The question of Department of Defence’s transparency and accountability has been a theme that has repeatedly surfaced during this inquiry—and not just in regard to its naval shipbuilding expenditure.
Defence has a history of opaqueness, obfuscation and a lack of accountability. Given the revelations in the earlier chapter of this report about the out-turned costs of the Attack-class submarines, it is opportune to address Defence’s accountability—specifically in regard to providing information requested by the committee.
This chapter outlines the context for the committee’s grievance against Defence by reviewing the powers of the Senate and the obligations of government departments and ministers to provide honest and accurate information on how taxpayers' funds are managed and expended and reviews the numerous examples of Defence’s lack of responsiveness and accountability—not just in this inquiry but through other parliamentary inquiries and over a period of years.
Powers of the Senate
The power of the Senate to require the production of information is one of the most significant powers available to a legislature to enable it to carry out its functions of scrutinising legislation and the performance of the executive arm of government.
Source of the power
The Senate possesses this power through Section 49 of the Constitution which provides that the powers of the Houses of the Commonwealth Parliament are, until declared by the Parliament, the powers of the UK House of Commons at the time of the establishment of the Commonwealth in 1901. Those powers undoubtedly included the power to call for documents. In 1987, the Commonwealth Parliament declared its powers through the Parliamentary Privileges Act 1987, Section 5 of which provided for the continuation of those powers in force under Section 49 of the Constitution (except to the extent varied by that Act).
What information can the Senate ask for?
There are no limits on the documents which may be ordered to be tabled. There are no exemptions or exceptions for cabinet submissions or national security documents or other classes of documents for which governments have traditionally claimed public interest immunity (for the meaning of this term, see below).
What can the Senate do if a minister refuses to produce information?
It is clear that the Senate has the power to enforce its orders (see Senate Committee of Privileges, 49th Report). The refusal of a Minister to comply with an order of the Senate may ultimately be dealt with as a contempt of the Senate, with penalties applied in accordance with the Parliamentary Privileges Act 1987. On most occasions, however, ministerial refusals to produce information are resolved through political means, according to the circumstances of the case.
Defence’s opaqueness, obfuscation and a lack of accountability
Historic example – Joint Committee of Public Accounts and Audit (JCPAA) Review of ADF’s Medium and Heavy Vehicle Fleet Replacement
Although not part of this shipbuilding inquiry, the following example demonstrates Defence’s continuous obfuscation when it comes to answering difficult questions on their procurement errors. It is included in this report to demonstrate that Defence’s recalcitrance to provide information is not exclusive to this inquiry and has been occurring over a lengthy time-frame.
Thursday 25 June 2015, ANAO published its Audit Report No. 52 (2014-15) which reviewed the acquisition of the Australian Defence Force's Medium and Heavy Vehicle Fleet Replacement (Land 121 Phase 3B).
ANAO’s assessment of Defence’s initial tender process to acquire a replacement medium and heavy vehicle fleet was that this was flawed, resulting in a failed tender and a second approach to market, which contributed to long delays in the acquisition of a modern medium and heavy vehicle capability.
ANAO reported that Defence conducted a more effective tender resubmission process from 2008, but the process was protracted and Defence did not enter into contracts to supply the replacement fleet until July 2013. The aborted initial tender process and the time taken to finalise the tender resubmission process have delayed the scheduled achievement of Final Operational Capability by seven years to 2023. In the intervening period, Defence will continue to rely on an aged fleet of medium and heavy vehicles that is increasingly costly to operate, maintain and repair.
As part of its review of the ANAO report, the Joint Committee on Public Accounts and Audit asked Defence two particular questions on notice.
Firstly, former Member for Canberra, Ms Gai Brodtmann MP, in a written question on notice asked:
Could Defence please provide the Committee with the total estimated cost of the result of the LAND 121 Phase 3B acquisition delay? This figure should be broader than just the sustainment costs of the individual vehicles.
The answer provided by Defence was: "approximately $25 million (excluding GST)". The ANAO report, however, makes quite clear that this figure deals only with an increase in the annual sustainment budget for the fleet.
This was a deliberately misleading answer by Defence.
The JCPAA concluded:
…therefore the total cost of sustaining the existing fleet remains unknown. The Committee is disappointed that a comprehensive answer was not provided by Defence given that the total sustainment costs can be assumed to be in the hundreds of millions.
