Government

Will Clegg focusses on the risks of the Government’s ‘risk-free’ approach to military procurement.

Of all Canberra’s tribes, Defence has recently suffered the harshest of attacks. The 2009 Defence White Paper promised to provide Defence with a lot of new kit, and Prime Minister Rudd promised additional funds to pay for it. Yet the government reneged on this promise ten days after it was made, deferring around $8.8 billion of defence funding when it tabled the 2009 Budget. It is not clear which part of the Defence budget this money has come from, although capital investment has probably suffered the most. Defence is also bearing the brunt of a politicised campaign to restore the fiscal surplus. As Andrew Davies highlighted on the Lowy Institute’s blog, between 2012 and 2013 Defence will have around $1 billion less to spend on major capital equipment, which is the year the government hopes to restore a narrow fiscal surplus of a mere $1 billion.

Shopping list: 100 F 35 Joint Strike Fighters

To make matters worse, the media has turned on the Department’s ‘extravagance’, declaring a ‘war on waste’ that the Minister for Defence has embraced whole-heartedly. Thus, the Sydney Morning Herald revealed on 10 March 2010 that ‘oil paintings, handmade Chesterfield lounges and exclusive golf and fitness club memberships are among $48 billion of contracts reported by the Department since 2006’. As if on cue, the global consulting firm McKinsey released a report ten days later ranking Australia alongside America as the world’s most wasteful nations when it comes to buying and maintaining military equipment.

Some waste is unavoidable, being the inevitable by-product of a huge bureaucracy responsible for procuring complex equipment. A vast chunk is not. Thus, it was revealed in May that a lynchpin program within the Army’s ‘soldier modernisation project’ was cancelled due to management failures and major breaches in Commonwealth probity rules. This is but the tip of the iceberg. The clothing and personal equipment division of the Defence Material Organisation (DMO) has been investigated at least ten times over the past nine years due to alleged collusion and maladministration. Accusations such as these justifiably anger the public when government debt is mounting and the need for health reform is apparent. However, the implications for Australia’s future defence should be of equal concern.

Force 2030 and the Cost of Defence

The centrepiece of the 2009 White Paper was an equipment list – ‘Force 2030’ – that, if delivered, will result in a ‘muscular’ Australian Defence Force (ADF) equipped for maritime operations in the Asia-Pacific century. Big-ticket items include maritime-based land-attack cruise missiles, 12 ‘Future Submarines’, 100 F-35 Joint Strike Fighters and 8 ‘Future Frigates’. Though the details of cyber-security, electronic warfare and intelligence initiatives are sparse, major investments are planned in these areas as well.

This list reflects a bi-partisan consensus that Australia needs a high technology defence force. Not only does it help compensate for its relatively small armed forces, it also helps them observe and dominate the ‘air and sea gap’ that surrounds Australia and most other Asia-Pacific nations. This technological edge is increasingly important, many argue, because growth in the populations and economies of less technologically sophisticated regional powers is eating away at Australia’s relative strategic weight. Yet high-tech equipment is expensive, and the Rudd government is painfully aware of this fact. Cruise missiles aside, the big threats in last year’s White Paper were not aimed at regional rivals. Rather, they homed in on the Department of Defence, which was issued a decade long-test. As Minister for Defence John Faulkner has made clear, unless Defence can find $20 billion of internal savings over the next ten years it will be impossible to fully deliver Force 2030.

Writing for the Lowy Institute, Graeme Dobell describes this ‘Strategic Reform Program’ as a diet of fear. Unlike a similar effort launched by Ian McLachlan in 1997, it might just work. This time, the Strategic Reform Program has strong support in Cabinet and in the Department of Finance and, most significantly, Defence designed it. The service chiefs know they will only get the equipment they want if they help pay for it, and they seem to have signed up to making the necessary cuts. Few are holding their breath – Defence has no history of sticking to fiscal constraints and previous attempts to clean up waste have failed to secure widespread success.

