Like every year, 2018 was a big year for Defence. Announcements on Land 400, the Future Frigate, JORN and many more. Minister for Defence Industry and now Defence Christopher Pyne has been the driving force behind much of the impetus in the Defence community. He spoke to ADM Managing Editor Katherine Ziesing in early December about the year that was and the year ahead.
ADM: It’s been almost three years since the last White Paper and associated support documents have been released. What has changed in a practical sense?
Pyne: I think a lot has changed in a very practical sense; that’s been one of the hallmarks of the last three years. The White Paper set us up for a strategic positioning that’s been done before.
The difference since the 2016 White Paper was that it’s been backed up by a structure; the Integrated Investment Program, the Defence Industry Policy Statement, the Defence Industrial Capability Plan, the Naval Shipbuilding Plan, and the Defence Export Strategy. That structure has been implemented and led to practical outcomes.
For example, the Arafura class Offshore Patrol Vessels project surprised everybody by being on schedule. We said it would begin construction in 12 months and it was in 12 months that it started construction. Sometimes these schedules have been a guide but since the White Paper and the associated structure that you mentioned, the projects have been kept on schedule.
The OPV tender was on schedule, the decision was on schedule and the implementation was on schedule. And the same thing is happening with the Hunter Class. The Future Frigates have started their Advanced Work Agreement (AWA) and the head contract was signed in December.
The ASC Shipbuilding, ASC Submarine and ANI (Australian Naval Infrastructure) separation was done the day of the signing of the head contract with BAE Systems, with the ASC Shipbuilding division now a subsidiary of BAE. The frigates are on track, the submarines are on track, the Osborne South Shipyard is about 50 per cent finished; steel sides were raised in December. The sod turning on the Osborne North Submarine Yard also happened that month. The Strategic Partnering Agreement (SPA) document negotiations are complete.
ADM: Are you sure?
Pyne: Yes, that was wrapped up in December last year, and then the signatures will be early this year once the documents have been finalised.
Since the White Paper, the Combat Reconnaissance Vehicles went from five per cent Australian industry content to 55 per cent in a $5.2 billion acquisition and 70 per across the life of type of the equipment which is something that wouldn’t have happened before the White Paper and before the decisions around Australian industry content. From a practical point of view we can point to many things; many of the primes increasing their workforces by 50 to 100 per cent, and contracts being decided. We had 234 decision points since I’ve been the Minister for Defence Industry and now Defence driving the program.
The other practical outcome is that the Peever Review (the First Principles Review) has been faithfully implemented and that has led to a sea change in the culture in the Department of Defence and the ADF where everyone is working together on ‘One Defence’ in a way that they didn’t always do so. That review’s implementation and the change of culture that it’s brought about coincided serendipitously with the government deciding to invest as much of its military capability built up here in Australia. That new way of doing business had an opportunity to have some practical impact. So I think the public, the Defence Department, the ADF, the primes, the states, SMEs, the foreign governments that look at what we’re doing are all recognising that actually we have got on with the job and we’re having the outcomes that we wanted.
ADM: Going back to that Australian Industry Capability (AIC) and industry being recognised as fundamental input to capability (FIC); what are the mechanisms for making sure that AIC is followed, first of all contractually but also in the spirit of which it was envisaged?
Pyne: The Department is doing some work around assurance in terms of faithfully implementing AIC promises made in contracts, tender documents or bids for major projects. So far it’s been faithfully implemented by the primes who’ve won contracts and by those people who want to be part of the supply chains.
I get very little criticism from Australian SMEs that they’re being cut out. Every now and then there are niggles, maybe primes haven’t moved as quickly as they would have liked or they feel that they’ve been unfairly assessed against primes’ own internal departments or divisions, and when we hear that of course we raise it with the primes and they usually remediate the problem.
I’ve had a couple of criticisms from Australian companies that didn’t win tenders, which is a different problem. The issue related to pricing; they were tendering a much higher rate than the person who won the contract. Our defence industry doesn’t have a green light for gouging the taxpayer; it’s because we want to build up our defence industry. We’re not interested in building people’s second beach houses.
