Secretary of Defence - Address to the Australian Defence Magazine Congress, Canberra

DUNCAN LEWIS

SECRETARY OF DEFENCE

Ladies and gentlemen, good morning, it’s a great pleasure for me to be here to address this 9th Annual Australian Defence Magazine congress. Many of you would know as Katherine said that my association with the Defence organisation goes back a long way. When I commenced as the Secretary of this department about six months ago I felt very much a sense that I’d come home.

This morning I’d like to share with you some thoughts on our strategic outlook, the expectation that we have of industry, our capability development challenges, I will say some more on the matter of submarines, our Defence cultural challenges will also be part of what I want to say. So let me begin by making a number of remarks about the strategic challenges that we as a department face, the strategic outlook.

I’ve returned to Defence at a time of significant challenge in the global, the regional and the domestic and Defence environments. There are six particular environmental challenges that I want to trawl through for the next few minutes.

We face firstly over a decade of continuous military operation with those operations continuing at least for the next couple of years as far as we can see, so ten years of continuous military operation, that’s a factor. Secondly, there’s been important changes in the global strategic environment with particular strategic weight moving to our Asia Pacific region. Thirdly, an ongoing tough global and local fiscal environment which places pressure on defence as well as all of the other parts of government. Fourthly, challenges of significant reform right across the Defence business units including the need for cultural reform throughout the organisation. Fifthly, the need to reform our internal decision-making processes including capability development and finally, a very ambitious new capability program under the ‘09 DCP and the Force 2030 construct.

Overall, looking at our ambitions as a Defence organisation over the last few years - I think it is this is important - I think it’s fair to say that our ambitions have exceeded our capability to deliver in some areas.

Defence has been criticised for the speed with which we’ve been implementing Force 2030, we’ve been criticised for our culture and the way we treat our people and for the way that our processes work. Not all of this criticism is fair but some is and the CDF and I are seized of the need to work to address these problems.

I want to just briefly mention each of those six challenges that I’ve raised in a little more detail. Firstly, the Decade of Operations. One thing that’s obvious to us all is that we have been engaged now for - in substantial military operations for over a decade. What is less obvious to an external audience is all the back-end support, the acquisition, the contracting, the international diplomacy, the base support and the human resource support that ensures frontline operations are successful.

While the demands on the ADF are obvious a good deal of this backroom work is done of course on the civilian side of the department. Operations are a major effort of the whole of the Defence enterprise and I think with respect to conducting and supporting operations Defence as a whole has performed very well and I know the CDF will speak later on in the day about that. Considerable management attention is needed to ensure that we continue to perform well on operations in the midst of a range of other departmental pressures.

We must also consider in the years immediately ahead the wear and tear on our equipment, our people and our processes. We’ll need to pay a lot of attention in the next few years with the remediation of the force.

A few words on the global environment, we are witnessing an important shift in the regional and global geopolitical environment. The Global Economic Crisis has increasingly focused attention on the shift of global economic power from west to east. Australia is well placed to take advantage of this situation not just economically but also strategically. We are after all very much a part of the Asia Pacific region.

We are looking to increase our ties in cooperation with like-minded regional states and the United States is increasingly shifting attention and pivoting towards our region. I welcome the increased opportunity for us to operate in conjunction with the United States as a result of their Global Force Posture Review. But there are emerging threats in the new interconnected global environment, not just in the area of say terrorism with which we are familiar but in new areas such as cyber crime and cyber espionage. These threats do not just present against the government but they present against your companies in the case of industry representatives here, they present against individuals in our society and I do predict that there’ll be a range of new relationships shortly emerging as we grapple with these important issues.

We’re also seized of the growing shift in wealth generating industries. Within our own country we have seen recently a great deal of wealth being generated in the mineral extraction industries in the north and the west of Australia. We need to look again at the strategic implications of that. The Force Posture Review obviously that’s going on within the Australian context is important in this regard. These developments in the north and the west affect also our workforce; they’re creating a drain as many of you know on our workforce. Many of you that are in industry will be feeling this pinch as particular engineering skill sets are in high demand by these extraction industries.

Let me say a few things about the tough fiscal environment that we face. I have no need to tell you that Defence is in a tough place; those of you again that are in industry are in a similar place I’m sure. Government has expected Defence to make a contribution to helping get the nation back into surplus and we’ve done that. Defence has not and will not be immune from the whole of government fiscal priorities; we are part of the team.