Secondly, the Deputy Chair, Mr Pat Conroy, asked during the public hearing of 3 March 2016, what were the consequences for those managers who had made the decisions that resulted in the cost blow-out. The Deputy Chair did not want names named, rather an understanding of accountability within Defence:
ACTING CHAIR: Yes, if you do not mind doing so. My final question—and I am not asking for names; I do not want to know names—is that often this committee tries to explore, or with the Department of Defence, whether there were ramifications for the individuals involved when mistakes have been acknowledged. Do we know what happened to the people in charge of this project? Were they promoted? Are they still within the organisations? Have they retired?
Air Vice Marshal Hupfeld: I am not able to answer that.
Mr Gillis: I would have to take that on notice.
ACTING CHAIR: Yes, I am trying to be careful. I do not want to identify the individuals, but—
Mr Gillis: The reality is that I would prefer not to be naming individuals—
ACTING CHAIR: No, and I am not asking for names.
Mr Gillis: So, I would have to take that on notice. I am not aware. This was more than 10 years ago. And the other one is, as the audit identified, there was a process. That process was not successful. We acknowledge that…
So yes, I cannot defend something that happened 10 years ago, but I will take on notice what the history of that process was.
Although Defence agreed to take the question on notice, no answer was ever provided. The Department simply ignored the question and acted as if it had not been asked.
The JCPAA concluded:
Defence did not provide information on whether there were any ramifications for the individuals involved. This exposes Defence to criticism that there are no ramifications.
Defence’s opaque reporting to Parliament on submarine and frigate procurements
As part of the review of government expenditure through the Senate Estimates process, other examples of Defence’s lack of transparency can be found without difficulty. Below are examples with regard to both the Hunter-class future frigates and the Attack-class submarines.
At the Supplementary Budget Estimates 2015-2016, Defence were called to answer questions on the FSP. On 21 October 2015, Secretary of the Department of Defence, Mr Dennis Richardson, and Deputy Secretary Strategic Policy, Mr Peter Baxter, responded to question on the project’s cost by stating clearly that the cost of the acquisition was $50 billion in out-turned dollars – i.e. the cost that takes into account inflation:
Mr Baxter: Yes, you would have seen rough order of magnitude costs for the acquisition of the submarine program that takes up the remainder.
Senator CONROY: Fifty billion dollars for the acquisition of submarines?
Mr Baxter: The acquisition and some of the sustainment costs as well.
Senator CONROY: You said 'acquisition' before, so that is what I am trying to drill-down to.
Mr Baxter: It is an out-turn cost as well.
Senator CONROY: Fifty billion dollars for acquisition of submarines sounds a little high.
Mr Richardson: It is an out-turn cost.
Mr Baxter: It is on an out-turn cost basis.
Mr Richardson: It is inflation into the 2040s et cetera.
Mr Baxter: The last of the submarines is likely to be built into the 2040s.
Mr Richardson: For the last of the submarines—if they were built, say, in the early 2040s—it is the out-turn cost of what the submarines would cost in 2040 dollars.
However, in an answer to a Question on Notice from the Chair, Senator Gallacher, the Department of Finance reported:
Defence officials at the 21 October 2015 Senate Estimates hearing explained that details of the Future Submarine Program, including refined costs, remained subject to the outcomes of the then ongoing Competitive Evaluation Process. The classified funding provision which was not made public due to commercial sensitivities, was $78.9 billion (out-turned).
Cost estimates are updated over the life of a project to reflect movements in inflation and foreign exchange rates. Other than these movements there has been no real cost increase in the Future Submarine Program. The projected total acquisition cost for the Future Submarine Program in out-turned dollars is $88.5 billion (2020-21 Pre-ERC out-turned price and exchange).
Thus, there is a $38.5 billion dollar discrepancy between the $50 billion
(out-turned dollars), reported by Defence in 2015 and the $88.5 billion
(out-turned dollars), projected by Finance in 2020.
Moreover, the Department of Finance answer makes it clear that it was already known in October 2015 that the out-turned cost was $78.9 billion.
Prima facie, it appears that Defence misled the Parliament.