A pessimistic outlook informed the policy outlined in the 2009 White Paper. Regional powers are increasing their defence spending and some, such as China, are doing so dramatically. Although their motivation and patterns of capability development vary according to their national circumstances, most are building or buying increasingly sophisticated weapons. Advanced military equipment is now widely available: anyone who wants to buy it generally can. As the Kokoda Foundation’s Ross Babbage observed, in the 21st century Australia will be ‘walking among giants’, who may or may not be friendly.

 Mounting regional uncertainty means Australia has to hedge its bets. Even if the risk of any armed attack on Australia were to remain low, the consequences of misjudging it would be severe.

Mounting regional uncertainty means Australia has to hedge its bets. Even if the risk of an armed attack on Australia remains low, the consequences of misjudging this risk would be severe. And, although not explicit in the White Paper, were something to go seriously wrong in Australia’s immediate neighborhood it is likely the US will have preoccupations elsewhere. Assuming the government is true to its word, a failure to fulfil the Strategic Reform Program will lead to a defence force making do with many out-of-date capabilities. This may put Australia’s vital national interests at risk, and increase the danger for Australian service personnel deployed overseas. But are the government’s procurement practices up to the task of acquiring, sustaining and enhancing the lean, mean high-tech machine envisaged in Force 2030?

Abrams Tank: On time and budget, but up to the task?

Gambling on the Marketplace

While Australia invested in a substantial military-industrial complex until 1945, it was largely dismantled after the war. Current government policy is that ‘off-the-shelf’ options should be considered for all defence procurements. It is hoped that purchasing mature products, already in production and with all research, development and testing phases complete will ensure well-defined prices, eliminating technical risk and granting government control over its defence budget.

This view is informed by recent experience. The C-17 Globemaster transport aircraft and the M1A1 Abrams tanks recently ordered through the US State Department’s Foreign Military Sales program were delivered on time and within budget, although many questioned whether the M1A1 was suited to Australian circumstances. In contrast, the Jindalee over-the-horizon radar network, Collins class submarines and Wedgetail airborne early warning and command aircraft – developed in Australia, for Australia – were all delivered late and over-budget. Government is tired of major defence projects appearing in the headlines for all the wrong reasons and this record may be used to support further ‘off-the-shelf’ purchases in the future, especially given Rudd’s priorities of nation building and health care, not defence.

Which is why it is important to remember the limits of purchasing defence equipment ‘off-the-shelf’. As Chief Executive Officer of Australian Aerospace and Defence Innovations Dr. Bill Schofield argues: ‘One of the reasons government has problems is that the ADF needs technology that is at the cutting edge – this entails technical risk. If you don’t take risk in buying and sometimes developing the latest equipment you take risk in the military being equipped with out of date kit’. If taken too far, drives towards a risk free procurement process will result in an ADF that cannot do its job, or cannot do so safely. This is a trade-off too many commentators choose to overlook.

If taken too far, drives towards a risk free procurement process will result in an ADF that cannot do its job, or cannot do so safely. This is a trade-off too many commentators choose to overlook.

Of Cost and Capability

Because of its identity and history, Australia enjoys privileged access to advanced defence technologies developed in America, the UK and some European countries. In many ways, it is this access that makes the government’s ambition of ‘defence self-reliance’ – the ability to defend critical national interests without combat help from allies – achievable. However, as former Chief Defence Scientist Dr Richard Brabin-Smith now at the Australian National University (ANU) explains, there are three broad areas in which Australia cannot simply rely on equipment developed by close friends and allies.

Sometimes, sensitive security reasons motivate Australia to develop a unique capability. Equally, Australia’s allies sometimes deny access to a level of capability that Australia regards as necessary because of their own sensitive security reasons. Thus, America has sometimes provided Australia with ‘Alpha-minus’ equipment that government needs to tinker with to make it ‘Alpha-plus’. For example, Kim Beazley claims to have ordered Australian scientists to crack sensitive American codes during the 1980s that were required for the radar on Australia’s hornet aircraft to identify potentially hostile aircraft in the Asia-Pacific region. Having acquired them, Australian scientists enhanced them, making technical progress that intrigued their American colleagues.

