TOPICS: Budget and Strategic Reform Program; ADFA and ADF reviews; PNG processing centre; Pakistan and death of Osama bin Laden.
STEPHEN SMITH: I'm very pleased to be joined today by Jason Clare, the Minister for Defence Materiel. I've got some major announcements to make with respect to Defence's Strategic Reform Program, which Jason and I will deal with.
Also an announcement with respect to two further projects approved by the Government for progressing in terms of capability, and secondly I've got some announcements to make by way of a stock take or update on the various reviews and initiatives as a result of the recent so-called Skype incident.
So, we'll deal with the first two. I'll make some remarks, hand to Jason, and then I'll deal separately with the issues following the Skype incident, before we take questions.
But can I start just by formally recording, as Minister for Defence on behalf of the Government, our condolences to the family of Claude Choules, our last remaining active service link to World War I. Claude was a well-regarded Western Australian, but also he was a man who was very proud of his Navy service and we were very proud of him.
So our condolences go to the family as we see the last remaining active service link to World War I pass us by. So an historic event and we extend our condolences to his family.
Firstly, dealing with strategic reform matters, can I indicate that you'd of course be aware of the Government's Strategic Reform Program, a $20 billion program to reinvest the proceeds of strategic reform in Defence, outlined in the White Paper and in our Force 2030 documentation.
We are in the early stages of our Strategic Reform Program, and we believe that on the civilian employees' front, we can do more and so, I'm announcing today that, as a result of our Strategic Reform Program, a thousand civilian employees will not be required as a result of the introduction of greater efficiencies, particularly in the shared services area.
We are ensuring that a number of areas are quarantined from the civilian employee side, in particular Navy and Navy Sustainment, and our Capability Development Group and also our Joint Operations Command, so that there's no adverse impact on important areas - operational areas, on sustainment or on capability and we believe we can achieve these efficiencies primarily through shared services, jointly affecting back-of-house operations and that's detailed for you.
Importantly, as you may be aware, the proceeds of the Strategic Reform Program are reinvested in Defence. On this occasion, given Defence needs to make a contribution to the Government's overall Budget requirements and surplus targets, these proceeds which rule of thumb - and that'll be detailed in the Budget Papers, but rule of thumb, we're talking about $300 million or more over a three year - three to four year period.
These proceeds won't be reinvested in Defence. They will be taken for the Budget bottom line and make a contribution to the Government's surplus ambitions.
Importantly as well today, Jason and I are announcing some important reforms, so far as our capability and procurement arrangements are concerned. This will be the first of a number of waves of reform announcements.
In the first instance what we have done is to effectively do a stock take of earlier reforms, both the Kinnaird Review and the Mortimer Review, to satisfy ourselves that there's nothing outstanding in those various reports which we want to effect, but secondly and more importantly, to ensure that all of the recommendations of Kinnaird and Mortimer which we adopted are being effectively implemented. We're satisfied that so far as the Kinnaird Review and the Mortimer Report are concerned, there is nothing further in those recommendations which we wish to take up.
But that there are some important areas where recommendations of the Mortimer Review have not to date been effected or implemented effectively, and we are now accelerating the implementation of those.
They relate to two important areas, firstly project directives and secondly, off-the-shelf purchases. Defence will now accelerate the implementation of project directives, so that once the National Security Committee of the Cabinet has approved a development - has approved a project for first passed approval, a project direct directive consistent with that decision will be issued by the Secretary of the Department of Defence and the Chief of the Defence Force to ensure that the project is on track from day one.
Secondly, there will be off-the-shelf contestability at every important and relevant stage of a project so as to ensure that there is contestability with an off-the-shelf capability if one is available.
In these two areas we saw recommendations from the Mortimer Report, Jason and I and the Secretary of the department agree that in these two very important areas the recommendations need to be accelerated so far as implementation is concerned.
We are also taking this opportunity to announce a small number of further important reforms in the capability and procurement area. Now, they're detailed in the papers to you.
We have for some time now, so far as major projects are concerned, had a so-called two-pass approval process. The two-pass approval process will now apply to what I described as minor projects. These are projects up to $20 million which have essentially been administered by the service chiefs and the Department of Defence.
