Combet Addresses Australian Command and Staff College on Defence Procurement
(Source: Australian Department of Defence; issued Nov. 24, 2008)
Greg Combet, Parliamentary Secretary for Defence Procurement, today addressed Australian Command and Staff College course members on Defence procurement.

While addressing the 159 course members – consisting of Australian Defence Force (ADF) Officers, public servants, Australian Federal Police and students from foreign armed forces – Mr Combet provided an insight into the Government’s view of defence procurement with a focus on current and future projects as well as action taken on projects of concern.

Today marks the first anniversary of the Rudd Labor Government. Mr Combet outlined the work that the Government had undertaken in the area of defence procurement over the last year.

“It is an extremely interesting time to be involved in Defence procurement with the ADF replacing more than 80 percent of its warfighting assets over the next 10 to 15 years at a cost of some $100 billion,” Mr Combet said.

Mr Combet added that the fundamental aim of Defence procurement and sustainment was to ensure the ADF was able to respond to current operational tasks and future strategic threats to national defence and security.

“To achieve all of this and to respond to the strategic issues emerging in our region an efficient Defence procurement system is essential,” Mr Combet said.

Mr Combet also spoke about Industry policy and the recent Mortimer Review on Defence procurement and sustainment.

“I am confident that measures can be undertaken that increase the commercial approach of the DMO while also ensuring the continued responsiveness of the DMO to Defence,” Mr Combet said. (ends)
Projects of Concern in Defence Procurement
(Source: Australian Department of Defence; issued Nov. 24, 2008)
Speech by Greg Combet, Australia’s Parliamentary Secretary for Defence Procurement, to the Australian Command and Staff College course members on Defence procurement.

The first area of my work program that I wish to address tonight is the projects of concern.

Early after my appointment I worked to establish a new unit within the DMO specifically designed to address projects of concern. It is headed by a 3 star manager within DMO, the General Manager – Programs, Warren King. He is assisted by a team of people who report to me monthly on the progress of remediation of some of these projects.

While all of the work conducted by this unit has not been public I would like to run through some of the projects that have been addressed, many of which you may have heard or read about this year.

The first is the Seasprite Helicopter. Upon examination of this project from both a technical and commercial point of view it became quickly obvious that the problems underlying the project would not be overcome in a satisfactory way for Defence. This followed discussions with the Navy, the DMO and the contractor. The Minister for Defence, Joel Fitzgibbon, upon being presented with this information proceeded to make the decision to cancel the project.

This experience left me with a lasting impression. The mismanagement of the Seasprite Helicopter project had resulted in a loss of over $1 billion of taxpayers’ money for no result. This was money that has not contributed to the ADF’s capability in any way. Not only have we lost this money our naval aviation capability, especially in the area of anti-submarine warfare, has suffered. This was plainly unacceptable and it made it clear to me the importance of active oversight of these projects.

The Government has been faced with similarly difficult decisions in regards to other projects. For example, in September this year the Minister announced the cancellation of a contract for JP129, a project to procure tactical unmanned aerial vehicles (UAVs). These UAVs were to be utilised by Army and as you would understand are a vital capability for many of our current operations, specifically the work being undertaken in Afghanistan. Therefore when it became obvious the technical and commercial issues would prolong their delivery the Government moved to cancel the contract.

We are now exploring other possible UAV systems that we can purchase and deploy as soon as possible. Early and decisive action on this project ensured that the taxpayer actually suffered no expense as all money spent on the project until that point was returned to the Commonwealth.

Similarly, problems associated with the procurement of medium to heavyweight trucks under Project Land 121 Ph 3 recently saw the Minster announce the refresh of that tender before contract signature. Again early identification of technical and commercial issues, followed by decisive action, has helped ensure that the Army will more likely get the trucks they need before they would have otherwise received them. Again this decision was made early enough to ensure that only a minimal amount of the project’s funds had been expended.

However, being placed on the projects of concern list does not necessarily mean automatic cancellation of the project or contract.

Recently I have been involved in discussions with the Air Force, the DMO and Boeing about the problems associated with the procurement of six airborne early warning and control aircraft, or as they will be known Wedgetail aircraft.

This project has experienced some well publicised issues. However, it is a vital capability for the ADF and we need it to succeed. Therefore a lot of work has gone into addressing the current issues. Just last week there was a summit held in Canberra where we discussed how we are going to move things forward. I am pleased to say progress was made in those discussion but there is much more work to be done yet. This is probably the project that keeps me awake the most at night.

