Note: Where available, the PDF/Word icon below is provided to view the complete and fully formatted document
Foreign Affairs, Defence and Trade Legislation Committee
28/05/2012
Estimates
DEFENCE PORTFOLIO

DEFENCE PORTFOLIO

In Attendance

Senator Feeney, Parliamentary Secretary for Defence

Department of Defence

Mr Duncan Lewis AO, DSC, CSC, Secretary

General David Hurley AC, DSC, Chief of the Defence Force

Mr Simon Lewis PSM, Chief Operating Officer

Outcome 1—The protection and advancement of Aus tralia’s national interests through the provision of military capabilities and promotion of security and stability

Program 1.1—Office of the Secretary and Chief of the Defence Force

Mr Brendan Sargeant, Deputy Secretary Strategy

Mr Neil Orme, First Assistant Secretary, International Policy Division

Mr Michael Shoebridge, First Assistant Secretary, Strategic Policy Division

Ms Rebecca Skinner, First Assistant Secretary Ministerial and Executive Coordination and Communication

Mr Geoff Earley AM, Inspector General Australian Defence Force

Group Captain Raymond Press, Director of Inquiries, Inspector General Australian Defence Force

Ms Shannon Frazer, Acting Head Strategic Reform Management Office

Mr Angus Kirkwood, Assistant Secretary Arms Control Branch

Program 1.2—Navy Capabilities

Vice Admiral Ray Griggs AM, CSC, RAN, Chief of Navy

Program 1.3—Army Capabilities

Lieutenant General David Morrison AO, Chief of Army

Program 1.4—Air Force Capabilities

Air Marshal Geoff Brown AO, Chief of Air Force

Program 1.5—Intelligence Capabilities

Mr Steve Meekin, Deputy Secretary Intelligence and Security

Mr Ian McKenzie, Director Defence Signals Directorate

Mr Frank Colley, Chief Security Officer

Program 1.6—Defence Support

Mr Mark Jenkin, Acting Deputy Secretary Defence Support

Mr Mark Cunliffe PSM, Head Defence Legal

Ms Alison Clifton, Acting Head Defence Support Operations

Mr John Owens, Head Infrastructure Division

Mr Mark Sweeney, Acting Head of Reform and Corporate Services

Program 1.7—Defence Science and Technology

Dr Alex Zelinsky, Chief Defence Scientist

Dr Ian Sare, Deputy Chief Defenc Scientist (Platform and Human Systems)

Program 1.8—Chief Information Officer

Mr Greg Farr PSM, Chief Information Officer

Mr Matt Yannopoulos, Chief Technology Officer

Mr Clive Lines, First Assistant Secretary Information and Communications Technology Reform

Major General Michael Milford, Head Information and Communications Technology Operation

Mrs Anne Brown, First Assistant Secretary Information and Communications Technology Development

Program 1.9—Vice-Chief of the Defence Force

Air Marshal Mark Binskin AO, Vice Chief of the Defence Force

Air Vice Marshal Kevin Paule AM, Head Military Strategic Commitments

Commodore Mark Sackley, Director General Strategic Logistics Branch

Rear Admiral Robyn Walker AM, Commander Joint Health Command

Air Vice Marshal Neil Hart, Head Joint Capability Coordination

Brigadier William Sowry CSC, Deputy Head Cadet, Reserve and Employer Support Division

Major General Craig Orme AM, CSC, Commander Australian Defence College

Program 1.10—Joint Operations Command

Program 1.11—Capability Development

Vice Admiral Peter Jones AM, RAN, Chief Capability Development Group

Major General John Caligari, Head Capability Systems

Ms Kate Louis, Acting First Assistant Secretary Capability Investment and Resources

Program 1.12—Chief Finance Officer

Mr Phillip Prior, Chief Finance Officer

Mr Adam Culley, Acting First Assistant Secretary Resources and Analysis

Program 1.13—People Strategies and Policy

Ms Carmel McGregor, Deputy Secretary People Strategies and Policy Group

Major General Gerard Fogarty, Head People Capability

Ms Phillipa Crome, Head People Policy

Mr Craig Pandy, First Assistant Secretary Human Resources Reform

Mr Neville Tomkins, First Assistant Secretary Defence People Solutions

Program 1.14—Defence Force Superannuation Benefits

Program 1.15—Defence Force Superannuation Nominal Interest

Program 1.16—Housing Assistance

Program 1.17—Other administered items

Outcome 2—The advancement of Australia’s strategic interests through the conduct of military operations and other tasks as directed by the Government.

Program 2.1—Operations contributing to the security of the immediate neighbourhood

Program 2.2—Operations supporting wider interests

Outcome 3—Support to the Australian community and civilian authorities as requested by the Government.

Program 3.1—Defence contribution to national support tasks in Australia

Department of Defence—Defence Materiel Organisation

Mr Warren King, Chief Executive Officer, Defence Materiel Organisation

Mr Harry Dunstall, Deputy Chief Executive Officer, General Manager Commercial

Ms Shireane McKinnie PSM, General Manager Systems

Mr Andrew Cawley, Acting General Manager Programs

Air Vice Marshal Chris Deeble AM, CSC, Program Manager Collins and Wedgetail

Air Vice Marshal Kym Osley AM, CSC, Program Manager New Air Combat Capability

Mr Peter Croser, Acting Program Manager, Air Warfare Destroyer

Rear Admiral Rowan Moffitt AO, RAN, Head Future Submarine Program

Air Vice Marshal Colin Thorne AM, Head Aerospace Systems Division

Rear Admiral Mark Campbell CSC, RAN, Head Helicopter Systems Division

Rear Admiral Peter Marshall AM, RAN, Head Maritime Systems Division

Major General Grant Cavenagh AM, Head Land Systems Division

Mr Anthony Klenthis, Head Explosives Ordnance Division

Mr Michael Aylward, Head Electronic Systems Division

Mr Mark Reynolds, Head Commercial and Industry Programs

Mr Steve Wearn, Chief Finance Officer Defence Materiel Organisation

Brigadier David Shields, Director General Land Manoeuvre Systems

Brigadier Greg Downing, Director General Land Vehicle Systems

Brigadier Mike Phelps, Director General Integrated Soldier Systems

Mr Ian Donoghue, Director General Defence Disposals Agency

Outcome 1—Contributing to the preparedness of the Australian Defence Organisation through acquisition and through-life support of military equipment and supplies.

Program 1.1—Management of Capability Acquisition

Program 1.2—Management of Capability Sustainment

Program 1.3—Provision of Policy Advice and Management Services

Committee met at 09:0 2

CHAIR ( Senator McEwen ): I declare open this meeting of the Senate Foreign Affairs, Defence and Trade Legislation Committee. I welcome Senator Feeney, the Parliamentary Secretary for Defence; General David Hurley, Chief of the Defence Force; and Mr Duncan Lewis, Secretary of the Department of the Defence; and officers of the Defence organisations. The Senate has referred to the committee the particulars of proposed budget expenditure for 2012-13 and related documents for the Defence portfolio. The committee must report to the Senate on 26 June 2012. Friday 27 July 2012 has been set as the date by which answers to questions on notice are to be returned. Senators should provide their written questions on notice to the secretariat by close of business on Tuesday 12 June 2012.

Under Standing Order 26, the committee must take all evidence in public session. This includes answers to questions on notice. Officers and senators are familiar with the rules of the Senate governing estimates hearings. If you need assistance, the secretariat has copies of the rules. I particularly draw the attention of witnesses to an order of the Senate of 13 May 2009 specifying the process by which a claim of public interest immunity should be raised and which I now incorporate in Hansard.

The extract read as follows

Public interest immunity claims

That the Senate—

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

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

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

(1) If:

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

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

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

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

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

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

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

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

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

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

Officer who are called upon for the first time to answer a question should state their name and position for the Hansard record. Witnesses should speak clearly into the microphone. Please ensure that all mobile phones are turned off or silenced. The committee will adjourn for lunch between 12 pm and 1.30 pm and for dinner between 6.30 pm and 7.30 pm. We will take our tea break this morning at 10.30 am. Other breaks will be at 3.30 pm and 9.00 pm or as required. Refreshments are available in the waiting room. Senators should note that Defence have advised the committee that the secretary and CDF will need to excuse themselves for a couple of hours from about 5 pm today to attend some cabinet business.

Minister, do you or an officer wish to make an opening statement?

Senator Feeney: Thank you, Chair. As is our custom, I will not be making a statement. This morning we will begin with a statement from the CDF before we hear from the secretary of the department.

CHAIR: Thank you. Thank you, CDF.

Gen. Hurley : Thank you for your indulgence this morning. I will actually make two opening statements, one initially to address some very serious allegations which appeared in the newspapers this morning and then, following the secretary's opening address, I will give a brief operational update.

Chair and senators, I would like to begin this morning by addressing a number of serious allegations raised in News Ltd papers today about the repatriation and handling of the remains of Australian Defence Force personnel from Afghanistan and the handling of Afghan remains. I am deeply disappointed at this attempt to sensationalise what is a very sensitive issue for the families of our fallen and their comrades. In speaking to the families concerned over the past few days, their reactions to the intention to publish this story have ranged from 'un-Australian' to 'incredibly insensitive' and words I will not repeat in this forum. All three families have expressed their disgust that a newspaper would seek to make a story of these issues. Publication today is particularly insensitive given that two of the families are trying to deal with the first anniversary of their loved one's death.

The articles this morning did not prompt the serious investigations, as the articles suggest. The issue of the orientation of caskets was raised in mid-2011 and is the subject of an Inspector-General of the Australian Defence Force inquiry initiated in January 2012. However, I felt so strongly about the allegations being made and the potential to cause undue distress to the soldiers' families and members of the ADF that I ensured that the department's responses to the journalist's questions last week were drawn from the inquiry outcomes to date, and they were quite detailed. I spoke to the journalist at length on two occasions and I also spoke to the paper's editor yesterday in an effort to ensure that the facts were accurately reflected in the story.

Defence photographic records show that on three occasions, once in 2008 and twice in 2011, caskets were used incorrectly during the initial part of the return journey from Afghanistan. In two instances, the orientation of the caskets was corrected when the remains were transferred to mortuary facilities in the Middle East, and in the third case the error was reverently corrected before departing Al Minhad Airbase in the UAE.

Let me make it very clear that all inquiries to date have shown that the bodies were treated with the utmost respect and dignity. Importantly, the evidence to date indicates that the bodies were correctly oriented in the caskets at all times. Statements from the Australian Defence Force personnel who escorted and cared for these men on their return journey support this. Further, for continuity purposes, Defence authorities conduct a physical check of the human remains at each point of transfer during the repatriation. This involves opening the casket to reconfirm identity. Let me make it very clear again that at no time during these procedures has a misalignment of the bodies been identified and at no time since 2008 has Defence received any advice from Australian coronial authorities to indicate that bodies of ADF members were transported incorrectly. This is supported by ADF medical officers, who have attended the autopsies of all ADF members killed in Afghanistan since 2008. Medical experts have advised me that physical evidence would have been present if the bodies were not transported correctly.

The cause of the incorrect orientation of the caskets on these three occasions is, as I said, subject to an inquiry by the Inspector-General of the ADF. As one family member put it, it was an honest mistake that was quickly corrected. Clear guidance on the correct use of caskets has been issued, and I will keep you and the government informed of this matter.

The news article today also refers to allegations that some ADF human remains were not repatriated in accordance with Defence policy. Again, Defence is aware of these allegations in 2011, and they are the subject of an Inspector-General of the ADF inquiry that was initiated in January this year. Without pre-empting the outcome, the inquiry to date has shown that the remains were handled with the utmost dignity and respect. The inquiry findings to date show that what appears to have occurred was a difference of professional opinion between medical staff and investigators about coronial requirements for handling medical devices in the human remains. Medical staff thought devices should remain in situ, and investigators thought they should be removed. This difference of technical opinion has been resolved and addressed by the issue of an Australian Defence Force Investigative Service technical bulletin. This technical bulletin was issued shortly after the matter was first brought to attention. I would also like to put on the public record that Defence's standard operating procedures in relation to the handling of human remains were reviewed and endorsed last August by the Australasian Coroners Society, whose membership consists of coroners from all Australian states and territories and New Zealand.

I turn now to other allegations raised in the media reports today. Defence inquiries, again, into these matters were not initiated in response to these articles. Facts were provided to the journalist in a detailed response on the basis of inquiries that were conducted at the time of the incidents. As the department stated, any reference to the death of an Afghan local national as 'Weekend at Bernie's' is derogatory and ill informed and does not accurately reflect the facts.

We understand that this allegation may relate to an Afghan insurgent who was wounded in an engagement with Australian forces in October 2010. This insurgent was immediately treated by Australian forces and transferred under custody to the ISAF Role 2 medical facility at Tarin Kowt, where he was treated but subsequently died. Afghan staff at the Tarin Kowt hospital, as the appropriate local authorities, arranged for local transportation to transfer the remains back to the insurgent's home. It is understood that the local community held a funeral service for the insurgent. The vehicle used to transport the man's body may have also been used as a taxi, and, while the practicalities of handling local national human remains in Afghanistan may not accord with Australian norms, the handling of the remains in this instance was in accordance with the ISAF Role 2 practice at the time. Defence subsequently reviewed this matter and identified that local procedures in place for handling local national human remains were not clear or coordinated and has since developed more specific guidance to the ADF on its responsibilities in the management of local national human remains, including for detainees. At no time, can I say, did I blame the Dutch or ISAF for this incident.

Regarding allegations of the detention of the dead insurgent's son: contrary to claims by others, ADF personnel did not transfer the deceased man's son to US authorities. The individual's son sought to enter the Tarin Kowt base to find his father. Upon arrival at the base, the son was screened by ISAF officials, one of whom happened to be a US officer, as a standard practice for all local nationals seeking to gain access to the multinational base in Tarin Kowt. This is understandably a force protection measure. Following this screening process, it was determined that the ADF should detain the son as a suspected insurgent or an associate of a suspected insurgent. ADF personnel detained the individual and transferred him to the ADF initial screening area. The individual, who was identified as 16 years old, was detained for a short time to determine his identity and was questioned briefly about his father. He was released from detention within two hours.

A routine inquiry, known as a 'quick assessment', reviewed the available material, including the prisoner-under-custody report, or 'book', referred to in today's article, and determined that, while in ADF custody, the individual was treated in accordance with Australia's domestic and international legal obligations. Contrary to the news article, the quick assessment does refer to the issue of tactical questioning. Further, there is no record to substantiate the claim that the son was transferred to US custody by the ADF. In fact, the opposite occurred.

The Australian Defence Force is fighting a war in a complex operating environment. Australian forces are highly trained and very professional. However, in the complexity of these operations, there may be instances where some conduct may be alleged to be unlawful or inappropriate. Any attempts to compare these claims to events at Abu Ghraib in 2006 in my view are vexatious and a gross misrepresentation of the facts.

Our detainee management framework draws on applicable international standards and advice from international organisations, including the International Committee of the Red Cross, ICRC. In developing our detainee management framework, we have worked to ensure that it is robust and reflects best international practice and governance arrangements and that it is consistent with the laws of armed conflict and the relevant Geneva conventions on international humanitarian law. Our detainee management systems and facilities are subject to external audit and visits by the ICRC. Defence take these matters very seriously. Administrative inquiries or disciplinary investigators may be conducted to determine whether or not behaviour or procedures were proper and lawful and whether lessons can be learnt from specific matters to improve our processes. Lessons learnt are applied to our training, pre-deployment and during operations to ensure that Australian soldiers maintain the highest standards of operational conduct. We also work closely with independent authorities such as the various human rights organisations and we make every effort to be transparent in these matters. In keeping with this transparency, I released the full response to the journalists' questions on the defence website today. I conclude by again reflecting on the reaction of the three families affected by these news articles, particularly in relation to the repatriation of remains. In the words of one family, the publication is un-Australian.

CHAIR: Thank you. We will now go to Mr Lewis for his opening statement.

Mr D Lewis : I note your earlier agreement, Chair, that the CDF and I attend to cabinet business this afternoon. The defence budget for 2012-13 was released on 8 May. This budget was developed following a comprehensive review to identify contributions that defence could make across the forward estimates to support the government's fiscal strategy. This will result in a defence contribution of $5.454 billion back to government across the forward estimates, starting with $971 million in 2012-13. In addition, the committee would be aware that we have had to reprioritise and reallocate approximately $2.9 billion across the portfolio to offset internal cost pressures in areas of concern, including the Collins class sustainment activity, information technology remediation activity and improved housing for ADF personnel. These savings have been found from the Defence Capability Plan, from the approved major capital investment program, the Major Capital Facilities program and from our operating budget.

The CDF will speak in a moment about the specific capability impact. I wish to emphasise that these savings will not impact on current operations in Afghanistan, East Timor or the Solomon Islands. They will not impact upon the equipment that our men and women need to do their jobs on these operations. It has been a challenging exercise to find these savings. We are still working through the detail, particularly when it comes to deferred, altered or cancelled projects. We will answer all of your questions to the extent that we can today and tomorrow, but there may be some aspects that we will have to take on notice. We are, as you can imagine, still undertaking discussions with the affected contractors and companies involved and there are obviously some sensitivities that we have to consider in protecting the Commonwealth's position.

Another area where we have undertaken to make further savings is in our civilian workforce. We will be reducing the number of Australian Public Servants in Defence by another 1,000 over the forward estimates, beginning with a target of 666 in the new financial year and 334 in the financial year 2013-14. This comes in addition to the reductions we have made to the civilian workforce through shared services reform under the Strategic Reform Program in the current financial year. We aim to achieve these reductions largely through natural attrition, recruiting adjustments and the cessation of non-ongoing employee arrangements.

At this time, we are not in a position to provide you with a program-by-program or region-by-region figure for the civilian workforce reductions. We are working through these very methodically and the CDF and I have tasked two senior officers—Mr Steve Grzeskowiak and Air Vice Marshal Jack Plenty—with working with all the groups and services on a plan to achieve the reductions. We will have more detail for you at the additional estimates hearing.

The Strategic Reform Program, or SRP, will continue in defence. We are continuing to meet our targets. We expect to meet our $1.284 billion target for the 2011-12 financial year. This comes on top of our meeting the $797 million target in 2009-10 and the $1.016 billion target in 2010-11. Since the SRP was announced, there have been other changes and reforms across the portfolio, including cultural reforms and two substantial reductions in the numbers of Australian public servants. So in this set of portfolio budget statements we refer generically to Defence reform to cover all reform processes underway across the department, including the SRP. The key point that I want to make about the SRP is that it is all about reform. Reform must be a constant as we proceed.

Notwithstanding the additional reforms and factors impacting reform, we need to carry the SRP forward into the white paper process. This is critical. The new white paper will allow us to factor in a number of significant developments domestically and internationally that affect our defence posture, our force structure and our budget. Within the department, the development of the white paper is being led by Mr Brendan Sargeant, the Deputy Secretary Strategy. The Minister for Defence has appointed a ministerial advisory group, consisting of Allan Hawke, Paul Rizzo and Ric Smith, and he may add others. This group will provide advice both during the white paper drafting process and independently to the minister.

We have been asked to deliver this new white paper in the first half of 2013. We will not be setting up a separate white paper team. This white paper is going to be prepared in a way that is a core daily business for Defence. We will also be seeking direct involvement from other agencies, such as the Department of Foreign Affairs and Trade, the Department of Finance and Deregulation and the Department of the Prime Minister and Cabinet. While the white paper is a Defence product, prepared by the department for the Minister of Defence, it will very much be a whole-of-government product. We will also be drawing on the recently completed force posture review report, overseen by Dr Hawke and Ric Smith, the defence capability plan review, which was completed as part of the budget process, and the force structure review that is currently underway. The white paper will be built from all of this work.

Since my last appearance before this committee, we have filled a number of senior positions in the Defence senior leadership group. Dr Alex Zelinsky commenced as the chief defence scientist on 12 March, Carmel McGregor joined us as the Deputy Secretary People Strategies and Policy on 19 March and Steve Meekin was appointed as the Deputy Secretary Intelligence and Security also on 19 March. We announced on 3 May the appointment of Mr David Gould as the general manager of submarines. We also indicated at the time of Mr Gould's appointment that we would not be progressing with the appointment of an associate secretary of capability. Given the complexity of the current and future submarine projects, I assessed that rather than pursuing the associate secretary of capability position what we really needed as a high priority was a very senior officer to provide coordinated oversight and outreach across government and industry to successfully progress these two projects—that is, the current and future submarine projects.

The Minister for Defence took possession on 17 April of the final report of phase 1 of the review of allegations of sexual and other abuse in Defence which was conducted by the law firm DLA Piper. Phase 1 consisted of two volumes—volume 1, which contained general findings and recommendations, and volume 2, which contained individual allegations. The phase 1 report has provided an initial assessment of 1,095 allegations from 775 people, as the minister, the CDF and I announced on 7 March. I wish to emphasise to the committee that volume 2 has not been provided to Defence and so we have an incomplete understanding of the allegations at this stage. Much of the information in volume 2 contains highly sensitive personal information which was provided to the review on the strict condition of confidentiality.

All of the allegations made will need to be tested and examined. Phase 2 of this review will consider how to deal with the allegations, including appropriate mechanisms for further assessment. This will not be quick and it will require a further investigative and legal process to address each of the allegations. The bulk of this work will need to be carried out through arrangements outside and beyond the Defence department. On 7 March the Chief of the Defence Force and I jointly announced the release of Pathway to change: evolving defence culture. This document is Defence's response to the recent cultural reviews and it outlines the actions that we must take to ensure that our working environment is safe, equitable and inclusive for all. It marks the start of a five-year program of integrated and far-reaching effort to tackle our cultural challenges at their source. We have identified six areas which will serve as our reform streams and we have assigned senior officers who will lead the implementation of each of these streams. The streams are leadership and accountability; values and behaviours; right from the start, which means starting at the point of induction; corrective processes; practical measures; and structural and support.

Since my last appearance before this committee we have also finalised a new Defence enterprise collective agreement, which was agreed by the Australian Public Service Commissioner and Fair Work Australia and became operational on 19 April this year. I am also pleased to advise that, for the first time in 13 years, Defence has no category A findings for its financial statements from the Australian National Audit Office. Category A findings are defined as those which pose a significant business or financial risk to the organisation. The removal of the last two category A findings builds on work that has been conducted under previous secretaries of the department, but it is a particular testament to the work of our logistics personnel, who have been working extraordinarily hard to improve the accuracy of our physical assets and inventory. I would like to place on the record this morning my deep appreciation to all of the individuals involved in this effort.

Over the past 12 months we have also made some great strides with the Defence Capability Plan. Total value of projects approved in 2011 was more than $6 billion, with approval gained for 49 Defence Capability Plan projects or initiatives—a record number. The total value of projects planned for government approval in the next financial year amounts to approximately $9 billion.

Finally, CDF and I need to leave early, as we mentioned, and with your indulgence, Chair, we would seek to depart at about 10 minutes to five. That concludes my opening statement. Thank you.

CHAIR: Thank you, Mr Lewis. Your absence later in the afternoon is agreed by the committee, so that is fine. CDF, did you have any additional opening comments?

Gen. Hurley : Thank you, Chair. I know we are taking up a bit of time, so I will move through this fairly quickly. This morning I will discuss the outcomes from the recent NATO Chicago summit and also provide you with an operational update. To begin with I would like to add to the secretary's comments about the Defence budget. As the secretary has stated, we recognise Defence has an obligation to contribute to the government's overall budget savings. The secretary, the service chiefs and I were engaged in determining the recommendations to government regarding how Defence might make that contribution, and I support the decisions that have been made.

My highest priority as the Chief of the Defence Force is our people, followed closely by support to our operations. I am committed to ensuring that reduced Defence spending does not impact on our current operations, including in the provision of equipment for our deployed forces. It is not negotiable and our stance on this matter is evident in the preservation of the principle of no-win, no loss for the funding of operations. Secondly, we were extremely conscious of not repeating the past by creating a hollow organisation that is incapable of supporting the ADF as it does its business at war and peace. There will, however, be changes to our current capability.

Army will begin reducing the scale of our mechanised capability. A number of Abrams tanks and approximately 100 armoured personnel carriers will be placed in temporary storage. Army will maintain a reduced mechanised capability within the 1st Brigade. This may cause some aspects of Plan BEERSHEBA, the reorganisation of Army's combat capability, to be advanced. Within Air Force we have decided to bring forward action to phase out the remaining C130Hs. Strategic and tactical airlift tasks will be borne by the C17 and C130J fleets until the arrival of the C27J aircraft. With regard to Navy, the secretary and I recommended that approximately $1 billion be allocated across the forward estimates to addressing the recommendations from the Rizzo report into Navy maintenance and to improving the sustainment of the Collins class submarines.

Reductions have been made in the operating budget that will affect current activity levels and I have asked the Vice Chief of the Defence Force, the Chief of Joint Operations and the service chiefs to examine further the impact of these reductions on our exercise program and international engagement plans. We have taken steps to preserve the size of the ADF to ensure that we retain the military capacity to do the work we are required to do.

Let me talk about our current operations in Afghanistan. The next major milestone will be in mid-2013, when the Afghan national security forces have lead responsibility for security across the entire country. The men and women of the ADF have played a key role in preparing Oruzgan province to transition to Afghan led security responsibility in tranche 3 and in building the capacity of the Afghan National Army's 4th Brigade to assume security responsibility.

From my recent discussions with our commanders in Oruzgan and with the Afghan provincial government and military leadership, I believe we are well positioned for transition. In particular, our main partner—the 4th Brigade of the 205 Corps—has made good progress over the past 12 months. This year the brigade has initiated, planned and executed two complex unit-size activities with good results and now leads the planning, preparation and execution of all major operations in Oruzgan province. That does not mean our job is done. The ADF must ensure that the 4th Brigade's capability continues to improve as the transition proceeds over the next 12 to 18 months. It means we will need to adjust our posture from tactical support to one of operational support, providing increasing weight of effort to advising and partnering Afghan command and combat support functions. The result will be a shift from a focus on combat to a focus on security assistance.

Although Afghanistan will be responsible for its own security from 2015, the international community recognises a need for ongoing assistance, and the Chicago Summit reached an agreement to work towards a NATO led training and advisory mission to continue to assist the Afghan national security forces post-transition. Australia's contribution to this new mission will centre on providing people and practical support to Afghan training institutions.

There has also been a great deal of discussion about the role of Australian special forces after 2014. As the Prime Minister said, there may be a need for ongoing counterterrorism capability, and Australia is considering a special forces contribution under the right mandate. That said, the enormity of the challenges that face Afghanistan and coalition forces should not be understated. However, in my conversations with senior ISAF and Afghanistan leadership I am comforted that the difficult issues are not being ignored; they are clearly articulated, the need for hard work is acknowledged and that work is underway.

I will now turn to other ADF operations. I am pleased to advise the committee that both presidential election rounds in East Timor were conducted successfully and peacefully. Although there were some minor security incidents, East Timor's domestic security forces dealt with those incidents. Australia's military contribution to the international security force in East Timor remains around 390 personnel. We do not anticipate any significant change to the level and force structure until the 2012 parliamentary elections are finalised. Any review of defence commitment, including changes to force structure, will occur in close consultation with the government of East Timor, the United Nations and our international security force partner, New Zealand.

In the Solomon Islands, the Australian government has agreed to maintain the ADF's existing commitment to RAMSI until at least mid-2013—correction; I am told it is the end of 2012. The Combined Task Force currently comprises a task force headquarters and three infantry platoons consisting of personnel from Australia, New Zealand, Tonga and Papua New Guinea. The planned withdrawal of the Combined Task Force is a positive statement that demonstrates the increasing stability and security of the Solomon Islands. The Combined Task Force is one aspect of RAMSI which covers justice, law, security, government and economic growth. Other elements of RAMSI are working to their own time lines. Defence is now working our RAMSI partners to develop a draw-down strategy commensurate with the security conditions and RAMSI transition plans. Perhaps I could just go back a bit: the ADF's existing commitment to RAMSI will remain until at least mid-2013—I was correct the first time!

In Papua New Guinea, Australia is providing practical support to assist with the conduct of the 2012 national election. I will leave it there for the sake of time. Thank you very much.

CHAIR: Thank you very much for your opening statement. I have an array of senators wishing to ask questions.

Senator JOHNSTON: Given the tenor of the opening statement with respect to how and what the cuts are going to affect and how they will play out, when was the department advised as to the size and dimension of the cuts?

Mr D Lewis : I could not give you a precise date. Suffice to say, however, the Chief of the Defence Force and I were in discussion with the minister for a significant number of weeks in the lead up to the budget. The figures were adjusted through that process, as they normally are. It was a number of weeks; I cannot be more specific than that.

Senator JOHNSTON: How long do you think that it will take for you to be in a position to give the committee a full and detailed explanation of exactly and precisely where these cuts will impact?

Mr D Lewis : We can today give you a very good indication of where the cuts will impact. The precise detail of the impact is something that may take a little time to work out in certain streams. It depends, obviously, on the nature of the cuts. Some of them are quite clear and we have definitive answers on them for you today. For others, it may take a number of months before it is clear what the precise impacts are going to be. But I am confident that the figures that we have before us today and that we are able to discuss with you will give a good deal of clarity about where we are going and what we are doing with these cuts.

Senator JOHNSTON: I take it from what you have said that capability was not the focus of or the motivation behind these cuts.

Mr D Lewis : There were what I describe as a few ground rules, if you like, around the cuts. The first one, as you are aware, was that there was to be no impact on current operations. There was to be no impact on the support to those current operations. There was to be no diminution of uniformed personnel numbers. Given those ground rules, the exercise of establishing where savings could be made commenced.

Senator JOHNSTON: The several weeks did not permit time for there to be any formal analysis of the effect upon capability other than to yield the dollar figures.

Mr D Lewis : That is not correct.

Senator JOHNSTON: Okay. Where are the 1,000 personnel that you mentioned? You said, 'We will be reducing the number of Australian public servants in Defence by 1,000 over the forward estimates.' Where does the number come from and where are those people going to lose their from?

Mr D Lewis : The number is based on a target of saving that had to be made plus consideration of where we thought an acceptable or workable number could be settled upon. We looked at it from two points of view: how much money we needed to save and what sort of quanta of reduction of people could be accepted. The confluence of those two things established the figure of 1,000 positions. The second part of your question was about where they are coming from. For the purposes of budget completeness, we have ascribed on a pro rata basis those reductions in APS staffing. But I can tell you that there is a far more complicated and far more precise process underway at present. The CDF and I have appointed, as I mentioned in my opening statement, Mr Steve Grzeskowiak and Air Vice Marshal Jack Plenty to go through all of the groups and services and establish with some science precisely where those 1,000 staff are to be drawn from.

Senator JOHNSTON: Thank you for that. A recent commentator, Mr Thomson at ASPI, says that the cuts have come from the capital investment side of your budget. Do you accept that?

Mr D Lewis : In part, yes.

Senator JOHNSTON: He says that just over $4 billion of the $5.4 billion comes from capital investment. Are we on the same page with respect to that assessment?

Mr D Lewis : Yes. I do not agree with everything that Mr Thomson has said, but I welcome the report that he puts together after each budget. The point that we took substantial savings out of capital investment is a fact. But it is not the whole story.

Senator JOHNSTON: More broadly, where are with respect to the portfolio's disposition? The 2009 white paper appears to have been abandoned. I am not sure whether you will haggle with me over that, but the DCP has fallen to some extent by the wayside. The SRP seems rather more an academic exercise, given that we have not got our three per cent indexed at 2.5 per cent and we have not go a strategic reform program that returns the money to the budget for capability acquisition. What is our status as a result of an acknowledgment by government that the plan of 2009 is in a mess, to quote Mr Thomson.

Mr D Lewis : You will not be surprised that I do seek to haggle with you over your characterisation of the 2009 white paper, and we can continue that discussion during the course of the day. The tenets of the 2009 white paper, all of the major platforms that were contemplated at that time and the nub of the capability of the plan around it continue. If you have a look at the major platforms that were contemplated in that 2009 white paper—the air warfare destroyers, the new submarines, the LHDs, the replacement for the Army's protected mobility platforms and so forth—and take the aggregate of all of those major projects and have a look at what is in the DCP right now you will find that there is not very much difference at all. In fact, we had about 180—and I am sure that I will get these figures corrected during the course of the day—projects in the original DCP. That is now sitting at 170. Over a period of four or five years, there has been a reduction in the number of projects by 10. And none of them were the major platforms that I just mentioned. So I take issue with the characterisation that you made about the 2009 white paper having no validity.

Senator JOHNSTON: All right. On the strategic reform project, you said that we are winning to the extent of $1.284 billion in 2011-12. Where is that money going to? How does that work when we have all these cuts? Aren't we just doing the SRP to fill the hole created by the cuts in this last budget?

Mr D Lewis : The SRP is something that we need to dwell a little bit on. As you know, first and foremost, it is a strategic reform measure as opposed to a savings measure. There are substantial savings to be had, of course, and those savings will be redirected into the rest of the capital program. Suffice to say, since the SRP was launched there have been a number of changes to circumstances. Quite obviously, there was the global economic downturn. There have been significant reviews done within Defence, such as the Rizzo and Coles reviews in particular. Obviously, our budgetary circumstances have changed. Cultural reviews have been undertaken. A whole raft of measures and actions have impacted one way or another on the SRP. What is important, however—and this is the central point that I would ask you and other senators to note—is that the SRP is all about reform and reform is essential. If we do not reform, we will wither. There is no doubt in anybody's mind about the need to continue the reform.

What we need to do is move the SRP forward towards and into the Defence white paper process that is pending—the 2013 white paper. I predict that the outcome of the Defence 2013 white paper will be what I would describe as a whole-of-Defence reform package. That will have a bow tied around it, essentially—it will be finalised. One component of that will be the SRP. I wanted to make those remarks. You may want to come back to them at some stage. Essentially, that is the nub of the SRP and where it is going. It is still very much alive. It is still something that we absolutely must do in order to make the reforms that are necessary. In fact, I would suggest that as a result of some of these changes—what I describe as the external impacting factors—we will need to approach reform with even more vigour than we originally conceived in the SRP.

Senator JOHNSTON: To what extent has all of Defence's future planning been based on the 2009 white paper?

Mr D Lewis : Most of Defence's planning is based on a series of white papers through recorded history. As long as I have been in the workforce, we have been producing white papers. Each one of those white papers, produced by various governments, has formed the backbone of the work program, the expenditure, the effort and the aspiration of the Defence department. The 2009 Defence white paper was no exception. But quite obviously, as has happened with each of the previous white papers, it has become overtaken by events. When that happens, the white papers are reviewed, updated and recast. That is essentially what we are about to do.

Senator JOHNSTON: When did Defence start planning for the abandonment of the three per cent annual real growth?

Mr D Lewis : I do not accept the characterisation of 'abandonment'. It has been made clear, subsequent to the publication of the 2009 white paper, that the three per cent was to be considered as an average figure and that it could be averaged over a number of years. There was some to-ing and fro-ing with regard to that. Only a few weeks ago the minister acknowledged that, because we had underachieved in the first few years on that three per cent, it was becoming extraordinarily difficult to claw that back. And we have not, it is true to say, been achieving the three per cent since the white paper. I cannot be more specific than that.

Senator JOHNSTON: Three years down the track, we have never achieved the three per cent at its indexed rate.

Mr D Lewis : That is correct.

Senator JOHNSTON: And we have returned money to general revenue in two out of the last three years. What are you planning for now? What sort of growth, budgetary disposition, percentage of GDP do you anticipate that we are going to be looking at for this portfolio in the coming year?

Mr D Lewis : In the coming year, it is quite clear, because the figures are in the budget. There is no question about that; it is not speculation; it is a fact. For the forward estimates—accepting that there can be adjustment within the forward estimates period year by year—we have clarity. Beyond that, we will be looking in this coming white paper process to ensure that there is an early establishment of the funding envelope that will wrap around the 2013 white paper.

Senator JOHNSTON: Will that be a public document?

Mr D Lewis : The Defence white paper?

Senator JOHNSTON: The funding envelope.

Mr D Lewis : I imagine so, yes.

Senator JOHNSTON: It was not in 2009.

Mr D Lewis : I imagine that it will be. It is a matter for the government to decide, obviously—it is not my call. But I would imagine that there would have to be something made public about the funding envelope.

Senator JOHNSTON: That would be funding envelope for the 2013 white paper. How involved are you in the formulation of the white paper given that you have to live and breathe the current impact of the budget?

Mr D Lewis : Are you asking how involved I will be or how involved the department will be?

Senator JOHNSTON: Who is in the 2013 white paper team? What are we doing about this now? As far as I am concerned, we only heard about this three Thursdays ago. What is happening with the 2013 white paper, given the fact that the 2009 white paper had the shortest shelf life in our history? What is the plan with respect to the white paper?

Mr D Lewis : I understand your question. As I mentioned in my opening statement, the white paper will be drafted by the department. Mr Brendan Sargeant, the deputy secretary of strategy, is heading the coordinating function. I do not intend at this point to have a white paper writing team of the size and character that we have seen in past years. I intend for the paper to be produced within existing structures and frameworks in the workplace so that we maximise our use of the existing strategy staff, capability staff, finance staff and so forth. So we are using the existing strengths of the department to bring this paper together.

We have only in recent days embarked on the process, so I cannot put a lot of detail around it. As I mentioned, the minister has appointed a three-person advisory group to provide him with some independent advice. We will also engage with that group during the production of the paper. I see the paper very much as being a work that follows on from the defence white paper 2009. It will be a successor to that work. I would see an early resolution of the funding envelope that needs to go towards it because quite clearly, in the words of one of my very famous predecessor secretaries who was far more erudite than me, Sir Arthur Tange, unless you are talking dollars you are not talking strategy. That comment was as good when Sir Arthur made it as it is today. Essentially, that is how the process is going to go forward.

Senator JOHNSTON: What are the parameters that the minister has set for the white paper? Bear in mind that the 2009 paper was entitled 'Force 2030'. What are the time parameters for the 2013 white paper and what are the ground rules for you in terms of the preparation of that document?

Mr D Lewis : I think it is fair to say that that is still evolving. We do not have all of that detail nailed down. I can tell you, of course—it is on the public record—that the document will be produced in the first half of next year. I cannot be more precise than that. We are starting to turn our minds to what I would describe as a number of milestones by which this paper will be developed and prepared. Chapters will be socialised with the various people through government that they need to be socialised with and then the paper will be taken before cabinet for approval. But essentially those time lines are very much a matter for the government.

Senator JOHNSTON: So the government has not set the time lines or been particularly detailed in the parameters for the drawing of the next white paper?

Mr D Lewis : In your own words a moment ago, we have only known about this for a short period of time and the answer is no, we do not have that settled.

Senator JOHNSTON: When do you expect it to be settled?

Mr D Lewis : As soon as we are able. I cannot be more precise. I would think it will be a matter of a couple of weeks.

Senator JOHNSTON: Is it a matter for you or is it a matter for the minister?

Mr D Lewis : It is a matter for me to provide advice to the minister on what is achievable in terms of white paper production. These things are not just created. There will be a substantial process involved which will take time in order to make sure that everything is considered. I cannot be more precise than that. I will give him advice on where I think the milestones should be, but at the end of the day it is a matter for government as to what sort of time line they wish to follow.

Senator JOHNSTON: What effect will the new plan have on current practice and current policy? What will be affected by that? For instance, is the DCP in a holding mode? Are large strategic acquisitions on hold? That do you anticipate in the next 12 months will be the effect of the fact that we have a new white paper coming over the horizon? The reason I ask the question is that, for the 12 months leading up to the 2009 white paper, there was no discussion of any materiel acquisition, strategic disposition, numbers et cetera because we were all waiting on the white paper. What do you anticipate will be under the umbrella of, 'Let's wait and see what's in the 2013 white paper'?

Mr D Lewis : I think this circumstance is substantially different to the one we faced in 2009. The first point I would make is that those processes, particularly with regard to the Defence Capability Plan, which is specifically the issue you raised, are ongoing. They do not just stop because we are about to have a white paper. In fact, you can expect to see released very soon a revised Defence Capability Plan. When I say 'very soon' I am talking about probably before the end of this financial year. It will be the Defence Capability Plan 2012. There will, of course, be a defence capability plan 2013 to go with the white paper, but there is one imminent, this year. That is what I describe as the continuity. So the processes for acquisition and getting projects approved and so on continue unabated. So I would not be concerned that we are all going to be just sitting on our hands.

The second point that I would like to make is that this 2013 white paper will be largely informed by some substantial pieces of work that have already been completed—for example, the force posture review that was done by Dr Hawke and Mr Ric Smith. That work is done, it has been accepted by government and we are working through the recommendations of that right now. So that will be going on while the white paper is being constructed, but it will feed into the white paper. There is the Defence Force structure review which is underway. It started in November last year. That is an ongoing piece of work and will not be on hold or in abeyance until such time as the white paper is produced. We completed last year a Defence internal budget review. There was a substantial budget audit done at the last white paper and I do not envisage that happening again this time. We did an internal review last year. That will suffice to carry us forward. And so the list goes on. There are a number of streams of work that are already completed or near completion that will feed into the white paper. So, stagnation, which is really the point of your question, is not something that I contemplate happening.

Senator JOHNSTON: Very good. I am pleased to hear that. Thank you for that answer. I will turn to some of these budgetary matters that were set out. We have reallocated some money with respect to the Collins class sustainment. We have also got information technology remediation, navy fleet sustainment, estate investment and garrison support. What is the information technology remediation requiring $550 million?

Mr D Lewis : I might ask Mr Farr to come to the table to step you through the detail of this. I am, as many secretaries are, technologically challenged! But, essentially, it goes to fixing the IT system. You might recall that a predecessor of mine made a speech about the broken backbone of defence. One of the largest components of that was the problem with the IT system. The IT system has been quite challenged in terms of volume and the complexity of our business. Essentially, this is work that goes to remediating that particular problem, which is central to the way we do business.

Senator JOHNSTON: Is this $550 million the $550 million that was in the DCP way back in around 2005 for precisely this?

Mr Farr : I missed a little bit of your question as I was coming in, so could you start again?

Senator JOHNSTON: No problem. In the budget papers, we have allocated $709 million for Collins class sustainment, $550 million for information technology remediation, $270 million for Navy fleet sustainment, $224 million for estate investment and $150 million for garrison support. The reason I ask the question about what these are for is because each area is part of the Strategic Reform Program and was claimed to be delivering savings. Why are we allocating $709 million for submarine sustainment and what has necessitated that allocation?

Mr Farr : For ICT the $550 million—

Senator JOHNSTON: Okay, we will cover ICT first and come back to Collins.

Mr Farr : I will position it this way. It is the ICT budget that has been decreasing as a result of SRP as a result of SRP, and it will continue to decrease as we make the savings resulting from the program. The additional money that has been received over the forward estimates will actually slow the rate that that has been decreasing. So it is not an increasing budget for ICT; it is a slowdown in the rate of decrease.

That has been caused by a number of things. One is that when we first started on the reform journey back in 2009-10 we had an imperfect view of the defence ICT environment. It is a very organically grown environment, so it was very difficult to get a centralised view of the reform and what was required to do the reform of the program. We now have a much better understanding of that. We have a much better understanding of the size of the Defence information environment, the amount of equipment we have in it, the age of that equipment and what needs to be remediated. That is probably the largest bit of the additional funding. It is a significantly larger task to do the remediation than we initially thought. We also have a number of programs that require investment that have come up in that period of time that we need to put more money into. There is also some swapping of years, if you like, between one year and another, as some of the programs have moved due to a combination of understanding the complexity and the approvals process.

Having said that, I think it is important to understand that we still believe that there will be the $1.948 billion worth of savings achieved based on the 2008-09 baseline. We have been tracking those for the last few years. We believe that at the end of this we will still be ahead of the savings curve. During this period of time we have a number of very large programs coming to fruition. We would expect government approvals in the next 12 months on our terrestrial communications bundle, which consolidates our networks, I would expect approvals on our data centre consolidation. I would expect approvals on the replacement of our personnel system—the PMKeyS replacement. A number of those big-ticket items will hopefully get government approvals this year. The $550 million is made up of a number of things. One is just the size of the remediation task. That is the biggest one.

Senator JOHNSTON: Lastly, in simple terms, we have, I think you said, $1.9 billion in savings in ICT and we actually pay back $550 million in this instance.

Mr Farr : Yes, the $1.9 billion is a saving based on the size of the spend that we had back in 2008-09. Since then the spend has been increasing and we are also finding a number of areas where we have significantly underinvested which were not included in it.

Senator JOHNSTON: Is it legitimate to deduct the $550 million from the $1.9 billion?

Mr Farr : No, I do not think so.

Senator JOHNSTON: That is fine. I will not do that then.

Senator FAWCETT: I will follow up on ICT. You made the comment that the process first started in 2009 and it was very difficult to get a centralised view of the complexity of the ICT. Can you tell me the cost and benefit of the 2004 Boston Consulting Group report into defence ICT, the 2007 defence management review, which included ICT, the chief information officer's review of ICT in 2008 and the ICT aspects of the Pappas review in 2008?