There are at the moment about 100 so-called minor projects to a value of some $150 million. The two-pass process will now apply to so-called minor projects between the value of $8 to $20 million. This will bring greater efficiency and greater rigour and greater oversight to the so-called minor projects. When you add all the minor projects together they come to a substantial sum.
Secondly, we are introducing an early warning and early indicator system so as to ensure that if a project looks like it may be going off track in any way there's an early warning system to bring this to attention of senior Defence officials and to ministers.
Thirdly, we will be expanding the gate review system. This is something which has proven to be very effective in terms of applying rigour to capability projects and that will be expanded.
And finally, we will be introducing a system of quarterly accountability reports where a quarterly accountability report will be made to the Minister for Defence, the Minister for Defence Materiel, the Secretary of the Department of Defence and the Chief of the Defence Force that a project is effectively on track, on schedule, on budget and providing the capability that was envisaged by the original government decision.
Jason will add to those, but those very important reforms are detailed in the papers that are being distributed.
Importantly, this is a first set of reforms. As I have made clear in the course of this year - the second half of this year - Jason and I will bring forward further reforms using the Black report or review on accountability in Defence and also the Rizzo Report into Navy amphibious sustainment.
We will use those two reviews to bring forward further rigour so far as accountability, sustainment and procurement matters in Defence are concerned.
What is our rationale for this? Our rationale is, of course, that with the introduction of the 2009 White Paper, the adoption of Force 2030 and the Budget Rules there is now for the first occasion effectively historically external rigour around the Defence Budget.
We now need to bring internal rigour to ensure that, particularly so far as projects are concerned, we get good value for money. There is a sorry history of Defence projects in the past where such rigour has not been applied.
So the reforms that have been introduced by this Government, particularly the Mortimer reforms have made some progress but there is much more that we need to do and the first wave of a further set of reforms you see today.
Before asking Jason to make some remarks, and I just indicate that the Government has agreed earlier this week to progress two major Defence capability projects. These are estimated when they're brought to fruition to be in the order of up to a billion dollars.
Firstly is the Battlespace Communications System where first pass approval has been granted and secondly a project definition study for Defence Personnel Systems Modernisation; effectively a pre-first pass study to get better definition on a very important project. And the details are provided for you in the papers that have been distributed, but Jason will also make some remarks about those.
I'll hand to Jason and then I'll make some remarks about the reviews and initiatives following upon the Skype incident. Then we are happy to take your questions. Jason.
JASON CLARE: Well thanks, Stephen. Earlier this year, Minister Smith and I foreshadowed that we would be rolling out a series of reforms to improve the procurement and the maintenance of Defence equipment and this is the first step in that process.
It focuses on the implementation of the outstanding recommendations in the Kinnaird and Mortimer reports and a series of other measures that build on the recommendations in those reports. The logical place to start in the reform process is to pull out the existing reports and do a stock take of what's been implemented and what hasn't and we've now done that work.
The Kinnaird Report's recommendations have now been largely implemented, they include things like, a two-pass approval system for major projects and they've had a major positive effect on Defence procurement.
The recommendations in the Mortimer Report have been implemented in part. Some recommendations have been fully implemented but others haven't and Minister Smith referred to two of those key recommendations. One being the introduction of project directives and the other being a proper cost benefit analysis a proper rigorous analysis of projects where there's a recommendation not to buy off the shelf.
There are other recommendations in that report that haven't been implemented fully yet either, including the introduction of an independent project performance office inside DMO. So this is where we begin.
In the first stage of the reform process we've asked Defence to implement all outstanding recommendations from the Kinnaird and the Mortimer reports. In addition to that we're announcing today four other recommendations which build on the central themes in those reports.
That central theme being to make sure that we get projects right at the approval stage and that we identify the problems with projects early so that we can fix them as early as possible. So those four measures are extending the two-pass approval system to minor projects valued between $8 million and $20 million.
As Minister Smith has said, that process has proved very effective with major projects particularly of de-risking projects early by getting a better level and a better quality of information on those projects before Government approves them. So we will now apply the same rigour to minor projects between $8 million and $20 million.
