Defence & Industry 2011 Conference - Official optimism and Industry gloom.

It was almost as if people from two different planets were intermingling at the Adelaide Defence & Industry conference, held in the last week of June. Listening to a series of Departmental presentations all appeared to be well with the world of defence procurement, with statistics apparently proving repeatedly that the outlook was healthy with billions of dollars to be spent. However, most of the talk from industry representatives was about the tangible slow down in the number of First and Second Pass approvals being granted and the negative impact this is having on a number of companies.

21st Jul 2011


 D&I conference

 Official optimism and Industry gloom.

Byline: Kym Bergmann / Adelaide


It was almost as if people from two different planets were intermingling at the Adelaide Defence & Industry conference, held in the last week of June. Listening to a series of Departmental presentations all appeared to be well with the world of defence procurement, with statistics apparently proving repeatedly that the outlook was healthy with billions of dollars to be spent. However, most of the talk from industry representatives was about the tangible slow down in the number of First and Second Pass approvals being granted and the negative impact this is having on a number of companies.

Defence Minister Stephen Smith.

The Minister’s speech was an anti-climax. The 2,000 conference delegates were eagerly awaiting information about a rumoured major restructuring of the Department of Defence in the face of continuing under-performance. What the Minister delivered was instead some mild tut-tutting about the need to hand back $1.5 billion of unspent funds last financial year. In doing so the Minister managed an impressive trifecta: he was able to make a substantial contribution to the deficit-obsessed Government’s bottom line; blame industry for everything; and buy two additional big things (a C-17 and the Largs Bay) with zero Australian content.

What the Minister did not address are several projects that could – and should – have gone to contract last financial year. The delays on announcing the preferred tenderers for LAND 121 Phase 3 (trucks) and LAND 17 Phase C (self-propelled howitzers) have become completely unconscionable and are evidence of a Department and a Government which would rather see funds returned to consolidated revenue rather than be spent on important equipment for the ADF. This tactic allows the Government to claim credit for increasing Defence spending at the start of every financial year, but to in fact reduce it by handing back funds 11 months later.

But the part of the speech which really attracted the attention of industry was his announcement that from now on even minor projects down to a value of $20 million will be subject to the First and Second Pass approval process. With open-mouthed horror and visible shock, delegates had near-identical reactions: with a system so clogged with meaningless paperwork as to be grinding to a complete halt, who in their right mind would deliberately make a bad situation even worse? This is like trying to fix the traffic congestion of Sydney by doubling the number of traffic lights. By the reactions of equally shocked Departmental staff of all levels, it rapidly became clear that this policy change had not originated from any of them.

The Minister’s widely rumoured non-announcement was meant to be about ending DMO’s autonomy – such as it is – by bringing it back into the Department and by adding in two associate secretaries to build yet another layer of bureaucracy. Sir Humphrey Appleby would be proud. It is possible that the Minister was spooked into delaying the announcement because details had been leaked to ‘The Australian’ and he prefers to do things in his own time rather than be seen to be reacting to media pressure. A consequence was that some of his speech material seemed to be taken from that of Defence Procurement Minister Jason Clare, who subsequently covered some of the same ground twice. The proposed restructure is widely believed to be behind the sudden but not unexpected resignation – sorry, retirement – of Dr Stephen Gumley, head of DMO. His decision to ‘retire’ on the very same day as the announcement was made was described by a Government source as completely normal and unconnected to a rumoured extreme personality clash with Departmental Secretary and reputed micro-manager Dr Ian Watt.

Defence Procurement Minister Jason Clare.

The Minister reinforced his credentials with industry by pointing out that he has managed to visit more than 40 companies during his tenure so far. He went on to explain that he is focused on reform with the intention of reducing project delay. The average slippage on major projects is that they come in 20% behind schedule, which apparently is better than that achieved in the US and UK.

The Minister touched on mechanisms that will give the Government early warnings when projects are encountering difficulties and repeated the importance of addressing problems as early in the process as possible. He also sent a mild shudder through the industry audience by announcing that in future whenever the Department makes a submission for new equipment it will need to explain why an off-the-shelf purchase is not the way to go. Nevertheless, if applied sensibly, this mechanism might help eliminate, or at least reduce, instances of gold plating.

He made favourable mention of two particular Australian projects: the Thales Bushmaster and also the ANZAC ASMD Project that according to comments has been an outstanding success. Thales will be hoping that the Minister’s positive words auger well for their offering for LAND 121 Phase 4 and that the nonsense of Australia’s wasteful participation in the serially delayed US JLTV programme will be mercifully terminated.

There was also good news for Australian SMEs. From now on the ceiling requiring bidders to produce an Australian industry capability plan will be reduced from $50 million to $20 million. Even more importantly, the industry commitments made by Primes will now become mandatory and verifiable – an improvement on the existing loose system of best intentions.

Dr Watt and Dr Gumley.

Departmental Secretary Dr Ian Watt gave a robust defence of progress on the Strategic Reform Programme, but he would say that.

Dr Stephen Gumley – without a hint of his intended departure barely a week later – provided a positive overview of DMOs performance that remains at odds with the general impression gained by the wider public, politicians, the media as well as local and international defence industry. Looking into the future, he expressed concern about what could be a minor dip in procurement in the 2013 / 2014 financial year – as if things aren’t bad enough now – though he qualified this by saying that the slightly reduced expenditure would probably be at the expense of equipment sourced from overseas rather than locally. Interestingly, he provided information compiled by the ‘Australian Financial Review’ showing that a large number of resource projects have also been well behind schedule – demonstrating that the private sector is far from perfect. Mind you, the private sector probably manages a major project with a team of four people and a stack of sandwiches rather than a DMO cast of hundreds trying for a decade to buy a truck.

SEA 1000

Special mention must be made of what is officially Australia’s largest future defence procurement, the massive nation-building exercise to replace the 6 Collins Class submarines (actually 5, but that’s another story) with 12 of a new generation. Defence Minister Smith made mention of this at the South Australian State Government official dinner. In this regard the Minister is like an Olympic rower: able to stare forcefully in one direction while actually propelling himself at high speed the opposite way. The reality is that despite the rhetoric of the importance and scale of the activity, nothing much is happening and seemingly the Minister prefers it this way with a bizarre hidden agenda.

Back at the conference, Project Director Rear Admiral Rowan Moffit did his best to put a positive spin on circumstances, explaining SEA 1000’s significance for the RAN and the nation. However, he inadvertently created an impression of a schedule of Hindu scripture scale with vast interlocking wheels of time for design, consideration, review, study and more review that might produce a result in the year 2050 or 3000 or two billion years hence. Or perhaps never. Maybe “submarine” is an abstract concept, on which we should all mediate for a decade.

For the record, the Collins programme went from design down-select to a short list of two in 1985; source selection in 1987 and launch of the first submarine in 1993, a space of eight years – it just needs people to get on with it and actually do something. Anything.

Conclusion.

The conference provided a much-needed mechanism for an exchange of ideas and information between Defence and industry. This is almost certainly the last time it will be held in Adelaide, much to the relief of those responsible for Departmental travel budgets.
 

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