Senator Mark Bishop, Chair of the Senate Foreign Affairs, Defence and Trade Committee speaks with APDR Editor, Kym Bergmann
6th Jun 2011
Q: Senator, in recent speeches you have spoken of the need for ongoing broad reform of Defence, not just the Defence Materiel Organisation. What are the obstacles to that process:
A: I think that for too long Defence has believed that they are unique, perhaps as some say a law unto themselves, and therefore because of the nature of their business beyond the normal scrutiny imposed on other areas of government, and indeed what’s applied in the commercial world. They have also been long too secretive, and their own internal lines of command are too complex and uncoordinated, looking at things too often from a single service epoint of view. I suspect they have long suffered insufficient intellectual expertise in technical areas which has meant great reliance on others, especially industry where the R&D is done. For example, lack of attention to the realities of systems integration has been catastrophic. However, transparency and accountability which are applied rigorously elsewhere are now being actively demanded by government – and the taxpayer – with changes becoming more obvious.
As a consequence of that attitude there has been is constant scope creep and constant scope change in capability acquisition. As a consequence of that way of doing business there is a lack of specificity and exactness in thinking and a lack of long term planning because the easy fall back position for the three services is to just get the latest piece of technology out of the United States.
So I think that process has resulted in a lack of management oversight, a lack of proper planning and I think that problem seriously needs to be addressed internally in Defence, secondly at Capability Development Group level.
Q: What are your views on industry policy?
A: The big problem for industry has always been lack of continuity i.e. boom and bust, especially in heavy industry. At least with the ship building industry we have brought a better and clearer long term rationale to that. At the same time though I think everyone recognizes that scale is a major problem and that off the shelf is becoming a very practical process. The long term strategy through the White paper has been essential in bringing clarity and long term commitment for Defence and industry planning – even though it now needs reviewing urgently as world circumstances change so quickly. The concept of PIC’s is an excellent way of filling the gaps, though as a concept it’s still in its early days. These are disciplines which only government can give and I must say seem to be bringing better control and accountability acoss the board.
: As the US cuts back on defence expenditure, could this erode the technological lead and if that happens will there be an impact on Australia:
A: I have two comments on that. Firstly, I don’t think we do look to the United States alone, even though they are our largest supplier – by far. Also I think the United States is so far ahead of the rest of the world when it comes to military technology that for the foreseeable future it doesn’t matter.
In addition, if as expected the US is going to be cutting back on defence outlays for some time in the context of its wider budget problems that does in my mind present serious opportunities to the DMO in this country in two ways.
Firstly, the major US Primes are going to seek significant work from other countries to maintain their cash flow because they’re not going to get it out of the United States. So they’re going to have to go to Canada, United Kingdom and France and Australia. And Australia via the White Paper has a serious capability acquisition program in train. Secondly - in a negotiation sense – it’s probably going to give considerable leverage to the DMO because those Primes are going to be quite keen on getting additional cash flow out of Australia. In the future we might be able to negotiate even better terms and conditions than those which have already resulted from the high value of the Australian dollar.
Q: Should we be taking more advantage of the high dollar?
A: I think in terms of the equipment and systems that we have already determined to buy off-the-shelf we ought to be buying early and ought to be buying increased quantities. The Australian dollar has gone from a long term average purchase price of around about 78 US cents, to the situation today we’re getting US $1.06 and arguably we are going to get up to a $1.20 by the end of this year.
That means the purchasing capability in this country in the space of twelve months has increased by 50 or 60 per cent. So I think that should be looked at in a serious way – especially keeping in mind that we are spending tens of billions of dollars.
At the same time I stand by my earlier comments that it’s part of the Defence management function to be seriously looking at the utility and benefits that can be obtained from Primes doing work in this country. That means we should be seriously paying attention to current and future Priority Industry Capabilities.
Q: Australia, almost uniquely in the Western world, has excluded Defence from budget cutbacks. Do you see anything unusual about that?
A: I think that question is totally wrong and I’ll say this, I think Australia almost uniquely in the western world – to use your phrase – is engaged in serious ongoing cost savings via the Strategic Reform Plan. The Department has identified savings in current dollar values of $20 billion over ten years, that’s $2 billion per year.