Mr Farr : The 2004 and 2007 reviews were both before my time, so I am a little bit disadvantaged in that. From my reading of all of those reviews, I think that they are all quite consistent in what they say, and that is that we have a very devolved and dispersed non-uniform information environment. The governance mechanisms over those as a result have been quite dispersed and as a result perhaps not quite what they should have been.

I think the 2004, 2007 and 2008 reviews—and I was certainly part of the 2008 review—set out to do a number of things. One was that they tried to get a full handle on the expenditure across the whole of Defence. Within my group, at the time I joined my budget for the CIO group was I think around $800 million—the total expenditure in Defence was between $1.2 and $1.3 billion—and I had very little disability of that spend. Now I have a significantly greater percentage of the spend in my group, but I have a very good understanding of the full spend across Defence.

We have also put in place significantly changed governance mechanisms to address that whole-of-Defence mechanism. Up until recently we had a Defence ICT committee, which was chaired by the Secretary and the CDF, where we looked at the totality of the spend—the totality of the budget—and ensured that the budget was aligned fully with the organisational priorities as articulated by them. More recently that role has been taken over by the Secretary and the Chief of Defence Force Advisory Committee, but it is essentially the same thing: we have a full view of the Defence ICT and the priorities for it.

The other thing we have done since that period of time to bring together the ICT is a number of our big reform projects, such as centralised processing. We are bringing together our major computing data centres so that we get better asset utilisation and better governance over them. Our terrestrial communications have been brought together into a single contract. Once again we will have full visibility and control over them. Then we will move on to some of the others around our distributed computing. The big-ticket items that will bring the simplification, consolidation and standardisation of the Defence environment are in place, and they are looking at being implemented in the next couple of years. But I think there is a consistency between them. There was a lack of understanding, a lack of visibility and a lack of total governance, and we have attempted to address that.

Senator FAWCETT: Your comments around complexity, particularly the complexity of governance, are remarkably similar to those of both Mr Coles and Mr Rizzo. What do you put that complexity down to? What factor of the broader Defence organisation drives that complexity?

Mr Farr : The first thing I would say is that it is a complex organisation, undertaking a complex task.

Senator FAWCETT: Why is it a complex organisation?

Mr Farr : There is no organisation that I am aware of—and I will talk from an ICT perspective—that has such a large, complex and dispersed ICT environment within Australia and that actually has to provide ICT support to deployed forces, to ships and to aircraft. It runs and participates in eight satellite constellations. When you take all those things together it is just a very big, complex organisation.

Senator FAWCETT: Is it the actual technical complexity? Or is it more the organisational boundaries that create the heartache for you?

Mr Farr : It is both. It is a highly complex technical environment that we need to integrate. The organisational boundaries in any large organisation are difficult, particularly ones that have a range of different roles that need to be brought together.

Senator FAWCETT: How many groups are you working across?

Mr Farr : However many groups there are! All of them—13.

Senator FAWCETT: Secretary, perhaps I could come back to your comments about personnel. In your opening statement you talked about personnel leaving through natural attrition. Again, coming back to Rizzo and Coles, they highlight that lack of skills and competence and depth of knowledge are some of the causal factors and some of the significant dysfunctions we have seen. In fact, on page 22 and 23 the Rizzo review goes into some number of causal factors, and most of them link to a lack of competence, skills and experience. Where are you losing your qualified engineers and logisticians, predominately? What kinds of numbers are you losing? And where are they going?

Mr D Lewis : I do not have the specific figures, and I might ask Carmel McGregor or one of her staff perhaps to come forward and talk to this. Suffice it to say that I do not resile, obviously, from the observations made by Mr Rizzo and Mr Coles with regard to our skilled workforce. With regard to the 1,000 APS reduction, which was the first part of your question, quite obviously, we will not be giving any sort of enticement to depart to anybody who falls within a skilled area. We want to retain those people. We are, as you suggest, underskilled in certain areas and particularly in the engineering trades.

I can say that in the last 12 months there has been a bit of an up-tick in the production of qualified engineers and, I think, project managers. It is not a lot; we do have some statistics here in the briefs about it. There is a tick-up of a couple of percentage points. If you accept that as being a change, we are on the path to recovery. Would I like it to be faster? Yes, but we are obviously in an environment—you keep hearing these reports of the two-speed economy, where those highly valued engineering trades are being enticed away from Defence and into some of the more spectacularly paying areas.

Senator FAWCETT: When one of those 1,000 positions who are enticed away is an engineer, how do you replace that engineer if you are not laying-off people? You have lost that person: if you are counting on natural attrition to achieve your 1,000 people you are not going to lay-off someone else so you can compensate and cross-hire an engineer.

Mr D Lewis : I will ask Carmel McGregor to take the detail of your question. We do of course have a production line of engineers and have been working very hard to try to improve the size of that pipeline. I think Warren King, the CEO of DMO, also has some knowledge on this.

Ms McGregor : I will also defer to some experts on this, but, in broad terms, Defence has a pretty sophisticated ability to understand its workforce and recent reforms to recruitment and retention strategies, which go right across the workforce. There is particular effort going into critical categories of work. For specific comments about engineers I will hand over to Mr King.

Mr King : In terms of the DMO, at least, we have 2,362 full-time-equivalent engineers and technical staff as of April 2012. That was a four per cent increase from February 2012 and represents a shortfall from where we would like to be of about five per cent. We have 190 chartered professional engineers, 280 engineers working towards chartered status, 37 chartered professional technical officers and 63 technical officers who are working towards chartered status. There is no doubt, though, that the Australian community is short of engineers and highly qualified technical officers. I think the Institute of Engineers Australia made that very clear in a lot of its material. There is quite a demand for engineering across the Australian spectrum and, of course, the resources sector is a very heavy recruiter of engineers and technical officers.

Senator FAWCETT: When they have recruited people from Defence in the past, and you have had those skills shortages, how have you filled those positions in the short term?

Mr King : At the moment, internally; we have graduate recruitment programs. We also quite often attract, particularly in the technical officer category but also in the engineering officer category, service men and women who have completed their service career and are looking for a change of lifestyle. We often attract them into the DMO and into the civil engineering positions across Defence.

Senator FAWCETT: In your key engineering positions, how many people are PSPs, professional service providers, or consultants?

Mr King : Very few. I would have to get the data. We have only 48 PSPs in DMO. We have had a very strong program over the last three or four years to increase our organic capability. I think we are at a historic low of PSPs in DMO. I would need to check that, but the number is definitely quite low—48 against our workforce.

Senator FAWCETT: I am fascinated that the hierarchy has defaulted to DMO around this discussion, because it is actually the lack of skills and experience within the services that Mr Rizzo identifies in his report as one of the key drivers of the dysfunction in the maintenance and technical regulatory workforce. Do we have an opinion from the ADF in terms of their engineering numbers—specifically, given that a number of engineering appointments cross that civilian/military boundary, how this 1,000 reduction may impact on the ADF?

Gen. Hurley : In all fairness, I think the skill sets you are talking about do cross a broad spectrum of the ADF, so they are in the Services—Navy in particular, and the Air Force and in DMO. So if people have concentrated on DMO is it simply because that is where we thought the weight of the question was going. I am sure the Chief of Navy can talk to you about the Rizzo impact on developing our engineering capacity in Navy, and General Fogarty can talk about our critical trade shortfalls and what we are doing in those particular areas. So there is a breadth of responses, depending on where you want to go. If you use 'generic engineer', in our organisation that can be anywhere.

Senator FAWCETT: Sure. Specifically, the thrust of the question goes to this: we have budget measures here that are targeting workforce; we have budget measures that are targeting cost savings; and the very heart of Rizzo is highlighting that similar cost-saving measures going back more than a decade led to a situation where we lost key skill sets, which according to this budget have now meant $1 billion over the forward estimates to try and recover from that problem. The question for Defence is: as we face these new cost pressures, are we putting in appropriate checks and balances to make sure that the people who will be lost as part of that 1,000 reduction are not going to lead to another gap—five, six, 10 years down the track—that will require another substantial injection, like $1 billion, to recover? Because, in net terms, that saving is not real—it is a cost compared with the short-term savings that were perhaps made a decade ago.

Mr D Lewis : The answer is yes. We will obviously, in the 1,000, have factored in where those areas of need currently are to ensure that we are not making it any worse than it is.

Gen. Hurley : I think the other aspect is that, precisely where there are other areas in the budget process we are looking at to reduce expenditure, we have invested in the outcomes of the Rizzo review to ensure that we could grow that workforce and it was not going to be adversely affected by any budget decision. So I think we are quite cognisant of the point you are making about preserving the critical elements of the workforce we need to go forward. I have also raised this in the Defence committee—that, as we start structuring our approach to white paper 13, the preservation of our workforce into the future is obviously one of the most critical aspects of this white paper coming forward. Because, as you are aware, we have a number of things coming together. We will start the decline in our operational activities, which attracts a number of people into the organisation and keeps them there; we have to reframe the way the ADF operates, unless, as we say, the enemy has a vote—so something else comes up; and we need to be looking forward as to how we manage, train and develop the ADF over time and how we sustain it.

We have pressures coming from outside Defence, in terms of growth areas in the economy that are looking for the same sort of skill sets. One of the major tasks ahead of us is reframing the employment offer to make it a 21st century employment offer and not making just a generic offer but being able to go down and discriminate within employments within the ADF and Defence organisation where we need to invest and what sort of decisions we need to make. So I am sort of supportive of your direction: are we aware of this, are we cognisant of it or are we going to simply do a slash-and-burn, 'Here's a thousand; we don't care where you come from'—which is certainly not the approach we will be taking.

Senator FAWCETT: I am very pleased to hear that. CDF, you said that you are committed to ensuring that defence spending does not impact on current operations, and you have said that your stance on this matter is evident in the preservation of the principle of no-win no-loss for the funding of operations. What arguments did you put forward to preserve that aspect?

Gen. Hurley : I do not think it was necessary for us to argue it. We simply stated that as we went forward into the budget process we expected that to be continued as a basis for doing budget planning and that was agreed to.

Senator FAWCETT: I am interested that you have specified funding of operations. Traditionally that has been funding of procurement as well on a no-win no-loss basis. Has that changed?

Gen. Hurley : No win, no loss for particular aspects of operations does vary depending on the discretion to acquire certain procurements and so forth. We called back to the Force Posture Review and investment that was made in that. We developed an argument outside the normal operating costs to say, 'We need a new injection of funds,' and so that occurred.

Senator FAWCETT: My question is really in terms of the capital equipment procurement space. No win, no loss has been a long-held principle. I just wanted to confirm in light of your statement here that it has been preserved for operations and that it has been preserved across—

Gen. Hurley : We will continue to work on the same basis we have prior to the budget, yes.

Senator FAULKNER: I particularly have some questions in relation to the first comments you made, CDF, in relation to some of the media coverage in today's newspapers. Just so I am clear on this, I assume from your opening statement—and I wonder if you could confirm this, General Hurley—that obviously some of the issues that were raised in media reports today were known to yourself and Defence but perhaps some were not. Just for clarity's sake, could you outline to the committee if that is the situation. In other words, were some of them effectively new? Obviously some are subject to ongoing investigation, as you have told us.

Gen. Hurley : We were aware and, as I said, inquiries were started with the Inspector-General of the ADF in January this year looking at the issues of the inverted caskets and what was called, I thought quite indecently, 'tampering with human remains'. We started that process. We knew about that. In relation to the Afghan detainee who died in hospital, we were aware of that and we conducted a quick assessment at the time of the incident and have gone through the entire process to find out what occurred. As I said, we took corrective action after that. But at the time we followed the appropriate course which was being applied by ISAF. In relation to the son of the detainee who presented at Tarin Kowt base, we were aware of that and we conducted a quick assessment at the time of that incident and determined that there was no further action required, that the young fellow had been treated appropriately given the force protection measures we need to put in place around the base and our process for determining whether or not people are insurgents and therefore of intelligence value to us.

These allegations come from former members who were involved in operations in Afghanistan at the time, so we do not take them lightly. As you would have seen in the paper today, there were allegations that an SOTG special forces officer shot an insurgent during tactical questioning. That was examined at the time and found not to be so. There is an accusation that we detained a person—I think the name 'Mirwais' was used in the paper this morning—in agony for 50 days. We were not aware of the allegation, but I am doing checks this morning. I think that person is a fellow who received a facial wound, was treated by us in hospital at Tarin Kowt, could not eat solids and could only eat fluids. There was a real overhead to detain him in the hospital, so we brought him down to the initial screening area. He was looked after there until the point we could identify him and actually speak to him. We could not return him back to Afghan society because he could not eat. I will get that checked again and make sure that is the person that is being spoken about. So, yes, we were aware of quite a number. We had already started action.

As this process has gone on the interaction between the journalist and the former ADF members has thrown more issues up and we just need to check back how they fit next to incidents we were already aware of or whether they are new. Where the article says that the journalist's investigation has forced us to go and do inquiries, it has been my conversation with him—I have been saying, 'Okay, that is a bit of new information; I will take that back and have a look at it.' But many of these things have already been covered.

Senator FAULKNER: What will the approach be for Defence with regard to any new or additional inquiries as opposed to the ongoing inquiries that particularly ADFIS are involved in?

Gen. Hurley : When each of these new issues has been raised or there have been additions to what information we had before, I have referred them back to the current inquiries if they fit within the term of reference or I am directing the IGADF to amend the term of reference to include them so that we can bring these to a conclusion. If it is a brand-new allegation I will go back to the Chief of Joint Operations and determine whether or not we need to initiate an inquiry through his auspices or mine.

Senator FAULKNER: The response Defence has made and is making is very much in accordance with your normal procedures, but can you assure the committee that any further inquiries of new or additional allegations will be conducted in an absolutely thorough and rigorous way?

Gen. Hurley : I think we have come to this committee quite a number of times and we have said publicly in relation to other issues that, when these sorts of allegations are raised, we almost without fault will conduct an inquiry, an appropriate level inquiry, into the matter. You may not be aware, but a number of inquiries that the IGADF is conducting are into our investigative services and its process. That is fair and proper; that should be the case when issues are raised. So we will follow through those normal processes. As I say, I will determine, in conjunction with the Chief of Joint Operations, at what level the inquiry should occur, whether it is an ADFIS inquiry or an IGADF inquiry, depending on the nature of the allegation. But we will do these thoroughly.

Senator FAULKNER: And you have also made a commitment, as I hear in your opening statement, that you will come back to the committee with more detail about the outcome of those inquiries. Have I understood that to be correct?

Gen. Hurley : My intention there would be, when the inquiries are complete, to advise the minister and seek the minister's approval to release what is appropriate from those inquiries.

Senator FAULKNER: In relation to the media reportage itself, as I hear what you have told the committee today, you have engaged as CDF with the journalist. I have had a little experience with the portfolio over the years and it did strike me that that might have been—I would not say unusual, but it does not often happen. Did you just make a decision to get involved yourself as CDF because of the nature of these issues?

Gen. Hurley : Yes, I did. It is the first time I have done it since I have been CDF. I regret, obviously, that there were three instances of inverted caskets. When I saw what was going to be written and what I was fairly convinced had actually occurred, there was a significant discrepancy in the allegations compared to our records. Also, because of the extreme sensitivity of the treatment of our war dead, I thought I needed to get personally involved, to try to make sure that what was presented, if it proceeded, reflected as accurately as possible what occurred. Not only did I speak, as I said in my opening statement, to the journalist twice but I also called the night editor of the newspapers on Sunday afternoon, to take them again through the factual issues to make sure they were aware of what they were going to print. I particularly asked them what the headlines would be, which they were not able to tell me, because, as I said, 'Whatever you print in those headlines will be the tag for this story for life.' So I am not very happy with what I saw in the papers today and I do not think it reflects on the extreme steps that members of the ADF go through to recognise the dignity of our war dead.

Senator FAULKNER: Thank you for that. I think effectively you have confirmed that it is an unusual thing for you, the CDF, to engage at that level. I suppose the question is: why did you consider it so important in this particular case to do so? I wonder whether one of the elements of this is that there is clearly an impact on some families as well. I am assuming that and I would like to hear from you why you got engaged at that level, or what the concerns were that led you to that decision. What you have said to us is that you got engaged in a way that is unprecedented for you as CDF and is, I think, unusual as far as your predecessors are concerned too.

Gen. Hurley : It is quite simple, if you look at what is being alleged. I will tell you quite frankly and openly what I said to them. I said, 'This is not an issue about the reputation of the ADF. This is 32 families and extended families and the members of the ADF—soldiers and airmen—who accompanied those men on the way back and the enormous distress that this story could cause.' So I thought it was important to intervene.

Senator FAULKNER: I think I have some understanding of that and wonder if you are able to inform the committee whether, in the circumstances, there has been some support given to families. I realise that you yourself have had some contact with the families, but can you say to the committee, given these stories always have an impact on families, whether you have been able to give some additional support to the families of fallen ADF personnel in these circumstances?

Gen. Hurley : Again, just to be clear, I did not speak directly to the families. I asked Army to do that because they are responsible for the sort of day-to-day management and keeping contact with them. That was done through the officer who was involved in the inquiry process of keeping the families up to date and briefing them on the inquiry outcomes. So it was someone who knew the families. We contacted the three families involved in the inverted caskets issue. We were not aware that the members involved in the handling of medical devices were going to be named. That came as a shock to us this morning, so we—Chief of Army and his staff—have been in the process today of contacting those families and I see that most of them have been contacted. The general response is that all of them are quite angry with the release of the media article.

Senator FAULKNER: Putting that aside—I appreciate that people react and I accept the way that you have described their reaction—the issue is whether Army has been able to provide some support to the families in this circumstance.

Gen. Hurley : That is the case, but I will let the Chief of Army speak for his service.

Lt Gen. Morrison : I can assure you that the ADF's engagement, through Army, with all families who have been affected by the operational service of their sons and their daughters in various operational theatres has remained a primary focus of concern for me and for my predecessors. We have a dedicated team within Army headquarters that is responsible for the initial contact with families in the event of a death or wounding. The team stays engaged with those families and in some cases has remained engaged with families for a number of years. Each family's circumstances are judged by how they are coping with the enormous challenge that they face. Sometimes our engagement is light but in other cases where ongoing support is required in a variety of areas we have been able to provide that. It remain a concern for me and, I am sure, for my successors.

Senator FAULKNER: Thank you, Chair. You and the committee have been tolerant about this. Perhaps at a later stage during the hearings I might come back to these issues. I thought it was appropriate to raise those issues arising from CDF's opening statement. I thank CDF and Chief of Army for those comments.

CHAIR: We will now break for morning tea.

Proceedings suspended from 10:36 to 10:53

Senator KROGER: My question is to you, Mr Lewis, in relation to your opening statement. You referred to the draw down on civilian numbers. I think you said it was 667 in this financial year and 334 in the next financial year.

Mr D Lewis : It is 666 in the first year.

Senator KROGER: That adds up to 1,000. You noted that you have not yet put in place plans as to how that is to be achieved. Is that correct?

Mr D Lewis : The detail of where the positions are being drawn from has not yet been established.

Senator KROGER: Am I correct that it will mainly be through natural attrition redundancies?

Mr D Lewis : Yes, I expect the bulk of those cuts to be achieved through natural attrition. We will do some adjustment of the recruiting profile. There is some work to be done on the non-ongoing positions. We have quite a number of non-ongoing positions across the department and, quite clearly, where those contracts come to completion there would be renewal only in extreme circumstances.

Senator KROGER: By non-ongoing do you mean projects that are related to specific projects?

Mr D Lewis : Some of them are related to that, but there is a whole range of people who are working on non-ongoing arrangements in the department.

Senator KROGER: What is the average, or even median, attrition rate across the board in the department, and across the different forces?

Mr D Lewis : Seven per cent. That is the APS numbers.

Senator KROGER: Doing a quick calculation, how does that equate to what you need to achieve in the next financial year?

Mr D Lewis : The APS staffing currently is just over 21,000. In fact I think we may be just over 22,000 in terms of the actual head count. But the AFS, the approved authority, is in the 21,000 range. I cannot do the maths quickly, but seven per cent of that will give you a good proportion of the draw down.

Ms McGregor : The other factor is that the reductions are happening right across the public service, so there will be changes due to natural attrition across the board, which we will be part of. But the seven per cent has been a fairly static level of attrition for a little while.

Senator HUMPHRIES: With respect to those cuts, some comment came to my ears about DMO having specific separate targets for reductions from the rest of Defence. Is that the case?

Mr D Lewis : I am not sure I would characterise it as separate targets. We will obviously have each of the groups and services making the appropriate contribution to this, and the DMO would be no exception to that.

Senator HUMPHRIES: So their targeted reduction will be much the same as the rest of the department, proportionate to its size?

Mr D Lewis : Yes. We are not doing this on a strict pro rata basis. You will remember that I said in the opening remarks that for budget purposes we have taken it on a pro rata basis. But there needs to be now a very deliberate piece of work done to establish where precisely these 1,000 positions can best be taken from. The DMO is part of that calculus, as is each of the other groups and services within the department.

Senator HUMPHRIES: You said that at additional estimates more information would be available about that.

Mr D Lewis : Yes, that is right. We will have done the work by then and understand precisely where these people are coming from.

Senator IAN MACDONALD: I am interested in the comment about savings being found from the Major Capital Facilities Program, amongst others, and I will be asking some more detailed questions about that at the appropriate time. I see in the minister's media release from 8 May—and you have repeated that in your statement—that $1.2 billion would be saved by deferring lower priority elements at the Major Capital Facilities Program while maintaining funding for critical upgrades and enhancements. How does that work? If they are not critical, why were they ever in the program? If they were critical, how can they be deferred? Also, if they are being deferred doesn't that put the whole budget process back. It means that in the future when you do these non-critical elements you then are not going to be doing things that might be critical in three or four year's time, recognising of course that the Defence estate is big and ongoing and always in need of upgrading. I cannot understand what the lower priority elements are that can be deferred, and how they can be deferred.

Mr D Lewis : Quite obviously some hard decisions have to be taken in order to achieve the sort of savings we are after. The Major Capital Facilities Program has indeed been one of the sources of saving. You are quite right with regard to the issue of pushing work to the right, which is essentially how this is managed. In all engineering projects you can achieve savings by cutting projects entirely but, more commonly, we will adjust the phasing of the projects so that the expenditure is pushed further to the right. That is precisely what has happened in this case. The chief operation officer, Mr Simon Lewis, has further detail and will be able to take you through that if you want to do that now. But, essentially, that is how it is being managed.

Senator IAN MACDONALD: I do not want to take too much time to go through the detail, but is there some detail that can be given quickly in an overall way? Perhaps if you could just tell me what the lower-priority elements are, again, broadly. If they are non-essential, why were they ever there in the first place?

Mr D Lewis : There is a difference between lower priority and non-essential. They are two very different concepts.

Senator IAN MACDONALD: You pushed the lower priority things to the right, as you say, but it then means that they will be built at some time in the future when you would have planned for higher-priority things in the future. I am not sure how you can defer this and yet still maintain the Defence estate, the bases, the facilities and the accommodation and everything else that goes into this Major Capital Facilities Program.

Mr D Lewis : The Major Capital Facilities Program is a complex piece of work. As you would know, when you start allocating priorities you do it on a regular basis, perhaps annualised, and each year you revisit it and reprioritise it. Those things that do not make the cut year, after year, after year end up being delayed. Turning to the high-priority issues, those issues that relate to occupational health and safety, for example, will all be dealt with in a timely and proper manner. There are some lower-priority projects, or parts of projects in particular, that can be delayed. Mr Simon Lewis has more detail and we are happy to go into that now if you like.

Senator IAN MACDONALD: Perhaps Mr Simon Lewis could give us a brief—

Mr S Lewis : I can discuss it at a very high level, and I am happy to go into detail if you wish. We have touched on this at former estimates hearings. As you are aware the nature of the Defence estate challenge writ large is that of managing about 26,000 buildings and operating around 400 owned and 300 leased properties around the country, a large proportion of which are structures of World War 2 vintage. So we have a significantly ageing estate. The challenge we have each and every year is the challenge of unlimited wants and limited means. So we are in the prioritisation business and we have given you some details on that in the past. Obviously we rate our future investments first of all according to contribution to defence capability but we do indeed have a significant focus on critical safety needs et cetera. So these sorts of things we will balance in any one year, and this is true as much last year as it is this year, and we will always be trying to make judgments around those critical choices, contribution to capability, safety issues et cetera, with a lot more requirements than we have funding available for. In the current round, as you are probably aware, we are proceeding with Albatross and East Sale but on a revised schedule which does free up some money in 2012-13 and in 2013-14.

Senator IAN MACDONALD: I understand you have always got this challenge, but it is going to be a $1.2 billion greater challenge.

Mr S Lewis : That is in a sense the nature of our business, because budgets do change on a frequent basis. We will make judgments about the timing of the resheeting of airfields, and obviously that is directly linked to safety of aircraft and people. These are engineering-based judgments about when we actually resheet the runways. If resheeting runways can be deferred, we defer it to a future period. We have deferred several of our runway resheeting projects in the current program, for example.

Senator IAN MACDONALD: I am sure you would not have been resealing them before they needed it in any case. Using that as an example, you are going to let them go another year, which means that they start then requiring major work. It is almost false savings, one would think.

Mr S Lewis : I would not put it in those terms. I simply say that things will age at a certain rate and you will not be able to predict necessarily with great precision the rate at which they will age, so we track them quite closely and we are making those kind of judgments year-to-year.

Senator IAN MACDONALD: I do not want to go to this right now, but are things like the Townsville Port in the major capital facilities program?

Mr S Lewis : The funding for the government's contribution, Defence's contribution, to the Townsville wharf was made from the major capital facilities program. Someone will correct me if I have got that wrong. But that money has been paid out as part of the contractual arrangement already entered into with the Townsville City Council and the Queensland Treasury Department.

Senator IAN MACDONALD: I will come back to that later on in the day. But things like that you cannot delay because you have got these capital ships coming in at the end of next year, and there will be other things like that.

Mr S Lewis : Precisely. Therefore you could not alter the priority of that because it is making a direct contribution to defence capability and we need them for these new large ships. We are also seeking to redevelop a number of our bases, dozens of our bases, which have very aged infrastructure. We would like to bring some of that forward but obviously we need to conduct those redevelopments at a scale and a speed which is reflective of our budget. As I say, that is just one of the challenges we have to deal with.

Senator IAN MACDONALD: I would be interested in the detail of the $1.2 billion later on. I am trying to understand where you keep moving them to. There will be a queue to the right so far you will not see the end of it if you keep deferring things which clearly have been assessed by some intelligent person as requiring attention. Yet if you keep moving to the right you will not see the end of the line. That is not a criticism of you. You can only do what you have got money to do, but I am wondering about the priorities within the department even.

Mr D Lewis : We have quite an intensive prioritisation process we work through inside Defence. We work with each of the capability managers to identify where their priorities are so we ensure that we are putting money in the right places. There is a twice a year report we put back to the defence committee in relation to where the money is going on the estate. That is as true on the maintenance side as it is on the capital investment site.

Senator IAN MACDONALD: I will leave it there and come back to the detail later on. Thank you.

Senator SINGH: I have a question following on from Senator Macdonald on the defence capability plan but I also want to ask some general budget questions overall. In relation to our defence budget, how does funding compare to other countries?

Mr D Lewis : That is a complicated question. You can work it out on a number of bases. If you compare us, for example, with the United States or the United Kingdom, quite clearly the percentage of GDP that we spend on defence is less. But if you compare us with like economies and particularly with western Europe our defence expenditure compares very favourably. If you compare Australian defence expenditure against regional countries—the ASEANs, for example—I think the latest figure is that the combined defence budget of the ASEAN countries is about $30 billion a year and we are just coming off the back of a defence program of about $27 billion. So you can see that we spent less, but only marginally less, than the combined budget of the ASEAN economies.

It is very difficult to compare and contrast with some of the more opaquely assessed defence expenditures. For example, in the case of China and India, they have different mechanisms for assessing their defence budgets. They have funding that is offline. It is off-budget funding, which is very hard to pin down. But it would appear at this stage as though both the Chinese and the Indian budgets are increasing substantially. But I think you need to have a look at the quantum then of what is being spent. Even though there may be increases, they are coming off quite a low base.

It is an awkward question. I cannot give you precise details. There are publicly published figures of various defence expenditures by GDP. You can also do it per head of population. There are a number of ways you can cut it.

Senator SINGH: Thanks, Mr Lewis. That gives some understanding. Obviously there are different measures, and I think the rate of China's growth in defence spending is certainly outstripping a number of countries. But in relation to the OECD, which is really what I was referring to—

Mr D Lewis : If you have a look at the Germans and the Dutch, for example, you will find they are sitting, from recollection, at about $1.3 and $1.4 billion respectively. They are of that magnitude. Those will not be precise figures but they are pretty close to the mark.

Senator SINGH: Carrying on from Senator Macdonald in relation to the defence capability plan, how many projects were deferred and what criteria were used to identify the projects for deferral?

Mr D Lewis : In the DCP there are essentially 57 projects out of the 180 that have been deferred. Six were discontinued because they have been overtaken by like projects. Things have changed over the years and so that capability is being delivered through a different project. Six have not been continued with at all. They have been taken off the board. Vice Admiral Jones, who has a great deal of knowledge about this, will be able to step you through the figures precisely.

Vice Adm. Jones : In answer to the second part of your question, the capability development group worked with the services and the DMO to look at from a capability sense and also when existing capabilities are going to retire when it would be prudent to move projects. Of that, 57 projects moved one to two years. It was judged so that we would not have a capability gap and would retain the capability that is required under the preparedness directive and in accordance with the white paper.

Senator SINGH: I want to ask a couple of questions in relation to Defence Force culture. Obviously since April last year there have been a range of reviews into aspects of the culture both for ADFA and the ADF to address the ongoing areas of concern in relation to promoting appropriate conduct. Can you expand on some of the initiatives in the Pathway to Change program, especially with regard to respect for things like diversity and the preparedness for aggrieved persons to seek redress?

Mr D Lewis : There are, as I said in my opening statement, six streams with regard to the pathway. We have been advancing the work through an organisation that we now term the Defence 100, which is a group of the 100 most senior commanders and managers across the Defence department. They are the most senior people we have: essentially, band 2 or two-star officers and above. The Defence 100 is the organisational structure through which we are advancing this work and putting it down into the workforce. It is absolutely critical to realise that this work is going to take time. We expect that the actual provisions of the pathway will not be in place for about three years and it will be about five years until the effect really bites. It is not something that will happen overnight. The Vice-Chief of the Defence Force is centrally involved in this work. He may be able to add more to your question.

Air Marshal Binskin : Any specific areas, Senator?

Senator SINGH: I want to know if there is an intention for the ADF to identify and provide support for personnel who fall into categories of potential vulnerability—perhaps in the context of existing Defence culture for women, gay and lesbian personnel and the like.

Air Marshal Binskin : That is definitely the case. One of the reports that led to Pathway to Change was Elizabeth Broderick's review part 1.

Senator SINGH: Yes. I was going to ask about that.

Air Marshal Binskin : That was specific to ADFA, but we are taking a lot of those recommendations, because they are actually valid right across the Defence organisation. We are not talking about doing this just in the ADF; we are talking about the Defence organisation—civilian and uniform. We will also be taking the outcomes of Elizabeth Broderick's part 2 review into the broader ADF and defence organisation. That is due in about June at the moment. We expect a number of recommendations in that area as well. We are looking at equality right across the board, not just gender-based but all aspects.

Senator SINGH: The Pathway to Change is a five-year program. Half of Broderick's recommendations have come down. Will the second half be implemented as part of the Pathway to Change program or alongside it?

Air Marshal Binskin : They will. I can get you a copy of the Pathway to Change booklet. It will show you how all of the 109 recommendations from the various reviews have been rolled into Pathway to Change under six levers and how we intend progressing the time lines for them and all that. I can get that for you in the next break.

Senator SINGH: That would be great.

Mr D Lewis : It would be incomplete if we did not also mention the review that was done by Carmel McGregor, who is with us this morning. Carmel did a review into the pathways for advancement of APS women within the Defence department. There is a substantial piece of work going on around that right now: the appointment of an oversight board or panel consisting of me, as the chair, and secretaries from other departments, including Dr Watt and some others, and a structure within the department to support APS women moving into senior appointments within the department. That work is all underway. This is all part of the pathways program.

Senator SINGH: This is the review of the treatment of women in ADFA and the ADF?

Mr D Lewis : No, this is to do with the APS—women in the Australian Public Service.

Senator SINGH: In general.

Mr D Lewis : It is addressing the issue of what is a very low percentage of senior women in APS appointments in the Defence department.

Senator SINGH: So we have the Pathways to Change, and the various other reviews are being encapsulated under that or as part of that.

Mr D Lewis : We will start at the beginning. Pathway to Change was based upon six or seven reviews—I think you have seen the list—one of which was the review that Carmel did, so it was one of the foundation pillars, if you like of the Pathway document. The Pathway document is the defence department's response to those six or seven reviews. You were not here, I think, at a previous estimates hearing when we talked about there being two ways you could skin this. You could take the 109 recommendations of the various reviews, aggregate them and then go through one by one and turn them from red light to green light. That would take us nowhere. That is not going to solve the problem. We can do it—mechanically you can go through—but will it result in the sort of change in atmospherics in the workplace that we seek to make it safe, secure, inclusive and without any bias? It was decided that we would take a more holistic approach to this and aggregate all of those 109 recommendations. They will be addressed individually, but we are not in the business of turning them from red to green; we are in the business of getting cultural change across the department. That is what the Pathway is all about.

Senator SINGH: That is good to hear.

Ms McGregor : Whilst the review that I undertook had a different focus, when you start talking about diversity and inclusion in the workforce, you come across quite similar remedies, and there are some features of the review of treatment of women at ADFA at part 1, by Elizabeth Broderick, and the review that I undertook that go to the heart of the importance of leadership, the importance of values and behaviours, and those are seated within the Pathway to Change document that the secretary has referred to. But it equally goes to embracing diversity as a key attribute of the workforce. So there are some structural things we will do in response to that across the department. I think they will have application for both the ADF and the APS workforce.

Senator SINGH: That is really good. Finally, I just wanted to ask a general question about the gender breakdown in the defence workforce, in all of the Navy, Army and Air Force components, and the differences over time in the last few years in relation to that.

Ms McGregor : The ADF female participation rate is 13.9 per cent. In the APS it is 40 per cent. I have it broken down by service. For Navy it is 18.4 per cent, for Army it is 10.1 per cent and for Air Force it is 17.1 per cent. This is at April 2012. We have done some comparisons with Allied nations. For Canada it is 13.3 per cent, for the UK it is 9.6 per cent, for the US it is 14.6 per cent and for New Zealand it is 16.3 per cent.

Senator SINGH: So on average we are in the same ballpark as some of those other OECD nations.

Ms McGregor : Yes.

Senator SINGH: What about women in combat? What are the implementation issues with that?

Gen. Hurley : As you are aware, we made the decision and the government made the announcement last year that we would open the remaining seven per cent of our combat related positions to women. We have developed a five-year implementation plan. The plan is incomplete but it is being presented for government agreement to the approach. That will happen in the very near future and then we will be into the formal implementation. Obviously we have already started some of the bits and pieces in it. We are on track for that. Five years for some seems to be a long time. My view on this is that I am pretty sure we will only get one chance to get this right and we had better do it right the first time round, so being a bit conservative is not necessarily a bad thing. You might recall that we recently had a delegation of women from the Canadian armed forces. I asked their CDF if they could come across so they could tour our major bases, training institutions and so forth and just talk to people about what the art of 'possible' is and start helping us to visualise what success might look like here. And there are some very important things that came out for us in relation to that. For example, one of the young ladies who came across is a captain, an adjutant in an infantry battalion. In that battalion there are only three women who are infantry soldiers—herself and two other soldiers. There are quite a number of women in support tasks, but they are not badged infantry—they are truck drivers, medical personnel and so forth. What that is saying to us—and I think we were trying to hint at this earlier on in the process—is that success here is not necessarily defined by the fact that there are going to be 50 or 60 women in every infantry battalion in Australia. Success will be defined such that any woman who enters our doors as a recruit and wants to go into infantry, armour, artillery or combat engineers has the opportunity to do so if she can meet the physical standards and the work standards to do the job—the same as for a male. I think that is confirming our view that numbers is not necessarily the end target; it is that the door is open and the system supports all people to be successful in their employment.

The other thing that has given pause to consider—and it varies across service—is the idea of having an initial mass to put women in so that they are supported. Also, you might need to have separate facilities to handle women separately inside a unit organisation. The Canadians abandoned the idea of critical mass, because they found that it takes a while to build up the numbers, because not everyone wants to be an infantryman. Therefore for those who put their hands up, waiting for the other 10, 12 or 15 to arrive, it might take some time. They get disappointed with the process and move away. So it is the ability to put ones and twos in an organisation and support them in the organisation that will be more critical.

The other thing about terms of separation is that observation says, 'Don't separate them.' They join because they want to be part of the team. As soon as you separate them you are making them a distinctive group. The integration process is very important. So I think we got a fair bit out of that. I am confident that we have a very workable plan where, if women are prepared to put their hands up and say, 'We want to be in these particular positions', then within 12 months they will be able to start moving across. That will be from within the organisation. We will open the doors externally a bit later—we are being conservative, to make sure we have those structures right—for women who are familiar and knowledgeable with the Defence organisation and how it does its business. Then, once we are all in a position there, we will open the door for others.

Senator SINGH: Is that 12 months after the five-year plan?

Gen. Hurley : No, it will be 12 months from now.

Senator SINGH: But only in certain areas?

Gen. Hurley : We have to start with women who are in the Defence organisation, who know us and might want to make that change. That will be easier, I think, for them and for us.

Senator SINGH: I have one last question. Does the five-year implementation plan have anything to do with the Pathway to Change five-year plan—a cultural change being completed by that time befitting the five-year implementation of women in combat?

Gen. Hurley : I would like to be able to put my hand on my heart and say that we are that efficient. But they started from different time points and they are not necessarily directly linked.

Senator JOHNSTON: I would like to come back to the particular ADFIS matter you referred to in your opening statement, but I want to talk about Lazarus Louis. Are you familiar with that matter?

Gen. Hurley : I am.

Senator JOHNSTON: I would appreciate it if you could tell us where you think the matter is at. I know there is an inquiry of some sort, but I would appreciate an understanding of what the technical detail surrounding his situation is.

Gen. Hurley : Senator, I will just take you through where we are with Sapper Louis. You would be aware that on 28 January he was wounded by a round from his own weapon when searching a well in Afghanistan, when he passed his weapon to his team leader, located on the surface. He has made a number of claims about his treatment and the conducting investigation. I will just go through where we are at with the various inquiries and investigations. Is that what you are seeking?

Senator JOHNSTON: I would like to know where we are, then we might come back to some of these aspects.

Gen. Hurley : There have been a number of inquiries and investigations. There was an ADFIS investigation under the Defence Force Discipline Act, which was completed and which provided briefs of evidence to the Director of Military Prosecutions. An administrative inquiry was appointed by the Joint Chief of Operations on the Defence (Inquiry) Regulations. That inquiry, which is now completed, covers broader matters surrounding the shooting incident, including the provision of medical support, weapons-handling procedures, training and doctrinal issues. Sapper Louis has received a copy of the inquiry report. There was an ADFIS disciplinary investigation, which is now completed, into an allegation that the Special Operations Task Group used unauthorised ammunition in January 2011. This investigation determined that the available evidence did not support the allegation, and Sapper Louis was advised of that investigation outcome on the 29th. Sorry, I need to check that date, because it says tomorrow. I will come back to you on that, Senator, if you do not mind. An IGADF inquiry is currently ongoing into concerns raised in the media by Sapper Louis that the initial ADFIS investigation was flawed. These matters were referred by Army to the IGADF on 16 March this year. At an interview with the inspector-general, Sapper Louis particularised his allegations in more detail. There is another IGADF inquiry currently ongoing into allegations raised directly by Sapper Louis with the Inspector-General ADF. That is the state of inquiries and investigations.

Senator JOHNSTON: The IGADF investigations are the ones that I am probably most focused on. Do we have any indication as to where those inquiries are at in terms of time?

Gen. Hurley : No, I do not.

Senator JOHNSTON: Is the inspector-general coming to estimates?

Gen. Hurley : He is here. I can bring him forward if you wish.

Senator JOHNSTON: We might as well deal with it now, if that is all right, Chair.

Gen. Hurley : Senator, I will just go back to the date I fumbled on. The briefing I have says that the investigation findings are to be advised to Sapper Louis by ADFIS on 29 May, so tomorrow.

Senator JOHNSTON: Thank you. Inspector-General, the question that I have asked of CDF is: what is the current status of the inquiries concerning Sapper Louis? I would be obliged if you could help me with where we are at on that and what you are actually investigating.

Mr Earl e y : Our inquiry into the concerns of Sapper Louis was referred by Chief of Army and we are currently—and it began in March.

Senator JOHNSTON: Sorry, could you repeat that; you are currently what?

Mr Earl e y : We are currently investigating matters that were referred by Chief of Army in March. In addition to that there was another matter which Sapper Louis raised directly with my office which we have added to the terms of reference of that inquiry. The inquiry is underway and, on current indications, I am expecting a draft report in about August.

Senator JOHNSTON: Are the terms of reference of the inquiry public?

Mr Earley : No, they are not public. My inquiries are under the auspices of the Defence (Inquiry) Regulations that regulate what I do. They stipulate that my inquiries are not conducted in public. Some witnesses are obviously yet to be interviewed, and it is not our usual practice to make public our terms of reference. But I can tell you that we are currently investigating six matters and there are six terms of reference in the directions for the inquiry. They generally relate to, firstly, the circumstances surrounding the incident itself; and then there are some specific allegations that Sapper Louis made in relation to the ADFIS investigations and how they, and others, dealt with the evidence relating to that incident. We will be looking at that.

Senator JOHNSTON: Thank you for that. And you say August?

Mr Earley : On current indications, yes.

Senator JOHNSTON: All right. Thank you, Chair, I am happy with that matter.

CHAIR: Thank you, Senator Johnston. Senator Ludlam?

Senator LUDLAM: I have questions on different topics. You may tell me that you would prefer to deal with some of them later in the day, and that is fine. I think we have the right people to talk about the redraft of the white paper. Going first to the degree to which the public will be engaged—so, the community consultation process—I understand that community consultation around the defence white paper in 2000 was led by Andrew Peacock, that you held 28 public meetings, that you had about 2,000 participants and about 1,100 submissions. The second one was chaired by Stephen Loosely—who is a board member of a major weapons manufacturer, by the by—and there were 30 meetings where about 600 attended and about 450 groups or individuals put submissions in. The discussion paper did put forward a broader concept of security, but you could argue that not much of it found its way into the eventual white paper. Can you tell us what the plans are for direct engagement of the community this time around.

Mr D Lewis : Yes, Senator. I am not sure whether you were in the room when I was making my opening statement—

Senator LUDLAM: I have had a quick look at the copy.

Mr D Lewis : I was answering a question just after that. We are still in the throes of establishing the detail of how the white paper is going to be developed. What I can say is that it would not be right to be looking at the 2009 white paper as an inspiration in terms of how this particular paper will be addressed. It will be a different sort of paper; it is a follow-on from the work that was done in 2009—and I made some comments earlier about, for example, the Defence budget audit that was done and so forth. There was a huge amount of work; a lot of analyses and so forth went into it. That is not going to happen to the same degree in this white paper process. This is, of course, entirely a matter for the government at the end of the day, but the kind of thing that the Chief of Defence Force and I have in mind is a paper which is more concise.

To go to your point about public consultation: I do not see at this point—and this needs to be qualified by the fact that, at the end of the day, it is a government decision—the public consultation process being anything like what was done in 2009. I think it will be more concentrating on a couple of what I describe as the peak organisations—some of the think tanks, industry groups and so forth—rather than widespread public, town-hall kinds of meetings, as we saw with the 2009 white paper. A factor in my thinking around this is that public opinion was canvassed only 3½ years ago and I am not entirely convinced that we would turn up very different views from the community. So the views that were expressed back in 2009 are recorded and understood. And we are of course moving quite promptly to deliver this white paper, so I think the most efficient and effective way to do it is likely through peak bodies. As I said, my comments do need to be qualified by the fact that, at the end of the day, this is a government decision. But those are the sorts of discussions we are having right now.

Senator LUDLAM: Okay, thank you. So the view that you will put to government for their eventual decision will be that in this instance you are not going to be looking to public consultation so much as your key groups.

Mr D Lewis : I regard that in a way as public consultation. We are going to a cross-section of the peak organisations in the community—industry groups, think tanks and so forth—rather than, as I described it, the town hall kind of meeting that you might have in mind.

Senator LUDLAM: There were 30 or thereabouts last time—correct me if I am wrong on that. Are you going to hold any at all this time?

Mr D Lewis : I do not know. I would doubt it. I do not have that in mind.

Senator LUDLAM: You would be aware, of course, that in the polling that you conducted about public attitudes to defence spending there was a collapse in support for increased defence spending. That ran against the grain of the way the eventual white paper was drafted but was eventually reflected in government decision making in this last budget. Does that have anything to do with it? You said public submissions were recorded and understood. Did you give them regard? Were they incorporated into the eventual white paper or only noted?

Mr D Lewis : I am not familiar with the collapse in public support for defence spending that you are speaking about. I am sorry.

