John Faulkner (NSW, Australian Labor Party) Share this | Hansard source

Mr Acting Deputy President, I seek leave to speak for 20 minutes.

Leave granted.

Tonight I wish to speak about a serious problem: the current Defence Capability Plan. This is the plan that supposedly guides the expenditure of some $55 billion of taxpayers’ money to purchase new defence acquisitions. This is the plan that supposedly ties major acquisitions with the associated new personnel requirements and guides the very important through-life support for the new acquisitions.

This plan is a mess. It is a mess because the Prime Minister and successive defence ministers have failed to do their job. They have failed to provide the top-down management of this crucial plan. The Defence Capability Plan was designed to bring strategic coherence, fiscal discipline and clear guidelines to the Department of Defence on how it should spend taxpayers’ money. But the Australian Strategic Policy Institute in its special report of January this year states: ‘The Defence Capability Plan has degenerated into a list of future investment projects.’

The responsibility for this lies with the Prime Minister and successive defence ministers. I say the Prime Minister because we all know that the Prime Minister likes to run defence. It is the Prime Minister that runs defence. It is Mr Howard who tells Dr Nelson what to do, just as he did with Robert Hill, Peter Reith, John Moore and Ian McLachlan. It is time that this government and the Prime Minister, Mr Howard, took responsibility for this mess of their own making.

The national government has sole responsibility—and a grave responsibility it is—to make sure that the ADF is properly equipped and supported to carry out its tasks through capability delivery and beyond. That is the government’s job and the Howard government has not delivered. Every defence acquisition failure hurts the ADF’s operational capabilities. Every failure wastes taxpayers’ dollars and every dollar wasted has to be replaced at some stage. Every dollar wasted represents a reduction in what ADF capability can be purchased or supported. Every dollar wasted is stolen from the future.

We are not talking here about small amounts of money that can be disguised as some inevitable departmental inefficiency or consequence of risk. The top 20 projects due for delivery in the Howard years represent in total in excess of $10 billion of taxpayers’ money. But now these projects will cost up to double that amount. The Howard government’s incompetence measure is up to $10 billion for these projects alone. Four of the 20 projects were cancelled. On average, each of the remaining programs will experience an overrun in excess of $600 million per program. These are staggering amounts. Let us look at three of the programs.

The Royal Australian Navy had six guided missile frigates, or FFGs. The decision was taken to upgrade their capability and performance. A contract was signed in 1999. The completion date for the first upgrade was to be August 2003. Project cost was about $900 million in 1999 prices. It is now 2007. The Navy has no operational upgraded FFGs. No-one can confidently predict a completion date for the upgrade, although the target seems to be late 2008. In other words, the project is at least five years late. During the acquisition phase, no doubt influenced by the increasing delays in delivery, the government announced the retirement of two of the FFGs. But Defence has purchased and paid for upgrade kits for all six ships. The contract price has so far not been successfully renegotiated. Are we getting a bargain? Four ships for the price of six! The contractor has received bonus payments in the order of $3.5 million as well as having been paid nearly 80 per cent of the original contract price. The Navy still does not have an upgraded operational FFG.

As a result of the government’s failure, Navy has not had the benefit of substantial capability improvement. By any standard, this program gets marked as a fail—a fail on cost management, a fail on timely delivery and a question mark on the completeness and effectiveness of the capability that may ultimately be delivered. In plain speak, the government has failed on time, cost and quality.

The second example is the infamous Seasprite helicopters. They form a vital part of the Anzac ships capability, extending the range of their eyes and ears and weapons systems. The ships are not fully effective without them. The Seasprites were planned for delivery in 2000 at a cost of $750 million. Their cost is now in the order of $1 billion and the intended capability has not been achieved. The helicopters remain in their hangars. Strong doubts exist as to whether the Navy’s operational requirements for the Seasprites can ever be achieved and, as a result, Minister Nelson directed a re-examination of the future of the whole program. Whatever the outcome of the review, this project must also be marked as a failure. Up to $1 billion has been wasted.

