we have been able to deliver higher levels of availability for the Air Force. Those are just some examples of what we have done.

Ms BRODTMANN: What was the trigger? How did you identify that? Did you do a deep analysis of the whole process? How did you realise that you were overservicing?

Ms McKinnie : It was through the reliability, availability and maintainability analysis. In the DMO we are increasing our capability in that area. We are moving to ensure that our maintenance regimes are based on careful analysis of the data of how these systems have been performing rather than historical maintenance plans. Through that process we found that we are able to reduce the cost of maintenance.

Ms BRODTMANN: This is more a comment than anything else. In terms of the targets, I notice that there is a double tick here for sustainment. But we had a rather sobering briefing last week on that, so I was just wondering what constituted the double-tick status. I think it means 'fully achieved'.

Ms McKinnie : Yes.

Ms BRODTMANN: I was just wondering, given that the evidence we got last week suggested that the sustainment support program for that was pretty underdone and that there were a number of contractual issues, why they got the double tick.

Ms McKinnie : The double tick was against the smart sustainment savings target that we had. Last year the target was $288 million, which we achieved. We achieve that without affecting capability or safety. The $288 million was achieved against a range of initiatives that we had in place. As was said earlier, not all systems that we support for the ADF have savings targets against them. Some do. There are some where we know that we need to invest more to keep them alive. There are others where we are planning to make savings. In order to do that, we agree with the service chiefs on where we are going to allocate the savings programs to. We work with the services to identify the range of initiatives that we are going to implement in order to meet those savings and to deliver satisfactory capability.

Mr King : I think we probably do owe you a bit more of an answer on this response.

Ms BRODTMANN: What I am hearing is that the KPI for this is the savings element, rather than the performance.

Mr King : From memory, but I think we will need to get back to you with an answer: we did see a drop-off because of the operational deployment and a bit more focus going onto the users using ARH in theatre than us, but I think we need to answer your question.

Ms BRODTMANN: Yes, we got that impression.

Mr King : This was the 2010-11 report. I think we have seen a drop-off since then. If that is not the case, we will respond.

Ms BRODTMANN: Thank you. One final question: looking at the sustainment system—its agility and its ability to support short-notice events—when a model of ammunition or equipment is superseded, is replacement ammunition or equipment progressed through the procurement process or is it able to be purchased as a sustainment item with a short-term lead time?

Ms McKinnie : Where equipment becomes obsolete?

Ms BRODTMANN: Or the latest iteration is better than the last version—the version we were looking at procuring.

Ms McKinnie : Within our sustainment budgets we do include provisions for obsolescence that we agree with the three services so that when we do detect obsolescence issues we have a range of options open to us. We can do life-of-type buys. We can stockpile in the case of explosive ordnance. We have a range of things we can do. When we get to potential major upgrades, that is when we would probably either go back to a new major project or we may do minor upgrades as part of sustainment. It is very much dependent on the assessed extent of that upgrade.

Ms BRODTMANN: I suppose the degree of agility would depend on the degree of upgrade required?

Ms McKinnie : Yes.

Vice Adm. Jones : Perhaps I can give you a couple of illustrations of that. For example, JP 90, which is replacing the Mode 4 IFF with Mode 5. There is a high component there of integration work to be done on multiple platforms. It probably did make sense for it to be a new project and to have quite good visibility about where the technical and integration risks are. With other projects, in hindsight maybe they would be better if they were part of sustainment. There has certainly been some discussion over the years about how we can do that. But where there are those integration risks, it is probably best placed in the DCP to give much greater visibility.

Senator FAWCETT: Going through this issue—and I guess it is under the umbrella of your smart sustainment—but where you do have an acquisition activity being run by the sustainment organisation, there have been some spectacular failures in terms of decisions that were made by the sustainment organisation in order to keep workflow going through sustainment contracts. The one I looked at particularly was the interim equipment fit on the Black Hawk. Rather than saying, 'We are going to do this purely as an acquisition through the acquisition side of DMO, and we will allocate a resource to use as the test bed and develop it to a mature product', the decision was taken to merge it with sustainment activities such that we ended up with partially modified aircraft, which denuded the capability manager of much of his Black Hawk fleet for a number of years. And because the product was not yet mature, we had aircraft that had to be demodified and remodified—in some cases a number of times. That very strategic view of how you merge sustainment and acquisition really came unstuck and hurt the capability manager and cost the Commonwealth. And it probably cost us the capability that Echidna offered.

To what extent is DMO looking back at things like that in recent history and saying, 'That's a lesson learned. We will bound our decisions around how we make investment and development procurement to learn from things like that,' rather than the next generation stumbling into the same problem because of the short-term pressures around sustainment contracts?

Mr King : I will lead up and then pass to Ms McKinnie. There is always that issue of where an appropriate boundary is. We are doing two things. One is making sure that a project that size—and JP 90 was given as one example—is managed as a project. The other relates to when we do take project-like activities into sustainment. One of the things I noticed when I took over the job is that the money sometimes got merged into just the sustainment bucket. So we are making sure that the money, the schedule and the things that are approved stay out there as a separate project within the sustainment organisation. Finally—and Ms McKinnie will want to talk to this—we have recognised that not all the sustainment organisations have the appropriate level of training, experience, skills and qualifications. So we are working on a professional development program, understanding all the skills that are needed in the sustainment office and working to improve some of those skills.

Senator FAWCETT: I guess I am talking at a level above the process. In what ways are you trying to capture some principles to say: 'Okay, we will not take an immature product and start modifying a fleet; our default will be that we'll get a mature product and then we'll modify the fleet'? There may be exceptions, but they will be exceptions, decided for a particularly good reason. To what extent are you trying to actually capture principles from past experience rather than just look at the process?

Mr King : In the period that I have been there I think nearly all the aerospace projects now work on the principle of demonstrating that you have a mature product first—for example, the P-3EW upgrade at the moment—and then fitting it to one aircraft, proving that it works and rolling out the program. I cannot add more than that; maybe Ms McKinnie can.

Ms McKinnie : I guess a key part of all this is that when we are upgrading existing fleets—say, with new communications equipment, EW equipment or IFF equipment—we have to work out how we are going to manage the project and also the insertion of that new equipment into a fleet that is in operation. That means we have to have integration between what we are doing in sustainment, the sustainment contracts and our acquisition contracts. Typically we would acquire, say, communications equipment from one supplier and then work with the incumbent sustainment contractors to integrate that equipment into each of the fleets.

To get a better approach to managing that, for those platforms where we have a lot of projects that are looking to have new equipment put into them we are establishing integrated master schedules so that we have a clear understanding of when the ships or aircraft will be made available and what upgrades are going to occur and in what time frame—and managing that very closely. We have established a master schedule for submarines. We have also established one for Anzacs. We are doing that progressively through all the fleets for which we have a lot of upgrades going on.

Mr King : Coming back to your question about how we are capturing the knowledge, CDG has commenced a project initiation board process now, which is run by Vice Admiral Jones. It also involves DMO and capability managers. This whole notion of how to bring those together, how to manage it, what style it will be managed in and how the assets will be available is really fully contemplated at that kick-off meeting. That meeting is attended by senior people who bring that experience with them as to how to manage these sorts of capacities.

Vice Adm. Jones : We just had a case last week where a project was proceeding along and we actually sent it back to the Project Initiation Board to get some general manager engagement and to make sure we get this bounded before it goes too far. I think the whole thing about knowledge management is an important part of what we do. We are looking at ways in which we better capture our knowledge. One of the benefits of doing the business cases in a joint environment is that you have a much larger number of projects from which to draw lessons across the environmental stovepipes. We see a lot of use at times of bitter experiences and lessons feeding into the projects.

The minister made a comment some time ago that in about 80 per cent of projects, when they do go wrong, it is at the very beginning. I think that is probably pretty true, so that is why we are putting a lot of emphasis on this project initiation board. When we did the DCP review recently the service chiefs said they really wanted to be involved at the very beginning, much more so than at the end, doing a final tick-off of the paperwork at a defence capability committee. So far with those changes in the last four months I think we are pretty much on the right track.