Senator LUDLAM: That was polling that was undertaken for the last white paper.

Senator Feeney: You might cite it.

Senator LUDLAM: I shall do. I will provide a copy directly after the hearing.

Senator IAN MACDONALD: Was it taken amongst Greens supporters?

Senator LUDLAM: No, it was taken amongst the Australian population, and 30 per cent of Australians in 2008 supported increased defence spending, which had fallen from 75 per cent in 2000. A number of them would have been your supporters, Senator Macdonald, not just mine. So you are not intending to conduct polling again? I should not put those words in your mouth. Do you intend—

Senator Feeney: I might intercede here, if I may. I guess what the secretary of the department is doing is giving you an insight into or an overview of the advice he will provide the minister. He will provide advice to the minister about the white paper process which the minister will then obviously deliberate over. So I guess what you are getting is a preview of the thinking of the secretary, but obviously the minister has not yet received that advice nor made a determination.

Senator LUDLAM: I appreciate the secretary's advice as preliminary draft views that will be put to the minister. I will put the question to you, Senator Feeney, as to whether the government intends to conduct polling, as you did last time, on attitudes to defence spending amongst the broad community.

Senator Feeney: That is a decision that will be made by the minister. It is not a decision for me.

Senator LUDLAM: It is not a question on notice. Could you take it as a proposal on notice?

Senator Feeney: By all means.

Senator LUDLAM: Thank you. Secretary, I apologise for missing your opening statement. You noted the force structure review is one of the input documents, if you will, to the white paper. Can you step through for me how that is intended to work? I would have thought that force structures were determined by the high-level strategic guidance provided by a white paper, not the other way around. Step us through which document informs the other.

Mr D Lewis : There is a golden thread of logic that most white papers follow, and that is you start with your strategic assessment of the situation in which Australia considers itself to be internationally, in the international community. Then, working forward logically from that, you look at your strategic circumstance, which includes the ability of the country to pay for certain defence capabilities and look into the specific capabilities that are required. From the capability comes the detailed force structure. I will invite the CDF in a moment to add some words about the force structure review, but that piece of work began in November last year, quite separate to the issue of a white paper. We will not uncommonly revisit force structure between white papers. That piece of work began, as I say, independent of the white paper process in November and it will continue on to its natural conclusion, but it will feed—just by serendipity, if you like—directly into the white paper. So there is a coincidence of timing, essentially. That piece of work is not complete and it will be informed in a synergistic way by some of the judgments and so forth coming out of the white paper.

Gen. Hurley : There is not much more I can add to that. We commenced the force structure review, as the secretary said, late last year. We have done about six months work on it, obviously. We will need to take into account now what issues come out through the white paper considerations. That is not to say that what we have done to date is invalid, but that will certainly give indicators and points for thought that we will need to come back to as we look to the future. There will be more work to be done in parallel with the white paper process. It is not necessarily a directly linear process because there have to be some feedback groups saying, 'We are thinking this way and these are the implications for force structure. If you do this for force structure what can you achieve strategically? What is the best way?' So there is an interaction as the process goes through.

Senator LUDLAM: That is what I was trying to get to. It sounds as though the people drafting the white paper might find it quite helpful that that review is underway at the same time. Before I move away from that topic, for the thousands of people who did participate at various times—just members of the general public who are interested in defence policy, and I admit that it is probably not widespread throughout the community but it is there—will you be inviting public submissions? Will there at least be a post box if you are not planning on holding meetings? I gather that you have gone off that idea. How will people be invited to participate, if at all, if they are not part of one of the peak bodies that you would be inviting?

Mr D Lewis : I do not think I can address that question at this point. I have not turned my mind to the detail of how that might be affected. You asked a question earlier about whether there would be widespread public consultation in the very demonstrable way that you saw last time. My answer to that is no. I do not really have an answer at this stage on how we will go about it. It may be that it goes to that sort of mechanism. There may be some other solution to it. I cannot give you an answer.

Senator LUDLAM: I recognise, again, this might stray into policy, but are you interested in the views of the public as it regards defence policy?

Mr D Lewis : Of course.

Senator LUDLAM: But you will not be seeking such views?

Mr D Lewis : What I am saying is that through the peak bodies we are able to get, in my view, a very helpful insight into what the view is outside of the Defence department about what we should be doing.

Senator LUDLAM: What sort of peak bodies are you talking about in this instance?

Mr D Lewis : Think tanks, the Australian defence industry group and so forth.

Senator LUDLAM: They are not representative of the Australian community; they are representative of defence industry interests. Can you give us some examples of what you mean by peak bodies representing popular opinion with regard to defence policy?

Senator Feeney: Some of these peak bodies are self-selecting. They are comprised of people from the Australian community interested in defence matters. The Kokoda Foundation is perhaps an example of that. But it was made plain at the beginning of the day that the white paper time line that has been foreshadowed—which is the first part of next year—is by any measure a very short time line. And so I am sure that when the secretary is talking to you about what is realistically going to be proposed by the department to the minister he is being acutely mindful of the fact that that time line is compressed.

Senator LUDLAM: We cut a year off what they expected they would have. One of the areas in the last white paper in 2009 that attracted a degree of criticism was the way in which nuclear weapons policy was addressed, that it was treated as an unambiguous good that we are part of the United States nuclear weapons umbrella. This is an issue which does have some resonance and interest within the public. Can you tell us whether that issue is on the table, how that will be reviewed and how people can have some input into that.

Mr D Lewis : I think the longstanding arrangements that we have with our major ally, the United States, which of course includes the matter of the US's nuclear capability and the umbrella that that provides to its allies are well understood and well known through the community. I am not sure that I can specifically answer your question with regard to this white paper and the nuclear capabilities of the United States. If you are referring to our own policies around that—

Senator LUDLAM: Yes, I am.

Mr D Lewis : then that will be considered obviously as part of the white paper process.

Senator LUDLAM: I am not asking you from Canberra to unpick US strategic doctrine with regard to nuclear weapons, but in Australian defence policy there either is or is not a role for nuclear weapons for if Australia is placed under some threat where we therefore approve or endorse the use of these weapons in Australia's defence. I am asking whether that notion is up for review and in what kind of forum or template.

Mr D Lewis : I think Australia's position on this is very clear, Senator: we have been the beneficiary of a United States nuclear umbrella for most of my working life.

Senator LUDLAM: A 'beneficiary'? That is an unusual term—is that a term of art with the defence community?

Mr D Lewis : That is how I describe it, Senator. You may have a different view—

Senator LUDLAM: I do.

Mr D Lewis : but I regard it as something which has been essentially advantageous for the security of this country in either direct or indirect ways.

Senator Feeney: Perhaps I can assist here. I think it is fair to say, without prejudging decisions that will be made by the minister, that those foundation stones of strategic guidance that were found in previous white papers, and are likely to be found in future white papers, are consistent with government policy and the policy that has been articulated from time to time when these matters have arisen.

Senator LUDLAM: Senator Feeney, it is government policy to abolish these weapons. How can we be the beneficiaries of something that we are seeking quite actively, and with strong popular support, to abolish?

Senator Feeney: Senator, the ANZUS treaty, and the arrangements that Australia has had with the United States on a longstanding basis, are not likely to be reviewed or revolutionised—

Senator LUDLAM: Does the ANZUS treaty explicitly—

Senator Feeney: Just let me finish, Senator. I do not think the future white paper is likely to be a vehicle to revisit or review those arrangements.

Senator LUDLAM: Does the ANZUS treaty actually explicitly mention the existence of nuclear weapons at all?

Senator Feeney: Not to my knowledge.

Senator LUDLAM: No, mine either—so I am not sure why you invoked that.

CHAIR: Senator Ludlam, we are into questions arising from the opening statements.

Senator LUDLAM: Maybe this is getting a little specific.

CHAIR: Perhaps you could direct your questions to the opening statements.

Senator LUDLAM: I will leave the white paper matters there. Is this an appropriate moment to speak of the withdrawal process from Afghanistan and some recent moves in that area? I just wonder whether you can update us on the force transition team that I understand comprises up to 250-odd ADF personnel for 'planning and coordinating Australia's transition from a provisional focus based in Oruzgan to a national focus based in Kabul'. First of all, I want to know whether that is an accurate assessment of what that team does, and whether you could provide us with an update on its activities.

Gen. Hurley : In the transition process, running from now, is the formal process between NATO, ISAF and the Afghan government to be completed at the end of 2014. As you are aware there are five tranches in which lead responsibility is transferred to the Afghan national security forces. We are in tranche 3. As we enter that tranche, obviously the nature of our contribution to the operation in Afghanistan, and Oruzgan province in particular, starts to change. Part of that change will be a reduction in our numbers of personnel there over time. As those numbers reduce, and we get to the point at the end of 2014 where we are no longer required to be in Tarin Kowt in a substantial way, we need to move all our equipment back to Australia. That task will be conducted by this group you are referring to—200 or so; we have not settled on the numbers yet—and they come in because they are primarily specifically logistically qualified personnel who are responsible for the final accounting, preparation of equipment for extraction, managing the equipment back to Australia and then closing off accounts and so forth in Australia as that part of the operation winds down. So their particular job is not so much focused on establishing us in Kabul or elsewhere—though they can assist, if required; and, again, we are still working through the planning on this—but they are essentially a force there to help us extract our equipment from Afghanistan.

Senator LUDLAM: Okay. Who is the officer in command of that team?

Gen. Hurley : There is nobody in command of that team yet because it has not been formed.

Senator LUDLAM: It has not been stood up; okay.

Gen. Hurley : I think I saw a reference to your question the other day. There is a brigadier who has been sent over to assist with the planning of that, and so with responsibility to do a full accounting of the equipment we have there; think through the priorities for extraction in relation to the operational plan, the tactical plan and so forth; and provide advice back to the Chief of Joint Operations about how we might go about extracting our equipment. As to whether that person then becomes the leader of that group, we will make a decision later.

Senator LUDLAM: That is Brigadier Gallasch?

Gen. Hurley : Yes.

Senator LUDLAM: Okay. I will put that through to you on notice. I recently had the good fortune to visit Kandahar and Tarin Kowt. She was everywhere that we were not, so I was hoping that we might be able to catch her at this session. So the transition team that I mentioned has not yet been formally stood up?

General Hurley : No.

Senator LUDLAM: Does she have staff assisting her?

General Hurley : She has a small number of staff—planners and so forth—with her at the moment.

Senator LUDLAM: Are we going to face fairly serious quarantine issues when we come to importing a huge body of equipment back to the country?

General Hurley : Obviously, that is one of the very important issues that we look at as we bring our equipment back in. Negotiating and discussing with the quarantine service exactly what will need to be done where will be part and parcel of the process. Extracting the equipment and bringing it not only into Australia but also through other countries needs to be thought through in these terms.

Senator LUDLAM: It is envisaged that by the end of that process that we will still have a presence in Kandahar?

General Hurley : I hesitate, because all that planning is not complete. Probably not, I would think. We would more than likely be Kabul based than Kandahar based.

Senator LUDLAM: Okay. Maybe we are drifting into hypotheticals here.

General Hurley : Yes. There is still work to be done.

Senator LUDLAM: CDF, could that brigadier or whoever has subsequently been placed in charge of that taskforce when it gets formed be present for the next budget estimates session a bit later in the year?

General Hurley : What questions would you like to ask?

Senator LUDLAM: That would be hypothetical. We do not do hypothetical questions.

General Hurley : I am responsible for the operation of the ADF, though, Senator, and that would be part and parcel of a much grander plan than just extraction. I normally take all the operations based questions at Senate estimates.

Senator Feeney: The reason that those questions are not being answered now, as the CDF has said, is not because of the absence of that brigadier but rather because those decisions have not been made and the group has not been stood up.

Senator LUDLAM: Has the Prime Minister's announcement in her speech at ASPI a couple of weeks ago and developments in Chicago since then caused you or her or that team, such as it is, to bring forward any of their planning for the withdrawal of our presence there?

General Hurley : No. This is an often held misapprehension of what is occurring. The foundation for the transition planning to transfer responsibility to Afghanistan for its own security was laid in Lisbon a number of years back. It had a timeframe and a number of tranches. We are moving through those tranches. At the time of Lisbon, we were not quite sure which tranche we were in. We could have been tranche 1 or tranche 5. It is difficult to say whether we are accelerating or not when two years ago we did not know when our province would be transitioned. We are now aware, obviously, that we are in tranche 3. That tells us that within 12 to 18 months, provided that conditions are appropriate, we will have moved lead responsibility for security to the Afghan national security forces in Oruzgan. It does not mean that we will get up and leave in that timeframe, because we will still provide some advice and support and so forth and will have extraction people still in Oruzgan working through until the end of 2014. It is not an acceleration or getting out early; it is simply marching to the beat of the plan. We have been told now which tranche we are in so we know the timeframe for the extraction of equipment and the transition of effort, depending on what the government says that we are to do post 2014.

Senator LUDLAM: Perhaps, CDF, some of that confusion has been generated by the Prime Minister telling the country on national TV that we would be out 12 months before we expected to be. That is where some of the confusion might stem from, perhaps.

General Hurley : The speech that the Prime Minister gave was quite clear. The confusion may have arisen over the incident when we went to NATO in April. Without exception, every nation's representative who asked, What has happened in Australia?' said that after they read the speech they understood what was actually said. They were quite clear.

CHAIR: We will now suspend for lunch.

Proceedings suspended from 11:59 to 13:30

CHAIR: We will resume. I understand that CDF would like to start with a short statement.

Gen. Hurley : I will, for Senator Johnston, correct a statement I made today about Sapper Louis. When I mentioned that he had received a copy of the report of the administrative inquiry by the Chief of Joint Operations, I should have said that he received a very heavily redacted copy of that report rather than the full report. My apologies for that. Secondly, I mentioned this morning that as more information became available on some of the allegations that were contained in the media this morning I would bring people up to date.

One of the allegations was that a detainee named Mirwais was in custody for 50 days. While the majority of detainees in Australian custody are held for up to 96 hours, there are some circumstances where detainees may be held for longer periods. This includes where detainees require medical treatment. Australia does not transfer detainees to local medical authorities if their wounds or injuries are beyond the capability of what the local authority can manage. This aligns with our international and domestic legal obligations to ensure that detainees are treated humanely.

The claim is likely to refer to an insurgent detained by Australian forces in August 2010. The insurgent was shot and wounded by Australian soldiers during the course of operations. In accordance with Australian domestic and international legal obligations, detainees wounded during operations or in the course of their capture are provided with all necessary medical care, including within ISAF medical facilities. The insurgent received bullet wounds to the upper left arm and upper right leg and an abdominal wound. He was transferred to the ISAF role 2 medical facility at Tarin Kowt. He was transferred to the initial security area approximately four days later. After two days in the initial screening area the detainee was subsequent transferred back to the ISAF role 2 medical facility for further medical treatment. Six days later the detainee was returned to the screening area where he continued to receive medical treatment, including pain medication, to manage his injuries.

After approximately 49 days in ADF care and custody the detainee was transferred to Afghan authorities in Tarin Kowt. In accordance with Australia's detainee management framework, Australian officials conducted several monitoring visits while the individual awaited prosecution. The first monitoring visit, conducted shortly after his transfer, included an Australian Defence Force medical officer, who assessed that the detainee's wounds would continue to heal well and that there were no medical complications. The detainee was subsequently sentenced by Afghan judicial authorities to seven years in prison.

In a separate incident—the one I referred to this morning—12 months later, another detainee spent an extended period of time in Australian custody due to a significant gunshot wound to his face. The detainee was unable to talk and required medical assistance to eat. This detainee was provided appropriate medical care by Australia and was released after approximately 40 days in ADF care and custody. That completes my statement.

I would like to table my responses to the 36 questions that I was asked by the journalists so that there is a record of how I responded.

CHAIR: Thank you for that. We will move to questions.

Senator FAWCETT: Secretary, in your opening statement you talked about the number of reallocations and absorbed measures across the portfolio. Could you give me an idea as to what total value in this year's budget is consumed by absorbed measures, and is that the same as relocations from your perspective?

Mr D Lewis : You are referring to what I would regard as reinvestment. That was the $2.9 billion across the forward estimates that I referred to in my opening statement. I can go through and give you the breakdown line by line as to where that money is going. Year by year, I will have to turn to—

Senator FAWCETT: Specifically what I am interested in is the measures that the government has announced as new initiatives that you are essentially taking out of your existing budget. What value does that come to in this year's budget? The figure of $820 million has been put forward by Mr Thomson from ASPI. Would that be correct?

Mr D Lewis : I am not sure that I understand precisely the point of your question.

Senator FAWCETT: How many initiatives have been announced by government, or what is the value of initiatives announced by government, that they have not made funding available for, for which you have to take moneys from your existing budget? Where have you had to take money from activity A and reallocate it to activity B in order to implement the initiative advised by government?

Mr Prior : Are you referring to the acquisitions that have been made during the year? Is that what you are referring to?

Senator FAWCETT: I am referring to all the measures that are noted in the budget statements as absorbed measures.

Gen. Hurley : I will start. Defence are committed to absorbing the costs associated with the following measures: $9.5 million for Operation Resolute, the coastal surveillance operation; $332 million for the relocation of defence units from Moorebank to Holsworthy in support of the intermodal terminal at Moorebank in Western Sydney; and $15.6 million for Bushmaster vehicles, acquisition for long-lead items. They are the three I have listed. The CFO might have some in addition.

Senator FAWCETT: That subset is in the group that Mr Thomson identifies. He puts the total value of that as $820.2 million in this year's budget. I am assuming that that money was previously budgeted for some other activities within defence. You are not just carrying a large reserve from year to year?

Mr Prior : No, we definitely do not have a large reserve that we carry from year to year. The items referred to by Mark Thomson are acquisitions that were made by reprioritising our spending profile. There is certainly not a reserve available for those sorts of things.

Senator FAWCETT: The point is, though, that money is being taken from activities that were previously funded by defence in order to meet new government initiatives.

Mr Prior : The budget papers speak for themselves. When those acquisitions were made, they were made without new funding from government—correct.

Senator FAWCETT: In the process of working up defence's submission to government around the budget, are there cost pressures that defence is aware of in terms of meeting its compliance—for example, in facilities management, OH&S or a whole raft of areas—which are not actually presented to government because defence opts to try and manage them in-house? Is there an unfunded liability at the moment that is not transmitted to government?

Mr D Lewis : Yes, there would be some of that. We carry, as you know, a number of pressures at any one time. Those pressures come from a number of sources, one of which would be characterised the way you have, but there are indeed other pressures. As part of this budget process, to give you the first part of the answer, we have redirected the figure I gave you in the opening statement to address those pressures. They range through issues to do with the Collins class sustainment through to the remediation of IT. It goes to $400 million for improved housing for ADF personnel, which is another pressure; $330 million that the CDF mentioned for Moorebank—a relocation of the units for the intermodal terminal; $270 million additional funding for Navy fleet sustainment—this is to put resources towards the Rizzo review; $220 million for investment in maintenance and upgrade for the Defence estate, which might go partly to the point you are raising about the OH&S dimensions and so forth; $160 million for fringe benefit tax liabilities—that is just a mechanic of the tax system; $150 million for enhanced garrison support services; and $70 million for further investment in international engagement under the Defence Cooperation Plan. That just gives you a flavour of some of the major line items that make up this aggregation of pressures. The chief operating officer may be able to answer your specific question about the OH&S dimension.

Senator FAWCETT: I think the items you have raised have clarified the issue that Defence is an organisation under some pressure in terms of funding all the things it needs to do. Clearly, every time a new initiative is announced for which you have to take funding from an existing activity, that increases the pressure. I am interested, CDF, to go to your statement that you 'have taken steps to preserve the size of the ADF to ensure we retain the military capacity to do the work we are required to do'. Obviously all of those pressures go to the fundamental inputs to capability. So you might keep the size of the organisation static but there is pressure in terms of the capacity of your enabling elements to do that work. I draw your attention to Secretary Panetta and his comments around the American budget cuts, which is that if you are facing large budget cuts and you do not reduce the scope or scale of your organisation then you will inevitably hollow out the force. What pressure are you currently under that will lead to hollowing out the force? And were you given any direction by the government that you could not reduce the size of the force in response to these budget cuts?

Gen. Hurley : When we started looking at the budget—the budget process and the requirements in the budget—one of the areas that was set aside from being reduced was the size of the ADF. Clearly in the front part of the budget that was one of the conditions that was put in.

Senator FAWCETT: And was that condition put in place by the government?

Gen. Hurley : In agreement with the government, yes. In my view the ADF is frankly a bit too small at the moment in some areas. But to do the operational work we need to do—our preparedness requirements and so forth—we needed to preserve the size of the organisation. Having made that decision, obviously you then look around for how you fund the pressures that the Secretary has discussed and how we ensure that we have the capacity to try to be at the preparedness levels we are required to be at with that organisation.

Senator FAWCETT: But at the end of the day you have an organisation under pressure, more money has been redirected at the initiative of government rather than Defence through those measures that are being absorbed, and you are being required to maintain your operations and the size of the force. Yet the budget has been cut out from underneath you. How are you preventing the force from being hollowed out?

Mr D Lewis : I cannot imagine a time—that I can recall, at any rate—when we were not under pressure with regard to the balance between the size of the force and what I might describe as the enabling piece to make it all happen. That is a constant. It fluctuates from time to time. I feel particularly strongly about this matter, because, as I have said in other venues, it is not much use having a military force that does not have the supporting mechanisms to make it all work—everything in the shop window and nothing in the storeroom behind. CDF and I have carefully had a look at the spend spread. We have had a look at the pressures, and we believe we have the balance about right. I would not want to see the Australian Defence Force go back to a situation we had back in the 1980s and 1990s, where quite obviously the front end of the force was larger than the back end could sustain. That led eventually to a speech I referred to earlier from one of my predecessors, who spoke about the broken backbone. I am very conscious of this, Senator. It is one of the things that is in the front lobe of my mind, and all the discussions I have had with the minister and with government in preparation for this budget have taken that particular issue into account.

Senator FAWCETT: I am glad to hear that. I guess the point of this committee though is to try to identify those pressures that are being unnecessarily placed on Defence that make your job in doing that more difficult. That leads me to another comment in your opening statement about the Associate Secretary Capability position, which I notice was not a recommendation of the Black review. To quote the parliamentary secretary, the minister's decisions are always founded on good strategic guidance, and therefore we assume that there was a need, whether it be organisational or operational or strategic, for that announcement that he made. What has changed that that position is no longer required?

Mr D Lewis : The announcement about the associate secretary position was made, as I recall, on the first day that I was the secretary of the department. It was made within hours of my assuming the responsibility. The decision not to proceed with that is mine and mine alone. I of course had a discussion with the minister about it. But the requirements that we had to very quickly move to get an increased level of understanding and coordination around both the Collins remediation and the new submarine project led me directly to the view that we had to start putting additional resource into that area. So it was my decision to discontinue with the Associate Secretary Capability and in fact use that particular slot, if you like—although it is not at the same level—and put it across into the submarine program and ensure that we fix that and fix it early. We have a situation, which I inherited as I became the secretary, where Mr Warren King is now the CEO of the DMO—an officer of extraordinary experience, long-term experience in this area. With the current Chief of the Defence Force, who had hitherto been the head of capability, we were extremely well covered in the senior executive and the senior leadership of the department in terms of the role that that Associate Secretary Capability might have fulfilled. So it was my decision, as I say, to put the effort across into the submarine program. We have appointed, as I mentioned, Mr David Gould, who comes from the UK. He will assume his duties in a matter of weeks, perhaps July. We are still negotiating that with him. He will then take responsibility for these submarine projects.

Senator FAWCETT: Secretary, it will come as no surprise to you that I fully support that decision. My point is that there is a cost that has been imposed by the minister's announcement. I am assuming some work was done in anticipation of that change—a fairly substantial change—in the command hierarchy in the capability area. How much work was undertaken leading up to the point when you made that decision not to proceed and what would the cost be of that?

Mr D Lewis : Not a lot, to my knowledge. There was certainly no structural work taken.

Senator FAWCETT: Given that you already had Rear Admiral Moffitt and Air Vice Marshal Deeble, who, by all accounts—from these committees, from industry, from other parts of Defence—are doing an outstanding job in gripping up the sustainment of the Collins but also looking at future submarines, would you have gone down this path and absorbed all the oncosts of this new role if they had not already been essentially placed there by the minister?

Mr D Lewis : I am not sure I see the point of your question. The oncosts of having an additional person, a senior officer in the department, are absolutely transparent. It is just a cost of having an additional person. What I wanted to ensure is that we had the most senior project manager with experience in the area of submarines, which Mr Gould has. He was heavily involved in the UK Astute submarine process. We needed an officer of that sort of breadth and skill set to undertake, certainly in the case of the new submarine, what I would regard as a national program, a national project.

Senator FAWCETT: What will he be doing that Air Vice Marshal Deeble and Rear Admiral Moffitt were not achieving in their work?

Mr D Lewis : He will be coordinating both those bodies of work that those two officers were doing. I do not wish to diminish for one moment the work of Air Vice Marshal Deeble and Admiral Moffitt. What I am saying is that you know that the submarine project, both the remediation of Collins and the future submarine, has been a matter of widespread public interest, as it should be, because they are both substantial projects going to the heart of our national security capability. I want to make sure that we have got the necessary wraparound around those projects to make sure we take them forward in an unerring way.

Gen. Hurley : Just to build on the secretary's comments, the point here is that we do see this as submarine capability, not two separate entities. It is managing the current capability, how we move the current capability forward and how we take from the current capability into the future. The two officers you refer to are doing excellent jobs in their areas of responsibility. We need someone who sits above that and can take a view from one end to the other and help us pick up the whole of the submarine capability and move it into the future, not a project in one hand and a sustainment project in the other.

Senator FAWCETT: I go back to my original question. If you did not already have the government endorsed position available that, in your words, you basically used as an offset to create this position, would you have had a business case to have stood up this new position is that one had not already existed, or would you have found a way to use the work of those two excellent officers to continue the Collins and future submarine program?

Mr D Lewis : No, I believe we would have had a requirement for it. I came to that conclusion given the existing set of circumstances irrespective of whether we were going to have an associate secretary capability or not.

Senator JOHNSTON: Secretary, can I go back to your opening statement and the DLA Piper situation. Why did we undertake phase 1 of the report? What was the purpose of doing that?

Mr D Lewis : When we say 'we', the report was done, as you know, by a legal firm, so it is not entirely up to me to speak to the reason they approached the work in a way that they did, save to say that, noting that I have not seen volume 2, the way volume 1 presents I would describe it as a summary, a scoping document, a first triage, if you like, of a large number of assertions. It serves to summarise and put in perspective the extraordinarily larger amount of work that is in volume 2.

Senator JOHNSTON: Okay, but why did we do it? The minister gave a directive or you did that of your own initiative. What was the purpose of spending $6 million on lawyers to canvass current and former members of ADF with respect to the complaints and allegations that arose, the 1,095 complaints and allegations from the 770 people. Why did we do that?

Mr D Lewis : As you know, I was not in the chair at the time, but I was following those things from beyond Defence. There were at the time a number of assertions that were made by various members of the public in the aftermath of the Skype incident at ADFA. Those allegations were much broader, of course, than just the ADFA issue. They went back in time and they were broad in scope and nature. The minister as I understand at the time formed a view that there should be therefore an investigation into these allegations to see the extent and seriousness of them. The then secretary commissioned DLA Piper, taken off a panel, as the company to progress that work.

Senator JOHNSTON: Was there any clear indication from the minister's office as to why a scoping study to address these complaints would be carried out?

Mr D Lewis : I cannot answer that.

Senator JOHNSTON: Does anybody know?

Mr Cunliffe : Senator, I cannot tell you the exact discussions that went on, but my recollection of the events which were part of the April 2011 issues—

Senator JOHNSTON: Issues?

Mr Cunliffe : I am trying to think of the right word!

Senator JOHNSTON: I think 'issues' is good!

Mr Cunliffe : The minister reported, as I recall it, receiving an overwhelming number of matters—matters which I recall him indicating concerned him and made him concerned about processes that had perhaps applied on a range of levels. So it developed, if I could put it in these terms, out of the ADFA matter, but then it went beyond.

Senator Feeney: Senator, obviously the minister's press conference of 11 April refers to the fact that complaints were being received by him and his office. But, beyond that, I think you will find he also referred to the fact that there were allegations being provided to Defence and to the media. You will of course recall those allegations that were flying around at the time, and the response of the minister on 11 April to those allegations.

Senator JOHNSTON: Sure. We have had 775 people come forward with credible allegations—and, of the credible allegations, they expand out to 1,095. All I am asking is: why on earth would we have had 775 people revisit these issues some many years after they occurred in a painful, almost post-traumatic way? Why have we done that? What is the purpose of doing that? We have spent $6 million on lawyers to catch the ball of these complaints—to what end? What is happening with all this?

Gen. Hurley : Senator, I think I am probably the living memory of that period at the table here. I cannot put myself fully in the minister's shoes but, after the incident at ADFA, there were a large number of people who approached the minister, the ADF and the media, as we are aware, and said, 'This rings a bell with us and the way we were treated', or whatever, and 'We would like our issues, which we don't think were adequately addressed, to be addressed appropriately.' I think the minister, faced with that number, had to make a decision: 'How do I handle what I have here?'

Senator JOHNSTON: Well, are we addressing them appropriately? That is the question that flows.

Senator Feeney: Senator, it seems you are asking where is this story going. The answer is: it obviously has not concluded yet; the report is with the minister.

Senator JOHNSTON: No-one at the table has received any indication of where this is going at this point? Is that where we are at?

Mr D Lewis : I can say, in a process sense, that, having received volume 2 on 17 April, the minister is now considering that body of work. That has not been seen by Defence. He and I have had some discussions, and I can tell you that the minister is in discussion with the Attorney-General and one or two other colleagues with regard to the process by which these assertions and allegations may be taken forward. I can say, Senator, that, as you would appreciate, it is not possible within the Defence organisation to take the process further. That is something that is going to have to be done external to the department, and the minister is in discussion, as I understand it, with at least the Attorney-General and one or two of his colleagues, as to how that might be managed.

Senator JOHNSTON: All right. But the point is that Defence has never been fully informed as to just why we have gone through the process set out in phase 1. There has never been a clear, concrete explanation from the minister as to why we are doing this.

Senator Feeney: The government has not prejudged what the report would find or how the report should be—

Senator JOHNSTON: No, that is fine. But, given we have 775 people with 1,095 credible allegations, there has never been a disposition as to why we have done that.

Gen. Hurley : I do not think that is quite right. As I was trying to point out, we understand that the minister had the number of allegations. We had to have a mechanism by which we would understand what was contained in them and how to build up a process to deal with them, the outcome of which would be to respond to people to say whether or not, in the simplest terms, there is a view that they have been appropriately dealt with or not and what would be the next step with that—so, in a sense, perhaps reopening some investigations and so forth, to bring them to conclusion, if that is possible.

Mr Cunliffe : Senator, I wonder if I might intervene. My attention has been drawn to remarks that the minister actually made in April last year. The particular paragraph reads:

Finally, and very importantly, in the course of the last week or so, as there has been concentrated public attention on these issues, a range of suggestions, emails, phone calls, faxes, complaints about previous abuse in the Defence Force, or failure to manage properly complaints of abuse, a range of circumstances like that have been drawn to my attention, drawn to public attention through the media or arrived at the Defence department itself.

And there are these key words:

We need to very carefully, exhaustively and methodically deal with all of those complaints, and the secretary of the department will commission external legal advice to start a process of considering all of those matters, to enable the government to receive advice and give consideration to how any of those complaints might warrant further consideration. And, in saying that, all options will be on the table, and I don't exclude a further legal or judicial look at some of those issues.

I wonder if, in the interests of openness, I should also indicate two things. As a correction, first, I think the minister has used the word 'plausible' rather than 'credible' when describing those allegations.

Senator JOHNSTON: Sorry, 'plausible'—I stand corrected.

Mr Cunliffe : Potentially, there is a distinction—which we do not need to get into here, but there may be a distinction. And it is a first step, which I think is quite important to also put on the table. The fact that something is plausible at first instance, when untested, does not necessarily translate to the long term.

The other thing in the interests of transparency I should indicate to you is that I think you are quoting back a figure that I have previously put on the record of about $6 million. That was either at the last estimates or a previous estimates. The current figure that has been paid is $9.93 million. We actually expect it to conclude a little higher by the time all bills come in. But, in balance, I will also mention that is for over 27,000 hours of activity.

Senator JOHNSTON: So we have done this process so that these complaints might be—what was the expression: addressed? What was the exact expression?

Mr Cunliffe : Senator, I am afraid I am going to need some technical help. I have not used one of these devices before. I am not sure how you table one of these.

Senator JOHNSTON: I am with you—I take no issue with that!

Mr Cunliffe : We will get a print-out and provide it to you, Senator. That may not be helpful for present indications. But I think, as I read it, trying to absorb it as well—again from how many months ago it was; 15?—I understood the minister to, in a sense, have said there is this well of concern and it is important to bring it together, to identify it, to provide a basis for further activity and further avenues—and that this was the intention of the process. Those are my words, not anybody else's, but I think that is a fair paraphrase.

Senator JOHNSTON: All right. So we are really only involved in the process, Secretary, and I think we have done that fairly well, save for some of the things I am going to ask you about. Many of these allegations are quite traumatic and serious.

I think you need to say something rather than nod at me.

Mr D Lewis : Well, I think we said on 7 March, when CDF, the minister and I were making the public statement, that the allegations that have been made appear to fall into a number of categories. I cannot ascribe percentages to you, but they fall into several categories: some will potentially be found to be baseless; some will be found to be extremely serious and sad and traumatic, as you characterised it; some will go into the depths of legal procedure that was taken at the time, and whether the investigations were proper or not; some are longstanding, from years ago—as I mentioned publicly, I think the first one was in 1953 or 1954, something like that; the early fifties—and the most recent are from a couple of years ago. So there is a huge span of time and there appears to be a range of areas in which these took place, and they will fall into a number of categories. The triaging of all of that is probably the essence of the next part of the legal process, but I expect that to be done beyond the Department of Defence.

Senator JOHNSTON: Good. To this point in time we have received the 1,095 plausible allegations. Have we been in contact with these alleged victims?

Mr D Lewis : I understand the law firm has, but I might get Mr Cunliffe to tell you what he knows. From a Defence point of view, no—that is not part of our process. This is the point I was making at the start. This is the DLA Piper legal firm doing its business.

Mr Cunliffe : A series of steps has emerged, and I think it is important to spell out that this process is not a process that has happened in a short, sharp period so, over time, from then—in fact, even until now—matters have continued to be raised. As I understand it the report provided a cut-off because of necessity—it needed to in order to bring the report to a conclusion—but further matters have continued to be provided to it.

Senator JOHNSTON: And what are we doing with those further matters?

Mr Cunliffe : Sorry, Senator?

Senator JOHNSTON: Are those further matters time-barred now, because they did not get into the first—

Mr Cunliffe : Strictly speaking, they are not—and we have not tried to do that, because we are at least expecting that there will be some further stages of activity in some form and it is quite important—this has certainly been the starting point—not to say to people, 'You can no longer complain; in effect, you have lost your period'. I think that would be sending the wrong message.

Senator JOHNSTON: I think so.

Mr Cunliffe : The question is how those might be dealt with, and that is a question that will, again, will need to be part of the broader consideration of how these matters themselves might be dealt with as well.

Senator JOHNSTON: So the 1,095 plausible allegations are at the cut-off?

Mr D Lewis : Senator, the review closed on 17 June but the DLA Piper review team took submissions through until 1 October. The review team did not take any action to investigate, assess or make recommendations to the minister or to me in relation to any of the new matters received after 1 October 2011.

Senator JOHNSTON: Right. So 1 October 2011 is the 1,095 plausible allegations?

Mr Cunliffe : Yes, Senator; out of a larger number that we received, of course, because some did not get to that point.

Senator JOHNSTON: How much larger, and how many since that date?

Mr D Lewis : There have been 59 received up until 10 May—so a couple of weeks ago.

Senator JOHNSTON: Good.

Mr D Lewis : That is between 1 October and this month.

Mr Cunliffe : Senator, at the risk of contradicting the secretary, I have some slightly different numbers.

Mr D Lewis : We will trust Mr Cunliffe!

Mr Cunliffe : A career-ending move, I am afraid! The report says to me that the advice to me says that the review did not report on 337 matters, some of which were received after 1 October. But I also need to mention that there is a further group that, as I said, has continued to be received since the date in April that the report went to the minister. So it may be that that is exactly the right number, but some of them were out of scope, some were conflicts, some the person withdrew, some were received after—but the number is growing by the week.

Senator JOHNSTON: Do we have a rough number beyond the May date last year?

Mr Cunliffe : I do not, but if you wish we could try to find out what that number is. Since May or since October?

Senator JOHNSTON: Well, I think we got the October numbers from the secretary—59 since then, and some others. But if you can take on notice: we have the 1,095 plausible allegations from 775 people to the May date, I think it was, wasn't it?

Mr Cunliffe : No, I think that was to the October date.

Mr D Lewis : That was to October.

Senator JOHNSTON: Okay. What do we have beyond those known numbers in terms of—

Mr D Lewis : We will check this, Senator. My number shows that there were 59 between 1 October and now. That is on advice from the firm DLA Piper. They have the facts and figures, not us. We can obviously go away and check that, and see if we can get better figures for you, but I suspect it is of that order.

Senator JOHNSTON: I do want to know how many have been rejected, because I want to see the ratio of plausible to implausible.

Mr Cunliffe : Can I just clarify. There are a number of bases for rejection. One of them is that they are actually out of scope, which is one category. There are others which are not rejected exactly but where DLA or some of those involved had previously been involved in a matter, where the matter has not been rejected but it has been conveyed to a different mechanism, where clearly it would have been not tenable for the principals of the review to again assess a matter where they had been previously advised.

Senator JOHNSTON: Can you tell me how many of those there are and how they are being progressed, on notice?

Mr Cunliffe : Yes, I can come back to you on that.

Senator JOHNSTON: I come back to the question: have we contacted these people to let them know whether they are in the 'plausible' or 'other' categories?

Mr Cunliffe : The answer to that is that there has been a series of advices to different groups at different times—and that was one of the reasons why the timing is quite important—but to my knowledge we have prepared proposed approaches to the totality of the group that we now face but that matter has still not happened and we are still progressing through to get agreement to the course.

Senator JOHNSTON: So we are preparing to tell them but we have not told them whether they are in or not?

Mr Cunliffe : I believe that to be correct. It may be that some people do know because of the contact with them. Certainly I think in some instances there has been a level of contact at different points.

Senator JOHNSTON: So these people put their complaints in—let us just deal with the 775; the others we can sort out in due course. The 775 have put their submissions in and have heard nothing more to this point in time.

Mr Cunliffe : That is what I think is not necessarily correct. That is an assumption which I do not think is valid. In some instances, they have heard some things, depending on when their inquiry was originally made. They would certainly have heard some preliminary advice, but they have not been told that they are in a particular category, if I can put it like that, that you have identified—those that are the 'plausible' category.

Senator JOHNSTON: What is the preliminary advice a plausible complainant has?

Mr Cunliffe : It will depend on the time that they lodged their complaint.

Senator JOHNSTON: Let us say they lodged it within time.

Mr Cunliffe : At the earliest stages, as I recall it, there was contact with all of those who were in touch with DLA, and there was a process to seek further information to establish fuller detail. The initial contact, as you probably would know, ranged from telephone calls to long letters which had detail, so there was an attempt to get particulars, details, of the matters to enable proper consideration. In some instances, I think there has also then been individual contact to seek further clarification, but there has not been a comprehensive process of updating, and that is something which has required some working through what each group needs to be told to ensure that there is consistency of message and a comprehensive coverage of that. That process is still—

Senator JOHNSTON: So there has been some engagement in getting the facts and the submissions from the prospective complainants.

Mr Cunliffe : In many cases, yes; I do not think in all.

Senator JOHNSTON: But they do not still know that they are in the 775.

Mr Cunliffe : No; that is correct.

Senator JOHNSTON: And we are now, in many instances, more than 12 months since they made the complaint.

Mr Cunliffe : That is correct.

Senator JOHNSTON: So they have gone through all of this reliving of these events and have heard nothing more in many circumstances.

Mr Cunliffe : They have not heard the characterisation of the matter at this stage. I do not think it is fair to say they have heard nothing more.

Senator JOHNSTON: Who planned this process?

Mr Cunliffe : Who planned the process?

Senator JOHNSTON: Who is responsible for the dealing with complainants in this way? Where did this all come from? Whose invention was it?

Mr Cunliffe : A series of players, I suppose. To some degree it was DLA, which could do a certain number of things. We had some involvement and then ultimately some decisions were made by the minister, because it was important also to keep us at arms-length, since of course some of the complaints will be, I suspect, about the legal handling.

Senator JOHNSTON: What are we waiting on to tell the 775 that they are in the 'plausible' list?

Mr Cunliffe : Some material has been prepared within my division, but in fairness it was only recently.

Senator JOHNSTON: What has been the hold up?

Mr Cunliffe : Trying to identify the groupings and the characterisation to get to a point such that we could put together some final decisions.

Senator JOHNSTON: But at the very minimum we know that 775 have 1,095 plausible allegations.

Mr Cunliffe : Yes. One of the steps that is ideally available is advice about exactly what the next stage of the process is. As the secretary has already identified that is still a matter that is being addressed—not by us, but by others.

Senator JOHNSTON: By who?

Mr Cunliffe : As I understand it, the secretary identified that the minister is speaking to the Attorney-General.

Senator JOHNSTON: So we are waiting on the ministers.

Mr Cunliffe : We are waiting on governmental decisions.

Senator JOHNSTON: The minister and government?

Mr D Lewis : Let us go back one step. Volume 2, which is the detail of each of the assertions that have been made—the cases, if you like—was received by the minister on 17 April. You heard Mr Cunliffe say that there were 27,000 hours of work done by DLA Piper to produce this. It is a massive amount of material, with 775 people and 1,095 assertions. Quite obviously, to triage that—if I can use that expression; I am not sure whether that is a legal term—and to categorise these cases is going to take some time. The minister is turning his mind to that now and talking to colleagues about how this might be managed. Recognising again that you have repeatedly asked questions of us, this is a job of work that has been done by a law firm on our behalf. I am not trying to duck away from it—you understand this. The law firm has taken the actions that it has in a professional way to see if it can come to what it perceives as being near the truth. We will now progress that. Each of these assertions is going to have to be fully tested.

Senator JOHNSTON: Certainly. All I am concerned about is that we have announced that there are 775 people who have a plausible allegation. The minister is off getting advice on that, and I have no issue with that. I have no issue with anything that Defence has done here save for one thing: that you did not tell each of those 775 people that you have received their complaint, which is in the plausible category, and that you will further investigate and be in touch in the future. That would have given them some idea that it has not been a complete waste of their time.

Mr D Lewis : Mr Cunliffe has made it clear that that is not the case for 775 of the people.

Senator JOHNSTON: But the individuals do not know that they are in that list.

Mr D Lewis : I am not sure that that is right.

Senator JOHNSTON: That is what he told me.

Mr D Lewis : I am not sure that that is right.

Senator JOHNSTON: No-one has told them that they have a plausible allegation.

Mr D Lewis : I withdraw: that appears to be correct.

Senator JOHNSTON: What are we doing about that? Is it going to cost us the sun and the moon to write to the 775 people and say, 'We have received it, it is in the plausible category and we are waiting on the government to decide'? Doing that would not be unreasonable, would it?

Mr Cunliffe : And it steps along the lines that are being proposed.

Senator JOHNSTON: Phase 2 has definitely been received by the minister?

Mr D Lewis : Yes. It was received on 17 April.

Senator JOHNSTON: So more than a month ago. Does Defence know precisely what is intended with phase 2? What are we doing with it? Are we getting the Attorney's advice?

Mr D Lewis : No, we do not know. It is a decision to be taken by government.

Senator Feeney: The minister is in discussions with the Attorney-General and there has been no announcement.

Senator JOHNSTON: So we do not know anything much at all really. Fair enough. So you are not in any position to discuss with me the options available to government?

Senator Feeney: That would be advice to the minister.

Senator JOHNSTON: That is right. You have received no advice as to that. This is all in the hands of the minister and whoever he is taking advice from.

Mr Cunliffe : And at this stage Defence has not seen volume 2 of the DLA Piper work.

Senator JOHNSTON: Why has Defence not seen volume 2?

Mr D Lewis : A lot of the information that was given in volume 2 was done so on the basis of confidentiality. You described earlier that some of the cases go to a dissatisfaction with the way in which Defence investigated the issue in the first instance, no matter how long ago. It is not appropriate in many instances that the Defence department and the organisations within it be involved in progressing these assertions.

Senator JOHNSTON: All right. Can we advise anybody listening to this today as to when we are likely to have some movement at the station? Does Defence have any idea when there is going to be some advance on this front?

Mr D Lewis : No. I hope that it is as soon as possible.

Senator JOHNSTON: Thank you. I have no further questions on that matter. I want to talk about recreational leave from Western Australia in particular. The number is 22,000—you can correct me if I am wrong. What are the savings involved in the entitlement for those wanting to go home being removed and why have we chosen 21?

