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Aussie Secretary Explains Procurement Review

Speech by Mr Greg Combet at the ADM Congress
Hyatt Hotel, Canberra, 26 February 2008


Today I want to spend some time outlining exactly what my role as Parliamentary Secretary for Defence Procurement is going to entail.

As the Parliamentary Secretary in this area I am formally responsible to the Minister for Defence for the following areas:

-- The Defence Materiel Organisation;
-- The efficiency and effectiveness of major capital equipment acquisition;
-- Detailed analysis of and advice to the Minister on acquisition and sustainment issues generally;
-- Contracting matters;
-- Defence industry policy and maximising Australian industry involvement;
-- Defence exports, and
-- A number of programs run through DMO including the Skilling Australia Defence Industry (SADI) Program.

These were the administrative instructions received by me from the Prime Minister and the Minister for Defence. As you can see these are some broad ranging responsibilities. The Minster for Defence will be the decision maker at the end of the day but I will be advising him in relation to all of these areas.

All of this fits within the wider strategic objective to deliver to the ADF the capability it needs, while at the same time delivering value for money for taxpayers. In order to fulfil my roles I have developed a work program in my office comprising five keys categories.

-- Significant projects which are over budget and/or schedule
-- Current projects
-- Future procurement and sustainment projects
-- Ongoing reform of DMO
-- Enhancement of Australian industry capability

The first of these is the monitoring of projects that are suffering from slippages in schedule and/or cost. I am sure many of you here today will be aware of some projects that would fall into this category.

I am conducting, in conjunction with the DMO, a review of these projects and providing advice to the Minister for Defence on the best way forward. Top of my list for this review process are the Seasprite Helicopters. These helicopters are already six years late and there are still a number of issues that need to be worked through.

There are also a number of other projects suffering from similar problems. Basically my job here, and it is an early priority of my work, is to get across the detail of the projects so that I can provide advice to the Minister for Defence, who is the ultimate decision maker in these areas.

I have seen some fairly radical reporting of some of these projects within the media and today I just wanted to inject a bit of realism into the public debate surrounding them.

Firstly, it is important to note that these are generally what we call legacy projects. By this I mean that are projects that predate important Kinnaird reforms that have been made within the procurement process. For example, after the commencement of many of these projects we have seen the implementation of improved cost and schedule estimation, a reduction in ‘scope creep’ and the introduction of the two-pass system of Government approvals. These reforms have clearly made enormous progress in the efficiency and professionalism of procurement decisions and management.

Secondly, a lot of the projects where there are problems are also developmental and involve some leading edge technology. Military forces and many corporations worldwide have been challenged by the high technical risk and cost/schedule uncertainty associated with such projects.

This of course is not to say that I believe the performance of some of these projects should be excused. They should not be. I am however keen to inject some reality into the some of the media reporting on these projects and some perspective to the DMO’s performance.

The fact is that DMO delivers the vast majority of its programs on budget and on time. I think sometimes DMO receives a lot of negative media attention when something happens that is not to plan, but little attention for projects it has successfully pursued and implemented.

In many of these problematic acquisitions the Government is faced with complex legal and commercial arrangements that bind the Commonwealth and limit our options, but we are considering of the issues.

We also are dealing with many projects that remain critical to the ADF’s future war-fighting ability.

Therefore I want to moderate some of the more fevered media speculation that the Government will be cutting a large number of projects.

I noted with some interest a report in the Sun Herald in NSW just last Sunday, the 24 February, in which it was speculated that the following projects would be cut:

-- Super Hornets
-- Abrams Tanks
-- Air Warfare Destroyers
-- Amphibious Ships
-- Seasprite
-- FFG Adelaide Class Frigates
-- JSF

And a host of others were all subject to speculation that the Government was going to chop the lot. And I want to state clearly to you this is not the case. And please take that message. We will be reviewing these things where there are issues of concerns, but in many of the projects I have just identified there are no immediate issues of concern.

What is important is that the Government examines these projects in a thoughtful and considered manner, which is one of my key roles. One thing that has struck me is that the previous Government appeared to be unwilling, or perhaps unable, to get across the detail of many of these so called problem projects.

With projects of the size and importance that we are talking about the Rudd Government is keen to make sure we are engaged and provide the necessary direction and support.

That is why the Prime Minister and the Minister for Defence felt it was wise to have, for the first time, a Parliamentary Secretary who was tasked with the issue of Defence Procurement. I certainly know that the Minister for Defence is very committed to ensuring this area is handled professionally and I am keen to provide him the necessary advice and support he needs for this task.

I believe it is also important that we not only work towards a resolution of some of the problem projects but also learn from some of the mistakes of the past. (.../...)

Therefore it is part of my role to devise reforms to the procurement process to ensure, where possible, that we avoid making the same errors in the future and much of that work has been done due to the reforms already enacted.