Senator FAWCETT: I am thrilled to hear about the project initiation board. I think having people is a far better way than process to capture corporate knowledge. As Mr King is aware, we have had extensive discussions about the Gate reviews and, again, good initiative. My sense is that there is also a role, just like airworthiness boards, for what are in a sense 'greybeards'—people who are knowledgeable but independent of the system—to be part of that process. I think that would consistently and considerably add value to both the DMO project boards and your project initiation board.

Mr King : That is very true. This year we get up to 99 Gate reviews, and we have two independents on every Gate review. They are also producing formerly systemic issues and lessons learned, which we are capturing and circulating around for everybody. But of course it is an ongoing process because we always have new, less experienced people coming into the system, so having the ability to bring to their attention some of the pitfalls is always going to be an ongoing piece of our business.

Vice Adm. Jones : Just to be clear to the committee on the Gate reviews, we use them in the pre first pass and pre second pass work. We had a recent case where there was a Gate review for a project which was pretty early on. It was going towards first pass. They had concerns about how well founded it was, so it is in fact going to a Projection Initiation Board now, based on the guidance from the Gate review that we did not quite have some things right. We have more than enough time to recover, but it was really the Gate review and some of these experienced people who had had some experiences in their full-time careers of projects and knew that there was a problem.

Senator FAWCETT: Some of the feedback we are getting from the Senate inquiry is the issues that industry feel they have where a milestone is set for when a capability is required, that kicks off the whole first and second pass process, gets to the point where second pass is announced and then the contract negotiations start. What they see is that often, both around the acquisition and the negotiations around sustainment arrangements and IP and things like that, a lot of the time that they had originally thought would be available to be implementing the project is being eaten up. One of the suggestions that has come to us is that we should mandate a time frame that DMO has to conclude the contract negotiation to either force the relevant seniority to become involved and reach that agreed point or force a referral back up to a ministerial level for a decision, but such that we do not get the situation where things stretch out for quite long periods. Would you care to comment on how DMO would respond to that?

Mr King : I think some of that is quite valid. I am an absolute believer in the first and second pass process. I think it really is having an impact in the positive, but there is an unintended consequence, which is this pause while we go through the decision making process—and it is not just us; it is whole-of-government activity, as you know. It is producing cabinet submissions, getting them on the cabinet agenda and then having a decision made. Then we have the negotiating period after it. That is something we are all looking at to try and see what we can do about it. There are a couple of things we could do. We could get further down the negotiating path with the companies before we go to second pass so there are less issues to resolve. The problem with that is that by that stage you are actually negotiating, let us say, possibly with two companies because we have not decided. And so you are really wasting one company's time—that is the problem.

We are pushing for more insistence on certain clauses that we will not resile from. The tricky ones, as you know, are quite often liquidated damages and IP clauses—it does take a long, long time to negotiate. We are also using contract—

Senator FAWCETT: So you are aware, obviously, that there are probably five clauses that industry push back on and say that they are one of the prime causes for DMO contract negotiations to be so long. They feel that they are quite unreasonable from industry's perspective.

Mr King : Yes, but we talked about one of them today. I have been on both sides of the fence too, and I know we push back on them when we are from industry. One of them is IP, and if we do not get that clear we know that that can be a problem.

One of the other things we could do, and we did it on air warfare destroyer, was that we actually funded both bodies of work and the night that the second pass—so, we were looking at the evolved design and the existing design: we had two teams, and both teams were working, if you like, full bore at their job—the night that the decision was made, the next day, literally, we turned off one of the teams. And so very little momentum was lost.

There is a range of things we are looking at. It is something where I agree with industry. I was going to say about early indicators and warnings. One of them we are using is contract signature, and in fact one of the projects that was put on project of concern some time ago, now off it, JP129, was triggered because it had gone, I think, a year and the contract still was not signed. So, we are very mindful; I think it is a valid comment from industry and we are thinking of ways we can improve that. I definitely think we have to.

Ms McKinnie : Can I add to that? As part of our plan to reduce the cost of tendering we have introduced offer definition activities as a standard part of the tendering process, and that is our preferred option. Under the offer definition activities we seek enough information from industry to allow us to shortlist. We then run with the shortlisted companies through an offer definition activity that allows us to look at key risks that might have come in the tenders. It allows us to go through particular terms and conditions that may be problematic—to do some risk reduction work and the like—with the view then that at second pass approval we have done a fair amount of work with the companies to identify some of these issues with the view that when we do get approval we can sign the contract and that a lot of the issues will have already been thrashed out. Those offer definition activities can be either unfunded or funded. More and more we are seeking funding to allow us to do more work in the offer definition.

At contract signature, the schedule is based on the date that the contract becomes effective plus a certain number of months for delivery. It is very rare that we actually put dates into the contract. We usually put a period of time in the contract, which is when the contractor needs to deliver. Likewise when we seek approval from government, we seek the approval with the schedule based on the date of the government decision plus so many months to reach IOC and FOC for that very reason that you do not want to chew up your time in the process and then have no time to deliver.

Mr King : I think the point is that it is not just the loss of time, it is the loss of momentum. Quite often the companies have established a team, the team is very familiar with what they are offering and then they go into this hiatus or a sort of care and maintenance activity. So when you come to start the team again, some of the key players may have moved to another task and the whole focus of the team is off. It is an important area for us to work out.

Proceedings suspended from14:09 to 14:21

CHAIR: We will reconvene the last part of today's hearing on JSF. Do any one of you wish to make an opening statement in this particular area?

Air Vice Marshal Osley : I would like to make an opening statement. I believe that you will also have a handout that I have tabled—

CHAIR: It is coming.

Air Vice Marshal Osley : Mr Chairman and committee members, I am tabling a submission which I think broadly addresses the issues raised by Air Power Australia and RepSim Pty Ltd representatives when they spoke to you on 7 February this year. At that hearing the Air Power Australia and RepSim principals were critical of the air combat capabilities of the JSF as well as being critical of the cost estimates and delays in schedule of the program. In my opinion, as Program Manager New Air Combat Capability, I consider the representatives of both Air Power Australia and RepSim made some errors of fact about F35 capability and the status of the New Air Combat Capability program. Similar to the opportunity that was afforded to Air Power Australia, I would like to make this opening statement and then provide a brief Defence response to some of the specific Air Power Australia and RepSim claims, and then of course I am more than happy to take any questions. I am also aware that Lockheed-Martin's Mr Tom Burbadge, will be making an independent presentation to your committee next week.

On the JSF program in general, the restructure that has occurred in the program over 2010-2011, and the past 18 months in particular, known as the 'Technical Baseline Review', has resulted in some delay of milestones and in increased cost estimates. But it has also resulted in a step-change improvement in the project management of the JSF program. In particular, the system development and demonstration phase of the program remains fully funded. It was funded to $43 billion and the US has since added a further $7.4 billion from their own funds, so it is fully funded and will not be affected by the planned US delay of 179 aircraft over the next six years.

On 2 March 2012 this year at the international partners meeting in Washington DC, Vice Admiral David Venlet who is the Principal Executive Officer of the JSF Program Office, reiterated the US government's commitment to ensuring the F35 success and confirmed that the test program and remaining development program were fully resourced. He also reiterated strongly that the current technical issues are normal in a fighter development program and are known by the program, and all are in work and being mitigated. In recent weeks the US Defense Secretary, Leon Panetta, has also reiterated the US commitment to continue to aim to buy 2,443 F35s for the US Military Services. All nine international partners remain committed—that is, the US, the UK, Canada, Turkey, Norway, Denmark, the Netherlands, Italy and Australia. I will not go through the individual countries, but they have all as recently as yesterday at the JSF Executive Steering Board reconfirmed their commitment to the program and indicated how and when they are going to buy their aeroplanes. In addition Israel and Japan have committed to buy F35A through the Foreign Military Sales program with the US, a total of about 60 aircraft at this point in time.

