Lessons to be learnt
Whilst the former chapter considered mistakes made with acquisitions well
underway, this chapter identifies some of the concerns being expressed about
projects still in their infancy. The committee does so in order to test Defence's
consistent assertion in evidence that all the failings identified by the
committee so far are in the past and that since Mortimer and 2010 a new leaf
has been turned. As many of the problems experienced by the older projects took
root in the early stages of their development, this chapter considers the newer
ones and whether the lessons emanating from the more advanced projects are
being heeded. Also, in light of the government's announcement that a new Defence
White Paper is to be produced in the first half of 2013, the committee reviews
the 2009 White Paper to ascertain whether there are lessons to be drawn from
this document that relate to acquisition.
Early research and analysis
Experience from previous projects underline the need for early risk
analysis and have warned against underestimating a project's complexity from
the very start. A number of analysts, however, have pointed out that some capability
has been prescribed in the White Paper before the effect on project cost and
risk has been established.
New submarines—SEA 1000
In relation to the new submarine project, the White Paper stated that:
...the Government has decided to acquire 12 new Future
Submarines, to be assembled in South Australia. This will be a major design and
construction program spanning three decades, and will be Australia's largest
ever single defence project. The Future Submarine will have greater range,
longer endurance on patrol, and expanded capabilities compared to the current
Collins class submarine. It will also be equipped with very secure real-time
communications and be able to carry different mission payloads such as
uninhabited underwater vehicles.
The boats need to be able to undertake prolonged covert
patrols over the full distance of our strategic approaches and in operational
areas. They require low signatures across all spectrums, including at high
In that regard, Dr Davies recently noted that the future submarine has a
'suite of capabilities that have never been combined into a
conventionally-powered submarine'. He made the point that the prescribed
submarines will 'set a new benchmark for conventional submarine capability'
which the RAND Corporation has identified as 'historically being when the
largest jumps in the cost occur'.
He informed the committee that:
The future submarine is probably the best example of the
top-down process driving us down a particular path. We seem to be moving
towards designing and constructing what I describe with tongue only slightly in
cheek as a conventionally powered nuclear submarine, with all the cost and risk
that will inevitably ensue from that. Maybe that is the right solution for
Australia, but I think it is far too early to rule out other possible
A former Chief of Army, Professor Peter Leahy, noted that the rationale
for 12 submarines has received 'scant contestable justification' in the White
Paper and the decision to acquire the 12 large, indigenous designed submarines
requires 'further consideration and validation before its merits can be judged
against other competing demands'.
Mr Derek Woolner concluded that drawing on the experience of the Collins Class
to inform the future submarine project, will require, amongst other things,
that the objectives of the new class of submarine be 'thoroughly developed and
He made the point that by first pass approval, the nature of the project would
already have been decided. Thus, in his view, the relevant stakeholders including
industry need to be engaged at the very start of the project when the
operational concept is developed and contestability needs to take place in
relation to that operational concept. Mr Woolner held that once the government has
decided on the combat system and weaponry for the future submarine, such a
decision would go 'a long way to deciding the nature of the project all the way
through to the procurement strategy and the inherent risks involved in that'.
He noted, for instance, there is a very heavy presumption that it will continue
to go with the Raytheon system because it has US naval support and a growth
path attached to it. Therefore:
Once the government agrees that what it wants is a weapons
system that will allow the services to proceed in a certain way...that limits the
options about which way you want to proceed and that in turn gets you into a
very narrow field of risk management.
Mr Woolner highlighted a lesson to be learnt from the Collins Class
submarines experience—by prioritising the combat system, the Collins grew from
a 2,000-tonne boat to over a 3,000-tonne boat as the process of identifying
what equipment could fit on the boat led the growth of the design 'not just to
mount the equipment but to supply the cooling and energy and so on'.
Dr Davies noted that the government will not be in a position to decide
what the future submarine will do until it 'understands all the potential costs
and benefits of the various types of submarine that it might choose to
acquire'. He held that the 2009 White Paper has unravelled because 'the
ambition that was articulated in there was not informed by the resource and
project risk implications'.
Dr Brabin-Smith supported this position and raised the question as to why the
new submarines were to be 'so much more capable than the Collins class were
designed to be, noting that the characteristics of the Collins class were
chosen from the quite careful analysis of the needs of the defence of Australia
and operations in our region'.