For the first two years Defence has achieved it, admittedly by cutting out low hanging fruit, but we are seriously engaged in that. If you go back to my first speech in 2010 when I discussed situation in the US, it is quite clear that we are probably five years ahead of the Pentagon in terms of savings from the Strategic Reform Plan. I think we’re probably a similar period of time ahead of the United Kingdom. In fact - I didn’t say this in the speech - it was made clear to me in the US that both the United States reform people in Defense and the UK purchasing body have taken particular interest in the process set in train in Australia in terms of savings.
Q: A number of Australian acquisitions are being delayed. How does that sit with your generally positive view of how Defence is operating?
A: That’s a good question. I think there have been three problems in defence procurement in the last 10 or 15 years;
1. Cost blow out;
2. Time blow out;
3. Scope creep or scope blow out.
Okay, I think the cost blow out is in the process of seriously being remedied and the costing system has been greatly improved. By and large now the quoted price remains the delivery price - so the first of the problems is being dealt with. So the emphasis on getting it right in planning and risk analysis seems to be working – even though it’s taking longer. As we saw with the Seasprites, better planning may have prevented the whole thing even starting.
Secondly, I think this timeliness has has yet to be rectified.
Thirdly, there are still problems in the area of the scope creep or the scope blow out and that’s because there hasn’t been sufficient attention paid planning that particular issue. This is largely the responsibility of the Capability Development Group – and in my view there hasn’t been sufficient oversight of the work done at service level to ensure that scope creep becomes the exception not the norm. So that’s still a work in progress.
In terms of the overall reform process, we’ve identified the problems. One of the three principle issues – that of timeliness – needs to be remedied. The use of the Projects of Concern list is an important reform in this area. The work of the Defence Capability Group needs more scrutiny to make sure Australia is purchasing the most suitable equipment for our needs.
Q: Defence has just handed back unspent funds to consolidated revenue. Do you think industry has a right to feel unfairly treated?
A: The reasons behind that decision are quite complex. Industry themselves are partially responsible in the sense that they are not meeting schedule. However, other factors come into play and I acknowledge that there are other participants in the process, including the Government – usually in the form of the National Security Committee of Cabinet.
Q: Turning to the Senate Committee’s current inquiry. As well as hearing from the Department itself, are you interested in outside views:
A: Well the committee is particularly interested in hearing from industry. This will include industry groups, Primes, SMEs and subcontractors as to short comings or deficiencies that they observed in the planning process, the procurement process, the scheduling process and all the issues you and I have been discussing.
We’re particularly interested in shedding public light on the internal operations of the Capability Development Group and its relevant sub-committees.
We don’t believe that’s been sufficiently exposed and that needs to be examined so that its pluses and minuses can be identified. In addition, we want to look at where are the various capability acquisition and reform processes that derive from the Strategic Reform Plan and how their implementation is progressing.
Q: So is the aim to come up with a list of recommendations to the Minister?
A: I think we’re going to end up with a lot of information on the public record that’s not presently available.
Secondly, we’re essentially going to do a progress report on the implementation of reform, particularly through an update of the SRP.
Thirdly we’re going to produce an information report on capability acquisition projects identified in the White Paper.
Fourthly we are going to seriously examine the entire acquisition cycle - concentrating on the Capability Development Group - and we’re going to try and bring that mass of information together so that it can be both a guide and a bible for Australian industry in particular.
Q: Do you think Defence receives enough Parliamentary scrutiny?
A: I think the problem is this - I think Defence reports to far too many committees, up to six committees in any parliamentary cycle.
Secondly, there’s a lack of continuity in membership of those committees.
Thirdly, because there is a lack of continuity the committees themselves don’t develop the level of expertise that’s needed to effectively review what Defence and DMO are doing.
Fourthly, I think that almost all reform in Defence in the last ten years has come from the public workings of parliamentary committees. To support that, I nominate military justice and procurement improvement as two major areas where positive changes have occurred. These have come about due to work occurring in Public Accounts, Senate Estimates – and so on. The constant discussion and identification of problems has forced Defence to improve.
So I think that the only way for sustained reform is to have on going serious informed public review by a parliamentary committee, preferably a Senate committee that can gain and maintain the confidence of Defence so that the system encourages optimal outcomes and is not mere publicity point scoring.