In addition to that we're establishing an early warning system. An early warning system is important because all the advice that we have is that 80 per cent of the problems with Defence projects occur in the first 20 per cent of their life. So the earlier we pick up the problem, the sooner the problem can be fixed and the better the problem can be fixed.
So we're establishing some hard triggers to tell us if a project is likely to go over budget, if a project is likely to go over schedule or if the capability promise is unlikely to be delivered. And if one of these early warning triggers goes off Minister Smith and I will receive a report from the department.
It'll also trigger an internal review and if necessary a full, independent diagnostic review of the project with recommendations about how to fix that project and how to bring it back on track. But we expect that a substantial number of these projects will trigger these early warnings.
So the point of this is to give us an early warning, an early indication that a project might be about to go over budget or over schedule or not deliver the capability that has been promised to the Government. And if that's the case we can act early to remedy the situation and get recommendations from Defence about how to fix it.
Thirdly, we're extending the gate review system. The purpose of the gate review system is to interrogate projects, using independent experts to tell us if there are potential problems with projects and provide recommendations about how to fix them.
It's been very successful with a number of high priority projects in the Defence Materiel organisation, so we're now extending the gate review system to all major projects in DMO and we'll also extend that rigour, that process to other parts of Defence including the Chief Information Officer's Group and the Defence Support Group and other areas of Defence.
Again the point of this is to help to identify potential problems early and to increase the level of accountability in Defence for ensuring that projects are on track and on time and on budget. Finally, we're introducing three monthly accountability reports. This was a recommendation of Kinnaird, it was a recommendation of Mortimer and it hasn't been implemented yet. It will be now and we'll expand upon their recommendations. What that will mean is that every three months, Minister Smith, myself, the Secretary of Defence and the CDF will receive a report from the people who are responsible for delivering high priority projects.
They include the capability manager; that may be the Chief of Army, Chief of Air Force or the Chief of Navy depending upon the project, the Chief of the DMO, the Chief of Capability Group and the Chief Financial Officer. Again, this is about helping to ensure that we have the information we need to pick up potential problems early and increasing the level of personal accountability and responsibility inside Defence.
To reiterate the points that Minister Smith made this is the first step. This is an initial step, there is a lot more work to do to reform and improve procurement and maintenance of Defence equipment, but this is the logical place to start.
And over the course of the next few months we'll be announcing a number of other significant reforms to improve Defence procurement and sustainment, that includes the release and the Government's response to the Black Review and the Rizzo Review and in addition to that, I'll be announcing reforms to improve the projects of concern process.
STEPHEN SMITH: Thanks, Jason, can I just quickly outline to you the state of play so far as the various reviews following upon the so-called Skype incident. As you know the mainstay of the response is a request of the Sex Discrimination Commission to conduct a review of the treatment of women both in ADFA and in the Defence Force more generally.
Earlier this week the Human Rights Commission announced the terms of reference for that review and the team to assist Commissioner Broderick. That team of course is Damien Powell, Mark Ney and Sam Mostyn and that's been announced earlier this week by the Human Rights Commission.
Commissioner Broderick will commence her work; her ambition is to complete her work so far as the Australian Defence Force Academy is concerned in July. And the second phase of her work which is looking at women in the Defence Force and the Defence organisation more generally, by the end of the year.
Secondly, we've established an Independent Advisory Panel on Alcohol. Often inappropriate conduct and abuse of alcohol go hand in hand. The objective here is to advise the ADF on the current organisational arrangements so far as use of alcohol is concerned whether there is anything more that we can do or learn so far as alcohol is concerned.
The Independent Advisory Panel on Alcohol will be chaired by Professor Margaret Hamilton who is a member of the Australian National Council on Drugs. She will be assisted by Professor Steven Allsop and Associate Professor John Wiggers both of whom are senior health promotion practitioners.
They have extensive experience in this area and they'll be joined by the ADF, the Australian Defence Force Commander of Joint Health, Major General Paul Alexander. Professor Hamilton is scheduled to complete her work by the end of July.