On a happier note last week I was pleased to see the contractual acceptance of the Adelaide Class Frigates, HMAS ships Sydney and Darwin after a long protracted period of again well publicised problems. This was a significant milestone in the project and I was very pleased to see it achieved as it takes us a step closer to being able to deploy one of these frigates to the Gulf sometime next year – a task for which they have not been able to deploy due to the problems with this upgrade program.

This project again has demonstrated to me the importance of active oversight. When I first became engaged with the project it became obvious to me that the main players involved including the Navy, the DMO, the prime contractor Thales and the subcontractor Rafael were not communicating with each other. The project was drifting and confidence in any successful outcome was fading – indeed just eleven months ago there was widespread media speculation that this project would be cancelled by the Government.

However, active work done through the projects of concern unit and a series of talks between the main players has now seen the project turned around. This is a great result for the ADF and the taxpayer and I want to congratulate publicly all of those who have been involved in that project. There is still a way to go but I am much more confident that things are now heading in the right direction.

Other success stories have included turn arounds in the procurement of the ARH Tiger Reconnaissance Helicopters and the upgrade of the M113 Armoured Personnel Carriers. Again two projects that have had well publicised issues.

On the Tiger helicopters a deed was able to be signed earlier this year which helped sort out a number of commercial issues that were delaying the project.

With the M113s significant technical challenges have now been overcome and the project is back on track. The contractor will face some challenges in regards to workforce and production capacity but it is possible that we will still see the upgraded M113s delivered within the original timetable. It was this turn around in the project that was able to give the Minister the confidence to recently announce that the Government has approved the procurement of a further 81 M113s to improve the capability of the Army’s Mechanised Infantry units, 7 RAR, a recently established battalion, and 5 RAR, both of which are currently based in Darwin.

Current Major Projects

I am also charged with ensuring that our current major projects avoid some of the problems experienced by others.

In this area I have been monitoring a number of projects. A few examples are the Air Warfare Destroyer (AWD) program, the Amphibious Ships (LHD) and the Multi-Role Tanker Transports (MRTT), or Air to Air Refuellers. All three of these platforms will play a major role in our future ADF.

In monitoring these projects I have met with all of the major contractors and held briefings with the DMO and relevant services. In July this year I also visited the headquarters of Navantia in Madrid to hold discussion with the Spanish Shipbuilder who is playing a major role in the AWD and LHD projects. I have met with the Victorian and South Australian Governments who both have an interest in these projects and have provided great support. I am pleased to say from my view that both of these projects are travelling well although I would note that each has significant challenges in the future.

While in Madrid I also visited EADS-CASA for an update on the progress of the MRTT. I have also visited the Qantas site in Brisbane where the fleet will largely be built. The project is travelling well although we are expecting a slight delay on their delivery. We will continue to closely monitor its progress in the coming year.

Future Projects

My work also involves future projects. This includes work on what will likely be our two largest defence procurements in history namely the new air combat capability and the next generation submarine.

In regards to the new air combat capability I have held extensive discussions with the DMO and Lockheed Martin about the potential acquisition of the Joint Strike Fighter (JSF). I was able to visit the production facility at Fort Worth, Texas earlier this year to examine current progress on the program. I have also had a number of classified briefings from Air Force on its proposed capabilities.

I believe that some of the adverse publicity surrounding the JSF program has been misguided and unfounded. From everything I have seen and from the briefs I have received there are grounds to believe that the JSF will be a superb plane with significant capabilities. If it delivers everything that is promised it will definitely be the right aircraft for Australia. I also am encouraged by the view of the experts in this area, namely the Chief of the Defence Force, and the Air Force leadership, that the JSF will deliver a great capability.

However, as the Minister has made clear, the Government will be seeking further assurances on the cost and schedule of the program before any further commitment is made in the middle of next year.

In regards to the next generation submarines I have been working with the DMO to examine a number of the industrial and workforce issues that this program will present. It is a very exciting program to be engaged with. At the recent Submarine Institute of Australia conference I recently outlined, following the Minister’s announcement, the work that is already being conducted including a number of studies and the establishment of the project team.

The project will be known as SEA 1000 and the project team will initially consist of 17 people but will expand considerably as the project grows. It will also be under the joint control of the Capability Development Group and the DMO. This will help ensure that we get both a capability and commercial view of the project right from the start – something that is very important from my perspective following what I have learnt from other projects.

Defence Industry Policy

My fourth area of work is Defence Industry Policy.