Answers provided by the Department of Finance to questions on the cost of the Hunter-class future frigates also indicate that figures released earlier may have been understated:
The Future Frigate Program was estimated to cost more than $35 billion (2016-17 Pre-ERC out-turned price and exchange) in acquisition (capital investment) in the 2017 Naval Shipbuilding Plan (para 2.42, page 33). The actual acquisition cost estimate was not publicly released, consistent with standard practice, to protect the commercial position of the Commonwealth in negotiations. The out-turned total acquisition cost estimate in 2018 was $44.3 billion (Budget 2018-19 out-turned price and exchange). This cost factored in a deliberate and continuous construction schedule as part of the Government’s continuous naval shipbuilding program.
The further variance between this figure and the 2020 Force Structure Plan (FSP) acquisition cost estimate of $45.6 billion (Pre-ERC 2020-21 out-turned price and exchange) reflects updated inflation and foreign exchange rate assumptions.
When questioned at Senate Estimates on 27 October 2020, Defence did not provide a clear explanation on the discrepancy:
Senator STEELE-JOHN: The frigate program, yes. Again, I'm trying to square the same circle, really. We've got an estimated cost revealed by the ANAO of about $44.3 billion, which seems to have been known by yourselves in November 2018, and yet the Hansard states that when the department gave evidence, late in that same month, we got a price tag of $35 billion. So we've got a differential there of about 9.3. Again, as someone who works in not small programs, like the NDIS and other spaces where we deal with massive figures of money chucked around, a $9.3 billion difference still pricks people's eyebrows. How do you account for the differences here between what you knew in that month and what you said to estimates in that same month?
Ms Lutz: I wasn't at estimates, so, sorry, I can't—
Mr Dalton: At second pass, for the Future Frigate program in mid-2018, there was an awareness of the total projected acquisition cost for the frigate. We still needed to negotiate the head contract with the preferred tenderer. That figure was still commercially sensitive until that contract was put in place. That contract was put in place on 14 December 2018.
Senator STEELE-JOHN: But again—and maybe this is a Moriarty question—between the two programs, between your submarines and your future frigates, you've got a $65 billion discrepancy between what you are now revealed to have understood, via the ANAO report, and what you reported to this committee in those same months. How can you possibly defend such a discrepancy, particularly without an apology thrown somewhere in the mix?
Mr Moriarty: The department is managing the costs of those programs within the provision that was provided by government.
Senator STEELE-JOHN: Thank you very much.
On the Hunter-class frigates, Defence has again provided information that has not stood up to scrutiny.
Australian Industry Capability Plans – Order for the Production of Documents.
As part of this inquiry, Defence consistently refused to provide a series of documents related to the various naval shipbuilding projects. What began as a routine request for further information, turned into a particular saga which is recounted below.
Following on from the 24 February 2020 public hearing, a request was made by the committee that the following un-redacted documents be received from Defence:
Naval Group's Australian Industry Capability (AIC) plan submitted under the Competitive Evaluation Process; and
Naval Group's Draft AIC Plan and AIC Strategy.
On 5 May 2020, a further set of documents were requested by the committee. These were:
In relation to the SEA1000 project please provide the committee with:
A non-redacted copy of the draft AIC Plan (including AIC Schedules) submitted as part of the response (as per the applicable ASDEFCON Conditions of Tender) by Naval Group;
A clean copy of the draft AIC Plan (including AIC Schedules) submitted as part of the response (as per the applicable ASDEFCON Conditions of Tender) by Lockheed Martin;
A copy of the AIC plans delivered to the Commonwealth by Naval Group and Lockheed Martin under their respective contracts.
In relation to the SEA1180 project please provide the committee with:
A clean copy of the draft AIC Plan (including AIC Schedules) submitted as part of the response (as per the applicable ASDEFCON Conditions of Tender) by Luerssen;
A copy of the AIC plan included in the Contract at Effective Date.
In relation to the SEA3036 project please provide the committee with:
A clean copy of the draft AIC Plan (including AIC Schedules) submitted as part of the response (as per the applicable ASDEFCON Conditions of Tender) by Austal;
A copy of the AIC plan included in the Contract at Effective Date.
