Nick Xenophon (SA, Independent) Share this | Link to this | Hansard source

My question is to the Minister for Defence, Senator Johnston. The minister's announcement on 4 June in relation to the independent review of the air warfare destroyer project had little to say in relation to the Defence Materiel Organisation, which has more than 7,000 employees and a budget of over $7 billion, which is almost 40 per cent of the Defence budget. A report released this week by the Australian Strategic Policy Institute said in relation to the project and the DMO: 'It's hard to avoid the conclusion that planning was overoptimistic and production management less robust than was required. Many design changes were made to Australian requirements in materiel choices and Defence's project management doesn't seem to have accurately assessed the impact of those changes.' My question to the minister is: what role did the DMO play in the mishandling of the AWD project?

David Johnston (WA, Liberal Party, Minister for Defence) Share this | Link to this | Hansard source

I thank Senator Xenophon. Some of the numbers that he has quoted are not entirely correct. When we came to government, the finance minister and I were confronted with advice that the air warfare destroyer program, a program that is very, very important to our national security, was in fact in serious trouble, notwithstanding two attempts during the life of the previous Labor government to reschedule it. The Auditor-General released a report earlier this year where he stated that there was about $300 million of cost overruns at that point and overall the project was then 21 months behind schedule. That is what we inherited.

We had also set the benchmark at 80 man-hours per tonne. The international benchmark is 60 man-hours per tonne for the construction of naval military ships. Currently the program is running at 150 man-hours per tonne. That is unsustainable and unacceptable, and we would be failing the taxpayer if Senator Cormann and I did not undertake some serious remedial action.

Senator Xenophon, I am sure you are aware that we took this action following an independent review to ensure we were setting the program on the right course because we want a sustainable, viable industry. There are potentially a further eight ships to follow, and we want to see them built in Australia. But we are not going to build them at any price. We scoped this program very carefully. Some of the industry players have performed well but some have not. So we are sending a very specific message that this is unacceptable but that we want the industry to recover.

Nick Xenophon (SA, Independent) Share this | Link to this | Hansard source

Mr President, I ask a supplementary question. Why was Australian industry, including the ASC in Adelaide, excluded from even tendering for the Navy's two new supply ships? And what impact did the problems of the DMO, identified by ASPI this week amongst others, have on the government's decision to exclude Australian industry from even tendering for this project?

David Johnston (WA, Liberal Party, Minister for Defence) Share this | Link to this | Hansard source

Again, I thank you for that question. It is a very good question and one that you must realise the government agonised over. We want to build military ships in Australia. HMAS Success, our replenishment ship, and HMAS Sirius, our oiler, are coming to the end of their lives. The vessel HMAS Success was commissioned in 1986. Something should have been done about that old ship sooner. We had to bring a Spanish replenishment ship out because HMAS Success needed repairs. That cost us quite a deal of money.

The fact is that we are looking at acquiring a 20,000-tonne or, following a tender contest, a 26,000-tonne vessel. The problem is that, if you know the Adelaide shipyard, the Melbourne shipyard and the Newcastle shipyard, you know we cannot build such a vessel in those shipyards.

Nick Xenophon (SA, Independent) Share this | Link to this | Hansard source

Mr President, I ask a further supplementary question. Does the minister concede that there are problems with the performance and productivity of the DMO, as identified by ASPI this week, which in turn impacts on the ability of Australian shipbuilding to be considered to deliver our Navy ships as well as on the thousands of shipbuilding jobs in South Australia, Victoria and New South Wales?

David Johnston (WA, Liberal Party, Minister for Defence) Share this | Link to this | Hansard source

As the senator would know, we are commissioning a new white paper. But we are also commissioning a first-principles review of the way Defence, including the DMO, does its business. The reason we are doing a first-principles review is that we want to see Defence performing to its optimum and we want to see the DMO carrying out its functions and delivering programs for the Australian Defence Force cost-effectively.

The first-principles review will be key to the input into the white paper as to the reforms we must undertake inside Defence. The government is determined—

John Hogg (President) Share this | Link to this | Hansard source

There is no point of order at this stage.

David Johnston (WA, Liberal Party, Minister for Defence) Share this | Link to this | Hansard source

I pause to thank the senator for his point of order and for his very learned contribution to strategic policy in Australia. What was his reward for being one of the principal contributors from the other side? To be sacked. (Time expired)