I think some of you would have read about under Secretary of Defense for Acquisition, Technology and Logistics Frank Kendall's quick look report from November last year. It was an internal Department of Defense document that made an overall assessment of the suitability of the F35 to continue in low-rate initial production. The report identified 13 key risk areas, but it concluded there was no fundamental design risk sufficient to preclude further production. The report listed the risks, but it did not outline the steps that the JSF program office is going through to mitigate those risks. All of those risks are known by the program and are being worked on.

While the annual 2011 US Department of Defense operational test and evaluation report that was released in January this year said that the most difficult testing is still to come, the report did acknowledge that there had been good progress in flight testing to date, there was pleasing progress on the mission system testing, arguably the most challenging part of the F35 program, and they currently expect to have block 3 software through development testing by mid-2017. That potentially would support an Australian IOC as early as late 2018, should the government agree to that IOC when stage 2 is considered by government.

In response to Airpower Australia and RepSim's claims, I would like to hit on a few points. The first one is Airpower Australia and RepSim claim that the AIR 6000 is a failed project. As explained in my submission, AIR 6000 Phase 2A/B (Stage 1), the first 14 aircraft, has not triggered any DMO criteria as a failed program. Its cost is currently within the cost envelope for stage 1 that was approved by government at the end of 2009. As far as capability goes, it still plans to meet the RAAF's planned initial operating capability requirements as advised to government at the end of 2009. The scheduled delivery of our first two aircraft in 2014 is still on track. Our first aircraft will start to be put together in the next few weeks.

Airpower Australia and RepSim claim that the F35 will not be competitive in 2020. Airpower Australia's criticisms mainly centre around F35's aerodynamic performance and stealth capabilities. These are inconsistent with years of detailed analysis that has been undertaken by Defence, the JSF program office, Lockheed Martin, the US services and the eight other partner nations. While aircraft developments such as the Russian PAK-FA or the Chinese J20, as argued by Airpower Australia, show that threats we could potentially face are becoming increasingly sophisticated, there is nothing new regarding development of these aircraft to change Defence's assessment. I think that the Airpower Australia and RepSim analysis is basically flawed through incorrect assumptions and a lack of knowledge of the classified F-35 performance information.

The JSF program accomplishments to date, towards entering operational service, include that the F35 continues to be assessed to be able to penetrate a modern, integrated air defence system. When the classified capabilities are taken into account, we have had Australian pilots flying high-fidelity simulators and they have been very impressed with the combat capabilities of the aircraft. These pilots include fighter combat instructors from RAAF Base Williamtown and ex-commanding officers of fighter squadrons within Australia. The range of the F35A is about 30 per cent greater than the F18 legacy aircraft. The stealth is meeting planned requirements. The F35 coating technology is being retrofitted to the F22 because the coating is more effective and easier to maintain. The F35 has reached its maximum design speed of Mach 1.6 during testing in 2011 and it has been tested to 9G—in fact, a little bit more than 9G due to a slight overstress by the test pilot. On radar and sensors, the APG81 radar exceeded expectations in real-world exercises in Northern Edge in 2009 and 2011 where it was presented with a modern, hostile, electronic environment. The F35 has very good electronic attack and electronic defence capabilities. Weight has not been an issue in the program since 2005; for the F35A it is well within specification. Eighty per cent of full software capability is flying today. As far as flight tests go, in calendar year 2011 the F35 achieved 6,664 test points against 6,256 planned, so it exceeded it by about 400 points. The F35 does include a follow-on development program each two years of software and every four years a hardware update that is funded by the partner nations in accordance with the number of aeroplanes that they have.

RepSim Pty Ltd reps believe that they have an understanding of the F35 capability that is as good as or better than most, and that is the basis for them making some of their comments about their simulations and about the F35. I would like to say that the RepSim principals have never had access to the classified F35 air combat capability data that Defence has used to assess the capability of the aircraft in various scenarios. Without this access they cannot have a complete understanding of the F35 capability.

Air Power Australia and RepSim principals offer a summary of the Pacific Vision exercise conducted in 2008 where they assert that it proves the vulnerability of the F35. The war game in question was not focused on air combat capability analysis at the required classification and level of detail necessary to draw valid conclusions on the relative merits of the F35 in force-on-force applications. The Pacific Vision 2008 exercise was not intended to test air-to-air capabilities and the analysis done by Air Power Australia and RepSim at the time was not accepted as valid by either Rand, the USAF or the RAAF.

As I concluded in my submission, Defence maintains that the F35 is the right aircraft for Australia. The JSF program continues, however, to be closely monitored by Defence. It is a development program that does have considerable risk and we are aware of that. The Minister for Defence has clearly stated our commitment to acquiring 14 F35A aircraft and that the schedule for delivery of the next 12 is under consideration. The minister has explained that Defence will conduct an exhaustive review of the risks of the capability gap and will recommend options for government consideration later in 2012. The minister has further stated that any decision on the next tranche of F35 aircraft is unlikely to be a high priority for 2012. Thank you.

CHAIR: Thank you, Air Vice Marshal. Submissions were provided in the briefing by APA and RepSim, and you have gone to some lengths to explain their evidence with respect to a simulated exercise. Are you suggesting that that exercise is flawed because they do not have all the information or material from the States about the JSF to make the simulation complete? Is that what you are suggesting here?

Air Vice Marshal Osley : In essence, yes. To make a valid assessment of F35 versus opposing aircraft you need access to the classified capabilities of the aeroplane itself. Also, the structure of the scenario needs to be a realistic one. The aim behind the Pacific Vision exercise was actually for Pacific air forces to look at the vulnerability of their bases. Essentially, they wanted a scenario where their bases were being threatened so they could then look at how they might respond and see what risks they had. The scenario was structured around that.

If you wanted to assess the effectiveness of an F35 versus other air combat capabilities then you would need to have a scenario that enabled you to take into account all the support aircraft and other capabilities that would be in the area. You would need to take into account the transfer of information using datalinks, the situational awareness that you would have and the tactics that you would use in flying those aeroplanes. The tactics for using a fifth generation fighter are significantly different from the tactics used for a fourth generation fighter. Also, you would need to take into account detailed analysis of weapons and other things, including electronic attack.

CHAIR: I wonder whether there is possibly a simulated exercise available to demonstrate to the committee at some stage the success of the F35.

Air Vice Marshal Osley : I could take that on notice. We do regular exercises with the partners where we tie together simulators. They are done at the classified level. I will have a look through what we have done in the past to see whether we can come up with some data that we may be able to share with you.

Dr JENSEN: You seem to be pretty derogatory about Air Power Australia and RepSim. When you look at it, you will see that some of the criticisms were made nearly a decade ago in terms of their ability to talk about cost and schedule as well. However, when you look at the record—and I will not go through the entire record again; it is on Hansard—quite frankly, Defence ain't looking too good. APA in particular has been far more accurate than Defence, both in terms of cost and schedule.

Have you done simulations against the Su-35 with different varieties of mixed missile loadouts against the F35? What simulation software was used and how many simulations were done?

Air Vice Marshal Osley : Regrettably, I cannot go into the detail of exactly the types of threats we had—they were top-end, high-end threats—and exactly how we structured that. I will take on notice to see what we can share at the unclassified level.

Dr JENSEN: I would not have thought what simulation software and what threats were analysed would have been a problem. Details of your knowledge of those threats clearly would be classified, but I do not think 'Hey, we did a run against a Su-35 would have been a problem.' On notice, if you cannot answer it here, have you done differential simulations of, once again, Su-35, 2V2, 4V4, 8V8, 4V2 and 2V4, for instance?

Air Vice Marshal Osley : The short answer is that the fighting unit for a F35 is four aircraft or more. The simulations will cover multiaircraft versus multithreats. So all of what you have mentioned would be within the realms of what has been tested in our simulations.