We will have to make adjustment to how we do business to cope with this fiscal environment and ensure that our broad objectives set out in Force 2030 can eventually be met. This is an ongoing management challenge and you can expect to see us continuing to fine tune our financial and procurement plans to cope with these new fiscal realities.

I want to talk about reform for a few moments. Defence’s long term sustainability will most certainly depend upon our ability to generate efficiencies from within our business. History judges harshly those organisations that won’t change and Defence is no exception to this rule. We have to drive ongoing change and ongoing reform; in fact reform must be considered now business as usual in Defence. This will ensure that we have the capacity and the capability to be relevant to Australia’s security now and on into the future.

There are a number of reform agendas underway in Defence, the two biggest being the Strategic Reform Program and our response to the reviews of Defence culture. We continue to make significant progress on the Defence Reform Program. In 2009/10 we met the $797M target, in fact we exceeded that target and in 2010/11, that’s last year we met the $1.016B target and again we just exceeded that target and we are on track to meet the $1.284B target for 2011/12.

While these achievements are impressive it’s also true to say that when the SRP was released it was very clear to us all that it was an ambitious program. The hard elements of the SRP are yet to be undertaken. If we can’t achieve the reforms in the way the SRP originally envisaged them then we’ll have to look for alternative reforms to make those savings. The low-hanging savings have been taken, they’ve been harvested and now the going gets tough.

The Minister’s spoken about accountability, a key component, a reform and it goes without saying that we need to strengthen accountability across Defence, we need to strengthen accountability so that the future systems we introduce into service are relevant, fit for purpose and support the ADF in broader defence mission. Improving accountability over the long term is essential for Defence to better serve the government, the Australian public and the taxpayer and crucially to support our men and women on the frontline.

The review of the Defence accountability framework was conducted by Dr Rufus Black and released by the Minister in August last year and the CDF and I are committed to the reforms suggested by Dr Black and we are now developing the plans around those recommendations. We are developing a five year Enterprise Level Defence Corporate Plan, work is well underway, in fact we’re closer to the end than the beginning of that process.

The five year Enterprise Level Defence Corporate Plan ... it might surprise you to know this is the first one that Defence has had, that was a surprise to me I must add when I discovered it was underway. This plan will prioritise Defence activities and drive implementation with clear performance benchmarks and accountabilities for delivery.

We’re also developing at the same time an Enterprise Risk Framework that will identify and address the key risks confronting Defence. The CDF and I have recently rationalised our senior committees and established a unified secretariat with a support and quality control function and you can expect to see changes in the way that the force development process is run as a result of these reforms both to the senior committee process and the internal workings of the Capability Development Group during the course of this year. I’ve used the expression in other venues that the object of the exercise with reform of the committees is to de-thatch the process.

These changes are now cascading down through the organisation, as I speak we’re reviewing all the committees across the department and the CDF and I expect the result of this review to be a substantially fewer number of committees than we have right now. I’ll say a little more about cultural reviews in a moment.

Let me talk about the Capability Development Program. Force 2030 is an ambitious program, it’s an ambitious program to achieve in a constrained fiscal environment and it is an ambitious program to achieve in a rapidly changing global environment. The Minister just a few moments ago set out some of our achievements in major acquisition in recent months. Overall I think we’ve done well, we’ve progressed a large number of major acquisitions through the capability development and government approval process. I hope to achieve around 40 projects for approval this financial year; we’re more than halfway there at present. As at the 27th of January we’ve achieved a total of 30 approvals with a value of over $2B; we appear to be on track.

During the last financial year a total of 28 approvals including eight first pass, 13 second pass and seven other approvals were achieved with a combined value of $4.2B and the Minister spoke about the 49 projects that we achieved which was a record for Defence over the last 12 months. But capability shouldn’t be measured in terms of approvals or gross numbers of dollars committed. The key measure is in terms of what capabilities can be effectively delivered by Defence and our ability to make adjustments to the plan to suit our circumstances.

In terms of those adjustments if we look at projects such as C-17 and the Choules ... HMAS Choules we were able to make adjustments to the plan quickly and take advantage of procurement opportunities as they presented. We’ve identified a number of projects of concern and are working on remediation of those projects. Some of them have been of concern for a very long time I might add. Overall, however, I don’t think Defence performs poorly against other like countries. If you do a sort of comparison with some of our like countries you’ll find that we are sitting, you know, pretty much in the middle in terms of the performance level but we need to improve.

I don’t think that we’ve done badly considering the national and international fiscal environment and the internal funding pressures faced by the Defence organisation. The facts in relation to Defence’s capital equipment procurement performance tell a good story and this is important. From 1997 to last year the total portfolio of DMO projects closed came in at 98% of the approved total budget for those projects. Now you and I know the spectacular failures but 98% over a period of more than a decade is good going.

