DEFENCE + INDUSTRY CONFERENCE
(Source: Australian Department of Defence; issued Jun 21, 2005)
Keynote Speech by Senator the Hon. Robert Hill,
Australian Minister for Defence
Defence + Industry Conference
Canberra (Tuesday, 21 June 2005)


Good morning and welcome to the 2005 Defence and Industry Conference. I am pleased to have been asked to address the conference for the fourth consecutive year.

In this year’s address I will update you on the progress of some of our reforms and provide you with detail on future plans. In the light of recent momentous decisions on naval capability, I will also focus on some facts, some myths and some observations in this key area of Defence.

DCP 2005-15

In keeping with the conference theme of "getting down to business", I would like to provide you with some measures of how the Government’s reform of Defence Procurement is beginning to realise the boost in productivity needed to deliver the capabilities in the DCP. Since February 2004 the Government has granted approvals to more than 40 projects, with a value of around $4.5 billion. Some of the bigger projects include:

-- The Air Warfare Destroyer Design Activity

-- 12 Additional MRH-90 Trooplift Helicopters

-- Acquisition of ABRAMS Main Battle Tanks

--SM1 Missile Replacement for FFG

-- Two Additional Wedgetail AEW&C Aircraft

-- Upgrades to F/A-18 Electronic Warfare Self Protection

-- Early Engine Replacement for our Chinook helicopters; and

-- P3-C Electronic Warfare Self Protection


As time moves on, of course, we need to continually update and refine the DCP to ensure that it remains affordable, deliverable and relevant to our circumstances.

Whilst I have previously said that I do not believe another Defence White Paper is required at this time, you may be aware that I have directed the Department to undertake a strategic update. In accordance with the Howard Government’s basic tenet that capability decisions must flow from strategic guidance - rather than vice versa - I would anticipate that this strategic update will be followed shortly afterwards by the release of an updated Public DCP. This new document will take account of the projects and phases that have been approved within the last 18 months, and provide updated information on forthcoming projects. We see this as part of our duty to provide Industry with visibility of the future. I hope to have both of these documents released before the end of this year.

Of course, whilst we plan and prepare for the future, we are also getting on with things in the present. Since I last addressed you, the new capability development and DMO executive teams, led by General Hurley and Dr Gumley respectively, have been implementing reforms, driving change and delivering efficiencies across the board.

The clearest evidence that concrete improvements are being made is to be found in the fact that this year’s Budget returned $300 million in capital funding to the DCP from beyond the forward estimates. This was able to be done with confidence, given the fact that this year DMO will spend some $3.1 billion on capital acquisition – 100% of its target.

It is now a combined task for DMO and Industry to demonstrate to Government that these improvements will be sustained over the longer term. This would then provide a background from which I can argue for the return of the balance of deferred expenditures and achieve an expenditure profile closer that originally anticipated.


Air Warfare Destroyers

We are pleased to have progressed the AWD project to the point where we have been able to name a preferred builder for the three new ships we intend to build in Australia. Yet some commentators still argue against the purchase of this capability. They also tend to argue against the purchase of larger amphibious support ships. I thought I should make some points on this important issue.

It is a primary responsibility of Government to ensure that the ADF maintains sufficient flexibility to provide military response options to a wide range of contingencies.

To provide the Government with such options the ADF will need the ability to gain and use freedom of action in an area of the sea, and, if required, to deny the use of that area to an adversary. In today’s environment, this requires the control of activities on the sea surface, in the water mass and on the sea bed, in the airspace above the sea, across the electromagnetic spectrum, and over and on nearby coastal land.

We provide various capabilities to cover each of these elements, including submarines, warships, troops and fighter aircraft. For today’s purposes I would like to focus upon control of the Air. This directly enables freedom of operation on the sea without being threatened or attacked by an opponent’s air power. It is a prerequisite for successful military operations, both in attack and defence, in the presence of a hostile air threat.

To exercise control of the air over the Maritime and Littoral environments the Government is investing in a system of complementary capabilities. These include the new Air Warfare Destroyer, the Joint Strike Fighter, new Air-to-Air Refuelling aircraft, Airborne Early Warning and Control aircraft, Over the Horizon Radar, and new generation Army Ground Based Air Defence systems. It is critical that these capabilities work as a system, as no single capability will see its potential maximised working alone.

