Introduction

I thank the Australian Defence Magazine Congress Chair, and Editor of Australian Defence Magazine, Katherine Ziesing, for her introduction and for the invitation to open the Ninth Annual Australian Defence Magazine Congress.

I acknowledge the Secretary of Defence Duncan Lewis.

I also acknowledge Warren King, Chief Executive Officer, Defence Materiel Organisation, whom I congratulate on his recent appointment.

Representatives of Defence Industry, Defence Force personnel, Defence and Defence Materiel Organisation officials, ladies and gentlemen.

When I delivered the keynote address at this Congress last year I said that the Australian Defence Magazine is one of our leading publications on defence issues.

Its commentary and analysis on defence policy, major projects and equipment acquisitions continues to be highly recognised and, more importantly, well regarded.

The Australian Defence Magazine Congress itself provides an important forum for exchanging information and ideas.

2011 was a demanding year for Defence and the Australian Defence Force (ADF).

Our operational commitments in Afghanistan, East Timor, the Solomon Islands, United Nations Peacekeeping Operations and Operation Resolute, were our highest priority.

In 2011 our forces in Afghanistan made good progress in their mission to train the Afghan National Security Forces to take on lead responsibility for security in Uruzgan by 2014, possibly earlier.  The Australian Mentoring Task Force continued to make progress in training and mentoring the 4th Brigade of the Afghan National Army (ANA).

Australian Special Forces and their Afghan partners also continued to disrupt the insurgency in and around Uruzgan Province.

Tragically, in 2011 we saw 11 combat fatalities in Afghanistan.

These tragedies will not shake the Government’s commitment to complete our mission in Afghanistan, namely to prevent Afghanistan from again becoming a breeding ground for international terrorism.

We again pay tribute to the sacrifice of these troops, and the other 21 Australian soldiers we have lost, now 32 fatalities and 218 wounded in Afghanistan.

In 2011, the ADF and Defence also responded with extraordinary skill and commitment to a range of natural disasters.

Over 2,000 Defence personnel dealt with floods in Queensland and Victoria. 

ADF helicopters and fixed wing aircraft flew more than 1,000 flying hours, transported more than 680 tonnes of stores and carried more than 1,400 passengers.

Members of the ADF conducted rescues, evacuations, recovery work, engineering and community support activities, often under extreme weather conditions.

In the aftermath of Cyclone Yasi in Queensland’s north, more than 1,500 ADF personnel were deployed to assist, as well as naval vessels, helicopters and fixed wing aircraft.

Air Force aircraft also delivered much-needed equipment, stores and emergency services personnel to New Zealand in the wake of the terrible February earthquake in Christchurch and returned more than 100 Australian civilians to Australia.

In March, following the earthquake and tsunami in Japan, Air Force C-17s moved more than 450 tonnes of cargo, including 41 vehicles as part of Australia’s relief efforts in Japan. 

Three of Air Force’s C-17s helped move Japanese Self Defence Personnel in response to the disaster, the first ADF deployment to Japan since 1952 as a member of the British Commonwealth Occupation Force.

These Defence personnel were operating equipment provided by and supported by Industry, all dependent on Defence and Industry working together: working together to design, deliver and maintain the equipment Defence needs to both do the humanitarian assistance and disaster relief job in peacetime and the military job during times of conflict.

In 2011 we also saw a number of achievements in procurement and capability development.

Delivering new equipment to the ADF to enable it to perform effectively has been a focus of the past twelve months.

New projects approved by Government

In 2011, the Government approved a record 49 first pass, second pass and other approvals for major projects.

The previous record was 39 in 2006.

The total value of the 2011 approved projects is more than $6 billion.

Major new projects approved in 2011 include:

 

• an additional 101 Bushmasters;
• 24 new naval combat helicopters.
• over 900 more G-Wagon tactical vehicles;
• two additional Chinook CH-47D heavy lift helicopters; and
• the upgrade of naval Evolved Sea Sparrow and SM2 missiles.

Continuing to approve new projects like these is an important focus for Government in 2012.

But the value and number of new projects approved is not the only measure of success in capability development and procurement.

An important success measure is the actual delivery of new equipment and capabilities to Australian Defence Force (ADF) personnel.

Projects delivered by Government

In 2011 we made good progress in delivering new capabilities.

Substantial progress was made in implementing the recommendations of the Force Protection Review, which is providing higher levels of support and safety to our troops in Afghanistan.

The rigorous implementation of these recommendations continues.