The legislation committee was informed in May 2010 that $15.4 million
had been allocated for early studies and research in relation to the future
submarine project of which $9 million had not been spent.
In mid-December 2011, the Defence Minister announced that the government had
approved the release of Requests for Information to three overseas submarine
designers offering military-off-the-shelf (MOTS) designs. It had also entered
into a contract with Babcock to study the establishment of a land based
propulsion systems test facility to inform engineering development of the
In order to deliver the new capability submarines in time to replace the
Collins Class, preliminary work to prepare first pass approval in late
2013/early 2014 is clearly a demanding priority.
Built at a cost of $8.5 billion (based on today's dollar), the six
Collins Class submarines have presented a 'succession of problems' including
capability shortfalls and reliability issues. According to Dr Davies and Dr Thomson,
these lessons need to be applied to the future submarines including the fact
that the Collins 'still lacked a working combat system and its diesel engines
were highly unreliable' despite a series of engineering fixes in place.
In their view:
Even with an effective combat system and the modern torpedoes
fitted, the combination of poor reliability and operational restrictions (not
to mention low submariner numbers and limited crew experience) must limit the
practical employment of the boats. So, although the Collins class is at least
allowing the Royal Australian Navy (RAN) to rebuild its submarine workforce,
its usefulness as practical weapon of war is uncertain. The picture only gets
worse if the vessels' unexpected high maintenance demands and consequent poor
availability are taken into account.
Dr Davies and Dr Thomson argued that initial design work and acquisition
strategy development for the SEA 1000 needs to start immediately 'so that the
costs, benefits and risks of the competing options—new design, evolved Collins
and MOTS—can be assessed'.
Given that the future submarines are due for second pass consideration
analysts and industry representatives are voicing concerns about up-front
investment in terms of preliminary research and capability studies and the
risks of schedule slippage which could result in a capability gap. There are
rising fears that the new submarines will not be built in time to replace the
Collins Class which will reach the end of its planned life between 2022 and
2031 unless its lifespan is extended. However, Dr Andrew Davies and Dr Mark
Thomson argued that ASC, the Navy and DMO do not know how much longer the
Collins can be kept in service, despite 17 years of fleet operations.
They noted most recently that there had been little progress in the three years
since the 2009 Defence White Paper in relation to the future submarine and
'time is running out for a seamless transition to another class'.
In an April 2012 paper, they concluded:
We are already past the point at which a force of that size
and capability can be in place even by the mid-2030s.
On 3 May 2012, the Prime Minister announced that $214 million would be
provided for the 'next stage' of the future submarine project and be directed
towards future studies and analysis to inform the government's decisions on the
design of the next submarines.
Studies will be conducted across three areas including design, scientific and
technological studies, and the future submarine industry skills plan. It should
also be noted that a detailed Service Life-Evaluation Program (SLEP) study is
currently underway to determine whether the lifespan of the Collins can be
extended beyond their expected life. In this regard, Dr Davies and Dr Thomson
emphasised the importance of 'rigorous and independent recommendations' in
relation to the SLEP given that, and as the previous chapter attested:
Over the past two decades, Defence has consistently
underestimated the cost, schedule and risk of projects—especially during the
early planning stages...Given this reality, it's imperative that the Defence
Materiel Organisation, as the government's defence acquisition adviser seek
independent advice on the conduct of and recommendations emerging from the SLEP
and be able to present the advice and recommendations to government. To do
otherwise would risk a repeat of the costly F-111 end-of-life saga.
Skills, infrastructure and working
In relation to skills, industry representatives noted the rundown of
skills in relation to the submarine capability and emphasised the need to start
immediately to build and develop necessary skills.
Mr John O'Callaghan, Australian Industry Group Defence Council, informed the
We need to use the lead time between now and when the
construction actually starts to develop that skill base again, at a much higher
level than previously was the case.
This observation from industry seems bland. The RAND study noted gaps in
both industry and government between the number of experienced design personnel
available to work on a new submarine program and the number required. The study
identified two important gaps in the skills base needed for the new submarines.
It drew attention to the fact that:
- existing personnel are fully employed supporting the Collins Class
or other RAN programs and cannot contribute to a new submarine design without
risk to ongoing RAN programs; and
- there were too few personnel with skills anticipated to be
important in the design of a future submarine, in particular few if any
resources in the discipline of large complex program management and in specific
areas related to propulsion, fluids, electrical systems, cost estimation,
testing and planning and production.
