Andrew Southcott (Boothby, Liberal Party) Share this | Link to this | Hansard source

On behalf of the Joint Committee of Public Accounts and Audit, I present the committee's report entitled Report 448:review of the 2013-14 Defence Materiel Organisation Major Projects Report.

Report made a parliamentary paper in accordance with standing order 39(e).

by leave—This report details the findings of the committee's examination of the second Defence Materiel Organisation (DMO) Major Projects Report (MPR) reviewed by the Joint Committee of Public Accounts and Audit (JCPAA) in the 44th Parliament and the seventh to be reviewed by the joint committee overall. This year's report covers 30 projects with a combined approved budget of $59.4 billion.

The DMO MPR constitutes the ANAO's review and analysis of the progress of selected major Defence acquisition projects managed by DMO, and aims to consider cost, schedule, and capability performance and to function as a longitudinal analysis of procurement projects over time.

The JCPAA assesses the overall content, accessibility and transparency of the information provided in the MPR, and also reviews and endorses the guidelines that constitute the MPR.

The committee is committed to ensuring the information presented in the Major Projects Report helps to maximise transparency and accountability in the Defence acquisition process for major projects that have been managed by DMO and will continue to be managed by the Department of Defence in the future.

Specific areas of focus in the committee's review of this year's report include some specific projects listed in the 'Projects of Concern' as well as broader issues regarding governance and business processes.

Defence Major Projects are inherently complex, and meeting cost, schedule and capability targets must be considered in this context, particularly for developmental projects.

DMO has summarised the range of issues affecting the completion of Major Projects. These include:

The committee acknowledges these various challenges.

DMO has played a strong and positive role in the development of the MPR since its inception in the mid- to late-2000s. With DMO's abolition and the Department of Defence reabsorbing the DMO's functions, the committee expects the department to continue working on the MPR with the same intensity shown by the DMO over the past eight years.

The committee, in conjunction with Defence and ANAO, is now focussed on establishing a mechanism through which sustainment reporting can be better scrutinised. Sustainment expenditure is currently at approximately $5 billion per annum and predicted to increase significantly over time. The committee considers sustainment spending to be an area requiring further parliamentary scrutiny on the adequacy and performance of Defence involving billions of dollars in the future.

Objections in the past by DMO/Defence to providing further information on sustainment have centred on security issues—that is, that more detailed reporting of sustainment in the public arena would compromise national security. The committee is in complete agreement with Defence about the need to protect classified information.

Having had a series of options presented to the committee by ANAO, initial discussions with Defence have already occurred and, at this stage, it appears likely that sustainment reporting will be developed through an evolutionary process until both the committee and Defence are comfortable with a final structure, not unlike the development of the MPR itself.

The committee, along with ANAO, DMO and the Department of Defence, has worked diligently and constructively over the past eight years to progress the MPR to where it is today. The reforms to the department are designed to bolster efficiency and they should not result in a diminution of the intensity with which Defence approaches its work. The committee looks forward to working with the new reformed Department of Defence to produce the same high-quality MPR in the future so as to ensure that the improvement gains made in terms of project acquisition management over the past eight years are maintained. This also applies to the new sustainment reporting that the committee, ANAO and Defence are now embarking upon.

I would like to thank all members of the committee for their contribution to this report. I would like to thank all members of the committee secretariat for their contribution to this report. On behalf of the committee, I would like to express my appreciation for the work done by the DMO and the Australian National Audit Office in producing the Major Projects Report this year.

I commend the report to the House.

Pat Conroy (Charlton, Australian Labor Party) Share this | Link to this | Hansard source

by leave—I want to echo the fine words from the chair of the committee on the excellent work done by the committee secretariat, the DMO and the ANAO on what is a very important process for parliament holding Defence to account on the delivery of platforms so vital to the ADF. I just want to highlight some key aspects of the testimony from our hearing in February, which I think we should note. First off, on the highly contentious Collins class submarine project, we had a very good discussion with Vice Admiral Griggs, the chief of the capability development group, who said:

… Collins is a highly capable weapons system.