The concept of Network Centric Warfare provides connectivity between these assets to share tactical and targeting information and ensure that the synergies between these complementary technologies can be maximised. The Government is investing in future war fighting technologies such as the Cooperative Engagement Capability of the Aegis system which will allow other platforms, such Airborne Early Warning and Control Aircraft to provide targeting data to the Air Warfare Destroyer. This will allow weapons to be launched against targets that might ordinarily be outside the range of the surface ships sensors.

The Air Warfare Destroyers themselves will deliver an Area Air Warfare capability that will be able to provide air defence for other ADF assets including forces ashore and friendly aircraft, and against hostile aircraft and missiles over large areas. Once deployed to an area of operations the Air Warfare Destroyers will be available at all times and in all weather. The Government has identified the Aegis system as a proven technology able to react quickly to detect, classify, target and destroy a hostile air threat within the short warning times inherent in the high technology missiles and aircraft now coming into our region.

As I alluded to before, the Joint Strike Fighter will play an important role in complementing the capabilities of the Air Warfare Destroyer, and when available will be called upon to provide an additional layer of air defence to our deployed forces at sea. Importantly through, each capability does not compete or substitute another, rather they are force multipliers. To suppose one can supplant another, or that more aircraft are better than fewer destroyers is to fundamentally misunderstand the future nature of both air and sea power. Sea based assets have a smaller engagement envelope and a slower deployment, but a much longer range and hugely greater persistence.

Control of the sea will allow Australia, at its maximum, the ability to lift, to lodge, to sustain and to withdraw a combined arms battle group consisting of an embarked force of about 2000 personnel across two ships, and their vehicles and equipment, wherever and whenever the Government determines. The initial lodgement of this force requires a company-strength component to be lifted and landed simultaneously from helicopters, in addition to personnel, armour and equipment landed from amphibious watercraft.

These requirements demand what will be, in global terms, medium-sized but very sophisticated amphibious ships, and an ability independently to protect the substantial embarked force both in transit and in theatre. While it is disembarked, the RAN must also provide fire support, facilities and logistics support to reduce the size of the land force’s footprint ashore. As an island nation, this capability will be critical for all ADF operations regardless of whether they are mounted offshore or on Australian territory.

The Australian Government has decided firmly in favour of these amphibious and combatant capabilities, which will allow the ADF to use the sea as the highway that it properly is, rather than the moat that some would perhaps prefer. In countless other scenarios, whether it be the evacuation of Australian nationals overseas, humanitarian assistance missions or the protection of our vital maritime trading routes, the Government needs to preserve the ability to use the sea to advance an national interest.


AWD Project History

So having outlined the case why these maritime capabilities are strategically important, I would like to make a few comments on the project to date.

The project has been carefully designed to take advantage of lessons learnt from previous experiences.

We filled the program manager position within the DMO on merit, and in this instance the position went to an outside industry specialist. We decided that until second pass approval, the project manager must report jointly to General Hurley and Dr Gumley – drawing together the capability development and acquisition process for as long as possible. In fact the Defence Capability Group and the DMO will work together to achieve the capability specification during phase 2. We believe this will guard against so called "scope-creep" in the acquisition phase of the project.

Before first pass approval of the project was considered, $43 million was appropriated to phase one risk reduction strategies and independent commercial advice was sought on many issues. We engaged Australian industry early and we undertook international benchmarking of similar projects to better understand risks and opportunities.

Selecting the proven technology of the Aegis Combat system as the core of Air Warfare Destroyer Combat system early in the project was a strategic choice by Government. Again early on we selected Raytheon Australia as the Combat System Systems Engineer to integrate the non-Aegis components of the Combat System. Now we have selected ASC Shipbuilder as the AWD shipbuilder before selection of design in order to consider input from the ship builder.

The Government will shortly consider which company will join the second phase of the project to develop what is referred to as the "evolved" design. I anticipate Government announcing the selection of the successful Platform System Designer within the next few months. The selected Platform System Designer will work with the rest of the AWD design team to develop the evolved design.

For the Air Warfare Destroyer project an Alliance Based Target Incentive Agreement has been developed in conjunction with commercial advice from Carnegie Wylie and Co. Over the next two years, as risks are further reduced in the Phase two activities, the Ship builder, the CSSE, the Ship designer and the Commonwealth will enter into the contract.

