If you get audited by the Tax Office and you’re missing documents, you could go to jail. The Hunter Frigates program is a $45 billion purchase yet Defence didn’t keep records of key decisions. Will anybody be held accountable for this mess of a program?
It’s been revealed that the cost of nine Frigates has blown out to $65 billion and the government is still proceeding with building three fewer ships for the same price we were supposed to get nine for. Defence is also outsourcing its recruitment drive with a $1.3 billion contract, yet 7 months of recruitment has gone down. The Generals in Defence are leaving us in a huge mess.
Regarding the Arafura Offshore Patrol Boats, why would the Defence department buy a military ship that can land a helicopter on it, but not actually use this feature? It doesn’t make sense to pay $300 million per boat while cutting essential features to save minimal costs.
Would the two heads of Defence, each on $1 million a year, take responsibility for the abysmal Hunter Frigate program? The response appeared to be, “Not my fault”. At four times the Prime Minister’s wage, we deserve better.
Transcript
Senator ROBERTS: My first set of questions is about the Arafura-class offshore patrol vessels. Going to the design of those vessels, the Navy website listing the capabilities of SEA1180 does not include a mention of a helicopter. The Brunei version of our offshore patrol vessel has a deck than an 11-tonne helicopter can be landed on. Were any changes made throughout the SEA1180 which downgraded the strength of the helicopter deck?
Rear Adm. Malcolm: Senator, the requirement for our offshore patrol vessel did not include a helicopter as part of the top-level user requirements.
Senator ROBERTS: And what is the reason for that?
Rear Adm. Malcolm: I might ask Chief of Navy if he’d like to speak to that.
Vice Adm. Hammond: The Arafura was designed for constabulary roles to replace the Armadale-class patrol boats, which do not operate helicopter capability. It was a minimum viable capability off-the-shelf solution to provide that constabulary effect.
Senator ROBERTS: So the Brunei version would have been upgraded to handle a helicopter?
Vice Adm. Hammond: That’s reasonable speculation, but I’m not sure, Senator.
Senator ROBERTS: You did not derate or reduce the strength of the deck; you just wanted the base model?
Vice Adm. Hammond: I’d characterise it as the Navy did not specify helicopter capability as a requirement.
Senator ROBERTS: Turning to the $45 billion Hunter-class ship acquisition, Mr Moriarty, Australian taxpayers have already hand over $4 billion, and we still don’t have a boat. At the joint committee inquiry you accepted that there had been design flaws in the process and that records needed to be formalised and recorded. How is it acceptable that, on a $45 billion project, proper records weren’t kept? How did this happen, where were the records and why weren’t they kept?
Mr Moriarty: Senator, there has been a lot of work done on examining the history of the Hunter-class program, which goes back to 2014. Certainly the ANAO and subsequent internal departmental work identified that some key records were not retained. That is a flaw in our system, and the deputy secretary has been putting in place a number of initiatives to enhance overall compliance with Defence records management policy. There are of course a number of other initiatives which we’ve put in place.
Senator ROBERTS: Mr Moriarty, during the joint committee inquiry you stated you were not aware that standard procedures were not being followed. How is it possible that you weren’t aware?
Mr Moriarty: Senator, after I assumed the position of secretary of the Department of Defence the process was already in flight. I delegate authorities to subordinate committees to bring forward work to decision-making committees. The fact that some of what I would regard as appropriate procedures had not been followed was never brought to my attention.
Senator ROBERTS: Isn’t it something you would make sure of, in a project worth $45 billion? You’re paid more than $1 million a year, as I understand it. General Campbell is paid more than $1 million a year. That’s each of you almost double what the Prime Minister is paid. Between the two of you it’s four times what the Prime Minister is paid. With that amount, surely the Australians that pay you expect you to know what happens in your department. Why don’t you know?
Mr Moriarty: Senator, there has a great deal of work done to talk about the inadequacies of some aspects of the Hunter procurement, but I think it’s also reasonable, when you delegate authorities to subordinate committees or to capability managers to bring forward, that they will pursue government requirements and procedures and internal Defence procurement procedures. The Defence committee structures that lead ultimately to these investment committee and Defence committees are intended to ensure that I, as the accountable authority, can effectively govern. You have to assume that the authorities below you understand their obligation and will comply with our own procedures and the requirements of in particular the PGPA.
Senator ROBERTS: Let’s delve a bit deeper then. You blame Defence for not following the proper process of developing advice, tender evaluation and source evaluation for the Hunter frigates, because of an accelerated time frame. Yet the government brought forward process to three years. Do you still maintain that reasoning? The government, as I understand it, accelerated the process.