The last example is the upgrade of the RAAF’s FA18 fleet to incorporate vital capability enhancements. One element of the upgrade is a new radar warning receiver with a project cost of about $330 million. The government took a risk with the direction chosen for the radar warning system. Then, having taken that risk, they failed to properly control the project. The lack of effective control ultimately led to a belated decision to scrap the years of development work and, effectively, the government were forced to buy new kit ‘off the shelf’. Yet again the government get a fail on both time and cost. Quality of the product to be delivered for this project remains uncertain.

In announcing the government’s about-face on the radar warning system, the minister was reluctant to blame the contractor or exchange rate movements. The minister just dismissed this waste as an inevitable risk of leading-edge projects. Dr Nelson, the Minister for Defence, said:

... the Government is not and will not be risk averse in encouraging innovation and in obtaining the best capability. However, we have concluded that this technology cannot be delivered within the necessary timeframe.

The minister went on:

... the Government has now decided to fit the Raytheon ALR-67(v)3 RWR to the entire F/A- 1 8 fleet. The ALR-67(v)3 is already proven and operational in the United States’ F/A- 1 8 fleet, so there is low integration risk.

Granted, to maintain our superiority we need to stay leading-edge in critical areas of capability. Leading-edge projects have a degree of risk. However, in the case of the radar warning system, the government followed a leading-edge approach then decided that a low-risk option would suffice. This leaves unanswered questions. If the low-risk and proven solution can meet the ADF’s needs, why didn’t the government decide on that approach initially? Is this yet another capability compromise, necessary because of poor management by this government? In the interests of an informed public the minister ought to tell us up-front which projects fit in the ‘risky’ category, not use it as an excuse for failure.

So what has been the government’s response to the growing list of failed or failing major acquisition projects? Following a Senate committee inquiry in 2003, defence materiel acquisition was further assessed in the Kinnaird review. Despite the benefits of scrutiny by, and recommendations from, both the Senate Foreign Affairs, Defence and Trade Committee report on materiel acquisition and management in Defence and the Kinnaird review, defence acquisitions remain in crisis. Despite these valuable inquiries, the Howard government has failed to reform the process of acquisition and improve the support for delivered capability.

Not only has the government failed to fix the pre-Kinnaird problems, it has failed to deliver on the review’s recommendations. The government only effectively implemented some of the recommendations. And this is disastrous because the recommendations are inextricably interdependent and were never intended to be cherry-picked. The government may say that the DMO annual report 2005-2006 identifies some project performance improvements. I acknowledge and believe that these can be attributed to better management inside the DMO and reflect well on the work being done by the DMO management team.

However, critical issues continue around the government’s role in major acquisition performance. Nothing the government has done in response to the Senate committee or Kinnaird reviews has achieved the substantial and enduring change that the government trumpeted as necessary in promoting the establishment of the DMO as a prescribed agency. The government has failed to keep the Australian taxpayer fully informed of the status of major projects. Both reviews recommended that there should be more reporting by the government on the status of projects. Indeed, the Australian National Audit Office has recommended on several occasions that Defence should report annually to the parliament on the status of its projects. But this has not happened.

The government is also failing to acknowledge the downstream effects of its acquisition performance. Schedule overrun and delivery of reduced capability have a real impact. Cost overruns, whether they are associated with schedule problems or not, take money away from other worthwhile projects and take funds from future support for the delivered platforms and systems.

This government would do well to remember that every overrun on a major acquisition matters now, and will matter in the future. With these massive cost burdens on the defence budget, fewer capabilities can be acquired and fewer platforms and weapons systems can be supported. The impact will be felt for many years to come—and it will be felt on the ADF and on our defence personnel. Every acquisition failure, every cost overrun, every wasted dollar, is money stolen from the future. We owe the men and women who now—and who will in the future—defend and serve our country the best tools, the best weapons and equipment for that defence. We owe it to them not to squander the defence budget in waste and mismanagement.