He also said:

In terms of operational performance, it has been very good.

This is very relevant with regard to the myths out there that somehow the Collins class submarines are poor performers. This was Vice Admiral Griggs saying that they are a very capable weapons system. Ms McKinnie, who is a senior DMO executive, when talking about the quality of the build of the Collins class submarines, said:

… the quality of welding done in Australia was extremely high.

That is especially so when you compare it to the problems in the manufacture of other submarines of that vintage.

We had a good discussion on the air warfare destroyer project. DMO executives basically acknowledged that a lot of the problems we are experiencing now have very little to do with the workforces of the various shipyards but have everything to do with the nature of the acquisition strategy adopted in the first place in 2005-06. The decision to go for an alliance was problematic; the decision to go for an alliance structure without having the ship designer, Navantia, in the alliance was problematic; and there was a lack of understanding of the difference in cultures between the European shipyards that had been building the F100 class and the Australian shipyards. That was quite illuminating.

We also discussed Land 400, where, quite frankly, there was some very disturbing testimony by the DMO that there were no opportunities for locally based manufacture of these very important Army vehicles. They said:

… there are opportunities for assembly. I would not suggest there are opportunities for manufacture. … There is the possibility of flat pack assembly.

If this is all we can expect to get out of a very significant Army project, it is very troubling, given the performance of locally manufactured platforms, such as the Bushmaster, overseas. I know there were a group of parliamentarians who got to see that firsthand on a quite recent trip. So we should not be so ready to discount the performance of Australian manufacturing in (a) delivering quality platforms to the ADF and (b) providing great jobs for locals.

This brings me to the fourth element of the testimony that I wanted to discuss, which is the debate around the Hawkei vehicle versus the JLTV, the joint light tactical vehicle, that the US Armed Forces are delivering. When this project was first envisaged, there was a very strong push by the Defence hierarchy just to sign up to the JLTV. But Australian industry were very passionate about the fact that they could produce a platform that would be safe, on schedule and on budget, and there were some very brave decisions made by politicians in this place about four or five years back that gave local industry a chance to compete on this project. I am comforted to be able to say that during the testimony we heard nothing but good news about the Hawkei project. In fact, it is clear that it has become the de facto choice for this acquisition, with the JLTV as the fallback. It is interesting to note that the testimony revealed that the JLTV is running 3½ years behind schedule. So the Australian option is going well; the US option has now become the fallback option, partly because it is 3½ years behind schedule. That is good news for Australian industry. It is a testament to the brave decisions made in this place a few years ago and it is a testament to the passion of the former member for Bendigo, Mr Gibbons, who was very committed to delivering for his region.

I will briefly build on the comments by the chair of the committee, Dr Southcott, about the First Principles Review and the impact on the DMO Major Projects Report and acquisition strategy. I note that the principles review's recommendation to reintegrate the DMO goes against the evidence and recommendations of their Kinnaird and Mortimer reviews; and it goes against the evidence of the Major Projects Report, which found that 80 per cent of the cumulative 93 years of schedule delay occurred before DMO's separation from Defence. Let me repeat that: in the Major Projects Report, there are 93 years of schedule delay across those 30 projects, and 80 per cent of that slippage is in projects that were approved before the DMO was separated from the department. So I do have concerns about that recommendation.

I acknowledge that we need to improve the workforce of the Capability Development Group and I acknowledge we need to improve the commercial and industrial focus of both the CDG and DMO; but we need to avoid too strong a bureaucratic concentration. We need to maintain contestability and we need to make sure that we have the appropriate commercial and industrial focus so we can deliver the best platforms to the ADF on budget and on schedule. I do have reservations about this response, but we will see how it goes.

I conclude by thanking the committee secretariat, the DMO and the ANAO for their contributions to this report, and I thank the chair for the manner in which he conducted the inquiry.