When I was awarded this portfolio I was very keen to work hard understanding and developing defence industry policy. I was also conscious that too often in the past policy in this area was often well written but poorly implemented.

So when I was appointed to this position I made it my job to get out and to understand the challenges and opportunities for the Australian Defence Industry from a practical standpoint.

It’s important to start by stating the underlying philosophical foundations that will guide the Rudd Government’s policy in this area. I am firmly convinced that offset policies or mandated local content requirements that were practiced in the past did not lead to a sustainable defence industry. There was no strategic approach to what activity was mandated to be undertaken in Australia. For example, a defence company could claim its local expenditure on catering or landscaping as part of its offset obligations.

The result is that the Australian defence industry enjoys a broad range of capabilities; however there is not necessarily a sufficient commercial or strategic depth much strategic depth to these capabilities. Over time the industry will need to build on sustainable local and export markets.

And that is happening; world class capabilities that are not just sustained by contracts from the Commonwealth, but also through export opportunities, are emerging and consolidating.

That is why one of my first acts in this position was to announce the establishment of the Defence Exports Unit (DEU). This unit is tasked with assisting Australian defence industry to crack into overseas markets. The DEU has led delegations to numerous countries, for example they have led delegations to Spain to explore opportunities around Navantia’s involvement in the Air Warfare Destroyer and Landing Helicopter Deck programs.

In February, I announced the implementation of the Australian Industry Capability Program. This program will compel tenderers for contracts over $50 million to examine opportunities for Australian companies to enter into their supply chain for the procurement in question. Successful tenderers will be required to implement the strategies outlined in their AIC plan as they will be part of their formal contractual obligations.

My role is also to oversee the operation of AIC Deeds, which help secure the right for Australian companies to bid into global supply chains of the international primes. The AIC Deeds are aimed at facilitating opportunities in the global primes and their first and second tier supply chains for Australian companies. I believe that in most cases winning work in global supply chains is the most effective way of increasing defence industry exports and maintaining a sustainable defence industry. Another benefit of these Deeds is that defence industry multinationals that establish an Office of Australian Industry Capability will provide selected training and mentoring to Australian companies to enable them to be more globally competitive.

To support these initiatives, in July I launched the Defence and Industry ePortal, which provides links to Defence news, templates and other information to better assist industry. Australian companies will be able to highlight their capabilities, and keep them up to date, for all contractors to discover. We would expect tenderers required to provide an AIC plan would interrogate the ePortal to discover what capabilities Australian companies offer. It also assists companies to discover companies with complementary capabilities facilitating the construction of networks and export opportunities.

There remains a lot to be done in this area. However our approach should be considered evolutionary rather than revolutionary. In other words there will be incremental changes to optimise defence industrial policy, while giving industry and defence some certainty as the policy direction of the Government in this area.

I would like to see in the industry chapter of the White Paper a coherent explanation of the strategic industry capabilities that are to be sustained and promoted in the Australian defence industry. This will help inform the investment decisions of industry. The White Paper should also outline how the Government will treat these areas.

Skills and Productivity

Generating and implementing a defence skills policy was another of the tasks entrusted to me by the Prime Minister and Minister for Defence. The ADF will be replacing over 80 per cent of its war fighting equipment in the next decade and this will place pressure on the defence industry to ensure that it will have enough skilled personnel to deliver on there projects.

While it is the responsibility of industry to ensure there is sufficient investment in training, government does have a role. I was concerned when I came to this role to ensure that the Skilling Australian Defence Industry (SADI) program was operating as effectively as possible.

The goals of the original SADI program were twofold:

-- expand the pool of appropriately skilled people from which the defence industry sector can recruit; and
-- enhance work and career pathways (upskill) in the defence industry sector;

While the program has been extraordinarily successful in providing upskilling opportunities, with current agreements funding 16,000 opportunities, it has failed to significantly expand the pool of skilled workers available to the industry. Throughout this year we have been working on enhancements to SADI.

That is why the Minister for Defence 9 days ago announced a $61 million skills package, containing 14 initiatives that aims to achieve the following outcomes:

-- expand the pool of appropriately skilled people from which the defence industry sector can recruit;
-- enhance work and career pathways in the defence industry sector; and
-- grow defence industry capability and productivity.

We will grow the pool of skilled labour available to the defence industry through school gateway programs in New South Wales, South Australia and Western Australia; the addition of an industry component to the Defence Technical Scholarships program; engineering scholarships to expose engineering trainees to defence SMEs; and Defence sponsorship of ReEngineering Australia.

