Address to the Defence and Industry Conference – Adelaide Convention Centre

Address to the Defence and Industry Conference

Adelaide Convention Centre

Wednesday 29 June 2011

LISTENING AND ACTION

***Check against delivery***

Thank you Mark [Reynolds]

Today I want to talk about listening and action.

That’s been my approach to this job since I started 9 months ago – listening and action.

It’s hardly radical. Most of the people in this room are leaders: CEOs, project managers, senior officers and public servants.

Listening and taking action are what we do every day – and they’re usually best done in that order.

So when I started this job I told my staff I wanted to visit at least one Defence Industry site – a factory, office or laboratory – every week.

I don’t think there is a better way to understand challenges we face or the opportunities. And I wanted my diary to mirror my priorities.

After 42 weeks in the job I’ve now visited 46 Defence companies around the country. After visiting Ferrocut and General Dynamics tomorrow – we’ll be up to 48.

I have also been listening to soldiers – from Privates to Generals – about their work and their equipment, and some of the deep thinkers on Defence issues, in think-tanks, policy institutes and our universities.

This morning I want to tell you about some of the things I have heard, some of the things I have learnt and the action I am taking.

I will start with something pretty obvious – but very important.

The biggest challenge we face in defence procurement is delay.

When we significantly modify or customise defence equipment it is usually delivered 23 per cent behind schedule. Developmental projects are on average 66 per cent late. Off the shelf projects, by contrast, are usually on time.

On average our major capability projects are 20 per cent late. That is better than the United States and better than the UK. But that doesn’t mean it is good enough.

When projects are delayed it is not good for Defence, the Australian Defence Industry or Australian tax payers. Most importantly, it’s not good for the men and women we send to dangerous places.

That’s why the first reforms Minister Smith and I have embarked on are about reducing delay.

That includes requiring Defence to provide a cost benefit analysis when they recommend to Government that we don’t buy a piece of military equipment off the shelf.

It also includes an early warning system with hard triggers – so we know as soon as possible if a project is slipping and we can do something about it.

This doesn’t mean that government will always buy off the shelf. It depends on the project. And it depends on the case put. Bushmaster and now ASMD are both examples of unproven projects that had their problems – but ultimately proved to be the right decision.

But where the Government is not buying off the shelf, it has to be based on a clear cost benefit analysis. Given the data I just mentioned I think this is an essential discipline.

Buying military equipment off the shelf also doesn’t necessarily mean buying overseas – or that there will be no Australian industry involvement.

For example, there are real opportunities for Australian companies to get into the supply chains of big multi-national defence companies – and produce thousands of units for a global supply chain not just the hundreds they might produce for the ADF. The Australian Government can help make this happen.

We can also do more to assist small Australian companies involved in big Australian defence projects – and I will talk more about that in a moment or two.

But the point I want to emphasise is this – I am focused on reforms that reduce delay.

My reason for this is simple – the men and women we send into harm’s way rely on the work we do. It’s our job to make sure they have the equipment they need to do their job – when they need it.

PROVIDING OUR TROOPS WITH THE EQUIPMENT THEY NEED

That’s why we have recently ordered an additional 101 Bushmasters from Thales – fitted with MEAO protection kits and protected weapons stations.

This is on top of the $1.6 billion package of Force Protection measures in the budget.

Of the 48 recommendations the Force Protection Review made, 41 are now completed or on track.

That includes the C-RAM Counter-rocket radar system. There has been some great work done by SAAB to deliver this capability – on budget and five months ahead of schedule. And I congratulate them for it.

It has been operating at Tarin Kowt since December and has already been activated 10 times, providing an early warning against rocket and mortar attacks. It’s now being rolled out to a number of our Forward Operating Bases across Oruzgan.

The new TBAS combat body armour is another recommendation of the Force Protection Review – and it is going into theatre right now. It has been developed by Australian Defence Apparel in Victoria and the Diggerworks team in Defence – made up of a number of soldiers who have recently returned from operations in the Middle East.

I spoke to troops in Townsville last month before they left for Afghanistan. Their feedback on the new body armour was extremely positive – they said it was lighter, fit better and made it easier for them to do their job. Of course, the real test will be in Afghanistan – and we will use the feedback from our troops to keep improving the design of the body amour. But the work done so far has been first rate and it is a credit to the team at Diggerworks and ADA.

ADA has also been working with the Defence Materials Technology Centre (DMTC) on a new process to manufacture parts of the combat body armour ballistic plate. Production is now underway and the first plates will be delivered to Defence in the next few months.

