From The Source: The Hon. Jason Clare MP Minister for Defence Materiel

Jason Clare was appointed Minister for Defence Materiel in 2010, succeeding Greg Combet. His appointment represents vital continuity at Ministerial level in maintaining a minister dedicated to one of the most challenging components of the defence portfolio. Born and raised in Western Sydney Jason Clare is an Arts and Laws graduate from the University of New South Wales. Before entering Parliament he worked as a senior adviser to former NSW Premier Bob Carr and as an executive at transport infrastructure company Transurban, one of Australia’s top 50 companies.

ADM: Given that Defence is to give back $2.7 billion over coming estimates, on top of the SRP measures, what effect do you estimate this is going to have on industry?

Clare: A lot of the savings are in areas that shouldn’t directly affect defence industry, particularly the reduction in public service growth. In some areas of the Defence budget we’re spending more. A good example of that is in the sustainment budget. The sustainment budget for last year, or for this current financial year, was $5.3 billion; next year the sustainment budget will increase to $5.6 billion; by 2014/15 it’ll hit $6.1 billion. So the sustainment budget is going up. The important point here is that 70-75 per cent of the work that the Australian defence industry does is in sustainment. Over the course of the next decade Defence capability spending in Australia is going to go up. We expect it will go up from about $5.5 billion spent in Australia every year to about $7.5 billion, and that’s good for the Australian Defence industry; it’ll mean more jobs.

It’s true that some of the capital funding in this budget has been moved. It’s also true that Defence handed back just over $1 billion in capital funding to government this financial year and most of that is because, on a number of major projects, key milestones weren’t met. They’re projects like Wedgetail and MRH-90 and the air to air refuellers and where projects are behind schedule and milestones aren’t met, they’re not paid and as a result some of that money hasn’t been paid this financial year and will in turn be paid next financial year. These delays will have a flow-on effect over the course of the next few years and the budget has been adjusted over the forward estimates to better reflect when we think those payment will be made.

ADM: But it isn’t just industry that’s failing to deliver; if you look at the number of projects that haven’t actually reached 1st Pass approval yet, there’s obviously internal issues within Defence as well and that’s going to have a knock-on effect downstream.

Clare: Well since the government’s come to office in 2007 we’ve approved just over $8 billion worth of projects, and over the course of the next 12-18 months the government’s planning to approve projects worth more than $6 billion. The important point here is that we get these projects right from the start. The advice I’m getting from Defence, as well as experts in this area, is that most of the mistakes with projects are made at the start and 80 per cent of the problems occur in the first 20 per cent of the project life.

What’s important here is that before projects go to market proper due diligence has been done on them and that a proper approach has been identified to ensure we don’t have a repeat of some of the spectacular mistakes of the past.

ADM: While we are seeing capital funding going back to central government, the industry is also grappling with the SRP - and so also is Defence. How is the SRP travelling at the moment and how is the Defence-Industry relationship standing up? It’s obviously another potential source of friction.

Clare: The SRP is very important. We need to make sure that we deliver on it so that the $20.5 billion is re-injected into the Defence budget to provide the capability that’s set out in the White Paper. We’re on track so far but I’ve got no doubt that it’s going to get harder over the next few years and industry’s going to be essential in making sure we’re successful in implementing the SRP.
I also know that industry’s got a lot of good ideas about how to do this and that’s why in February I wrote to Australian defence companies asking for their ideas; not just ideas that would make them money and help the Defence budget to save money but also ideas that will fundamentally reform and improve the way Defence does things. And I’ve got to tell you that I’ve received a lot of submissions from Defence companies and a lot of good ideas. They’re now being considered by Defence; the Secretary of Defence and the CEO of the DMO are required to report to me every three months on those ideas and what Defence has done in its consideration and implementation of them, and we’ve now received about 35 submissions from defence industry and as a result of that I’m hoping to shortly announce a number of additional SRP pilots that have developed out of these ideas that defence industry has put to me.

ADM: Are you sensing a willingness within Defence and the DMO to contemplate significant change in the way they do things?

Clare: Well I think there’s a willingness and a keenness to test new ideas. A problem in business, and a problem in government, is you don’t know what you don’t know and the best way to work out whether something is going to work or whether a change can improve the way we do things is to test it, or pilot it. And that’s why I think this is a great way to identify reforms proposed by industry that will not only make industry money and save Defence money, but will improve the way Defence does business. That’s why I’ve adopted this approach and directed Defence to review the submissions that industry have put forward.
I sense a new excitement in Defence about this and I’m looking forward to rolling out more additional pilots and testing them. This will be a real proving ground for the ideas that the defence industry is putting forward.

ADM: Well the purpose of the SRP obviously is to free up the funds that make Force 2030 achievable. Given that some money has dropped out of capital acquisition this year, given the number of projects that have moved to the right, is Force 2030 still achievable on schedule?

