Minister for Defence - Defence and Industry Conference 2014

DEFENCE+INDUSTRY CONFERENCE 2014

ADELAIDE CONVENTION CENTRE

0910 HRS, 29 JULY 2014

OPENING ACKNOWLEDGEMENTS

His Excellency Shmuel Ben-Shmuel, Israeli Ambassador

The German Ambassador to Australia, Dr Christoph Mueller

Deputy Premier of South Australia, Minister John Rau MP

Senator David Fawcett

UK Government Representative - Richard Paniguian

Mr Warwick Bray

Dan van Holst Pellekaan SA Liberal Shadow Minister for Defence Industries

Ladies and Gentlemen

In the audience today are the people who I personally regard as a key part of our national security infrastructure. And I refer of course to the men and women who work in our defence industry.

Without you it simply does not happen. To fight and win requires your contribution. This lesson is learned time and again, and I give you no better example than the RAAF C-17 support to Operation Bring Them Home which is unfolding as we speak. And moreover, I consider you to be among the most professional and committed workforce anywhere in the world. So to you I say thank you.  

Today I want to talk about how the Abbott Government is clearing the way for you to do your work.

The Government will facilitate an effective and professional working relationship between you and the Defence Department. This is about cultural change as much as anything and requires systemic redress.

The Government will reform the Department of Defence to be more capable and efficient. Government and industry alike requires Defence to fulfil the vital functions of being an informed customer.

And what I need from industry is performance. If you perform I can maintain the confidence of the Cabinet in you, and with this confidence more work can flow. And here I will discuss the Air Warfare Destroyer project and naval shipbuilding more broadly.

To remind people of the scale of Defence, last year we spent $4.1 billion through projects and $5.1 billion through sustainment in the DMO.

We spent about $1.3 billion on new facilities and $680 million on maintaining existing facilities.  Our IT infrastructure cost $1.2 billion including $937 million in maintenance and $257 million in new projects.

Of the above we spend roughly 70 percent or $8.7 billion on Australian industry - we are a vast enterprise and we need to do many things well to be able to fight and win.

White Paper

On coming into office, the Coalition Government committed to returning the Defence budget to 2% of GDP by 2023-24. 

We made that commitment because we recognised the substantial underinvestment in Defence over the six years of the previous Labor Government, the volatility in Defence’s budgeting driven by Labor’s poor economic management, chaotic capability planning and acquisition activities. The end result of this has led to a breakdown in Defence's long term planning framework. 

So, on coming to office I found there was no relationship between Defence’s plans and available funds.

I think this last point has probably been lost on commentators because it is seen through the lens of political rhetoric.   So let me just reiterate some key facts:

•           Labor’s 2013 plan out to around 2030 was underfunded by about $30 billion.  That is 30 thousand million dollars.

•           Labor had pillaged Defence’s long term re-capitalisation plan – the Defence Capability Plan - so much that 119 projects had to be delayed, 43 projects reduced in funding, and 8 projects cancelled.

•           On entering office I was advised that if funding stayed as it had been left by Labor the DCP would need to be reduced by some $12 billion out to 2030.  That is the equivalent of cancelling the Joint Strike Fighter program.

•           And with regard to naval shipbuilding, not one naval shipbuilding project was approved in 7 years. Labor launched a lot of promises but never any ships.

So the Defence budget and the Defence Capability Plan I inherited was a mess.  There were a number of things I wanted to do when coming to office that were frankly impossible unless I was willing to continue the lies and deceit of the Labor party.

On 4 April 2014, the Prime Minister and I announced the commencement of a new Defence White Paper to be released next year which will underpin a costed, affordable plan to achieve Australia’s defence and national security objectives.

The White Paper will align defence policy with military strategy and deliver an affordable Australian Defence Force structure through a Force Structure Review.  This White Paper will include a costed acquisition program, a 10-year Defence Capability Plan (DCP) and a new Defence Industry Policy Statement.

The DCP will be realistic, affordable and project approvals will have clear timeframes. It will be a bankable document. We will return to the days when your corporate plan could respond to the DCP. 

Development of the new Defence White Paper is well under way, including the completion of an assessment of our strategic environment, the changes underway in our region and around the world. 

A new strategy is being developed by Government to guide Defence planning, to ensure there is full alignment between what Government will expect the ADF to be able to accomplish now and into the future, and the available funds.  This is a complex task. 

Of course we have a fundamental requirement to prevent or defeat threats to Australia and our national interests.   Additionally, and typically, Defence is required to be capable of operations around the globe, because our interests are engaged globally. 

How Government brings this all together is a key element of discussions at the moment. 

In support of this, the Force Structure Review team is hard at work creating options for Government consideration that will support continued development of an ADF able to meet government objectives with the equipment and support they require.

The Force Structure Review is where the hard calculus and trade offs need to occur to ensure we have an appropriate and affordable capability. 

White Paper Public Consultation Process

To support the development of the Defence White Paper, and the Defence Industry Policy Statement, I established an external Expert Panel, led by Mr Peter Jennings from the Australian Strategic Policy Institute.