Dr Davies informed the committee that the Collins Class submarine
project was instigated in the 1980s when the 'naval engineering capability was
far greater than it is today within Defence, and we still got into trouble'. He
noted that whilst most of these problems were eventually solved, it was a
difficult process. Yet:
In the last couple of years we have had reports from Coles
about the submarines, from Rizzo about the amphibious fleet and from the ANAO
about naval capability, and they have all said that Navy does not have the
engineering capability to handle complex projects. Until we fix that, our
ability to even assess risk, let alone manage it, will not be up to the task.
The RAND study also noted infrastructure shortfalls and cited a facility
to test integrated propulsion and energy alternatives as one critical
deficiency that Australia would need to address.
As noted earlier, a study has just commenced into the establishment of a
propulsion test facility. Moreover, in his report on the sustainment of the Collins
Class, Mr John Coles referred to the importance of the various strands of
activity operating as an 'Enterprise' to deliver submarine capability. Thus,
the four elements, DoFD, DMO, RAN and industry should be working together to
deliver the right level of submarine availability at the right place.
Unfortunately, he gained the impression of 'highly-charged, difficult and often
hostile relationships between the parties'.
The committee is very concerned about the current unease expressed by a
number of defence analysts regarding decisions already taken on the 12 new
submarines. It is equally concerned about the government and Defence applying
the lessons to be learnt on risk analysis during the early stages of capability
development, as underlined in the previous chapter. The RAND study, Learning
from Experience—Lessons from Australia's Collins Submarine Program, identified
a number of lessons from the previous submarine project, especially that the
'most important aspect of a new program entails the decisions made very early
in the program'.
The committee agrees that all the lessons in the study must be applied assiduously
to SEA 1000 but in particular that decisions must be fully informed by
knowledge of the risks and consequences.
Because this project is still at an early stage, and based on the RAND
study, the Coles Report, independent defence analysts and the past performance
of major Defence acquisition projects, the committee recommends that government
and Defence need to start work immediately to:
- ensure that the program is directly managed by Chief of Navy
supported by the ASC and DMO where relevant, the scientific community and the
public—support must be both external to the program and internal within the
navy and submarine community;
- avoid early lock-in through premature weapons systems choices;
- ensure that the capability sought is available and minimises
- take drastic action to address the serious skill shortages
identified by RAND before a decision on assembly in Australia is made,
regardless of type and design;
- ensure that the program is open and transparent—full
disclosure throughout the program is necessary to obtain government, industry
and public support;
- involve experienced people in key management positions—this
requires a strategy to grow people so they are experienced in various
disciplines—a top-level strategic lesson must be implemented far in advance of
any specific program; and
- listen to technical community concerns about risk—the
technical community, supplemented by outside expertise from industry and allied
technology partners as necessary, should understand the state of technology and
the degree to which a new design extends that technology.
The committee believes that the experience with the Collins Class and
the enormous challenges in being a parent Navy should focus the minds of key
decision-makers on possible pitfalls. There are early signs, however, that
Australia is at risk of repeating the same cycle of blind hope. The committee is
concerned that even at this Needs phase of SEA 1000 there are worrying
indications that government and Defence have not heeded lessons from past
experience, especially the critical importance of basing decisions on a sound
and clear-eyed understanding of potential costs, benefits and technical risk.
The tardy start to upfront investment for capability studies, the prescriptive
nature of the project's inclusion in the White Paper and the short timeframe in
which to acquire the requisite skills do not bode well for project SEA 1000.
The committee accepts the view that no solution will be perfect or simple. An
important lesson for government to consider is that, except in the specific
case where another military is already using equipment that is good enough for
Australia (for example C17), evolution is lower risk and lower cost than
leaping to a new standard via evolved MOTS or new build. Procrastination and
hoping to reduce risk by dragging out decisions allows skills, workforce and
knowledge to dissipate thereby driving up risk.
The committee recommends that government and Defence respond publicly to
the committee's criticisms made in this report with respect to lessons not
learnt, and outline the detailed process and all the options on which current
planning on submarines is taking place.