Since the DMO was formed in 2000 we’ve almost halved the level of scheduled slippage in major projects, some of this improvement is attributable to the efforts of the Capability Development Group and through the additional upfront investment and work undertaken before government is asked to make final project approval decision, what you and I know as second pass.

Analysis of the implementation of the Kinnaird Reform shows that significant improvements have been made in project delivery with an increased number of projects that project managers expect to deliver full capability going from 77% up to 86%. So again there’s a measurable increase in confidence in that regard.

There are many more success stories across the combat environments of land, air, sea and electronics, a number of which I’m sure you’ll hear about this evening at the ADM Team of the Year Awards and I do think that will be a great event. Katherine, thank you for facilitating that. This is a great credit in my view to our Capability Development Group and the Defence Material Organisation and of course to industry, you have all been an essential part of the achievements in the Capability Development area.

Some of the most pleasing examples are those capabilities that are making a real difference to our deployed forces, longer range weapons and radios, bush masters, the seaRAM warning system just to mention a couple. It’s just as pleasing to see some of the old legacy projects coming to fruition and I was away from Defence for a very long time and I was disappointed to find that some of these things hadn’t moved a lot while I’d been away but it’s good to see now progress with VIGILAIR, the FFG upgrade delivering truly world-class capabilities. It’s been a great effort and a great reward for persistence, dedication and technical expertise.

There remain a number of projects of concern; the Minister’s spoken about those. I’ve appointed recently Warren King as the new CEO of the DMO and I would like publicly in this audience to congratulate Warren on his appointment. Warren is a very much trusted member of our organisation and I know that he will be working hard with his staff to remediate these projects of concern.

Expectation on industry. It’s very clear that in order for Defence to respond effectively to the government and to the Australian people we must rely on a strong, successful and skilled Defence industry base. It goes without saying that the Defence industry is critical to supporting our business but it also goes without saying that Defence is not in the business of industrial welfare, I expect my officials to drive a hard bargain with industry and get the best value for the taxpayer’s money and Defence is in an international marketplace for equipment and we expect internationally competitive industry to be operating in Australia.

What I can say to those who work in Defence industry in the audience this morning is that we will engage with you early but we will always seek an Australian industrial solution to Defence needs if there is a reasonable and cost-effective Australian industrial solution and that we do see Defence industry as making not just a contribution to Defence’s business but to the nation as a whole.

Australia’s Defence industry has significant potential to deliver ongoing improvement, value for money in supporting the nation’s strategic needs as well as fostering economic development in sustainable way. Our ties with the United States will be further strengthened with the Australia/US Defence Trade Cooperation Treaty which as you know will enter into force when Australia and the United States have completed their respective domestic processes.

This agreement will streamline and enhance the transfer of defence materiel between Australia and the United States and facilitate better cooperation between our Defence agencies and industry. I urge you to look at our treaty with the United States as an important opportunity for industrial advantage for both countries.

A few words on capability. Many areas of our capability development and acquisition process have already had significant management attention and been through an improvement process. The Minister has again outlined this morning for you some of the changes that we’re making in the capability development space. We have already started the Capability Improvement Program and I anticipate that the new Chief of Capability Development Group, Vice Admiral Peter Jones ... and is Peter here this morning? I’m not sure. He’ll be here later on today. If I could also in his absence congratulate Peter on his appointment as Head of Capability Development Group. Peter and Warren will be working very closely together to improve our acquisition processes.

Let me reiterate some of the key points. We need to reduce over-programming, the Minister has made that clear, and we need to operate with far greater certainty of capability development schedules, we need to increase transparency by providing more relevant and accurate reporting of projects to government including the establishment of early warning indicators and more responsive arrangements for the remediation of under-performing projects.

We’re already issuing joint project directives - that’s the CDF and I - that articulate the individual responsibilities of Defence officers in the capability development process and align with the various conditions imposed by the government. These directives are a very important step now in clarifying who is responsible for what. I place high value on internal contestability of advice on capability, this is a good way of testing our thinking and exploring value for money. Overall, what I want to see is Defence getting projects from broad requirements to in-service capability and with less process, I want to do that while preserving accountability and value for money. Now, this is a pretty tall ask as you can imagine for the Defence enterprise. You can expect that capability development processes will come in for continued close management attention during the course of this year.

Now, the Minister spoke at some length about submarines, I won’t say a lot about it but it would be remiss if I didn’t mention the issue of submarines.

