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

Nearly four years ago the government finally acknowledged it had a problem with defence materiel acquisition and management and initiated the Kinnaird review to fix the problem. Even before the Kinnaird review, the 2003 Senate inquiry into Materiel Acquisition and Management in Defence identified several areas for improvement. It is about time to look at the government’s record on implementation of the Kinnaird review’s recommendations and the findings of the Senate inquiry. Overall, the scorecard is poor: failures in major acquisitions continue and the capability plan is in a mess.

The government’s actions and decisions following these comprehensive reviews have failed to fix the problems in major Defence acquisitions. Kinnaird recommended, and the government accepted, a two-pass approval process for major acquisitions. The first pass, usually involving substantial time and cost, aims to produce a more reliable basis for the investment decisions to be taken in the second pass. The government has apparently ignored its own commitment to a rigorous two-pass system with its recent decisions on tanks, on airlift capability and perhaps on the Super Hornets. These decisions were taken with an absence of the rigour that, after all, is their own requirement. How can the government expect to improve its major acquisition performance when it reverts to the same old slack practices?

The Senate review and Kinnaird also recommended increased visibility for acquisition project status and performance and effectiveness of through life support. The Australian National Audit Office has also recommended that Defence report annually to the parliament on all major projects. Clearly this has not been addressed by the government. To adapt a common saying from the business world to which the DMO aspires: what you don’t measure and report won’t get managed. It is all about transparency and the inherent responsibility that comes with having to disclose what is happening.

Kinnaird recommended increased formal participation by the service chiefs and their staff in monitoring the process by which weapons systems were being acquired and proposed an ongoing role for project governance boards in through life support, or sustainment as it is now known. The Australian Strategic Policy Institute, in its special report of January 2007, states that:

... the services have been separated from the direct control of many of the resources necessary to manage the delivery of capabilities for which they are normally responsible.

Government is ignoring the need for clear alignment of accountability with authority and responsibility.

Again demonstrating a typical lack of rigour, the government decided to act in apparent haste on the one key point of difference between Kinnaird and the Senate inquiry. The Senate inquiry said: do not set up a separate agency; Kinnaird said the opposite with equal conviction. I quote from the Senate report:

Notwithstanding some strong representations to the effect that a corporatised DMO would enhance its capacity to work with Australia’s defence industries, the committee finds that such a proposal is not in the best interest of key relationships between the DMO, the three services and other relevant sections of the defence organisation.

While I can reconcile most of Kinnaird’s recommendations as logical extensions to the change process identified during the Senate review, the matter of a separate agency was surely a significant decision with wide ranging implications that would have warranted more debate and thoughtful consideration by government.

I applaud the Kinnaird review’s premise of a holistic view of development and maintenance of capability. However, Kinnaird appears to temper that position with his recommendation 6: that the DMO should become an executive agency. But the government decided to establish the DMO as a prescribed agency. The Kinnaird review supports its position on the basis that:

It would provide the DMO with a clear separate role and identity from the department—

and—

It is essential for the DMO to establish its own identity, separate from defence, to ensure it is able to rapidly transform its culture and develop the Commercial focus it needs. A cultural shift in the DMO can underpin and help drive a new focus on performance and outcomes, and lead to improved procurement and support practices and better results for government.

I do not believe that Kinnaird was saying that the remainder of Defence, other than the DMO, need not be focused on performance and outcomes. It costs money to establish and maintain a separate agency, and organisational arrangements impact on the capability development and acquisition process. After three years, the government should be able to point to financial and/or operational improvements as a direct result of its decisions on Kinnaird.

Efficient organisations reduce the number of organisational boundaries in the interests of efficient process. They do not install artificial fences. Efficient organisations not only install end-to-end processes but also implement integrated, not separate, systems that support their business processes. Separation of the DMO from Defence seems to be opposite to contemporary business practice. But the separation suits the government: it gives the government the opportunity to meddle, to play politics and to divide and conquer.

The complexity of the process of acquiring and maintaining defence capability should not be underestimated. I know of no other practical model than to have capability development tightly connected to acquisition. However, the government has come nowhere near the seamless integration that it claims to seek. The Australian Strategic Policy Institute, in its special report of January 2007, states:

... the Defence Capability Plan has degenerated into a list of future investment projects.

The government has failed in its DMO reforms. It has failed to fix acquisition problems, it has failed to keep the platforms and weapons systems working to maximum availability and it has wasted money focusing on organisational issues instead of addressing the major acquisition problems that were on the table at the time. I say again that the government has failed, and is still failing, to deliver the capability that the ADF needs. It has failed, and is still failing, to manage the Defence budget prudently and competently. It has failed, and is still failing, to meet the defence and security needs of our country.