Dr JENSEN: I would like as much detail as you can give me on that. Have you done that using widely different engagement geometries and sensor weapon mixes—in other words, not head-to-head co-altitude? If so, what sort of runs have you conducted in that regard? Have you done simulations of F35s versus any aircraft that have HF over-the-horizon radar, working with your threat group in terms of their integrated air defence system? Have you done any simulations, using adversary HF over-the-horizon radar equipped naval surface vessels as a component of IADS? Have you done any simulations using current generation passive detection systems, incorporated as additional constructive elements of an adversary IADS against the F35 scenarios?

Air Vice Marshal Osley : I will take the detailed questions there on the sensors on notice. What I would like to say is that the simulation that has been done was actually done using highly trained fighter pilots, acting as Red Air, using to the best of their knowledge, the best capability they could to defeat the F35. The point I would like to make here is that if you use the F35 and play to its strengths, not its weaknesses, you can prevail in air combat. Winning in air combat late in this decade and into the 2020s is not going to be easy. I am not saying that the F35 will answer all our prayers. If you use the F35 incorrectly and do not play to its strengths, you will probably lose. But the same could be said for the F18 and the F16. If we play to the F35's strengths, and it has a lot of strengths of stealth, good sensors and exceptional situation awareness. For instance, the situational awareness is linked to the capacity of the software. It has roughly three times the software of the F22. That gives you an indication of its capability. It has a datalink capability that is exceptional for talking to not only other F35s but the rest of the system out there. If you have the right weapons on board, and they will need to be upgraded, if you have good training, good tactics and good supporting capabilities, the F35 will prevail.

Dr JENSEN: When you talk about good datalinking capability between platforms, don't you see that that is mutually contradictory with the issue of stealth. If you are transmitting data that is giving information to your threat about the location.

Air Vice Marshal Osley : The JSF has various datalinks and it has low probability of intercept datalinks and it has the normal link. A scenario can be that you do not have to be transmitting to the aeroplane that is perhaps closest to the hostile forces. You may transmit to another F35 and then, using low probability of intercept datalinks, it could then transmit forward. So there are tactics, of course.

Dr JENSEN: Yes, but with LPI there is no probability of interception. You still have side lobe issues.

Air Vice Marshal Osley : Is the same as stealth. Stealth is not invisible; stealth is low-observable.

Dr JENSEN: What about the passive systems for detecting stealthy aircraft?

Air Vice Marshal Osley : Again, I would probably have to take that on notice. The point I would like to make in general at the unclassified level is that there is a vast difference between detecting the presence of a very low-observable aircraft and being able to track it or to pass that information. I do not want to go much further than that, but that is the difference here. There are probably quite a few systems out there that might give you an indication that there is a very low-observable aeroplane out there but, if you cannot track it to the necessary accuracy to get a weapon away or to actually pass that information to someone else, then in air combat it is probably not as useful.

Dr JENSEN: I would like to go through and engagement scenario and we will use Su35s rather than PAK FAs or J20s. Quite frankly, I have a huge problem with the view that the air combat is going to be BVR therefore the aerodynamic performance does not matter. Let us take an 8v8 scenario. You have the Su35s up at 55,000 feet, your JSFs are coming in and about 40. Let us assume that the JSFs are unseen, that they have targeting information on the C35s, whether the APG81 has done it with the LPI radar and it has not been detected or alternately something like a Wedgetail has sent the target information to them. I have that situation. What is going to happen next?

Air Vice Marshal Osley : With the F35s, given that they will have, I think, better situational awareness—and I think most people would agree with that—with the tactics that they use, and I do not want to go into detail, certainly what you are not going to do is charge in within digital range. The F35 will use its better situational awareness to work itself into a position and to manoeuvre around the area to present the best tactic for it. In simulations—and what you propose there is very similar to what would go on in a manned simulator event—the outcome of those, if the F35s are allowed to play to their strengths and use their better situational awareness and sensors, is that they can prevail in that situation and they do defeat that higher-end threat in those simulations.

Dr JENSEN: Let me go through the scenario and you tell me where I am going wrong on this. The JSFs get into the position that they want to be in. They need to open weapons bay doors to get the AMRAAMs out. What does that do to the radar cross-section of the JSF?

Air Vice Marshal Osley : It will increase while the door opens.

Dr JENSEN: So you can no longer say that their location is unknown.

Air Vice Marshal Osley : It increases for a second or two, and then afterwards the doors close and—

Dr JENSEN: The doors close but the AMRAAM itself is not a designed stealth missile, in addition to which the rocket motor is putting out an awful lot of infrared. Particularly the Russian Su35s and so on have very good infrared detectors, so they would still know where you are. Aren't they likely to shoot a couple of missiles your way, probably a combination infrared-radar homing missile or two missiles, one infrared homing and one radar?

Air Vice Marshal Osley : They could fire that. The risk we have here is that, again, we are now firmly approaching classified territory with regard to the exact capabilities of the F35 in that scenario. You are talking about weapons. You are talking about ability, signature and all those things, which I cannot talk about.

Dr JENSEN: Part of the problem is that, with the JSF, you have at the moment at maximum—my understanding is that they can carry—two AMRAAM missiles and they are planning on giving it a capability of carrying four internally. Is that correct?

Air Vice Marshal Osley : There are a variety of options, and the full-up capability of the aeroplane will include multiple internal missiles. And they have the ability, obviously, to carry them under the wing if need be as well.

Dr JENSEN: Under the wing is going to kill your stealth.

Air Vice Marshal Osley : But the point I would like to make here is that the only comment I can really make at an unclassified level is that we do manned tactical sims, similar to what you have proposed there, where they have fighter pilots who are highly trained, aiming to use each of their respective capabilities to the best of their ability, and the F35 is able to prevail in the vast majority of cases.

Dr JENSEN: I guess the problem that I have here is that you have sims and sims, and sims can say all sorts of things. The fact is that the JSF, to the best of my knowledge, is going to have four AMRAAMs eventually, internally, and that is going to be the load that you can carry where you have the significant advantage that stealth gives you. You start carrying an external load and your stealth advantage, although not completely obliterated, is significantly degraded, to say the least. AMRAAMs in reality, rather than in theory, have a probability of kill of 0.5. In other words, you shoot an AMRAAM and you expect that in one of two cases it will kill the target; in the other it will miss, for one reason or another. That is against what has historically been essentially cooperate targets with no electronic countermeasures, and the enemy does not have similar medium-range air-to-air missiles. The PK is likely to be significantly lower than that if you have a threat with ECM and similar missiles, but let us take it at 0.5.

Air Vice Marshal Osley : Dr Jensen, I do not recognise that figure, and—

Dr JENSEN: That is the actual firings that have occurred in combat in Iraq and in—

Mr S Lewis : I will just come in for a moment here—and I should acknowledge that I am not expert in this area. It just seems to me that we are starting to skirt very close to areas which may be better the subject of a classified briefing. I just turn to Air Vice Marshal Osley to understand. Are you comfortable that we are still in open class domain, or are we starting to get—

Air Vice Marshal Osley : No. As I have indicated, I do not recognise the percentages you are talking about and I certainly cannot talk about actual PKs for missiles.

Dr JENSEN: The point I am making is this. Let us assume that it is 0.5, just for argument's sake. That means that you shoot all four AMRAAMs and 12½ per cent of your targets are still going to be coming at you; they are not going to be shot down. Those Su35s have a load-out of 10 to 12 air-to-air missiles. Your JSFs now are out of AMRAAMs. They are faced by a target which has significant missile load-out with significantly higher aerodynamic performance than you have got. They can run you down, and what can you do to respond to that?

CHAIR: Just before you answer: if it is bordering on breaching classification, do not answer that question, or the other option is that you go in camera. Those are your choices.