Offshore combatant vessel
The offshore combatant vessel (SEA 1180) was another project in the
White Paper indicating that close attention needed to be paid to past
In the 2009 White Paper, the government announced that it had decided to
rationalise the Navy's patrol boat, mine counter measures, hydrographic and
oceanographic forces into a single modular multi-role class of around 20
Offshore Combatant Vessels combining four existing classes of vessels. The
concept involves the use of modular unmanned underwater systems for both mine
countermeasures and hydrographic tasks. The government envisioned the systems
to be containerised and portable modules capable of being used in any port or
loaded onto any of the Offshore Combatant Vessels or other suitable vessels.
According to the White Paper, the future vessel would be able to:
...undertake offshore and littoral warfighting roles, border
protection tasks, long-range counter-terrorism and counter-piracy operations,
support to special forces, and missions in support of security and stability in
the immediate neighbourhood.
Aware of developmental projects and their troubled history, the
committee asked Defence about the extent of consultation around the concept of
a multi-role vessel, especially with industry. Air Marshal Harvey informed the
committee that engagement with industry would be held progressively. He
understood that the user requirement had been released to industry. According
to the Air Marshal:
The capability maritime development team is working on the
project proposal. Certainly feedback I have had is that it is possible; it is
challenging, certainly, but the potential developments going to the common
vessel type do make it worthwhile pursuing that. In parallel DSTO are doing
their studies, we increasingly engage with industry as we go through and, if it
turned out not to be feasible, we would include that in advice to government.
The advice we have so far is that we believe it is feasible and it is worth
When asked about the multi-role vessel, representatives from the prime
contractors in Australia informed the committee that a greater level of
discussion needs to take place at the outset of translating strategic
requirement into operational requirement. In their view specialist expertise on
the project could be brought to bear at that point. They noted that at this
stage there was no competition and industry could add a lot of value, such as
bringing forward lessons learnt from similar projects offshore where they might
have experienced difficulties combining the requirements for three vessels into
a single vessel. The representatives noted that as part of a multinational
company they can draw on their international experience.
All of the comments made by industry in those early
encounters can be validated independently and separately...the fact that the
information is not injected at the early stage and not used is a problem and I
think it loses value for the taxpayer.
Having noted the importance of early engagement, the representatives
made clear that they had not been consulted on the feasibility of the
multi-role vessel proposal 'at any level of detail that was useful'. One stated
clearly that not one had been brought in to discuss the detail of what was
possible and what was not.
Dr Davies and Dr Thomson concurred with this view about the value of
engaging industry in the early stages of capability development to ensure that
planning is informed by a clear understanding of what’s available
technologically and commercially. Dr Thomson explained that industry would be
free to pitch their ideas and Defence could find out what opportunities existed
in a whole range of different areas. For example, he asked—'is it going to be a
mine hunter and is it going to be a patrol boat...is it going to be all things to
all people'. He suggested that if you talk to people who build boats for a
living, 'you might actually temper your aspirations...good information up front
would have tempered that sort of thing'.
According to Dr Davies and Dr Thomson, the 'risible suggestion in
the 2009 White Paper and subsequent DCP' to replace the Navy’s current patrol
boats, mine hunters and hydrographic ships with a single class of vessels' demonstrated
the 'risk of planning in an information vacuum'.
More generally, on the matter of industry engagement, Mr Ben White of
the Australian Business Defence Industry Unit underlined the importance of
industry receiving 'clear signals and a degree of confidence to encourage it to
invest in the defence market'.
Similarly, in August 2011, Mr Christopher Burns of the Defence Teaming Centre
informed the committee that if a good submarine were required, Australian
industry needs to be involved in the design of the submarine and that 'we
needed to have started designing that, and the dollars needed to be invested in
designing that, last year'.
However, in June 2012, the committee heard evidence from Mr O'Callaghan that
while industry had been 'frozen out' three or four years ago, the
reinvigoration of the Capability Development Advisory Forum (CDAF) and
environmental working group, has led to 'high-level industry engagement'. Such
engagement has contributed to a 'better baseline for identifying and managing
the sorts of risks associated with the more complex projects coming on stream'.