In relation to the SEA5000 project please provide the committee with copies of:
the draft AIC Plan (including AIC Schedules) submitted as part of the response (as per the applicable ASDEFCON Conditions of Tender) by BAE Systems;
the overarching AIC strategy included in the Head Contract (at Effective Date).
the AIC Plan included in the Head Contract at Effective Date.
the public AIC plan, which Defence has advised was to be released in quarter 1 of 2020—this would not be held confidential to the Committee.
Following a series of email requests to Defence during May/June 2020 regarding the request for documentation on AIC Plans, a hard deadline for the production of the documents was set for Tuesday, 9 June 2020.
On Friday 12 June 2020, the committee received correspondence from Defence regarding the documents. The Department declined to provide the documents.
On 18 June 2020, a further request signed by the Chair was sent to the Secretary of the Department of Defence, Mr Moriarty.
On 26 June 2020, the committee received a further response from Defence again declining to provide the documents.
On behalf of the committee, the Chair, Senator Gallacher, lodged an Order for the Production of Documents (OPD) for the above listed papers on 2 September 2020, and it was passed by the Senate on 6 October 2020 with a deadline of 5pm, Friday 16 October 2020.
At 4.50pm on Friday, 16 October 2020, the committee received two letters:
from the Secretary of Defence, Mr Moriarty, to the Committee Chair, Senator Alex Gallacher; and
from the Minister of Defence, Senator Linda Reynolds, to the President of the Senate.
These letters declined to provide the requested documents on the grounds of a public interest immunity claim.
On 11 November 2020, Senator Gallacher moved—that the Senate—
on 6 October 2020, the Senate ordered the Minister for Defence to provide to the Senate Economics Reference Committee all of the Australian Industry Capability (AIC) plans supplied to Defence by prime contractors in the future submarine, future frigate, offshore patrol vessel and pacific patrol boat programs and the Department of Defence’s AIC strategy plans,
the documents are highly relevant to the committee’s inquiry into Australia’s sovereign naval shipbuilding capability,
on 19 October 2020, the Minister advanced a public interest immunity claim on grounds centring around commercial-in-confidence concerns, and
the bar to correctly advance a claim over commercial-in-confidence is high, particularly noting the documents are to be returned to the committee, not to the Senate;
the balance of the public interest lies in permitting the committee to conduct oversight of the conduct of the Department of Defence in delivering on the Government’s commitment to maximise AIC in Australia’s $139 billion shipbuilding program, and
the Senate does not accept the public interest immunity claim advanced by the Minister for Defence; and
orders the Minister for Defence to comply with the order agreed to by the Senate on 6 October 2020 by providing the documents to the Senate Economic References Committee by 12 November 2020.
In response, Minister Reynolds wrote to the Senate President, the Hon. Scott Ryan, on 12 November 2020 indicating that further time was required to consider the content of the documents.
On Thursday, 3 December 2020, a letter was received by the secretariat from Minister Reynolds to the Senate President explaining that the documents would be provided to the committee on Monday, 7 December 2020.
On Monday, 7 December 2020, the 13 documents were provided. All were redacted to some point – some heavily. The committee estimates that 25—33 per cent of the total documents had been redacted.
The most egregious examples were:
Document 2, Austal – Redacted Australian Industry Capability Plan (2 May 2016);
Document 6, Lockheed Martin’s Australian Submarine Combat System (ACSS) RFR Stage 2 (7 April 2016); and
Document 9, Lürssen’s SEA 1180 Phase 1 Offshore Patrol Vessel, Appendix B to C-9 Australian Industry Capability Plan (27 March 2017).
These were heavily redacted with approximately 75–90 per cent of the script made unreadable. Of note, none of the 13 OPD documents carried a national security classification of 'Confidential'; 'Secret'; or 'Top Secret'. The majority are 'Commercial-in-Confidence' and four were, in fact, 'Unclassified'.
Of particular note was a document that had already been provided to the committee in February 2020 as part of a previous FOI request and now on the committee’s webpage – the DCNS Australian Industry Plan (Document 13 of the OPD batch). The newly provided version under the OPD had even more redactions than that provided in February 2020. There were approximately 15 extra redactions—some small, some large. One page (p. 47) in the February 2020 version was clear, while the December 2020 OPD version was fully redacted. In short, information that was already in the public domain had been re-provided to the committee in a redacted form.