Air Vice Marshal Osley : I think it is on the level of classification—

Senator IAN MACDONALD: With respect to Dr Jensen, who knows what he is talking about—it is all double Dutch to me—I can detect a cautiousness. Perhaps, if we are able to go in camera—again, I am not quite sure what classification we all hold to go in camera.

Air Vice Marshal Osley : Regretfully, I cannot go in camera on that one.

CHAIR: We have not had the room swept, so we will not be going in camera! Once again, if you are reaching a point where you believe that the questions are bordering on classification issues—

Air Vice Marshal Osley : That is correct.

CHAIR: I do not want you to answer those questions.

Air Vice Marshal Osley : Okay.

Mr ROBERT: Air Vice Marshal Osley, it is good to see you. In terms of the last discussion we had on the JSF, the point was well made by you and the Chief of Air Force that one of the key touch points was to look at the delivery of the first JSFs to Eglin and what the USAF is going to do at the end of the year, and that would give us a fairly good understanding about how the program is going. Is that still a fair statement to make?

Air Vice Marshal Osley : I think it is. What has occurred is that the first production aeroplanes have been delivered to Eglin. There was a slight delay in getting them a military flight release. That was more due to debate within the US Department of Defense between the director of operational test and evaluation and the United States Air Force. They came to an agreement and they have issued a military flight release, and they are flying at this time down at Eglin Air Force Base. The point to note about this is that previously the aeroplanes that had been flying were flight test aeroplanes. They have orange wire; they have systems within them to radio information to the ground. The aeroplanes that are now flying at Eglin are pure production aeroplanes, so they are getting airborne and doing normal sorts of missions.

There was some recent press about the very first time when they went airborne. I think they reported in the press that an aircraft had a fuel leak and returned to base after 15 minutes. That was not correct. It did return to base after 15 minutes. It had been in torrential rain and water had leaked into some of the panels. When they got it airborne, some of the moisture came out off the panels, and they came back and did a precautionary landing. They have since reflown the aeroplane and are continuing to fly now on normal operations.

This is good for a number of reasons. It builds confidence in the design of the aeroplane and also it indicates that the aeroplane can be supported by regular maintenance, so they are gaining experience on how to support the aeroplane, which is of course good for any customers of the aeroplane as we go down the track.

Mr ROBERT: How many aeroplanes have been delivered to Eglin?

Air Vice Marshal Osley : I will probably have to take that one on notice. The comment I will make at this point is that I believe that they have six down there at this point in time.

Mr ROBERT: Under 10?

Air Vice Marshal Osley : Under 10, yes.

Mr ROBERT: What is their hope in terms of flying hours between now and the end of the year?

Air Vice Marshal Osley : At this point in time the F35 has flown 2,600 hours and I imagine that they will fly at a rate of about 200 hours per aircraft for the production ones down at Eglin. That is about their expected flying rate. They are getting more aircraft delivered to Eglin. The Marines are sending down production aeroplanes as well. Eventually they will have 59 aircraft at Eglin.

Mr ROBERT: By what date?

Air Vice Marshal Osley : That would be within the next two years or so.

Mr ROBERT: What is the next milestone for Eglin?

Air Vice Marshal Osley : Regarding the next major milestones for this year, if I can talk about tests, they will be doing some of their initial work with weapons towards the end of this year—opening weapons-bay doors, flying with shapes on board of weapons and doing some initial deliveries. Also this year they will be doing more missions systems testing. There are also other milestones for this year. The conventional takeoff and landing aeroplane will reach at least its first fatigue life. They have tested in static testing and in dynamic testing. They have the test article and have been through half an aircraft life, and they will get to a full aircraft life by the end of this year. Sixteen thousand hours equivalent will be achieved by the end of next year.

Mr ROBERT: What is your level of confidence in terms of how the program is progressing?

Air Vice Marshal Osley : It is a developmental program and there will always be risks with a developmental program. However, what I am confident of is that they have a realistic schedule at this point in time and they have full and, I would say, very adequate funding for the development and any issues that might pop up. They have factored in contingency in the schedule for software development for any problems that come up in flight test. For example, on flight test, there is about 30 per cent extra contingency for any issues that arise that cause them to be delayed. There will be issues. There have been already. We have had issues with the integrated power package, which needed redesign of a valve and other things. I imagine that there will be more problems. However, that is part of the doing the testing and it has been allowed for in the schedule. Still, we will get through to the development test around the mid-2017 time frame.

Mr ROBERT: Is there any change to the current delivery time frame for Australia's JSFs?

Air Vice Marshal Osley : At the end of 2009, the government said that the indicative initial operating capability would be the end of 2018. We are not funded to go to initial operating capability. We only funded for 14 aircraft. When we go back to government—I do not think that will be before the end of the year; perhaps at a time when the government would like to see that proposal—we will put forward options for initial operating capability. It could still be as early as the end of 2018 or it could be a little bit beyond that, depending on the amount of risk we see in the program. In either case, the indication that I have is that the FA18 A/B fleet is able to go through to mid-2020 or a bit beyond that. That provides flexibility for us to have a slightly flexible IOC there. I have good confidence that there is an IOC that we can achieve which will allow us to have an orderly transition from the FA18 A/B to the joint strike fighter.

Mr ROBERT: What events would get you worried, Air Vice Marshal Osley?

Air Vice Marshal Osley : I am going to touch wood here—

Mr ROBERT: We will take that as given. By the way, is the pilot who went over 9Gs flying? You said it had met its 9G—

Air Vice Marshal Osley : They tested the aeroplane to about 9.88G on a 9G aeroplane.

Mr ROBERT: Is he well?

Air Vice Marshal Osley : He is fine.

Mr ROBERT: So what would get you worried in this program?

Air Vice Marshal Osley : There is always the unknown. They have factored in delays in software and—

Mr ROBERT: Let's park there. What key events, what key milestones, are being missed—or an event at Eglin, apart from a crash?

Air Vice Marshal Osley : Things that I am watching for include significant delays in software development. They have set a number of milestones and I will be making sure that they meet those milestones. Any indications that they are failing to achieve those will be a warning to us that they may not get to them. The other thing I will be watching for very carefully is movement of capabilities from one software lot to the next. You can still stay on track and appear to be on track, but I will be making sure that capabilities remain in those software elements, or if there is movement of capability that the resultant software still meets our initial operating capability. We have a very defined requirement for what is the minimum threshold capability we need for IOC, and I will be watching to make sure that that software does achieve that. Those are probably the key elements.

Mr ROBERT: So you are reasonably happy with the aircraft, its engines, its design, its flying capability, training schedules—

Air Vice Marshal Osley : Yes I am. There are issues, as always, with things that I would probably bore you with—things like transonic roll off and other stuff that perhaps Senator Fawcett knows more about than any of us here. Yes, we are watching those things, but none of these events so far have been show stoppers. None have been really significant speed bumps. What is coming out of flight test is probably very similar to what has been seen with previous aeroplanes. They are in fact reducing a lot of the problems through tweaking the software. At this point in time there has been no requirement to change the outside shape of the aeroplane, and perhaps that is the best indication that the design is robust.

Mr ROBERT: I think your staff had a bet with you that you could not get 'transonic roll' into an answer!

Air Vice Marshal Osley : Not quite true!

Senator FAWCETT: Perhaps I could just come back to one point following on from Mr Robert's point about things that might cause you concern. Are you happy that the HMDS is on track?

Air Vice Marshal Osley : It is the first aeroplane that has three things, basically, in it. It has no head-up displays, so it has the ability to display aircraft data so you can fly the aeroplane in instrument met conditions. Also it has a sight so that you can drop bombs through the helmut—and that has been on other helmuts before. But, most importantly, it also displays all your sensor information, so basically as you look around the environment around you—360 degrees around the aeroplane—even at night or in poor conditions, you will basically see a representation of the Earth around you. Superimposed over that are threats and friendly forces out there. So it is quite an incredible amount of information coming through the helmet.

