Marise Payne (NSW, Liberal Party, Minister for Defence) Share this | Link to this | Hansard source

The Future Frigate Program, which is the subject of this discussion, is currently undertaking a competitive evaluation process, a CEP, to select a designer/builder to deliver nine antisubmarine warfare frigates to the Royal Australian Navy and set the foundation of the Turnbull government's continuous shipbuilding plan in Australia. These are ships which will provide the Navy with critical capability that will underpin the defence of Australia into the future. The CEP is on track for the government to make a decision on the successful tenderer before the middle of 2018, enabling steel to be cut on the future frigates in 2020, creating over 2,000 shipbuilding jobs and in conformity with the government's previous commitments on this matter.

In relation to the order that was agreed by the Senate on 6 February 2018, I would like to make some remarks and address some of the incorrect claims made in the preamble to the order. On 3 May 2017, then Senator Xenophon submitted a freedom of information request for documents which related to Australian industry content in the future frigate request for tender. At the time, Defence originally declined access to four documents identified as matching the scope of the FOI request on the grounds that, at the time, the procurement was at a very sensitive stage of the competitive evaluation process. At the time of the initial request, tenderers were in the tender preparation phase of the CEP. When the decision was considered again by the department, the department was evaluating the tenders.

In September 2017, the Senate agreed to an order for the production of documents relating to the future frigate request for tender, for which the government claimed public interest immunity on 7 and 13 September. Advice to the Minister for Defence Industry was that release of the information at that time was not in the public interest, as it may have compromised aspects of the future frigate request for tender evaluation and may have damaged Australia's national security and defence interests and our international relations. I spoke to the Senate in relation to those matters. At the request of the FOI applicant, the FOI decision was further reviewed. Given that the substantive tender evaluation for the Future Frigate Program is now complete and the project is in the offer definition phase, Defence no longer had any objection to the disclosure of unclassified sections of the request for tender concerning Australian industry content. The documents were sent to the applicant by Defence on 25 January 2018.

For the Senate's information, offer definition is a very significant opportunity for Defence to seek refinement of each tenderer's offer to increase certainty and value for money, but it doesn't permit tenderers to, for example, submit a new bid. As such, the release of the request for tender documents at that time is less sensitive. Given that the Future Frigate Program has moved into the offer definition phase, the government will now review the documents sought in the motion agreed to on 6 February 2018 and will table any documents that it is now able to.

In relation to any other documentation which is also referred to in the order, I would note that the scope of the documents that were originally sought in order for production of documents numbered 449(2)(e) still requires:

(e) any other documentation held by the Future Frigate project that discusses Australian Industry Capability, the partnering or use of Australian shipyards, and how Techport and other Australian facilities might be used in the program.

As I stated previously in my statement to the Senate on 13 September 2017, this is a broad range of documents that, if the government were to comply with the breadth of the order, would require us to release parts of the tender responses themselves—that is, those parts of the tenderers' submitted responses that pertain to Australian industry capability and the partnering or use of Australian shipyards, all of which are held by the Future Frigate project, to use the words of the order. Clearly, the release of sensitive material of that nature could not only adversely affect the tenderers but undermine the integrity of the entire procurement process.

Moreover, the information that is requested—that is, any other documentation held by the Future Frigate project—would include documents that contain sensitive information with regard to Defence's negotiating position in relation to a variety of issues, including Australian industry capability and a negotiating position of the Commonwealth government in respect of any future contract. Frankly, it does stretch credulity that a sensible person in this place would support the government being required to table our negotiating strategy partway through a competitive evaluation process—unless, of course, the outcome they seek to achieve is actually to delay the project. So I remain to be persuaded.

Of course, Defence has already released large portions of the request for tender documents relating to Australian industry capabilities through the FOI process. These are available on the Defence website, and I am happy to table them here in the chamber as part of the return to order. Further, I am always happy to consider any requests, in consultation with my colleagues and in seeking advice from the department, from senators about specific documents that we may be able to release.