Moreover, in relation to SEA 1000, Mr O'Callaghan expressed the view there had
been improvements over the past twelve months with the early engagement of key
industry CEOs while a separate panel had been established for the project based
on the CDAF arrangement. In light of the delays engaging industry, the
committee remains unconvinced that finally 'high-level industry engagement' has
The committee considers the early engagement of industry more fully in
Despite Defence's assurances, the committee is very concerned that the
submarine project to date contains the same seeds of failure that have
bedevilled defence procurement for years. The importance of the early stages of
capability development cannot be underestimated. Whilst recent announcements in
relation to studies to consider procurement options for the future submarines
together with studies in relation to an industry skills plan is encouraging,
they reflect troubling signs that one of the centrepiece projects listed in the
White Paper is yet to undergo thorough analysis and consideration. The lack of
information on costings is particularly concerning. The same concerns about the
multi-role combat vessels project are emerging—first pass approval is due
financial year 2014–15 to financial year 2015–16.
The committee also recognises the need for Defence to build public
support for the new submarine program. It believes that much work needs to be
done to earn the confidence of the Australian people in this
project—transparency by government and Defence is important. The new White
Paper presents an opportunity for the government and Defence to start to
provide assurances that the decisions relating to SEA 1000 and SEA 1180 are
based in sound, robust and fully considered analysis.
Funding Force 2030
Given that the White Paper contains only vague funding detail, questions
have been raised persistently in relation to the costs of realising the 2009 White
Paper, including that of the future submarine. According to Mr Barrie, white papers
need to spell out new capability requirements and how these judgements drive
portfolio funding requirements as well as industry development.
The 2009 White Paper, however, lacks any detailed funding measures other than
the commitment to a major investment program to be partly funded by savings
measures outlined in what is now the Strategic Reform Program (SRP).
The 2009 White Paper devotes only a page and a half to funding expressed in
'broad brush statements of average percentage growth to the budget, and
imperatives about savings (or cost redirections) intended to balance the
Mr Barrie stated that the lack of funding information in the White Paper was:
...exceedingly disappointing because it seriously undermines
the centrality of the White Paper in guiding decision making, and the purpose
of the quinquennial approach of writing Defence White Papers.
ASPI's Defence Budget Brief 2009–10 noted in this regard that:
It's disappointing, therefore that 'the most comprehensive
White Paper of the modern era' has been followed by the least comprehensive
Defence budget papers of the past decade. Between the White Paper and the
Defence budget papers we are offered only the barest details of how the
government will fund its expansive plans for the defence force. Despite
claiming to have a 'fully costed' and 'affordable' financial plan stretching
twenty-one years out to 2030, actual funding has only been disclosed for the
When questioned at Senate Estimates in June 2009, the then CDF, Air
Chief Marshal Angus Houston, stated that it would cost somewhere between $245
and $275 billion (in 2009–10 budget dollars) to realise Force 2030.
Dr Thomson argued that despite claims that the 2009 White Paper is fully funded
and affordable, information relating to long-term funding and the costs of
proposed major acquisitions remains confidential. There was, for example, no
official estimate of the cost of the future submarine project beyond the DCP
figure of 'greater than $10 million'.
Yet, estimates provided by Sean Costello and Andrew Davies suggest that the
actual cost will be approximately $36 billion (in 2009 dollars) based on
Dr Thomson continued that:
Not only does this make it hard to assess the prospects of
delivering the much-vaunted Force 2030, but it's a marked departure from the
transparency accompanying the 2000 White Paper.
Dr Thomson concluded that the absence of concrete schedule targets for
initiatives in the White Paper was a means to avoid being held to account for
delivering the plan.
Moreover, information on the planned cost of projects above $1.5 billion in
value is not disclosed. Therefore, the public are not in a position to judge
whether some planned acquisitions including the future frigates represents
value for money.
According to Dr Thomson, there has been 'erosion in transparency' in relation
to the DCP over the period 2001–2009 with 'progressively greater clouding of
both schedule milestones and cost estimates'. Despite an independent external
review in 2009 recommending considerably greater transparency, Dr Thomson
argued that only marginal improvements had been made and that:
As things stand, the cost of a planned project can increase
by hundreds of millions of dollars and its timing can slip by years, without
the taxpayer being any the wiser.
Dr Davies and Dr Thomson observed:
A comprehensive examination of the disclosure of capability
planning information was undertaken by ASPI in 2009 (Purnell and Thomson,
2009). Unfortunately, the government only partially accepted the
recommendations. As a result, Defence continues to avoid scrutiny by obscuring
costs and timings.