The issue with that is that by the time you put all that information through the helmut you end up with a delay—a latency in the helmut. They have now demonstrated that that latency is not impacting the ability of the pilot to do normal tasks out there. They have had pilots, with that delay in the helmut, landing on simulated LHDs, doing tasks such as low-level flight and strafe, and so far that has been good. The only occasion on which there has been a problem whereby the latency became an issue was night air refuelling against a tanker using the probe and the basket with the lights out on the tanker. We do not do that, and I do not think the United States Air Force would regularly do that either. It would only be done if you were trying to do night refuelling in a hostile area at relatively low altitude. So the latency does not really appear to be an issue with the helmet.

The second thing that came up was jitter. Because the seat moves when you are pulling a lot of G, the helmut display is not compensated for, so you get some jitter, and it makes it hard to read at high angles of attack when you are pulling G. They have put an accelerometer on the seat to measure that and then compensated for it in the helmut, and that appears to be working. Either way, they have an alternate path that the United States military is going to fund. So we are not funding it, but it is all being done as part of the SDD phase—the development phase. They are taking some of the sensor data away and putting night vision goggles on the outside of one of the helmuts, and everything else remains the same. That is there as a risk mitigator. They will keep doing both paths until they get to a decision point, which will probably be the end of next year, and they will probably make a decision to cancel the alternate path and just proceed with the other path. So that is the current status of it. But so far it is showing quite good promise with the things they have done with it.

Senator FAWCETT: Out of interest, are you monitoring the US Marine Corps development of their HMSD for their new attack helicopter, which has gone down a similar alternate path and has become their permanent path? It would be worth monitoring, because it is not a good solution.

Air Vice Marshal Osley : Yes, it would.

Senator FAWCETT: In terms of the weapons load-out, with the variant we are purchasing, is there a maritime strike weapon as part of the weapons load-out?

Air Vice Marshal Osley : There is no maritime strike weapon in the current plan for the conventional take-off and landing aircraft. The US navy is interested in getting a maritime strike weapon for the carrier variant of the aircraft. They have various options there, the most logical of which appears to be the Joint Standoff Weapon variant C1, which has the same maritime strike capability that we are getting on the F18 F as of 2013.

The current most likely path on the way ahead—and our path to a maritime strike capability is something we are developing at this point in time—is that the US navy will pay, as part of their development for block 3 and block 4 together, part of the initial development, with some money to add in some extra capability under block 4, which comes through in 2020 as part of the follow-on development. They should put the Joint Standoff Weapon C1 onto the navy variant of the aircraft and then we will probably pay to have the testing done to transfer that across to the air force variant.

The mitigating risk there is that the weapons bay is identical on the carrier variant and the conventional takeoff one that we have, and also that the software is identical between all three variants. The software integration will already be in there and the bay will be the same; what is different is the plan area of the wing. We are not underestimating that, and we are looking at how difficult that will be, but it will probably be tens of millions rather than the hundreds of millions it might be if it had a totally different weapons bay and totally different software. We think it will not be as difficult as it has been in the past with some weapons on some air combat aircraft.

Senator FAWCETT: Given the amount of aircraft stores compatibility testing we have traditionally done here on the back of existing US navy testing for the Hornet, is there any plan to retain a capability for Australian stores compatibility testing as opposed to just exporting everything to the US? I ask this given that we have consistently done more thorough testing and found some holes in what has been tested by them.

Air Vice Marshal Osley : The way ahead for the Joint Strike Fighter is that the only orange-wired aircraft—the only aircraft capable of doing some of the more detailed testing—will remain in the US. They are not exportable. The most likely way ahead and the way that we are planning to go is that we use people out of AOSG, our test-pilots and our flight-test engineers to run the program over in the US. If we need to do something different or along the lines of which you are speaking we would have those people engage with the relevant US area—in this case the United States air force. They would work with the air force operational test and evaluation or development test people, and would construct the testing and supervise the testing. The actual testing would probably be done in the future using United States air force aeroplanes. That is the model for how we imagine this will go on. This is the model that AOSG already understands, and we are engaging AOSG staff, our flight-test engineers and our test-pilots in getting familiar with the F35 in the States.

Senator FAWCETT: Given that we have already had one example, with the Super Hornet, of where we have had to do some work on integrating external stores, rather than weapons, so that we could deploy the aircraft where we sovereignly wish to, what guarantees do we have for priority of access to that kind of test and integration capability if we as a sovereign nation wish to do something in a given time frame?

Air Vice Marshal Osley : That is a very good question. To be honest with you, they have a large number of development and operational test assets. We will obviously have to seek to get access to those, put our orders in in advance and try to predict these things. Until we put our request in I really cannot say what the time frame would be. Historically, though, the United States Air Force and the Royal Australian Air Force have a very close relationship. I have asked for a couple of items that I would like included in the test program. For example, we will need compatibility with our KC30 tanker and things like that. I have received very favourable responses about providing assets in the time frame to do those testings. So far, all I have really got is that they have been very accommodating. They have quite a few test assets. I do not anticipate it being a major issue to get the test assets in the time frame we need; however, I cannot guarantee it.

Senator FAWCETT: One of the items that came up for discussion quite a bit earlier on around sustainment was acquisition contracts and the fact that during the acquisition phase is the time when we need to be reaching agreement on the level of Australian involvement in the through-life support system. Things like that flight test capability would form just one element of that. To what extent have we been able to drive Australian involvement? I am talking not just about manufacturers making elements of the aircraft but about our ability to have our engineers and our design staff inside the decision loop and the design knowledge loop of the through-life support system. Or, to what extent is it a bit like the Globemaster program, where we were essentially just a taker of a global system?

Air Vice Marshal Osley : We have quite a good insight into that. We have about a dozen Australians embedded in the Joint Strike Fighter Program office, several of whom are involved specifically in the logistics support area for the Joint Strike Fighter Program. We have people involved in the contracting of that logistic support. Also, we have engaged directly with Lockheed Martin and the JSF Program office to work through what the Australian solution will be, how we want to include elements of Australian industry and how we want it to integrate with the rest of the Defence Force, as opposed to being a take it or leave it type arrangement.

We have moved far beyond it being just a performance based logistic concept. I think Australia is actually quite lucky in this respect, quite well experienced in this area. If you think about the F111, that went from being a system we supported totally within the Australian Defence Force to ultimately being almost a performance based logistics contract using Boeing and other contractors. So we have experienced the full range of different capabilities for logistics support. I think we are reaching a very good hybrid arrangement for providing the sustainment support. Indications thus far are that the estimates we provided to government at the end of 2009 are about right for sustainment. I think our understanding of sustainment costs and how it is going to be delivered will improve over this coming year, but at this point in time I think we are as far advanced as any partner on the sustainment side.

Dr JENSEN: First of all, are you saying, Air Vice Marshal Osley, that the simulations that have been done had been done using flight simulators rather than computer simulations?

Air Vice Marshal Osley : In fact, both are used. There have been a lot of studies and simulations done to check out the F35 capabilities versus others. Most importantly and most realistically, they have used manned simulations to test out the capabilities against representative threats.

Dr JENSEN: Certainly the issue of the fidelity, I guess, of the flight sims concerns me a little bit. When I asked Air Marshal Brown at a meeting about the acceleration of the Joint Strike Fighter versus chase F16s and F18s, he reported that when he had flown the sim it had no problem out-accelerating both of them. Yet I have had information that suggests that both the F18 and the F16 flying chase in test flight comfortably out-accelerated the Joint Strike Fighter. I just highlight that as a concern.

Air Vice Marshall Osley : The design criteria of the F35 provided that it would have representative performance similar to the advanced legacy aeroplanes. When you get down to this level you need to make sure you are comparing apples with apples. For instance, with some of those figures, if you say that you want 50 per cent of remaining fuel in the aircraft, the F16 normally flies with tanks. With some of the acceleration numbers they have used a clean aeroplane with half fuel. If you had a clean F16 with half fuel, all it is going to do is accelerate, declare an emergency and land with minimum fuel, because it has almost no fuel. The F35 carries a lot of fuel internally and so 50 per cent fuel is actually more than the total internal fuel of an F16.