Mr Moriarty: It did indeed, Senator.
Senator ROBERTS: Did the time compression affect the department’s process and the government advice that resulted from it?
Mr Moriarty: I think the ANAO report and subsequent work done within the department suggested that, yes, had there been more time available to do some of that work, then there would have been more validity.
Senator ROBERTS: Did Defence ask for more time?
Mr Moriarty: The government took a decision about the time line it wished to pursue. The government was aware and made aware by this department that pursuing an accelerated time line increased risk.
Senator ROBERTS: In the inquiry, as I understand it, you said:
I think we did not seek more time. The government’s time line was very clear, but, as I said, that does not absolve us of the requirement to have made a value-for-money judgement…
Why? Isn’t it your responsibility to ask for more time if you know accelerating the time line is going to compromise the process?
Mr Moriarty: I am required to comply with lawful and reasonable directions of the elected government of the day. When the elected government of the day tells me that it wishes to proceed in a certain period of time, I can alert them to risks and risk-mitigation strategies. Government was alerted to the risks of an accelerated time line.
Senator ROBERTS: You alerted them?
Mr Moriarty: The department, of which I’m the secretary, alerted the government to the risks of an accelerated time line.
Senator ROBERTS: You’re also quoted as saying at the inquiry:
I’d say the government was aware that bringing forward a program of this scale and complexity by three years obviously introduced additional areas of risk.
I’m wondering if you’re being evasive. You say it’s the government’s fault for speeding up the time line, yet you never provided advice to the government such that it would make you essentially break your own rules around processes. Are you trying to have a bob each way to make sure you have a job later when Hunter falls over?
Mr Moriarty: The government was dealing with a range of complex pressures. One of them was the need to build and have a continual shipbuilding program in South Australia. In order to do that it wished to hit some milestones in the project decision so that work could get underway. In order for work to get underway it needed to have the department contribute to advice to government by a certain period of time. The department was made very well aware of what the government’s time line was for when it wished to make a decision.
CHAIR: Senator, I’m not disputing what you you’re saying is in the transcript, but maybe in the future it would be great to get the full context and a printout of that so that other senators and the witnesses can have a look at the context of what was said and asked at the time.
Senator ROBERTS: Thank you Chair; I will.
Transcript
Senator ROBERTS: Mr Yannopoulos, you outlined a series of measures the department is taking to ensure procedures are followed & records are properly kept. Yet you said at the inquiry on 20 Novr 2023, page 8:
- I would be reluctant to give a guarantee that record keeping is fixed. What I can do is update the policy and update the learning.
I would think it was your and your department’s responsibility to guarantee this does happen. While I take your point from your previous evidence that it’s not easy to guarantee perfect performance across 100,000 people involved in the process, it’s ultimately your job to ensure things run quick properly and such a bureaucratic mess does not happen again. Why won’t you guarantee that the next time the government enters a $45 billion contract, acquisition records will be properly kept, assessment for value for money be made and proper processes followed?
Mr Yannopoulos: Senator, I’m happy to guarantee for the next $45 billion project that a government will consider we will ensure there is effective recordkeeping. Indeed we are, across all of our major projects. What I was asked at that inquiry was to guarantee there would be no further instances of record-keeping issues, and I just cannot do that. As much as I can update policy, train 23,000 people in a new e-learning and record-keeping practices, we are a large organisation with a lot of staff that join us each year, so it would be silly of me to guarantee we’ll see no recurrence.
Senator ROBERTS: So who’s going to be held accountable for the mess of the Hunter frigate program?
Senator Shoebridge: Nobody.
Senator ROBERTS: Minister, will the government scrap the Hunter frigate program, as One Nation has called for, and arm our Navy with ready-made mature solutions already in the water? Is the government committed to delivering all nine Hunter frigates under the current plans? Do you have no plan? That’ll do for now.
Senator McAllister: Senator, we spoke this morning about the review of the surface fleet. I’m not sure if you were in the room.
Senator ROBERTS: No, I wasn’t.
Senator McAllister: The government’s response to that review is expected in the early part of 2024. I’m not in a position here to pre-empt any of the outcomes of that. More broadly, of course we expect all the procurement across Defence represents value for money for the Australian public. We are in a very challenging strategic environment, and that means we need to use the resources we have well. That is a project that is underway, and we’ve talked quite a lot today about the work that has been going on across the department and across the ADF to make sure that is the case.