 Kim Beazley claims to have ordered Australian scientists to crack sensitive American codes during the 1980s that were required for the radar on Australia’s hornet aircraft to identify potentially hostile aircraft in the Asia-Pacific region. Having acquired them, Australian scientists enhanced them, making technical progress that intrigued their American colleagues.

The third area is when Australia’s allies do not make equipment sufficient for Australia’s needs, not least because of Australia’s unique operating environment. Thus, Australia developed the Jindalee radar system because none of its allies had a requirement to look as far over the horizon as Australia does from its north-coast. Similarly, foreign equipment is sometimes poorly suited to Australia’s large, warm, shallow, soggy-bottomed and biologically active northern operating environment. Even when equipment is purchased ‘off-the-shelf’ a high degree of indigenous innovation is typically required to modify it for Australian use and network it to other platforms. The Spanish designed Air Warfare Destroyers, for example, have about 15 percent variation to the Spanish F100 to meet Australian requirements. Low production runs often make domestic modifications expensive, but many defence analysts consider them worth the cost.

Even when Australia can buy appropriate equipment ‘off-the-shelf’, domestic production has its merits. Perhaps most important is that it grants access to the intellectual property required to provide through-life support – including repair, maintenance, modifications and upgrades – in Australia. The costs of through-life support tend to be three times higher than the costs of acquisition; in the case of advanced weapons systems the ratio can be as high as five or ten to one. Unless equipment is produced in Australia money spent on through-life support drifts overseas. Over 50 percent of Australia’s defence industrial base is orientated towards sustainment, as such, ‘off-the-shelf’ purchases threaten its long-term viability.

A robust defence industrial base also bolsters Australia’s international leverage. Although Australia’s allies sometimes deny equipment for legitimate reasons, their actions sometimes appear to be perplexing and petty. In the past, recalcitrant allies have repented – at least a little – once it is clear Australia has an indigenous capability in a sensitive area. As Dr Brabin-Smith argues, ‘putting our own high-quality intellectual property on the table helps open doors that otherwise prove hard to budge’. As the global defence industry continues to consolidate, the choice of potential suppliers will become more limited. It will be easier for foreign governments to restrict the equipment available to the Australian Defence Force. In a simple equation, self-help reduces the risk of strategic denial.

As the global defence industry continues to consolidate, the choice of potential suppliers will become more limited. It will be easier for foreign governments to restrict the equipment available to the Australian Defence Force. In a simple equation, self-help reduces the risk of strategic denial.

Australia’s Defence Industry Policy

All of which explains why the Australian government still identifies particular areas as a priority for domestic research, development and production. The 2009 White Paper’s treatment of defence industry hinges on Priority Industry Capabilities (PIC), which confer an essential strategic advantage by being resident in Australia and without which Australia’s defence self-reliance would be seriously undermined. PICs are not strategic companies. Rather, they are ‘the tip of the capability sword’, and may be as narrow as ‘a particular skills set or knowledge area’ within a much broader discipline. Although the PIC concept is welcome, Dr Brabin-Smith perceives the way in which the PICs emerged as a symptom of a wide problem. At first, defence chose ‘not to publicly identify the specific capabilities that are likely to attract PIC support’, reflexively placing security above all other concerns. This policy attracted such widespread and incredulous disbelief that – two months later and at government instruction – Defence publicised the twelve PICs, ranging from electronic warfare and submarine technologies to combat clothing for soldiers.

So far, the PIC concept has only served to legitimise government interventions if the ‘market’ fails to sustain domestic capabilities. A better policy, argue Andrew Davies and Peter Layton of the Australian Strategic Policy Institute, would be for government to contract industry directly to provide the desired level of expertise and industrial capacity – not just assume it will emerge as industry responds to the government’s identified priorities. In fact, industry partners have perceived the PIC initiative cautiously because they know that not even investments in these priority areas will increase their value in the eyes of the agency responsible for buying Australia’s military equipment, the DMO, which sways to the mantra of competition.