Under the Force Protection Review we have introduced new combat body armour and the Multicam combat uniform into Afghanistan.

We have up-armoured our vehicles to provide greater protection for them and our personnel, including:

• energy absorbing seats and stronger welding in Bushmasters to further reduce the probability of lower limb and spinal injury occurring from an explosion; and 
• heavier calibre weapons for Bushmasters.

We have also armed our troops with new weapons, including Carl Gustav 84 mm guns and thermal sights.

The Government approved under Project Ningaui the purchase of four route clearance systems to more safely clear roads of Improvised Explosive Devices (IEDs) before troops travel on them. 

The four systems will cost about $70 million. Each system includes: 

• Two HUSKY Mark 3 protected route clearance vehicles with ground penetrating radars to detect explosive hazards;
• One HUSKY Mark 3 protected route clearance vehicle with interrogator arm to confirm that an explosive hazard has been found from a safer distance;
• Two protected High Mobility Engineer Excavators to repair damaged routes and create bypass routes; and
• Two Bushmaster protected mobility vehicles fitted with SPARK mine rollers to provide a greater level of protection against explosive hazards. 

The new systems will provide Australian troops with a permanent route clearance system after the loan of two similar Canadian systems during 2012.

The Canadian equipment has arrived in Tarin Kot and is being prepared for operations.  Our personnel have also commenced training in the use of the equipment, which is expected to be operationally available in the coming months.

In addition to this focus on equipment in Afghanistan, other major new capabilities were also introduced in the course of 2011.

We completed the acquisition of 24 Super Hornets.

12 of the Super Hornets are wired with the potential to be converted to Growler in the future. 

Growler gives the aircraft the ability to jam the electronics systems of enemy aircraft and land-based radars and communications systems.

Government consideration of acquisition of the Growler capability will occur this year.

Australia’s amphibious capability received a major boost with the arrival and commissioning in Fremantle in December 2011 of HMAS Choules, named after former Chief Petty Officer Claude Choules. 

HMAS Choules weighs 16,000 tonnes and its cargo capacity has the equivalent of the Manoora, Kanimbla and Tobruk combined. 

Its flight deck has room for two large helicopters and can also carry around 150 light trucks and 350 troops.

We also took delivery of a fifth C-17 Globemaster heavy lift aircraft. 

Approval for the purchase of a sixth C-17 is in train.

Another measure of progress in capability procurement is identifying, remediating and resolving problems.

In the last year, we took significant steps in addressing and resolving some substantial and long standing capability problems.

Projects of concern

In December 2011, then  Minister for Defence Materiel Jason Clare and I announced the removal of another three projects from the Projects of Concern list – halving the number of projects on the list over the previous year.

This cut the number of projects on the Projects of Concern list from 12 at the beginning of 2011 to the current six. 

Seven projects were removed from the list, six through remediation and one through cancellation:

• High Frequency Communications Modernisation (Remediated)
• Air Defence Command and Control System ‘Vigilare’ (Remediated)
• ANZAC-class Anti-Ship Missile Defence (ASMD) (Remediated)
• Medium and heavy vehicles, trailers and modules (Remediated)
• Tactical Unmanned Aerial Vehicles (Remediated)
• Joint Air-to-Surface Standoff Missile (JASSM) (Remediated)
• Watercraft for Amphibious Ships (Project cancelled)

One project, the acquisition of 46 new Multi-Role Helicopters (MRH) to replace the existing Black Hawk and Sea King fleets was added to the list.

The Projects of Concern process was established by the Government in 2008 to focus the attention of the highest levels of Government, Defence and Industry on remediating problem projects. 

Since inception, 19 projects in total have been placed on the list.  

Of those, 13 have been removed, 11 due to remediation and two cancelled (Watercraft for Amphibious Ships and Sea Sprite Helicopters).

In June last year, then Minister for Defence Materiel Jason Clare and I announced reforms to strengthen the Projects of Concern process, including:

• the establishment of a more formal process for adding projects to the list;
• the establishment of a more formal process for removing projects from the list;
• the development of agreed remediation plans, including formal milestones for the removal of a project from the list; 
• increased Ministerial involvement and oversight of the process; and
• incentives for companies to fix projects on the list by taking into account the performance of companies in addressing Projects of Concern when evaluating their tenders for other projects.

Four out of five of these reforms have been implemented.

Implementation of the fifth – development of agreed remediation plans – will be complete when remediation plans for all six Projects of Concern have been prepared.