Senator ROBERTS: I have two questions on Adecco. Defence has entered into contract CN3923195 with Adecco Australia for consulting on personnel recruitment. This is a $1.3 billion contract. I can’t recall coming across a bigger contract during my time in parliament. Defence entered into the contract on 27 October 2022. What was Defence’s headcount on that date when the contract started?
Lt Gen. Fox: That contract was signed on 22 October but did not take operative effect until 1 July this year.
Senator ROBERTS: What was the headcount then?
Lt Gen. Fox: In October?
Senator ROBERTS: Yes.
Lt Gen. Fox: I’ll have to get that for you from an October headcount time frame.
Senator ROBERTS: And also when the contract started, please.
Lt Gen. Fox: As at end of financial year 2022-23 the average funded strength was 58,642.
Senator ROBERTS: What does funded strength mean?
Lt Gen. Fox: The department has the average taken over people coming in and out each pay for the average funded strength we have. It’s not a headcount; it is very close to it, but it’s the funded strength.
Senator ROBERTS: It’s now 2024. What’s the latest headcount for Defence personnel?
Lt Gen. Fox: Can I answer that again in an AFS construct?
Senator ROBERTS: Yes.
Lt Gen. Fox: The average funded strength is 58,427.
Senator ROBERTS: So you’ve gone down by 215.
Lt Gen. Fox: Yes, Senator.
Senator ROBERTS: We’ve had Adecco in place now for seven months, and we’ve gone backwards.
Lt Gen. Fox: Yes, Senator.
Senator ROBERTS: And we’re going to pay them $1.3 billion?
Lt Gen. Fox: That’s for the life of the contract, Senator, but the performance management framework will determine what they are paid in accordance with the performance of the contractor.
Senator ROBERTS: Could you describe the performance pay provisions?
Lt Gen. Fox: I’ll defer to my colleague to provide an indication of the performance management framework.
Major Gen. Stothart: There are a series of performance indicators, performance measures and health indicators for this contract. We are transitioning from a centralised model of recruiting to a decentralised model of recruiting in difficult circumstances, and the three major key performance indicators for this contract are the volume of target achievement, the velocity by which we can take an application and then issue a letter of offer to a candidate and, thirdly, the timeliness and quality of the deliverables we receive from Adecco to ensure we are seeing the business intelligence of their system. The contracts, noting there are some contract-in-confidence measures, are assessed quarterly. There are at-risk amounts tied to the achievements for them to acquire the targets linked to incentive payments, and the value of those payments are contractually in confidence.
Senator ROBERTS: Are you able to tell us a percentage?
Major Gen. Stothart: No, I don’t think I can, and I don’t have that with me at the moment. I would need to take that to confirm what I could share. I can talk about the performance measures and the health indicators. But I don’t want to underestimate the scale of the difficulty of the transition from a model that, over a long period of time, was not delivering the volume or the velocity we needed in our recruiting and the difficult shift to a new model that we still have confidence will deliver, with some adjustments, what we need. It is a difficult process we’ve asked Adecco to go through. They’ve had to pick up a model that was not theirs, the previous contract arrangement which the Commonwealth Defence Force recruiting was running, and shift it through a transition period to get to their model that we selected as the preferred model of recruiting through that securement process.
Senator ROBERTS: Excuse me, are you designing the process and they’re implementing it, or are they involved in the designing too?
Major Gen. Stothart: I could defer to chief of personnel for a detailed answer on that question, Senator.
Lt Gen. Fox: For the model that was selected the Commonwealth went out to tender for innovation in delivering volume, the speed of recruiting and the care of candidates. We had a number of tenderers come in, there was a competitive tender evaluation process and Adecco’s model, data and solution were evaluated to be the best in that period of time against the tenders Defence was requiring in volume, care and speed of recruiting.
Senator ROBERTS: Major General, you mentioned there’s a need for a dramatically increased volume—or velocity, I think was your word. Why is that? Is that because retention is decreasing?
Major Gen. Stothart: Senator, there are a various number of reasons. We need to achieve our targets more consistently than we’ve done previously, and the speed it takes us to conduct our recruitment processes needs to be much shorter. We know the target demographics of young and not-so-young Australians that may have some propensity to join the ADF have more choices around employment, study and travel now than they’ve had previously, and speed of offer to those candidates is key.
Senator ROBERTS: What is the attrition in the armed forces at the moment?
Lt Gen. Fox: At 1 January it was 10.1 per cent. CDF mentioned this morning in his opening statement that as at 1 February it’s 10 per cent.