General Hurley : The saving is in the order of $16 million. I will get the appropriate data for you and sort that out. This goes back to the broader issue of reform and the processes in play in the department. You will recall that back when the SRP was formulated there were quite a number of streams in that program, one of which was called the non-equipment procurement stream, where we looked at a range of current conditions, services, entitlements and so forth across the Defence Force to review those in the light of the reform initiatives to see what could be changed. We did not start from the point that everything had to go or be reduced. In looking at that, we were trying to develop a 21st century workplace in the Australian Defence Force. We looked at processes and practices—not solely at entitlements—that have been in place for a long time to see whether they were still relevant given the many changes that have occurred in relation to ADF salary, conditions and so forth over many years. Even taking in the last five to 10 years, we have been through the general officer payment scheme, the general other ranks payment improvements and changes in the way that we benchmark ranks against salary. Significant changes have occurred in our industrial environment. We asked whether these practices were still relevant. This particular one was looked at. There has been an accusation that we are picking on single members. That is not the case. The SRP is looking at everything across the board. Recommendations have been put forward.

The accepted age of majority of 21 was chosen. The vast majority of people who enter have finished their trainee period by the time that they get to 21 and have moved on to units and into adult life, doing what the ADF requires of them. I do not think it was just picking an age. That seemed to be a sensible point to start with. We made that decision in light of that. It will be part of a bigger package over time. Going back to the point that I raised this morning in relation to our workforce in the future, the intention is not to drive down the employment offer or say to our people that we are paying too much for them or whatever. Rather, it is about trying to reshape this and put together a 21st century workforce package that is easier to administer, more understandable to members and easier to adjust over time than what we have at present.

Senator JOHNSTON: So $16 million is the saving. When was this proposal adopted?

General Hurley : It comes into effect in the next budget.

Senator JOHNSTON: Do you mean 1 July?

General Hurley : Yes.

Senator JOHNSTON: When was the proposal adopted, though? When did you decide to do it?

General Hurley : I could not give you a precise day. But it was when we were looking at the contribution that Defence was being asked to provide for the budget and at what areas we could find savings in. It was when we were looking at capital investment, operating costs, sustainment, personnel costs, workforce costs and so forth. It was in that process.

Senator JOHNSTON: So in April to May?

General Hurley : Over the last few months.

Senator JOHNSTON: Around 22,000 people are affected.

General Hurley : That is correct.

Senator JOHNSTON: I note that if you are in Darwin you are not affected because Darwin is remote. What are the affected bases for personnel who would normally get the two free recreational leave travel entitlements?

Mr D Lewis : You are confusing the remote locality leave travel with this reunion—

Senator JOHNSTON: So Darwin is in?

Mr D Lewis : No. The remote locality leave is based on remote localities. This is about changes to recreational leave policy for those over 21 going home at public expense. That is across Australia.

Senator JOHNSTON: Okay. So if you are in Darwin and you are over 21 you lose your two trips.

Senator Feeney: You only had two if you were Navy, as I understand it. You had one otherwise.

Senator JOHNSTON: Okay. So you lose those two or one trips as the case made be, including from Darwin.

Major Gen. Fogarty : Perhaps I can help. What you are talking about is a different benefit altogether. What the CDF was talking about was recreational leave travel.

Senator JOHNSTON: Okay. Let us stick with that.

Major Gen. Fogarty : You are correct that some 22,000 members without dependents who will be affected. About 46 per cent of the permanent members of the ADF are members without dependents but there are 4,548, to be precise, who are currently under 21. So there are potentially 22,000 affected. But those who are undergoing their initial employment training—and at any time we have between 6,000 and 7,000 members going through initial employment training—are still entitled to three trips to their next of kin per year. That has not changed. Clearly, some of those 7,000 will be members without dependents. It is not correct to say that 22,000 will be affected. It will be somewhat less than that.

Senator JOHNSTON: Okay. The ones who are undergoing their initial employment training who are single lose their trips.

Major Gen. Fogarty : No, they do not.

Senator JOHNSTON: They don't?

Major Gen. Fogarty : Regardless of age, they will retain their three trips per year.

Senator JOHNSTON: How long are they in initial employment training?

Major Gen. Fogarty : It depends on their trade. Some of them could be in that training for up to two or three years.

Senator JOHNSTON: Okay. So for potentially a two- or three-year period they will retain their trips.

Major Gen. Fogarty : If you think about what is happening on the ground, these are people who are not yet established in their posting location. For all intents and purposes they are attending a school. When there are semester breaks at the school, they take leave and are eligible for a free trip back to their next of kin.

Senator JOHNSTON: Where are the schools located?

Major Gen. Fogarty : All around the country.

Senator JOHNSTON: Are they in Townsville, Darwin and Perth?

General Hurley : Taking the Army, the schools are at Singleton, Puckapunyal, Albury-Wodonga, Oakey and Kapooka. Taking the Navy, the schools are at Cerberus and Creswell. Taking the Air Force, the schools are Sale, Pearce and Edinburgh. They are scattered around the country.

Senator JOHNSTON: Save for Pearce and Edinburgh, all the others are in south-east Queensland, New South Wales and Victoria.

General Hurley : Correct.

Senator JOHNSTON: So we are talking about all of those people who are not at school in Townsville, Darwin, Pearce, Stirling or anywhere else where they are removed from family.

Gen. Hurley : If they are over 21—

Senator JOHNSTON: And single.

Gen. Hurley : —and single and not undergoing training, then the entitlement has been removed.

Senator JOHNSTON: Have we changed our recruitment wording and representations to people that they will not get those if they are single and away from home?

Major Gen. Fogarty : The script for our recruiters is updated regularly as various benefits change. Recruiters certainly will be prepared for recruits who enter into the organisation from 1 July.

Senator JOHNSTON: Most of the people affected by this when they were recruited were told, 'You'll get these trips'?

Major Gen. Fogarty : They would have been told the current benefits structures that were in place at the time they joined, yes; that is correct.

Senator JOHNSTON: Including the two free trips home once a year?

Major Gen. Fogarty : I cannot say whether or not this specific initiative was included. The general discussion is around the types of benefits and initiatives we provide. It is really about selling the employment offer to a potential candidate.

Mr D Lewis : Senator, you have spoken on a couple of occasions about two trips a year. It is only one trip a year for members without dependents in the Army.

Senator JOHNSTON: And two for the Navy?

Mr D Lewis : Two for the Navy.

Major Gen. Fogarty : This is a different benefit to remote locality leave travel, where members are entitled to up to two trips, depending on the designation of the location and how remote it would be.

Senator JOHNSTON: And that does not apply to those who are single and those who are over 21? That is just a standard—

Major Gen. Fogarty : It applies to everybody who is in a remote locality.

Senator JOHNSTON: And where are the remote locations?

Major Gen. Fogarty : Townsville, Cairns, Darwin and the North West Cape and places in between are included as remote localities. They are not all graded the same. Townsville and Cairns have a different grading to Darwin and the North West Cape.

Senator JOHNSTON: And how does that play out in terms of practical applicability? What happens?

Major Gen. Fogarty : In Townsville and Cairns the entitlement would be for one trip every 12 months. For Darwin and the North West Cape it would be two trips every 12 months.

Senator JOHNSTON: Thank you.

CHAIR: Are we ready to move on from questions arising from the opening statements?

Gen. Hurley : Perhaps I could just indulge again in terms of allegations about my address this morning. Again, as I get updated I will bring them to your attention. I would like to just read a response. One of the questions we were asked, which flows through from the media article this morning as well, is: 'Is Defence aware of the shooting death of a suspect by an SOTG intelligence officer in September 2010 during a tactical questioning session? If so, what was done about it?'

The response is: 'Defence is aware of an incident involving an insurgent who was killed while physically threatening the life of an SOTG member around this time, but not in September. In the matter that we are aware of the insurgent killed was regarded as a combat related death. Defence understands that the incident we are aware of did not occur during tactical questioning, but the Chief of Joint Operations, once this allegation was made known to me this week, has directed that the details of this incident be reviewed to see if there is any alignment at all. We do take these matters seriously. Administrative inquiries or disciplinary investigations may be conducted to determine whether or not behaviour and procedures were proper and lawful and whether lessons can be learnt from specific matters to improve our processes. I will take advice from the Chief of Joint Operations on a way forward when he has completed that review.'

CHAIR: Thank you, CDF. Mr Lewis has a statement as well.

Mr D Lewis : Mr King would like to read a correction of the comments he made this morning.

Mr King : It is an amplification, really, in response to Senator Fawcett's question about engineering. Over the past four years our workforce guidance for contractors has reduced from 267 to 51. For FY 2012-13 the guidance is 48, the lowest level in the last five years, and at the moment we have about 45 contractors in full-time equivalent terms. Of these, approximately 18 full-time equivalent are devoted to engineering functions.

Senator FAWCETT: To the CDF and secretary I ask: were you invited to the statement by the Prime Minister and minister about the white paper and the budget measures?

Mr D Lewis : Do you mean the public announcement?

Senator FAWCETT: Yes.

Mr D Lewis : No.

Senator FAWCETT: Can you think of any previous occasion when a white paper or a budget measure of that significance has not been attended by the CDF and secretary?

Mr D Lewis : I do not know. I am not sure.

Senator FAULKNER: On the report that you were referring to, CDF, just a moment ago you indicated that the dates were different. I am trying to find the date that was reported of this alleged incident. You might be able to help me there.

Gen. Hurley : I do not have a date for the alleged incident that is referred to in the newspaper article other than September. We do have incident reporting for the event we think it may be, but that was not in September. As I said, we will try to see if we can align whether we are talking about the same incident.

Senator FAULKNER: When something like this happens, what I assume you try to do is find an event or an incident that might bear some relationship to the matter that has been reported. Would that be the case?

Gen. Hurley : That is correct. The one I referred to is the closest one we can see at the moment, but I have asked them to go back and have another look.

Senator FAULKNER: Can you assure the committee that in relation to the time that is provided, which is the September date, that will be checked as exhaustively as possible in terms of all available records and reports?

Gen. Hurley : That is correct. The Chief of Joint Operations and his staff will go through all our incident reporting around those periods to see if there is anything that might correlate.

CHAIR: That concludes questions arising out of the opening statements, so we will move now to outcome 1: the protection and advancement of Australia's national interests through the provision of military capabilities and promotion of security and stability.

[14:37]

Senator FAWCETT: Just going to the policy of Defence of speaking with one voice to the minister, could you just describe the steps that Defence has to go through in order to achieve consensus across the 13 groups in order to provide a cabinet submission or other statement with one voice to the minister.

Mr D Lewis : There are a number of answers to that question. It depends very much on the nature of the advice as to the extent of the consultation that takes place. As you would be aware, a fair amount of the advice is what I would describe as 'commonly accepted' through the organisation. Where that is the case, there would be perhaps less consultation than on some of the more contested issues. The Chief of the Defence Force and I have statutory responsibilities for our respective parts of the department. Each of the service chiefs, as you know, have a statutory responsibility in their particular lane. We have run a very much thinned down system of meetings and committees as pursuant to the Black report where we have cut back on a number of the high-level committees. We have weekly and monthly processes by which senior officers get together. But at the end of the day the advice that goes to the minister on military matters comes from the Chief of the Defence Force and the advice that goes to the minister on departmental matters and anything to do with the FMA comes from me. The Chief of the Defence Force and I are in, I was going to say daily, contact—we are probably in hourly contact on many days—to ensure there is synthesised advice going forward from the two of us. I could be more specific if you had specific issues in mind, but that is essentially how it works.

Senator FAWCETT: I have two follow-up questions; one I am happy for you to take notice. Could you give an indication as to how long cabinet submissions can take? I am aware that there will be a range—some will be short; some will be long—but how long is the process in the worst case under your new system for a cabinet submission to leave the originator and go through all the various groups who may want to make a contribution? How do you deal with dissenting voices? For example, if the originator of a cabinet submission has a particular point of view that is modified by the people downstream, does he or she have a right of reply? If not through that process, how do you allow dissenting voices to reach the minister?

Mr D Lewis : On your first question, it is not really possible to give you a time line, because it depends on the nature of the cabinet submission. Some are fairly cut and dried and will move with great speed; others obviously are slower, depending on their nature. You are aware that not only are internal departmental development activities gone through but, once it leaves the department, there are the Secretaries' Committee on National Security and then the NSC. There are some automatic time delays, if you like, imposed by the whole-of-government process and then we have our own internal development time. So there are really two bits to the time taken to develop a cabinet submission. I do not know of any submissions that are particularly vexing, in terms of the time they have taken to develop. Usually, delays are associated with complexity or contestability.

With regard to how we manage dissenting opinions, again, it depends very much on the nature of the issue. I can recall only one instance in my experience—it was not while I was in the department—where a dissenting view was canvassed in a formal sense. It usually goes to the statutory responsibility of the officer who may hold that dissenting view. But, quite frankly, we talk constantly about one Defence: we iron out our problems internally. When views go forward there may be people who are not happy with them but I believe there is mature acceptance of the fact that a decision has been made. The Chief of the Defence Force and I carry the ultimate responsibility for those decisions, and that is what goes forward from the department.

Senator FAWCETT: Does Defence internally, or other departments, when you are talking about a whole-of-government approach to cabinet submissions, have a timeline within which it must turn around that submission?

Mr D Lewis : No clock starts running in Defence unless we have imposed it ourselves. It would be an internal mechanism unless, of course, the government has come with a direction saying: 'By next week have a certain cabinet submission ready.' The NSC typically sets a range of dates for things to come back to it. As you are moving forward with policy decisions the NSC will determine: 'Right, by June we want a paper on such and such to come before the NSC,' so there is an inbuilt time cycle where. But cabinet submissions generated from within the department are essentially driven by time lines that we are imposing on ourselves because there is either an operational need or something needs fixing. So it is a self-imposed timeline in that sense.

I will say again, however, that once it gets outside the department we get into the whole-of-government cycle, which is something over which we do not necessarily have control. The cabinet process is sufficiently flexible to take something quickly if there is an unforeseen and pressing need to do so.

Senator FAWCETT: A number of witnesses to the Senate inquiry into defence procurement highlighted that delays in decision making by government at the end of that process often drive risk and cost, because companies tend to price in the risk as schedules become compressed. Has defence ever looked at that process and the opportunity cost of that delayed process at times, particularly if cabinet decides it is going to reschedule consideration of an item, which may push it out several months? Does defence have the tools to go back to cabinet with an indication of the likely increase in cost to the taxpayer that may arise because the decision is not taken in a timely manner?

Mr D Lewis : Yes, it is not unknown that we would put into a submission that this needs to be managed by a certain time or else deadlines will be broken and those deadlines being broken will cost money. If you want some more detail than that—

Senator FAWCETT: I am happy for you to take that on notice but yes, some more detail would be good.

Mr D Lewis : I think that would require quite a developed answer because it is a complex issue. But we are happy to take it on notice.

Senator HUMPHRIES: I previously asked questions in additional estimates about the impact of the efficiency dividend on defence and I was told in reply that the efficiency dividend is only applied to certain parts of defence, on the basis that it will not affect areas of the budget directly linked to military operations or capability, and that means that the dividend is applied to approximately only 11 per cent of the defence budget. I think you said this morning, Mr Lewis, that 22,000 or so people are employed in the department.

Mr D Lewis : APS staff, yes—22,000 or 23,000. It moves around a bit depending on whether you are looking at the FTE or an actual headcount.

Senator HUMPHRIES: Okay. I assume that the effect of the 11 per cent will fall quite heavily on those 22,000 or 23,000, in the terms that it needs to fall on the workforce establishment at all. This is a department where a smaller percentage of your spending is on workforce, but I assume that the efficiency dividend will resonate more in the workforce than it will in some other areas of the department. You said you cannot give us information about how many positions are likely to be made redundant in the course of these budgetary changes, but can you tell us how many voluntary redundancies have already been offered so far this financial year within the department?

Mr D Lewis : Going back to the sentence before last, we do know how many positions will be reduced: 1,000. It is quite clear. That is a known figure. What I said this morning is I am not able to attribute those 1,000 positions specifically to one group or another at this stage. There has been an unscientific attribution of those positions for the purposes of the budget. I am now going back through and doing a very scientific and involved look at where in fact those 1,000 positions can be taken to create the least amount of hurt to the organisation. So that is a job of work that is underway. What was the last point of your question?

Senator HUMPHRIES: The question was: how many voluntary redundancies have been offered already this financial year?

Mr D Lewis : We do have a figure for that.

Ms McGregor : I am sure we can get back to you before the end of the hearing with that number. I know we have it. That is something that happens through the course of the year. These redundancies can be offered irrespective of the efficiency dividend, so take that into account. But we have sought expressions of interest at this point in time as a result of the staffing reductions which have been announced. We do not have any formal offers out as yet. We can get back to you with the year-to-date figure.

Mr D Lewis : I think the important thing there is that the VR program is a tool which is employed continuously. It is not new. It is something that we do each year and it is ongoing.

Senator HUMPHRIES: But I assume in this year and the next financial year there will be a higher call on that as a way of helping the department meet its budgetary targets than would have been the case in other recent years.

Mr D Lewis : That may be the case. We do not know at this stage. It depends on how we go with the natural attrition and the various other mechanisms that I mentioned, to do with adjustment to recruiting and the cessation of some of the non-ongoing workforce arrangements that we have.

Senator HUMPHRIES: Has the department made any involuntary redundancies this financial year, other than for issues relating to performance?

Ms McGregor : Not as I understand it, but can I come back to you on that one?

Senator HUMPHRIES: Yes. Has the department conducted a recently updated analysis of the impact of the carbon tax on the operation of the department?

Mr D Lewis : Yes, we have. We gave an answer on this at the last estimates. I will try to come back to you in this session with an answer. I am sure there is one around.

Senator HUMPHRIES: I have seen earlier answers to questions—I am not sure if it was last estimates or the previous round—but if there have been answers previously they could be outdated in terms of the currency of what measures have been taken by the department, so I would appreciate receiving that advice.

Mr D Lewis : We certainly have had a discussion about that before in this venue. I will see if I can get a more precise figure for you.

Senator EGGLESTON: Last estimates I asked about the presence of naval patrol boats off the north-west coast and the general defence of the north-west coast. Since then I have been approached by several oil and gas companies that have expressed concern about the protection of some of the developments off the north-west coast. They say that their American investors, particularly, are concerned that perhaps the protection of these facilities is not quite what it could be.

For the interest of the committee I would like to table a couple of documents. One shows the value of offshore development. Off the Pilbara coast at the moment it is $23.18 billion. The second chart shows the total value of LNG offshore projects off the Pilbara and Kimberley coasts, and projected projects, and it comes through at some $316 billion.

CHAIR: Could you identify where the document is from and who authored it.

Senator EGGLESTON: It came from the Kimberley Economic Forum, some months ago.

CHAIR: Are senators happy with that? Thank you.

Senator EGGLESTON: There are extremely valuable investments off that coast and they are very important to Australia. I understand that since then there has been some progress on the question of military presence off that coast with the Defence Force Posture Review. Could we be given an update about what that review has recommended?

Gen. Hurley : The presence of the ADF anywhere around the country in operations would be in response to the threat that exists in relation to either the region, the asset and so forth, acknowledging the high economic value of the region. At the moment, though, the ADF positions itself only for the most likely of threats, which are terrorist threats against rigs. So we have CT, counter-terrorist, type activities and so forth. There are no conventional threats to that area of wealth generation. Our activities are pointed to the most likely terrorist threat, and we have a counter-terrorist capability. Obviously there are threats from the environment, in terms of weather and/or industrial accidents, but they are not in themselves the responsibility of Defence to protect against or respond to.

In relation to the Force Posture Review, this review looked at the presence of the ADF in that particular area and noted that over a number of years the level of our activities has reduced. If you were a young officer in the ADF in the nineties, you would have been quite familiar with the Kimberly and Pilbara areas—Port Hedland and so forth—because we were often there. We have had our attention elsewhere over the last decade. That is not to say that we have not been there. We have conducted activities. We have patrol boats operating through the region, and of course our P3s fly over and through that airspace on a regular basis.

I think what we need to do—and the Force Posture Review points to this—is make our current activities more obvious, make people aware of what we are doing and consider how we might improve or increase our presence in the north-west, and that is something we are actively working on at the moment. It is small steps to start with but I will take the Chiefs of Staff Committee up to the north-west and we will conduct one of our regular monthly meetings in a place to be determined, talk to local industry, government and so forth and begin that process of awareness and meeting the people.

We will look at recommencing our tours through those areas by our staff colleges and senior college and so forth so that, as part of that education and training professional development program, people get back into our own backyard and become more aware of it. I have asked that the patrol boats and the P3s make their presence more known to the installations and the companies up there. I have asked the Chief of Joint Logistics, through the vice chief, to go and review and update our understanding of the infrastructure and the ability to support operations from the North West Shelf area. I have also asked the Chief of Joint Operations to look, in the period 2013-14, to our capacity to conduct a major exercise, either maritime and/or land, in the area, as we might have done in previous years. It will not be at the same scale, but let us start that up again. We are moving in those steps to reunite with the people of the north-west.

Mr D Lewis : If I might just add, the Defence Force Posture Review was of course released publicly on 3 May and the recommendations are there. We have done a cut on those recommendations and there are some things that we can do in the near term. Other issues will have to be moved across and will be swept up in the consideration of the white paper.

I think it is important to recognise that the review found that the ADF has an active presence in Northern Australia—that was its finding—and the approaches to Northern Australia. But it did say that the activities there were 'of low visibility' and they focus on border protection. It suggested that an increase in more visible ADF presence is indeed warranted. That involves, as the CDF has said, further exercises, preparedness, engagement and so on. It is quite interesting to hear that, even when our ships are sailing through that area, naval vessels and so on, it is not uncommon, as I understand it—and Chief of Navy probably knows more about this than I do—to challenge, if that is the right word, some of these facilities as you go past and get no response, because of course many of them are unmanned. They have no staff on them at all; they are fully automated.

In fact I was in Western Australia myself late last week, starting to increase some of the engagement that we are having with the local community over there. We have an annual process by which the defence department engages the states and territories, and the Chief of Joint Logistics actually chairs that process. CDF and I have asked that that be reviewed to ensure that all of the issues that are of concern to the various states and territories are at least made clear to us, that we have a better and more expanded dialogue between the defence department and the states and territories. I was very pleased with the outcome of the Defence Force Posture Review. I think it is a very good review. It is very helpful and it does bring to light the value of the asset. You have just handed out some figures here; I cannot testify as to whether or not they are accurate, but it is absolutely accepted that we are sitting on assets in that part of Australia that are of huge value.

Senator Feeney: And plainly that was front and centre of the posture review when it was announced. When the honourable member for Perth, who is also the Minister for Defence, announced and spoke to the posture review, I recall it was full of maps that bear a very close resemblance to the one you handed out today. I think it is fair to say that the spectacular level of investment into the resources industry in Western Australia was a key consideration and driver for the posture review.

Senator EGGLESTON: You mentioned that your presence is in reaction to need or takes consideration of need. As I said, some of the American investors in these projects have been concerned about the possibility of terrorism. As you say, a lot of these rigs are unmanned. That in itself is a bit of a concern when you think back to the Varanus explosion, which cut off the energy supply to the south-west of Western Australia. Out there further is the Sunda Strait, between Java and Sumatra, which is the funnel through which the ships off the north-west coast—not only the gas ships but the iron ore ships which go to China and Korea and Japan—all pass, and there is said to be some risk there from so-called modern mines, I believe, which can read the imprint of a ship, or its sound characteristics.

Senator Feeney: I do not think any of them have been planted this week—that we are aware of.

Senator EGGLESTON: That is reassuring. It is a matter of concern to people in the north-west. There was some suggestion in the defence posture review that there might be a patrol boat facility put into somewhere on the coast, with some suggestion that it might be in Broome. I am very pleased that you are now focusing on that area and look forward to further developments.

Gen. Hurley : Thanks, Senator.

Senator IAN MACDONALD: Both General Hurley and the secretary mentioned that you have the assets there but you will make them more visible. I assume most of your good work in protecting those commercial assets over there is done in a way that is not visible, if I can put it that way. How are you then going to do it? Are you just going to have someone sailing around with a band playing on board so everyone can see you, or low-level flights so that people—

Mr D Lewis : As I say, often there is nobody there to hear the band.

Senator IAN MACDONALD: Okay. But there seemed to be two contradictory sorts of approaches. Clearly you should be doing the stuff that does count, but you are saying that as well as that you want to have the ship going around with the band playing so people will understand that you are up there and not be confused.

Gen. Hurley : This occurs at many levels. It is talking to management downwards: what is in the area that they may not be aware of; what we are doing; how frequently our patrol boats are actually passing through the area, around the area, to the north or south of the area; how frequently our aircraft are in the area and so forth. I think there is that sort of lack of awareness of the assets we have got there what they are actually doing. Then, as Chief of Navy might wish to comment on, we can divert ships to make specific calls through certain paths through the area if that is part and parcel of the reassurance. They are not there specifically because there is a threat but, if, without draining my sustainment accounts and sending the ships out longer than they need to be and so forth, we can fit that into the task, we can get them to make their presence evident, we will try to do so. There is an information thing; there is a presence thing. In joining with industry when we look at the exercise, I was informed only last week that we are looking for a mid-2014 exercise in the north there. As we lead up to that, that will be a very good opportunity just to involve everybody in how the ADF operates, what we will do in those areas and just give them more information. I think some of that is what has caused the nervousness—that they simply do not know.

Senator IAN MACDONALD: I do not want to create an argument over this. Clearly a lot of our Defence Force assets and Customs marine assets are up in the north-west not for protecting commercial interests but looking at the illegal immigration problem. When and if that immigration problem is resolved so that there are few people coming, will the Navy particularly still have the same sort of intense presence up in that area? Or is that too hypothetical? One day that immigration issue will be fixed.

Gen. Hurley : We are getting into a hypothetical space.

Senator Feeney: I think you need to nominate a date, Senator.

Senator IAN MACDONALD: Tell me when the next election is and I will nominate the date.

Vice Adm. Griggs : The commander of the Border Protection Command has eight maritime threats and he moves his assets around—whether they be Customs assets or ADF assets—based on his assessment of those threats. If one threat recedes, he will redeploy the assets he has available to meet those tasks. I do not think there is an issue there. In the Bass Strait over the last 40 years we have had a constant visitation of the rigs down there. One of the reasons we have done that is to continually remind people that we visit those areas and to remind merchant shipping in the area that they need to avoid certain areas around the rigs. Last September I directed all of our ships—not just our patrol boats but anyone passing through the north-west—to alternate their planned routes. So they did a similar thing to what we have been doing in the Bass Strait for a number of years and that is now in place. That led to the secretary's comments about how the first time we did it we called up a number of rigs and no-one answered.

Senator EGGLESTON: It is all very well that you are doing this in the Bass Strait but it is down off Victoria and there are no threats whatsoever. The North West Shelf is close to Indonesia and the troubled area up there. I think it is very good to—

Gen. Hurley : There are no threats from Indonesia. I will go back to my point before: we will position according to threat, and there is no conventional threat—

Senator EGGLESTON: I did not say Indonesia was a threat.

Gen. Hurley : I am just saying that there is no threat.

Senator EGGLESTON: I do not regard Indonesia as a threat but there are people who could get on boats and come down to that area from other places who might be threatening. I am very pleased to hear that the Navy is now going through this area and waving the flag, but I think it is all a matter of being aware of the level of investment there. It is a $300 billion site. That is what some of the American investors in these great projects are concerned about—that our military seems not to focus very much on the world scale of this investment and the need to prophylactically, if you like, make sure that nobody thinks that they can attack it in any way.

Senator Feeney: We have been able to indicate that it was front and centre of the reasoning for commissioning the posture review. The minister made the claim that that investment was understood and the implications of it needed to be explored.

Senator EGGLESTON: I said that is a good thing. I am very pleased about that. I believe there is a coastal defence command, is there not?

Gen. Hurley : A Border Protection Command.

Senator EGGLESTON: Is there a Border Protection Command office or facility in the north-west?

Gen. Hurley : The Border Protection Command's major headquarters are in Canberra and then there is a subordinate headquarters in Darwin.

Senator EGGLESTON: Are there Border Protection Command stations anywhere around the country apart from those two locations?

Senator Feeney: They coordinate assets that come from—

Mr D Lewis : Customs have some footprints around the place; I am just not sure where they are. The Customs service, which is part of the border protection arrangement, has a footprint. But in terms of a naval footprint, which is what you are alluding to, no.

Gen. Hurley : In terms of the management of the asset, you do not physically have to be located there. We can pull the entire maritime and air picture for Australia into Canberra and manage assets from there.

Senator EGGLESTON: Of course you can. But it was said to me that there was a border protection unit—it might well have been based in Dampier—and that it was no longer being manned, which was the purpose of my questioning. Has there been a border protection unit at Dampier at any point?

Gen. Hurley : Again, border protection command is not our responsibility, so if they have moved something from Dampier we may not actually know about it.

Senator EGGLESTON: If it is not your responsibility, I fully accept that.

Mr D Lewis : The Chief of Navy might have some answers.

Vice Adm. Griggs : In 1997, I think it was, there was a small facility in Dampier. It was not a wharf; it was a building designed to support Armidale class patrol boats that were operating out of the north-west. When the focus shifted back to the far north-west, if I can paraphrase it that way, we did not maintain the manning of that facility, because there was no need to.

Senator EGGLESTON: That answers that question. I have just one other question, and that is the air bases there—Learmonth and Curtin. I believe Learmonth is now being used by your coastal patrol aircraft. Are there any plans to use Curtin as an active air base?

Gen. Hurley : We will not be using it. It is a bare base, so we only use it for exercising from or for supporting activities that require a base to reach from. It would be a fairly good guess that we will require it for the mid-2014 exercise; it will be part of that. And I am sure the Air Force, in their exercise program, will use Curtin when they need to. So it is used as required.

Senator EGGLESTON: It is used as required but there are no plans to man it at all at this stage.

Gen. Hurley : Not as a permanent base, no.

Senator IAN MACDONALD: Just to finish off with Admiral Griggs—and thank you for your advice about the activity up there—I just cannot let the opportunity pass without saying, as I have said in relation to other naval assets, that unless we are expecting an attack from New Zealanders or penguins it is probably more appropriate to have the assets up in the north-west than in Bass Strait.

Vice Adm. Griggs : All I was saying was that as we go through that part of the world we have for 40 years asserted the fact that we were there. I was using that as an example of a program we had in place that I have instituted in the north-west.

Senator IAN MACDONALD: It was just my attempt to be funny, but clearly I have to explain.

Senator Feeney: You are underestimating penguins!

Senator EGGLESTON: Watch out for the penguins.

CHAIR: We are all hilarious!

Senator LUDLAM: I have a couple of questions on what we are calling the joint force posture initiative in the Northern Territory. Is Major General Krause around—or somebody who can speak for that project?

Gen. Hurley : We can speak to it.

Senator LUDLAM: I was led to understand that Major General Krause, if this is still his gig, would be here today. Is that the case?

Air Marshal Binskin : That is right. He works for me.

Senator LUDLAM: Is it the case that he is here today? Is he able to present? It is just that he told a public meeting in Darwin that he would be.

Mr D Lewis : Perhaps you could put your question first. I do not know whether he is here or not, but we have senior officers at the table who should field the question first, and then, if it is necessary and he is indeed available, we can bring him to the table.

Senator LUDLAM: All right. Maybe we could just start with an overview, then. Can you tell us the progress towards the establishment of the first full-scale rotation? Obviously we have the marines in Darwin, as of two months already. Can you tell us how that has worked out so far, and where to from here?

Air Marshal Binskin : An initial rotation of just under 200 US marines arrived in Darwin on 3 April. That rotation is going very well at the moment. They have done a fair few training activities in the local training areas around Darwin, and it is all going as planned. We are looking at another rotation of about 200 or 250 next year, and then this will slowly grow, as has been announced, to about 2,500 in the 2016-17 time frame.

Senator LUDLAM: There was a social impact study that there has been a fair bit of debate about in the Top End. I have a copy of the issues paper here from the consultants. What is the scope of that? That is just looking at the 250. Is that correct?

Air Marshal Binskin : Currently the social impact study is looking at the initial deployment of the 200 to 250 marines. Out of that, we will do an assessment, as we will at the end of each rotation, to take the lessons from that and roll them into the planning for the next rotation as they come through.

Senator LUDLAM: So a consultant, whether it be Noetic or somebody else, will be producing one of these as the deployment scales up by a factor of 10?

Air Marshal Binskin : The aim will be, as we go through the lesson process, to see if we need to do these studies on the social and economic impacts and continue with them as we go through.

Senator LUDLAM: So as you go you might form the view that you do not need to?

Air Marshal Binskin : We will see how it goes as we step through it.

Senator LUDLAM: If people are coming to these consultants with concerns about the much larger scope of deployment, will they be ruled outside the terms of reference or will you be happy to take their views?

Air Marshal Binskin : No, if there are concerns out there then we need to address those concerns.

Senator LUDLAM: Yes, indeed—just checking. Can you tell us the total scope? One of the things that the major general told a meeting in Darwin about a month or so ago was that the US—I do not know whether it was the air force specifically—had proposed the deployment of bombers or other aircraft to Darwin and were told no, that that would not be happening. Can you describe for us the decision-making process behind that?

Air Marshal Binskin : It would be bigger than just that.

Senator LUDLAM: I just thought I would pull this thread and we will see what falls out.

Air Marshal Binskin : If I give you the history, we have had US air force, US navy and US marine aircraft rotate through Darwin. I can remember air force B52s there in 1983 onwards. So we have had these deployments over a number of years. We are cognisant of noise it creates for Darwin residents. We are good neighbours in the Darwin environment. We have Tindal down the road. So what we want to do is make sure that we spread the air activity between Darwin and Tindal.

Senator LUDLAM: Are we talking about basing here, increased rotations or business as usual?

Air Marshal Binskin : Increased rotations.

Senator LUDLAM: What kind of aircraft?

Air Marshal Binskin : From a US air force perspective, you will probably see B52s and probably fighter aircraft. You will see intelligence surveillance and reconnaissance aircraft coming through as well, including Global Hawk. So we will just continue on with the rotation. You will see all these aircraft, as we have rotated them through Australia in the past. From a marine point of view, you will see those aircraft coming through as well and predominantly helicopters, rotary wing, some V22 aircraft. Then, as part of the growing rotation of MAGTF—Marine Air Ground Task Force—you will start to see the fighter aircraft and ground attack aircraft coming through. The plan would be to put a mix of fighter and ground attack aircraft mainly at Tindal. But that does not rule out the fact that they may operate through Darwin, as we do now in pitch black exercises.

Senator LUDLAM: Are we still talking about really transient deployments, or are we starting to talk about basing? Maybe I misinterpreted what we were told in Darwin.

Air Marshal Binskin : We will see rotations of forces through.

Senator LUDLAM: How long will they be there? In a given deployment through Tindal, once this is up and running at its regular tempo, if there is such a thing, how long would aircraft be sitting there?

Air Marshal Binskin : For the rotation, as I think we have stated before on a number of occasions, we are looking at about six months of the year to put the rotations through. But there will be small headquarters units that would be there on a more permanent basis, because they are the ones coordinating in all these forces coming through.

Senator LUDLAM: Where can I find any documentation about that? As you would be aware, most of what is in the public domain relates to the US Marine Corps deployment in Darwin. Much less, I would have thought, is about Tindal. So where can we find a statement of agreement or something relating to that?

Air Marshal Binskin : That it is still evolving. The marines were the first up and we are developing the plan for the rotations with the US air force at the moment.

Senator LUDLAM: When are you likely to have something that you could present to the parliament or to the public?

Air Marshal Binskin : I will take that on notice and get the time frame back to you.

Senator LUDLAM: I got correspondence on 22 February from the member for Griffith, Kevin Rudd, who provided information to his constituents that the Brisbane River is being considered for a new submarine base as it offers a location for nuclear powered warship rated porting, which would enable visits by US nuclear subs deployed in the Asia-Pacific region. What I and a lot of people are trying to get is the scope of how big this is. It starts with a marine base in Darwin—sorry, I am not allowed to use the word 'base'—and then there is an extended air force presence at Tindal and strong rumours about an expanded presence of submarines and other vessels at Fleet Base West in WA and the Brisbane River for nuclear submarines. Where can we find a picture of what is actually under negotiation?

Gen. Hurley : That is the first I have ever heard of a nuclear submarine base in Brisbane.

Senator LUDLAM: Maybe I should not have called it a base; what about visits?

Gen. Hurley : No, no. that is the first I have ever heard of expanding facilities for nuclear submarines in Brisbane, regardless of whether it is a base or a docking site. The information would be helpful.

Senator LUDLAM: Maybe I should put that—

Senator Feeney: It is not that you are not allowed to use the term base, we are simply making the point that it is inaccurate.

Senator LUDLAM: I do not want to get into this again; we have had a few rounds of this.

Senator Feeney: If you avoid alluding to it, I will to.

Senator LUDLAM: We agree to disagree on it. After this session I will provide that letter to the CDF, and we can come back to it, if you like. So nothing for the Brisbane River, can you provide us—

Gen. Hurley : I would appreciate the letter. I was in Hawaii for the change of command from Admiral Willard to Admiral Locklear, and spent a good hour or so with the commander of the Pacific navy. The issue was not raised. I would be surprised if it was on their radar if it was not raised with me.

Senator LUDLAM: So to speak. All right, a question mark over that one; maybe we will come back to it later in the afternoon. What can you tell us about Stirling naval base in WA, where the rumour mill is running hot. Can you confirm or deny anything at all?

Gen. Hurley : Is not a matter of confirming or denying. When the announcement was made about the outcomes of the global Force Posture Review, the first two priority issues that were to be looked at were the marine rotations and the U.S. Pacific Air Force rotations. Much further into the future were, thirdly, reviewing whether or not the US Navy wanted to make greater utility of Stirling as a place for maintenance and shore rest, and, fourthly, the Cocos islands. That is where they sit at the moment. We are concentrating on the first two. Any media or other speculation about Stirling is simply that at the moment. We are not engaging intensely with the US Navy on that at the moment.

Senator LUDLAM: Not engaging intensely: how are we engaging? I will give you this from the perspective of somebody outside the bubble, who gets to find out, like most of the public, when it is announced. I approached your predecessor, the secretary and others at the table over a period of more than a year to try to establish what was under negotiation for Darwin. I was told: 'There's nothing we can tell you; it's premature to be discussing it. It's all up in the air.' Then there was an announcement. Now I am trying to work out what stage 2 looks like and whether it is going to be the same. Will the Australian people find out about these things only after they have been signed? If so, what is the scope?

Gen. Hurley : There is no scope at the moment. We have not actively looked at the expansion of US navy presence in Stirling in the terms of the Force Posture Review. It was mentioned as a third-order thing that we would look at in the future. We are not putting effort into it at the moment. We have two going, and they are taking up a lot of work as they are at the moment. We will wait until we look at Stirling in due course.

Senator LUDLAM: Will you put Cocos in the same category, if asked about that? No, let us not be hypothetical: what is the state of negotiation about Cocos?

Gen. Hurley : Cocos is not even on the horizon, in my view, at the moment. In terms of workload, I should say.

Senator LUDLAM: In terms of what, sorry?

Gen. Hurley : In working an issue there.

Senator LUDLAM: Negotiations: nothing on paper.

Gen. Hurley : No.

Senator LUDLAM: Is it the case that there is an airstrip at St Leonards where drones are currently being tested? If so, are they Australian vehicles or what are they?

Air Marshal Binskin : St Leonards?

Senator LUDLAM: Cocos?

Air Marshal Binskin : Cocos? No.

Senator LUDLAM: Can you tell us, after having had the ability to visit where the Australians are running two different training programs in Afghanistan, what the planning for an Australian capability is from here on? Do we propose to adopt these vehicles more widely through the ADF?

Gen. Hurley : The Shadow UAV that is operating out of Tarin Kowt is an Army capability. Once we no longer require it in Afghanistan it will come back and be part and parcel of the Army's normal capability. The Heron is operating out of Kandahar. That is run on a contract for the period we are in Afghanistan. We have no firm plans at the moment to acquire a Heron capability for Air Force in the long term, but new UAV use in the future would obviously be part of the force structure review process and the white paper process.

Senator LUDLAM: I was going to raise it with you this morning. I think I raised the next question with you in February. Would the possibility of weaponising at least the larger vehicles, the Heron, be part of that force structure review, or is it intended to retain them just as surveillance vehicles?

Gen. Hurley : We are getting a bit ahead of ourselves there. I am not sure if we can weaponise the Heron. You probably could, but we use them as an ISR platform. I think that would be the main theme at the moment. You need something slightly bigger to have any real impact. But I would not discount the fact that we might have armed UAVs, thinking through our force structure review, into the future.

Senator LUDLAM: I am trying to pin you down here. Is that under active consideration in the current force structure review, or might it hypothetically be?

Gen. Hurley : It has not been briefed to me that it is at the moment.

Air Marshal Binskin : We have not got that far in the force structure review at the moment. But it is one of those options that are out there for a future force.

Senator LUDLAM: I would imagine that it would be.

Air Marshal Binskin : Can I just correct something. You keep calling them drones. They are UAVs.

Senator LUDLAM: I have been corrected before on that.

Air Marshal Binskin : I think it was me!

Senator FAWCETT: I would like to go to a whole-of-ADF function, which is the SWIIP program. Firstly, can I put on record my thanks and recognition for the people both from joint health and services and from DVA who are working very hard on the ground to bring this into play, particularly the innovative approaches with things like the ADF Paralympics Sports Program. The website associated with that talks about the fact that it is recognised that in complex cases additional resources are required. I cannot find in this budget or in any of the additional estimates any funding from government for that program. Could you clarify if government is providing any specific funding for the SWIIP program?

Major Gen. Fogarty : The SWIIP program is an overarching one that picks up a range of initiatives. There is no specific funding to SWIIP itself, but there is government funding under a separate initiative that deals with rehabilitation and clinical care. It is called the Simpson Assistance Program. Joint Health Command would be best placed to talk about that.

Senator FAWCETT: Does that funding also provide the funding for things like the ADF Paralympic Sports Program?

Rear Adm. Walker : The funding for the Simpson Assistance Program and the ADF Paralympic Sports Program comes out of the normal allocation for Joint Health Command.

Senator FAWCETT: Has any particular priority been made on funding that is delivered down, for example, to the brigade level, where the soldier recovery centres are, or is any specific funding made available to things like the paralympic sports program.

Rear Adm. Walker : They are two separate things. Regarding the Simpson Assistance Program, we have a number of initiatives under the program. The priorities for this year include the establishment of intensive recovery programs that will be linked with the soldier recovery centres. This is a means of putting together the rehabilitation aspects from the physical side, the occupational side and the psycho-social side. It is a mechanism to provide a more holistic rehabilitation capacity within the Defence Force. If you look at the civilian communities and civilian health systems, rehabilitation is often about getting people back to what we call activities of daily living so that they are able to feed and bath themselves and to walk. It is not about getting people fully integrated back into a workforce or into a sporting environment. Whilst we have always tried to do this, this is in recognition of casualties we have taken, particularly with the Middle East. It is about pooling those resources in one unit to see whether that provides a better outcome.

The first two of those are going to be established later this year, in Townsville and at Holsworthy Barracks, in Sydney. We have picked those sites because that is where we think the majority of our wounded members, particularly, are. They will be trialled in those locations. We need to evaluate the benefit of that and then look at whether that needs to be established in other locations.

There are different models, particularly in rehabilitation, and we need to take into account that we do not want to take people out of their command environment or their family environment. It is no good having a fabulous centre somewhere in Australia if we dislocate our members from all their support mechanisms.

The intensive recovery program will also include opportunities for the member and their family perhaps to come together for a weekend or two or three days for activities where we address concerns from family members about how they are going and what their hopes are. It is so that we bring them together in a family holistic way. It will also include programs such as what we are calling peer support programs, where we can train other members who may have gone through similar injuries, and have recovered, to give that sort of support to the member.

That is the Intensive Recovery Program under Simpson Assist. Under the ADF Paralympics—

CHAIR: Is the answer going to take much longer? I am conscious that we need to go to a break.

Senator FAWCETT: To summarise my question, at the moment people are working very hard and utilising resources they have at hand. This includes facilities and personnel. They have identified things like PTIs, for example, who used to receive specific training in rehabilitation, but they no longer have a pool of people with that training. Is the Simpson Assistance Program going to provide additional funds to enable those things and to create facilities, or, are people essentially still going to be taking stuff out of hide for this very important program.

CHAIR: We will take a break and get the answer after that.

Proceedings suspended from 15 : 32 to 15 : 49

CHAIR: Thanks, everybody. We will continue with program 1.1. Rear Admiral Walker, you had an answer?

Major Gen. Fogarty : Chair, if I may could I just take this opportunity to correct the Hansard?

CHAIR: Yes, of course.

Major Gen. Fogarty : Earlier, when answering a question from Senator Johnston about remote locality leave travel, I said that our members who are serving in Townsville and Cairns received one trip to the nearest capital city once a year. That was incorrect. It is once every two years.

CHAIR: Thank you. Anybody else?