Clare: It’s a big challenge and implementing it is going to require the ongoing focus of the government, Defence, as well as the defence industry. The government is focused on delivering it but what’s even more important is making sure that we get it right. I mentioned before that 80 per cent of the problems with projects emerge in the first 20 per cent of their life and that’s why I’ve been so focused on making sure that we’ve got the procurement model right. There’s been a lot of reform so far which has helped to improve Defence procurement but there are still major challenges there, the biggest one being schedule. Of our 30 major projects, on average they’re about 30 per cent late and that’s not good enough; we can do better there and I’m determined that we will.
That’s why Minister Smith and I have focused in the first tranche of our reform program on making sure that we do things to make sure that we make the right decisions when the project is initiated and put in place things like early warning systems and internal and independent review mechanisms to help us identify when a project is going off the rails in the early stages so we can get in there, act and fix the project before it’s too late.

ADM: Talking of reform, you and Minister Smith announced a wide range of measures and reforms in the lead up to the budget. These come up on top of the Kinnaird, the Mortimer and Pappas reviews, and there are others in the pipeline. Reform and change is essential but is there a danger that Defence could be suffering a bit from reform fatigue?

Clare: I make no apology for pushing Defence to become more efficient or improving the acquisition and management of Defence equipment. We spend a lot of tax payers’ money on defence – more than $25 billion every year – and I think we’ve got an obligation to make sure that it’s spent well. Reform is hard. It’s never over. The Kinnaird reforms have been effective; they’ve been largely implemented and if you compare the projects that were done before Kinnaird with those after you see major positive improvements in budget schedule and the capability delivered. So that’s evidence of the importance of not only identifying reforms but properly implementing them.
David Mortimer made a number of other very significant reforms but they have only been partially implemented and I’m determined to make sure that his recommendations that government has already agreed to are fully implemented. They’ll be very, very important in helping to improve the acquisition and sustainment of Defence equipment. I think we need to go further than that too, and that’s why I announced only a couple of weeks ago the introduction of an early warning system, the expansion of the Gate review process to all major projects in the DMO, the expansion of the twopass approval process to minor projects valued between $8 - $20 million, as well as the introduction of accountability reports – three monthly accountability reports. This was a recommendation first proposed by Kinnaird, then by Mortimer; it still hasn’t been implemented, it will be now.

ADM: Talking about the Mortimer report, one of his recommendation which Defence actually resisted was that the DMO should become a quasi-independent executive agency. Is that something that you’re likely to revisit?

Clare: In short, no. I think it’s important that DMO and Defence work seamlessly together and they can do that at the moment. I’m also guided by the fact that the Grey Review in the UK considered this and rejected that approach.

ADM: What about the issue of accountability generally? You set in train the Black Review and there’s a lot of rhetoric about accountability in Defence, but a lot of decisions still seem to be made by committees and as the Super Seasprite helicopter showed there was no one individual who actually had the authority and the power to prevent a disaster happening.
So where can we expect to see the Black report and some of the measures flowing from it?

Clare: Yeah, you’re right, there is a lot of work that we have to do to improve both individual and institutional accountability in Defence. That’s why the Black report was first commissioned. A couple of weeks ago when Minister Smith and I announced the first tranche or the first stage of our reforms, we made the point that we would be releasing the Black report and the government’s response to the Black report in
the next few months.
But I draw your attention to the quarterly accountability reports that were recommended by Kinnaird, by Mortimer and that we’re now implementing. This is an example of the government’s commitment to driving individual accountability within Defence. These reports will be delivered to Minister Smith and myself, to the Secretary and the CDF every three months, and they’ll be signed off by the Capability Manager as well as the CEO of the DMO, where relevant the CEO of Capability Development Group and the CFO, as I said before, these are reports which were recommended originally by Kinnaird and then by Mortimer and were never implemented, but they will be now. They’re very important, I think, for two reasons: one, to make people accountable for the projects that they are responsible for , and two, to provide another mechanism to identify early where there are potential problems with projects so we can get in and fix them.

ADM: One of the contributing factors with troubled Defence projects is the cyclical nature of Defence procurement and sustainment and the effect this has on skill levels and resources and capacity. What are you doing or what can you do at a practical level to smooth out that cyclical pattern?

Clare: You’re right, Defence procurement is a very chunky business; it’s very cyclical. Most Australian companies, it must be said, are in sustainment and Defence sustainment is not as cyclical as acquisition and that work is a lot more predictable. It’s in the government’s interest, just like it’s in Defence industry’s interest, to try and smooth out the pipeline of work. That’s why I’ve been so focused on reinvigorating the Capability Development Advisory Forum and the working groups that sit underneath them. They’ve become more active and they’ll be meeting in the middle of the year.

ADM: This obviously goes back to calls for industry to be involved much earlier in capability proposals.

Clare: I think that that’s right. I’ve made a point of getting out and about and visiting as many defence industry companies as I can. There’s a common theme – all defence companies I speak to say they want to be involved earlier in the process so they can provide input and advice in terms of what industry is capable of and how much
time they’ll need to skill up and prepare for major projects, and that’s why CDAF is important and that’s why those working groups need to be an effective place where industry can provide ideas, not just get told what’s happening.

ADM: Looking to the future, to industry’s workload, the SADI scheme has actually been very successful – it’s universally praised – but what other measures do you want to see put in place to make sure that industry’s got the capacity to meet the future challenges?