The government is committed to absolutely ensuring that the Future Frigate Program delivers the best capability possible for the Royal Australian Navy—that is its absolute priority—while maximising Australian industry content. The frigates will be built in Australia, by Australians, with Australian steel. I reject the notion that the public interest immunity claims on behalf of the government were mistaken or unsustainable. As I've set out, the CEP and tender process is progressing, and with the change from tender evaluation to offer definition phase, as I have indicated, the risk of damage to the process has changed and that allows some additional documents to be released. I do think that it is time that everybody in this chamber got onboard, so to speak, with this important project. It's important for Navy, important for our nation and important for thousands of jobs.

Rex Patrick (SA, Nick Xenophon Team) Share this | Link to this | Hansard source

by leave—I move:

That the Senate take note of the statement.

I thank the Minister for Defence for her response in relation to this matter, which is very important in terms of both the management of the $35 billion Future Frigate Program and the government's responsiveness or otherwise to Senate orders for production of documents—a key process that supports the Senate's scrutiny of public administration and expenditure.

The broad outline of the minister's explanation was unsurprising, given that Senator McGrath had defended the minister on Tuesday, reaffirming the claim that the release of the documents relating to the Future Frigate Program had been against the public interest last September but that as the tender process has advanced the government will review the documents and make some sections available if appropriate. That was the government's explanation on Tuesday, and the minister has added little of substance today.

Tuesday's Senate motion requiring the minister's explanation was prompted by the Defence department's release last week of almost 300 pages of the future frigates tender documentation. Those documents had originally been sought through a freedom of information request application by former Senator Xenophon in May 2017. The Defence department flatly refused the request. In August, portions of the future frigates tender documents were leaked to the media. Noting that the leaked documents contained nothing sensitive, the Senate made an order on 4 September for all unclassified portions of the tender documents to be released. Minister Payne refused the Senate's request, claiming public interest immunity. In a written statement to the President of the Senate on 7 December, the minister asserted that the release of any unclassified documents—any documents whatsoever—would damage Australia's national security and defence interests and also our international relations. This was a remarkable claim. Unclassified documents, by definition, do not contain information that if released could damage Australia's national interests. The implication: after just three days of deliberation, the minister effectively claimed that there were absolutely no unclassified documents in existence relating to the future frigates tender process.

Anyone with knowledge of defence procurement would find this a most unlikely state of affairs. Alternatively, one could reasonably conclude that all unclassified documents must have suddenly and arbitrarily been reclassified to justify the minister's refusal to provide information to the Senate—an unacceptable manipulation of protective security processes and procedures. Either way, the minister's claim for public interest immunity over the entirety of the documentation was extremely questionable. The Senate considered Minister Payne's response and, rightly, did not accept it, asking her to make a detailed explanation to the Senate. On 13 September the minister gave that explanation in a 20-minute speech that made claim that the documents could not be released because the tender process was still underway. The minister stood in the Senate and effectively suggested that the sky would fall if these documents were released. She claimed that the release of any information whatsoever would undermine the integrity of the entire process. The minister also spoke at length about national security implications, claiming that the release of any information whatsoever would 'have potential to damage our national security and the defence interests of our international relations'. With that, the Senate was presented with a blanket refusal to provide any relevant documentation—not a single scrap of paper—because the minister claimed that even a single page would destroy the tender process and jeopardise national security.

Successive governments have, of course, claimed public interest immunity in response to Senate orders for production, but this was unquestionably one of the most sweeping. It was also a particularly bold claim given that the documents in question were still subject to a separate FOI process initiated by former Senator Xenophon, a process that's significantly subject to independent review. Notwithstanding the many deficiencies in the current operation of our FOI laws, some 300 pages were eventually released by the Defence department, thanks to pressure exerted by the information commissioner of the initial access refusal by Defence.

Confronted with the information of the commissioner's assessment that many of Defence's claims for exemption from release were quite unsustainable, the department folded its cards and surrendered the material. This release, despite the future frigates tender still being underway, shows folly in the minister's argument. That process has not finished yet, and the minister knows it. The fact that the tender process has moved from one phase to another is beside the point, and it was never a valid claim for either the initial blanket refusal of Senator Xenophon's FOI application or the minister's refusal to provide documents to the Senate. The minister's claim that circumstances have now changed since September is quite bogus, nor has the sky fallen in with Defence's release of the documents. What those documents do show is the real reason for the government's refusal to provide relevant information to the Senate.