With these reforms and the continued focus on remediation, Minister Carr and I expect to make announcements in the course of this year further reducing the Projects of Concern list.

The policy objective here is not placing projects on the Project of Concern list, the policy objective is a successful outcome for the project.

We made progress in 2011 in addressing some of the specific capability problems we face, but procurement and sustainment generally continue to face challenges.

As a consequence, it is essential to continue the reform process.

Capability and Procurement reform

In 2011 we made good progress in implementing a range of important reforms.

An effectively functioning Defence organisation, including the ADF, is a critical part of protecting and defending Australia’s national security interests.

Too often we have seen adverse outcomes where Defence has not operated effectively or efficiently, and where despite these adverse outcomes, neither personal nor institutional accountability has come to the fore.

Our guiding principle must be to prevent such adverse outcomes before they emerge and address and solve them early if they emerge: prevention, not post mortems.

As a consequence, it is vital that we continue the ongoing Defence reform program, including accountability, procurement and budget reforms.

Reform – accountability

Failures in accountability arrangements damage Defence, weaken Defence’s performance and make both Defence and Industry less efficient and effective.

We must continue the process of instilling much greater rigour and individual and institutional accountability to our consideration, management and delivery of major projects, procurement and capabilities. 

Accountability means ensuring people are trained and resourced to make quality decisions. 

It also means that responsibility is aligned with the authority to make decisions, not blame shifting. 

It also means that the decision-maker needs to maintain oversight of delivery and implementation. 

Without this link between decision and delivery being maintained, there can be no accountability.

In August last year I released the “Review of the Defence Accountability Framework”, the Black Review, the first comprehensive review of personal and institutional accountability in Defence as a whole.

The Black Review confirmed significant problems with performance in many parts of Defence. 

To address these problems, Defence has commenced implementing a range of accountability reforms to strengthen personal and institutional accountability, particularly in the areas of capability development and acquisition. 

These reforms include:

 

• reforming Defence planning, decision-making processes and performance management;
• substantially reducing the number of Committees in Defence;
• increasing rigour, contestability and expertise within capability development; and
• the establishment of Associate Secretary positions to strengthen Defence’s capacity to implement the Black Review.

 Implementation of the Black Review will improve Defence management and improve delivery of ADF capability.

The Secretary and CDF have now extensively overhauled the Committee and decision making processes, consistent with the changes recommended by Black.

A number of top level senior Committees have been abolished.

We have appointed a new Chief Operating Officer, Mr Simon Lewis, who is now responsible for the management, coordination and better integration of the Personnel Services and Policy, Defence Support and ICT Groups.

The process for finalising the Associate Secretary Capability is continuing and the Secretary of Defence and the Chief of the Defence Force (CDF) anticipate making an announcement with respect to that position in the near future.

In addition to the Black Review reforms we are also implementing additional reforms in the area of procurement and capability.

Reform – procurement and capability

There will always be risk in complex, costly procurements involving cutting edge technology.

To minimise that risk and to manage it effectively, we need to instill greater rigour and greater individual and institutional accountability to our consideration and management of major capability projects, both acquisition and sustainment.

In particular this applies to the early stages of projects – 80 per cent of problems with Defence capability projects emerge in the first 20 per cent of the project’s life.

We need early warning in order to be able to take effective preventative action.

In 2011, we also commenced a series of reforms to strengthen procurement processes and improve accountability within Defence.

These include:

• Reforms to project management accountability (announced 18 July) including:

-       project directives issued by the Secretary of the Department of Defence and the Chief of the Defence Force to ensure Defence acquisitions progress according to Government direction;

-       benchmarking all acquisition proposals against off-the-shelf options where available;

-       the introduction of a two-pass approval system for minor capital projects valued between $8 million and $20 million;

-       implementation of an Early Indicators and Warning system;

-       the expansion of the Gate Review system; and

-       the introduction of Quarterly Accountability Reports.

 

• Reforms to the disposal of military equipment (announced 29 June), to reduce costs, generate potential revenue and provide opportunities for Defence industry involvement in the disposal process.

 

• Reforms to strengthen Australian industry (announced 29 June);

-       The threshold for mandatory Australian Industry Content Plans (AICP) will be reduced from $50 million to $20 million.

-       The ability of a company to arbitrarily reduce the level and type of work included in an AICP will be removed.

-       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 AICP obligations. 

-       AICP performance will be included in the Company Scorecard used by Defence to assess a company’s performance.

-       Project teams will be made more accountable for AICP performance by including them in the DMO Project Manager’s Charter.