The target incentive agreement will not be a so called soft alliance. To the contrary there will be real rewards for good performance and real penalties for underperformance of any contractor, including potential financial losses. IP ownership rights will be clear to respective parties, and the contract avoids incentives towards variations and delays and provides transparency to the Commonwealth of contractor performance.

Most importantly, and in line with the principle of allocating risks to where they can best be managed, industry will be accepting risks without the ability to transfer them back to the Commonwealth.

On the issue of contracting, the Government has been at pains to procure the very best advice. We have taken the view that the experts on these matters are merchant bankers, infrastructure developers, financiers and project managers.

I’m pleased that after all of these activities, the programme remains exactly on time as we move towards the critical design and build phases.


Industry Involvement

Australian defence industry has a major opportunity here to showcase their skills and ability on the world stage. The AWD will be the most prominent destroyer program being undertaken in the world for the next 5-10 years. And when combined with the Amphibious Ship Project - how Australian defence industry manages these two large and important projects will be the focus of attention of a number of interested countries.

Whilst the AWD’s will be assembled at Osborne in South Australia, it is anticipated that around 1000 of the 2000 jobs created will be in other States where some 70 percent of the module construction is expected to be outsourced. Thus there is potential for considerable work for other shipyards and manufacturers in Australia.

I am sure that many SMEs will be seeking more detail on these exciting new developments and the opportunities available to them. To facilitate this, the AWD team will be undertaking a national road-show later this year, with the purpose of explaining the way ahead, the opportunities presented and how SME’s can get involved.

I know that we are making a big ask of industry, but I am confident that with the support that will be provided through the Government’s Skilling Australian Defence Industry initiative that together we can achieve an excellent outcome for the Navy and the nation.


Australian Defence Industry Intiative

With this in mind, it gives me considerable pleasure to announce today that the first two companies to receive funding under the Skilling Australia’s Defence Industry program will be Australian Defence Industries and Austal Ships of Australia.

The initial agreements between these companies will be for three years with the level of investment from the SADI program in the first year being more than $1.3 million Dollars.

The level of Government investment through the SADI program is being matched by both companies and will provide skills in a number of areas including integrated logistics support, fabrication, welding, hydraulics and pneumatics and project management.

Proposals from other companies covering this and other sectors where there are critical shortages have also been sought and are under current consideration.

The AWD and similar projects such as the Joint Strike Fighter offer Australian industry the chance to showcase itself. However, having the skills is only one component – effective marketing is another.


Defence Materiel Advocate

In June 2004, Government announced a new defence export initiative to help facilitate access by Australian defence exporters to foreign buyers. This initiative had two key elements. Firstly, it sought the establishment of a new "Team Australia" international marketing tool that would showcase innovative Australian Defence technology. The new marketing tool was launched at Avalon in March this year

Secondly, recognising that in some markets, military uniforms and braid can open doors that would otherwise be closed, the Defence export initiative sought the establishment of a dedicated military officer of star-rank to help promote Australian defence industry exports and provide the linkage to operational experience. This initiative recognised the need to provide more continuity in "Service oriented", military user support to Australian defence industry export efforts.

I am pleased to announce that I have approved the appointment of Major General Jim Molan to this position. This position will provide assistance to Australian defence industry by having a dedicated military leader to help present and promote their capabilities. General Molan has recently returned from active service in Iraq, where he held the highest level command position within the multi national force available to an Australian. He will be ideally placed to assist Australian companies in understanding the needs of overseas militaries.

He will be tasked with escorting, or engaging other military officers to escort, Australian companies and potential export customers, both in country and overseas, to provide the operator’s perspective of the defence technology to support export opportunities. I welcome him aboard.

He will work hand in glove with the civilian leadership of our DMO Industry Division. Together they should significantly enhance our support to Australian industry in the challenging global market


Conclusion

In conclusion the last year has been very busy both operationally and from an industry perspective.

The next twelve months looks like being even busier with the decision on design of the Air Warfare Destroyer, 1st pass for the Amphibious Ships, delivery of various Defence assets including Armed Reconnaissance helicopters 4 and 5 next month, Armidale class patrol Boats two and three and the continuing delivery of the Bushmaster Infantry Mobility vehicles.

The next twelve months will also see the continuing professionalisation of the DMO workforce and the upskilling of the Defence and industry workforces.

-ends-




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