The one upside of the minister's bogus claim is that it shows how easily a government can make a flawed claim of harm to national security or harm to international relations, threshold criteria for the criminal prosecution of journalists under the new secrecy laws that the government is attempting to have passed through this parliament. As mentioned, part of the tender documents were published by The Advertiser in August last year. Tory Shepherd wrote up the story. Under the proposed laws, Tory could have faced prosecution just for doing her job. Why? It is not because what she published was in any way damaging to national security or international relations but because she had exposed bad policy. The minister had determined for convenience only that the documents were of harm. There can be no starker example of why the proposed secrecy laws should not be passed in their current form.

I will now move to the substance of the documents denied to the Senate. The documents now reluctantly released by the department reveal the fact that, contrary to the claims of both the Minister for Defence and the Minister for Defence Industry, Mr Pyne, Australia's defence industry has been given short shrift in the $35 billion Future Frigate shipbuilding program. The released documents reveal nothing short of a massive policy failure. Australian shipbuilders have been effectively barred from any lead role in the program and the Defence department has set Australian industry participation at a measly 50 per cent minimum. It is no surprise that government wished to prevent or at least delay the release of this information.

The tender, read in its totality, makes it very clear that the three overseas tender respondents—BAE of the United Kingdom, Fincantieri of Italy and Navantia of Spain—need to demonstrate that they can come to Australia, carry out a build in a government supplied shipyard, control the workforce and take responsibility for the entire build process. The tender states this:

Tenderers should be aware that the Commonwealth has selected the Tenderers on the basis of their Reference Ship Designs and their ability to undertake the design and build of the Ships. As such, the Commonwealth’s expectation is that the core design work relating to the Ships and the management and supervision of build activities will be undertaken by the successful Tenderer (or its Related Bodies Corporate) and not subcontracted to a third party entity. In particular, while the successful Tenderer may decide to engage a Subcontractor to provide shipbuilding labour resources, the Commonwealth expects the successful Tenderer (or its Related Bodies Corporate) to personally and directly manage and supervise the workforce and, in particular, the shipbuilding activities.

This is nothing short of a stab in the back for Australian shipbuilders. In effect, ASC and Austal have been excluded from the role of shipbuilder in that program. Instead, the government has invited a foreign ship designer into the country and will provide them with a taxpayer funded shipyard to build the future frigates. ASC and Austal may be the subcontractors but they will not be the shipbuilders, and the successful foreign tenderer will eventually go on to compete with those Aussie companies.

Contrary to the government's announced intention to push defence exports, statements in the tender and the intellectual property terms also make it clear that building a shipbuilding export capability is not part of Defence's game plan. On evidence provided to a Senate committee on the future of Australia's naval shipbuilding industry last September, this approach will cost Australia many thousands of export related jobs. The approach revealed in the tender documents is consistent, however, with Defence's view in their export strategy paper that defines Australian business as 'a business with an ABN'. You can't define an Australian company as one that turned up and registered for an ABN. We need to recognise and support those Australian companies that have been here for years, companies that have invested locally, employed Australians and skilled those Australians, and that are developing their own products and intellectual property. ASC and Austal are both in that category.

The tender documents also reveal that the federal government has set Australian industry participation for the Future Frigate Program at a minimum of only 50 per cent. I quote from the tender. It says:

The Air Warfare Destroyer Program has achieved Australian contract expenditure in the order of 50% across the whole Program. While the Commonwealth acknowledges there are significant differences between the Air Warfare Destroyer Program and this Project, the Commonwealth expects that this Project will achieve the same or higher level of Australian contract expenditure.

Defence industry minister Pyne is certainly the 'Incredible Shrinking Man' when it comes to Australian industry participation in major Defence projects. First he was the '90 Per Cent Man', then he was the '60 Per Cent Man' and now he's down to the '50 Per Cent Man'. But what's more important than the defence industry minister's ever-diminishing credibility is the shrinking opportunity for Australian companies and jobs.