The Expert Panel has been charged with providing independent advice to me and the Government on the development of the Defence White Paper.

Yesterday I announced the release of the public discussion paper – The Defence Issues Paper.  I am also pleased to announce that today’s conference – along with forums being held this week in Sydney, Brisbane and Townsville – marks the formal beginning of the Defence White Paper Public Consultation Process. 

Between now and early September, the Expert Panel will be holding a series of seminars, meetings and forums around Australia.  These events will be opportunities for the Australian community to discuss and contribute to Australia’s future defence policy.

First Principles Review

Government has a responsibility to the community to ensure Defence is able to deliver against its outputs with the minimum resources necessary. Understanding the types of work Defence must perform, to create what value, and in the most efficient way is one of the Abbott Government’s top priorities for Defence.

And this is no simple task as Defence makes a vital contribution to Government across vast spheres of intelligence, operations, preparedness, procurement and I could go on.

I have nothing but respect and confidence in all my Officials.   

And in this forum I emphasise the need for Defence to be able to procure the necessary goods and services, in the most efficient way, to ensure the ADF can fight and win on the battlefield.  

I will announce an expert Review Team.  The Review Team will be supported by an external consultancy and is a balanced, non politically partisan group comprising industry, military, and ministerial experience. It is eminently placed to perform and to make recommendations to:

•           ensure that the Department of Defence’s business structures support the ADF's principal tasks, as determined by the 2015 Defence White Paper, and other whole of government responsibilities out to 2030;

•           ensure a commercially astute, focused and accountable materiel acquisition and sustainment capability;

•           improve the efficiency and effectiveness of Defence;

•           guide the implementation of recommendations from the Commission of Audit not otherwise covered above; and,

•           ensure the ongoing delivery and reporting of agreed recommendations.

I might briefly touch on one area that I believe will have significant interest to this audience - what we might be looking at in terms of acquisition and sustainment. 

The Review Team is free to examine any aspect of these terms of reference but I have asked that they look at three potential models for DMO.

First, a model that would see DMO remain organisationally as they are, but with mechanisms put in place to improve their commercial skills and increase their capacity to manage larger and more complex projects.

Second, a DMO that organisationally would be re-integrated into Defence and focus on contract management – as recommended by the Commission of Audit.

Third, a much more independent and commercial DMO in whole or in part.

The review will of course cover off a wider range of issues, consistent with the terms of reference.

The First Principles team will report to me early next year for consideration at NSC as part of the White Paper. 

Industry Policy

Building on the role Mike Kalms and Andrew Davies are taking on the Expert Panel in their Industry consultation, I have asked them to take a leading role in the drafting of the Industry Policy Statement within Defence.

As we move forward to develop the Defence Industry Policy, there are a couple of key principles that need to be kept in mind.

Firstly, Defence Industry policy must remain consistent with broader industry policy, which seeks to promote competitive, collaborative and innovative industry.

Secondly, it needs to recognise that Defence funding is designed to get and sustain the best capability for the ADF and Defence within the available funds.

Thirdly, we need to ensure Australian industry can sustain and integrate our capability over its life both within Australia and while deployed – that is you are a fundamental input to capability.

Fourthly, we need to encourage entrepreneurship and innovation in our industry and breakdown any barrier to domestic or international competitiveness.

On this last matter we have significant runs on the board.

We have had some notable successes when we innovate well in this country.  The innovative work being undertaken by CEA Technologies on the CEAFAR Active Phased Array Radar system that is currently being fitted to the ANZAC Class frigates as part of the Anti-Ship Missile Defence upgrade is one example.  

I was pleased, last November, to announce the award of a Standing Offer contract to CEA for the development of further systems based on this world-leading technology.

The long history of the Jindalee Over the Horizon Network project is another example of innovation at work.

These types of projects need to be the core of the Defence-industry relationship, not the exceptions.  We must become much better at leveraging innovation to produce world leading capabilities that deliver a warfighting edge to the ADF.  Such capabilities, as the Nulka system has proven, will find a global market and build success for Australia, for industry and for Defence.   By 2019, the Nulka system will be fitted to 166 ships world wide, including US, Canada and Australian Navy.

In terms of Nulka, I am pleased to be able to announce that the Government has approved First Pass for SEA 1397 Phase 5 B – Nulka Launch Sub-System upgrade, including around $45 million in funding.  

This project aims to update and replace the existing Nulka Launch Sub-system for Australian Ships.

The objectives of this project are to redesign the Nulka Launcher system, to:

•           improve the integration with ships’ Combat Management Systems;

•           update the human machine interface;

•           remove obsolescence; and

•           facilitate installation onto the Landing Helicopter Dock (LHD), Canberra Class.

The Nulka prime Contractor BAE Systems (Australia), located in RichmondVictoria, will be contracted to perform the engineering design activity between First and SecondPass. Only a small portion of this activity requires support from outside of Australia.

Significant opportunities will also be available to Australian industry, during the production, integration and through-life support phases of the project.

I also note there are number of important workshops being held on this topic at this conference over the next couple of days.