Mr D Lewis : Yes, Chair: two things. I might read an answer into the record that Senator Humphries, I think, asked with regard to the carbon pricing; and we also have some figures on the voluntary redundancy question that again I think Senator Humphries asked.

CHAIR: Thank you, Mr Lewis.

Mr D Lewis : Firstly, on the carbon pricing issue: based on the government's estimate of overall price increases of .07 of 1 per cent in 2012-13 the indirect cost is estimated at $81.9 million for Defence. That is the answer to that question. With regard to the voluntary redundancies—

Ms McGregor : Chair, 33 voluntary redundancies have been accepted this financial year, and there has been one involuntary.

CHAIR: Thank you. CDF?

Gen. Hurley : Just in response to Senator Eggleston's question about border protection command officers in the north-west of Western Australia, there is a border protection command office in Broome and they operate Dash-8 aircraft from there.

CHAIR: Thank you for that. Now, the answer to Senator Fawcett's question?

Rear Adm. Walker : For the upcoming financial year we have $8.119 million budgeted for Simpson Assist. That was additional funding. Then for the following year it is $7.9 million. It also came with 10 FTE positions for that program.

Senator FAWCETT: Sure. So, when you say 'budgeted', that was a specific budget from the government as new funding?

Rear Adm. Walker : That's correct.

Senator IAN MACDONALD: Chair, could I just follow up one of those answers—the one about the carbon tax. I thought I had asked this before, either on notice or here, but I cannot recall having seen a response. I am very interested in what is anticipated to be the increase in electricity charges for a base, to give an example: Lavarack Barracks in Townsville which uses, in my layman's eye, an enormous use of electricity. Could you take on notice—if I have not done this, and I thought I had—the current electricity prices at Lavarack and what they are anticipated to be post 1 July?

Mr D Lewis : Yes, sure, Senator; we will take that on notice.

Senator FAWCETT: Just following up on that last question again about the soldier recovery centres: I raised the issue previously about PTIs and training for them in the area of rehabilitation. I just wanted to confirm whether this additional funding, through Simpson Assist, is going to provide either alternate staff for that role or whether it will provide the training, in sufficient numbers, for the brigades to be able to utilise their existing personnel to provide the kind of service they need to to the soldiers in those soldier recovery centres.

Lt Gen. Morrison : Senator, I might take that question. I would like to perhaps just correct what I perceive may be a perception on your part that PTIs are not trained or part of ongoing rehabilitation that occurs on Army bases, or indeed Defence Force bases, now. That is not the case; they are involved. There are some who are more qualified than others, obviously. But in soldier recovery centres, and in various unit locations, PTIs are an intrinsic part of the return-to-work programs that we are running.

Senator FAWCETT: I recognise that. It is the issue that you touched on about some being more qualified. The feedback that I have been getting is that a level of training that used to be commonplace is now far rarer but is quite integral to the success of a person in that role. I am questioning whether this funding is going to enable that level of training to be extended across more PTIs.

Lt Gen. Morrison : We need to be careful about the application of specific training. When I was a brigade commander in 3 Brigade the level of PTI involvement might have been general but the level of training that the individuals possessed was far less specific than what it is now for particular PTIs who have been identified as key parts of return to work or rehabilitation programs. Those individuals are in fact now much more qualified than what they were seven or eight years ago when I was a brigade commander. While there are always going to be some shortfalls in the system, the Defence Force, its personnel and its contracted support staff—such as physiotherapists and others—are much more parts of a coherent overall program to deal with rehabilitation and return to work. This is a good news area, not an area that I am concerned about as Chief of Army.

Senator FAWCETT: If you go back to my opening statement, you will note that I also agree that it is a good news story. I just want to make sure that any gaps that remain are adequately funded.

Senator JOHNSTON: I want to ask the CDF and the secretary about Moorebank. I see that there are some millions of dollars in the budget for Moorebank. What exactly is going on at Moorebank? Do we have the school of artillery or the school of engineering there?

General Hurley : It is the School of Military Engineers.

Senator JOHNSTON: What are we doing with them? What is the plan? Where is all this leading? What is it all about?

Mr D Lewis : The expert on this in the department is the chief operating officer, Mr Simon Lewis. But essentially we have made provision in the budget, as you can see, for $332 million to cover in part the cost of relocating 14 units or organisations that are within the current Moorebank are. Generally speaking, we are moving them to Holsworthy. There is a cost, obviously, involved in that, of which we are carrying a part. Then there is rather a complex arrangement by which we leave that facility and replace the DNSDC facilities nearby. Simon Lewis is best positioned to talk you through this.

Mr S Lewis : On 23 April this year, the government announced its commitment to the construction of an intermodal container freight terminal by 2017 on government owned Defence occupied land at Moorebank New South Wales. Defence, through the Moorebank units relocation project, has developed complementary plans to relocate all affected Defence units and facilities, the largest of which is Army's School of Military Engineering, from the Moorebank IMT site by the end of 2014 to new facilities to be constructed at the nearby Holsworthy barracks. While operational continuity must be maintained throughout the relocation of Defence units, this transition will not impede the timely development of the Moorebank IMT.

Following government approval of the Moorebank IMT project, Defence has separately requested the referral of the Moorebank units relocation project to the Joint Parliamentary Standing Committee on Public Works with the intent of conducting a PWC hearing in July/August this year. Subject to parliamentary clearance by September this year, it is anticipated that construction will commence at Holsworthy barracks by January 2013 and that the construction of all new Defence facilities could be achieved by October 2015. The government has allocated a total of $891.5 million to fund the delivery of the MUR project, with $559.4 million in funding allocated from the Nation Building Fund, $329.5 million from Defence's major capital facilities program and a proposed allocation of $2.5 million from Defence's base security improvement program. That is the broad summary. I can go further.

Senator JOHNSTON: Hang on. I am interested in these issues. Firstly, what are the 14 units to be relocated?

Mr S Lewis : I may need somebody to help me with the detail of that. I will check my more detailed notes.

Senator JOHNSTON: I know that one is the School of Military Engineering. What are the other 13?

Mr S Lewis : I do not have that level of detail, but I am sure that we can access that for you at short notice. Continue with your questions and we may be able to come back to you in a short time.

Senator JOHNSTON: Is the Public Works Committee hearing in August is simply about the Defence works at Holsworthy?

Mr S Lewis : I believe that it will be about the Defence works at Holsworthy, but based on my experience with the PWC they are likely to ask questions about the IMT project as well.

Senator JOHNSTON: Yes. So it is likely that they will address the IMT project as a separate—

Mr S Lewis : I suppose that I am expressing a view based on past knowledge of the PWC rather than based on something that I am directly involved in. Obviously, from the Defence perspective we will be talking about the Moorebank units relocation project to Holsworthy.

Senator JOHNSTON: And the construction work that flows from that decision.

Mr S Lewis : Precisely.

Senator JOHNSTON: You mentioned a number of large sums of money: $800 million, $554 million and $329 million. Let us go through what this is costing. What are the new buildings going to cost?

Mr S Lewis : The new facilities will cost $891 million.

Senator JOHNSTON: So almost $900 million will be spent on the new facilities for the 14 relocated units.

Mr S Lewis : At Holsworthy, yes.

Senator JOHNSTON: Tell us a bit about that work. What will we get from our $900 million?

Mr S Lewis : It is essentially a full redevelopment of all the capability that exists with the current school, which is adequate but is obviously getting fairly aged now, at the Holsworthy location. That includes all the wherewithal necessary for training. There will be a recreation of the very large pit that they use—I have forgotten the precise name for it now—for the dozers and tractors. It will include replacement facilities. There will be some consolidation of facilities in the process, such as a consolidated mess. There will be some base security perimeter works, with a $2.5 million contribution from another project to that. If we do it in this way, we will optimise the value under one construction project.

Senator JOHNSTON: How do we know that it will cost $891 million?

Mr S Lewis : It has been estimated to second pass quality. I can assure you that we have been in discussions with the finance department in particular about the cost of this project in great detail.

Senator JOHNSTON: So an internal estimator has valued the cost of this work.

Mr S Lewis : It has been value managed down. It could have been a significantly higher sum. We have extracted as much value management as we can from the project to get to this point prior to taking it to the PWC.

Senator JOHNSTON: What is the $554 million for?

Mr S Lewis : The $559 million is a contribution from the Nation Building Fund. I do not recall the precise origin of this, but this has been a longstanding government announcement in relation to the Moorebank IMT project.

Senator JOHNSTON: Is it is a contribution to the $800 million?

Mr S Lewis : Yes. The $891 million comprises two main bits: a contribution from Defence from the major capital facilities program and a contribution from—

Senator JOHNSTON: And at is the $329 million?

Mr S Lewis : Correct.

Senator JOHNSTON: And the infrastructure fund is providing the $559 million?

Mr S Lewis : Yes.

Senator JOHNSTON: When did Defence become aware of this proposal?

Mr S Lewis : We have been working closely with our colleagues from the finance and infrastructure and transport departments for over two years. This is a project that has gone through first pass and now second pass. It is in effect two separate projects that obviously need to be coordinated. The first is all that is necessary to shift Defence from the Moorebank site to Holsworthy. The second is a companion study led by the finance department working very closely with the infrastructure department about the construction of a massive intermodal terminal facility designed to provide a long-term solution to some of the transport problems around Sydney.

Senator JOHNSTON: The land for this intermodal transport facility is all Commonwealth land under Defence occupation?

Mr S Lewis : On the west of Moorebank Avenue that is correct, where the School of Military Engineering resides. That is Commonwealth owned land.

Senator JOHNSTON: Is there other land?

Mr S Lewis : There is land all around the place. I would need a map to give you a good sense for it, but there is land adjacent to the DNSDC site on the other side of the road.

Senator JOHNSTON: What does that acronym stand for?

Mr S Lewis : Defence National Storage and Distribution Centre. It is logistics and distribution.

Senator JOHNSTON: So, adjacent to the logistics land—

Mr S Lewis : —is West Wattle Grove, a vacant piece of Defence land, on which it is proposed that one of the so-called seven super logistics sites will be constructed as part of the Defence Logistics Transformation Program. If that gets the go-ahead from the government and those facilities are constructed on West Wattle Grove, our current facilities on the DNSDC site, which is currently leased from Stockland, will be relocated to the West Wattle Grove site.

Senator JOHNSTON: When do you anticipate that decision?

Mr S Lewis : In the next month or two.

Gen. Hurley : The Defence Logistics Transformation Program is, in about the third quarter of this year, going up for PWC approval.

Senator JOHNSTON: How much is involved in that part of the project? If I am treading on commercial-in-confidence stuff, and you have not tendered it or whatever, just let me know.

Mr S Lewis : I have a number clear in my head in relation to the total facilities cost of that program—the Defence Logistics Transformation Program—but that involves seven sites around the country. West Wattle Grove is one of the biggest of those sites, but off the top of my head I just cannot remember precisely what the number is. The cost of the full program is in the order of $700 to $800 million.

Senator JOHNSTON: And we are going from the current single site of logistics?

Mr S Lewis : No, no, no.

Senator JOHNSTON: It is just one of seven?

Mr S Lewis : Consolidation is proposed to seven logistics super sites. Currently it is a lot more. There are around 24 major ones around the country.

Senator JOHNSTON: So we are rationalising our sites?

Mr S Lewis : That is right.

Gen. Hurley : And DNSDC is located on land opposite SME in the Moorebank area, so we are contracting DNSDC to a new greenfields site as part of the project and then moving SME and the other units off to Moorebank, freeing up that area for the IMT facility.

Senator JOHNSTON: So the total cost of the whole of the Moorebank projects, from a Defence perspective, is about $1.6 billion?

Mr S Lewis : No, no, no. There are kind of apples, oranges and pears in that. The project to relocate the School of Military Engineering to Holsworthy is one project. Unrelated in some ways—other than the fact that you are talking about adjacent land—there is a proposal to consolidate logistics facilities around the country. That is a substantial contributor to SRP, so we are very keen to get the approval for that project to get the go-ahead. We will then construct these large logistics facilities in seven key sites around the country. Some of those sites partially exist already, but nothing exists at West Wattle Grove. That is currently a greenfields site, and an entire new logistics centre will need to be constructed.

Senator JOHNSTON: What do you anticipate—do you have a number that is at stake?—in terms of savings with respect to the logistics rationalisation? If you want to take it on notice you can.

Gen. Hurley : No, that is okay. Once it comes into play over the completion of the rationalisation of the DLTP—the project—it is in the order of $350 million, and I think that is about, on average, $50 million a year. I will clarify that for you, but it has substantial savings for us once we have rationalised the depots.

Air Marshal Binskin : Senator, I think you are mixing the intermodal with the DLTP, and I think that is where the confusion is coming from. The DLTP would continue regardless of the intermodal.

Senator JOHNSTON: Yes. I understand what is going on. They are two separate things, but they are just close to each other.

Mr D Lewis : Perhaps I could just correct a figure. I gave you 14 units. I should read my notes more closely; it is 13 units and four associated facilities that are being moved.

Senator JOHNSTON: Perhaps you could just explain this to me: do we know what the 13 units are? What is the definition of an associated—

Mr D Lewis : That is what we are trying to find out. Some of them are quite small. The largest one I suspect will be the School of Military Engineering.

Senator IAN MACDONALD: Forget about the intermodal but the new distribution centre, if I can call it that, because I do not know the acronym: that is going to go on Commonwealth owned land.

Mr S Lewis : It is a greenfield site called West Wattle Grove. If it helps the committee, we would be happy to supply some maps. I think this discussion is best done with a couple of maps ready to hand.

Senator IAN MACDONALD: That would be helpful. When would you hope that to be in operation?

Mr S Lewis : If we had expeditious government approvals and expeditious approach through the PWC, we would hope to be held to stand up that facility by around the end of 2014.

Senator IAN MACDONALD: If that happened you would no longer need the current distribution site that you are leasing from Stockland.

Mr S Lewis : That is right. We would seek to negotiate an exit in that event. The flipside of that is that if we do not get the government approval or do not get through the PWC and we do not get the construction finished by 2014, we have to continue to operate on that site until we no longer need it.

Senator IAN MACDONALD: Okay. But your hope is to get out of there by 2014. As I understand from some questions I asked last week, you currently have a lease on the Stockland site and two five-year options.

Mr S Lewis : We do.

Senator IAN MACDONALD: Is your desire, subject to PWC and government and everything, to move to the West Wattle Grove site publicly known?

Mr S Lewis : Absolutely. It is well known that we are keen to move from the site. I think there are some who would like us to commit to move from the site before we have locked in our exit from the site.

Senator IAN MACDONALD: That is another issue.

Mr S Lewis : Just imagine, for example, if construction is running late. Let us imagine there are challenges at the Public Works Committee and we have to go back for a further hearing. Just imagine we do not get on the schedule of plan for cabinet and we slip a month or two. It does not take a lot before you realise we could still need to operate on that site into 2015. So we need to be very careful that we do not interfere with the capacity to deliver defence capability because we get caught in this bind between a promise to leave the site and not having an alternative site up and going.

Senator IAN MACDONALD: I understand and accept that. My interest, though, is if you had your way you would be out of there sooner.

Mr S Lewis : That is well known.

Senator IAN MACDONALD: You have no intention at this stage of exercising either of your options.

Mr S Lewis : No, let me correct that. We have to exercise a first option because our first option needs to be exercised sometime later this year; I do not know when exactly. So the issue is do we exercise it for the full five years but with a basis to exit earlier or do we exercise it for several years with a capacity to extend it further at our right if we are not able to exit from the site on time. In the event that for whatever reason money was not forthcoming, we would not want to see the second five-year option either. Until those things are certain, we need to continue to operate on that site.

Senator IAN MACDONALD: You are in discussions with Stockland at the moment?

Mr S Lewis : Constantly. There are frequent discussions with Stockland, including in relation to a partial vacation of site, so freeing up an area of the order of 10 acres earlier if that is possible. But from our perspective we need to look at where we stand in relation to our approvals process because if we do get the approval of the government and we quickly get the approval of PWC then obviously our fast track is now to get off the entire site by the end of 2014.

Senator IAN MACDONALD: The Stockland site is about 80 hectares?

Mr S Lewis : I do not have that detail. The Moorebank SME site is considerably larger and considerably longer, so from the perspective of intermodal terminal facility it is a much better site.

Senator IAN MACDONALD: I think the intermodal site is 800 hectares. Would that be about right? It is nothing to do with you, anyhow, I guess.

Mr S Lewis : I would love to have that detail ready to give you.

Senator IAN MACDONALD: It is not you area, anyhow—I accept that—but the current Stockland land is. I think it is about 80 hectares, of which you are under negotiation to predetermine about 10 hectares.

Mr S Lewis : We have been asked to look at the possibility of freeing up on a transitional basis a certain small sliver of land on the DNSDC site. We have a map that shows the area about which we are talking to Stockland. The precise dates of those negotiations I cannot give you right now, but I am sure we could get them for you at relatively short notice.

Senator IAN MACDONALD: Is the purpose of that pre-release, if I might call it that, of 10 hectares relevant to Defence and are you involved in negotiations on that subject, whatever it is?

Mr S Lewis : Absolutely. The first question for us is: how will that operate in coexistence with the operation of one of the major logistics distribution centres—

Senator IAN MACDONALD: Which is a distribution centre, right?

Mr S Lewis : operating on that site? So if we vacate a bit, does that work all right? We also have an interest from the perspective of the other side of the road, where we have defence students—army trainees—sleeping and training. They are living, working and studying on that site.

Senator IAN MACDONALD: That is at the School of Military Engineering?

Mr S Lewis : Yes. Obviously, there is a plan to relocate them—that relocation will happen in early 2015—but in the meantime this is the place where they will live, study and work. We are interested to understand how the intermodal terminal facility will operate in the intervening period. My broad recollection is that there is not much of a conflict, because of the schedule we are now on for the intermodal terminal. We plan to have the school shifted before 2015. From recollection, the SIMTA proposal will not be operational prior to that.

Senator IAN MACDONALD: Two quick questions to finish with me on this particular issue. Senator Feeney, if I want to go and have a look at the site, rather than writing to you and waiting for your senior minister to take some time to get back to me, would you just approve me to contact Mr Simon Lewis so that I can go and have a look? I do not think there is anything top-secret there.

Senator Feeney: As I recollect, the protocol is that those letters have to go to the minister. It is not open to me to waive that discretion, but I would be happy to do whatever I can to facilitate this for you.

Senator IAN MACDONALD: You have been very helpful to me in the past, giving me approvals.

Senator Feeney: Indeed, and I will continue to be so.

Senator IAN MACDONALD: I did not know they came from the minister; I thought they were from you.

Senator Feeney: I am happy to continue to do so.

Senator IAN MACDONALD: I was just trying to circumvent the process. I see that this money is coming from the Major Capital Facilities Program. Is this one of the $1.2 billion bits of that program that are being delayed?

Mr S Lewis : It is over and above.

Senator IAN MACDONALD: They have been moved to the right.

Mr S Lewis : Over and above the $1.2 billion we will be drawing on the major capital facilities fund to the tune of the $329 million to fund our contribution to this project.

Senator IAN MACDONALD: You are having to move to the right $1.2 billion worth of projects.

Mr S Lewis : Yes.

Senator IAN MACDONALD: Was it your decision to use this $329 million or was it a government directive that you would use it 'because this is a priority regardless of what Defence thinks'?

Mr S Lewis : Defence does stand to benefit out of this project. The reality is that we will end up with a new School of Military Engineering operating out of Holsworthy. It will be behind the wire now at Holsworthy, which has advantages to us—we are consolidating messing—so it was appropriate that Defence made a contribution to it. We actually had some money in the Major Capital Facilities Program to do a significant refurb at Moorebank. In the light of the decision by the government to say, 'Actually, we will build new facilities over here,' those monies were obviously seen to be appropriately allocated to build the new facilities.

Senator IAN MACDONALD: Thank you, Mr Lewis. I do not want to put you in a difficult position, but you completely avoided the question I asked, which was: was it your decision to use these funds out of the major facilities program when you are moving to the right $1.2 billion because of prioritisation. What I am saying is that it is a Defence decision—

Mr S Lewis : Maybe it was such an obvious thing that I did not pick up on it. Any decision over $100 million in the use of Defence funds in relation to the Defence estate will be a decision taken by cabinet. We advise, but it is not our decision. We will advise the minister, the minister will bring forward a submission, that will go to cabinet, and cabinet will take the call.

Senator IAN MACDONALD: But what I am saying is that it is not your decision—for the reasons you have just said, clearly the answer is no—to move the School of Military Engineering today and use some other priority for the—

Mr D Lewis : If I might, on the question about the money and the decision, the $330 million that is in question here was part of the budget decision, part of the budget process, and that is determined by the government.

Senator IAN MACDONALD: Okay. We are all saying the same thing. It is not your decision on priorities that have determined that the—

Mr D Lewis : No, it is a government decision. And in this case it is a government budgetary decision; it is taken in the budget round.

Senator IAN MACDONALD: Coming back to the major capital facilities program that we were talking about earlier, are all of those moves to the right government decisions as well?

Senator Feeney: Of course they are.

Senator IAN MACDONALD: The individual programs?

Senator Feeney: The budget is a document of government.

Senator IAN MACDONALD: No, no—we were talking about this earlier today, about delaying, moving them to the right. Who chose those?

Mr D Lewis : We give advice to the government, and at the end of the day the government makes a decision on where it is going to spend its money, and that comes out in the budget papers, which you have before you. The process is no more complicated than that.

Senator IAN MACDONALD: You are confirming that you give advice, but the decision is not yours; the prioritisation of priorities is not yours.

Mr D Lewis : Well, we can give a list of priorities as part of our advice too. It depends on how the advice goes forward. But at the end of the day the budget is a piece of work that is owned by the government of Australia.

Senator IAN MACDONALD: Okay. Thanks.

Senator JOHNSTON: Perhaps I can come back to the relocation costs. You have those under control with the 559 and the 229. Do we have a cost for the West Wattle Grove move?

Mr S Lewis : Let me just make sure we have these numbers right. It is $559.4 million in the nation building fund, $329.5 million from the major capital facilities program and $2.5 million from the—

Senator JOHNSTON: Sorry—I keep forgetting the 2.5. So that is the relocation of the 13 plus for associate units—

Mr S Lewis : —from Moorebank to Holsworthy.

Senator JOHNSTON: Is the logistical move to the West Wattle Grove site?

Mr S Lewis : Which is part of the DLTP—the Defence Logistics Transformation Program—which is not yet approved by government.

Senator JOHNSTON: Do we have a cost for that? If you do not want to talk about that, that is fine. If we are too early, that is okay.

Mr S Lewis : It is roughly of the order of $230 million, I am advised.

Senator JOHNSTON: Are we copping a cold $230 million? You said that there are some lease fees. What are we paying in the lease fees currently that we obviously want to try to abate?

Mr S Lewis : We would have that detail. We are paying annual lease payments now for the lease of the DNSDC site. I cannot tell you off the top of my head what they are, but we will dig that out for you very quickly. One of the SRP initiatives, of course, is that when we consolidate to the West Wattle Grove site we will not need to make these payments anymore.

Senator JOHNSTON: All I want to know is whether there is a net saving or a net cost.

Mr S Lewis : There will be a net saving. And I think I heard CDF say that the estimate is around $350 million.

Senator JOHNSTON: And that is the $300 million you talked about?

Air Marshal Binskin : Yes, but that is the total saving for the entire project. That is $350 million over 10 years and then $50 million per year after that. So that is all the Defence Logistics Transformation Program, not just the Moorebank facilities.

Senator Feeney: So that is 24 sites becoming seven.

Senator JOHNSTON: Do we know just about the Moorebank site—what the net savings are?

Mr S Lewis : We would, but I just do not have that with me.

Senator JOHNSTON: You can take that on notice.

Mr S Lewis : We would be happy to take that on notice and come back to you.

Senator JOHNSTON: So I need to know what the lease fees are, or the annual rent; what you anticipate saving on the nonexecution of your options; and what your costs to establish that particular West Wattle Grove site will be.

Mr S Lewis : Yes.

Senator FAWCETT: Following on from Senator Macdonald's line of questioning, what I am hearing is that Defence had some plans to refurbish the School of Military Engineering but not necessarily to move it but you have taken this direction from government as an opportunity to move and rebuild. Obviously it was not approved, but what was the amount that you were planning for the refurbishment?

Mr S Lewis : We will just give a rough answer that may be subject to correction, but I think it was of the order of $120 million. It might have been a bit more than that but it was something of that order.

Senator FAWCETT: So essentially this budget decision to in essence force the move of SME has added another $200 million of cost pressure given that this is again an absorbed measure within Defence's budget.

Mr S Lewis : There are a number of other benefits for us. We have another project—

Senator FAWCETT: In hindsight I am sure there are—

Mr S Lewis : No, there was another project in the pipeline, and that was the Holsworthy redevelopment stage 2. It is probably reaching the point of my level of understanding of detail of this but there was this project which was going to substantially redevelop elements of the Holsworthy infrastructure. We have taken the opportunity to roll some of the elements of that into this new project as well. We had moneys reserved for that purpose as well. I still think there would be a Delta, which was the extra component, but on the plus side we end up with the new School of Military Engineering at Holsworthy.

Gen. Hurley : I would like to read in the units that are affected in the overall collocation in the Moorebank area. I must admit I was baffled by one of the acronyms, so I have taken a bit longer than I would have hoped. The School of Military Engineering, Defence National Storage and Distribution Centre, Land Warfare Centre detachment, an Army financial services unit detachment, a maintenance advisory service detachment, an Australian Army cadets detachment, 21 Construction Regiment, 17 Construction Squadron, Defence Community Organisation element, Signals Dispatch Service element, defence support elements and the Fire Brigade 5th Brigade common user facility. The defence bank in location is also affected. That is the list.

Mr S Lewis : I have just been advised that the annual lease cost of the DNSDC site was $20 million per annum. If you have other questions, we will come back to those.

Senator JOHNSTON: Two hundred million from two five-year options.

Senator IAN MACDONALD: The second one you mention on that list was the distribution—

Mr D Lewis : The DNSDC.

Gen. Hurley : Within the entire Moorebank area the units affected by all the moves around the IMT and the Defence logistics transformation project are all the units in that Moorebank area that are affected.

Senator IAN MACDONALD: So it is not just the ones on the Commonwealth land, it is the ones on the Stockland site as well.

Gen. Hurley : Both sides of the road.

Senator IAN MACDONALD: Of that list, how many are on the Stockland land?

Gen. Hurley : I think only DNSDC but I would have to check for you. The majority are on the western side, on the SME side. DNSDC is the major lodger on the eastern side, the Stockland side.

Senator IAN MACDONALD: You are getting a nod there, are you, Mr Lewis?

Mr S Lewis : I was looking for head nods behind me and I have been nodded at—nodded to.

Senator IAN MACDONALD: So for Hansard the answer is yes. Thank you.

Mr S Lewis : Yes.

Senator XENOPHON: I have some questions in relation to fraud detection and I am happy for some of these to be on notice. I note that in 2001 the Auditor-General undertook an audit report in relation to fraud control in Defence and was critical about Defence not having 'a suitable fraud intelligence capacity', that 'the level of detected fraud in or against Defence is low', that 'fraud control in Defence could be improved, particularly in corporate governance and fraud intelligence' and that back then, over a decade ago, 'the magnitude of detected fraud affecting Defence in 1999-2000 was a comparatively low $2.5 million'. On notice, could Defence provide details of how much fraud has been detected since that time, in the decade since the Auditor-General's report. Also, how many qualified investigators have been employed by the military police and other agencies within Defence, or its successor in the Australian Defence Force, the Investigative Service? In other words, there were a number of criticisms by the Auditor-General and it has been over a decade since the report. What has happened in relation to fraud detection? Are there suitably qualified investigators with respect to that? Also, what has the department done since to improve the reporting process?

Mr D Lewis : We can take those questions on notice. I do not have the details here, but I can say to you that our statistics on fraud are not changed from the earlier audit report, which said that they were comparatively good. No fraud is good—

Senator XENOPHON: No, it said 'comparatively low'. It said 'the magnitude of detected fraud affecting Defence in 1999-2000 was a comparatively low $2.5 million'. That is at point 4 of the summary.

Mr D Lewis : Yes, and that is suggesting that the incidence is potentially low, as well.

Senator XENOPHON: You are a glass half full kind of person.

Mr D Lewis : I am, about this issue. Seriously, I take your question and we will get back to you with a considered answer.

Senator XENOPHON: That will include the number of qualified investigators and those related issues?

Mr D Lewis : Yes.

Senator XENOPHON: Finally, on the website of the Minister for Defence on 11 April 2011 there was an announcement about a series of reviews into aspects of Defence and ADF culture, one of which was the review of the management of incidents and complaints in Defence, including civil and military jurisdiction. What is the department's response to this report, given that the letter of transmittal of the annual report includes the statement that Defence has in place:

… appropriate fraud prevention, detection, investigation, reporting and data collection procedures and processes that meet the specific needs of Defence and comply with the Commonwealth Fraud Control Guidelines 2002?

Mr D Lewis : I believe the answer to your question—and CDF will correct me where I am straying here—is that the review by Mr Geoff Earley that was done as part of the culture reviews was in part about the issue of the system of investigation and redress and so forth.

We have some work going on right now, coming back to the CDF and me, about how we might improve those processes. I personally am not satisfied that the framework within which we go about our investigation and our reporting is sufficiently robust for the circumstance we find ourselves in. So there is work going on in that regard. Again, we can give you a more complete answer.

Senator XENOPHON: In the National Fraud Authority of the United Kingdom, as I understand it, in the UK Ministry of Defence fraud was reported to be five per cent or £2.1 billion. Perhaps Senator Feeney can assist me, but I think $2 million or $3 million out of a $20 billion is 0.0001—

Senator FEENEY: Every Defence dollar is sacred!

Senator XENOPHON: It seems that in the UK their level of fraud detection is exponentially higher. Does that say something about cultural issues in the UK or does it say that they are better at detecting fraud or that they have inherently greater problems with respect to fraud in that country?

Mr D Lewis : I do not know. That is speculation.

Senator XENOPHON: Sure, but can you take on notice whether by way of comparison the UK has more resources than the ADF in terms of fraud detection and more investigators? Could that explain it?

Mr D Lewis : A comparative statement with regard to the UK and us with fraud detection efforts and capacity?

Senator XENOPHON: Yes.

CHAIR: We will move on to program 1.2, Navy Capabilities.

Senator FAWCETT: Regarding the Future Submarine Program, I noticed in the budget measures that there was specific funding made available to further the Future Submarine Program. What has changed since 2009, when research into options was highlighted as a top priority? What has changed between 2009 and now for that money to be well spent now when it was not in 2009?

Vice Adm. Jones : In part answer to your question, with the current phase of the project, which went to government and included the scoping studies for the SEA 1000 capability, the main emphasis is to look at a range of issues that will help inform the capability, going forward, in particular some of the technical aspects, in addition to looking at some of the MOTS designs in terms of gaining an insight into them so that we can start to better understand some of the issues in terms of going forward and presenting to government a first pass for government about the range of submarine capability issues that need to be addressed, coming up with what is a realistic schedule for the capability based on that information and a much firmer schedule for the replacement to the submarine. So, those scoping studies are a necessary first step to setting the project in train to deliver the capability. Warren King can probably amplify that from his perspective as the acquisition agency.

Senator FAWCETT: Before we go to Mr King, all of those things you said were as valid two or three years ago as they are today, so what has changed that makes this money worth spending now when it could have been spent two or three years ago?

Vice Adm. Jones : Part of that is just the schedule in terms of where the project is scheduled in terms of the DCP. Government made a determination that they wanted to have first pass at about this period. You could have actually started to do that work then, but the decision was made to do it later.

Senator FAWCETT: Regarding the money announced as a budget measure, was it a unilateral decision by government to announce it now, and that amount, or was that the logical outcome of a first pass process by Defence putting up this particular program in this time frame for that amount of money?

Vice Adm. Jones : The work we are contemplating now is the precursor work you need to do to get to first pass.

Mr King : The earlier money we have allocated to this project informed our advice to government about the amount of money required to move the project forward in the way of studies to get to the first pass and beyond.

Senator FAWCETT: It has taken you three years to get to that point?

Mr King : It has.

Senator FAWCETT: The question that has not been directly answered is: was the amount of money announced in the budget a budget decision by government or was that as a direct result of a submission from Defence?

Mr King : A direct result of our submission.

Senator JOHNSTON: I want to talk about some of the surface vessels that have a few problems. Is that a DMO issue or is it a Navy capability issue?

Vice Adm. Griggs : It is a Navy capability issue.

Senator JOHNSTON: Let us start at the bottom. What is happening with Manoora and Kanimbla. I see them tied up in Sydney. What is their future? Are they going to be permanent fixtures there?

Vice Adm. Griggs : That is a DMO issue, so I am happy to flick that one across.

Mr King : I preferred it when it was a Navy issue! They will be going through a disposal process.

Senator JOHNSTON: When? What is the plan?

Mr King : We are finalising our advice to government right now.

Senator JOHNSTON: Okay. You have not told government of your advice just yet.

Mr King : No, we have not.

Senator JOHNSTON: When do you anticipate that the government will be in a position to look at your advice?

Mr King : Very shortly. We are talking weeks or months.

Senator JOHNSTON: What is the situation with Tobruk. Bear in mind that Tobruk was on 48-hour standby about two years ago. What is the situation with that now?

Vice Adm. Griggs : She is within a climber's reach of getting back to sea; very close. We have had some issues through the maintenance period with her. There have been a number of factors, including some work by a subcontractor that, frankly, we were not particularly happy with. We had a safety incident with a hammerhead crane that resulted in the immediate area around Tobruk being roped off an isolated for several days. As we have tried to bring some of her systems back up, we have had some issues with her fire sprinkler system and also power generation. We are in the final phase of resolving the power generation issue. She will hopefully return to sea next week.

Senator JOHNSTON: Okay. When you say 'return to sea next week', do you mean that she will be fit for operational duty next week?

Vice Adm. Griggs : She will undertake sea trials. She is certified in terms of crew certification from the work up that she did just before Christmas. She will be available for operations.

Senator JOHNSTON: How much have we spent on Tobruk since Cyclone Yasi?

Mr King : I will take that question. I am not too sure what date that was.

Senator JOHNSTON: It was February last year.

Mr King : We have spent $15.311 million, plus the minor maintenance work, which cost $5.42 million.

Senator JOHNSTON: So $20 million.

Mr King : That is correct.

Senator JOHNSTON: What is the tonnage of this vessel?

Vice Adm. Griggs : About 6,000.

Senator JOHNSTON: About 6,000 tonnes. What has the $20 million been for precisely? Where has the lion's share—

Mr King : Maybe I can approach this the other way. Over a three-year period, we spent about $65 million on Tobruk. The long-term average spend on Tobruk over that same period would be in the order of $45 million. So over that period we spent about $20 million in what I call backlog, which is what you have after you subtract your normal maintenance costs.

Senator JOHNSTON: And when is this boat due to be decommissioned or cashiered as we might say?

Mr King : 2014.

Vice Adm. Griggs : The end of 2014.

Senator JOHNSTON: And what is our expectation with respect to reaching that date with this vessel?

Mr King : It is an older vessel, as you know. But the reports that I am getting about the maintenance activity—and obviously the Chief of Navy will give his own opinion when it is operating again—is that we have got it into a better state than it has been in for many years. But it is an older ship and there could always be a major failure of a key item. If it is a small item, we would be able to continue to maintain it. But larger items are sometimes out of production or sometimes there is no company that has the requisite knowledge or IP. There could be a catastrophic failure. But, having said that, our view, in response to such work as the Rizzo report and so on, is that the investment in this has brought it to a much better state than it was in previously.

Vice Adm. Griggs : I want to comment on her last period at sea. She went to sea in November. She conducted a work up. She then deployed to support Operation Resolute in the north west. She conducted first of class flight trials with the MRH 90 helicopter. She steamed over 10,000 miles in that period at sea with very few issues. My confidence in her is slowly returning. As you know from the Rizzo report, there was systemic underfunding in the maintenance of our support ships. On a number of occasions, Navy had plans to decommission Tobruk and in some instances in the 1990s had actually stopped doing any deeper level maintenance. We are, as the CEO said, paying the price of that with that backlog that he talked about.

Senator JOHNSTON: All right. What about Sirius?

Vice Adm. Griggs : Sirius is in routine maintenance in Western Australia. She will be back at sea on 9 July.

Senator JOHNSTON: No serious long-term issues with Sirius?

Vice Adm. Griggs : Not that I am aware of.

Senator JOHNSTON: I am told that the boat has a problem with its ballasting and the movement of the fuel when the tanks are not full.

Vice Adm. Griggs : That is not something that I have been briefed on.

Senator JOHNSTON: Has it recently been out of service for mechanical reasons?

Vice Adm. Griggs : Not that I am aware of. This was a programmed maintenance period.

Senator JOHNSTON: And nothing has arisen from the programmed maintenance period?

Vice Adm. Griggs : I have had no reports that the programmed maintenance period is off track. As I said, I expect her to return to sea on 9 July.

Senator JOHNSTON: Has it got a RAS capability?

Vice Adm. Griggs : Sirius?

Senator JOHNSTON: Yes.

Vice Adm. Griggs : Yes.

Senator JOHNSTON: Is that functioning?

Vice Adm. Griggs : As far as I am aware.

Senator JOHNSTON: So for replenishment at sea we can use the Sirius?

Vice Adm. Griggs : Yes.

Senator JOHNSTON: Okay. Let us talk about Success. Where are we at with that?

Vice Adm. Griggs : She has completed her production period. You will recall that late last year I took a decision to finally rectify what was about a 15-year longstanding issue with a misalignment in her propeller shaft and drive train. She was due to go back to sea towards the end of last year. But based on the advice that I was given and using the principles from the Rizzo review I took the decision to keep her alongside to undertake that work. That was a particularly complex piece of work. It involved moving the 80-tonne engine, lifting it up and realigning it within millimetric dimensions. It was quite a difficult piece of work. That has concluded. We are very conscious that Success has not been to sea for a considerable period of time—in fact, since December 2010 she has only had 14 days at sea, and that was coming back from Singapore.

Senator JOHNSTON: I am told that the trip back from Singapore was quite hazardous, given the lack of steering control and the fact that engines stalled on—

Vice Adm. Griggs : We have talked about this before. I am not aware of that. I am not aware of any major issue in that regard. I followed that up after we talked about it a couple of estimates ago. We are very conscious of the fact that from an experience issue we need to be very deliberate in bringing her back to sea now. We need to take the 'crawl, walk, run' approach to this. In accordance with the Rizzo philosophy, I am not going to let the operational imperative drive a snappy return to sea when we need to take our time and work our way through this properly. On current indication, I expect that she will return to sea by the end of June. A bit like what the CEO said about Tobruk, Success is old and fragile. As we bring all these systems back up—many of which have been out of action for quite some time—we are going to encounter problems. We may have technical setbacks as we bring her back into service.

Senator JOHNSTON: She has had 10 days at sea since December 2010. What have been the substantial issues that you have had to confront with that vessel?

Vice Adm. Griggs : We have a ship that is approaching the end of its design life that had no midlife upgrade. A lot of the ship is as built. Systemic underfunding has led to us paying the price of that now. The major piece of work that was done in the Singapore was the double hulling to get the ship in conformity with the International Maritime Organisation rules. Since then it has been a general maintenance availability to do some engineering change proposals, and of course the shaft misalignment issue, which I have outlined. When we took the decision to do the shaft misalignment work, late last year, we also decided to bring some extra work forward so we could capitalise on that period alongside and try and again overcome some of this backlog.

Senator JOHNSTON: What sort of work are you doing? The shaft misalignment is very serious, is it not?

Vice Adm. Griggs : It was at the point where I was unhappy for the ship to return to sea in that configuration.

Senator JOHNSTON: So what else have you tacked onto that opportunity?

Vice Adm. Griggs : I will get Admiral Marshall to go into the detail of that.

Rear Adm. Marshall : Since November of last year, in parallel with the propulsion alignment work, we have bought some maintenance items forward and rectified some existing defects. That includes the starboard main propeller shaft seal, which is where the propeller shaft goes out through a bulkhead and through the hull, and that required repair; major structural works, including the main deck bulwarks and surrounds, and that is corrosion control work—in a steel ship, there is continual and ongoing work to crop and renew sections of steel plate and ship's structure to make sure that it is in good condition.

Senator JOHNSTON: What was the problem with that?

Rear Adm. Marshall : Generally corrosion. As I think I said last time, steel corrodes in a seawater environment, and it is a continual task for us to keep working at that. Our work also included removal of redundant FM-200 cylinders. FM-200 is a fire-extinguishing agent or chemical. We have removed that from the ships and replaced that primarily with water mist, sometimes other agents. We have done circuitry work on the main switchboards; installation of a fall arrest system down a trunking that goes down through several decks, to make sure that it is safe for sailors to passage down that trunking; internal pipe work; fire main; black and grey water systems; hawse pipe fittings for the main anchors; clearing out of mould in junior sailors' mess decks—in hot, steamy, enclosed environments that becomes a problem; and work on air-conditioning systems. There has generally been a large amount of general ship's husbandry undertaken as well.

Senator JOHNSTON: Let us just go through the costs since December 2010. What was the double hulling?

Mr King : Twenty-two point six million dollars.

Senator JOHNSTON: What have we spent since that time with respect to these various repairs and seeking to get the shaft misalignment right to this point?

Mr King : I will pass to the admiral for detail, but in total we spent $86 million, which combines all the work in the normal support contracts and in the special activities. Of the special activities, the IMO conversion was $22.6 million, the maintenance activity was $13.8 million and the propulsion alignment was $6 million. There was an additional $43 million in service support contracts, inventory and other work, so there was a total of $86 million in that time.

Senator JOHNSTON: Since December 2010?

Mr King : That is correct.

Senator JOHNSTON: Have we told the minister that we need to have a look at a new replenishment ship? Have we got a file to the minister?

Vice Adm. Griggs : It is already in the DCP.

Senator JOHNSTON: Yes, but has a file recently gone up to the minister with respect to a new replenishment ship?

Mr King : I would have to take that on notice. I do not know if a file has gone up or not.

Senator JOHNSTON: Have we got a replenishment-at-sea capability for foodstuffs and other durables?

Vice Adm. Griggs : That is what Success provides. Sirius is not designed to provide that; she is designed to provide water and fuel. It is the AO versus the AOR. Success is the AOR and provides the whole package. Sirius provides fuel and water.

Senator JOHNSTON: So what have we been doing since December 2010 in terms of AOR?

Vice Adm. Griggs : We have not had an AOR capability since that time.

Senator JOHNSTON: Let us just pause to understand what that means. So, when our frigates are away and not coming back to port, we have had no capacity to replenish them, except for Sirius?

Vice Adm. Griggs : We have had Sirius and we have had—

Senator JOHNSTON: For fuel?

Vice Adm. Griggs : For fuel and water. We have had HMNZS Endeavour for fuel and water.

Senator JOHNSTON: Endeavour?

Vice Adm. Griggs : Yes, we have used Endeavour. She has been on the Australian station for several months. Then we use port facilities for the logistic resupply.

Senator JOHNSTON: Have we used anybody else?

Vice Adm. Griggs : We will often replenish with US ships. In fact, our ship in the gulf, in the Middle East, will often do that. That is actually the primary way of replenishing the ships on operations.

Senator JOHNSTON: What about New Zealand? Do we use their vessels?

Vice Adm. Griggs : That is Endeavour.

Senator JOHNSTON: Sorry, right. What is Endeavour, by the way?

Vice Adm. Griggs : It is an AO.

Senator JOHNSTON: What class is it?

Vice Adm. Griggs : I think it is an Endeavour class. It is a unique build. She was a commercial build from Korea, I think.

Senator JOHNSTON: So what has happened to the crew of Success these past 16 months?

Vice Adm. Griggs : They have been working on the ship, doing ship husbandry and other tasks, assisting the scope of work that is being undertaken.

Senator JOHNSTON: Notwithstanding that it has only been at sea 10 days since December 2010.

Vice Adm. Griggs : That is correct, remembering that the ship was not intended to be out of service for so long. She was due to go back to sea last year. Just prior to the preparations for going back to sea is when I took the decision to do the shaft misalignment work. So, if you are alluding to the fact that it has just been sitting there, they have been doing training. If we had known that they were going to be in for an extended period of time, we may have done something to reduce the crewing levels, but because she was always intended to go back much sooner we did not do that.

Senator JOHNSTON: You say that this boat is coming back at the end of June.

Vice Adm. Griggs : That is the anticipated date of her returning sea.

Senator JOHNSTON: Where is the work being conducted?

Vice Adm. Griggs : Sydney.

Senator JOHNSTON: At the dry dock?

Vice Adm. Griggs : In Garden Island.

Senator JOHNSTON: The dry dock in Garden Island?

Vice Adm. Griggs : There was no docking phase.

Senator JOHNSTON: There was no docking phase, so it was tied up to the wharf at Garden Island. I take it there is going to be a substantial test and evaluation period with respect to this alignment of the drive shaft.

Vice Adm. Griggs : There will be sea trials.

Senator JOHNSTON: And how long do you anticipate they will be?

Vice Adm. Griggs : Around a week.

Senator JOHNSTON: A week?