There is still opportunity to fix this mess. The contract contains clauses that allow for the tender to be amended. It says:

The Commonwealth may amend this RFT upon giving Tenderers timely written notice of an amendment. If the Commonwealth amends this RFT under this clause 1.4.1 after tenders have been submitted, it may seek amended tenders.

That is what the government should be doing right now. They should recognise their failure to maximise Australian industry participation and amend the tender to allow Australian shipbuilders ASC and Austal to take full responsibility for the build and for the minimum Australian industry participation percentage to be significantly increased. Such a decision is unlikely to come from the 'Minister of Diminishing Returns', Minister Pyne. What is required is a cabinet-level decision, led by the Prime Minister, Mr Turnbull, who waltzed into Adelaide a few days ago for a photo opportunity with the state Liberal opposition. It would be much more useful if he returned and spent some time at the ASC facility at Osborne and announced a major boost to the required levels of Australian participation in the Future Frigate Program.

Meanwhile, the government should not be playing games of political obstruction and attempting to withhold information from the Senate on bogus national security grounds. Senate orders for the production of documents are a vital part of the Senate's scrutiny of the administration and expenditure of taxpayers' money. In this case, the documents in question relate to a $35 billion project. It doesn't get much bigger than that. The minister's response to the original order for the production of documents and her dubious explanations, then and now, come close to a contempt of the Senate in its legitimate scrutiny function. I'm sure the minister knows better and I have no doubt she would complain bitterly if she encountered similar obstructions from another government.

Madam Deputy President, with your indulgence, I direct this to you. This is the second time a defence minister has denied access to documents the subject of a Senate order for production that went on to be released under FOI. In the 44th Parliament, the defence minister, not Minister Payne in this instance, refused access to a Macroeconomics report on the benefits of conducting the Future Submarine build in Australia rather than overseas. It was only released to the Senate after the Information Commissioner had determined that Defence's claims to exemptions under FOI were flawed. Madam Deputy President, I am simply flagging something that you might turn your mind to. In the meantime, as I foreshadowed in my first speech and on other occasions, the responsiveness of the government to Senate orders for the production of documents is one of the things that I and my NXT colleagues regard as demonstrating the government's preparedness to deal in good faith with the Senate crossbench. Openness and transparency are vital foundations for successful negotiations and mutually beneficial outcomes that advance the public good. Obstruction and obfuscation will do the government no good at all.

Alex Gallacher (SA, Australian Labor Party) Share this | Link to this | Hansard source

I too rise to take note of the minister's statement in response to the order this morning. I want to say at the outset that this is the work of the Senate at its best. Scrutiny of the government by the opposition and the crossbench parties is at the heart of good government, I would say, and Senator Carr, Senator Patrick and former Senator Xenophon have led what is actually an extraordinary pursuit of the production of documents which go to the heart of the integrity of this government and a $35 billion expenditure of taxpayers' money. And there should be scrutiny of that level of expenditure.

There is concern in South Australia, amongst small to medium enterprises and larger enterprises, about the government's bona fides as to Australian content, and rightly so. I mean, this is the government that walked away from motor vehicle manufacturing in our state and, basically, exhorted them to cease operation and shoot through. There was a proposition at one time to buy off the shelf—to not have, particularly in this area of submarines, any Australian content or any Australian involvement.

We have all seen, in estimates, that departments regularly use the public interest immunity argument to cloud or not clarify the most mundane questions; in fact, it seems to be a public service trait that's developing more and more under this government—that you simply claim public interest immunity, commercial-in-confidence, security or whatever just to avoid answering the most simple questions. Senator Carr said, in his contribution, in regard to the minister's proposition that the Senate asked for the disclosure of particular commercial-in-confidence details, that that was simply not true, and the minister has sought to assert that proposition, but what this return to order actually asked, if the government thinks that, is: how are you going to be able to produce capability documents later this year, which public servants have said they will be able to produce, when you can't tell us at the moment what 'sovereignty' actually means?