Therefore businesses that miss out on contracts, it’s not always because they were unfairly treated. I think most people have entered into this in the spirit in which it’s intended. And a lot of the primes want to expand their Australian operations and want to use companies in their global supply chains with capabilities. Leidos has just joined the global supply chain program but there are some primes that are better than others and we have to keep educating those that aren’t as good as others about how we’re serious about AIC. Feedback from industry is really critically important in that.
Telling me or my office or the Department, but particularly me and my office, is a good start. We’ve tried to be pretty open with people, about examples of unfair treatment and we want to hear it. It doesn’t mean that everyone is necessarily got a fair case but those that have we’re happy to take it forward.
ADM: How is Australian industry and defence performing in your campaign to become a Top 10 exporter in the next decade? How is that being tracked?
Pyne: Part of the Defence Export Strategy was an announcement of a mechanism that would be developed in the Department of Defence to assess our success or otherwise in defence exports. That work is being done as we speak, implementing a review of how we measure across Australia our defence exports, because internationally I think the measurements are much like Swiss cheese. It’s a bit holey.
The strategy is going very well. In the September quarter we wrote export permits for $3 billion worth of value in defence out of the Defence Export Control Office. Which is a lot more than we usually write! Applications for permits in the June quarter jumped by 25 per cent on the previous year. So people are definitely coming to the party.
Anecdotally, again, Defence industry say to me that the attaches are really engaged with the defence exports side of their job in a way that they’ve never been before because they never were asked to before, and that goes to that cultural change in Defence since the White Paper.
We’ve had two get-togethers with the defence attaches; one in Singapore for all attaches in the subcontinent and Asian region, and one in Paris for the Middle East and Europe. I find that the defence attaches are very engaged. I think it’s going well and in terms of real outcomes. Everything suggests it’s on track, but it’s a fragile bird, defence exports. It needs to be encouraged and nurtured because they haven’t really been encouraged and nurtured in the past and I don’t think they’re necessarily robust enough yet, but we’re getting there.
ADM: Given the changing strategic situation in Asia, are you comfortable with the pace of Sea 1000? Could or should the construction drumbeat be accelerated?
Pyne: The drumbeat is as fast as it can be done and it can’t be changed. We will keep the Collins in service until the new class of submarine, which the name of which will be announced by the time your magazine is available. We’ve already announced before a life of type extension for Collins Class, so that will be implemented.
The important thing to understand is that the Collins Class is a very effective submarine; we’re not concerned about our strategic position in terms of having the regionally superior submarine. We have a regionally superior submarine now and when the Future Submarine Program comes on stream, we’ll have a next generation regionally superior submarine then. We can’t hasten the drumbeat. The start date is already pretty tight. There’s a lot of work to be done between now and 2022- 2023.
The drumbeat is designed to ensure we have a continuous naval ship build program and as we make decisions to build more ships, of course, that might be able to be hastened. I recently announced the hydrographic vessel to replace two smaller to be built in Henderson.
The tender’s just been opened for that and in the Pacific Pivot that we announced a few months ago saw the announcement that we’d build a large hulled humanitarian and disaster relief vessel, and we expect that will be built in Australia as well.
ADM: Are there any plans to aim for more bipartisan support on major complex programs, like the national shipbuilding plan?
Pyne: There is bipartisan support. It’s a difficult question – what does bipartisan support for major projects mean? I mean we’re not going to include the Labor Party in our decision making process; they’re not in government.
ADM: Given the history of some of the major shipbuilding programs in particular, for example the Collins Class, have suffered from being used as a political football. Is there an agreement between the two parties not to let that happen again?
Pyne: No, because we’re an adversarial political system and governments need to be held to account by good oppositions. So no, there’s no “club” between Labor and Liberal on Defence projects and there are no plans for such a club.