Thirdly, the use of social media; I have made the point in the past that often people engage in modern technology believing that it is private but invariably these matters become public. This is a new area for very many of us but as I have indicated in the past, that which people do, which becomes public, particularly if they are representing Australia or representing the Australian Defence Force potentially can have serious adverse consequences.
The Secretary of the Department of Defence has asked Mr Rob Hudson from George Patterson to conduct a review on the use of social media and Mr Hudson is expected to produce an interim report by the end of July.
I also in that context indicated that it is very important that members of the Australian Defence Force, whether they are onshore or offshore understand that all times they represent the Defence Force and represent the nation. And as a consequence inappropriate behaviour effectively in uniform, can lead to very serious reputational damage.
Major General Craig Orme will conduct an internal review of these issues and he will report on a Personal Conduct Review by September. As you might recall one of the issues which has arisen as a result of the so-called Skype incident is the interrelationship or the interface between Defence disciplinary matters and Defence disciplinary investigations and criminal investigations and criminal proceedings.
I have asked the Inspector General of the Defence Force, Geoff Earley to conduct a review of that interrelationship. Sometimes an interrelationship has led to delays and lack of a timely response in these issues. But the interrelationship between Defence disciplinary matters and civil or criminal matters is complex and the Inspector General will provide me with an interim report by July.
So far as women in the Defence Force is concerned, you will recall that the Chief of the Defence Force and I announced last month that all combat positions would become available to women on the basis of physical and intellectual and psychological capacity.
They would not be excluded from the current small range of effectively front line roles that they are currently excluded from. At the same time, I indicated that the Secretary of the Department of Defence was keen to pursue the question of pathways into leadership positions for women in the Australian Public Service or the civilian side of Defence.
A review to examine pathways for women on the civilian side of Defence for leadership positions will be conducted by the Deputy Public Service Commissioner, Carmel McGregor, and Carmel McGregor will report to the Secretary of Defence by the end of July.
There are two other matters indicated at the time. One was the relationship between ADFA, the Australian Defence Force Academy, as a residential college and other university residential colleges and whether there were shared experiences that ADFA and university residential colleges could learn from.
This initiative is being headed up effectively by the Vice Chief of the Defence Force, who in a line portfolio or command sense has responsibility for the Australian Defence Force Academy. And this initiative, in terms of the detail, the day to day running of it, will be conducted and coordinated by Rear Admiral James Goldrick who was the Commander of the Australian Defence College. So that work will also occur.
Finally, as I've indicated earlier, since the public attention on the so-called Skype incident, there have been a range of matters raised in the public domain and raised with me and with Defence itself. Suggestions of allegations in the past and these matters have all been and continue to be referred to Phillips Fox for external legal review.
A volume of complaints, both public and private, suggestions of allegations, suggestions of abuse were referred to me, to Defence, referred to in the media. These have all been referred to Phillips Fox for initial legal assessment to put the Government in a position of making further decisions about how to deal with these matters.
The volume of complaints has died down, as you would expect, given the public attention on the so-called Skype incident. But as I've made clear in the past, any suggestion along these lines which is received will be considered in the first instance by Phillips Fox, giving the Government and Defence external legal advice in this respect. So that's a stock take or an update on the initiatives and reviews following upon the Skype incident.
Jason and I are happy to take your questions on the matters that we've announced today or other relevant issues.
JOURNALIST: Minister, the separation of the review recommendations and the two part approval for my project, is that recognition now from the Government that the failure in ensuring value for money in growth and efficiency amongst it then?
STEPHEN SMITH: Well, I wouldn't necessarily categorise it in the way that you have. What became clear to me and to Jason is that, in isolation, a $20 million project in the normal course of events is not necessarily something which might come to Government for consideration. That might be dealt with at Departmental level.
But when you add up all of the minor projects, we have now over 100 to a value of over $150 million, it all adds up and so we wanted to ensure that the rigour which we now impose on major projects at comparable rigour is applied to major projects between $8 million to $20 million.
We have now a very good experience over the last three or four years from the so-called two-pass process for major projects. That has instilled greater rigour. It has seen in major projects. It has seen improvements in terms of reducing cost overruns, in reducing schedule overruns.
