John Hogg (Queensland, Deputy-President) Share this | Link to this | Hansard source

In accordance with the provisions of the Auditor-General Act 1997, I present the following report of the Auditor-General: Report No. 3 of 2006-07—Performance audit—manage-ment of Army minor capital equipment procurement projects: Department of Defence and Defence Materiel Organisation.

Mark Bishop (WA, Australian Labor Party, Shadow Minister for Defence Industry, Procurement and Personnel) Share this | Link to this | Hansard source

by leave—I move:

That the Senate take note of the document.

I want to take note of the performance audit by the Australian National Audit Office on the management of Army minor capital equipment procurement projects. In doing so, I speak with some reluctance because it is almost like groundhog day here when one rises to speak on procurement projects administered by various services of the Australian defence forces.

Over the last 12 or 18 months, we have had numerous reports from the Australian National Audit Office on major capital equipment projects and purchases, some in excess of $1 billion or $2 billion. Many of those projects were identified by the Audit Office as being highly over contract cost and significantly behind time. They would have had an effect on capability of troops in the field but for emergency responses by the relevant services.

Through questioning, a pattern has emerged as to the reasons for time implementation and cost overrun in all of those major equipment projects. Basically, it goes to issues relating to significant developmental costs in a lot of the equipment that the Australian services seek to have; it goes to changes in contract specifications during the period of construction of the project; it goes to requirements that are added into the project by the Army, Navy or Air Force as the particular project gets under way. So a range of reasons have been advanced. Some of those reasons have a significant degree of veracity about them, one must say at the outset. Some of them smack of justification after the event, when there really is no adequate reason for the time delay and when the time delay was caused by poor supervision, inadequate drafting, incorrect allocation of staff and a whole range of reasons which go to organisational features of one or more of the armed services. Nonetheless, it could be and has been said that, in a range of major capital equipment projects, there were reasonable explanations as to delays.

This report by the Audit Office, however, falls into a different category. This is not about state-of-the-art missiles or helicopters; this is not about next-generation fighter aircraft; this is not about changing specifications to major war-tanks in a desert environment. All of those things are probably covered by my introductory remarks. This audit report identifies small-scale projects—matters like combat boots, wet weather ensembles, propulsion boats, light engineering tractors, hand-held rangefinders, medium graders, medium bulldozers, artillery orientation systems—a lot of very basic equipment that mobile army forces in any part of the world need. Such equipment includes tractors, graders, wet weather equipment, boots, field refrigeration storage and distribution, and mobile refrigerators or freezers—basic commodities and ones which generally can be purchased off the shelf or, indeed, if there are particular requirements, as is often the case with important items like boots, can be manufactured at relatively short notice.

Unfortunately, what we have found is that, for 10 projects that had been delivered between 1994-95 and 2003-04—a period of eight or nine years—the slippage in service date totalled 39 years, or an average of 3.9 years per project. That is a terrible figure. Army minor projects, by value, delivered between 1995 and 1 July 2005, were on average almost four years late—a terrible situation. What is worse, the report identifies that Defence has moved to implement some administrative changes, some procurement practice changes, over the last two years to try and improve the system.

In terms of current ongoing projects, there has indeed been an improvement. For the seven identified projects, the time delay has been reduced from 39 years to 23 years. That is apparently a significant improvement, but, when you do the division, the time delay in current ongoing projects is still 3.3 years. So, notwithstanding early identification of delays, adequate explanation of those delays by the audit office of Defence, Defence’s recognition of the need to change and some changes in administrative practices and procurement projects, the delay in Army minor projects for current ongoing projects is still in the order of 3.3 years. So we have a significant problem in major capital items.

The Audit Office has identified a significant problem in Army minor projects and, regrettably and unfortunately, at this very date we have significant ongoing problems in the acquisition of basic kits and equipment in current ongoing projects—a most reprehensible situation indeed. As one goes into the body of the ANAO report, its main findings identify that just three of 18 projects—10 completed, eight ongoing—were delivered on time. Costs for eight of the 10 projects delivered had risen because of time slippage. So there were delays, time slippages and additional costs. Why was that? Because many of the complex procurement arrangements were managed by just one person. So we were saving cents by having an inadequate number of staff for labour and inadequate levels of senior supervision, and there were delays of an average of 3.3 years per project, cost blow-outs of hundreds of millions of dollars due to time slippage and additional costs because of those delays.

You do not have to spell it out in black and white: that is just a manifestly terrible situation, an unacceptable way of organising a business, and it results in not supplying equipment and material of the required standard on time to our troops in training here in Australia and our troops overseas. Troops in training is one aspect—and the matter of troops in training in Australia is not as important as that of troops overseas—but, when one goes to the body of the report, particularly at paragraph 9, there is a very craftily worded opening sentence. It says:

While some of the projects are late in terms of delivering the items sought, this does not always translate to a loss of capability.

By implication, necessarily, this means that sometimes, or on occasion, troops in the field do not have 100 per cent capability because of the failure to deliver contracted materials on time. Not always—I do not say that. Not forever—I do not say that. But the wording in this paragraph by the ANAO necessarily leads to the conclusion that on occasion—logically, on more than one occasion—an inability to deliver required kits or equipment to troops serving in the field has led to a loss of capability.

In due course, the minister or someone in authority will respond to that cutting finding of the ANAO and perhaps there will be a reasonable explanation or a different interpretation of that particular sentence that I cannot readily comprehend at this stage. But, if my interpretation is correct, it is really a most terrible situation that, by definition, we have to rely on allies to provide equipment or kits to our troops in the field or we have to pay a premium to commercial suppliers to provide the equipment. Even I cannot believe that our government would countenance our troops in the field, engaged in operation, not having the required equipment to deliver capability. At this stage, it is just an issue of time slippage and cost overrun. I seek leave to continue my remarks. (Time expired)

Leave granted; debate adjourned.