Thursday, 5 May 2016
Public Accounts and Audit Committee; Report
On behalf of the Joint Committee of Public Accounts and Audit, I present the following reports: Report 456 Defence major equipment procurement and evaluation, and Great Barrier Reef regulation: Review of Auditor-General reports Nos 51-52 (2014-15) and Nos 1-10 (2015-16); and Report 457 Development of the Commonwealth performance framework—Second report.
Reports made parliamentary papers in accordance with standing order 39(e).
by leave—I wish to speak to both of the Joint Committee of Public Accounts and Audit reports just presented, commencing with the report entitled Defence major equipment procurement and evaluation, and Great Barrier Reef regulation.
This report sets out the findings of the committee's examination of three Australian National Audit Office reports. A key theme emerging from the committee's review of these reports was the importance of effective risk management.
Chapter 2 of the report discusses the committee's findings concerning Audit report No. 52 on Defence vehicle fleet replacement. In terms of the Defence risk management of procurement, the committee noted that the failed first tender process for this matter resulted in an estimated seven-year delay in delivering new vehicles and the need to sustain the existing fleet far beyond initial specifications. The committee made one recommendation: that Defence provide additional evidence that the lessons learned from this project have been embedded in standard operating procedures.
Chapter 3 of the report discusses the committee's findings concerning Audit report No. 3 on the regulation of Great Barrier Reef Marine Park permits. The committee noted the seriousness of the Auditor-General's overall conclusion that shortcomings in the regulatory practices of the Great Barrier Reef Marine Park Authority have undermined the effectiveness of the permit system as a means of managing risks to the marine park. The committee made three recommendations—that the Great Barrier Reef Marine Park Authority: firstly, appropriately accelerate its time frame for implementation of the ANAO recommendations; secondly, implement more effective performance information in this area; and, further, report back to the committee on the implementation of a range of initiatives related to permit application assessment, compliance management and response to noncompliance.
Chapter 4 of the report discusses the committee's findings concerning Audit report No. 9 on the test and evaluation of major Defence equipment acquisitions. Effective risk management in the context of procurement was again emphasised in this inquiry. Several past ANAO reports and external reviews have identified deficiencies in aspects of Defence's test and evaluation program. The committee made one recommendation—that Defence report back to the committee on: the coordination of test and evaluation across the department; how this is consistent with the outcomes of the recent Defence first principles review; key improvements to performance reporting; and implementation of competency and training arrangements in this area.
I commend the report to the House.
I now move to the second report presented, entitled Development of into the Commonwealth performance framework—Second report.
This report is a continuation of the committee's ongoing scrutiny of the development of the Commonwealth performance framework. The report incorporates the committee's review of the draft 2015-16 annual report rules, and also marks the first time the committee has also considered the annual report rules for corporate Commonwealth entities.
The committee has consulted with other committees of the parliament, on the form and content of annual reports, and has identified issues for further discussion and consideration in the longer term.
The committee has reviewed and approved both rules, and anticipates a broader discussion about enhancing the rules for both corporate and non-corporate entities next year. Further the committee hopes to see legislative changes set by parliament to ensure that annual reports are tabled earlier.
The committee has made two recommendations. The first requests that Finance provide the committee of the 45th Parliament with an incoming brief addressing key issues in the Public Management Reform Agenda. As the PMRA moves into its third stage, it is important that Finance briefs the incoming committee to facilitate prompt and thorough committee engagement.
The second recommendation requests that Finance address a range of issues identified through the inquiry to facilitate consideration of the 2016-17 annual reporting rule in 2017.
I thank the Department of Finance for their continued engagement with the committee.
In conclusion, I wish to thank committee members for their deliberations on these significant matters.
I commend the report to the House.
by leave—I want to briefly talk to the Joint Committee of Public Accounts and Audit report No. 456, in particular the review of the LAND 121 project. This was a $3½ billion project to acquire new medium and heavy vehicles for the Army. This tender process was signed off in mid-2007. The ANAO condemned this Defence tender process as one of the most flawed tender processes in recent history. The department failed by claiming it was a low-risk military off-the-shelf acquisition. They failed by recommending a single supplier without test and evaluation. They ignored value for money and they failed to advise the minister at the time of the significant risks in acquiring this project. As the member for Groom highlighted, this resulted in a seven-year delay for capability and increased sustainment costs for an ageing fleet. It cost an extra $700 million to acquire the trucks and it resulted in the acquisition of 261 fewer protected vehicles.
This is a poster child for a failed Defence procurement. There are two issues of concern. First, this occurred post the Kinnaird reforms of 2004-05 that were supposed to put Defence procurement back on track. Secondly, the committee went to some lengths to try and understand the accountability mechanisms within Defence over this failed tender process. We asked, in committee, without identifying the individuals involved—because we did not want a witch-hunt—whether Defence could assure us that there were some negative consequences for the officials involved in the flawed tender process. Unfortunately they could not provide any evidence at the committee hearing, and, so far, they have not provided information on notice as to the eventual outcome of this matter. This goes to a fundamental problem with Defence acquisitions at the moment: is there accountability for the individuals involved in making mistakes? That is something that I would hope the public accounts and audit committee pursues in the 45th parliament. I commend the report to the House.
by leave—I present executive minutes on report 447, report 448 and report 449 received by the Joint Committee of Public Accounts and Audit.