Furthermore, the public defence budget is also subjected to repeated
changes which makes it almost impossible to understand how costs have changed
and how funding is being spent specifically. As Dr Thomson noted:
Apart from making it difficult to assess the efficiency of
the department, this prevents the external verification of more than $20
billion in saving being claimed under the Strategic Reform Program.
In light of concerns about transparency, Dr Richard Brabin-Smith suggested
that there was scope to increase the usefulness of the Portfolio Budget
Statements (PBS) as they 'omit any worthwhile discussion of content'.
Similarly, he argued in favour of greater explanation in the Defence Annual
Reports which tend to be 'general and descriptive'.
Mr Derek Woolner observed that in the absence of increased defence
funding, achieving all the objectives of Force 2030 would become very
difficult and 'aligning acquisition with central objectives for strategic
policy increasingly important'. He stated that a more open and contested
process for making decisions should contribute in turn to better policy
outcomes and provide the Parliament, for the first time with a meaningful role
in the process.
This could be in the form of a Defence Board which would provide a forum for
dissenting voices and for contesting proposals, schedules and costings. The
minister would sit on this board.
In July 2011, the Minister for Defence announced a series of initiatives
associated with, or in addition to, the ongoing SRP including that of
'improving and reforming Defence's planning and budgeting process'.
The initiative was triggered by the $1.6 billion underspend for the 2010–11
financial year which, according to the minister, 'represented a significant
failure in Defence's planning and budgeting processes'. The underspend,
however, could also be due to the failure of government to make timely
decisions. With regard to the underspend, ASPI's 2011 Budget Brief held that:
If Defence couldn't predict what it needed for this year's
budget, it's hard to accept claims of multi-billion savings years ahead based
on a long-range understanding of business-as-usual costs.
While recognising as essential the need to improve Defence's budget
estimation process, the minister, in his announcement, emphasised that defence
funding must be based on realistic and reliable forecasts. The minister noted
that a 'comprehensive stocktake and health check of the Defence budgeting
system' was to be undertaken which would consider 'all budget processes,
estimation methods and underlying budget assumptions'. In addition, the
minister highlighted that Defence had been instructed to 'consider ways in which
more reliable information on defence costs, savings and performance could be
made public to enable enhanced transparency, scrutiny and analysis'.
Based on the number of previous reviews that have not produced tangible
positive improvements, the committee is not confident that this latest one will
be any different. Even so, the committee suggests that this stock take and
health check consider how to ensure that individuals within this organisational
structure, made up of an excessive number of groups, are made accountable for
the elements of the budget they hold or use.
New Defence White Paper
On 3 May 2012, the government announced that it was bringing forward the
development of a new defence white paper a year earlier than planned for
delivery in the first half of 2013. The paper would take into account
Australia's place in the region, economic issues and the drawdown of forces
from Afghanistan, East Timor and the Solomon Islands.
The government identified ten core capabilities in the 2009 White Paper to
which it remained committed, including the future submarine, JSF and AWD
projects. The multi-role combat vessel project is in the 2012 DCP.
Five days later, on 8 May 2012, the Defence budget was released for
2012–13 with a $5.454 billion cut across the forward estimates starting with $971
million in 2012–13.
ASPI's Budget Brief observed:
This year’s cuts are just the last in a long line of hits
that the Defence budget has taken since the release of the 2009 Defence White
Paper. To date, $10.6 billion worth of promised funding from the first five
years of White Paper has been deferred to parts unknown in the future, $10
billion in savings (above and beyond those promised by the SRP) have been cut
from funding promised between 2011 and 2021, and another $2.5 billion of new
initiatives over the decade have been imposed upon Defence without funding or
offsets. Yet, somehow, over the past three years Defence has managed to hand
back $1.6 billion in unspent funds.
Responding to the announcement of a new white paper, ASPI's Budget Brief
observed that the prospects for delivering Force 2030 before the
assigned deadline had been remote for some time. The brief argued that, at a
minimum, the 2013 White Paper must do three things which the 2009 White Paper
failed to do, including:
- make a clear choice about Australia's strategic role in the
- design a defence force that is consistent with that role; and
- commit the necessary resources to the task.
The brief also took the view that the government's commitment in
relation to the submarines was 'wavering—with the White Paper's vision of
highly capable new-generation submarines now being evaluated against less
capable and far less expensive existing off-the-shelf designs'.