Vice Adm. Griggs : Yes. It is really a matter of testing the alignment under different load conditions—having a light load, putting some fuel into the tanks and then seeing how it holds up with a heavier load.

Senator JOHNSTON: If that does not go according to expectation, what is the plan?

Vice Adm. Griggs : I see no reason why it would not, but I am happy for Admiral Marshall to take that.

Rear Adm. Marshall : Firstly, I think underpinning your question is: what confidence do we have that it will go to plan?

Senator JOHNSTON: I will go with that question, yes.

Rear Adm. Marshall : What we have done for this particular alignment is that, prior to making the decision, we filled the ship up with 4,500 tonnes of fuel. To my knowledge, I think that is the first time we have done that, to really get the best assessment of the alignment of the shafts. We have used fairly consistently over the last 18 plus months experts from Lloyd's Register, the classification society, and their technical investigations department. We have also used the original equipment manufacturers for as much of the machinery as we could track down. So they have been engaged with us over the full period of the propulsion shaft alignment work that we have been doing. In using those experts, we are pretty close to the best in the world. I am sure there are a couple better somewhere but it is pretty hard to track them down. Our confidence is reasonably high.

There is still the issue that, when the ship leaves the wharf and goes to sea in a heavy sea, it will flex and move. That is a function of the strength of what we term the hull girder. It will move. So there is some risk that that will come out of alignment, and if that happens we will have to assess just how much it is out of alignment and what that means for us. But generally, having used the experts and been fairly cautious and having progressed through a structured program, it is about the best we can do.

Senator JOHNSTON: What does the capability plan say about a new replenishment-at-sea ship—AOR ship?

Vice Adm. Griggs : We are talking the late part of this decade.

Senator JOHNSTON: And what is the band in terms of cost? 200 to 300?

Vice Adm. Griggs : I would have to refer to General Caligari for what the published band is.

Gen. Caligari : Sorry, Senator—could I have the question again, please?

Senator JOHNSTON: In the capability plan, I think we have had for some years a new replenishment-at-sea ship to replace the Durance class—that is, Success. Firstly, how long has it been there? And what is the year by which that project is to commence?

Gen. Caligari : I am not sure how long the project has been there for, but the Success is due to have an initial operating capability replaced in 2018-19.

Senator JOHNSTON: And what is the band of costs with respect to that replacement?

Gen. Caligari : I will have to take that on notice.

Senator JOHNSTON: And you are not aware of whether a file has gone to the minister with respect to the replacement of Success?

Gen. Caligari : No.

Senator JOHNSTON: So, Admiral, how many surface vessels do we have on the eastern seaboard that require replenishment at sea at any given time?

Vice Adm. Griggs : On any one day, two or three. But they do not require replenishment at sea; they require fuel. Generally, if we are operating our normal exercise activity, we fuel every week, when we come alongside for the weekend.

Senator JOHNSTON: What are we sending to RIMPAC this year?

Vice Adm. Griggs : HMAS Perth, HMAS Darwin,and Farncomb.

Senator JOHNSTON: Have those boats left?

Vice Adm. Griggs : Perth is already on the west coast of the US and Canada. She will be coming down in about a month's time. Darwin, I believe, is transiting with the Kiwis, although I would have to check. I think Endeavour is in company with her.

Senator JOHNSTON: So the Kiwis are sending their replenishment-at-sea vessel?

Vice Adm. Griggs : That is my understanding. I will check that and make sure I am correct.

Gen. Caligari : Senator, I can clear up the date you were after. The project's name is SEA 1654, and it entered the Defence Capability Plan in 1999.

Senator JOHNSTON: Now, Farncomb is currently where?

Vice Adm. Griggs : She is on the east coast—somewhere.

Senator JOHNSTON: And she is due to attend RIMPAC in—

Vice Adm. Griggs : It is in July.

Senator JOHNSTON: In six weeks?

Vice Adm. Griggs : Yes, it is in July.

Senator JOHNSTON: And there is every reason to believe she will attend RIMPAC?

Vice Adm. Griggs : I have no reason to believe that she won't.

Senator JOHNSTON: Okay, then let us talk about submarines. What are we saying is the current cost of ownership of our submarine fleet?

Vice Adm. Griggs : We sort of have this discussion every time—

Senator JOHNSTON: And the reason is that it goes up, and the numbers you give me are always much more and much more

Vice Adm. Griggs : Are you talking about sustainment costs? Or total costs?

Senator JOHNSTON: I am talking about the cost of ownership, which includes sustainment, which includes the cost of operating and the cost of depreciation.

Mr King : The total Collins budget for this year is $702 million plus approximately $160 million in depreciation, I understand.

Vice Adm. Griggs : Yes, that is correct.

Mr King : The problem with this question—I know you ask it a lot—is that we do not do the numbers in this way. We do not do it with any other asset. You are putting in there a factor for the replacement of the asset, which is already factored into our budget.

Senator JOHNSTON: I accept that criticism. Let us go back to sustainment. You told me in February, in question 130, that sustainment was $349 million. By May the figure was $497 million.

Mr King : For what year?

Senator JOHNSTON: For 2011-12; sustainment only.

Air Vice Marshal Deeble : We have had some in-year supplementation for the Collins budget. Effectively, we have taken it up and will spend for 2011-12 some $480 million. We are on track to achieve that.

Senator JOHNSTON: In the last 12 months it appears—I am just talking sustainment—to have gone from $349 million to $498 million. There has been an increase of $149 million in sustainment alone. Am I right in that? These are answers you have given me. I want to know what we are getting for the $149 million and why it is going up at this rate. At this rate, we are about to touch $1 billion a year for ownership of these six boats, two of which are almost permanently in South Australia.

Mr King : We do have a problem with getting Collins maintenance right. We all acknowledge that; it is a serious problem. We have the Coles review. We have a new General Manager Submarines coming. I think that we should deal with the numbers without doing the appreciation. As I say, that is already accommodated. It was quite clear, but obviously we are waiting for Mr Coles's report, that there appears, certainly to me, to have been quite an underinvestment in Collins sustainment for quite a number of years. We got to a very low point in materiel ready days in 2009-10. A lot of the investment has gone into spares remediation, because that was a major driver in Collins class availability and because when we did have defects it was taking it was taking much longer to correct them and return the boats to operations than it ought to have. That is our centrally largest piece of investment. The other pieces of investment that are also equally important, which never came home to us in the early days, relate to what it means to be the parent navy. I know we say it regularly, but to be a parent navy of any ship is quite a burden; to be the parent navy of one of the world's most advanced conventional submarines is a very serious matter. It should have had more engineering investment in it throughout its life. There is a real challenge, a very simple challenge. If we think we are changing out an item too regularly, and we could maybe lengthen that item's life, the difficulty we have is in building up all the knowledge and expertise to make a seriously well-informed judgement that it is a safe and effective thing to do. Building up that knowledge, as the parent owner of that asset, has been a big part of the investment.

Senator JOHNSTON: Is the ASC giving you an entry to the information you need as to what cannot be changed or what can be sustained safely into the future?

Mr King : It also is building its expertise and knowledge in this area. Of course we share information—

Senator JOHNSTON: They have been doing this for 20 years.

Mr King : It is a bit like any company, I suppose. It, as a company, has been doing things, but the people, the funding and the systems were allowed to run down at a certain point. We are reinvesting in that. I suspect that we are going to have to do it for a little longer. One thing is encouraging. Our materiel-ready days are lifting. It is an early claim but, as I understand it, we have gone from around 35 to 55, and in the last six months—I think the Chief of Navy could confirm—it is an all-time high. I do not know that we will maintain it for the year, but it is up around 80 per cent.

Vice Adm. Griggs : For the first six months of 2011, it averaged at 38 per cent; for the second six months, 62 per cent. To date, this calendar year is 74 per cent—so a steady increase.

Senator JOHNSTON: Just define 'materiel-ready days' for me.

Air Vice Marshal Deeble : 'Materiel-ready days' is based on the number of days that are available as a consequence of the integrated master schedule. There are maintenance periods built into the integrated master schedule, and those days that are not in maintenance are considered materiel-ready days. We are currently working with Navy as part of the Rizzo initiatives to look at the MSA, and I think Coles identified in his phase 1 report that we are setting ourselves an extremely high target based on the reliability issues that we are confronting currently with the boats.

Senator JOHNSTON: That is on materiel-ready days?

Air Vice Marshal Deeble : Just on materiel-ready days. We are looking at working with Navy through the MSA arrangements to get a better understanding of exactly what is required by Navy and what we can deliver out of the integrated master schedule. Inherent in that is creating some contingency that would allow for some level of unreliability in some of the systems.

Vice Adm. Griggs : In effect, the materiel-ready days are days that I can use the submarine to do either training or licensing as it comes out of maintenance.

Senator JOHNSTON: Or test and evaluate what work has been done—

Vice Adm. Griggs : Correct.

Senator JOHNSTON: to see what endurance it has?

Vice Adm. Griggs : As long as it is outside of the maintenance period.

Senator JOHNSTON: So a materiel-ready day is cruising out of Adelaide?

Vice Adm. Griggs : Sea trials would be a materiel-ready day.

Senator JOHNSTON: I am concerned about the metrics that we are using in this FEGs analysis, because, in a question on 10 May, you indicated that the sustainment costs for 2012-13 would be $402.9 million. But the budget papers two days prior put submarine sustainment costs for 2012-13 at $516 million. Can you explain the difference?

Mr King : Sorry, could you give me those numbers again? I will have to take this on notice.

Senator JOHNSTON: Question No. 132, which you delivered to me on 10 May, indicated that the submarine sustainment costs for 2012-13 would be $402.9 million. The budget papers, tabled two days prior, said that submarine sustainment for 2012-13 would be $516 million, $133 million more.

Air Vice Marshal Deeble : I can answer that question. There have been three updates to our budget this year. The first one was in the January time frame for forex, and that resulted in a small amount of change to the budget. We subsequently had another update with the redistribution of some money from Navy that resulted in a step function jump to get us up to $516 million. Then, as a consequence of the budget papers, we received additional supplementation based on the remediation activity that we are undertaking for the Collins class. That includes funding for the in-service support contract, spares, obsolescence and other initiatives that we have ongoing in the Collins space.

Senator JOHNSTON: I know this is very difficult. I understand that. I know that you are in a particularly complex environment. Is it the case that I am getting these different figures because different people give me the answer from their perspective?

Mr King : No, I do not think so.

Senator JOHNSTON: Can you tell me how this happens? I have got a $113 million anomaly over two days.

Mr King : I am assuming it was a timing issue, and I apologise for that.

Senator JOHNSTON: I have got the January numbers instead of the budget numbers?

Mr King : It says there that it is currently funded DMFP, $402.9 million. Clearly, what Defence was recommending to government during that period in the formulation of the budget papers was an increased expenditure on Collins, because the previous year we made an internal financial adjustment for extra funds for Collins. This was the DMFP that had been funded. Defence had recommended an increased funding, and indeed that is what transpired in the budget, for Collins sustainment.

Senator JOHNSTON: All right. Are you saying that, because there has been a specific allocation in the budget, we have quarantined sustainment of Collins from the cuts, the $5.5 million in the forward estimates?

Mr King : That is part of our budget; that has been factored in. For the last two years what had been happening was we were getting top-up funding for Collins from within the portfolio. We have now baselined the Collins sustainment requirements in the budget papers—not in the sense of quarantined, but that has been identified as the amount that is needed.

Senator JOHNSTON: Are you saying that the $113 million has come from this new amount—the difference between the January and May figure? Where does the $113 million come from? I take it it is a real number. Where did we take that from?

Mr King : The way I would describe it is, across all of Defence's priorities, it is an allocation of money from the Defence portfolio.

Senator JOHNSTON: Yes, it is an allocation, but it is just—

Mr King : It is real money.

Senator JOHNSTON: you cannot point to what has suffered a deficiency.

Mr King : Oh, what has suffered? No. As a part of the group that put together the various elements, we did not say, 'That item has to pay for Collins'; it was a balancing of the entire portfolio.

Senator JOHNSTON: It is one of the beneficiaries of moving a number of projects to the right—namely, the $2.9 billion capital procurement redirection.

Senator Feeney: Senator, we have been through, in some detail, the fact that, as well as savings to government, there was something in the order of $2.9 billion worth of additional pressures within Defence, and we have been through how they were funded. It is not fair to say that one project's expansion is hypothecated to another project's diminution or cancellation.

Senator JOHNSTON: Not fair? But it might be the reality.

Senator Feeney: But it simply would not be. I guess we could go through it again, if you are so inclined.

Senator JOHNSTON: No, that is fine; it is notional, but it is just soaked up in larger numbers. That is the bottom line.

Senator Feeney: Cost pressures in one corner of the budget produce—

Senator JOHNSTON: Yes. But you have not directly apportioned it. Now, is it true that submarines are consuming 31 per cent of Navy's sustainment budget?

Mr King : I would check on that, but I think it would be in that order.

Vice Adm. Griggs : It is about that order.

Senator JOHNSTON: So, if we run through it, we have eight Anzacs, four Adelaides, all the replenishment ships, the oilers, the Armidales, the mine-hunters, the hydrographics, Choules—all to that, and 30 per cent goes to these six boats, of which at any given time two are in Adelaide, and usually one or two on the hard in Perth, in Henderson.

Mr King : That is correct. It does not, though, recognise the complexity of maintaining assets such as what is a very complex, large and advanced conventional submarine. If, for example, you operated an airline of 737s, but also one of your tasks was the space shuttle, the space shuttle would absorb a lot of your costs, and you might then decide that you do not want a space shuttle. It just transpires that, for our strategic defence, we need a submarine—and submarines come at cost. What Mr Coles, we hope, will show us, is what is a reasonable cost, what is a reasonable expectation of availability for that type of asset.

Senator JOHNSTON: Mr King, you know that we got this force element group, this platform, predicated on a low-manning, low-maintenance cost. That is why we got it.

Mr King : Yes, I know that.

Senator JOHNSTON: And that has been nothing more or less than the biggest fiasco I think Defence has ever had to endure. Correct me if I am wrong.

Mr King : Yes, I will, Senator—since you invite me to. It is wrong on a number of counts. Was it, as they might say in politics, a 'brave move, Minister'? Yes, it probably was.

Senator JOHNSTON: I can relate to that!

Mr King : But you know, sometimes nations have to take on a brave move, and maybe that was the time to do it. I can tell you the lead-up to that. We bought six Oberon class submarines—very competent, small submarines operated by a parent Navy, the Royal Navy; an evolution of a whole range of submarines before it and a classic way you would get into submarine capability. Remember, not long before that we were borrowing submarines. So our first step was into Oberons and then, later in their life, we had a very successful program to upgrade their combat system, which we did locally—the SWUP, it was called.

We then made, as a nation—and I was not part of that decision making but I can see the sense of it and I do not think it was a failure or a fiasco—a decision that submarines were important to Australia and we have unique geographical and defence needs that make buying submarines totally off the shelf somewhat problematic in meeting what we consider to be our defence needs. If you look back on that, it introduced too many unknowns. For the first time ever in Australia we built a submarine in Australia. One of the things I would correct is that, although we were often criticised for the quality of that build, the quality of that build was not poor. In fact, the quality of the platform was very, very good and remains so.

We did another thing that was incorrect: we went to a submarine and we went to an extension of a design and we enlarged it a lot. We thought that scaling up a design would be a very simple process. It was not. At that time, of course, we also made a decision to choose a combat system that, in hindsight now, was the wrong choice. What are some of the basics about that? Some of the basics are: we had some very skilled production people; they have welded and produced a fine hull. We have some poor equipment in that. One of the things we might have learnt—and I am sure we have—is that, before you put anything in a submarine, and the same can be said for an aircraft or any confined defence space, you need to test it fully, because the last place you want to put it is in the asset. So we, for example, took the flywheel off the diesel and it introduced problems.

Senator JOHNSTON: You know we are putting it back on again now?

Mr King : Yes. We cannot just sit there and not do something about the problem. You would not want us to. So what did we achieve basically? We achieved a company in South Australia that has core submarine skills, both in sustainment and the potential to move forward in the new submarine. We know the quality and standard we need to weld and make these platforms. We know the mistake about introducing, for example, brand-new combat systems on top of a brand-new submarine system at the same time. We certainly went a very large step forward, and with it came significant problems, which unfortunately the people of Australia think are all bad. But they are not.

We now have a very solid base to build our future industry capability on for our future defence. Submarines almost certainly will rank highly as a strategic asset to defend this nation. We built a platform, it came at some cost and it continues to be a cost, but we are remediating those problems. If we have to remediate a problem in a Collins submarine that needs a full-cycle docking to remediate that problem, we have something like a 10- or 11-year cycle before we can get every submarine upgraded to that standard, even if we know the solution. But we are working on all of these key problems. The combat system now is working very well. We have got the heavyweight torpedo. The combat system, I think, is either in or going in five boats. We have got one more boat to do. We have got three major platform issues—with the motors, the generators and the diesels—and we are attacking each one of those at the appropriate time.

So there are significant problems about how we went about doing the Collins. We have learnt most of those. We have a much better industrial base now to take ourselves forward into either the extension of Collins and a new submarine. If the country has the capacity to take on this issue, which I believe we should, we will find ourselves in a much better position than we otherwise would have been in without the Collins program.

Senator JOHNSTON: Does the Rand report support your appraisal of our capacity for SEA1000?

Mr King : It is not in contention with it. What it says is that we do not have the capacity today to do a SEA1000. I think I was trying to say we have a launching pad to do SEA1000. I would agree with that entirely. In fact, one of the tasks I have been given—and it is going to be one of the most important tasks I will do in my tenure as the CEO of DMO—is to look at the submarine skilling needs between now and the end of the year and report to government about what we have now and what we will need to take on the future submarine projects.

Senator JOHNSTON: Now let's pause on the flywheel. DMO consulted about putting the flywheels back on?

Air Vice Marshal Deeble : Yes, we were the ones that made that decision in junction with Navy and ASC. We also called in Dr Lustgarten, a specialist from Europe in that regard, and we are working closely with AVL, a diesel specialist from Europe, to look at a range of activities on the diesel loader.

Senator JOHNSTON: The team comprising those various parties decided that the flywheels would go back on?

Air Vice Marshal Deeble : Yes, including DSTO. We have looked at the vibration issues associated with the removal of the flywheel in the first case and we believe that we can handle that within the weight margins within the submarine, that it would significantly reduce the vibration in the hedemora diesel and that it was worth doing. Waller will be the first boat to have the flywheel reinstalled and we are also doing some work with the governor, which will reduce the temperature in the cylinders associated with the hedemora. We believe that those two things together will have a significant pay-off for us. We will have a cooler motor and one with less vibration.

In conjunction with that, we are also looking at putting what we call a sun-roof into Collins when it undertakes its full-cycle docking. That will allow us to remove the diesels and the generators and will allow us to work more effectively and efficiently on those motors. We have been told by Electric Boat that it is about a one to eight ratio: for every hour that you spend working on a diesel outside of the boat, it will be equivalent to eight hours in the boat. So we expect that will be a significant benefit.

Senator JOHNSTON: Is there technical advice as to the reinstallation of the flywheels and the reduction of fuel going to this motor?

Air Vice Marshal Deeble : Yes.

Senator JOHNSTON: Who gave it and how much did it cost?

Air Vice Marshal Deeble : I cannot tell you the cost—I will take that on notice. But we have worked that through an integrated project team and involved all of the specialists that I mentioned before—Navy, ASC, the DMO, DSTO, AVL and Dr Lustgarten, a specialist in the diesel domain. They are working through the issues that we have seen from operations to date. We have made that technical determination that this is a good outcome for the diesel motor and the intention is to do that fleet wide fit over time.

Senator JOHNSTON: We do not have the cost of doing this on Waller?

Air Vice Marshal Deeble : I do not know specifically how much it will cost, but I can get you those costs. I will take that on notice.

Senator JOHNSTON: Thank you.

Air Vice Marshal Deeble : Waller is actually undergoing its mid-cycle docking as we speak, so I will need to make some estimates in that regard.

Senator JOHNSTON: Waller is up on the hard at Henderson?

Air Vice Marshal Deeble : Yes, it is.

Senator JOHNSTON: Okay. We have read Mind the gapfrom ASPI and we have seen the problems associated if Collins continues on in the way that it has. You are undertaking a SLEP. How is that coming along?

Mr King : The early work is to look at a number of areas of submarine to make sure that its service life is able to be extended. I forget the number—is it 38 errors we have looked at?

Air Vice Marshal Deeble : There are over 116 areas, predominantly about the platform, that we have looked at. We have just started to work with Raytheon, Thales and BAE, looking at the mission system elements.

Mr King : There are a couple of areas we are looking more deeply at. But mission system upgrades are not going to prohibit the surface-life extension. They will inform us about the costs and the challenges. The main issues are the major hull life and things like that. The indications at this stage—and we have not finished—are that there are no show-stoppers.

Senator JOHNSTON: When do you anticipate a decision?

Mr King : A decision on the viability of it? I think within a few months.

Air Vice Marshal Deeble : We are looking at completing those studies probably in about the end of the third quarter of this year, taking that through the committee processes and being able to determine the path forward for the service-life extension in that sort of time frame.

Senator JOHNSTON: So, once we decide that it is a viable proposition, what is the next step?

Mr King : We will have to get detailed costings.

Senator JOHNSTON: And how long do you anticipate that will take?

Mr King : At this stage I was more or less wanting to know that we could. I think it will take, off the top of my head, probably a year or two to get really good detailed costings but we will probably know enough earlier to start shaping where defence expenditure will need to be.

Senator JOHNSTON: So we are talking sort of late 2014?

Mr King : I think that is probably about right.

Senator JOHNSTON: That does not sit very comfortably with that ASPI analysis, does it, in terms of the capability gap and getting all of the boats done?

Mr King : I think you have got to be careful how you use 'gap', which implies to me, depending on how you use it, no capability. There is absolutely no doubt over time that a capability difference can exist between two competing capabilities. Every one of the assets that we buy in defence will slowly atrophy in its capability relative to maybe a capability that some other nation operates. We are always trying to step that back up through capability insertion programs or whatever and eventually the difference between the older capability, even modernised, and a new capability becomes significant and we upgrade the capability. I think you have to talk about the differentiation that might appear.

However, depending on where our SLEP studies go—and I like to be informed rather than just guess—if we find very soon that we can do it, that there are no show stoppers, and we put a Collins program in place that the first boat would go through, it does not seem beyond our capability at this stage.

Senator JOHNSTON: I accept all that. What is plan B? If SLEP says no, what is plan B?

Mr King : We have not determined that and neither have we given government any detailed advice on that because at this stage we are only within a few months of understanding whether a SLEP is viable or not. In the options that you might canvass—and the ASPI paper really canvassed this—the cheapest, simplest and easiest capability to get, remembering of course that it may not be the capability that we aspire to for our regional needs, is military off the shelf. We know that. That is a very simple, quick, easy way to get a capability. In a sense, though, I think—and I should really defer to the capability managers—sometimes some of those military off-the-shelf options leave you with a permanent gap. This is always the trade-off we are going through. What is the capability you aspire to and what does MOTS offer you? Noting that if you bought an asset in mid-20s that had an inherent capability gap you would have that for 35 years.

Senator JOHNSTON: Is it not fair to say that every year the sustainment costs of Collins is about 20 per cent more than a brand new submarine?

Mr King : It would depend entirely what the submarine is.

Senator JOHNSTON: As I say, a German 214 or a Scorpene? Or an S-80?

Mr King : The 214 and the Scorpene—and I would ask the capability manager—are not the same as a Collins.

Vice Adm. Griggs : You will have an enduring capability gap.

Senator JOHNSTON: I have read some material lately that says that most of our submariners are really only concerned with reliability.

Mr King : There are two things—as the engineer in me comes out—and they are availability and reliability. We know we have reliability issues—that is what we have been talking about—in some of the main componentry and, indeed, in not just them. We know of a few other systems that are also pulling down our material availability. There are two ways you address availability. One is that you have spares on the shelf in order to repair that item and bring it back to use quickly, and the other is to have a more inherently reliable design so it does not break down. I am sure what the submariners really want is a boat available when they want it to use the way they want to use it. We have to attack both of those problems to do that.

Vice Adm. Griggs : That concern reflects the general misapprehension about the capability of the boat. Yes, they want a reliable boat, because they know the front end of the boat is a very good front end and they want to be able to do what they have trained to do.

Senator JOHNSTON: The front end is not worth anything to us if the back end is not reliable.

Vice Adm. Griggs : That is my point. That is why there is the concern over the reliability. But to say that that is all they are worried about, I think, is not the right way to characterise it. I am worried about the reliability. I want the reliability improved and the availability improved so we can try and shake this tag that people keep using that they are not a good capability, when we know that they are.

Senator JOHNSTON: We are not going to get into task-ready days—

Vice Adm. Griggs : I hope not.

Senator JOHNSTON: because I do not want to go there, but material-ready days does not really assist us greatly, because, whilst we are touring around looking and waiting for things to go wrong, that is not operational.

Vice Adm. Griggs : I think we need to clarify this. If I do not have a material-ready day, I cannot do anything. If it is in maintenance, it is not available; I cannot do anything with it. So material-ready days do count. They allow me to get on and do the trials, do the licensing, work the crews up and send them on operations and exercises. So material-ready days are critical. Task-ready days, or unit-ready days, are a function of how many material-ready days I have got to play with in the first place.

Senator JOHNSTON: Can you confirm for me these costs. You have told me that the sustainment numbers are $516 million; they are in the budget. The operating costs are $177 million; you have given me that answer to question on notice No. 132.

Vice Adm. Griggs : That is correct.

Senator JOHNSTON: The submarine approved major capital investment program is approximately $53 million—question on notice 31—and there are $161 million depreciation costs. That totals $906 million. That is what we are talking for this force element group.

Mr King : It is in that order.

Senator JOHNSTON: When we talk of material-ready days, we come to 63 per cent?

Vice Adm. Griggs : We are at 74 per cent.

Senator JOHNSTON: Seventy-four per cent of?

Vice Adm. Griggs : We are achieving 74 per cent of our target material-ready days at the moment, which is up from 38 per cent 12 months ago

Senator JOHNSTON: How many days is that, though?

Vice Adm. Griggs : This is where we get into issues about the capability and the security issues around it.

Senator JOHNSTON: Next year, 2013-14, those numbers will take us beyond $1 billion?

Mr King : The problem with doing that is, if you put it on the depreciation list at the same time as you are funding your new asset, you are double-counting for the new asset, because depreciation is taking into account the loss of the current asset. But, putting that aside, that could well be the order of the number. I come back to the space shuttle analogy: submarines go through a cycle which is basically a cycle of refurbish, make safe, work up, do the deployment and return. They are not like a cargo ship that goes from point A to point B for 80 per cent of its life. We have asked Mr Coles to tell us: given the design of the submarine, given the type of submarine, given the distances and the environment that we operate the submarine in, given its complexity, what should we anticipate as being a reasonable number of material-ready days and what should be a reasonable cost in achieving that? That is really what we have been looking for for some time. This parent navy issue is a huge issue for costs, but what we can say from all that is that, over the last little while we are finally seeing quite a significant up-tick in material-ready days. To reiterate the point that Chief of Navy makes, he cannot do his job unless I have got material in his hand that works. So it is a key indicator on what he can build on in order to build a force-ready submarine force.

Senator JOHNSTON: I think you have answered the value-for-money question, but, if we look at the financial management act, the question of value for money rests with you at the table. Have we got an annual number that indicates that you have to say the minister, 'Barleys; this is not good value for money; we can't go on'. Is there a number?

Mr King : I think you asked me this question before.

Senator JOHNSTON: I have had $113 million added onto the annual sustainment costs and hence I ask the question.

Mr King : The other side of that question would be: at what point can a nation not have a strategic capability such as this or a build such as this? I think a lot of folks—I know you would not—might lose track of this. These capabilities are based on many inputs—material and people, in particular. These are capabilities that are easily lost and hard to build. If we do not continue to work at producing these capabilities, they will atrophy and we will not have that asset. You cannot just go and buy this. We are a nation that has got very used to buying high technology off the shelf and just miraculously using it. It is not the case in submarine operations or submarine material availability and if we do not invest in this you will not just not be able to turn it on in five years; you will not turn it on in 15 years.

In terms of value for money, it is naturally an absolute obligation of mine, under the FMA Act, to make sure that the money we spend is sufficiently and effectively spent. I live by that every day in my job. What we are doing is we have got Mr Coles looking at the data from around the world, trying to compare it and tell us what is a reasonable baseline. We are working with ASC to work out an introductory level of a performance based contract through the ISSC where between ourselves and ASC we can focus on driving those costs out. I am anticipating that we are plateauing on those cost growths, but we have got two years of ISSC to get all the engineering data together we need. What is even more important than the value-for-money equation is that we send submarines to sea that are safe. We have only got to make one error and you will be asking me, 'What did you do about that, Mr King, that cost 42 sailors' lives?' I have got to get the engineering right; I have got to get the planning right. We want ASC to be a more efficient and effective organisation. We want realistic goals; we are expecting Mr Coles to give us those. Then we are going to drive as hard as we can on metrics—not on emotion—to bring the cost of those down to a reasonable level to deliver the capability for the nation. I do not know whether in the long term that will be 25 per cent of Navy's budget or 35 per cent, but I know, whatever it is, when we have that data we will drive as hard as we can to deliver that outcome for the most efficient and effective cost we can.

Senator JOHNSTON: I accept that answer. How is this new contract with ASC going? Where are we up to on that?

Mr King : We are all but there in terms of the contract terms and conditions. We had some adjustments in the scope because of the budget matters. We are finalising those. I think it is today or tomorrow we are expecting the final price from ASC. It has been a very difficult path for both parties.

Senator JOHNSTON: When you say 'a final price', are you talking about an hourly rate?

Mr King : No, a price to do the work for next year.

Senator JOHNSTON: A lump sum figure—on a per annum basis?

Mr King : It will change annually because after two years of baseline effort we then move into performance based and more risk for ASC.

Senator JOHNSTON: So we are going cost plus for the first two years?

Mr King : There is a little bit of risk in the second year for ASC. It is sort of a learn-to-live-with risk.

Senator JOHNSTON: And then in year 3 we move to performance based.

Mr King : More performance based.

Senator JOHNSTON: Are you able to tell us about the methodology with respect to the performance based in the contract?

Mr King : I think we can do the broad terms. I will let Air Vice Marshal Deeble explain that.

Air Vice Marshal Deeble : The contract that we have negotiated for the next two years is a transition period contract. The first year has no risk for ASC but we are working through a whole range of transition tasks which will build up our expertise and ASC's expertise as we work through that and we will be testing the metrics that we are going to use in the mature phase. In the second year we are basically holding them accountable for availability, so it is a step up to the performance management framework but only in the availability space.

Senator JOHNSTON: Fair enough. Just pause there, before you go on to the next phase. What is the benefit and detriment that is flowing? Increased availability is obviously the benefit. What is the detriment?

Air Vice Marshal Deeble : While the details are subject to us signing the contract and would be commercially sensitive, basically we have an arrangement where if they perform well—superior performance—they will get rewarded accordingly; if they do not perform well then they will wear the detriment. In this particular contract, we will still cover their costs but they will not gain profit. In the mature phase they could have 100 per cent profit at risk. They could equally earn greater profit with superior performance.

Senator JOHNSTON: Let's just pause there to analyse what you have said, because this really does concern me. This is a government business enterprise. If they do not make profit but everything rolls along as per what has been going on, where is the downside for them?

Mr King : They are a business and they have to return a profit to the shareholder.

Senator JOHNSTON: The minister is not even that interested in the material that I put before the CEO the other night. They will not even tell me—I am not sure they even know—what the profit margin on submarine sustainment is.

Mr King : It is disclosed in their annual accounts.

Senator JOHNSTON: No, not the profit margin and not all their listed subcontractors.

Mr King : Maybe we need to go back to the construct for ASC. Nations maintaining submarines, no matter which nation, get into a difficult circumstance where normal market forces cannot work. That is absolutely certain, because the customer supplier base is one on one. There is also the area of deep national interest of technologies or maybe shared technologies. For example, maybe the US would share a technology with us. It would not surprise you that the US would not be too comfortable with us passing that technology around to any old company and having them use it to further their market interests in a place where the US would not be interested. So you run this difficult situation in the national interest where you cannot have two submarine manufacturers out there competing. You do want to have a company—and I certainly want to have a company in ASC—that operates in a very businesslike manner, and a measure of a businesslike manner is profit. It certainly was when I was in business.

Senator JOHNSTON: Sure.

Mr King : So the profit margin aspect is in fact a good aspect if it drives all the other right behaviours. The thing that we in DMO are most interested in is that their conversion rate of the dollars other than the profit dollars is the highest possible level it can be. Structuring ASC as a GBE drives them to work in a businesslike manner. The real difficulty we have is that in 2004, or whenever the TLSA was entered into, it was a non-businesslike contract agreement.

Senator JOHNSTON: Costs plus.

Mr King : Quite frankly, I have been very grateful for the way we have been able to interact with ASC management to give up what was actually a no-risk, 'take the money' contract and embark with us on a contract that involves risk for them. They did not have to do that, in a sense, but they have done it with a view, as I see it, to become a very efficient and effective submarine maintenance organisation, in this case.

We have done a number of things in that. For example, the TLSA just ran without really any opportunity to ever revisit that contract for its life. What we have put in place with this current contract in a basic sense is a sort of five-year rolling program. After the start-up period, it is a five-year program where every three years out we look at whether ASC has met the performance criteria we anticipated. At that time we can decide whether we are very happy with ASC and the way they are going and we just keep extending the window so that ASC has certainty of its workforce, certainty of its tools, certainty of its investment—or we can put them on notice that unless things change we will be looking for an alternative supplier. Obviously, we anticipate that with the management we have in ASC and their approach to being more efficient and effective we will get the former outcome. In other words, we will have a rolling program resetting the objectives and tasks. Quite frankly, it is hard to imagine what other commercial arrangement, what other sensible arrangement, you can make at this stage that looks after the national interest, that tries to drive efficiency in a businesslike manner in a supplier—and can I say that we have to readjust ourselves in DMO to stop, if you like, messing in their patch and make sure that they get the obligation and tasking to get on with the job. For example, one of the elements of it is that we would anticipate that ASC will be taking on spares inventory management for us. They will then have the obligation to get the spares on the shelf when we need them—or when they need them, because they will suffer the penalty of not getting the boats out of service when it has to be done.

Senator JOHNSTON: The metrics that I am worried about are that, if we say 'profit to a government business enterprise', that really does not mean much because it is the government paying the government in real terms. Whilst we have a whole lot of government business enterprise guidelines that need to be complied with, still, at the end, nobody feels any pain. Commercial business is about levels of pain, at the end of the day. Paying your senior executives a large amount of money—there is band E, and some of these people are on quite large sums for this organisation. It carries, I think, a $9 million insurance premium per annum, and the money on claims, of which there were 22, goes into general revenue, so Defence is not a beneficiary of that commercial situation. What concerns me greatly with ASC is that the Western Australian operation got a big tick; the South Australian operation got a big cross from Mr Coles. How do we know—apart from availability; availability might be great—that we are getting value for money from this organisation?

Mr King : Because, first of all, we are going to do the Coles benchmarking work and future benchmarking work. We have agreed that the ISSC will be adjusted for any recommendations coming out of Coles. Let me pose the other option though. Consider this problem: what other way might you approach it? Imagine that all of that work was placed in the hands of industry, and their sole focus and their only legal focus, as best I understand it, is to pay dividends to their shareholder. I know a lot of companies work well indirectly in the national interest, but they do not necessarily work for the national interest. You have an equal problem as soon as you become in the sole-supplier-sole-buyer space. There are not others supplying submarines in Australia and there are not others buying submarines; we are in that space. As soon as you get into that, you are in the problem of: what is the motivation of the company? And, quite frankly, a private company put with all those controls—or a publicly listed company, for that matter—could still seek to maximise its profit even more so. One of the things about a GBE is that shareholder ministers can provide directions to that company about priorities.

The other option would be what we used to have 20 or 30 years ago, where we, Defence, owned shipyards. I do not think we would ever want to revert to that place, because they certainly could achieve their outcomes but they were definitely inefficient.

So the model is probably, for where we are at this point in time, as good a compromise, as good a balance of all that national interest—you can only have so many skills that know how to sustain a submarine and still drive some businesslike processes. And I guess, at the end of the day, you have to reward the executives and the workforce, if they are doing a good job, with industrial, reasonable remunerations.

Air Vice Marshal Deeble : Senator, if I could just correct one point that you made before: there have been a number of claims for warranty in the submarine space. I am not sure where the number 22 comes from. Those claims have been settled. Some of those were settled without payment by the Commonwealth, where ASC took that on; other claims were subject to them claiming that back through insurances. Money that came back to the Commonwealth through those insurance claims has been retained by Defence. It did not go back to portfolio.

Senator JOHNSTON: Good. Who gets to do the remediation work?

Air Vice Marshal Deeble : ASC.

Senator JOHNSTON: So, do you get a credit on all of that?

Mr King : No, but that will happen under the TLSA construct. And we are moving to the in-service support contract, which moves eventually to a performance based contract, and for which that type of performance—

Senator JOHNSTON: All I am suggesting is that, in line with what Mr Rizzo suggested, we have consequences against measurable performance indicators. With this organisation, I do not see any personal responsibility. You talk about private defence contractors. The DMO's principal function is to drive contestability and competition for that work and to have contractual relations such that there are sanctions and, if you like, rewards. At the end of the day the management of those individual organisations are personally liable. They stand or fall on their performance. If this organisation in South Australia does not make any profit, it is just the minister being a bit—you know, two years ago they presented $2 million on a $500 million or $600 million turnover. I don't think it made any newspaper. They are very fat and happy, if I can say that.

Mr King : Maybe I will make a couple of observations. I suppose it is no secret that I was less than enamoured with ASC's performance, going back a few years, and their attitude. I am very grateful that the new management is, I believe, taking it in a new direction, and I would encourage the CEO at every opportunity to do that.

Can I just make the other point, having come from industry. A survey of executive salaries in the US—I think it was about four or five years ago—showed that only 10 per cent of the executive's salary was dependent on customer satisfaction. So it is not necessarily the case that, just because you have a private business, you have a business that is actually focused on customers. And the big problem that faces defence forces everywhere in the Western world is that we have this very limited, highly-technical workforce to support, whether it fighters or submarines, and you get very quickly into this one-on-one monopsony arrangement of buyer-supplier. If you go back 20 or 30 years ago in America, the policy was broadly that you would down-select to two companies for a particular new materiel capability you wanted—whether it was a fighter or a transport aircraft or whatever—and you funded both companies to do the full engineering development of those solutions; you then got a price off them from production, so you had competition all the way through to production. Even in the US today, with all of their scale and size, they cannot afford to run competition all the way through and maintain the duplicate industry base with the skills to do that: the technology is too advanced, the costs are too high and they simply cannot do it within an affordable budget. What that is going to mean for the future, I am absolutely certain: not only do you need performance based contracts but you need the commitment of the individuals, whether it is the CEO of DMO or the CEO of ASC, to drive in each of our organisations that thirst and that quest for efficiency and effectiveness that the nation needs.

Senator JOHNSTON: I couldn't agree more, but the problem I see is that this organisation has only ever had one customer, in stark contrast to most other defence contractors—it is the only person in the space; it has nothing to fear. When you are unhappy with it, you have nowhere to go.

Mr King : Yes, that is a fact. A lot of the defence companies are actually only one-customer companies. But, for example, if you take electronic system integration, it is a pretty dynamic marketplace around the world, and it is certainly dynamic in Australia with a number of companies all having to compete for that work—and the duration of that work is often quite short. We have actually almost got a marketplace operating in that sort of area.

It is true that, when you get into something like submarine sustainment and design, you are in a very limited market that can generate the sort of normal competition that one would expect to drive down costs and increase innovation.

Senator JOHNSTON: It just seems to me that the UK, for instance, in their submarine sustainment, do not have these sorts of issues.

Mr King : They have a different arrangement between production and sustainment. Their relationships have changed over the years, too, as have the US's. It was not that long ago in the US that they had serious problems with the production costs of submarines. Again, and I think this is pretty general in the submarine area—and even in the maritime industry sector—improved performance, improved focus on the customer, is often very seriously driven by the type of contracting models and the approaches of the senior managements within those companies.

Senator JOHNSTON: All right. Mr Coles' second tranche is due. I believe there is a draft floating around, as various people have said. When are we expecting to see it?

Air Vice Marshal Deeble : We are currently going through some of that work. We have seen extracts of some of the preliminary outcomes of the Coles report. We anticipate that within the next week or so we will get the final report.

Senator JOHNSTON: Has there been an interaction? Has he put things to you that he wants to say, and you have been given an opportunity to defend various propositions? Given his first report, I think I am using the word 'defend' reasonably wisely.

Air Vice Marshal Deeble : I am the chair of an executive leadership group that is actually overseeing the Coles report. We have been tracking progress of his work to date and he has given us snippets through that process as to where he thinks he is going and what he is looking at. The process starts with a hypothesis tree. They have been gaining a lot of evidence from us—over 2½ thousand documents have been used and basically analysed by the Coles' core team; also, Deloittes are doing a lot of that work for us. We are going to then look at that; they will determine the best-practice goals that are wrapped around that. They will then look at the gaps between what they see today and what is going on, and they will compare that with the initiatives that are currently underway and tell us whether we are heading in the right direction. So that has been a very substantial amount of work, very forensic in its analysis of the Collins class and sustainment of the Collins class—and, as I said, it has taken us some time to pull that together. Again, we have tried to make sure that he has the best evidence to draw the conclusions as to where we are and where we are heading, given the initiatives that are underway.

Senator JOHNSTON: Just tell me again: when next week are you anticipating the release of this report?

Air Vice Marshal Deeble : We anticipate that he will give us an opportunity. Again, I will chair the meeting and we will look at his report and provide some broad feedback. We want to make sure that we get a quality report that hits all of the key points.

Senator JOHNSTON: So it could be a month away?

Air Vice Marshal Deeble : No, it is anticipated to be within the next week.

Vice Adm. Griggs : It will obviously depend on the minister, Senator, as to when he will release it.

Mr King : Senator, can I just correct a little bit of a perception. Whilst I cannot take credit for the Coles report, I can take credit for the person that had the initial gem of an idea of a study.

Senator JOHNSTON: And I want to give you great credit for that!

Mr King : Thank you, Senator.

Senator JOHNSTON: I really want to give you great credit for that: it is one of the best reports I have read in 10 years sitting here. It is a tremendous report and it clears the air, may I say. So don't think I'm not going to give you credit for it. I think it is a fabulous report.

Mr King : I don't want credit, but what I really wanted to point out was that the whole reason we wanted this work, the whole reason I took it up with the secretaries, and the secretary of finance, and then the ministers agreed to the work and the study, is that we want to know what we should be aspiring to, what we should expect to do. So we will not be defending. There will be issues that we in the DMO have to face. What I am very hopeful of, though, is that it will not be entirely retrospective, because we have made progress in the last 18 months. We need to build on that. We have definitely made progress in MRDs but, for example, a question would be—and I am sure you would want to ask it: has it been at too much of a cost?

Could we have achieved improvement in MRD with less investment? So we want that information. It will give something for ASC, for DMO and for Navy, I expect in some areas, we will want to work on. I am hopeful that it will recognise that it might appear glacial outside, but there have been changes over the last 12 to 18 months in the way we are doing business.

Senator JOHNSTON: Mr Gould is obviously a very important component of our disposition with respect to this force element group. Does he know Mr Coles, and is he working with him yet, or is it anticipated after he comes on board and starts his contract, which I presume he is on, he will be working with Mr Coles? How does the plan unfold?

Mr King : To your first question, I do not know if he knows Mr Coles, or not. He will not actually come to Australia until about mid-July. That is my understanding. It depends on a few family matters. Mr Coles was never intended to be the deliverer of the 'get the things done' that I have found. He was intended to be a person of knowledge and experience who can look into our various organisations, see what we have not done well, propose what benchmarks we should set for ourselves, and we were always to be the implementers. In fact, phase two is still in many ways just the collection of data to demonstrate or otherwise the claims that Mr Coles makes in phase one. So, phase two is not the whole answer either. And we should not think that with phase two comes the answer.

What Mr Gould does not know is that I am going to be very happy to have him here because he will be able to answer your questions next time we are at estimates! He will have the comprehensive picture of all the submarine matters. It is not true, of course: I will be here!

Vice Adm. Griggs : All of the submarine materiel.

Mr King : The submarine materiel—I am—of course. But he will naturally work with the material that Mr Coles produces. It is his benchmarks for what is in the Collins sustainment space that he has to work for. Of course he will also be working with Admiral Moffitt on the future submarines and the SLEP program and making sure we have a totally integrated piece of materiel work of getting Collins availability right, SLEP right and future submarines right.

Air Vice Marshal Deeble : Mr Gould has worked extensively in the UK through a range of UK initiatives.

Air Marshal Binskin : To tidy up one thing that was asked, in DCP 2011 we had HMAS Success replacement costs: SEA 1654 lower band, $500 million to $1 billion.

Vice Adm. Griggs : If I could clarify some evidence I gave earlier regarding HMAS Darwin going to RIMPAC. She is independently steaming from Samoa and she will rendezvous with an American and a New Zealand ship, but not the Endeavour.

