Mark Bishop (WA, Australian Labor Party) Share this | Link to this | Hansard source

I have spoken many times about this government’s poor record on managing major defence procurement projects. It seems that little has changed, judging by the latest information disclosed at recent Senate estimates. There I had the chance to again call the government to account on a range of highly embarrassing procurement flops—for example, the debacle over the Seasprites. At estimates we were told that this project had again slipped behind schedule. Then there is the Wedgetail project, which is at least two years late. I take this opportunity to recap on where the government is at with some of its major defence procurement projects. They include the AWACS, the Seasprites, the M113 personnel carriers and the upgrade of the Mulwala munitions manufacturing plant. Indeed, on the procurement side there has been barely a single project in the past few years which has not gone over time and over budget. I am also going to look at the impact this is having on Defence budget outlays—how the government’s unrealistic delivery deadlines, coupled with poor account keeping of such projects, are impacting keenly on the capability of the Australian Defence Force.

It is worth noting at the outset how the government has thrown an extra $2 billion at Defence’s budget this year, taking it to almost $22 billion, even though the department struggled to spend the money that was appropriated to it last year. At estimates, senators were told that the government had delayed more than $1.7 billion of defence planned capital investment for the financial year 2007-08, that such capital investment cost an extra 20 per cent in the government’s revised Defence Capability Plan and that the delay of such planned capital investment means that $1.8 billion of planned and anticipated capability will now arrive late—in some years significantly late. This is from a government that first and last prides itself on sound economic management.

It is not as though the alarm bells have not been sounding for the 11 long years that this government has been in power, but that is small comfort. Senators did express bipartisan support for some improvements that we have noted in recent years. There has been progress in the way in which the Defence Materiel Organisation manages some 200 projects totalling $60 billion. But problem areas remain, entirely of this government’s making, and this is independently borne out by the Auditor-General. It seems that, in spite of the ANAO’s regular audits on defence projects, the government continues to permit the same mistakes to occur time and time again. Earlier this year the ANAO singled out its failure to keep up-to-date copies of multibillion-dollar contracts. It also criticised the government for poor account keeping, failing to factor in foreign exchange fluctuations, unrealistic delivery deadlines, persistent schedule slippages and failure to correctly account for GST. A remedy to this would be an annual audit of Defence’s top 30 projects, touted by the ANAO last year and regularly supported by Labor in the past. It remains to be seen, of course, whether the government is sufficiently serious about reforming defence procurement projects to fund the ANAO the $1.15 million required for this initiative. There are lots of promises but no firm commitments. It would certainly greatly improve the transparency of defence contracting.

Essentially, however, Defence’s procurement bungles come down to poor record keeping exacerbated by lack of political oversight and political management, poor attitudes, and a lack of skill and determination on the part of oversighting ministers to fix the problem. So expect more of the same economic mismanagement should this government continue beyond the next federal election. Here are some of this government’s more embarrassing mismanaged defence projects, all of which have contributed to this speech. Again at estimates we brought up the perennial Seasprite project. Just last month, the Minister for Defence, Dr Nelson, was forced to rescind earlier brave pronouncements to ditch this disaster. His cabinet colleagues forced him into a radical rethink—the first, we hear. Already that project has cost the taxpayer close to $1 billion, is at least six years behind schedule and is a main reason why there is such a huge underspend in Defence’s budget. Now, we are told at estimates, it is going to cost a minimum extra $50 million. That is for remedial work so that the Seasprites can pass muster for airworthiness. Not only that, but it is likely to take an extra 29 months.

Next, we grilled the government on the Wedgetail project. You might recall that this is now two years late. At estimates we were told how this lateness in delivery contributed to a significant price spike in the past two years—up to $800 million, in fact, for delays in reprogramming. The rest of that underspend is caused by the lateness of the Wedgetail project and the M113s. We know from previous estimates that the Wedgetail project, six airborne early-warning and control aircraft, is now 26 months behind schedule. Again it appears the government underestimated the complexity of this $3.5 billion project. As a consequence, these vital aircraft are unlikely to be fully operational until the year 2011. We also discovered at estimates that this two-year delay to the Wedgetail project has meant that up to $800 million of the Defence budget has had to be rescheduled and, indeed, that delays in the contract have meant an underspend of $110 million in this year alone.

The other project blowing a hole in the budget is the M113 project. At estimates we were told that delays in this project had contributed to underscheduling in the 2007-08 budget of $77 million. So, how did this happen? Again, delays in delivery, which mean lost capability and massive underspends in successive Defence budgets, making record keeping, public accountability and transparency messy. Remember, an upgrade of the M113s was touted as way back as 1992. Dr Nelson recently told us not to expect delivery of these vehicles—now, by definition, hopelessly out of date for modern warfare conditions—before 2010.

Senate estimates also provided the perfect opportunity to test the government’s hollow promises—specifically, how an upgrade of the Mulwala propellant manufacturing plant has now been announced 10 times since 2001. The latest announcement came earlier this month. It was for a media rollcall to witness the signing of contracts between the government and developers. It sounds as though great progress has been made. In reality, despite the plethora of announcements, and six years on from its promise, the necessary upgrade still has not gone ahead. Not only that, a project slated to cost $250 million in 2001 is now estimated to cost $110 million in addition. Again, this government shows a propensity for economic mismanagement when it comes to defence projects. It initially tried to set up a private finance initiative to pay for the upgrade. That fell over just last year, leaving taxpayers with an extra bill of $11.8 million. Where, I ask, are the good economics in that? The Tiger helicopters contribute $35 million down in the current year, while the Seasprite is $1.14 billion.

I have been speaking about defence procurement for many years. It seems that the government is not heeding that advice, or more proper advice from its own organisation the ANAO, for it continues to gamble with taxpayers’ money on main Defence projects that, as we have seen, often fail to materialise—or, if they do, they are many years late. It is time the government started listening to independent auditors, and indeed to this Senate, and set about fixing the state of defence procurement. Taxpayers and our serving troops deserve significantly better from Dr Nelson and his department. It is not good enough to promise the best, yet deliver less. Might I suggest that the department take more care when writing the specifications and costing such key acquisitions. At stake is not only the taxpayer; our serving troops need to be able to rely on such vital equipment, to rely on a government getting it right. Otherwise, capability deferred is capability not achieved. If a project is worth funding in the first place, its non-arrival five, seven or nine years later suggests the original capability was not properly thought through. It is vital that we get these procurement decisions right and we hope that in due course the government is able to fix this particular problem.