It concluded that Defence had not been able to deliver new equipment projects
at the pace envisaged in the 2009 White Paper and that the decade-long
financial plan at the heart of the 2009 White Paper was flawed, 'having been
built on an incomplete understanding of the true cost of developing and
The committee recognises the importance of both accuracy and
transparency in relation to the Defence budget and strongly encourages
initiatives that deliver both to the budget. The committee's concerns in
relation to the accuracy of Defence costings are reflected throughout this
report in terms both of the overall budget and individual projects. In relation
to transparency, the committee emphasises that greater detail needs to be provided
in the White Paper, PBS and Defence Annual Reports. The committee urges the
government to ensure that the 2013 White Paper heeds the criticism levelled at
its predecessor and provides clarity on future capability including funding
commitments underpinned by comprehensive analysis that defence analysts have
been calling for.
Slippage of approval rate at first and second pass
A number of defence analysts have also expressed concern about the rate
of approval at first and second pass and the implications of a delayed process
on meeting the Defence objectives contained in the 2009 White Paper. Dr Thomson
and Dr Davies stated in April 2011:
Despite concerted attempts to obscure the planned schedule
for the acquisition and entry into service of capabilities set out in the 2009
Defence White Paper, it was clear that things were slipping behind schedule as
early as May last year (Thomson, 2010). Since then, the situation has
The Executive Director of ASPI, Major General (retired) Peter Abigail
stated in August 2011 that Force 2030 would 'probably be delivered late'
The deferrals of billions of dollars in procurement funding
and delays in decision-making for major capability projects have already put
the Defence Capability Plan well behind schedule. The bow-wave of unspent funds
now laying five-to-ten years out dwarfs the expenditures achieved over recent
In its Defence Brief of May 2012, APSI noted that while only three years
had passed after the 2009 White Paper, major equipment acquisition projects
were not being approved or delivered on schedule even after a 2011
Reporting on progress against the last publicly released DCP from 2011, it
recognised that the rate of second-pass approvals had improved considerably in
2011–12 but that first-pass approvals remained 'badly behind schedule' which
had created what it described as a 'bow wave' of approvals over the next few
years. In relation to the approval rate overall, the brief concluded that:
Not all of the problems with the 2011 version of the DCP
reflect the accumulated impact of slow approvals. As we showed in detail last
year, the original 2009 DCP contained a manifestly unrealistic pattern of
planned approvals. The initial decade of the Force 2030 venture was
doomed from the start.
From the beginning of the committee's inquiry, there has been a growing
chorus of concern from submitters including defence analysts, defence industry
and former defence personnel suggesting that there were serious problems in
relation to schedule slippage. The Returned and Services League of Australia
Limited (RSL) stated that the procurement procedures outlined in the White
Paper were failing and that the DCP required first or second pass approval by the
National Security Committee of Cabinet (NSCC) of some 50 projects a year or
about 5 meetings but that the current average was less than 10 a year. The RSL
argued that the now laborious capability process has resulted in their being
'no possible chance of the current Defence Capability Plan being achieved'.
The Victorian Government held that $8.5 billion in Defence spending had been
deferred since the release of the 2009 White Paper. As additional evidence of
the slippage or slow down in the procurement process, it noted that in 2007–08
the value of defence projects approved by government was $26.5 billion while in
the three years from 2008–09 to June 2011, the value of projects approved was
likely to fall below $10 billion.
To amplify this point, the Victorian Government pointed out that the initial
schedule to meet the timetable of the 2009 DCP 'required a total of 60 project
approvals (first and second pass), while the actual number approved was 25'.
When Defence returned $1.6 billion of unspent funding in mid-2011, it
became apparent to many defence analysts that the schedule for modernising the
ADF articulated in the 2009 White Paper had fallen so far behind 'as to be
James Brown, Military Fellow at the Lowy Institute, held that Australia's defence
capability was on a 'steady downward trajectory' and that:
The equipment-purchasing schedule required to achieve Force
2030 was presumably finely calibrated with defence industry capacity. Defence
is now struggling to keep up. That problem is only going to get worse thanks to
a recent decision to put all minor projects (those worth $8-20 million) through
the detailed two-pass approval process. That adds 105 minor projects to the
existing 140 major projects waiting to be submitted to Government for approval.