We know that there have been propositions of up to 90 per cent of Australian content, and, as Senator Patrick has said, that has diminished under Minister Pyne to 60 per cent, and now, though he has said 60 per cent, we see a document with 50 in it. We know that there are large, successful organisations. Austal certainly are—they actually compete and win, and build ships for the US Navy, and I think their CEO told me that they're the only one since the Civil War that has actually been able to do that. So they are a large, successful entity. They are Australian. But they're not at the forefront of this process; they're down the queue a bit.

We know that ASC, after years of hard work, has achieved—even under the government's assessment now—world's best practice in shipbuilding. I well remember, under Senator Johnston, the audit that came out that actually said the workforce at ASC could not be criticised for a lack of productivity. It was because Navantia and the designers had put up plans which meant that, in the words of the audit's authors, the workers had to do the job once, twice and sometimes three times. So to criticise the workers' productivity was absolutely disgraceful, because it was in the design and the foreign planning of all of that that the lack of productivity was evidenced.

So it appears as if there is a contest—and rightly so. There should be a contest. On our side we want clarity, transparency and maximum Australian involvement in all facets of this $35 billion spend—in all facets. Every small to medium enterprise in the country should get a guernsey in competing for this work. Every large enterprise that is competent and in this space that is Australian owned should get a guernsey in this $35 billion. But that's not what we have. What we have is the dry economic rationalists in this government, who didn't want to have Australian involvement at all, pushing parameters around so that, they figure, they might keep costs down. I'm not convinced about that. I'm not convinced that a sovereign capability, an indigenous capability, in Australia won't deliver the best outcome. I'm not convinced that we don't have the wherewithal in Australia to design, build and do great things in manufacturing. I'm certain that Senator Carr would be much more eloquent than me on this point. We actually do believe that we can make things well. We can use Australian products. We may have a design capability shortfall at the moment, but there's no shortage of intelligence and brains in our universities to go on and develop that space.

But what we have here is a minister who said the world would fall down if we knew what was in that document and who now says: 'Okay, we've moved a bit further down the path on tendering. It's okay to release that.' But, from the documentation, it looks like her own department didn't agree with her. On referral, they checked it and said, 'We should release this,' and 200-plus pages were released. So is there a contest on that side of the chamber between Minister Pyne and Minister Payne? Is there a willing, cooperative working relationship there or not? Yesterday in question time, my question to the minister was: 'Is it 60 per cent or 50 per cent? Which is right: the tender document or Minister Pyne?' And where are these percentages coming from? Is anybody able to sit down and put a factual, fiscal, evidentiary base under what will actually drive the Australian content argument?

I think every dollar in this $35 billion should be tested against a competitive process to maximise Australian dollar involvement. And, if it comes out that we can't do it for the achievable price, then that's an appropriate decision that a government would make. But there's no clarity on that. There's no process for testing it. How do small, medium or large enterprises actually know, when there is this arbitrary figure plucked out of the air and put into tender documents? Where is the evidentiary base for that?

There are people who say that the former secretary of Defence was all for outsourcing and buying off the shelf and that the ministers have been dragged into building locally for electoral reasons, particularly in South Australia—and it may be that Minister Pyne's own seat depended on the fact that we built submarines in South Australia. As the major factional leader, it may be that all of his flock in South Australia were under the pump electorally. He was able to convince the government to build locally, and we welcome that. It's a great decision to invest in manufacturing in every state in Australia, particularly in South Australia. We know, with the nature of exactly-on-time logistics and manufacturing chains, that there probably won't be an electorate in Australia that doesn't get a benefit out of this $35 billion.

But the average Australian voter understands maximising Australian content. They don't like or don't see how a government in a tender process can pick a figure out of the air—Minister Pyne will tell us 60 per cent, the tender says 50 per cent, and you've got industry professionals saying they put in at 90 per cent. Is this just a simple economic rationalist contest on that side of the chamber? Are Minister Pyne and Minister Payne fighting? Are the Treasurer, Minister Morrison, or the Prime Minister, the Hon. Malcolm Turnbull, putting some arbitrary criteria in here? Or are we simply going to do what we should be doing, which is building sovereign, indigenous capability and having manufacturing sustained into decades in places where we sorely need it? That's the objective that everybody talks about. But, when, through this process, you find the detail of the tender documents, it appears as if people are making interesting arbitrary decisions about Australian content.