ADM: How has ASD becoming a statutory authority changed the intelligence community, and Defence’s role in it?
Pyne: ASD’s capabilities have been expanded. They have received significant new resources and, of course, we have structurally put in place the new Australian Cyber Security Centre within ASD. The difference, of course, is that the ASD now provides services and support to agencies and other arms of the government outside Defence but their primary responsibility is still Defence.
Their role is to support our capability and to ensure that, our service men and women, can win in any theatres in which they might be involved and that we’re safe at home from any kind of threat. We are now working more closely with Home Affairs and providing them with support.
The other arm of these changes is working with the community and with industry to support their cyber capabilities. That’s particularly being done through the Australian Cyber Security Centre and they have now opened Cyber Security Centres in every capital city except Hobart. AustCyber is also set up with the Cyber Security Centre in Adelaide, the last of the centres opened in 2018.
They’ve got an outreach now to industry that they didn’t have previously to support their cyber capabilities and I think that is important; it’s going to become increasingly important and I often say that cyber is really the fourth domain of our defences now.
ADM: Your predecessor described Defence IT as “retro”. Are you happy with the progression of Defence ICT programs given the lack of movement on large programs like ERP?
Pyne: We’ve certainly made a lot of progress in the last couple of years and Marise (former Defence Minister Marise Payne, now Minister for Foreign Affairs and Trade) put a lot of effort into the ICT side of the Department in terms of our processes and systems and making them all work together in a way they hadn’t done before. There has been a lot of progress on that front.
Some examples of things we’ve done in the last couple of years include upgrading our payroll system in mid-2018 and improvements to our human resources system. We’ve improved our facilities management by replacing a number of the legacy systems with a centralised estate management system, again, mid this year.
We’ve also consolidated Defence’s computing infrastructure and applications environment to 11 national and three international data centres. We’ve upgraded the operating systems across Defence to Windows 7 in January 2017, and transitioned 70 per cent of protected systems so far to Windows 10. 261 sites have been migrated to the new Defence Terrestrial Communications Network, which will be completed in 2019.
So in terms of the Defence Enterprise Resource Planning (ERP), we gave second pass approval in June 2018 and started to assess the offerings from those who had tendered. We had two shortlisted respondents. We weren’t absolutely comfortable or satisfied with the offerings that were being made to us on the ERP. We’ve gone back to them and asked them to do more work on their proposals/bids and we will decide that process by June 2019.
We initiated an independent assurance review to review the proposals so that we could be satisfied with what we’re being offered and I think the answer is that we should get the thing right; we should get the ERP right rather than just do it for the sake of getting it done.
It’s better to make a decision and get on with it than not to make a decision at all. Across the rest of the portfolio, as people can see, we have done that. If we get the wrong decision we can always undo it later. The difficulty with the ERP and the ICT changes, if you make the wrong decision at the beginning, you’ll spend the rest of your life trying to fix it.
ADM: Final question, do you think the redacted ANAO report into Hawkei sets a precedent for other audit reports into Defence capabilities?
Pyne: We welcomed the ANAO report because we always think it’s better to find out what we can do to improve in our processes and so on. There are a couple of problems with the ANAO report. The first one was that they compared the Hawkei to the JLTV in the US and they’re very different vehicles. It’s like comparing a top of the line Toyota Sahara with a Ford Territory and saying that just because they’ve both got high wheels they are the same vehicle; they’re not, they’re very different and the Territory costs about $48,000 and a Sahara costs about $120,000.
So the JLTV is a different vehicle to the Hawkei and so that was a fundamental problem. That said, the ANAO report was helpful, but there were certain issues in the ANAO report that I felt had national security implications and impacted on our international reputation and cut across other priorities in the government and I asked the Attorney-General to review that and if he agreed with me to use what powers he might have to protect our national interests.
I don’t know if he agreed with everything I said but he certainly did enough to ensure that I felt the report, once it was released, didn’t damage our national interests.
This article first appeared in the December/January 2018-19 edition of ADM.