Mr Woolner noted that the 2011–12 Budget saw a substantial change of
policy for the funding of Defence's acquisition emanating from continued underspending
on major capital equipment programs. He held that:
The accumulation of problems within individual acquisition
projects has compounded and has come to be represented by a continuing failure
to spend annual appropriations for major military equipment and to achieve the
future spending levels projected in the additional estimates. There is now evidence
sufficient to suggest that this trend in acquisitions management threatens the
achievement of central policy objectives.
In stark contrast, however, Defence Secretary, Mr Duncan Lewis informed
the committee on 13 June 2012 that:
We are improving outcomes in delivering Defence capability.
There were a record number of government project approvals last year: 49
projects approved, in contrast to 28 projects approved the year before...Since
2000 there has been a doubling of the number of projects delivered on time.
Schedule slippage has been reduced from 50 per cent in the year 2000 to about
30 per cent in 2007 and continues to improve.
In this regard, the committee notes the rather confused message about
approval rates especially Defence's use of the term. During evidence, Air
Marshal Harvey noted that nine projects had been approved in the first three
months of 2011 and, together with other projects in the pipeline progressing to
government, 'would give a strong indication that Defence would get well above
that 28 project approval for the year. He then referred to the 28 approvals in
terms of first pass, second pass, combined passes and other passes associated
with projects such as intermediate passes.
It would seem that only a fraction of the approvals have led to funds
flowing to industry. Most were interim approvals that just served to keep the
process going. As mentioned earlier, Dr Thomson noted in his 2012 Defence
Budget Brief that the pace of second-pass approvals had improved substantially
in 2011–12, 'although some of the approvals were "one-off" non-DCP
projects'. Even so, he found that first-pass approvals were 'badly behind and
On the basis of recent experience, the planned approval of
projects is manifestly unachievable.
The committee notes Defence's assurance about increased approval rates
but has no confidence, based on performance to date, that it represents any
real improvement. In fact, such statements may be an expression of optimism
which infects Defence explanations. The committee therefore remains extremely
concerned at project schedules and the worsening pattern of delay.
Reason for delayed approval rates
To this stage, the committee has established that there are delays in
project approval but without any real understanding of the cause or causes such
- Defence not confident that they have reduced risk enough to
present submission to Minister/Cabinet; or
- Minister unwilling to make decision or unable to get priority for
Cabinet to consider.
In the committee's view, only when the opportunity cost of delays is
identified (transparently) will there be pressure to:
- have the key stakeholders meet and use the Projects of Concern
resolution approach to agree a costs/capability/schedule/risk trade-off such
that the submission can be ready for Cabinet in accordance with the agreed
(DCP) schedule; and
- have Cabinet make it a priority to consider defence capability
The slow rate of approvals has a particular effect on industry. It
undermines industry's confidence in Defence planning and compounds the
difficulties caused by uneven flows in demand. This matter is considered in
greater depth in chapter 14.
The White Paper sets in train an acquisition program that has a life spanning
many decades, involves a huge amount of taxpayers' funds, has serious
implications for Australia's serving personnel and ultimately the nation's
strategic wellbeing. It is important that this 'corner-stone document' is based
on thorough analysis and serious deliberation so that it provides the firmest
of foundations for Australia's future defence force. The committee is concerned
that, despite lessons to be learnt from advanced projects, some of the newer
ones in the White Paper have not received the appropriate amount of consideration,
including consultation with subject matter experts and
defence industry. This lack of expert independent advice and
contestability at this early stage means that decisions may have been made
without the benefit of rigorous analysis or industry experience.
The scant information provided on funding Australia's acquisition
program and the slow rate of approval underscores the importance of the
government ensuring that despite the time pressure, the 2013 White Paper
presents a detailed, realistic and achievable plan for Australia's capability
The committee recommends that the 2013 White Paper is prepared in such a
way that all procurement proposals are costed and scheduled realistically and
that Defence undertake comprehensive consultation with industry before
decisions on inclusion are made, or alternately, a green paper is issued in
advance for broader and open public consultation.
The committee recommends that commencing next financial year, Defence
publishes as an addendum to its portfolio budget statements, all the current
financial detail of planned capability from the time of inclusion in the DCP,
right through to contract completion and provision for sustainment, for all
projects over $30 million for total procurement and lifelong sustainment.
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