Today, I am also pleased to announce that I have approved the first round of the Defence Innovation Realisation Fund.  Defence will fund six innovative projects, with a total value of around $16.5 million.  The selected projects are:

• Spherion Sonar Advanced Processing System – Thales Australia Ltd
• Nano-structured Fabrics for Personal Protection – Defence Materials Technology Centre Ltd
• Fibre Optic Towed Array – Thales Australia Ltd
• Integration of the Satellite Laser Tracker – EOS Space Systems Pty Ltd
• Standoff Personnel-Borne IED Detection System – RPDE
• Scoping work for the Pegasus Aircraft Buoyancy System – One Atmosphere Pty Ltd

I congratulate the companies concerned and wish them all the success as they contract with Defence to further develop their technologies.  I look forward to following their progress.

Shipbuilding

I do want to talk about shipbuilding.  And I do want to start with what the Labor party did and did not do – because it illustrates the complexity of this issue.  It also illustrates what happens when you have poor leadership.

Since leaving office, Labor has had much to say about what should and should not be done.  Words are cheap, so let us look at what they actually did for shipbuilding when they were in office and could do something.

•           They sent HMAS Success overseas for extensive work rather than doing the work in Australia.

•           They acquired HMAS Choules overseas, in a state of panic over a collapse in amphibious     capability, rather than committing to building such a ship in Australia.

•           They covered up an Air Warfare Destroyer Program that is clearly not executing to schedule or budget.

•           And they ignored the replacement of HMAS Success and Sirius leaving this Government with no choice but to accelerate this acquisition or face yet another capability gap.

The Abbott Government is committed to getting things back on track, though I remind everyone that I can not bring forward new opportunities without demonstrating to my Cabinet colleagues that industry can perform. I want a sustainable naval shipbuilding industry in Australia, but not at any cost. 

Firstly, the AWD program must be recovered and the Abbott Government has a very public plan to do this.  NOTHING CAN COME BEFORE FIXING THE AWD PROGRAM. Our advisers are working to the plan and some of you in industry are being consulted. This recovery plan is frankly the test case for Industry.  At the moment the increases above the target estimate are over $300 million and rising.  This is TAX PAYER MONEY, it is not free.  People work hard for this.  People are supportive of Defence, but they want the money to be wisely spent. 

Minister Cormann and I commissioned the Winter Review to get to the bottom of what was wrong with the program.  We took that to Cabinet and the Prime Minister and my colleagues agreed to a course of action that we are now implementing. The overall intention is to get Industry to the type of productivity you were able to demonstrate through the ANZAC frigate program.

I reiterate my first priority is getting the AWD program back on track.

My second priority is to ensure that everything is in place to ensure a continued naval shipbuilding industry is in Australia should Industry demonstrate it can meet an acceptable benchmark for productivity and cost. 

The Government has agreed to an investigation of the continued build of the AWD hull, but with the Australian CEA Radar and the Adelaide based SAAB 9 LV combat system.  The ship itself would have a primary role of Anti-submarine warfare but would also be highly capable of air defence.  We have recently signed a number of contracts to support this.

This is allowing us to keep open the option of a following build to the Air Warfare Destroyer.  This opportunity is of such significance it may establish a sustainable industry.

It begins with 8 ships and may endure if we cycle keel rotations in line with Navy’s overall needs. This program dwarfs AWD in terms of long term opportunity. 

So when I say I want a continuous build – that is what I mean. But I need your help to fix AWD and also design a Future Frigate program that follows on from AWD with minimal industry disruption. 

Part of the work on the future frigate program is to examine whether we could commit to the construction of some early blocks to ensure that there is no break in production overall.  To this end I am asking RAND to assist Defence and the DMO to develop the enterprise level future ship building program. 

And, I also make the point that the Abbott Government is seeking open cooperation with state governments. Yes, there will be those that cooperate and those that indulge in pressure politics. I will say this. I urge all industry to take the cooperative path.

We also need to recognise that the ANZAC ship program was much simpler than the potential future frigate and we should also not become too nostalgic around the Collins submarine build program.

Collins, as a program, had to be rescued by the Howard Government with the McIntosh and Prescott review.  While individually the submarine is now working quite well, as a program it is only recently that we are seeing the appropriate level of availability thanks to the outcomes of the Cole review.

In conclusion I draw your attention to the Defence Issues Paper and I quote it directly:

“There is significant debate around the future submarine and whether it should be built in Australia. This debate must consider the cost, risk and schedule as well as the benefits of the different options. Where domestic industrial capability is scarce; where ought it be directed? To what priority and to which ADF needs?”

These are important questions. With tens of billions of dollars of new opportunity on the table the Government must choose wisely.

Any person or company that has the ability to make a contribution, and perform, will be called upon.

Working internationally with partners, as we do now in all our major projects including AWD, will remain a feature of our industry. To demand, or to give, blanket political commitments ahead of the White Paper, or any examination of the actual needs of the Navy, is to indulge in the same low-value conversation that has characterised the last seven years.

The work will follow what we know we can do and what we know we need to do. This should not be a controversial statement. It is in our national interest and our taxpayers’ interest.   

Thank you.   

END