Having said that, there’s a lot more for us to do in this area. But applying the same rigour to a large number of minor projects, minor capital projects, is in our view a sensible thing to do and that view's shared by Defence.
JOURNALIST: Minister, do you think the high Australia dollar is [indistinct] procurement and if so, can you state [indistinct]?
STEPHEN SMITH: Well, I'm not going to - your question is essentially directly related to the Budget on Tuesday, first point. Secondly, I'm not going to speculate on those issues. The only general comment I'll make is that there are very well defined rules that apply to the Budget, determined over a long period of time by Finance and Treasury that relate to fluctuations in the Australian dollar.
So far as Defence and other departments are concerned, they fall in general terms under the so-called no win, no loss arrangement. But I'm not proposing to get into a conversation about that, because that's your way of trying to bring me into a conversation about the Budget, which I won't do.
The only comment I'll make about the Budget is the announcement today where the Strategic Reform Program enhancements with a reduction of 1000 civilian employees over the next three to four financial years, the proceeds of that will be returned to the Budget for the Budget bottom line and not returned to Defence.
That is a sensible and appropriate contribution for Defence to make. Secondly, I've made it clear previously that we will continue to adequately and appropriately fund our operations, whether it's Afghanistan, the Solomon Islands or East Timor.
JOURNALIST: So why does the [indistinct] for these recommendations to be [indistinct] in full? Obviously, the 2008 review was handed down. Have your predecessors dropped the ball on this, do you think?
STEPHEN SMITH: No, the Kinnaird Review and the implementation of the Kinnaird reforms, the Mortimer Review and implementation of the Mortimer recommendations were two very serious works, two very serious studies considered sensibly by Ministers at the time and implemented.
As both Jason and I have said, we are proposing to embark upon a further reform program. We will use the Black Report on accountability, personal and institutional accountability in Defence as one vehicle and we'll use the Rizzo Report into Navy amphibious matters, which Jason and I commissioned in January or February as the second vehicle for reform.
The very sensible starting point was to ask the question, has there been an effective implementation of the recommendations in Kinnaird and Mortimer. And the conclusion we have come to is that in two very important areas, there has not to date been an effective enough implementation of some Mortimer recommendations. The project directives, firstly, and secondly, ensuring that at every important stage at the process there is a cross benefit or a cost benefit analysis done for the capability or the project which is in hand with an off the shelf capability if that is available.
Neither I, nor Jason, nor the Secretary of the Department believes that these two proposals have yet been implemented effectively enough and we're going to accelerate their implementation.
STEPHEN SMITH: Sorry, just there - sorry?
JOURNALIST: Who is responsible then for that, the not being implemented in the way that you would have liked?
STEPHEN SMITH: Well, ultimately, as Minister of the day - as Ministers of the day - Jason and I take responsibility for the effective implementation of Government decisions.
These decisions were made a couple of years ago. We've done a stock take. We've come to the conclusion that we need to accelerate the implementation in these two areas and that's what we're doing.
JOURNALIST: Could the money that's been [indistinct] into the Budget now be better used in Defence?
STEPHEN SMITH: Well, Defence has a large Budget. That's the first point. Secondly, Defence's Budget for future years will obviously be made available and disclosed by the Treasurer in the Budget on Tuesday night.
Thirdly, we need to ensure that we drive the Strategic Reform Program forward. That is not just cost cutting or cost saving. It is making structural and strategic change which will be enduring into the long term.
The 2009 White Paper established the Budget rules, the Strategic Reform Program, $20 billion worth of savings invested back into Defence to effectively fund - help fund the so-called Force 2030, our capability program, in the 2009 White Paper.
We are in early days for the Strategic Reform Program. We've made some progress. Our early indicators are we believe that, on this front, we can do more, largely off the back of utilisation of shared services, as detailed in the papers that we've distributed for you.
On this occasion, because we are making further gains in terms of the number of civilian employees, my view and the Government's view was that these proceeds were appropriately returned to the Budget to assist the Government's overall surplus objectives. And that's ruler for the precise number will be obviously in the Budget documentation. Rule of thumb, it's $300 million or more.