•  Reforms to Support Ship Repair and Management Practices through the Rizzo Report (announced on 18 July) including:

-       that Navy engineering be rebuilt and reorganised, led by a two star Navy Admiral to give the necessary weight to this critical function;

-       that the Defence Materiel Organisation (DMO) undertake a fundamental restructure of its Amphibious and Afloat Support Systems Program Office; and

-       that the DMO increase the Systems Program Office by over 20 new positions.

In 2011, we also accelerated the full implementation of all the Kinnaird and Mortimer recommendations previously agreed by Government.

In 2003 the Kinnaird Report led to the two-pass approval system, the creation of the Capability Development Group and the Defence Materiel Organisation as a prescribed agency under the Financial Management and Accountability Act.

Most of the Kinnaird reforms have been implemented and have had a positive impact.

In 2008 the Mortimer Review into Defence Procurement and Sustainment made 46 recommendations.

The Government agreed to 42 of them in full and three in part.

Many of these recommendations have been implemented including increased investment in Defence industry skills and incorporation of improved commercial practices into Defence procurement.

Some of the key recommendations have not yet been fully implemented.

Defence has accelerated the implementation of all outstanding agreed recommendations made by Mortimer as a matter of priority.

This includes:

• project directives issued by the Secretary of the Department of Defence and the Chief of the Defence Force to ensure Defence acquisitions progress according to Government direction; and
• benchmarking all acquisition proposals against off-the-shelf options where available.

Implementation of these important reforms to capability development and procurement continues, with specific action including:

• introducing new rigour into the management of so called ‘minor’ projects, including a modified two-pass approval system for minor capital equipment projects valued between $8 million and $20 million.
• implementing an Early Warning and Indicator system to address the early stages of capability planning and prevent problems early in the life of a project;
• expanding the use of the Gate Review process for mature projects to ensure that the desired operational capability is being delivered; and
• providing enhanced and more rigorous reporting to Government on high priority projects.

We are implementing further reforms as part of the Government’s response to the Rizzo Report into the Amphibious Fleet.

Mr Rizzo led an expert team that was appointed in February to develop a plan to address significant problems in the repair, maintenance and sustainment of the Royal Australian Navy’s amphibious fleet.

The Report found poor risk management practices, a failure to manage assets on a ‘whole of life’ basis, negative aspects of a ‘can do, make do’ culture, the failure of Navy and the Defence Materiel Organisation to work together seamlessly, and perhaps most importantly, an overall ineffectiveness of the Naval engineering function in Navy and the maritime elements of the Defence Materiel Organisation.

Mr Rizzo identified a systematic breakdown over a long period of time, including under-resourced naval engineering capabilities, inefficient industry contracts and inadequate risk management.

Collectively, these issues compromised the availability of Navy assets and potentially the sustainability of Navy ships in the longer term.

The Rizzo Report made twenty-four recommendations to improve operational availability and outcomes and ensure the ongoing technical integrity of Navy ships. 

The Government and Defence are implementing all of these recommendations.

Actions underway to address these problems include the remediation of our naval engineering capability and an increase to the Amphibious and Afloat Support Systems Program Office of the Defence Materiel Organisation.

These are substantial and important reforms. They will shape the structure and operation of Defence capability development and procurement over the coming decade.

Implementation is well underway.

Further reforms are in hand which will enhance the delivery of Defence capability projects, strengthen Australian Defence industry and improve accountability.

These reforms will include the Government’s response to the Coles Review of the Sustainment of Australia’s Collins Class submarines.

The Collins Class submarine fleet remains our most significant sustainment challenge.

Problems with submarine availability are regrettably of longstanding and well known.

The state of the Collins Class is a matter of ongoing national concern.

Sustainment of the Collins Class submarines is at the top of the Government’s Projects of Concern list. 

Insufficient resources have been allocated to address materiel and personnel shortfalls since the ships were brought into service in the period 1996 to 2003.

From the submarine’s outset in 1996 there have been significant reliability and capability problems.

It has taken too long to address these longstanding concerns.

In December last year I released the report of Phase 1 of the Review of the Sustainment of Australia’s Collins Class submarines, the Coles Review.

I have heard the suggestion that this has been the best thing to happen for submarine sustainment in a decade.

Be that as it may, we should not have waited since 1996 to take such action.

This Review is examining complex engineering issues associated with submarine sustainment.

It will play the important role of guiding improvements to the way our Collins class submarines are sustained into the future in the same way as the Rizzo report is doing for the Navy’s amphibious fleet.