On Tuesday, 8 December 2020, the Defence Department sent through a letter of clarification re: Document 13 of the OPD batch—the DCNS Australian Industry Plan. Defence identified a 'version control issue' and have
re-supplied to the committee the document that was already supplied in February 2020.
Evidence of Defence delay and obfuscation
At the public hearing of 5 February 2021, which was specifically called to question Defence on the lack of responsiveness to the Order of Production of Documents, further evidence was presented by committee members on Defence’s obfuscation with regard to the provision of information.
During that hearing, one of the committee’s members, Senator Rex Patrick, tabled or referred to a series of documents a number of which had been denied to the Parliament for one reason or another but had been provided to him through Freedom of Information (FOI) requests. These included:
The preliminary analysis of the economic impact of future submarines based on the experience of the Collins program conducted by macroeconomics.com.au.
This had been ordered in April 2016 and denied the Senate on the grounds of ‘Cabinet-in-Confidence’. Through an FOI request, the Information Commissioner judged that the document did not comply with the ‘Cabinet-in-Confidence’ requirements and ordered it be released publicly.
Design and Mobilisation Contracts signed between the Commonwealth of Australia and DCNS on 30 September 2016.
On November 2016, the Senate made an order for the production of this document and it was refused to the Senate on the grounds that it was ‘Commercial-in-Confidence’ and involved national security elements. On 1 December 2016 an application for access to the relevant sections of the documents was made under FOI, the document, in a redacted form, was then tabled in the Senate by the Minister on 9 December 2021.
On 4 September 2017 the Senate made an Order for the Production of the document which was refused. Defence initially denied access to the document under FOI, but subsequently chose to release the document after a review was commenced by the Information Commissioner.
Auditor-General's report No. 6 of 2018-19, Army's protected mobility vehicle—light.
This was a confidential report issued under Section 37 of the Auditor-General Act. In 2017, the Auditor-General commenced an audit into the Hawkei vehicle. In early 2018, Thales Australia made an application to the Federal Court, for an injunction, and, secondly, to the
Attorney-General, seeking the issuing of a Section 37 certificate to prevent certain information in the audit report being tabled in the Senate.
The Attorney-General, having sought advice from the then Minister for Defence and the Minister for Defence Industry issued a Section 37 certificate on the basis that:
(a) it was commercially sensitive and
(b) it was national security sensitive.
Defence advocated for a certificate to be issued, and it was duly issued, which meant that the Parliament, and thus the public, could not have access to this document.
Deputy President Britton Jones of the Administrative Appeals Tribunal, through an FOI appeal process, found that the claim for confidentiality on national security grounds was not justified and had the document released publicly.
Further attempts by Defence to stymie access to information
In June 2018, Senator Patrick began an FOI process to discover what Naval Group's total price was for the contract. Two months later in August 2018 Defence formally blocked the request, and Senator Patrick sought an Information Commissioner review.
In August 2020, Australian Information Commissioner, Ms Angelene Falk, found in favour of Senator Patrick, ordering the Department of Defence to release details from Naval Group's successful bid documents.
In September 2020, Defence appealed Commissioner Falk's decision to the Administrative Appeals Tribunal (AAT), with Naval Group joining the proceedings.
In response to questions asked during a Senate Estimates hearing in March 2021, Defence has now confirmed it is covering Naval Group's legal expenses at the AAT.
The case is on-going, and Senator Patrick, and by extension the committee, is yet to ascertain what the actual price was for the Naval Group's contract.
A Matter of Privilege
On 7 May 2021, Senator Alex Gallacher, as Chair of this committee and committee member Senator Rex Patrick raised, in a letter to the Senate President, a matter of privilege alleging interference with the Economics References Committee inquiry into Australia's sovereign naval shipbuilding capability.
Referring to the Order of Production of Documents, the letter outlined the numerous occasions on which the Department of Defence, the Secretary of Defence and the former Minister for Defence, Senator Linda Reynolds, had declined or refused to provide documents to the committee in response to committee requests and Senate orders. Senators Gallacher and Patrick contended that 'the committee's ability to progress the inquiry has been severely and deliberately impeded by the department'.