Writing for The Australian on 27 February 2010, Professor Paul Dibb and Geoffrey Barker of the ANU contrasted the free-market ideology dominant in DMO to imaginative and bold policy initiatives underway in the UK. While the DMO has historically opened every major Australian ship repair and maintenance job to contract there is now a single naval warship prime contractor in Britain, operating under a 15-year strategic agreement with the Ministry of Defence. This shift has caught high-level attention. The Australian government recently announced it intends to establish long-term, performance-based contracts for ship repairs and maintenance as well. Although commendable, past initiatives have been suffocated by masterful inaction within the DMO.

While DMO buys equipment, it is the Capability Development Group (CDG) that advises what to buy. Unfortunately, this agency’s ethos neglects the strategic significance of Australia’s defence industrial base as well. The uniformed officers in charge of CDG tend to favour American made equipment, arguing that this ensures interoperability and responding to the preferences of their respective services. Historically, they have resisted allowing Australian producers to compete with US suppliers, even when they are competitive and offer a comparable capability. The Rudd government intends to place a ‘suitable qualified civilian’ at the head of this agency. However, finding the right person has so far proved too hard.

 The uniformed officers in charge of CDG tend to favour American made equipment, arguing that this ensures interoperability and responding to the preferences of their respective services. Historically, they have resisted allowing Australian producers to compete with US suppliers, even when they are competitive and offer a comparable capability.

Securing Australia’s Future

Government needs to clearly articulate the priority areas for Australia to maintain a domestic scientific and industrial capability able to carry, modernise and update skills for the future. In December 2005 the UK government set out – for the first time – those domestic capabilities needed to ensure it can operate military equipment in ‘the way we choose to maintain appropriate sovereignty and thereby protect our national security’. Australia should follow suit, ensuring that strategic policy and force structure decisions have a more direct influence on its long-term defence industry policy.

Government also needs to increase support for domestic innovation. The Defence Science and Technology Organisation (DSTO) has two critical roles: to give government the scientific equivalent of ‘frank and fearless’ advice regarding Australia’s national defence and to make innovative defence technologies for use in priority areas. While 90% of its budget is devoted to applying other people’s science to Australia’s military requirements, 10% is devoted to creating technologies for use by the ADF, an outcome of political pressures related to cost blowouts. DSTO needs to do research and development, not least because good research supports good scientific advice, essential for good defence policy.

Even if DSTO invents something, it can only develop prototypes working on a laboratory bench. Australia relies on industry to create operational equipment. Yet industry is focussed on innovations with a high-probability of short-term sales because of the uncertain business environment fostered by government procurement policies. Overall, defence firms in Australia spends less than two percent of turnover on research and development, most of which goes towards late-stage technology development.

This is not news to government. The Capability and Technology Demonstrator (CTD) program was launched in 1997 to encourage innovative defence-related products. Yet, saving drives led to a cut in this program’s funding from $26 million per annum to $13 million. The gap in funding between the laboratory prototype developed at the end of CTD and the technology required for operational use ensures that few useful technologies have resulted from this program’s 12 years of effort. Good ideas get lost in this capital-scarce ‘valley of death’.

Defence provided CTD Extension funding in 2007 and 2008 to try and solve this problem. Yet, insufficient funds were provided. CTD Extension funds have now been fully allocated, and no new funds have been announced. It is rumoured that the Rudd Government’s soon to be announced defence industry policy – drafted in the shadows of the ‘war on waste’ – provides no new funding for this program. Unless the government is cautious, its campaign to fund ‘Force 2030’ might end up emasculating the scientific and industrial capabilities required for Australia to maintain its strategic weight.

Will Clegg is the defence and foreign affairs correspondent for Government magazine. He also works for an Australian defence company, dividing his time between Canberra, Sydney and the UK.