Senator FAWCETT: Following up on the general theme of sustainment or through-life support for Navy capability, I notice that in June 2006 the US Department of Defense let a contract, in this case with Raytheon, for long-lead items for the air-warfare destroyer. I am assuming that through life there will also be long-lead items required. Could you describe to me the current state of the through-life support contract for the air-warfare destroyer and, specifically, whether provision has been made in that contract for long-lead items such that, beyond whatever initial period, if the long-lead time is longer than that initial period how are we going to cover that gap, so to speak?

Mr King : I will ask Mr Cawley to answer in detail. In the original contract for the supply of the ships there is also data that enables us to make purchases of some long-lead items for the through-life support.

Mr Cawley : In 2006 I was working with Warren on AWD. The long-lead item approval in December 2005 was for FMS items for Aegis equipment. So it was with the US government. As its name implies, it was the long-lead items, but it also said in the context that the production lines for some of that equipment were shutting down at the time. What we have seen since is that the Aegis production line remains open, so we do not have some of those time pressures. We are at the moment talking with the US Navy about follow-on support FMS cases for the US Aegis equipment. That will cater for the different lead times of the supplies that we need. We work out with the US Navy what we might have in store in Australia and what we might be able to call upon from their stores system or their production lines.

Senator FAWCETT: Are there any other items on the vessels, whether it be with Navantia or with ASC or the US government, that require provisioning now for the period beyond any initial through-life support contract. That is the first part of the question. Originally, what is the model that was put forward for through-life support?

Mr Cawley : There are items on all ships that have a long-lead item: the shafting; the reduction gearboxes. We are working through that process at the moment. When we placed contracts for the various subsystems, part of the contract for the build equipment included options for stores for through-life support. One that is being executed at the moment, for example, is a spare sonar dome. At the moment the AWD project is going through that process and engaging with the Armada, for example, in terms of what stores they might hold and whether there is an opportunity between the two of us to cover off those contingency spares.

Senator FAWCETT: Going back to the first part of the question, has a contract been let for a given period for through-life support after the last ships are delivered.

Mr Cawley : No. We have not placed contracts yet for those sorts of items.

Senator FAWCETT: But in general terms is ASC contracted to do the maintenance for the first three, five or ten years of the ship, or is DMO going to look after that directly with Defence Personnel? What is the current model for sustainment?

Mr Cawley : We are developing a model. We have a model—a model, not an approval—that involves a transition period through first ship delivered, second ship delivered, third ship delivered warranty, which uses the alliance—the US Navy and Navantia. In the longer term, when we get through that transition period, we will look at the model, which might involve those people or a different arrangement. That model is being worked at the moment and is coming through for final approval. We will then go into negotiation.

Senator FAWCETT: Once you have done your negotiation with Armada and other people and identified which options you may want to take up, has the funding already been approved or is that new funding you will have to go back to government for?

Mr King : It is factored into the end block funding for the AWD.

Mr Cawley : It is in the budget and the budget forecast is updated annually with Navy.

Senator LUDLAM: Senator Johnston had a pretty good go on the submarines issue and I have a couple of follow-ups, mainly on the additional $214 million needed for initial consideration, detailed studies and analysis of future submarine capability. What exactly does the $214 million buy us, because that is a spectacularly expensive scoping study?

Mr King : We answered that in part. It is an awful lot of money, but against billions of dollars in investment it is actually not spectacular. I do not want to diminish the amount of funding; it is a significant amount of funding. If, for example, you look at the Kinnaird review of how we go about procurement it suggested, based on industry best practice that anything up to 10 per cent of a project's funds could be expended in what I will call the feasibility phase as an appropriate investment of funds to identify your risks for the actual project phase. By way of example, on the AWD project we were looking at both a new design and existing design. I think we spent in the order of $220-odd million in looking at new design work—what it would take to equip a shipyard, costs and so on. That informed the decision that we went back to government with. This work will look broadly at things like existing designs and capability trade-off studies. You will have seen a lot of debate in the general press about how much a military off-the-shelf submarine costs, how much a new design costs, how long it will take to build and what your risks are. It is surprising how much you learn when you actually do the studies and find out, compared with imagining what it might be. I can get a detailed list of all the studies we are intending to do, but broadly it is developing enough knowledge and information to inform the government of the span of likely costs and likely risks and to allow them to make, at least on this occasion, a first-pass decision.

Senator LUDLAM: This is probably something you already canvassed, but does it limit the scope of that study that we have already decided that the fabrication, at least, is going to occur in Australia?

Mr King : I think there are only two significant limitations, as I understand it: that it not be nuclear propulsion and that it be assembled in South Australia.

Senator LUDLAM: All right; you pre-empted my next question. ASPI's paper 57 says that the government should quietly—whatever that means—approach the US about the possibility of nuclear submarine timing and the costs of any such program.

Senator Feeney: Yes, the government has ruled that out.

Senator LUDLAM: Loudly.

Senator Feeney: Perhaps not quietly, no. It has emerged in debate on several occasions over the last couple of years, and on each occasion the government has ruled it out.

Senator LUDLAM: So I can confirm with you that you have not quietly approached the US as ASPI is advocating?

Senator Feeney: I can confirm that for you, yes.

Senator LUDLAM: That is unusually straight language. That is good; thank you. So the two things are fabrication in Australia and non-nuclear propulsion. Perhaps you could just spell out for us, as succinctly as you can, why we have precluded from that $200 million study, or thereabouts, the option of simply buying some of the other models—and Senator Johnston named some of them—straight off the shelf and putting them to sea.

Vice Adm. Griggs : That is part of the study.

Senator LUDLAM: But we will be building them here. We are not going to buy existing vessels or have them fabricated in a yard overseas.

Vice Adm. Griggs : No, that is true.

Mr King : The guidance is 'assembled in Australia', but there are four streams of options we are looking at. One is what we call military off the shelf. Then we have the adaptation of that to Australian requirements for things like combat systems that might be unique. Then there is extension of Collins, and then there is a brand new design. We will be looking at the cost schedule, risk and capability trade-offs of all of those.

Senator LUDLAM: Is it oversimplifying to say that one of the reasons we need such a large vessel is that it is not, strictly speaking, for protection of sea lanes around Australia or our maritime traffic in our EEZ; it is about being able to reach, for example, the South China Sea, and that is why some advocates are proposing a nuclear submarine? It gives you the range, whereas if it is a diesel powered vessel you need a much bigger boat. Is that the reason we pursue such large vessels here in Australia, and why some of the submarines produced by other countries are not necessarily appropriate?

Vice Adm. Griggs : It is all related to our geo-strategic circumstances. There is a misconception, I think, amongst some that submarines sit around your home port and defend your home port. That is probably the most inefficient and pointless use of a submarine that you can imagine. Submarines need to be forward, whether that be at a choke point or in a particular focal area where you might be conducting operations or, importantly, near your adversary's home port.

Senator LUDLAM: Who is our adversary in this instance?

Vice Adm. Griggs : It is a generic term. I am not going to label a particular country. But in generic terms your submarine is operating best when it is forward. A submarine is designed primarily for two things: antisubmarine warfare, or submarine on submarine, and antisurface warfare. In the antisubmarine warfare role the best place to remove the threat is as it is coming out of its home port.

Senator Feeney: I might just add to that and try to paint the picture for you. If you imagine a European submarine that is designed to patrol the Skagerrak or the Baltic Sea and then transplant that to an Australian environment, you would very quickly see the tyranny of distance impose itself. From our industrial and port facilities in the southern part of Australia to the primary operational environment in the north of Australia there are distances involved that would confound a European or Mediterranean perspective. One of the great issues at hand here is range.

Senator LUDLAM: My proposition, which I put to you directly, is whether we need to send these vessels much further afield than our territorial waters—I am not talking about their home port. Do we need to be able to project this kind of capability into, for example, the South China Sea.

Senator Feeney: Even if you are just manoeuvring around the maritime environs of Australia you are transiting distances that are greater than the whole of Europe. Even if you look at moving from Stirling to the north-east shelf, let alone transiting to Sydney or the south-western Pacific—I am not suggesting any particular scenarios or pointing at any particular environs—you can see that moving around Australia is a task that has unique requirements.

Senator LUDLAM: I think we are edging towards a yes as the answer to my question. That is pushing us towards larger vessels.

Senator Feeney: I do not want to start nominating scenarios or contingencies.

Vice Adm. Griggs : Our geostrategic circumstances—the distances involved—drive us towards a larger submarine. It has in the past; the Oberon class was a large conventional boat for its day and Collins was one of the largest conventional boats of its day.

Senator LUDLAM: Indeed. I do not want to get into too much detail here, but are you contemplating, for example, basing them in the north-west, at Dampier or Darwin, or somewhere in North Queensland, which buys you the range, rather than building huge vessels?

Vice Adm. Griggs : There are some significant practical limitations on home-porting submarines in the north. Something as simple as tidal range is a significant issue in maintaining a vessel that is alongside a wharf.

Senator IAN MACDONALD: There are a lot of big tides in Townsville.

Senator Feeney: Those are decisions that might flow from a decision about what sort of submarine we buy, which is a decision that will flow from—

Senator LUDLAM: Yes, but Senator Macdonald is quite right.

Senator Feeney: You are going a long way down the road.

Senator LUDLAM: I am trying to work out whether these things are in the mix. Have we already decided that we are buying a vessel that will be amongst the largest of its day—that is, the 2020s or the 2030s—

Senator Feeney: No, we haven't.

Senator LUDLAM: because it is assumed that it is going to be coming from a southern home port?

Mr King : I think the experience that we got from AWD and spending money looking at capability trade-offs and at all the matters that relate to operations—cost and size—played out very effectively because we collected data and information, we logically catalogued it and we brought that to the attention of government. We are planning exactly the same with this project, except that it is a larger project, it is more complex and it requires a lot of thought. I am absolutely certain it will not be just one or two passes to government. There will be a series of decisions that this and subsequent governments will have to make on how we progress the project.

Senator LUDLAM: I would certainly hope so. Have we set on 12 as the number of units that we will be buying or is that in the mix as well?

Vice Adm. Jones : Twelve is in the white paper for 2009.

Senator LUDLAM: We are redrawing the white paper.

Vice Adm. Jones : Indeed.

Senator Feeney: That is the strategic guidance at the moment.

Senator LUDLAM: So that is in the mix.

Senator Feeney: No, the strategic guidance at the moment is 12.

Senator LUDLAM: What if the 2013 white paper says maybe not 12? Is that question being revisited or not?

Senator Feeney: This not an estimates into future white papers.

Senator LUDLAM: It was, earlier in the day. What I am trying to ask is: are we going to build 12, or is that number potentially in the balance. We have been talking all sorts of other considerations that are also hypothetical.

Vice Adm. Jones : The DCP reflects the white paper of the day.

Senator LUDLAM: Okay. Thanks, Chair.

Senator IAN MACDONALD: Just a very brief update on the LHDs—where are they at? Are we still expecting them in Australia on time and on schedule? How is the upper deck work going, or planned?

Mr King : At this time, we are still on budget and we are still on schedule. We expect the LHD 01 to arrive in Melbourne in the October time frame this year. LHD 02 will be launched, I think—

Vice Adm. Griggs : Fourth of July.

Mr King : Fourth of July. That is 105 blocks that have been incorporated. Novantia has done an excellent job in maintaining its schedule and delivery. We are very pleased with that. The challenging work—no; that is a bit diminishing; we still have challenging work ahead; Novantia have completed a large portion of the construction but we have the upper deck modules to be fitted and we have the system integration work to be done and that is always challenging and difficult. But the program is progressing well.

Senator IAN MACDONALD: Minister, again another one of these requests to you to save me going through the process: when the ship comes into Melbourne, will I be invited?

Senator Feeney: You and me both, Senator. Yes; that will be a great day.

Senator IAN MACDONALD: It is always good to flag these things. It makes it difficult for you to forget me then.

Senator Feeney: I think we both need to be nice to the Chief of Navy to get the good invite.

Senator IAN MACDONALD: Okay. I understand from constituents that there is a difficulty with fixed-line and wireless satellite from what are referred to as minor vessels. What, if any, thought has been given to use of the NBN—which, for Senator Conroy's benefit, will be great to have, except nobody in Australia apart from Defence will be able to afford it? Having got that out of the way for Senator Conroy—

Senator Feeney: We will all resist the temptation to respond.

Senator IAN MACDONALD: I just do not want to be quoted by Senator Conroy out of context at some future time. Has there been any thought given to that, Admiral?

Vice Adm. Griggs : Are you talking about provision of services to ships at sea or alongside the wharf?

Senator IAN MACDONALD: In Australian waters, as I understand it.

Vice Adm. Griggs : We are working on trying to improve the connectivity for our minor war vessels, so we are talking about the survey ships, the patrol boats and the mine hunters. They have very limited bandwidth, and bandwidth is, of course, the big issue. As we move towards more and more people having higher expectations of their connectivity when they are at sea, we have got to work on some programs to improve that. We have a couple of programs in place to improve the bandwidth and the satellite communications, not just for what I would call ship's company welfare projects but also for operational matters. I do not think there has been any specific thought about the NBN that I am aware of.

Air Marshal Binskin : We might get the Chief of Capability Development Group to put his previous hat on and talk a bit about this.

Vice Adm. Jones : The other useful thing is that Navy has done trials with the Chief Information Officer Group on using 3G offshore, and they have yielded quite good results for both the patrol boats and, as Chief of Navy said, the survey ships. Even going across the Gulf of Carpentaria, they have been able to pick up 3G out to about 80 kilometres or thereabouts. The benefit of that is much greater bandwidth, and it is actually much cheaper, so one of the things there is trying to get ships off particularly MARSAT, where it is quite expensive paying out commercial rates. The limitation for small vessels, though, is that you cannot easily use the wideband global system. At the moment, the technology is not well advanced in terms of getting X band, KA band for really small sized dishes, but that will come with time. We will probably see in the defence capability plan in future years there will be terminals more suited to some of the smaller boats, but the use of commercial 3G is somewhere where I think Navy has led the way, and other navies are looking at what the RAN have done in terms of their trials.

Senator IAN MACDONALD: I am not technical, as you will pick up very easily from my questions, but I understand there is a lot of spare capacity in the NBN satellites that are being launched, I think as we speak. I also understand that some of it is inaccessible to the public but may well be accessible to Defence. Is that sort of thing being investigated?

Vice Adm. Jones : My understanding is that the NBN uses the KU band, which is a commercial band. Defence is focusing, in terms of broadband communications, on X band and KA band, which are the two bands that are used with the wideband global system. The point I was making is that what the smaller boats will get eventually is probably a KA band terminal, which will provide sufficient bandwidth and will be compact enough to fit more easily on smaller boats. The benefit of that is that KA band will use WGS, which is a free service, because Defence has bought into the constellation. The future is to try to go to KA band and use 3G when you are closer to shore.

Senator IAN MACDONALD: You are starting to speak in a foreign language to me. Just quickly, you are looking at the possibility of using—

Vice Adm. Jones : What I am saying is that you would not go to the NBN bandwidth, because we already have the comparable military bandwidth. If you are going to get a terminal that can fit on a small boat and that can use the KA-KU band you want to use the KA band, which we already have, with the WGS terminal—that is, the Defence satellite system. The benefit of it is that, if you can control that system, it has a global capability. So if Chief of Navy has to deploy a ship or small vessel to the Gulf or somewhere like that he can still access the wideband global system that we have gone in to partnership with the US on.

Senator IAN MACDONALD: This applies for social contact as well as military contact?

Vice Adm. Jones : Yes. To give a real example: Chief of Navy's big ships can access the WGS system using X and KA bands. He just provides a channel for internet access for the ship's company in addition to the military requirements, because they have sufficient capacity.

CHAIR: Thank you, very much, for that answer. We will break now for dinner. We are still in program 1.2 Naval capabilities.

Proceedings suspended from 18:33 to 19:33

CHAIR: Thanks, everybody. Before we resume with questioning from Senator Johnston, I understand a few officers wish to put some matters in the transcript. Is that right, Mr Lewis?

Mr D Lewis : Yes, thank you, Chair. Mr Cunliffe would like to make a mea culpa in front of his secretary!

Mr Cunliffe : Chair, I am particularly pleased that the secretary is back, because he was right and I was wrong: the 59 people I referred to were not in fact included in the 337 that I had in my briefing pack. I was confused in that. So the 59 is the correct number of the people who had not contacted the review before 1 October 2011 and who have been incorporated in the reporting of numbers. It is not clear to us, from the advice that we have, how many allegations that translated to because, as is apparent from the other figures we reported earlier as well, some people clearly had more than a single allegation. Of the 337 communications, I have received a breakdown on where they are categorised in the advice from DLA: 190 of them were out of scope, 39 were communications where the source withdrew their complaint and did not want to be reported on; another 39 were otherwise captured; 25 were where DLA was unable to contact the source and did not have sufficient information to report on; nine came from reports in the media that they did not report on; and 35 were conflicts with the firm, so they did not progress them as a result of that. Thank you, Chair.

CHAIR: Thanks, Mr Cunliffe.

Mr D Lewis : And Vice Admiral Jones has some material he wishes to read into the record.

Vice Adm. Jones : Yes, Madam Chair: in amplification of our response to Senator Macdonald's question about satellites and NBN, it is our understanding that, as we described earlier, NBN will be accessing commercially sourced KU-band satellites but their intention is to put two KA-band satellites into orbit around 2015. The ADF still intends to access its KA-band segment through the Defence WTS constellation.

Mr D Lewis : We also have Mr Simon Lewis and the Chief of Navy.

Mr S Lewis : It relates to a question asked earlier by Senator Johnston about the units relocating from Moorebank. On further examination there are a number of quite minor units that are also relocating from Moorebank, and one or two of the units referred to are actually units on Holsworthy that are affected by the move from Moorebank. So I thought, in the interests of just simplifying it, we respond to that on notice and list all of the units affected by the move.

Senator JOHNSTON: Very good.

CHAIR: Thanks, Mr Lewis.

Vice Adm. Griggs : Earlier Senator Johnston asked whether there had been a file go to the minister regarding options relating to Successand the replacement of Success. That submission has in fact left the department. I did not answer at the time because I was not sure whether it had left the department, but it has left the department.

CHAIR: Thank you. Any more fessing up before we move back to Senator Johnston?

Senator Feeney: 'Points of clarification' I think is the term!

Senator JOHNSTON: I think points of clarification is much nicer! Mr King, can we go back to the Collins combat system. The APB program was to have Australian-company involvement. How are we going with that? I am told no Australian companies had a look-in past the first step. DSTO made it to step 3. What can you tell me about that?

Mr King : No, we have not had as much success with Australian company participation as we had envisaged. Basically it is a multi-step process—we have a vote on the process—to put up technologies that may meet the emerging operational needs. They go through several phases. We have not had an Australian solution get all the way through. I am concerned about that. I have spoken to my team with a view to having a renewed vigour in the process, and I also took the opportunity, speaking to my counterpart in the US in a recent forum that we conduct annually, to raise this matter and to ensure that our companies were getting adequate opportunities to compete.

Senator JOHNSTON: How is DSTO going with respect to its participation in this, as such? Where are we up to and what are the timelines?

Mr King : I would have to get someone with some more detail on that.

Senator JOHNSTON: All right. I think there is someone who is looking keen and earnest.

Mr King : My good friend the scientist!

Senator JOHNSTON: Is that Dr Zelinsky?

Dr Zelinsky : Yes, Senator.

Senator JOHNSTON: Good. Now, tell us how we are going with this—what your ambitions are, what problems we are confronting and what can we look forward to.

Dr Zelinsky : I think I would probably need a bit more context. DSTO is actually trying to transfer technology into our programs. There have been various attempts to do this. I have been briefed on some of the programs. I have been here for a relatively short time, but I am aware of some of the efforts in that space.

Mr King : I might also get Air Vice Marshall Deeble to contribute. Apart from offering our products, DSTO do also work on the program for us, obviously. So there are two levels of activity in the combat system program.

Senator JOHNSTON: So what are those two levels?

Mr King : One is a general scientific technical adviser to the program, in a management and getting-the-job done context, and then offering up products that might solve a problem in the submarine technology area.

Dr Zelinsky : So we are assisting in sustainment and also developing solutions to problems.

Senator JOHNSTON: I note that we made some representations at a NAVSEA presentation back in 2003 about Australian involvement in the development of this advance processor build. You are going to provide me with a copy of that eventually.

Mr King : The presentation?

Senator JOHNSTON: Yes, the presentation—because I want to reconcile that with what in fact has played out over time. Who are we engaging with in this project? Is it a project?

Mr King : It is an arm of the cooperation program. So it is a joint program. There are two elements to the program. One is the combat system; one is a mark 48 heavyweight torpedo. In that sense, we are a co-contributor to the development of both capabilities. We pay a share proportional to the number of platforms we operate in that program. The benefit, of course, is that we are not a parent navy; we very much travel with the US, which has a large investment in this technology. We play a role in the decision making. What I have asked my team to look at is a more vigorous program of support to our companies—and I include in that the DSTO—that might offer up solutions and a more active participation in the decision making in the US. But naturally you have to have a viable product and it has to meet a need. At the moment, we have not been able to demonstrate that.

Senator JOHNSTON: Who precisely are we teaming with?

Mr King : The US.

Senator JOHNSTON: The government of the United States?

Mr King : The government of the United States.

Senator JOHNSTON: The project office, if that is what we can call it, is based where?

Mr King : I would have to check that. I know part of the work is done at NUWC, the Naval Undersea Warfare Centre. I am not sure where the project office is.

Senator JOHNSTON: How many personnel do we have over there?

Mr King : Maybe it would be better if they get someone to answer those specific questions.

Senator JOHNSTON: That is fine. You can take it on notice. What is it costing us?

Mr King : I will get an answer for you on that too. I know we did this last time, but it is the pro rata proportion of the number of platforms that use that technology. Obviously, the US has a very large number of platforms and we have a small one.

Senator JOHNSTON: Who retains the IP? Is it shared or jointly held? What is the situation with respect to the development of the processor?

Mr King : I will get the specifics on that. We do share it, but I need the specifics. We will bring some IP to the table.

Senator JOHNSTON: Okay. Let's talk about future submarines now. Admiral Moffitt, you are the only person coming out of this budget process who is at all happy, I take it. There is $214 million.

Rear Adm. Moffitt : I would not speak for others, but I am happy.

Senator JOHNSTON: Very good. Can I talk about the work you are doing with forward operating bases, because you answered a question for me, question number 81, and you said:

Forward operating concepts are, and have always been, fundamental to Australian submarine operations. The Future Submarine project is analysing the impact on range and 'patrol presence' achievable by exploiting sovereign and allied ports for refuelling and re-supply activities, in order to present the full potential of the range of options for Government.

Have you done a specific study with respect to forward operating bases for submarines under the umbrella of SEA1000?

Rear Adm. Moffi tt : Not a specific stand-alone study on that subject, but that is part of the operating concept study process that we are engaged in and have been engaged in for some time with the US company SPA—which is an acronym that always eludes me; it is Systems Planning and Analysis—and with the US Navy's Naval Undersea Warfare Centre.

Senator JOHNSTON: Do we have a contract with SPA?

Rear Adm. Moff i tt : Yes, we do.

Senator JOHNSTON: When did we enter that contract? And what is its value?

Rear Adm. Moffi tt : We first entered into contract with SPA in September 2010, and the value of the contract, as of today, stands at $1.878 million.

Senator JOHNSTON: And their remit, or their term of reference, is to do what?

Rear Adm. Moffi tt : They are comparing the performance of some concept submarines of generic performance characteristics against a variety of generic operating concepts in a scenario form and, through varying some of the performance characteristics of the various generic submarine concept models that we have given them, determining the levels of performance against specific targets. It is quite a broad matrix of activities of submarines representative of the four option sets that we have outlined to government against a variety of scenarios that are of a reasonably high level of classification that are part of the Defence planning suite of documents.

Senator JOHNSTON: Do those concepts include sovereign and foreign forward operating bases?

Rear Adm. Moffi tt : They do include those characteristics in the operating concept, yes.

Senator JOHNSTON: Do we have a detailed operational concept document for SEA1000?

Rear Adm. Moffi tt : As part of the standard suite of capability development documents, an operating concept document is in course of preparation, and we will have the preliminary suite of those documents completed in their first iteration towards the middle of next year. They are well advanced. They have been under development now for some time. They are an operating concept document and a test concept document, which together lead to the ability to state a top-level requirement. So I can take the performance characteristics required for the operating concept into industry to allow them to come up with answers to how they would go about designing a submarine that would meet that requirement—what are the trade spaces that might exist with relevant capability, cost, schedule and risk parameters as well—but at a fairly high level.

Senator JOHNSTON: Is there anything further in the suite you talked about?

Rear Adm. Moffi tt : There are four documents: operating concept document, test concept document, top-level requirement—and the fourth one eludes me. There is also an acquisitions strategy, which is separate from the suite of documents. It is the standard Defence suite of capability development documents as laid out in the capability development handbook. I am sorry; the fourth one just isn't at the top of my mind. Forgive me.

Senator JOHNSTON: That is okay; we will come back to it. I know the feeling!

Rear Adm. Moffi tt : I will take it on notice.

Senator JOHNSTON: So, in all of this talk of the four varieties, we have not actually completed an operational concept for submarines under SEA1000?

Rear Adm. Moffitt : We have not completed it, no, but it is well advanced. These things are also quite iterative simply because to come up with an operating concept as the cast-in-stone requirement, regardless of what that might cost and what it might do to the defence budget, does not make sense. So it is iterative as we go through the process with government of decision making through the first and second pass of looking at what might be a relevant operating concept document for each of the option sets that we have outlined.

Senator JOHNSTON: The number 12 comes from what someone has suggested is the ideal number of submarines.

Rear Adm. Moffitt : The number 12 is in the 2009 white paper. What transpired before that is something of which I am afraid I do not have any knowledge because I was not associated with either the white paper or anything that came before it. I have arrived since then in this job.

Senator JOHNSTON: But your brief is 12?

Rear Adm. Moffitt : My brief is 12, yes.

Senator JOHNSTON: What if the operational concept says more or less than that number?

Rear Adm. Moffitt : I might be stepping a little outside my lane here, but—

Senator JOHNSTON: I think we all do that from time to time.

Rear Adm. Moffitt : When it comes to the academic analysis of the weight of forces necessary to defend a nation the size of Australia with its geography and population and the available budget to do that, the number we acquire of anything probably has more to do with the threshold of pain than it does with the absolute need to do the task.

Senator JOHNSTON: Can you just explain that? I do not quite follow you. When you say 'the threshold of pain', you mean cost and time—

Rear Adm. Moffitt : How much are we prepared to spend? It is a process of trading off our ability to invest in defence against the need.

Senator JOHNSTON: Let us just be clear: the operational concept has yet to be finished and you are not sure where the number 12 comes from?

Rear Adm. Moffitt : I cannot talk to the number 12 except that it is in the white paper. The operational concept document is not about the force size per se; it is about the submarine capability as an individual unit. There is obviously a part of that that goes to what does a force size of 12 actually deliver and what is the agreement we can reach with government about what it can expect out of a force size of 12? It also goes to other issues that relate to industry and skills and keeping the industry sector viable to deliver that as well, which in the case of the submarines, as we have been seeing with Collins, is a critically important part of the equation.

Senator JOHNSTON: Absolutely. The test concept document deals specifically with what?

Rear Adm. Moffitt : The test concept document is about advising those people who might aspire to tender for this how we will go about testing their claims of performance for their product. It is about how we will test that this submarine will perform in the way that they say it does. On the one hand, we tell them the performance we are looking for. On the other hand, we will tell them how we are going to test that. This is one of the lessons that we have learned many times with acquisitions, but certainly it was relevant in the Collins acquisition. There was a fairly significant argument as we were deciding between the Germans and the Swedes back in that competition as to how we were going about testing the respective designers' claims of performance for their product.

Senator JOHNSTON: Who will be the author of that document?

Rear Adm. Moffitt : My organisation—the capability development group staff in my integrated project team. We are required to fulfil the requirements for those documents that are set by the Chief of Capability Development Group.

Senator JOHNSTON: The top level requirement deals with various operational requirements at the top level, I take it?

Rear Adm. Moffitt : That is right. 'Top level' refers to a very high level statement of performance that we are looking for. We will talk about the edge of the envelope of performance as well, but it is a fairly high level sort of a document which lays out the numbers—how far do I need to go and how long do I expect to stay there?—that relate directly to and are drawn directly from the operating concept document.

Senator JOHNSTON: So how do you ascribe an indiscretion ratio for submarines when you have a very limited knowledge and sample of conventionally powered submarines that are deep diving and long range?

Rear Adm. Moffitt : Part of this is aspirational as well. We set the requirement of what it is that we want based on the levels of performance that we believe are necessary to support the operating concept. That is relevant where the design does not exist. In the case of a MOTS solution space, the design does exist. We know what we could expect the performance of the submarine to be. The difference will be that we will be using it in specific environmental circumstances, and those are the circumstances for which we will conduct our tests to prove that it either will or will not do what the builders and salesmen tell you it will do. I think our experience generally speaking is that, in Australia's environment, when it comes to these sorts of things, you need to have a fairly jaundiced view of the claims made by the marketeers, because they tend to be claims that are optimised to make you want to buy their product, not necessarily to solve the strategic problem that you have which requires the ownership of submarines.

Senator JOHNSTON: I think we have a number of projects that bear that out. Who is the author of that top-level requirement—

Rear Adm. Moffitt : That is my staff, the CDG element.

Senator JOHNSTON: Is the fourth anything to do with sustainment?

Rear Adm. Moffitt : No, it is not, but obviously at this stage of the program, in respect of those designs which are not MOTS, establishing relatively early on, like very soon, a sustainment concept, a training concept, crewing concepts, basing concepts, those whole-of-ownership type issues—the fundamental inputs, the capability—are all very much on our radar. Sustainment is obviously a very key one and one which, given the nature of the experience we have had with Collins, we have started and we will continue to devote quite a deal of attention to.

Senator JOHNSTON: What is the total cost? When we get to mid-2013, when we get the operational concept document on the table, what will we have spent on it?

Rear Adm. Moffitt : That is pretty much a staff effort activity. We do not have contracts for that work. That is work done by my staff.

Senator JOHNSTON: So it is an internal capability group document—

Rear Adm. Moffitt : Yes, it is.

Senator JOHNSTON: drawing on considerable past history and understanding of what we are required to do from both O boats probably and the Collins?

Rear Adm. Moffitt : As well as that, of course, the volumes of information which have come in to us from our various requests for information from European submarine designers. That fourth document is a functional performance specification document.

Senator JOHNSTON: That is interesting. Tell me what that does.

Mr King : Maybe I could deal with that, because that is a translation of the operational concept document into more functional performance specifications, so actually the performance you are looking for from various elements of the platform. It is derived from the higher level operational concept document.

Senator JOHNSTON: Are we talking specific speed and range and ratios and what have you?

Mr King : Very many parameters are captured.

Senator JOHNSTON: And you are doing that document too?

Rear Adm. Moffitt : Yes, we are.

Senator JOHNSTON: Very good.

Mr King : Sometimes in some of those areas we call in specialists, particularly in the FPS, to add specialist knowledge. But it is an internal document.

Senator JOHNSTON: That is good. I am pleased that we are going to have that document by mid-next year. Let us talk about specifically what we are going to spend our $214 million on. What is your first priority for that?

Rear Adm. Moffitt : We have outlined to government that there are four option sets, as you are aware. With respect to the four option sets, there is a matrix that can be built around the fact that a significant consideration, and perhaps decision, relatively early on in the process relates to a combat system and the weapons that will be associated with that combat system, because the two tend to go together.

To put that into context, with the air warfare destroyer acquisition, the first decision that was taken was around combat system and weapon—the Aegis Combat System and the SM family of missiles that is associated with that. That was the first government decision related to the AWD. A similar approach could be taken with the future submarines simply because we have experience, through solving the Collins combat system problems, with the AN/BYG-1 and the associated torpedo, the MK-48. Government consideration might be that they wish to stick with that, but there are other options as well.

Unlike the Collins program we are blessed with a significant array of potential combat systems and associated weapons from which to choose. Each has its own characteristics; each has its own design parameters. But one of the things I think it is fair to say is that the combat system market today has a range of very good options available such that we will not need to be going into developmental combat systems for the future submarine program; we would essentially simply be buying something off the shelf.

So you can create a matrix which has, down one side, the four option sets, and across the top the available combat system and weapons, and there are some places that will work and some that will not—for example, it might be very difficult were we to, say, want to put the United States Navy's jointly-developed-with-Australia combat system into, say, a Russian submarine. A very hypothetical situation, I am sure you understand! So there are some of these combinations that will work and some that are creating, or seeking to create, marriages between natural competitors which are going to bring about significant difficulties if you try—some will work, some simply will not work.

Senator JOHNSTON: So why would we do that before we elected one of the four options? Surely the dominant consideration is to work out what option we are going to choose and then go to the combat system thereafter, because some of those options have very minimal capacity to entertain anything other than the combat system they come with.

Rear Adm. Moffitt : That is very true.

Senator JOHNSTON: So it seems to me that we are putting the cart a little bit ahead of the horse.

Rear Adm. Moffitt : Well, our work plan is that some of these things will progress in parallel, because they need to—we need to progress them in parallel to get to a sensible discussion around decision making with government on a first-pass like decision. I say that simply because it might be, for example, that the second option set, as I have described it, which is MOTS, but with a selection of systems of our choice, one of which could be a combat system, may not actually be feasible for various reasons—there may not be the weight, space, cooling and electricity budgets available in that submarine to accommodate the combat system of our choice. We need to know that, so we need to progress both of those bits of work in parallel. But the strict MOTS, which is a submarine that we would be strict about—that is, what it comes with is what it comes with, and the modifications that we would seek to make would only be those related to making it compliant with Australian legislation. So, if it was a French submarine, it would come with a French combat system and a French weapon and all that that entails. We will be relatively close to the point later this year—before the end of the year, anyway—where we will have a sufficient picture of that option set for us to advise government, with some degree of fidelity, about what sorts of options that submarine would give it in an operating-concept sense. And then we can perhaps park that option because we know enough about it—this, again, is quite similar to the way in which the AWD program was approached.

So we have done quite a bit of work on the MOTS option set. That informs us significantly on the second option set. By the end of this year I think we will have completed sufficient work around the combat system examinations to know what the second option set looks like. So there is work to be done, and that is sort of finishing-off work that has been underway for some time. The work that we need to do on the combat system really relates to the business case comparators between all of the available options, and I expect to have that work finished by the end of the year as well. So that leaves us with the other two option sets, on which we need to undertake some work. In the third option set, which is an evolved existing design—the extent of evolution that I will countenance in my definition of 'evolved' in this case is that it is an existing design except that it can be extended in length by the designer to accommodate our requirements, but not in diameter; and that is simply because of lessons that are quite clear from other's experiences, including our own, that the minute you change the hull diameter you have a new design. So there is work to be done on that.

So there are a bunch of options, potentially. The one that we will focus our efforts on initially is Collins, as the minister announced. We will be engaging the original designer of Collins on some work there. And the fourth option where we will be doing work is with respect to a new design.

Senator JOHNSTON: All right. I will come back to that in a moment. Let me just ask you this: you have read ASPI's Mind the gapdocument?

Rear Adm. Moffitt : I have.

Senator JOHNSTON: You have discussed this with me previously, as to the risk of a capability gap; and you have said yes, there is a risk. They have said that they think there is an inevitability of a capability gap. They said:

If current plans are adhered to, a capability gap is inevitable sometime in the late 2020s, and a period of no submarine capability at all is possible—

if we stick with what we've got. Now, as part of your remit, are you looking at a gap-filler?

Rear Adm. Moffitt : As I think back to my answer to your question on this subject last time, I realise that I could have answered you better than I did, for which I apologise.

Senator JOHNSTON: It is just as well I have asked the question!

Rear Adm. Moffitt : The options that exist for new-build submarines are as I have described them to you. The way in which you might execute some of those options has a degree of variability in it. The government's statement is quite clear: the future submarine is to be assembled in South Australia. And, for the moment, that is sufficient guidance to me not to be looking at submarines that might be on the second-hand market. I do not think we actually need to do that anyway, although it is an option that is always there should we get to it; but today we do not need to.

'Assembled in South Australia' is a carefully chosen set of words, simply because of the facts that, no matter what our strategy for acquisition, there will be some parts of that submarine that will be imported; there will be some parts which will be manufactured in Australia, under licence, from overseas designs; and there will be some parts of the submarine that will be fabricated or manufactured in Australia. I do not know which those bits will be yet, but I can tell you that we can do quite an extensive mix and match of all three of those things. If you look particularly at the German export model—and, in fact, the way the Spaniards have executed S-80 is not dissimilar; it is only the quantity of each bit that it different—there are some parts that are manufactured, being those things that are very sensitive intellectual property for the manufacturer, in Germany and shipped to the assembling nation. That is a very common model that they use, and they have used it widely. We could have significant portions of the submarine prefabricated as part of kits, were it to be an off-the-shelf design. All of this assumes, of course, that either Collins does not make it to its currently-planned end of life or cannot be extended beyond that, which was touched on a bit earlier in the evening. I would just say, with respect to that, that submarines are fundamentally designed to be fairly robust. If you look at some recent and contemporary examples: the Dutch are extending theirs, which was a competitor for the Collins contract back then—it is a submarine of similar age; the USN has extended the 688-class, the Los Angeles class, from an original design life of 30 years to 42 years, and likewise the Ohio class nuclear ballistic missile firing submarine has been extended from a design life of 30 years to 42 years; and the UK Royal Navy is extending their Vanguard class from an original design life of 25 years to 30 years. So these things are pretty tough, pretty robust, generally speaking. The work that is being done on that is not yet complete and we will have a clearer picture on that, as I think you were briefed earlier, by the end of the year.

Mr King : Senator, you may not have been here when I touched on the SLEP program earlier in the afternoon. We have nearly completed the work on that—

Senator JOHNSTON: I think it was my question.

Mr King : Okay. So we have nearly finished that work, and there are no show-stoppers to date.

Senator JOHNSTON: Good. Now, the combat and weapons system is the first part of the $214 million. What is next?

Rear Adm. Moffitt : There is a range of design studies and option analyses that we are going to go through. Some of that will particularly relate to some work that we plan to undertake in the new design space, wherein we will be looking to try to determine, for a range, if you like, of cost and capability combinations, what might be the space in which we are likely to have to work were the government to choose to go that way. The work that we have done to date has only been able to be quite rudimentary; we need to get into that in a very targeted and carefully constructed program, with people who have the skills to do that work with us.

Senator JOHNSTON: Where does $214 million come from?

Rear Adm. Moffitt : It is actually $214.2 million. It is a suite of work, costed and with a degree of contingency appropriate to each piece of work, aimed at achieving the government's objectives of a first-pass consideration sometime in the 2013-14 time frame; but also to allow us to continue with work without interruption pending that decision being taken. So we have sought and been approved some three financial years worth of money to get us well past the time of any next election before we need to go back to a government for more money, simply because this approval of funding really starts the program and the program now must not stop and start. As I am sure Mr King would explain far more eruditely than I could, from his experience with AWD, you cannot stop and start a program of this nature once it is underway; you will do it irreparable damage if you do.

Senator JOHNSTON: So have we got to the point of doing any contractual work under the umbrella of our $214.2 million?

Rear Adm. Moffitt : No, simply because that funding is next financial year's funding, which I cannot start committing until I have it.

Senator JOHNSTON: And you cannot even go out to tender?

Rear Adm. Moffitt : We have obviously been preparing for this moment for some time, and we have a range of things that are close to being ready to go out, and we are in the engagement phase within the department to get all those things.

Senator JOHNSTON: So tenders will be out in July/August?

Rear Adm. Moffitt : I certainly hope so, yes. That is certainly my plan, Senator.

Senator JOHNSTON: What are we doing with Kockums?

Mr King : I have been to Sweden late last year talking to Kockums on a range of submarine matters, not just future submarines. They relate to assistance with the current remediation plans for the sustainment of Collins. We are discussing with them their involvement in the submarine life extension program, SLEP, and the potential for their involvement for one of the four options, the evolution of the Collins for the future submarine.

Senator JOHNSTON: And they are involved in the $214.2 million?

Rear Adm. Moffitt : My expectation is that they will be, yes.

Mr King : There is an involvement. We developed a list of tasks we want to do and we have an estimate of the cost of those. Obviously for commercial reasons we do not want to go into specifics of that. The other thing I would highlight from experience again is that when you start these programs of investigation, where you might have thought you were going to spend a lot of effort in a particular area maybe the answer comes up more quickly and you need to spend effort in another area. So while we have made an estimate of all those activities, by necessity that may well change in small degrees about where we allocate the funds.

Senator JOHNSTON: Let us keep going with how we are spending our $214 million. We have got a whole lot of tasks. I see the press release talks about military off-the-shelf design studies to DCNS, HDW and Navantia. Or has that already been done?

Rear Adm. Moffitt : That is part of the last requests for information that we put out, the responses to which were delivered to me on time on 15 May this year. My team is now going through those in some detail.

Senator JOHNSTON: Initial design studies with Kockums for an updated Collins class submarine. Has that been done?

Rear Adm. Moffitt : No, that is part of the new funding which will be done early in the new year.

Senator JOHNSTON: Capability modelling by the United States. What is that?

Rear Adm. Moffitt : That is the work I mentioned before with system planning and analysis. That involves also the US Navy and Electric Boat. That will be ongoing work.

Senator JOHNSTON: Scientific and technological studies.

Senator JOHNSTON: A range of work plan there of some significant dollar value around systems integration and capability modelling facilities and capabilities within DSTO to give us the ability for independent verification and validation of what we are being told by those salesmen; they want our money. Assistance with combat system studies attracts a reasonable amount of money. Acoustic, electronic and thermal submarine signatures work is a body of work in the science and technology area, as is more detailed analysis of some of the power and energy considerations for future submarines, particularly around things like lithium batteries, air independent propulsion systems and that sort of thing, again to assist us with an increased level of capability out of DSTO to assist us in validation and verification, as well as platform and platform systems studies.

Senator JOHNSTON: These are all to be completed within three years.

Rear Adm. Moffitt : Completed or well advanced within three years.

Senator JOHNSTON: The Specify study is yours. What is it precisely supposed to do?

Rear Adm. Moffitt : Specify really is about equipping us with the sorts of questions we need to be considering in the event that we recommend the establishment of a land-based power and energy integration facility around a conventional submarine propulsion system. We have not had much experience of those sorts of things in the maritime sector in Australia. The realisation that is inescapable from the Collins experience is that, if we are going to have a design which is either an evolved something that no-one else has got or a new design, we are going to have to take responsibility for making sure that the propulsion system components are integrated or we are going to have to pay someone to do it for us. You would not count it among the successes of the Collins program—let me put it that way. This is about the sorts of questions that we need to address in understanding the approach to setting up a useful land based facility in which we can do these things. That has gone to Babcock, as you know. That is on track and they are due to deliver to us next month.

Senator JOHNSTON: Who are Babcock? What do they do? What is their speciality?

Rear Adm. Moffitt : Babcock is a fairly multifaceted company. They won the competitive tender for this undertaking. Their core skill in respect of submarines relates to their sustainment of the UK nuclear submarine fleet and their membership of the UK submarine enterprise in its totality. They have established a reasonable footprint in Australia but have substantial reach back as well. They also have experience of land based test facilities through their engagement with the UK submarine undertaking. They bring relevant expertise in terms of what the good and necessary questions are that need to be asked in order to understand what we are setting about to do.

Senator JOHNSTON: The UK submarines are all nuclear, aren't they?

Rear Adm. Moffitt : That is true.

Senator JOHNSTON: So they are doing a conventional powered drive train analysis in a land based test site for the Royal Australian Navy located where?

Rear Adm. Moffitt : No. To be clear, what they are doing is equipping us with the sorts of questions we need to answer if in theory we want to build a land based test site. They are providing us with the things to think about.

Senator JOHNSTON: So they are doing a report on the viability of land based test site.

Rear Adm. Moffitt : No. They are telling us the questions to ask. There are a number of circumstances in which it makes sense for us to set up a land based submarine propulsion and power distribution system to integrate components and make sure that they work before we put them in a submarine. But we have not done that before. We are after advice from someone who has experience in this about what it should look like and what questions we need to ask, which might be, 'Do we need to have a motion platform on which we can do all this?' For doing the sorts of things that we envisage might be necessary in such a site, what are the considerations we need to take into account? They are not designing anything for us; they are not giving us an answer in terms of them telling us to do something in order to get a particular outcome. They are going to answer the question in a very broad and generic way. They will say to us, 'If you want to build one of these things, here is all the stuff that you have to think about.'

Senator JOHNSTON: Are they going to address cost?

Rear Adm. Moffitt : I fully expect that they will do that, yes.

Senator JOHNSTON: Good. When do you expect them to be providing you with this information?

Rear Adm. Moffitt : The report is due 5 June. I understand that that is on track.

Senator JOHNSTON: So we are talking next week?

Rear Adm. Moffitt : The week after.