The Defence Materials Technology Centre is also doing other work to improve force protection. Two weeks ago I announced a $20 million project to improve the protective equipment our soldiers wear.

The Government will contribute $9 million and the Defence Industry will contribute $11 million in cash and kind. Some of the companies involved include:

  • ADA;
  • Ballistic and Mechanical Testing;
  • Bruck Textiles;
  • Pacific Engineering Systems International; and
  • Tectonica.

It’s a good example of Defence and Industry working together and I thank all the companies that are involved – putting up their own money and resources.

On the weekend you might have seen I also made an announcement about Army boots. At the moment when soldiers are deployed they can wear the standard issue boot or they can purchase one of nine combat boots approved by the Chief of Army.

The standard boots cost Defence about $192 each to purchase. I have made the decision that if soldiers decide to purchase boots rather than use the standard issue boots – we will give them $192 to help them do that.

Boots are one of the most important pieces of equipment soldiers have. Every person is different. They like different types of boots. That’s why we give them a choice. This will now make it easier for our soldiers to choose the boots they want to wear.

That’s just a few of the things we are doing to support the people we send into harm’s way.

Whether it is Army boots or Air Warfare Destroyers we need to improve the way we do things.

REFORMING DEFENCE

At the ADM conference in February I said this year would be a big year for reform – and it is.

This morning Minister Smith ran through the reforms we announced in May and the changes we are making to the Projects of Concern process.

They are just the beginning – there is a lot more to come.

Projects of Concern

The reforms to the Projects of Concern process have been developed by listening to you.

As Minister Smith said, I have developed these reforms after a lot of conversations with people in this room.

They mean we will now have a formal process for adding projects to the list and removing them from this list.

I have also built in real incentive for companies to work to fix the projects they have on this list. If companies don’t satisfactorily remediate the projects they have on the list this will result in a negative weighting against them in other tenders.

In extreme circumstances it could result in exclusion from further tenders until the project is fixed.

These reforms will be overseen by a new Independent Project Performance Office. This is a recommendation of the Mortimer Review and it will start this Friday, 1 July.

I also said at the ADM conference I hoped to take some projects off the list this year.

Today I am pleased to take two off – Vigilare and HF MOD.

Both of these projects have now been successfully introduced into service. Vigilare has given the Defence Force better surveillance and battle management capabilities while HF Mod has provided the ADF with a modernised high frequency communications system.

I want to take this opportunity to thank Boeing for working so hard to turn these two projects around.

These are both great examples of what we can achieve working together. They show that the Projects of Concern system works. The objective of the reforms we have announced today is to make it even better.

Sustainment

Sustainment is another area where we are focused on improving the way we do things. It is also a big part of the Australian Defence industry.

The budget for sustainment is set to grow from around $5.3 billion this financial year to over $6.1 billion in 2014-15.

Most of that work – around 70 per cent – is spent in Australia

So an increase in sustainment work means more work for the Australian Defence industry.

Already this year we’ve announced a number of big sustainment projects:

  • $100 million contract with General Dynamics Land Systems Australia for the sustainment of Abrams Tanks and ASLAVs;
  • $300 million contract extension with BAE Systems Australia and Lockheed Martin to maintain the Jindalee Operational Radar Network;
  • $70 million contract with Raytheon Australia to maintain Tactical Data Radio Systems; and
  • $20 million contract with CAE Australia to provide training for aircrew on our Air-to-Air Refuelling aircraft.

Two weeks ago we also released the $300 million tender for the first of the Navy’s group maintenance contracts.

There are also some big challenges in sustainment.

The work Paul Rizzo and his team are doing will form the next stage of our reform program and will lead to significant changes in the repair and maintenance of our amphibious ships and the fleet more broadly.

We also have big challenges with the sustainment of submarines. I don’t underestimate them. That’s why the maintenance of our Collins class submarines is at the top of the Projects of Concern list.

Defence and ASC are working closely on a new contract for the maintenance of our submarines – to begin later this year.

The Government has also initiated an independent review of ASC’s sustainment of our submarines against world’s best practice.

This benchmarking study will be led by Mr John Coles, an independent expert from BMT Defence Services in the UK and will provide recommendations to us on:

  • The best commercial framework for submarine sustainment
  • performance targets for sustainment activity
  • achieving value for money from the supply chain
  • opportunities to rationalise management and infrastructure at ASC to achieve efficiencies; and
  • priorities for overall reform of submarine sustainment.