JOURNALIST: Do you think the job cuts will [indistinct], between your office and the department?
STEPHEN SMITH: Well, these proposals have been worked through very carefully by the Secretary of the Department of Defence, by the Chief of the Defence Force and by me and my ministerial colleagues. Because they relate to the civilian side, obviously I've been working very closely with the Secretary of the Department.
But these proposals, whilst they bring a budget benefit to the forthcoming Budget, are part of our Strategic Reform Program. They will be implemented and administered in the same way that the Strategic Reform Program generally is. They'll be subject to the effective oversight of George Pappas, who chairs effectively or Strategic Reform Program Advisory and Oversight Board.
So these have been worked through very carefully, primarily between me and the Secretary of the Department. Importantly, we have ring fenced or protected key areas from any additional reductions that you might find in the existing Strategic Reform Program.
They go to some very important areas, Navy, Navy sustainment, for example, and the capability - the Defence Capability Group, and also to our Joint Operations Command so as to ensure that, in key areas, there is no potential for adverse impact.
JOURNALIST: Minister, just on the theme, the decision to reduce the workforce by 5000 through simply natural attrition, isn't there a chance that you will not reach that target by three years simply through voluntary redundancies and forced redundancies, would have to be-
STEPHEN SMITH: No.
STEPHEN SMITH: No, there is no prospect, nor intention, of any forced redundancies. The 1000 civilian employees reduction, as I've indicated, will be effective primarily through the efficiencies that we gained by sharing services.
We currently have a range of, what I'd call, back of house services which we believe can be integrated and shared more effectively and efficiently amongst parts of the Defence organisation. That will bring a large number of the 1000 employees. It won't bring all of them in our current judgement.
We're making it clear that the 1000 civilian employees will be achieved or affected through the shared services efficiencies, through non-replacements, through natural attrition and there may well be a small number of voluntary redundancies. But there will be no forced redundancies.
JOURNALIST: You've increased the efficiency dividend. Was that with Defence? And is there a chance that, at a time where it's reportedly [indistinct] Skype sex scandal, that [indistinct] the Defence Force?
STEPHEN SMITH: Well, firstly, the increase in the efficiency dividend was announced by the Minister for Finance last week or the week before. But that's the first point. So there's an increase in the whole of Government efficiency dividend from 1.25 to 1.5; as detailed by the Finance Minister. That's the first point.
Secondly, the efficiency dividend does not apply to all of Defence. It applies to a small part of the Defence organisation, about 10 or 11 per cent. What I've made clear, and what the Government makes clear, is that any increase to Defence as a result of - any increase obligation to Defence as a result of the increase in the efficiency dividend, is included in the 1000 civilian employees.
Now, over the three to four year period, the efficiency dividend increase, if applied to the civilian - if applied to those areas of Defence to which the efficiency dividend is applicable, you'd have probably 100 or so people or positions affected as a result of an increase in the efficiency dividend. So the larger work we're doing on the Strategic Reform Program more than comfortably includes and overrides any increase in the efficiency dividend, so far as it applies to Defence.
JOURNALIST: Minister, just briefly on another matter, the opposition's accusing the government of being hypocritical [indistinct] solution. What do you say to that?
STEPHEN SMITH: Well, what I say to that today is what I said yesterday which is, on those matters, you need to have a conversation with my ministerial colleague, the Minister for Immigration. I'm not proposing to comment on speculation in another minister's area and as the Prime Minister has made clear earlier this morning, if and when the Government wants to make an announcement about these matters, it will. So I'm not proposing to be drawn.
JOURNALIST: As a West Australian-based politician, though, would you personally support that as a solution?
STEPHEN SMITH: Well, as a West Australian-based politician who is Member for Perth, but Minister for Defence and part of the Cabinet, as a standard operating procedure, I'm not proposing to comment publicly on speculation in another minister's portfolio. I will very happily leave that to my colleague, Minister Bowen and as the Prime Minister said today earlier, if and when the government wants to make an announcement about these matters, it will. I can assure yo