Phase 1 of the report identifies a range of key issues that need to be addressed:

• poor submarine availability caused by a crew shortfall, lack of spares and unreliable equipment;
• a lack of cohesion in strategic leadership;
• Department of Finance and Deregulation, the DMO, Navy and Industry not working collectively as an “Enterprise”;
• a lack of clarity around accountability, authority and responsibility;
• submarine knowledge thinly spread;
• lack of robustness of Navy’s contribution to manning and sustainment;
• no long term strategic plan for efficient use of assets;
• DMO seeking direct involvement at the tactical level;
• a performance-based ethos not being embedded in ASC;
• no long term strategic plan for efficient asset utilisation; and
• unclear requirement and unrealistic goals.

Phase 1 makes interim recommendations about how to address some of these issues:

• resources should be directed to the provision of spares leading directly to increased availability;
• any decision to reduce the agreed Materiel Ready Days in a year should only be taken by the Collins Class Program Manager;
• the In-Service Support Contact (ISSC) between the Defence Materiel Organisation and ASC, currently under discussion, should be placed as planned;
• the classification of Priority 1 Urgent Defects by the submarine commander should be moderated by Commander SUBFOR to avoid over classification purely to increase priority of spares; and
• as part of the crew training program, Commanding Officers, Marine Engineering Officers and Weapons Electrical Engineering Officers should undertake a pre-joining course at ASC and Pacific Marine Batteries (and other key suppliers) to gain a better insight into some of the intrinsic submarine design and equipment characteristics.

Implementation of these recommendations has commenced.

In Phase 2, the review team will gather and analyse data to put forward evidenced-based findings and recommendations on how to improve performance in Collins submarine sustainment.

Phase 2 of the review will report in April this year and focus on:

• integration and program management;
• commercial;
• engineering Reliability and Navy; and
• costing.

The Coles Review will do for the Collins Class Submarine what the Rizzo Report has done for our amphibious fleet: a clear sighted path to improve the sustainment and availability of the Collins Class Submarines.

Lessons learnt from the Coles Review will also play an important role in the development of the Future Submarine Project, including the need to take a long term view of maintenance and sustainment of the Future Submarine from the outset of the project.

The Government is committed to acquiring 12 new Future Submarines, to be assembled in South Australia.

The Future Submarine project will be the largest and most complex Defence project ever undertaken by Australia. 

The project is a major national undertaking and is of a scale, complexity and duration never before experienced within Defence.

The submarines will be constructed over the course of the next three decades. 

Options for the Future Submarine range from a proven fully Military off the shelf design through to a completely new submarine. 

All options are being considered, other than nuclear propulsion which the Government has ruled out.

Last month I announced the Government had approved the release of Requests for Information to three overseas submarine designers, and that Defence had entered into a contract with Babcock for a study into a land-based propulsion site.

In addition then Defence Materiel Minister Jason Clare and I announced the development of a Future Submarine Industry Skills plan.

At the Australia-United States Ministerial (AUSMIN) consultations in Melbourne in November 2010, Australia and the United States agreed that Australian-United States cooperation on submarine systems was strategically important for both countries. 

The high level of submarine interoperability between Australia and the United States and our technical cooperation will extend into Future Submarine acquisition program.

These are important steps in ensuring that the Future Submarines are delivered.

But it is important to understand that with complexity comes risk.

Because the submarines will be constructed over the course of the next three decades, there is a risk of a capability gap between the retirement of the Collins submarines and entry into service of the Future Submarines. 

But the end of the life of the Collins submarines are not yet known and, as Warren King said on his appointment, a modified off the shelf design submarine could be in operational service within a decade.

A capability gap risk applies to the delivery of all large, complex and difficult new projects.

That is why it is essential to get it right during this early period, learn from our experience with the Collins Class, and thereby avoid, reduce, and minimise project and capability risk difficulties down the track.

The Government will consider the Future Submarine project early this year and announcements will follow in due course.

The lessons learnt from the challenges we have faced in the past, and the outcomes from the Rizzo and Coles reviews, will be applied to future acquisitions and future sustainment, not just heavy amphibious lift or submarines. 

This includes projects already underway as well as future projects. 

Defence Capability Plan reform

In 2011, I announced a range of reforms to the Defence Capability Plan.

The purpose of these reforms is to ensure that projects are fully aligned with the Government’s priorities, that risk is understood when decisions are made and then effectively mitigated through implementation. 