The letter raises three grounds on which the conduct complained of may amount to an improper interference with the functions of the Senate and should be investigated as a possible contempt. They are:
improper interference with the free exercise by the committee of its authority or functions (contrary to privilege resolution 6(1))
disobedience of a lawful order of the Senate (contrary to resolution 6(8)) and
refusal or failure to produce documents in accordance with an order of the Senate (contrary to resolution 6(13)).
In his address to the Chamber on 12 May 2021, the President stated that the Senate as a whole would need to decide what action to take.
Later that day, Senator Patrick gave notice that he would move that the matter be referred to the Senate Committee of Privileges for inquiry and report.
At the time of this report being published, the Senate has yet to resolve if it will support Senator Patrick's motion.
This chapter has reviewed critically the Department of Defence’s responses to parliamentary requests for information—a right of the Parliament.
Through the Senate’s reference, this committee has sought to examine Australia’s sovereign naval capability and how it is being developed by the Department of Defence in the context of the naval shipbuilding program. In order to achieve this, the committee has sought to examine what each of the tenderers promised during the tender in terms of industry capability and then what was contracted and then try to understand the difference.
There is significant evidence that Defence is not as responsive as it should be and, on more than one occasion, it can be observed that the Department has deliberately provided misleading answers to legitimate questions. The committee has been frustrated in its goals by a recalcitrant Department in conjunction with its Minister so much so that a Matter of Privilege has been raised with the Senate through its President.
It also appears that the Department is misusing legitimate grounds for withholding information—such as national security considerations—to hide information that is politically embarrassing or information that, on the face of it, demonstrates incompetency and/or inefficiency. In the process, it is impeding the work of this committee and others in discharging our duty to the Australian people.
One argument proffered by Defence is the concern about the inadvertent disclosure of the provided information. This again sounds like an excuse. Parliamentary committees frequently hold commercially sensitive material. For example, in the Veterans' Affairs area, large amounts of material have been provided in-camera. Senators sign in to view the material and strictest confidentiality is observed. The Senate’s secretariat staff are all parliamentary professionals with many of them having previously worked in government departments and having held high-level security clearances. It seems extraordinary to the committee that through its examination of public expenditure, which is a whole lot less sensitive than Veterans' Affairs issues, the committee cannot get the information it has requested.
The Defence budget in 2020/21 is approximately $42 billion and the ongoing naval shipbuilding program is estimated to cost between $168 – 183 billion. These are extremely large sums of money and it is the Australian taxpayer who provides these funds. Through Senate processes, committees scrutinise, on behalf of the Australian taxpayer, the behaviour of Departments and the expenditure of taxpayer funds. Australians deserve to know how their money is being spent and the committee is at a loss to understand Defence’s attitude at the provision of information to the Australian taxpayer via this committee.
This brings us to the fundamental point: the Senate, and the House of Representatives, are the democratically elected representatives of the Australian people. Through the separation of powers, the Senate and the Parliament as a whole have oversight of the executive government and the various departments and other statutory authorities to ensure that the government and its agencies act lawfully, and that Australian taxpayers' money is being spent wisely.
The powers of the Senate and its committees are anchored in the Constitution—a fact that appears to be forgotten. The Parliament does not operate at the behest of the executive government. Rather the opposite—it is only through the Parliament’s confidence that the executive government can exist and govern. Similarly, it is not the role of departments and agencies to set the conditions under which the Parliament and the committees perform their duties. The opposite is the case—it is the duty of the departments and agencies to respond to the requests of parliamentary committees as they stand. Only when those agencies can provide a legitimate and compelling argument agreed to by the committee can they withhold information from the public they serve. As demonstrated here, Defence's performance has consistently been disappointing—even disgraceful. It is, quite frankly, outrageous and an affront to the Parliament that Senators have more success receiving information through FOI requests, than through the fundamental processes embedded in the Parliament.
This is not acceptable, and cultural change is needed in the Department of Defence’s accountability practices and its approach to its democratic responsibilities.
With the aim of increasing its staff’s awareness of their democratic responsibilities:
the Department of Defence re-examine its induction and training programs and corporate culture regarding its role as a department answerable to the Australian people through the processes of the Australian Parliament; and
report back to the Parliament on the progress it making on those induction and training programs.
That the Department of Defence provides to the committee in un-redacted form all the documents requested under the Senate's Order of Production of Documents (General Business Motion, No. 786).
Senator Anthony Chisholm
Labor Senator for Queensland