Dr JENSEN: Certainly the indication I got was that an F18 'Charlie' with a centre-line tank still comfortably kept up with a Joint Strike Fighter.

Air Vice Marshall Osley : Again, you need to think about the altitude and all those sorts of things. I will not compare every part of the envelope, but the indications are that the F35 is of very comparable acceleration and performance to an F18 in a combat configuration. In a combat configuration, no F18 and no F16 goes into combat without some form of external tank.

Dr JENSEN: You were talking about weight not being an issue. The problem is that the JSF is already over the 28,948 pounds from the planned amount not to be exceeded. It has already gone over the not-to-exceed weight. There are some problems in the system that have been identified, such as structural issues and so on, that will need to be fixed. That will ultimately result in not only more weight for the direct fix but more weight to make adjustments to the centre of gravity and so on. This is obviously going to adversely affect performance. Is this figured into your calculations for the future at all?

Air Vice Marshall Osley : I do not believe your statement about the F35 being overweight is correct. I do not have the figures here, but the latest estimate that I have is that it is around 90 pounds or so under its maximum weight. The conventional takeoff and landing aircraft last exceeded its allowable weight back in late 2004.

Dr JENSEN: The SWOT analysis?

Air Vice Marshall Osley : Yes. There was a very extensive program that went through and modified many, many parts in the aircraft to reduce the weight. They took several thousand pounds off the aeroplane and it has since been under the not-to-exceed weight and it continues to be under the not-to-exceed weight as of the latest reporting I saw yesterday at the JSF Executive Steering Board.

Dr JENSEN: It has certainly crept up. As I said, my info is that it has already gone over, but anyway—

Air Vice Marshall Osley : That is not correct.

Dr JENSEN: Okay. Can you tell me why Super Hornets in the United States are not allowed to operate with radar on in close vicinity to the Joint Strike Fighter?

Air Vice Marshall Osley : I have not heard that, so I would have to take that on notice. I have not heard that there is any limitation. Certainly the F16s and other aeroplanes operate near the JSF.

Dr JENSEN: I think the concern here is that it is an ASEA radar that has possibly got them concerned in terms of detection of a stealth aircraft. Regarding the notion of 'within visual range', I know that the doctrine and the theory is that air combat is going to pretty much all take place beyond visual range. Such was the dream back in the late fifties as well when they dropped a gun out of the F4 Phantom, only to find that the missiles did not work as advertised and they had to retrofit a gun.

Within visual range, how would you characterise the performance of the joint strike fighter against something like a Su-35?

Air Vice Marshal Osley : Actually, within visual range the issue is not how it performs against a Su-35, it is how it performs against a modern generation missile. Essentially, within visual range—and I do not want to go into too much detail—means that you are within a mile or two and you actually are able to see the other airplane. You basically have gone to a merge. If you go to the merge, and if you each have a helmet mounted sight and you have a highly-agile missile then chances are you are both within range of not escaping if they fire the missiles. So there is a very high likelihood that both of you will die.

Dr JENSEN: Yes, but a little bit further out, yet still within vision range, where you have a highly agile aircraft versus the JSF, that aircraft could use its agility to manoeuvre into the favourable position that you were talking about the JSF manoeuvring into beyond visual range—what about those sorts of circumstances?

Air Vice Marshal Osley : The F35 will play to its strengths using low observability and using better situational awareness. Its aim would be not to get within visual range. It does not need to be within visual range because of the sensors it has on board. I mentioned before that it has perhaps three times the software and therefore the discrimination of other modern aircraft. Its strength is its ability to recognise and identify an enemy aircraft at beyond visual range well ahead of the other aircraft—

Dr JENSEN: Yes, but assuming, let us say, that you are bingo with your—

CHAIR: Hang on a minute. Can I ask that the question you asked be answered fully? I have an interest in this area as well.

Air Vice Marshal Osley : And so the strength of the joint strike fighter—and I use this as an example—is that it has the ability to have up to 650 parameters by which it will identify a potential threat out there. Other aircraft, such as the F22 have about a third of that and fourth-generation aircraft have perhaps half a dozen. So if you are in an F18 or in some of the other Soviet aircraft you only have a very limited understanding of what the threat is and being able to identify it at a distance. If we are able to do as we plan with the F35, and that is to have good access to the software and to be able to program it appropriately with mission data, it will have the ability to identify hostile aircraft at quite a considerable distance. Then decisions will be made within the formation, it will play to its strengths and it will defeat it, but not by going within visual range.

Dr JENSEN: But the point is, if that is the case—and you are saying that, basically, within visual range is not going to happen—why has the thing got sidewinders and a gun? That is just carrying so much lead.

Air Vice Marshal Osley : The sidewinder can actually go a little bit further than you can see, and also it does provide that close-in capability, of course, if you do end up with an aircraft that is not an air combat aircraft which you want to take out. There are many targets out there that are not other fighter aircraft.

Also, it has a gun because, if I can use the Middle East as an example, one of the lessons out of the Middle East with air combat aircraft is that the gun was used quite considerably to do low-collateral damage attack on the ground. We certainly want that capability in the aircraft.

Dr JENSEN: So then why has the F22 got a gun? It is supposedly air-to-air only. It just seems to me to be utter wishful thinking to think that all air combat is going to be beyond visual range, that it is never going to get within visual range. The sidewinder, yes; as you correctly say, in ideal circumstances, with ideal geometries can be just BVR. But, basically, it is a within visual range—

Air Vice Marshal Osley : No, as I said, air combat aircraft have the potential to take on other fighter aircraft. You also may, under certain circumstances, want to shoot down other potential targets out there. They could be transport aircraft or maritime patrol aircraft or whatever. Therefore, you are not always going to be using your sidewinder missile against only air combat assets. It does give you flexibility and, as you say, there is the potential if, in certain situations, you may end up in a situation where you want to use that missile. That is correct. The F22, having a gun, I can give you—having thought about it for perhaps another two seconds—an aerial situation where it is used in air-ware role. That is, if you have an aircraft that is coming in towards a target—an airliner or something like that—where you suspect it has been taken over by terrorists or something like that, a 9/11-type situation, you may want to fire across the front of the aircraft to demonstrate to it that you want it turn away. You cannot fire an AIM9 missile and—

Dr JENSEN: So you are putting in a lot of lead into an aircraft to scare terrorists with gunfire. I put it to you that the reason—

CHAIR: I do not think that is what the witness was saying.

Dr JENSEN: No, but I put it to you that the reason that—

Air Vice Marshal Osley : I gave you an example.

Dr JENSEN: Yes, but I put it to you that the reason they put a gun in the F22 was that the Americans learned a very hard lesson in the 1960s with the F4 in Vietnam, where missiles and scenarios were not working the way that they were supposed to perform. You had AIM9 missiles that were supposed to be shooting down 90 per cent of their targets and they shot down 20-odd per cent; AIM7 Sparrows that were supposed to shoot down 75 per cent to 80 per cent of their targets and they shot down 12 per cent. What happens if all of your electronic countermeasures, with various manoeuvres and so on, the AMRAAM suddenly goes down to something like a 0.2 or 20 per cent probability of kill, so, therefore, even when you are shooting all four of your missiles with an eight-versus-eight scenario, you have quite a few of your enemy coming in at you to within visual range and fight first of all by shooting their long-range missiles at you. I would agree that with a stealth aircraft the probability of a radar-guided missile killing you would be somewhat less than the probability of a radar-guided missile killing a non-stealthy target, but there are some long-range infrared guided missiles out there as well. What happens in that scenario?

Air Vice Marshal Osley : At the unclassified level, I have explained how the F35—the concept—works. I have not gone into classified detail about the exact tactics that would be used. I have indicated that we would play to our strengths. I would like to leave it at that, if I could.