We have some big decisions to take to government this year and none bigger than this matter of Australia’s Future Submarine Fleet. I just want to make a few points very clear. Firstly, the submarine has a central place in Australia’s strategic posture; it’s driven by our geography and our interests. Our operating environment demands a highly sophisticated multi-capability long-range conventional submarine. Nobody else does what we want a submarine to do, that makes the task complex, expensive and time-consuming.

A new submarine project of the type envisaged under Force 2030 is a national undertaking. Many of the people who are going to operate and maintain our future submarine haven’t even been born yet. It’s going to take time to get this project right and I anticipate that it will be the subject of close scrutiny for many years. Nonetheless, the program office was established back in 2008 and a great deal of work on a broad front has been done to understand Australia’s submarine requirements, all of the options that might be available to us and how these options measure up against those requirements.

To date most of the work such as gathering lessons from Collins and other large Defence and national industrial acquisition programs has not involved spending substantial sums of money but as the Minister has said the government will very soon be considering the next steps in the SEA 1000 Future Submarine Project. Regardless of the submarine we eventually acquire planning the transition from Collins to the future submarine must take into account not only when the new submarines can be brought into service but also the achievable life of the Collins Class submarine to address this matter the Minister spoke of, the gap.

An important piece of work now underway is evaluating a life of each of the Collins Class submarines compared with their design life and obviously until we have all this sort of information we can’t speak further about the speed of the new submarine project or any potential gaps that might exist depending on what the math turn up.

The Minister has spoken of the Phase 1 report of Dr John Coles and his review of the Australian submarine sustainment arrangements, this review is being conducted as many of you will know by a small team of experts from both Australian and the United Kingdom. Phase 1 was a scoping analysis activity to identify the work that’s to be done in Phase 2 and Phase 2 is now underway. This will entail an evidence-based assessment of the issues identified in Phase 1 and will make recommendations for how we should proceed. The Coles Review is critically important not only for guiding us on addressing problems with the current submarine capability but also making sure that we have our house in order before we embark on the future submarine program.

Culture reviews. I mentioned earlier that the SRP needs to align with an expanding reform agenda; we’ve got numerous reviews underway or recently completed across Defence. These are important and provide us with an opportunity to examine our business and consider how we want to be defined as an organisation. However, effecting the required change and particularly the cultural change is a significant challenge. You may remember in April last year the Minister announced a series of cultural reviews, these are now largely complete. While the reports found that there was much to be commended about Defence there is still clearly work to be done to evolve our culture.

We are currently developing a cultural reform strategy which will harmonise the recommendations across the various cultural reviews and complement Defence’s wider reform. It will be a coordinated response across all of those range of issues that were canvassed in the reviews. The CDF and I are committed to ensuring that Defence provides a working environment that is safe, equitable and inclusive for all. We ask a lot of our workforce both military and civilian, they are often doing difficult jobs in challenging circumstances. Too often this is overlooked. Defence is comprised of thousands of talented people equipped with an acute sense of mission and an unwavering commitment to getting the job done for the good of the nation.

Both in and out of uniform Defence produces exceptional leaders, we need only look at Afghanistan, East Timor or the floods in Queensland recently to see how accomplished, disciplined and committed our Defence workforce is. Outside of the workplace Defence employees are working at the grass roots level around Australia making valuable contribution to communities and to our society. You know that more often than not you’ll find that there are Defence people that are represented on Parents and Citizens committees in schools, coaching sporting teams, organising community events and so on. There’s a great sense of community spirit and duty fostered within Defence.

I want to conclude by reiterating that Defence is a large complex part of government and the community. We currently face great strategic, fiscal, structural, personnel, materiel and cultural challenges. The immediate path before us is daunting but I believe we’re well up to it. Let me conclude by saying that Defence does many things right; so many things well, that’s not to say that there aren’t areas where we can and we must improve, that’s very clear to both the Chief of the Defence Force and myself and to our senior management and leadership team.

I want to take this opportunity to thank those members of industry that are in the audience for your personal and your respective organisational contribution to Defence and to the Defence debate and discussion in this country. I thank you for the opportunity to address you this morning. As you can see our challenges are many but I’m confident that with good will, some very, very hard work and some inspiration we will produce for this country a much better defence capability into the future. Katherine, thanks very much.

I’ve been saved by the bell here, folks. Warren I think might have a bit of time. I give you the pass, Warren, it’s over to you. Otherwise I would be happy to take questions but I’m sorry we are running out of time. Thanks very much.