I think that this is, as I started to say at the outset, exceptionally good work of the Senate. This is proper Senate work and proper scrutiny of a government and an extraordinarily large procurement decision into the next few decades. We all want, and I presume those on the other side want, maximum Australian involvement. It would be counterintuitive to believe otherwise. But they're not, in an evidentiary way, proving that. The simple fact is: this minister—as Senator Patrick has said and as Senator Xenophon has said—and, I will go as far as to say, the previous ministers have been obtuse, recalcitrant and not open and transparent with the Australian public or the Australian Senate, and that's not good government. That is not good government. If their argument stacks up financially, fiscally, then everybody with an ear or an eye will look at it, read it, absorb it, test it against common sense and/or the marketplace and they will probably win the argument. But they're not even mounting the argument; they're hiding behind public interest immunity, commercial-in-confidence, security issues. I have to say, as the Chair of the Foreign Affairs, Defence and Trade References Committee, that's an argument I've heard a hundred times at estimates. You hear it all the times in inquiries. Public servants are well skilled at hiding the true motivation of their ministers and, in a lot of cases, the department. That needs to change.

I do welcome Senator Patrick's call that the President or the Deputy President actually look at the performance of ministers who, in an evidentiary way, subsequently appear to have failed a public interest immunity test, because if their own department is saying it's okay to let this stuff go then we need actually to test why the minister didn't accept that at the first call.

So with those few words I would like to finish by saying: I can speak for South Australia; the maximum amount of Australian content is a burning issue given the treatment of the manufacturing industry in that state. You have a once-in-a-generation opportunity to rebuild out of the destruction you caused in motor vehicle manufacturing, the demise of that. So let us get this right. Let's get a really high bar on Australian content—not 50 per cent or some arbitrary figure; let's get our real industry capability assessed and let's get, if we can, 100 per cent Australian capability. If we can't, let's work out what we don't do well, what we can't do efficiently, and contract it out—fine; everybody accepts that. We do some things really well, but we've got a chance here to build, into the future, sovereign capability and indigenous capability in all facets of this project. We shouldn't, at the start of $35 billion worth of expense, say we're only going to do 50 per cent of that.

Louise Pratt (WA, Australian Labor Party, Shadow Minister for Environment and Water (Senate)) Share this | Link to this | Hansard source

This morning I rise to share the concerns of Western Australian industry in relation to the complete lack of transparency provided by the government in relation to local content. We know that there are grave fears that Western Australia could be missing out on billions of dollars of work under this significant contract, and that is because foreign bidders have not been required to partner with Australian industry. We know that the tender documents for the $35 billion frigate program showed that short-listed foreign defence companies did not have to include Australian businesses in their proposals. We've heard significant concerns reported in TheWest Australian after conversations with Austal. Austal partnered with the ASC, which is, of course, the government's own defence shipbuilding contractor, to get a major share of the future frigate contracts. But these contracts—indeed, the nature of the tender process—is threatening the viability of this industry and export industries and thousands of jobs that Western Australia desperately needs.

We are very well skilled and ready to do this kind of work. We've had a major construction and mining boom, and the people of Western Australia have the skills. We also have high levels of unemployment in these regions. We are ready to do this work. We have significant infrastructure in Henderson, which means we're well placed, and the companies have the expertise, to do it. The simple fact is that the government are not even living up to their weasel words and rhetoric around local content. Austal's Chief Executive Officer, David Singleton, said, 'When the RFT—request for tender—came out, that was really the end of that engagement between us and those companies'—the companies bidding on the tender. He said at the time, 'There was something about the RFT that seemed to draw foreign shipbuilders away from continuing dialogue with ourselves.'

So it strikes me that there is good reason for the Senate to be concerned about the failure to produce all of these documents. We know that there were three companies bidding in this process. The government needs to be focused on choosing homegrown, world-class, steel shipbuilding industries here in Australia. I contend that Western Australia, as well as South Australia, will get a raw deal if the federal government is not fair and transparent and does not make good on its local content provisions.

Question agreed to.