On behalf of the Joint Committee of Public Accounts and Audit I present the committee's report entitled Report 458 Defence major projects report (2014-15): Review of Auditor-General reports No. 16 (2015-16).
Report made a parliamentary paper in accordance with standing order 39(e).
by leave—The Joint Committee of Public Accounts and Audit report, entitled Defence Major Projects Report (2014-15): Review of Auditor-General Report No. 16 (2015-16), the major projects report, or MPR, consolidates information on major Defence acquisition projects, including cost, schedule and capability performance. It also provides a longitudinal analysis of projects and commentary of Defence's project governance systems.
The reform of the Department of Defence, following the release of the government's First principles review: one Defence in April 2015, represents an opportunity for Defence to redress some of the issues identified within the MPR and by the JCPAA. Ongoing commitment, resourcing and leadership will be required to fully exploit the opportunities that the First Principles Review process offers.
In this year's review of the ANAO-Defence MPR, the committee has reviewed a number of specific projects, including some of the most problematic—namely the Air Warfare Destroyers and the MRH90 helicopter acquisition. The committee notes that, despite expectations that the risks involved in these projects were considered to be mitigated, errors in risk assessments and suboptimal contract arrangements have resulted in Australian taxpayers carrying a greater burden than necessary. That is a small understatement. Despite some significant improvement in project management and capability delivery, the committee remains concerned that slippage of projects is still occurring. It is also disappointing that some large projects, such as the Air Warfare Destroyers, still require significant sums of additional funding despite all the progress that has been made over the past decade in better managing these types of acquisitions. The committee does, however, note with satisfaction that the MPR, as a document and as a process, has developed into an excellent tool to assess the status of Defence major acquisition projects. The committee commends both the ANAO and the Department of Defence on their continued work on this topic—work that shall continue into the next parliament and beyond.
I thank committee members for their deliberation on these significant matters. I commend the report to the House.
As this will be my last address to the House, I thank the committee for their spirit and cooperation and for the way they went about a task which always has the potential to be made a political football, if that is the intent of the individual. That did not occur on this committee and I commend both sides of the House for doing that. The committee's work is extraordinarily important. We are very ably supported by a very professional secretariat. I thank David and his team for the support they have given us. The work of this committee will continue in the next parliament. Despite the fact that I am retiring very soon, as I understand it, I will continue to take great interest in the work of this committee, because its work is crucial. If we are to address some of the major deficiencies in the expenditure of taxpayers' funds, this committee is pivotal to that. So I wish the committee in the 45th Parliament all the best. Thank you.
by leave—I rise to talk about the major projects report—one of the excellent initiatives from the Public Accounts and Audit Committee. The member for Groom was right to highlight a few of the brief issues that have come out from that report. I will not go into detail because today is a very important day for a lot of people, but I just want to highlight a few worrying trends. Firstly, there is the inconsistent treatment of contingency in major projects. This inconsistency adds budget risk to the Commonwealth, and that is of concern. Secondly, there is the treatment of schedule changes when a project is re-baselined by a further government decision—that is, truly understanding the schedule delay if a project goes back for a revised second-pass approval.
Thirdly, I am concerned about the management of project payments by the Department of Defence. To smooth things over when something gets delayed, sometimes they bring payments forward. While that makes sense, it potentially exposes the Commonwealth to forgone revenue.
Fourthly, I want to highlight concerns around the AWD contract, the pain-gain model, and whether people in the private sector that are partners to this contract truly are feeling pain from mismanagement of this contract. I want to highlight that, in evidence to the committee, Defence admitted that both the MRH, the multirole helicopter, and the armed reconnaissance helicopter are still unable to deploy to high-threat environments like the Middle East—despite acquisition starting well over a decade ago, supposedly, for MOTS aircraft. That is something that constrained governments of both persuasions and that needs to be improved upon.
I do want to highlight a good news story, which is that, after concerted actions by the Department of Defence, in particular the Navy, under the last two governments the Collins class submarines are achieving excellent availability. They are hitting their targets. That means that we are getting the training pipeline for new submariners. The Collins is proving to be the best conventionally powered submarine in the world. So, despite a lot of myths out there from the media and other people, the Collins class submarine is a great capability that really is the spearhead for the ADF and it is doing great work. As the chair alluded to, future committee hearings will be looking more at defence sustainment, which is well over half the capability budget for the Department of Defence.
Finally, on behalf of the Labor members, I thank the secretariat. Public Accounts and Audit is one of the premier committees of parliament, and it is served by a great secretariat that does brilliant work. I pay tribute to the two chairs of the committee I have served under in this parliament, the member for Boothby and then the member for Groom. The member for Groom came in as chair in the middle of our most heated inquiry of the last three years, where a few young turks from both sides of parliament were trying to make their names—
I was one of the young turks—and he controlled us superbly. He looked at the public interest, he understood where people were heading and he managed a very heated committee process very well. So I pay tribute to the members for Groom and Boothby and wish them every success in their future endeavours. Thank you very much.