Another lesson that I have learnt, and which now seems obvious, is that it is incredibly difficult to integrate very modern military systems into old and dated platforms. This is something that the Government will be considering when we approach our future procurement projects.

So that is part one of my work plan.

The second category of work I will be involved with is the monitoring of current projects. I want to get across the detail of some of the larger projects that are currently being engaged in by the DMO, including the acquisition of the Air Warfare Destroyer and the Amphibious Ships. I will also be monitoring the acquisition of the New Air Combat Capability, which I will touch on a little later.

The third task is to monitor forthcoming projects. I again will be familiarising myself with the details of major upcoming projects so that I can report to the Minister for Defence. Some of the projects that I am currently examining include the proposed new submarine capability and some of the future projects in the Land Domain.

My fourth task, as I have already foreshadowed, is to continue the reform process within the DMO. One of the key elements I see in any future reform program is the current CEO of DMO, Dr Stephen Gumley. In my short time as Parliamentary Secretary I have already grown to greatly admire his talent, capacity and the contribution he has made. Therefore I will be keen for him to play a central role in a future program of reforms.

I will be consulting widely as I possibly can on a program of reforms that I will take to the Minister, however one area that I am interested in hearing more about is the capacity to consider and utilise private public partnerships. I do not come with a pre-formed opinion on the use of PPPs or private finance in this area but I am willing to at least examine the options. I was surprised to see that the former Government and Minister never gave any serious thought to this issue.

As many of you will be aware, Labor committed at the previous election to a formal evaluation of the effectiveness of reforms to the DMO that were implemented following the 2003 Review of Defence Procurement.

I will be writing to the Defence Procurement Advisory Board seeking their evaluation of the effectiveness of the reforms to date. This evaluation will help the Government form a future reform program for defence procurement. I have met with the head of the Defence Procurement Advisory Board, David Mortimer, on this issue and he has indicated that he will be pleased to receive from the Government.

The final key task within my office will be in the area of Defence Industry, especially the promotion of Australian industry in acquisition, sustainment and exports.

This will obviously be one of the topics I will be covering in depth here today but first I would like to touch on some broader issues.

Defence Budget

Fulfilling the future capability requirements of the ADF will require a lot of money. This is why the Government is committed to maintaining the Defence budget at its current level of approximately $22 billion and continuing three per cent real increases until 2016.

Having said that, it would be wrong to think that the Government will not be demanding a lot of Defence in terms of performance, and we will be looking to ensure efficiency in all programs. Every dollar wasted is a dollar not available to support the ADF. As a Government we cannot allow that to happen on our watch and will be a lot more proactive than the previous Government in dealing with issues of waste and inefficiency.

The next decade will see more than $100 billion worth of business being undertaken in the procurement and sustainment areas, with approximately 65 to 70 per cent of this to be spent in Australia.

Also over the next 10 to 15 years, 80 per cent of the ADF’s war-fighting equipment will need to be either replaced or upgraded. The DMO and Defence industry will have a major role to play in this ADF transformation.

This is a pivotal period in the strategic development of future capabilities of the ADF. The decision taken over the next two years will set the pace for some considerable period of time. It is very important that we get the strategic context right and that the funding is there to support the decisions taken.

Recognising the importance of this area the Government will play a key leadership role in ensuring that our capability requirements are realistic and aligned with our strategic guidance.

And that is one of the reasons for the need to review our strategy in a new Defence white paper.

White Paper

As the Minister for Defence has made clear this is one of the Government’s highest priorities. We are absolutely committed to reviewing and redefining Australia’s strategic direction.

As many of you would be aware the Minister outlined the process that the Government will be proceeding with for the White Paper last week.

The Defence Deputy Secretary, Michael Pezzullo, has been appointed as the principal author of the White Paper. The Minister has also appointed an Advisory Panel to provide him with external advice on key issues associated with the White Paper, and to work with Mr Pezzullo. The Panel, will comprise three leading Australian strategists, Professor Ross Babbage, Major General Peter Abigail (Retd), and Dr Mark Thomson.

I have great respect for both the author and the panel members and I am looking forward to their production of this vital and much needed document for the Government.

You will know that Australia’s security environment has changed so much in recent times, but that the last Defence White Paper was developed in the late 1990s and released in 2000.

That’s eight years ago and I’d invite you to consider the changes that have occurred in that time. There have been many shifts in the global distribution of power, not to mention the events of September 11; subsequent terror attacks in London, Madrid, Bali and Jakarta; the increasing volatility in the Middle East including the conflicts in Iraq and Afghanistan; widespread international concern at the proliferation of nuclear weapons; the emerging fragile states in the South West Pacific; as well as the rising tensions in the Taiwan Straits.

This changed security environment, as well as the developing technologies and the evolving nature of military operations generally, demands that we reassess Australia’s strategic outlook in order to determine the future role of the ADF.