It is not acceptable for resources to be misdirected to projects or acquisitions that are not aligned with the Government’s priorities or which are unacceptably risky.

Reforms underway include:

• improving the quality and rigour of capability project information;
• the use of project teams which span the whole capability development and acquisition process, to ensure greater consistency of expertise and oversight for major projects;
• injecting stronger contestability in capability decision making – internal contestability within Defence is being strengthened with the Capability and Investment Resources Division separating from the Capability Development Group;
• increasing resources for the Capability Development Group;
• the development of career streams for both ADF and civilian staff in capability development and acquisition;
• implementation of three year postings for ADF personnel into capability projects, and the development of employment incentives to retain key civilian staff;
• reviewing all capability proposals before they are considered for inclusion in the Defence Capability Plan, to ensure they reflect the Government’s strategic requirements and that all risks are well understood;
• ensuring that new proposals for inclusion in the Defence Capability Plan will be considered by Government bi-annually, in consultation with Central Agencies.
• improving the content, quality, presentation, transparency and utility of the information made available publicly relating to current and forward capability planning. 

While these reforms are underway, further reforms are needed to ensure that Defence capability planning is affordable and will deliver the equipment the ADF needs.

The outcome of these reforms will retain the flexibility to develop new capabilities rapidly in response to operational requirements, gaps in capability and Government priorities.

A continuing ambition is to reduce the level of over programming in the Defence Capability Plan.

Over-programming is a deliberate strategy to manage the risk of projects being delayed, so that funding can be diverted to other high priority Defence capability projects.

However, what over programming really means is that more projects are included in the Defence Capability Plan than can ever actually be realised. 

This means promising more than we can deliver.  In effect and in outcome it means planning for failure and being criticised for not delivering on things never seriously expected to be delivered on a particular timetable or frankly to be delivered at all.

This helps neither Defence nor Industry.

Overprogramming is a long standing practice. 

All versions of the Defence Capability Plan since it was first published in 2001 have been over programmed.

This means we have been overpromising and under delivering since 2001.

I do not believe that this is the best basis for planning Defence capability.

As a consequence, I have directed that the level of overprogramming in Defence Capability Plan be reduced.

Defence Planning Guidance

This process is being undertaken in conjunction with the Defence Planning Guidance process.

The Defence Planning Guidance process aligns strategic guidance, capability decisions and resource planning on an annual basis.

The 2011 Defence Planning Guidance is being finalised.

A comprehensive review of the Defence Capability Plan in this context is underway and will be finalised in the Budget process.

The Defence Budget

In addition to reforms to the DCP, the Government will also consider the outcomes of the review conducted by the Secretary and the Chief Financial Officer on the Defence Budget itself.

At the time of the 2011-12 Budget it was determined that there would be a $1.6 billion underspend for the 2010-11 financial year, and $1.3 billion of capital funding to be reprogrammed.

While this was a good outcome for the Budget bottom line, it represented a significant failure in Defence’s planning and budgeting processes.

Accordingly, the Secretary and the Chief Financial Officer have conducted a comprehensive stocktake of the Defence budgeting system, taking into account all budget processes, estimation methods and underlying budget assumptions.

This includes the way in which Defence’s Capital equipment budgets are formulated and managed, including the ongoing utility of contingency, slippage and most importantly over-programming.

Taken together with the results of the Defence Budget Review, we will assess whether the Defence Capability Plan is aligned with strategic requirements, is affordable and deliverable and provides value for money for the taxpayer.

In this context, the current 2012-13 Budget process will also examine whether Defence is able to make a further contribution to the Government’s Budget bottom line.

Conclusion

In 2012 in addition to operational matters we have three principal challenges:

Firstly, the Collins Class submarine fleet remains our most significant sustainment challenge and is at the top of the Government’s Projects of Concern list.  The Future Submarine project is a major national undertaking and is of a scale, complexity and duration never before experienced within Defence requiring keen judgement in the first instance and ongoing careful and deliberative management. 

Secondly, the way in which Defence’s Capital equipment budgets in the Defence Capability Plan are formulated and managed, including the ongoing utility of contingency, slippage and most importantly over-programming requires further significant reform.

Thirdly, coupled with the results of the Defence Budget Review, we will assess whether the Defence Capability Plan is correctly aligned with Strategic guidance, is affordable and deliverable and provides value for money for the taxpayer and, in this context, whether Defence is able to make a further contribution to the Government’s Budget bottom line in the 2012/13 Budget.

Thank you.