Mark Bishop (WA, Australian Labor Party) Share this | Link to this | Hansard source

I was prompted to speak tonight by an informative and useful article, published in the Weekend Australian on 27 February, by two respected defence writers, Paul Dibb and Geoffrey Barker. The article addressed the vexed question of competition, and its practicalities, in Defence procurement policy. It was based on an allegation of dogmatic adherence by the Defence Materiel Organisation to the theory and practice of competition policy, as opposed to what is seen as anticompetitive pressure from the military—in particular, from the ‘iron colonels’. It included a sizeable swipe—as civilians are prone to do in this environment—against the alleged self-interest of the military, who traditionally claim proprietorial control over all things military. I do not want to engage in this debate, because it is an age-old problem. I simply want to say it is a matter of strong leadership, clear long-term policy direction and intelligent decision-making—and we should also remember that, in a democratic world, the self-interest and groupthink that surround this are difficult to deal with.

When you have time frames of decades, as Defence procurement does with the longevity of its planning strategies, purchasing decisions are frustrated by the short-term political process. Added to this is the simple inflexibility of decision-making: when contracts are locked in, it may take 30 years to work through to final delivery. I would suggest that this is unique and, indeed, quite unlike any other part of government. The fact that we are only now scrapping the F111 fleet, first selected by the Menzies government almost 50 years ago, is a case in point. This goes a long way to explaining the frustration we all suffer in dealing with Defence issues.

Objectively speaking, there are no excuses for many of the failures of Defence purchasing in recent years. But it is sometimes inevitable that in retrospect, with the wisdom of hindsight, original decisions are seen to be wrong. As we have seen with the Seasprite helicopters for the Navy, these decisions can be grotesquely wasteful—to the tune of over $1 billion—as with the current controversy of the Collins class submarines. It is important to learn from some of these mistakes. That debate is, at least, a healthy one, although decisions will still be fraught with many difficult elements and the speculation will undoubtedly continue apace. It is simply the nature of the beast, and every nation on earth faces the same dilemma—although the Rudd government, as a result of the implementation of the Mortimer report, has made a number of key decisions to remove the decision-making process, which had clearly fallen into a degree of disrepair under the previous government.

The central thrust of the article I have referred to is the relevance of competition policy within Defence procurement. The discussion is, I think, fair, albeit conflated with drama about alleged competing philosophies between the bureaucracy and the military and between successive governments. The practical matter, though, is the need to properly understand the context of Defence procurement—again, every nation in the world is confounded by the same problem. The answer is that there simply is no answer. The cloth must be cut according to the circumstances germane at the time.

Let me summarise the contextual circumstances that I see as being relevant. Australia is a small nation in a big, empty area of the globe. As the Defence white paper makes clear, we are not under any defence threat in the near- or medium-term future. We are a high-cost country with one of the highest living standards in the world. Our defence forces, by any standards, are small. Like all other nations, especially given the current world economic conditions, pressure on our domestic budget is enormous. Our manufacturing industry is dominated economically by the strength of mining and service outputs. Defence demand on industry is highly specialised and technically sophisticated. There is insufficient critical mass within a number of defence related industries to provide both continuity and cutting-edge sophistication. Defence, by its specialised nature, is a monopsony—that is, there is only one buyer—so competition, by definition, is supply-side only. But, at the same time, it makes the taxpayer vulnerable to monopoly suppliers. We continue to suffer from port decision-making in the past, which has failed to provide adequate strategic guidance and has therefore caused uncertain continuity of demand and poor grounds for long-term investment by industry in necessary high-cost capital equipment.

As a consequence of that political failing, we have also failed to publicly invest in the infrastructure necessary not just for defence industries but across the board. Regardless of the arguments for self-sufficiency and self-reliance in times of conflict, given our exposure to the tyranny of distance we must rely on strong alliances. Yet, for effective sustainment, there is a minimum level of local support which is essential. We cannot derive any economies of scale and must therefore, in some areas more than others, remain dependent on international sharing. I note that this has long been the reality for Europe and is becoming so for our dominant ally, the United States.

Like all Western nations we need strong formal defence links, especially with respect to access to leading technology—and, as we know, there is continuing growth in international trade and corporate globalisation. Further, within that internationalisation of supply, defence related corporations are rationalising and reducing in number, with wider international reach. Our own defence industry is becoming less home-grown. It is becoming part of the growing global network.

That is the broad context for the subject of competition policy for Defence procurement in Australia. It cannot be reduced to a simple slogan. Yet it is very important that decision-makers be continually reminded of its virtues and that decisions to avoid its disciplines are made carefully and transparently. If, as alleged, the CEO of the DMO is a bit messianic in his message in favour of the strict application of the rules of competition then I would say ‘all strength to his arm’. That is his duty in fighting the old, cosy culture of cost-plus procurement. I say that because, notwithstanding the argument in favour of exceptions for strategic reasons—and I agree with that argument on occasion—there is a risk that exceptions can become the rule. In a small market such as Australia’s, this would simply be a return to the old form of patronage, which the government is working so hard to avoid.

The other contextual risk, as we know, is that defence has for a long time been a political sacred cow to some extent. That is now being challenged, and rightly so, by demands for full accountability, transparency and integrity of decisions in the public interest. And that includes all defence industries, which must come to accept that hidden subsidies and sweetheart deals are and will remain creatures of the past. The clear message is that the monopsony of defence is not to be exploited but also that monopoly supply will be avoided wherever possible—and then, if it is a necessary evil, strictly managed.

There are no doubt many other contextual factors affecting the issue of competition for defence procurement. It is no simple issue and there are no simple answers. There will occasionally be some compromises. Many factors simply cannot be costed, and value judgments will abound. Bureaucrats and politicians will always be sceptical. Governments of any colour will struggle to balance the competing advice and, more importantly, the competing interests. And industry, quite rightly, will want to know what is in it for them. That is why it is so controversial when you are talking about billions of dollars. We need to avoid ideological disputes in the interests of achievable outcomes, but without throwing the baby out with the bathwater. At its heart, this seems to me to be the essence of the Rudd government’s approach, which I support. We can already see the trends—and they are international trends—flowing from all the points I had made on the special context of defence procurement. And the key to this is the basic need to have a clear articulation from government about its defence industry policy intentions, just as the white paper has done for the broader defence direction. I know the minister has committed to the release of that policy in the near future.

In conclusion, may I say that I look forward to its release in due course. I think we have made great strides in this area in the last couple of years. But I do remind the Senate and those listening that it is a very complicated matter. (Time expired)