Dr JENSEN: Okay, but I put it to you that you are talking about a somewhat idealised world where things are working as advertised rather than what you tend to find in real combat where things do not work as advertised and things get dirty and nasty pretty quickly.

Air Vice Marshal Osley : I am talking about a situation where we have man-sims where I have fighter combat instructors and people who fly the F18s, several of whom have flown in combat, and, admittedly air to ground in the Iraq war, but these people are experienced. We have USAF people who are manning it up on the other side and I think we have come up with scenarios that challenge the F35, and the F35 prevails. The nearest thing that we can get to combat is manned-sims versus man-sims with the level of detail that the—

Dr JENSEN: Can I put it to you that the Americans would have been doing the same thing in the fifties and the sixties when they made the assumptions about how the Sparrow and the Sidewinder were going to perform?

CHAIR: That is not a question; that is an opinion.

Dr JENSEN: At what stage in terms of increasing cost or slippage of schedule would you say, 'Hey, we have to look at a plan B'. If so, what is the plan B? What in terms of schedule, what in terms of cost? What is the number of JSFs that you think you would be prepared to accept?

Mr King : (inaudible) the minister has already said that we had to do a review this year. I am not going to lay down precise criteria here. We will look at that whole issue. There are a number of problematic factors. There is still risk with the program and cost issues. The US through budgetary reasons has delayed a number of aircraft purchases, which has an impact on unit costs. By the end of this year the JPO will have completed about 30 per cent of the trial program. We will be a lot more informed over a range of issues. It will not be an issue that will tip the advice that we would offer the minister one way or another—it will be a range of programmatic issues that are evaluated and we will provide that advice.

Dr JENSEN: What concerns me here is that this is a program that seems to be slipping and prices are increasing, and there do not seem to be any thresholds here where you are saying, 'Hey, this thing is a real problem; we can only afford'—to be ridiculous—'one JSF with the budget we have, or otherwise we are only going to achieve operational capability in 2030'.

Mr King : I am a pessimist by nature but, having said that, I co-chaired a meeting yesterday with nine nations, all of whom are very pleased to see that the program has been rebaselined. I think Air Vice Marshal Osley made mention that there are schedule issues and there are cost issues. There are two new FMS customers buying significant quantities. All of those nations have evaluated many of the issues that you are talking about, in terms of capability and programmatic issues, and it would be fair to say that each nation is fundamentally committed to the project but looking at the appropriate time to make the next tranche of buys or whatever. They are not just a single issue. Air Vice Marshal Osley also made the point that at this stage the project, the part that is through the second pass, is working within the cost and schedule parameters that were set. But we will know a lot more by the end of this year when we have to advise the minister on all of that range of issues.

Dr JENSEN: I guess my concern is if we had known what the schedule was going to be and what the cost was going to be in 2002, we probably would not have made the decision we made.

Mr King : But we do not have a parallel world. We would have done the same with F111—we would not have bought it and we would not have had the F111 for 30 years. We would have done the same with Bushmaster—we would have cancelled it and Australians today might be dead.

Dr JENSEN: I disagree on the F111; I do not know enough about Bushmaster.

Mr King : The Bushmaster is exactly the same. It was failing cost and failing schedule. It is an Australian designed product, a great product. Many of these products are hard to deliver, hard to design, hard to bring to maturity. If we had backed away from Bushmaster it would have triggered early indicators and warnings and might have been cancelled. If we had done that, there almost certainly would have been Australian troops dead as a result. That is the nature of a complex world. I cannot, you cannot, make a perfect decision on every issue. There are big global issues at stake here. I am not a combat pilot and I do not understand it, but we know that we work in an integrated atmosphere—we work with an ally, the US. Contemplating assets and capabilities that do not exist in that allied framework is a little bit outside the reality.

This year we will evaluate all the matters—the cost matters and the schedule risks. There are risks—Senator Fawcett mentioned the helmet. We saw work yesterday that has appeared to retire a great many of those risks, though there is one remaining area. There is software risk. In my mind there is a lot of software yet to be developed, and software always creates issues in terms of field of capability. They are nearly always solved, but it usually comes with a cost and it usually comes with a schedule impact. It is not just one parameter that triggers it. All of that will have to be balanced against the life of our current assets and the government's desire, stated by the minister very clearly, not to have a capability gap. We will evaluate all those things and we will make a recommendation to government.

Dr JENSEN: To paraphrase what you are saying, and you can correct me if I am wrong, you are saying that we are committed to the JSF, that it is almost a case of we will take it at whatever price, we will just adjust the number of the buy that we get and we will accept any schedule, and ultimately that might mean more Super Hornets.

Mr King : If think that I or the defence organisation go about our business on that sort of basis, it is just wrong—simply wrong. We do not spend a lot of time with a lot of people, both in the JPO, in our own organisation here in Australia, in our interactions with CDF Secretary, Chief of Air Force, just saying, 'We will pay whatever is necessary.' And a great deal of yesterday's discussion, as you can imagine, by every partner nation, was about cost. Every partner nation, like us, has budget constraints—and, in fact, some of those nations have serious budget constraints; even the US has serious budget constraints. If you do not think that a great deal of that conversation is about cost, how to drive out cost, what we expect from Lockheed Martin and industry partners in driving out cost, you would just be saying to us, 'We are not doing business,' and we do do business, and cost is a big issue to us.

As you know there have been CAPE cost estimates. As you would also know, the more aircraft that are bought, the lower that cost, relatively, will come down. What we are looking for now, for example, as a marker—if you want a marker for us—is what the LRIP5 cost is, which has not yet been finalised, against what the parametric cost estimate, the CAPE estimate, for that was. We were hearing promising words yesterday. So we are waiting. For example—a secret—all of the partners yesterday said, 'We want to see that LRIP5 price.' It is a very keen market for us all, because the reduction in price you get with number of lots will be anchored by what LRIP5 price was. So that will give us a key indicator as our projector—and it is a real cost; it is not a parametric cost.

Dr JENSEN: The point is that you say the LRIP5 is a critical indicator, but what concerns me is that there does not seem to be a threshold that you are placing in there. There do not seem to be thresholds or milestones specifically where you are saying, 'Well, if this is crossed, we will have to look at other options.'

Mr King : There are a number of issues, but I am not going to disclose here, because I could not necessarily, how the interplay of all those issues will come together. There are key issues—cost, schedule, IOC, our ability to have IOC on the back of the American IOC, the life of our classic Hornets—and all of those will interplay. We will definitely go into that in great detail, with a risk analysis. For example, we had our own schedule risk analysis conducted late last year against a US program. That has given us some insight. I guess I would say it was relatively consistent with the risk program that the Americans came up with with their independent risk analysis. In the US there is a great amount of interest in this program. They have got independent analysis of costs done by the likes of CAPE. You have got the US Navy and the US Air Force independent of the JPO looking into the program, because they are fiercely concerned for their own capability about what the costs of the aircraft are, and we are equally.

The reason I cannot give you the single parameter is that they will all come together in some complex totality. I think what Air Vice Marshal Osley touched on, which is comforting for us, is that we are not at the point yet where that capability gap has emerged. We have the classics. We have invested in them. But we will hope that, by the end of this year, we will be much better informed.

CHAIR: There are a couple of procedural matters. Is it the wish of the committee that the submission from Air Vice Marshal Osley be accepted as evidence? It being moved by Ms Brodtmann and seconded by Senator Macdonald, it is so ordered.

I thank the witnesses for their attendance here today. If you have been asked to provide additional material, please forward it to the secretary. You will be sent a copy of the transcript of your evidence, to which you can make corrections of grammar and fact.

Resolved (on motion by Senator Furner):

That this committee authorises publication, including publication on the parliamentary database, of the transcript of the evidence given before it at public hearing this day.

Committee adjourned at 15:39