We will focus our upskilling initiatives through four programs:

1. The continuation of the core SADI program.
2. The expansion of the DMO Institute logistics training to industry.
3. A national expansion of the Masters of Military Systems Integration. And
4. The establishment of a Masters of Systems Support Engineering.

These programs will assist industry to develop an even more technically advanced workforce. This is essential if we are asking the Australian defence industry to develop and sustain a series of world class capabilities.

The third leg of the skills package – targeting industry capability and productivity has been neglected in the past. There are three initiatives in the third segment of the package; an industry focused post graduate program; a scheme to analyse and intervene if necessary, the skills crucial to Strategic Industry Capabilities and the establishment of a Defence Industry Innovation Centre.

This last initiative is perhaps the most important, and most innovative, policy in this package. It accounts for fully a third of the $61 million package and is designed to enhance the productivity of the defence industry. Designed on a hub and spoke model, the Defence Industry Innovation Centre will build upon the Enterprise Connect Manufacturing Network. The Centre will help defence SMEs to find and adapt the latest research and technology; get help in solving identified problems and benchmark their processes against world’s best practice. The Centre will address the specific challenges defence SMEs face around greater quality assurance processes and the finer tolerance levels demanded in the defence materiel supply chain.

As you can see we have taken a very holistic approach to defence industry and skills policy. The integration of the various strands of our programs with some of the Government’s work in the broader areas of skill and innovation will help increase their effectiveness. We’ve been pretty busy this year on this front and as I’ve indicated we will be looking at doing plenty of work next year on this.

Procurement Reform

The fifth and final area of my work is the development of a program of ongoing reforms in defence procurement to ensure that we continually improve in this area.

To facilitate this on 7 May this year I announced that a Defence Procurement and Sustainment Review would be conducted by Mr David Mortimer AO.

This fulfilled the commitment Labor gave at the last election to undertake a formal evaluation of the effectiveness of ongoing reforms to the DMO.

Mr Mortimer has now presented his report, which is titled ‘Going to the Next Level’, to the Government and this was tabled in the Parliament by the Minister.

The report reaches the conclusion that the recommendations that were implemented following the Kinnaird Review in 2003 have been very successful in improving the system but that more needs to be done.

The report contains 46 recommendations covering five different areas including:

-- the strategy and needs analysis of capability planning;
-- defining the requirements of capability;
-- the capability acquisition process;
-- sustaining and disposing of capability; and
-- driving cultural change in the Defence Materiel Organisation.

The Government is now in the process of considering its response to the report which we will release prior to the White Paper.

As I have outlined before there are a number of very important principles that will need to underpin the Government’s response to the report.

These include:

-- The importance of independent and accountable advice to Government on cost, risk schedule and acquisition strategy for major projects;
-- The need for greater transparency and accountability throughout the defence procurement process;
-- The need for the DMO to become more business-like; and
-- The importance of the maintenance of the close relationship between Defence and the DMO in both procurement and sustainment activities so that ADF operational and capability requirements informs the DMO’s work.

To this end I have been meeting on a weekly basis with the leadership of Defence and the DMO including the Secretary, Chief of Defence Force, CEO DMO and the majority of the Deputy Secretaries to help formulate a response.

I have very much appreciated the opportunity to sit down with the Defence Leadership to discuss the response to the review.

While most of the recommendations in the report are seen as beneficial, it is true to say that there are some aspects of the report which have been contentious within different areas of Defence.

However it is also true to say that everybody has been committed to reforming the way we go about defence procurement and there has been agreement on the Government’s principles for this reform.

I have the firm belief that every person who has been in those meetings is deeply committed to achieving better results for the ADF and the taxpayer. While they may differ at times on how to achieve this everybody agrees on the end result.

Throughout these meetings I believe that we have been able to make substantial progress on some of the more contentious aspects of the report. I believe the debate has raised the awareness of all within Defence about the current system and the importance of reform in this area. I know it has definitely given me a greater understanding of the current system and some of its limitations.

Through consultation I believe that we will be able to reach a consensus, or near-consensus position on the response. I also believe that these meetings will lead to a better public policy response than may have been the case.

We hope soon to finalise the draft response and recommendations which I will then hand to the Minister for Defence. It will then be up to him and his cabinet colleagues to consider and approve that response.

At the end of the day the Government remains committed to achieving substantial and substantive reform in this area. It is my own firm belief that we can, and must, be doing better for the ADF and taxpayers.


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