2012 - 2013 Major Projects Report

This is the sixth Major Projects Report to be produced by the Defence Materiel Organisation and the Australian National Audit Office. Indeed, it is the third in which I have taken part. This report is a valuable contribution to parliament satisfying itself on the use of public money in the Defence arena and a means of ensuring it is well spent.

It is important to recognise that we do not undertake the process in the spirit of a trial or interrogation. Having been involved in three of these reports, I have been struck by the fact that this is an evolving process, which builds incrementally as we expand understanding of the complex financial budgetary and organisational issues involved. There is very much a spirit of cooperation and good faith in the discussions we have in the public hearings. This report, in particular, has I believe reached new heights in the interchange between the committee, the DMO and the ANAO. In my view it has contributed to a greater mutual understanding of what needs to be done to improve what the report describes as a 'line of sight' between the MPR and other important documents such as portfolio budget statements and budget papers, and also consistency of project names and groupings.

The information contained in these documents should, to the extent possible, be comparable. When put together it should provide an understanding of the issues. In our report we raise a number of issues and questions. The responses to these will be the basis, I hope, for further improvements in transparency and information.

There is one area I would like to highlight tonight—and that is sustainment. I know I have an unusual fascination with sustainment, but given the fact that our sustainment spend in 2012-13 exceeded the acquisition spend in the Defence arena—the sustainment spend is about $5 billion and the acquisition spend is about $3.9 billion—I think my unusual fascination is warranted. The report notes that sustainment is currently outside the scope of the MPR. It goes on to make the case for improving financial reporting on sustainment expenditure which, as I said, amounts to $5 billion in 2012-13. The report also points out that full sight of sustainment activity is necessary to view a major project in its complete context.

It is, of course, crucial that public reporting on sustainment does not create risks by exposing operational information that would damage capability. I have been acutely aware of that. It is an issue that has been highlighted by the Defence representatives who have appeared before the committee. In seeking greater transparency, greater accountability and further information in the sustainment area I am not in any way wanting to give away government secrets or in any way compromise operational security.

In particular there is no quarrel with the department's express view in its executive minutes in response to the 2011-12 report that providing performance details of DMO sustainment activities consistent with the MPR would be potentially highly sensitive and of a classified nature. I understand the sensitivities around this. That said, the report also notes that DMO's provision of more information on sustainment in the PBS 2013-14 would be greatly appreciated. We would like more information than what has been provided to date.

As a case study—examined at length in the committee's report—makes clear, there can be uncertainty as to the distinction between capability acquisition and capability sustainment. This was particularly frustrating for a number of members of the committee in terms of trying to get that line of sight—that visibility—about where a project began and where it ended. There were a number of projects in the MPR that were well past the acquisition phase and would not necessarily be classified as project. One would have assumed that they would be classified as being in the sustainment phase but here they are in the MPR.

As I said before, it is still very difficult to get a whole-of-life perspective on a financial and budgetary performance of a major project. Furthermore, it is important to keep in mind that reporting on financial performance is not the same as reporting on operational performance. This is clearly an area that will benefit from further analysis and discussion.

Before I conclude, I would like to quote some elements of the report. I go back to the notion of sustainment and trying to improve visibility. As the report says:

However, the fact remains that there is little visibility surrounding $5 billion of public money spent on sustainment in 2012-13. Further, when a Major Project's acquisition budget is combined with the sustainment budget, only then does the scale of the overall, long-term financial commitment become apparent. The MPR and the budget papers do not presently disclose this information.

The report makes clear that we wish to continue those exchanges and examinations, and I do believe that there is a real will there to enhance the transparency and accountability in this area. I note as the committee did that in future a separate inquiry into sustainment expenditure reporting may be necessary. Again I quote from the report—here recommendation 4:

The Committee recommends that the Defence Materiel Organisation prepares a suitable and separate methodology for reporting sustainment activity and expenditure, and that this methodology be reported to the Committee within six months of the tabling of this report.

I very much look forward to seeing that methodology in the next six months. As I said, it would greatly enhance the transparency and visibility of these projects to the parliament throughout their lives. I look forward to participating in these further discussions, particularly on how we can get greater transparency on sustainment.

I thank the Defence Materiel Organisation and the ANAO for their involvement in this and for their candour in discussions on the issues. I also thank my fellow committee members. There is an enduring interest in the major projects across the committee, and DMO and ANAO in particular have been helpful in enlightening us in many areas. I thank them.

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