The outcomes of this report will be very important.

I am also keen to provide new sustainment opportunities for industry through the SRP.

At the ADM conference I asked for your ideas about how you could save Defence money and improve the way we sustain things.

We have received a lot of responses.

In February I announced the first four SRP pilot projects. Today I’m pleased to announce two more.

The first involves BAE and DMO working together at the Hydrographic SPO in Cairns to trial an Integrated Project Team concept.

The second will be led by H.I. Fraser. They will work with DMO at the Mine Warfare and Clearance Diving SPO with support from the Naval Inventory Procurement Office to develop a rotatable pool of spares to reduce lead times and keep business in Australia.

These are just two. I hope to announce more pilots in the future. The purpose is to test new ideas, improve the way we do things, save tax payer’s money and provide opportunities for Australian business.

Disposals

I am determined to do that in other areas too. My job is not just about procurement and sustainment of Defence equipment. It is also about the disposal of it. And there is plenty of reform needed here too.

Over the next decade we will purchase over $150 billion worth of new equipment. The flipside of that is the biggest Defence disposals program since the end of the Second World War.

After World War II disposal was a simple business.

Chemicals, explosives, vehicles, ships and aeroplanes were simply dumped into the sea.

It is estimated that more than 21,000 tons of chemical warfare munitions

were dumped into Australian waters at the end of World War II – some of it less than 20 nautical miles off Sydney Heads.

Obviously – we won’t be doing that again.

Over the next 15 years the Australian Defence Force will replace or upgrade up to 85 per cent of its equipment.

As part of that, Defence will dispose of:

  • up to 24 ships;
  • up to 70 combat aircraft;
  • up to 110 other aircraft;
  • up to 120 helicopters;
  • up to 600 armoured vehicles;
  • up to 12,000 other vehicles; and
  • a range of communications systems, weapons and explosive ordnance.
  • The scale is staggering. It represents 10 per cent of the current value of the Australian Government’s non-financial assets.

It is also provides a reason to improve the way we are currently disposing of military equipment.

Since 1997, the British Government has generated more than 650 million pounds or more than a billion Australian dollars – from the disposal of military equipment.

Over the same period Australia’s disposal of a similar number and type of assets has actually cost the Commonwealth around $20 million.

That’s why I am reforming the way we do things, with three goals:

  1. Reduce cost to the Commonwealth and, if possible, generate revenue;
  2. Preserve important examples of our military heritage; and
  3. Provide opportunities for Australian industry involvement.

Today I have released a Request for Proposal for the disposal of up to 24 Navy Ships over the coming decade.

The RFP will provide the flexibility for companies to bid for all ships, a class of ships or a single ship.

I have also approved a plan to dispose of up to 12,000 Army vehicles over the next decade. This includes Land Rovers, Unimogs and Mack trucks.

Disposing of this equipment in bulk should provide real opportunities for business and increase the amount of revenue Defence can raise and reinvest in new equipment.

The money raised from the sale of these vehicles could, for example, be invested in training simulators that reduce the wear and tear on Army vehicles.

Historically significant pieces of military equipment will still be made available to the Australian War Memorial, RSLs and other historical organisations for preservation.

DEFENCE INDUSTRY

As I said earlier, I have visited a lot of companies in the last few months and I have been doing a lot of listening.

One of the first issues raised with me by AIDN was Australian Industry Capability Plans – and I have heard a lot of times since.

The last time was just a few weeks ago at a small company in Melbourne.

I’ve listened to your ideas on this – and I’m taking action.

Australian Industry Capability Program

This morning I can announce a number of changes to improve Australian Industry Capability (AIC) Plans.

These include lowering the threshold from $50 million to $20 million for projects that will require an AIC plan. This will apply from 1 July – and will mean AIC plans will now be included in an additional 27 DCP projects.

Second, the ability of a company to arbitrarily reduce the level and type of work included in a plan will be removed. We will also publish a list of the companies that have breached their obligations every year in the Defence Annual Report.

Third, a new clause will be included in the Conditions of Tender allowing a company to be excluded from a tender if they have previously failed to meet their AIC Plan obligations.

Fourth, AIC Plan performance will be included as a separate category in the Company ScoreCard system used by Defence to assess a company’s performance.

And fifth, project teams will be made more accountable for AIC Plan performance by including them in the DMO Project Manager’s Charter.