The Government’s priority is to develop the new Defence White Paper, which, in turn, will guide the ADF’s force structure and its capability requirements.

In this context, while we are developing the White Paper, there will be no public version of the Defence Capability Plan released this year. The Government is, in the first instance, primarily focused on defining Australia’s strategic direction.

However, I want to assure you, that this will not lead to – and nor should it be used as an excuse for – a hiatus or pause in the current level of activity in terms of defence capital equipment projects and in supporting equipment that’s already in service. Sustainment programs will continue, and current pre-first pass work will continue.

The Air Combat Capability Review

As part of our determination to ensure that capability and our strategic direction are properly aligned the Minister has announced an Air Combat Capability Review.

The review will examine the adequacy of plans for the development of Australia’s air combat capability to 2045 and it will feed into the new Defence White Paper.

It will assess current plans for the transition from the F-111 and F/A-18 to the F/A-18 Super Hornet and Joint Strike Fighter and
consider a range of issues including costs, capability and support.

The review will be conducted in two stages. The first stage will assess;

-- Australia’s Air Combat Capability requirements in the period 2010 to 2015;
-- The feasibility of retaining the F-111 aircraft in service beyond 2010;
-- A comparative analysis of aircraft available to fill any gap that may be left by the withdrawal of the F-111; and
-- The status of plans to acquire the F/A-18 Super Hornet.

The second stage of the review will consider trends in Asia-Pacific air power until 2045 and the relative capabilities of current and projected fourth and fifth generation combat aircraft such as the Joint Strike Fighter. The review will also examine the case for and against acquiring the F-22 Raptor.

A senior Defence civilian, Mr Neil Orme, First Assistant Secretary Policy Development, will lead the review. A steering group comprising senior officials from key Government Departments will oversee the conduct of the review.

This review is critical for the new Government as we need to make sure that the right decisions have been made. Many of you would be aware of the controversy that surrounded the former Minister for Defence’s decision to purchase the Super Hornet. This is not the way these decisions should be made.

The Government is therefore keen to ensure that we perform the rigorous evaluation of our air combat capability that the former Government did not.

Also I am sure that many of you would be aware of the controversy over the debate between the purchase of the JSF Strike Fighter over the F-22. Indeed given some of the meetings that I have already had since beginning in this role I know that not only are you aware of this debate but that you all have very strong views on it.

Again the former Government did not engage in this debate in an appropriate manner. It did not apparently even ask the United States if the F-22 Raptor would be available to Australia.

As a new Government we need to ensure that a rigorous and considered process is conducted.

I of course am not directly involved in the review and do not in any way claim to be an expert in this area. However, I would like to make a few comments from observations I have made.

Firstly, on the Super Hornet, I want to be clear today that the Government is not engaged in this review in order to attack the capabilities of this aircraft. We have ordered the review due to the process that led to the decision being taken.

However, the Super Hornet itself is a very capable aircraft and if the Government was to proceed with the decision to purchase it, it would make a very worthwhile addition without doubt to our air combat capability.

As you are aware, the Foreign Military Sales contract for the acquisition of this aircraft and associated equipment was signed by the previous government. Therefore the review is also going to have to consider exactly how far the previous Government has already committed us to this purchase.

On the issue of the JSF versus the F-22 Raptor, I reiterate that this review was not called to attack the capabilities of the JSF. Instead the new Government, especially given the magnitude of this decision, wants to ensure that correct procedures have been followed and the best possible capability attained.

On the JSF I see a lot of misinformed commentary. It is a highly sophisticated aircraft possessing stealth technology, significant payload capability and the capacity to link with other force capabilities operated by the ADF and our allies. It is also a true multi-role aircraft that is capable in both air-to-air and air-to-ground combat missions.

One of the current prohibitions of purchasing the F-22 Raptor is US legislation that prohibits its export. The former Government does not seem to have broached this issue with the US instead citing that as a reason not to consider this issue. This again was an error in process. You can not seriously claim to have made an informed decision as a Government without at least making sure you have the widest list of options available to you.

This is why the Minister for Defence has on the weekend discussed with the US Secretary of Defense, Robert Gates the availability of the F-22 Raptor to Australia. As you are aware Mr Gates has provided some information to the Minister on the most appropriate way for Australia to request this access.

I do note comments made by Senior Defence Officials in Senate estimates last week that even if this information is gained Australia would likely be required to fund an expensive development program to meet US-F22 export requirements. This is something we as a Government will need to consider within this review along with the other arguments that have been made about their relative capabilities.

That is dealing with some of the issues in a brief manner, but I hope it gives you some guidance into the Government’s thinking on this issues and the review that has been ordered by the Minister. We look forward to the considerations of Mr Orme.

Australian Defence Industry

If I could now turn to Australian Defence Industry.

(end of excerpt)

Click here for the full text of the speech, on the Australian DoD website.

Keynote Address by the Parliamentary Secretary for Defence Procurement (excerpt)