Senator JOHNSTON: There were announcements made about these various studies. You have explained propulsion and energy storage. I get that. Signatures and stealth performance is self evident. You have touched on combat systems and the hydrodynamics of the propellers. But pump jets is the one that has the big question mark over it. Why are we looking at pump jets?

Rear Adm. Moffitt : Why are we looking at it?

Senator JOHNSTON: Why are we looking at pump jets on a conventionally powered submarine?

Rear Adm. Moffitt : We are not specifically ruling in or out anything at the moment. Pump jets are in use in submarines and we will—

Senator JOHNSTON: Mainly nuclear submarines with a speed far and away beyond 25 knots.

Rear Adm. Moffitt : That is true, as I understand it. The issue is that we need to understand that, because we have not got much knowledge of it, before we rule it in or out. There are many new technologies, including pump jets, AIP and lithium batteries, that have emerged since we executed the Collins program about which we know relatively little and wish to become more educated about than we are today before we recommend to government that they be included or discounted. We just do not know enough to give a sensible answer to government at the moment. I am not saying that pump jets are in. Nor am I saying that they are out. We just do not know enough yet.

Senator JOHNSTON: What is our methodology to get that information? Who are we asking? How much is all that costing?

Rear Adm. Moffitt : We will be relying fairly heavily on DSTO to help us with that. We will also be fairly keen to get some advice from the US Navy on that as well.

Senator JOHNSTON: I am told that there are no pump jets on any conventional class submarines in the world.

Rear Adm. Moffitt : That is quite right. It might be a very easy task for us to write it off. I do not know, because I have not done—

Senator JOHNSTON: The French and the Russians have tried. No-one has used them. They are not being used on anything other than nuclear powered submarines—particularly the Americans.

Rear Adm. Moffitt : If it does not look like it makes sense, I will rule it out. But I cannot give you the answer to that yet because we have not done the work.

Senator JOHNSTON: Who had the idea to look at pump jets? Where did that come from? Did it come from capability group saying that we had better had a look at that?

Rear Adm. Moffitt : I do not know the answer to that. I doubt that there is a clear answer. It is a submarine technology that we think that we need to know more about than we do today. I do not anticipate spending a substantial amount of money to get the understanding that I am looking for—I may not have to spend anything at all.

Senator JOHNSTON: I am with you. What are going to spend on the submarine industry skills plan?

Rear Adm. Moffitt : That is a piece of work that is not directly under my control. I might pass that to the CEO.

Mr King : I am charged with that study. It will be a combination of internal resources, some specialist contracting resources and industry engagement. We are not expecting it to cost a substantial amount of money.

Senator JOHNSTON: What assumptions are you using? Are you going to do four sets of variations of industry capability for the four different options? How are we going to look at this?

Mr King : It will have to be a banding study in which we look at, say, the least technically challenging and the most technical challenging. Whether or not we get time to further refine that I am not sure. We have a good knowledge, of course, about the second option, which is the Australianised military off the shelf. We have the experience of the AWD and what we did with the F100 and the work that we did on the evolved Arleigh Burke design. It will be between those two boundaries, with maybe a third element to look at the middle ground.

Senator JOHNSTON: Thank you.

CHAIR: How will the future submarine take account of future unmanned underwater vehicles?

Rear Adm. Moffitt : The technology space for uninhabited underwater vehicles is advancing quite rapidly. But it is significantly astern of uninhabited aerial vehicles. It is an area of development that holds enormous promise from a number of perspectives. We are closely connected with the work of the United States Navy not just on uninhabited underwater vehicles but the operating concepts for those and how they might supplement the mission set for the submarines. In fact, there is some reason to have some hope that in future—and these things are mostly somewhat in the future—the range of missions that a submarine can perform could well be enhanced quite significantly.

But this is emergent technology and there are some key things that we need to take into account. One of those is managing the expectations and perceptions of people when you talk about these things. People see midget submarines doing all manner of things. An uninhabited underwater vehicle could be small enough to be fired through a submarine signal ejector in a submarine and could do a range of things of significant benefit to the submarine mission. Then you could have something really quite substantial. They could be torpedo size, and heavyweight torpedoes fired from submarines are very substantial beasts. They are 21 inches diameter and weigh about as much as two Volkswagen Beetles and are about as long as the desk. They are quite big things. In fact, in some respects torpedoes are uninhabited underwater vehicles. There is a significant array of potential capabilities that are under exploration through the world at the moment. We will watch with great interest to see which if any of those—and there will be some without any shadow of a doubt—that we would be very keen to pursue and integrate into our future submarine capability plans at the right point. That may not be at the beginning. It will be at a point at which the technology is sufficiently mature for us to have confidence that we are not biting off a whole bunch of trouble that is going to cost us a lot of money to fix.

CHAIR: Conversely, how do you make sure that your future submarine has the capability to be adapted for the UUVs?

Rear Adm. Moffitt : We are well served in some respects there in that people who invent these things want to make them fit in someone's submarine—otherwise, they are not going to be able to sell them. They will tend to be designed to fit within existing submarine design parameters. What I mean by that is that they will be designed so that they can be launched through existing torpedo tubes or existing facilities generally available in submarines to make sure that the market that is going to be available for them can be as large as possible. We are seeing developments particularly in Europe and Sweden in which in the design of their future submarine they have a much larger tube in the bow through which to launch things, whether those things be people—divers—or vehicles of some sort to give them greater scope for larger underwater vehicles, inhabited or uninhabited.

Not many of these things are coming along now are without a foreseeable application. They are all being advanced because people see an application for them, even if it is only in the fertile and inventive mind of scientists and their respective marketers who want to take a piece of the action. They are marketed by some of the more commercial defence industry players. They are also being developed more discretely by countries like the United States. We are fortunately placed in that we can keep many of things visible and make a determination about what sorts of things that we think might be useful for the mission set that our submarine is expected to have. It is critical to understand that all of these things have a job. Does the job of that UUV match the job of our submarine or is it just not something that we are interested in doing? That can be the case.

CHAIR: As we talked about earlier, our future submarine has to be adaptable and built for Australian conditions and our location in the world. Would the UUVs have to be thought about in that context, too? It would not necessarily be the case that we could get off-the-shelf models that adapt to Australian conditions and needs. We might have to either develop it ourselves or adapt something off the shelf.

Rear Adm. Moffitt : I do not think that there is terribly much of a demand likely to emerge for us to develop any of these things for ourselves particularly. In the past, we have developed unique things. In fact, we are doing it today. The phased array radar out of CEA is uniquely Australian. It is not necessarily a product of Australia's unique operating circumstances. It is a product of Australian innovation. We can do these things when people see an opportunity and go after it. From my point of view, the necessity is for me to balance whether we need to do that and whether these will add to the mission either now or in the foreseeable lifetime of the submarines. That, of course, is another question—what is the lifetime of a future submarine? There are a range of options there in putting this program together. It might be that the conventional option of a 30-year lifetime might not make a lot of sense in the future for a number of reasons. Maybe a shorter life is a smarter thing for us to go for.

To encapsulate that very simply for you, we will certainly be looking at what things we think are coming along that will be at a sufficient level of technical maturity that can contribute sufficiently to the mission set that we have in mind for the submarine and that will not be at an unacceptable level of cost, schedule or technical risk to the program overall.

Senator IAN MACDONALD: This may be a very obvious and very silly question. You were telling Senator Johnston that you agree that the pump jets have only ever been used in nuclear submarines. This is a question for Senator Ludlam to ask. Does that mean that you are looking at nuclear submarines, although the white paper said you cannot? You can look it up on Wikipedia and find that pump jets are only for nuclear submarines, so why are you having to think about that?

Rear Adm. Moffitt : Let me assure you that I am doing no work that relates to nuclear propulsion in submarines—none. The government's policy position is clear to me—not nuclear. The issue of pump jets is not one that I am pursuing with great vigour because, as you and Senator Johnston have pointed out, it is a system which today is only fitted in nuclear submarines. But I do not know enough about it to be able to say with confidence today, 'There is no point in us giving any consideration at all to pump jets.' I am not actually aware of a particular piece of work that we have planned to undertake on pump jets, but we do have a broader and more generically titled piece of work around submarine propulsion systems and we will be looking at what the options are to make sure we understand the options that are relevant to us and our undertaking and those which are not.

Senator IAN MACDONALD: You have a lot of clever people with you. It is a question of looking up Wikipedia and saying, 'Pump jets are only used for nuclear submarines. We are not nuclear; therefore, cross them out.' But obviously someone is looking at them a bit more closely. Perhaps you have discovered a new use for them and you are going to get a speed from a submarine that is equal to a nuclear powered submarine by non-nuclear means.

Mr King : Maybe I can answer that. One of the things in a structured development program, including getting to first pass and second pass, is doing a better look than Wikipedia. You will have seen a large amount of debate in the community about whether the submarines should be big or small and what the advantages of each and every one of them is. It is all a view. The purpose of the studies is to get analytical information that we can pull together. As the admiral said, the one on pump jets may be a very short piece of work that says, 'It does not work in that environment,' but we do need to have that information. And on the information from some companies we have to trust but verify. I have been here before and roundly criticised for not verifying on different projects. So we collect the data, we get it objectively, we bring it together and we use that to inform government of the options. Work on whether the pump jet has much of a future will probably be short. But to have objective, verifiable information on which to make decisions of this magnitude is very important. If it is a very short piece of work that says there is no future for it then that will be the end of that and we can park it for the rest of the program.

Senator IAN MACDONALD: Fine. Just to make it clear: I would not care if you were looking at it for its proper purpose. That is a personal view, I might add. It is just curious to me. It seems to defy logic. But I accept what you are saying.

Mr King : I would not read too much into it.

Rear Adm. Moffitt : There is a huge body of opinion out there that says, 'It is an absolute no-brainer; we have to go AIP.' I know that there are a range of other facts that need to be taken into consideration before I will be prepared to advise government with confidence that in Australia's context that actually makes sense, because it is not black and white. When you move beyond Wikipedia, you find out a lot of things that are not in Wikipedia, and it is not black and white; there are lots of other considerations.

Senator IAN MACDONALD: I will take your word for it.

Senator HUMPHRIES: I want to know how many other projects are presently associated with or hang off future submarines. For example, Sea 1354 Phase 1, submarine escape, rescue and abandonment systems, I assume is to do with the future submarines rather than the Collins. How many programs like that are there?

Mr King : I do not know the answer to that.

Vice Adm. Griggs : It is a replacement of the current system; it is not specifically designed around Future Submarine.

Senator HUMPHRIES: How many other defence projects hang off, are part of or are dependent on the Future Submarine project?

Vice Adm. Jones : There are a number within Sea 1000. For example, there is potentially the torpedo, the land attack missile—there are a number which are further out in the program, but there are none which are completely interdependent with the submarine besides the phases of Sea 1000.

Senator HUMPHRIES: So all the components of the future submarines are built up within Sea 1000?

Vice Adm. Jones : Yes, that is right.

Senator HUMPHRIES: Just on Sea 1354 Phase 1: has first pass approval been given to that project as yet?

Senator Feeney: Can you tell us what that is, for those of us who do not have notes?

Senator HUMPHRIES: That is the submarine escape, rescue and abandonment systems.

Vice Adm. Jones : I will just take on notice the actual date there, but at the moment that has been moved—I think it is 12 months, but I will just confirm that. At the moment, the intention is to extend the existing capability, but we will provide the detail shortly.

Senator HUMPHRIES: Is every fleet unit's patrol boat maintenance schedule up to date? For maintenance that is currently underway, is it anticipated that there will be any delays in completion of those maintenance cycles?

Vice Adm. Griggs : Are you specifically talking about patrol boats?

Senator HUMPHRIES: Yes. Armidale class patrol boats.

Vice Adm. Griggs : I am not sure what you are driving at.

Senator HUMPHRIES: There are maintenance cycles which I assume are in the usual process of rolling forward.

Vice Adm. Griggs : Usage upkeep cycles, yes.

Senator HUMPHRIES: Where do they stand? Are they on time? Are they all being delivered as per the schedule for such maintenance? Are they behind?

Vice Adm. Griggs : We have had a number of longer maintenance availabilities than the usage upkeep cycle would dictate due to certification dockings and also due to rectification of some issues from the build of the class. That has meant that we have had more boats in maintenance than you would otherwise have. We have also had a number of class-wide issues that require rectification. What we did earlier in the year was advise government that we needed to reduce our availability for the Armidales from 3,500 days per year to 3,100 days per year for the rest of this year so that we could undertake a remediation program to rectify those issues.

Senator HUMPHRIES: Can you tell us broadly what those issues are that are reducing the times available to serve?

Vice Adm. Griggs : Admiral Marshall has the specific detail. There are about four or five systems.

Mr King : As Chief of Navy says, we would reduce it to 3,100 days per year until January 2013, then to 3,400 to July 2013, then back up to 3,500. The major defects are stern tube wear down. Our main engine defects are with the fuel pump area, oily water separator serviceability and some RHIB issues. Those are the main problem areas we are rectifying.

Senator HUMPHRIES: You did not anticipate this level of problem with the Armidale class that now has to be attended to?

Mr King : That is true. They are, of course, being used quite solidly for their operations. For the stern tube in particular, we have a design produced by the original manufacturer now offered to us, I understand, by DMS, which is the maintenance contractor, and we are going through a program of installing that, testing it and then, if successful, upgrading the fleet.

Senator HUMPHRIES: In the last, say, two years, have days in service exceeded planned operational requirements for those patrol boats—

Mr King : I will check on that.

Senator HUMPHRIES: or have they been used in a way which inflicts more wear and tear? What exactly is the reason for that?

Mr King : I think it is the intensity of use, I suppose I would say. I do not think we have exceeded—although I will check with Admiral Marshall. I think we are running at something like 85 or 90 per cent of the anticipated usage. The stern tube gland issue was not one that we contemplated, of course. It is a deficiency. But I think they are being used continuously in the cycle and also, I guess, in a very high intensity environment.

Vice Adm. Griggs : A good example might be some of the design basis of the boats. The davits that carry the RHIBs, for raising and lowering them, were designed around a SOLAS, or safety of life at sea, standard. Something that is designed around the safety-of-life-at-sea standard is not expected to be used eight, nine or 10 times a day, but that is how we use those davits. I think that is a lesson for us in going forward for future projects where you have a heavy commercial bias into the development of a capability. That is an example of the usage which is exceeding the design and is causing higher than normal defects.

Senator HUMPHRIES: I can understand that, but of course the intensity of the demand for the use of those vessels is not likely to diminish in the next year, the way the current boat arrivals are going, so how does a reduction in the number of days of availability from 3,500 to 3,100 affect our capacity to properly cover the tasks of border protection?

Vice Adm. Griggs : It has not. The 3,500 translates—and I am going to use decimals here—to about 9.6 boats per day that Admiral Marshall would provide to me, and then I would manage the use of those 9.6 boats within the priority order of the boats I need to assign to Operation Resolute, the boats I need to train the crews to make sure they are ready for Operation Resolute, then international engagement activities and then domestic exercises. That is what 3,500 is designed to give me: 9.6 a day. Effectively, going to 3,100 drops me down to 8.4, so it effectively drops me down by one. What I am trying to do is manage that reduction through knocking off the domestic and the international engagement piece to keep the focus on the Resolute requirement, which is obviously my highest priority.

Senator HUMPHRIES: Indeed. So what are the domestic and international obligations that otherwise those boats would have been—

Vice Adm. Griggs : It is a matter of, for example, a Five Power Defence Arrangement exercise. We would want to put a patrol boat occasionally up into those exercises. It is good for the patrol boat crews to do something different—it breaks the monotony of what they do. Obviously for this period we are just not going to be able to do that.

Senator HUMPHRIES: And domestic uses? What domestic uses?

Vice Adm. Griggs : Domestic exercises are when we have what we call minor war vessel concentration periods. We occasionally get the mine hunters, some of the survey ships, landing craft and patrol boats together to exercise in company so that they keep those core skills going. It just means that we might not have a patrol boat available for that particular activity for this period. They are lower level priorities. I am quite comfortable with where we are at. My primary goal is to meet the operational commitment.

Senator HUMPHRIES: Did you say you intend to ramp back up to 3,400 days from July next year?

Vice Adm. Griggs : No, 3,400 from around the end of this year, and then 3,500 from the middle of next year. That is based on the remediation plan that was put together following a joint review by the DMO, Navy and DMS, our prime contractor.

Senator HUMPHRIES: How precisely are you going to get those back up if the intensity of use is still at the level that we are talking about? The wear and tear is still going on at the same rate, presumably.

Vice Adm. Griggs : The wear and tear will still go on. Part of this program is to look at the obsolescence management part of this equation to take account of some of that. In that example I gave you, it is the davit. The issue here is that we need the time and space to get the extra maintenance done to break the back of some of these class issues that we have not been able to do. That is why we have had to reduce the number of days—so we can get on top of that problem and get back to steady state.

Senator HUMPHRIES: When you make reference to 'obsolescence issues', are you suggesting that you push the life of the boat out?

Vice Adm. Griggs : No, we are looking at systems in the boat that might be wearing out more quickly than we would have thought they would, and we will have to take corrective action to fix that.

Senator JOHNSTON: Just very quickly: you have 14 patrol boats?

Vice Adm. Griggs : That is correct.

Senator JOHNSTON: How many are in Darwin?

Vice Adm. Griggs : I think it is 10.

Senator JOHNSTON: These stern glands are on the drive shaft to the propellers—correct? Do we have to replace the whole shaft or just the bearing and the gland?

Vice Adm. Griggs : I think Admiral Marshall has a very technical explanation.

Rear Adm. Marshall : The design that DMS has proposed has been developed by Austal, the builders of the ship. It includes replacement of the bearing that the shaft rides in, the stern tube seal to keep the water out. It applies new anodes and cathodes to the propeller shaft and provides a water injection system into the stern tube itself. The advantage of that is that it allows us to make sure that we have optimal flow through the bearing, noting that we aim not to have the propeller rub on the bearing material. It floats on a hydrodynamic wedge of water. By injecting water into the bearing we get sufficient water to provide that wedge. It also allows us to connect into fresh water so that, when the boat is alongside in any port, we can run fresh water through that seal and avoid marine growth starting to grow in the bearing, which, when you start running, then erodes the bearing and the shaft pretty quickly.

Senator JOHNSTON: And that has been the problem?

Rear Adm. Marshall : That is believed to have been the cause of the problem, yes.

Senator JOHNSTON: How many of these boats have the problem?

Rear Adm. Marshall : We have had ongoing issues for a good number of months across various boats. The intention therefore is to replace all of those components in all 14 boats.

Senator JOHNSTON: How long will each boat be out of service whilst the replacement is undertaken?

Rear Adm. Marshall : The current estimate is that the elapsed time to install that change is eight days.

Senator JOHNSTON: So each of the 14 boats will be out of service for eight days for the stern gland to be replaced. What about the davits?

Rear Adm. Marshall : To do the stern gland in isolation is eight days. We will do that during a longer maintenance period to allow us to do other maintenance work. You mentioned the davits, and Chief of Navy used that as an example of contemporary operating requirements in comparison to the design intent of the platform. At the moment we do not have any intention to replace the davits. They are working harder but that does not mean we replace them instantly.

Vice Adm. Griggs : I was just trying to use that as an example.

Senator JOHNSTON: So it is an example and it is not actually a problem?

Vice Adm. Griggs : It is a problem but it is not an unmanageable problem. It is an example from the design intent. That is what I was trying to drive at.

Senator JOHNSTON: Does it affect the utility of the RHIBs?

Vice Adm. Griggs : If the davits stop working, yes.

Senator JOHNSTON: On how many boats do we have davits not working?

Vice Adm. Griggs : It is an occasional defect that occurs.

Senator JOHNSTON: When it occurs it means you cannot deploy the RHIB, obviously. Is that right?

Vice Adm. Griggs : Yes. Occasionally davits break. Again, I was just trying to reinforce the point that they were designed to a standard are we are using them in excess of that.

Senator JOHNSTON: The two problems we have with this class of boat at the moment are the stern gland, which requires the remediation we have talked about with the fresh water and saltwater jet. And what is wrong with the RHIBs?

Vice Adm. Griggs : There is an issue with the inflatable collar that goes around the RHIB. I believe there is an issue with that.

Senator JOHNSTON: What is that all about?

Rear Adm. Marshall : The collar that goes around the hard shell of the RHIB is clearly the component of the boat that hits, if you hit something. The collar that absorbs that strike or wear. The RHIBs are working pretty hard, so they are impacting quite frequently, so we have had elevated levels of wear in the collars and elevated levels of damage to the collar. On occasions we have tried putting heavy matting over the outside of the collar to increase the resistance. That has not been entirely successful because it has impeded the movement of the RHIB through the water or has blown back. It has proven to be a somewhat difficult problem. So we are dealing with that as an issue.

Senator JOHNSTON: Is it a problem for the utility of the boats?

Rear Adm. Marshall : HMAS Armidale carries two. I think they are two 7.4-metre rigid-hull inflatable boats. So you have two boats and the design intent of the platform was that you would have two so that you have surety of one.

Senator JOHNSTON: So the answer is no?

Rear Adm. Marshall : Yes, the answer is no.

Senator JOHNSTON: The reason I asked those questions is that people from Darwin have been telling me that six or seven patrol boats seem to be laid up for extended periods in the base in Darwin.

Vice Adm. Griggs : There is a journalist in Darwin who keeps asking us questions about the number of boats that are alongside. The problem is that they all look the same.

Senator JOHNSTON: I have not spoken to any journalists.

Vice Adm. Griggs : We hear this quite regularly, and the issue is that the boats are coming in and out all the time. Some of the boats have had longer maintenance availability, as I suggested, because we have had some five-year certification dockings, which are longer. We are now into a phase of main engine change-outs, which are longer than the normal maintenance availability. So there is a confluence of a couple of things there that have kept a number of boats in longer than normal, but not for months and months.

Proceedings suspended from 21 : 00 to 21 : 16

CHAIR: I call the committee to order. We are still on Navy capabilities.

Senator HUMPHRIES: I have one follow-up question to our earlier questions. You mentioned, Admiral Griggs, that there was a higher level of wear and tear and deterioration associated with the intensity of use of patrol boats, particularly on our northern borders. Are there implications for the crews of those boats by virtue of that intensity of use? I have heard suggestions about problems with morale because of the intensity of the patrolling. Is there any substance to those concerns?

Vice Adm. Griggs : I think we have to be careful with the use of the term 'intensity'. The intensity is not related to the particular mission; the intensity relates to the number of days that they are out on patrol, whether they are doing unauthorised arrivals, fisheries or AQIS, it really does not matter. That is an important point to make. What our patrol boat crews do is relentless, grinding work, every single day. it is a challenge for the command teams. The command teams work very hard to keep the ship's company motivated. I spent two days at sea just before Christmas. I went up to Ashmore Island and back in two different boats. I had long chats to both ships' companies and I think they are pretty representative of the 21 crews that we have. It is hard work, and there are things, like in any workplace, that annoy them. Overall, though, I thought they were in pretty good spirits. They are pushed in terms of the grinding nature of the job but they are in good shape. I am not suggesting that they have not got issues and concerns, they have, and we are working very hard to address those.

Senator HUMPHRIES: So are you saying to us that there is greater pressure and greater stress associated with those that work in those boats but that you are confident that the crews are up to that task?

Vice Adm. Griggs : We all saw on 15 December 2010 that they are up to the task.

Senator FAWCETT: When you went through part 1 of the program you talked about combat systems and said you had a matrix looking at things like the electrical loads analysis and heat dispersal et cetera. In that matrix are you also looking at IP issues? Which manufacturers are the Americans are happy to work with? Are you consulting with the Americans to get their definitive answer on that as opposed to our assumptions about it?

Rear Adm. Moffitt : Yes, indeed we are, very closely. Their advice to us is that US IP related combat systems and weapons are not US Navy IP; they are IP jointly owned by the United States government and the Australian government so we need to treat it as our own. Of course, that is what we will do. They clearly have an interest, a key interest. We need to take into account there are some combinations of potential nations' involvements that would be very difficult for us to make work practically in petitioning access in such a way that both nations concerns—that is, ours and theirs—would be satisfied. That is no different from what we have dealt with for Collins.

Senator FAWCETT: You gave one example previously which was hypothetical and unrealistic. Are there any of the realistic options in that boat, so to speak?

Rear Adm. Moffitt : That is obviously a fairly sensitive subject, which I would be very happy to answer in camera but not in an unclassified forum.

Senator FAWCETT: When you talk about new design, are you talking about Deep Blue Tech with a blank A3 sheet of paper or are you at talking about something like HDW's Type 216?

Rear Adm. Moffitt : Broadly speaking, both and any others as well. Kockums has offered what they call a new design. It is a concept, which I think it is fair to say is not yet as well developed even as the German Type 216, which is only a concept. It is also necessary to understand that nobody starts a submarine design from a blank sheet of paper. They start with whatever heritage in submarine design they have; whatever experience; whatever design philosophies; and, critically importantly, the set of design rules to which they abide when they do their design.

DBT with a blank sheet of paper come with what they have developed in their relatively short lifetime by way of what they bring into the building with them from their own personal experiences that contribute to the team activities. What are the set of rules they have adopted within which they conduct their concept design activities?

Senator FAWCETT: Are you making any assumptions as part of your study in scope about the ownership of ASC as part of your study?

Rear Adm. Moffitt : No.

Senator FAWCETT: In terms of scope, are you considering potential for either an Australian company or somebody else doing work in Australia to use the plant here as a regional hub? Is that forming any part of your business case considerations?

Rear Adm. Moffitt : A regional hub in respect of what sort of activity?

Senator FAWCETT: Serving other countries who have interests in submarines whether they be existing or future requirements.

Mr King : At this stage, no. Submarine technology and submarine IP are pretty much the crown jewels of nations. With a 12- submarine program, it is quite an enduring capability in any case, so there is no real need to consider regional exports and so on. Our own industry would be sized to meet our needs and there could be quite a steady state program. There may be two lots of six or three lots of four. The introduction of regional exports would create complications in terms of releasing very sensitive technology that we would need.

Senator FAWCETT: That goes halfway to answering my next question about build options. Are you looking at a block build or replacement? Are you looking at a staggered replacement of the one configuration or a staggered but evolved configuration, or all three?

Rear Adm. Moffitt : All three simply because the nature of the C1000 undertaking—as described in the white paper, 12 submarines assembled in South Australia—brings with it some inescapable characteristics. The pace at which those submarines are eventually delivered will need to be such that the Navy has been able to grow the crews to use them. By that I mean this: if you look at the Anzac frigate program, the ships were delivered at quite a fast pace. They were constructed and delivered at the most industrially economic pace for the program which was quite quick. They were more or less one-for-one replacements, although the later ones were an increase.

With the submarine program, we are having to take a capability which has been under its authorised strength in terms of people numbers and at least double, if not more than double, the number of people we have today. Some of those people can take up to 15 years to build—I think I have given this committee a brief on that in the past. For example, if you want a commanding officer you take eight young people off the streets and in 15 years you will have one commanding officer; on a statistical basis that has held pretty true for about 100 years. The engineer officers for conventional submarines can take a little longer than that. There is a significant HR element to the growth of the submarine capability which Navy will have to confront and for which we will have to help Navy with the planning. But the construction of the program needs to take that into account.

Let us take a for-instance number and say, instead of delivering a submarine every six months, we will deliver a new submarine every two years. That would mean the 12-submarine program is going to be building submarines for 24 years. In the space of 24 years there will be significant advances in technology and some of those we are confidently aware of now will reach a level of maturity that we will want to incorporate them into the submarine design. That will require some adaptation in the design. That would mean a slower than what might be perceived as the most industrially sensible rate of delivery and probably breaks in that delivery to accommodate the arrival at technical maturity of certain pieces of technology and, therefore, adaptations of the design.

That leads you to a notion of batch-building. It might be that the first batch will be two and the second batch will be nine. The number of submarines in each batch will be driven by the maturity of technology and when we wish to incorporate that technology into the design, as well as how quickly we can do that during the course of the program and adapt the build yard to the new or slightly evolved design. In fact, that is pretty much describing the Japanese model. They have been continuously building submarines since the 1960s and they gradually evolve each design. They evolve it perhaps in some significant ways, but relatively few numbers of evolution. Between what they have today and what they had previously, there are really only four key things—some of which are quite major—which have been changed in the design. The next evolution of the design, as we understand it, will be to incorporate lithium batteries.

That is the sort of thing we are talking about, but that is relevant to a certain sort of submarine. If we are talking about just MOTS submarines, where the design is going to be undertaken pretty much by somebody else—we would obviously wish to influence that, but the work will be done elsewhere—then we could put together the program in a slightly different way. All of these things are certainly, though, going to be taken into account in our recommendations to government about how to execute what will be a program of very significant duration regardless of how we do it, because it forces you to think about other things and to think about the program differently.

Senator FAWCETT: You mentioned workforce in terms of the crewing and engineering staff. Are you considering within your scope the construction workforce in terms of how transferable the skills are from, for example, AWD and LHS? If they are transferable, how you are going to encourage ASC to retain those in any gap period? What work is being done as part of your program looking at the actual industry skills?

Mr King : I can answer that. That will be definitely studied in what is called the submarine skilling analysis. We will definitely be looking at: what skills are transferable; what is not; what role will SLEP play in developing and enhancing skills; what does the end workforce look like; how much can we generate here, within reason; and how much might we need to draw into the country from overseas designers and production? One of the biggest issues, as you are no doubt aware, it is not just doing the design but doing the production engineering, even for an off-the-shelf option, if there is production done in Australia, to make sure how that yard is going to build that design. We will be looking at all of those streams—system integration stream—and looking to see how we can bridge from where we are to where we need to be.

Senator FAWCETT: You mentioned the Japanese model. Are you also looking at the Japanese as a potential partner in this program?

Rear Adm. Moffitt : The Japanese neither export nor closely cooperate—as far as we can gather—with other countries in respect of their submarine capability. Even their engagement with the US is relatively constrained, and their enterprise is almost exclusively a domestic enterprise. They have a licence-built Swedish air-independent propulsion system in their submarines. They have a couple of components. One is an optronics mast which they have acquired from Thales. But the rest of it—combat systems, sonars, weapons, diesels, main motor, everything—they do themselves. That makes them both very attractive and also difficult, because they do not have a basis for engagement on, as Mr King said, some significantly crown-jewel-like technology. There is a natural reluctance on the part of the Japanese—as there is with any nation—to engage in a particularly open way around submarines. We are and have been in discussion with them to see what might be possible. You will be aware, I am sure, that their government is considering changing their approach to defence exports. We hope that that might be of some benefit to us, but I am not confident that anything would develop in a quick time. But that does not stop us having aspirations in that direction.

Senator IAN MACDONALD: I have a very brief question. Before I join the STS Young Endeavour on Friday, do I need to know anything?

Senator Feeney: I hope you're not afraid of heights!

Gen. Hurley : Specialist in pump-jets there!

Senator IAN MACDONALD: Is that under the Navy or—

Vice Adm. Griggs : It is operated by the Navy on behalf of the nation.

Senator IAN MACDONALD: The purpose is to train young cadets, is it?

Vice Adm. Griggs : Its primary purpose is as a youth development program for young Australians aged 17 to 25, I think it is. I think there are about 20 odd per crew. They put them through a 10-day program. It is a fantastic program.

Senator IAN MACDONALD: So it is youth development, like cadets, but it is not necessarily sea cadets.

Vice Adm. Griggs : No, it is not a cadet related activity. Cadets do go onboard occasionally, but basically they are drawn from right across Australia. There is a ballot system in place so that they get the right gender mix and the right proportion of people from around the country.

Senator IAN MACDONALD: I think I will be saying how great it is when I see you next, so I thought I would get in first. That was just an aside. But it is leaving from Cairns. In Cairns there is a very large tract of land that belongs to the Commonwealth, but for Navy purposes, in the Portsmith area, sort of over the road from HMAS Cairns. What is the idea of keeping that land? What would you envisage might be done with it in the future?

Vice Adm. Griggs : I might get the chief operating officer to answer that.

Mr D Lewis : I think he has gone.

Senator Feeney: We might have to take it on notice.

Senator IAN MACDONALD: I appreciate that it is really a question for DSG. What I was really asking you, Admiral, is this. It is a big bit of land and I was wondering whether there are any plans, medium to long term, on what you might do with it.

Vice Adm. Griggs : Over the years there have been a number of proposals surrounding that land, including building accommodation. At the moment we have accommodation scattered throughout Cairns. Another proposal was building additional administrative buildings and workshops, but I do not know of any immediate plans.

Senator Feeney: My understanding is it has been set aside for housing, but I will need to check that.

Mr D Lewis : We could confirm that tomorrow. Perhaps we could come back when Simon Lewis is here. We will have an answer.

Senator IAN MACDONALD: Yes, certainly. The management of the land is clearly his, but I just thought the Navy might have had some longer term plans for it. Perhaps I will leave these other questions until tomorrow, too, because they relate to the use to which HMAS Cairns is currently put and plans for the future.

CHAIR: With regard to the question of Australia potentially purchasing submarines from another country, am I right in thinking there is some constitutional impediment in the Japanese constitution to them selling submarines?

Rear Adm. Moffitt : My understanding is this is an impediment that they make for themselves through their interpretation of the constitution. It is actually a regulatory impediment that they have put in place. It is not specifically, or really even more generally, forbidden by their constitution, but they interpret the pacifist nature of their constitution in a way which has caused them to have what they call three principles around exports. They tend not to export defence materiel, although they have relatively recently relaxed that. There has been quite a bit of discussion over a 12-month period about a formal change in attitude to exporting defence materiel specifically. But the conditions generally would appear to be evolving such that it will be something they will do on a case-by-case basis when their own national security is positively served or positively impacted by doing so, and probably in a non-offensive field of the defence industry.

CHAIR: So there is potentially a complexity that they have to deal with in a parliamentary way.

Rear Adm. Moffitt : There is a complexity and it is at a political level where it will be progressed. Whilst there is a degree of interest in progressing it, there probably is not yet sufficient interest or national interest considered to exist in it to make them want to move it fast.

Senator JOHNSTON: Can I ask you about the Juliet 3 RHIBs and the rolling over that you have had problems with. These are the RHIBs I think on board the Armidale and they may not even be on board the Anzacs.

Vice Adm. Griggs : On the frigates and the Armidales we have similar RHIBs, jet RHIBs.

Senator JOHNSTON: Juliet 3 they are called.

Vice Adm. Griggs : I am not familiar with that nomenclature.

Senator JOHNSTON: I am told there is a rollover issue with them. Are you aware of the problem?

Vice Adm. Griggs : I am aware that we have had some issues. I think it would be best if I get some more information and I could come back to you tomorrow.

Senator JOHNSTON: Let me give you a bit of a snapshot of the sort of questions that I would like to ask you tomorrow. Apparently a man from the Remuneration Tribunal ended up in the water.

Vice Adm. Griggs : It was more than one.

Senator JOHNSTON: These boats have had a lot of modification which has made them quite top-heavy and you have been conducting some tests to see what the problem with them is. New Zealand have had a similar problem, and that is the issue with respect to the davits on board the Armidales, their weight is substantially increased. I would like to know about the inquiry being conducted, the facts giving rise to the inquiry, what happened with respect to the rollover involving the people from the Remuneration Tribunal and where we go with this from here and what Comcare and others are saying about these boats, tomorrow morning.

Vice Adm. Griggs : I can do that.

Senator JOHNSTON: Chair, I want to go on to mine warfare. I think you have taken a renewed interest in this area and I want to pause to congratulate you for that with respect to a greater focus on the capability. Where do you think we are at with respect to our minehunting capability given that I think two of our ships have been laid up for quite some time. Is that right?

Vice Adm. Griggs : We have two that are in extended readiness.

Senator JOHNSTON: That leaves us four, does it?

Vice Adm. Griggs : That is correct, Senator.

Senator JOHNSTON: You answered a question of mine and said in order to protect Australian export ports and their trade route approaches and allow for quicker and more efficient clearance of mines the RAN conducts seabed sonar surveys of Australia's ports and maintains a mine warfare capability at an operational level to protect Australian ports from mining should the need arise. You then talked about the surveys that you have been conducting. You told me that you have done I think since 2007 78 hours of route survey work. That would be cause for concern, would it not?

Vice Adm. Griggs : We have reinvigorated the route survey issue, as you indicated. In fact, we have just completed a period of route surveys by two of the minehunters in April and we have another series of route survey activities in October. We are looking at what we can achieve from the route survey perspective with the hydrographic force when they are transiting to and from survey grounds.

Senator JOHNSTON: There are two priorities in terms of demand for surveys. One would be by value and the other would be by weight. By value we would be looking at Melbourne, Sydney and Brisbane and by weight we would be looking at Newcastle, Hay Point, Port Hedland, Gladstone and Port Walcott. Can you tell me if any of those places have been surveyed recently?

Vice Adm. Griggs : In the last session we focused on Townsville, Moreton Bay and the Cairns area.

Senator JOHNSTON: And this was April of this year?

Vice Adm. Griggs : It was seven days' worth of activity in Townsville and Moreton Bay and two days of activity in Cairns, and we have another seven-day route survey period in October.

Senator JOHNSTON: Can you tell me where that is likely to be?

Vice Adm. Griggs : I do not have that at hand.

Senator JOHNSTON: Do you have at hand the last time HMAS Stirling was surveyed?

Vice Adm. Griggs : No, I do not have that at hand. I will find that out.

Senator JOHNSTON: When was the last time we did a lead-through?

Vice Adm. Griggs : I will have to get back to you. We generally do lead-throughs as a matter of course when we have our major fleet concentration periods. That is one of the standard activities that we do, but I will confirm when the last one was.

Senator JOHNSTON: Can you tell me also—on notice, if you like—the last time you did a lead-through of Sydney Harbour?

Vice Adm. Griggs : That would be the most likely—Sydney Harbour and Jervis Bay are the standard places—but I will get that information.

Senator JOHNSTON: And Stirling?

Vice Adm. Griggs : And Stirling. It is unlikely there has been a lead-through at Stirling by a mine hunter but we practice lead-through procedures, often without the lead-through vessel, so that we understand the precise navigation requirements and the ships that are going through can operate safely in that environment.

Senator JOHNSTON: What is the status of the two boats that are laid up?

Vice Adm. Griggs : They are at extended readiness for 60 months. I think we have discussed extended readiness.

Senator JOHNSTON: Just clarify it for me: 60 months extended readiness means—

Vice Adm. Griggs : Five years.

Senator JOHNSTON: Is that how long they have been laid up?

Vice Adm. Griggs : No, that is how long the activation time is.

Senator JOHNSTON: To get them back to service is five years. Is that for both of them?

Vice Adm. Griggs : Correct.

CHAIR: Do you have something to add?

Vice Adm. Jones : Yes, if I could just respond to Senator Humphries' earlier question about the Sea 1354, phase 1—that is a SERAS project. The senator asked for details about where we are at in terms of timing. We anticipate that first pass for that project will be the financial year 2013-14, the second pass will be 2015-16, with an initial operating capability of 2016-17.

[21:48]

CHAIR: Thanks to the Navy. We will move to program 1.3: Army capabilities.

Senator IAN MACDONALD: Welcome to General Morrison. First of all, a bouquet: the welcome-home parade in Townsville was absolutely fabulous, and well done to all those associated with it; it was a great event. That is the sort of thing that needs to be done and I am delighted to see how successfully it went. General, you might have noticed, as I did, that as we walked along the Strand—unfortunately the march only went halfway up the full length of the Strand—we were picking up soles of boots all the way along. It was a bit embarrassing. If they had marched the whole strand, they would have ended up in bare feet.

Lt Gen. Morrison : Yes, I thought that the welcome home parade was a wonderful event as well, but it was without doubt marred by the ongoing problem that all three services, but particularly Army, have experienced with the dress boot. I see that Brigadier Mike Phelps from the DMO has come to the table. There are answers to the points that you are making. I will hand over to him.

Mr King : Chair, would you indulge me for a moment to allow me to show you a broader picture. I understand this is a serious problem, Senator, but I will give you a broader picture of Army clothing to give an indication of the broad context of what we do. I have an illustration I would like to show. The reason I want to show you these posters is to illustrate the context of the work that Brigadier Phelps and the area is doing. The first illustration is of a soldier that would have deployed in 1999 for a Timor exercise. The second illustration is the current equipment for our soldiers. The reason I show this is to illustrate the complexity of the complete activities we are undertaking. It is about $27,000 worth of equipment today. That does not include everything. There are some more sensitive items that we have left off the illustration. I point out that the work that land systems division do for Army is a very broad spectrum of work—very complex and very challenging. A small element of that, but very public, is the parade boots. I wanted to show that the equipping of a soldier of today, particularly for combat but also in their broader equipment suite, is very technical, very expensive and, from what I understand from Chief of Army and from operations, very effective. I am happy to take any questions.

Senator IAN MACDONALD: I know this question has been gone over at every estimates for a long time. Non-combat troops who I see around the traps also tell me that some of the boots are of a style that they cannot walk in without having real foot problems. There is other gear, too; I did not make a list. But they buy their own. Those illustrations are tremendous. The $27,000 says a lot. I am very conscious that Army and the senior staff are very keen to make sure our troops, particularly our combat troops, are properly assessed. The incident in Townsville I was talking about was just a bit embarrassing, but it was a fabulous parade, a great thing. But to see all these soles, and some senior officers walking along picking them up as they walked down to the barbeque area.

Mr King : It was indeed. Brigadier Phelps might like to say something.

Senator IAN MACDONALD: It is not criticism for criticism's sake. The real question is: what are we doing about it?

Mr King : We accept that—and I very personally accept that observation that it is not good enough.

Brig. Phelps : The problem with sole separation on parade boots first surfaced in 2008. At that time we engaged with a number of independent test laboratories and independent experts, including the manufacturer of the boots, to come up with what we thought was a viable long-term solution to this problem. The result of that was that we took an action at the time to immediately stitch the sole of the current boot that was out there and to nail the heel from the inside onto the boot. This design was independently tested through a whole lot of flexing and bending tests. It passed all those. That included what we call accelerated ageing testing. So the boots were put through repeated heating and cooling over about a six-week period. All the modified boots passed that testing, whereas a number of what we refer to as the unstitched boots failed that testing. At the end of that program in 2009 it was reasonable to conclude that we had found a solution to this problem.

Since that time we have had continued reports of the unstitched boots failing. In the week preceding the parade we first started to hear that we now had a problem with some of the stitched boots failing. We immediately had an investigation into that. With the benefit of hindsight we now realise that the solution we identified back in the 2008-09 period did not really address the root cause of the failure of the boot—that is, that the glue is degrading over time and the stitching, whilst it holds the boots together very early on so that they pass that initial testing. It was really, at best, going to stop a catastrophic failure. That is, it would have kept the sole on through the delamination process, but evidently that has not happened.

What we are doing now, with respect to the stock we have in service, is that we are just working with the current supplier and, again, some independent test agencies from New Zealand and the UK and expert bodies to see whether there is a further immediate solution we could apply with the current stock that is in service. We are looking at what contractual remedies we may have through the contract with the company that supplies the boots. We are also looking at whether there is an immediately available boot out there that we could quickly acquire to give us an immediate solution to this problem. We are also working with Army headquarters on what the long-term solution is—as in, what do they want out of a parade boot?—so that we can rapidly get out there and acquire a new boot.

Senator IAN MACDONALD: Is the current supplier an Australian manufacturer?

Brig. Phelps : The current company is an Australian based company, but the boots are not manufactured in Australia.

Senator IAN MACDONALD: Where are they manufactured?

Brig. Phelps : They are manufactured in China.

Senator IAN MACDONALD: You don't think it's a dastardly trick, do you? Don't answer that! But surely this did not just manifest itself last Saturday.

Brig. Phelps : No. We became aware, in the week preceding the parade, that we had a problem with the boots.

Senator IAN MACDONALD: We are aware of it and we are just now looking for an alternative. Wouldn't we have started looking back in 2009?

Brig. Phelps : No. In 2008-09 we thought we had found a solution by the modification—by stitching the sole to the boot. We have a permanent modification on the boots we have been acquiring since then such that they are stitched at the toe and around the heel of the boot. We thought that had solved the problem. The problem does not manifest itself until the boots have been in service for two to three years.

Senator IAN MACDONALD: I was not in Townsville for the Anzac parade this year. I do not know if the same thing happened there. It would have been warmer weather, wouldn't it?

I say this in jest but, seriously, this parade the other day was a shortish distance, as far as parades go, and I do fear that if it had been the normal length of the Anzac parade no one would have had shoes on at the end of it. What happens if there is a parade next week? What are we going to do?

Brig. Phelps : I do not honestly know what we would do next week.

Senator IAN MACDONALD: March them in combat boots?

Brig. Phelps : We may have to look at the alternatives in that respect. My staff and I are very unhappy about this. We have apologised to the Army and to the brigade commander for this marring of their occasion. I simply cannot get boots in two or three weeks to do this. We have asked soldiers to swap out their parade boots. Not all the boots that separated on that parade on Friday were the new boots. There is still a large number of soldiers in the earlier versions of the boots as well. We have to find a boot that gives us greater surety that this will not happen again. We can never have a 100 per cent guarantee that there will not be a shoe failure. That will just happen, as it does with any normal shoe. We have to find perhaps an alternative design and an