I have also asked Defence to improve the system for the companies that sign up to AIC Plans – by removing the standard Liquidated Damages terms usually included in contracts that attach to AIC plan obligations.

The feedback I’ve received is that the terms of these LD’s have never been enforced and just lead to increased margins to be built into project costs.

It makes sense then to abolish them and replace them with the reforms I have announced today.

Global Supply Chain

I am also keen to ensure Australian companies get greater access to the supply chains of global primes.

I spoke earlier about benefits of Australian companies producing thousands of units to a global supply chain, instead of just hundreds for the ADF.

Here is a bit of an update on the DMO’s Global Supply Program. As most of you will know it provides primes with the resources to identify and certify small Australian companies as part of their global supply chain.

When it was set up by Greg Combet – everyone agreed that if it could provide a ten fold return on investment it would be a roaring success.

Well I’m very happy to say that to date the program has delivered more than a thirty fold return on investment.

To date the Government has invested just over $11 million into the program – and more than $356 million in contracts have been awarded to Australian industry. About 90 per cent of the value from these contracts has gone to Australian SMEs.

This includes more than $200 million in projects from Boeing, and more than $100 million from Raytheon.

In January Lockheed Martin also joined the program – and I am hopeful with the awarding of the new Naval Combat Helicopter contract we will see more work for Australian companies from the Global Supply Chain Program.

Yesterday Northrop Grumman joined the program, and I am hoping more primes will follow them.

It is obviously already a great success, and I will have more to say about the future of the Global Supply Chain program later this year.

PICs and CDAF

As I will about the PIC health checks. At ADM I announced that Defence would be conducting health checks on the Priority Industry Capabilities.

These are now underway and I hope to release a number of these in the second half of this year.

I also said that we needed to improve the operation of the Capability Development Advisory Forum (CDAF) and its working groups. That work is underway. Yesterday I was at the Land Environmental Working Group. The Sea and Air groups meet next month.

I am told it will be the first meeting of the Maritime Environmental Working Group in four years. The next one won’t be in 2015. It will now meet every six months.

US Trade Treaty

Finally, an update on the implementation of the Defence Trade Treaty with the United States.

Consultation on this has three stages:

  1. In December we held meetings with industry in eight cities and regional centres.
  2. Last month we established a Joint Defence and Industry Advisory Panel headed by Ken Peacock. It met for the second time yesterday.
  3. In the next few weeks we will release an exposure draft of the bill for your feedback.

The bill will be introduced into the Parliament later this year. But before it is – I want to hear your advice.

This treaty has enormous potential, but it will only work if industry understands it, likes it and ultimately uses it. So please give me your feedback when the draft bill is released in the next few weeks.

CONCLUSION

I have spoken about a lot of different things this morning – but there is a common thread that runs through all of it.

That’s improving the way we do things.

I spoke at the start about listening and taking action.

As you can see, I have done that with:

  • Projects of Concern;
  • with Army boots;
  • with SRP Pilots; and
  • Australian Industry Capability Plans.

I am doing that with the US Trade Treaty legislation as well.

And I will keep doing that.

In April I took a bunch of school students to Borneo – and we walked the Sandakan Death March.

Sandakan is the worst military atrocity in Australia’s history.

In 1945 as the war came to an end more than 1,000 Australian and British soldiers were marched 260kms through the jungle from Sandakan to Ranau.

Those who couldn’t keep up were shot or bayoneted. When the war ended the killing didn’t.

Two weeks after the end of the war the Japanese shot the remaining soldiers. We only know what happened because six managed to escape to safety.

One of the young students I took on the trek was a 16 year old called Liam. He was a bit of a handful.

On the way to Borneo we landed in Singapore. At dinner that first night he ran off, left the group and decided to go shopping.

When we got to Borneo and on the track he went straight to the front of the pack –bursting to get past the guides and get to the top of the mountain as soon as possible.

Over the next few days the story of those Australian soldiers worked on him. By the last day of the trek he was at the back –encouraging those who were struggling, giving them the help they needed.

When we got back to Singapore we went to Kranji War Cemetery where more than 1,000 Australians are buried.

In the middle of the cemetery a little boy and his father were kicking a soccer ball around the tombstones – and Liam turned to me and said – “that’s not respect”.

I thought to myself this boy’s got it. He understands.

There is a lesson for us here too.

The greatest respect we can pay to those who put their lives in our hands is to do our job well and do it better every day.

To constantly seek to improve. To listen and take action.

And to work together to deliver what they need – when they need it.

I know you do that, and I thank you for it.