Clare: Yeah, you’re right, SADI’s been very successful and very effective. That said, I’ve written to AIDN and to AIG asking for their advice about how we can further improve the SADI program, because I want to make it as good as it possibly can be. In addition to that, the CDAF is an important vehicle to make sure that industry is engaged as early as possible and can provide their expert advice about what’s needed when. The other part of this is making sure that our Priority Industry Capabilities are fit and healthy and that’s why I’ve initiated a health check of those PICs and I’m hoping that in the next few months I’ll be able to release the health check on the first of those.

ADM: Can you say which ones you’re looking at initially?

Clare: Shortly.

ADM: Looking at the other side of the relationship, Defence is going to forego about 1,000 civilian APS staff that it had planned to recruit over the next few years. So where’s this loss going to be felt most? Is the DMO significantly affected and does this mean that Defence and the DMO will have to make significant reforms to accommodate that change?

Clare: It’ll be 304 positions inside DMO and I’m obviously working very closely with Steve Gumley, the CEO of the DMO, on this. He’s very confident that we can achieve this without having an adverse effect on capability or the work that DMO does with the defence industry. The key to this is going to be making greater use of shared services; this will allow DMO to reduce its internal numbers. At the moment DMO has got a workforce of roundabout 800 people that work in functions like HR, finance, ICT and non-equipment procurement; so there are opportunities, I think, to improve the efficiency of DMO in those areas.

ADM: Going back to the issue of amphibious watercraft and so on, did you ever get to the bottom of the LPA Watercraft debacle?

Clare: There were some serious mistakes  that were made. From my point of view it is evidence of the need for further reform. It’s evidence of the need for more rigour and more due diligence to be done on projects when they’re first initiated. Minister Smith made the point at the ADM Congress that we want to make sure there’s prevention rather than post mortems, and this one made for a terrible post mortem.
I think there’ll be lots of lessons from that and that’s my focus in making sure that we don’t make these sorts of mistakes again. And an important part of helping to ensure that, I think, is the reforms that we announced a few weeks ago.

ADM: Now the LPA of course was an acquisition rather than a sustainment project. The Rizzo report is really about sustainment, particularly for the amphibious ships. When can we expect to hear the outcome?

Clare: Rizzo is scheduled to report to government in the middle of the year, so he’s doing a lot of work at the moment, working both with defence industry and with some of the key stakeholders in Defence. His brief is a pretty broad one - it’s to recommend those measures that will improve the sustainment of the Navy fleet and I’m
sure that his recommendations will be very useful, not just in ensuring that we have a pathway to improve the sustainment of our amphibious fleet but the Navy fleet more generally.

ADM: Are you expecting that this could alter the course in some way of the SRP program?

Clare: Well I think it’s best to wait and see what Mr Rizzo’s recommendations include, and I’m looking forward to receiving them.

ADM: Sticking with the issue of Defence and industry relations, a directive went out from Defence’s leadership recently on hospitality and the obligations of ADF and APS personnel. There’s a feeling within the Defence community at large, not just the industry, that this seems to be a rather heavy-handed approach to a problem that doesn’t exist. Have you got views on that?

Clare: Well Defence does have strict rules about corporate hospitality, with good reason. We want to make sure that there can be no suggestion whatsoever of impropriety; that’s important. It’s important that tax payers have confidence in the system, and that means that you’ve got to have fairly strict rules. Taxpayers expect that the systems that we put in place are going to have integrity and disclosure, and I think it’s understandable that from time to time in the conduct of business that hospitality is going to be accepted by an official, but it should be appropriate; it must be disclosed and it’s got to follow all of the set rules.That’s my expectation and I think that’s the expectation of most tax payers.

ADM: I’d say that Australia has actually got an excellent reputation for the probity of its acquisition processes.

Clare: I think that’s right and I think that’s a tribute to all of the people that are involved in the defence industry and the people that are involved in defence procurement in DMO and in Defence. One of the reasons for that is because we do have strict rules and I’m a very strong supporter of them.

ADM: The Special Operations Task Group in Afghanistan – are they now using Bushmasters rather than the Nary patrol vehicles?

Clare: They’re using Bushmasters at the moment. The Army’s now received eight of the Nary vehicles and they’re currently being fitted out with force protection equipment and then they’ll be ready to support operational test and evaluation. As you know, they’re very sophisticated vehicles and they’re going into a very dangerous
place, so we won’t be deploying them until we’re absolutely sure that they’re ready to go. Special Forces use a range of vehicles, depending on their mission and the threat that it brings with it. The current mission, given the IED threat in Afghanistan, combined with the terrain in Afghanistan, means that the Bushmaster in many circumstances is the best vehicle for the work that Special Forces as well as the mentoring task force are doing. That’s a tribute to the Bushmaster, It’s an outstanding vehicle. It is a tribute to the workers at Bendigo. Without doubt it has saved the lives of a number of Australiansin Afghanistan and that’s why we
made the decision last week to purchase an additional 101 Bushmasters specifically for Afghanistan.