Report 470: Defence Sustainment Expenditure

On behalf of the Joint Committee of Public Accounts and Audit, I present the committee's report entitled Report 470: Defence sustainment expenditure.

Some would say I have a rather unhealthy obsession with the sustainment of defence capability. Prior to becoming the member for Canberra, I worked in the Defence Materiel Organisation for nearly 10 years, got a very clear understanding of the acquisition process and tried to get a clear understanding of the sustainment process that supports our defence capability.

Given the lack of clarity and transparency around sustainment, I decided that when I became a member for Canberra I would pursue the Holy Grail of trying to get greater clarity and transparency around the sustainment of our defence capability, with a view to improving the efficiency and effectiveness of the sustainment of our defence capability.

The reason I have had this unhealthy obsession for quite some time, probably nearly two decades now, is that this is a significant Defence spend. For 2017-18, the spend on acquiring defence capability was $11 billion. For 2018-19, acquiring defence capability will go up to nearly $13 billion, for 2019-20 it will go up to $14 billion and in 2020-21 it will go up to nearly $16 billion—that's for the acquisition of defence capability. The reason I have such a strong interest in improving the transparency and clarity around sustainment of our defence capability, as much as our acquisition of defence capability, is the following figures. In 2017-18, nearly $9.5 billion will be spent on the sustainment of our defence capability. In 2018-19, it will be nearly $10 billion; in 2019-20, it will be nearly $11 billion; and, in 2020-21, we're looking at $11.5 billion.

The percentage of sustainment to the acquisition budget will be, in this financial year, 82 per cent; in 2018-19, 77 per cent; in 2019-20, 77 per cent; and, in 2020-21, 72 per cent. So we are talking big dollars here being spent on the sustainment of our defence capability. There are big dollars spent on the acquisition and there are big dollars spent on supporting our defence capability—our ships, our planes and our tanks. Lots of money is spent in these areas, in both acquiring and sustaining capability.

For those who are listening, I think it's probably worthwhile to outline what sustainment actually is. Defence defines it as:

The provision of the appropriate goods and services required to achieve readiness and sustainability goals for the life of the Defence Element.

In plain English, that is capability capacity. The report says:

Defence Sustainment involves the provision of in service support, including repair and maintenance, engineering, supply and replacement parts, configuration management and disposal action.

Also, it's not just the support and the disposal of that capability.

Sustainment can apply to platforms such (ships, aircraft, vehicle fleets), commodities (clothing, combat rations, munitions) or services (calibration, provision of maritime target ranges).

It's across a very broad range of areas, and it is, as I said, a very significant sum of money from the Defence budget that's being spent each year.

In 2015, when reviewing the Defence major projects report, the committee noted the size of sustainment expenditure at $5 billion per annum and recommended that, following the implementation of the Department of Defence's First principles review, the department improve how it reports on sustainment. In November 2016 the committee readopted a lapsed inquiry into Defence sustainment expenditure and on 21 June 2017 resolved to inquire into this area also, hence this report.

The sustainment budget, as I said, is expected to grow year-on-year across the forward estimates to over $11.5 billion in 2020-21 and the percentage of that budget over the course of the forward estimates will average 77 per cent. This is a significant amount of expenditure and further work is needed to improve the transparency of sustainment reporting both to the public and to the parliament. This has been my mission since I have been the member for Canberra.

Compared to the level of reporting across any level on acquisition in the Defence major projects report, we are underdone when it comes to actually taking a close look at sustainment spending. We've got the projects of concern, we've got the projects of interest and we've got the Defence major projects report, which is an incredibly comprehensive document. The committee had a close look at that last Friday. But the level of transparency that is applied to acquisition is certainly not applied to sustainment.

Having been on this case for some time, I know that there are sensitivities. I know that the chiefs of the services have concerns about sensitivities around sustainment. I understand those concerns and I respect those concerns. I respect the fact that by taking a close look at sustainment we do not in any way want to give away what's actually happening on deployments or operations. I do not want the operational capability or the operational sensitivity to be compromised in any way. What I want is to ensure that the Australian taxpayer dollar is being spent efficiently and effectively, which is why I have been on this mission on sustainment reporting.

As I said, we've been trying to get greater transparency around sustainment for some time. We are getting it gradually, and this report is just another effort towards trying to improve the transparency around that issue. It's going to be an iterative process and it's going to be a slow process; it's probably going to move at a glacial pace. But I'm pleased to report to the Australian people that we are actually getting some traction on this. We have actually improved the transparency on it, but it will take time. And it will certainly take time, a long time, before it gets to the level that I would like to see it at.

We made a number of recommendations, particularly on getting a clear read across reporting documents. We made recommendations that Defence can improve on getting a clear read—getting a clear understanding of what is actually going on. For the record, I will outline here that a clear read means that:

… the objectives for each project should be clearly stated at the start of the year and achievements against those objectives are reported at the end of the year.

It ensures that there is consistency across all the public reporting statements. We've suggested that Defence improve the clear read on sustainment. We have also recommended

… that the Department of Defence consolidate information extracted from its Corporate Plan, Portfolio Budget Statements, Portfolio Additional Estimates Statements and Annual Report in one place online in a format that allows for clear and easy scrutiny of sustainment expenditure.

We made some recommendations on the Defence annual report, and we recommended:

… that within six months of the tabling of this report the Department of Defence provide to the Committee:

a report on progress in driving First Principles Review reforms

detail of the positive changes that have been realised to date with the implementation of the First Principles Review

an update on the progress of the Systems Program Offices review

a report on progress of the whole-of-life costing model

a report on progress to selecting a candidate to run the Major Projects Office.

There was a concern that Bechtel had been engaged to provide those services, and we were assured Defence was now undertaking a competitive process to find a suitable candidate to run the major projects office. The committee, as I said, has made a recommendation on that. We also recommended:

… that the Auditor-General consider reviewing the Department of Defence's new Monthly Reporting system …

and:

… that the Department of Defence provide a detailed progress report on behavioural changes that have accompanied improvements in internal performance reporting within six months …

They're the recommendations in a nutshell.

In closing I thank the committee for the work that they did in compiling this report. I thank the committee secretariat. I also thank the Department of Defence and the ANAO for their contributions to this inquiry. It is an important contribution. As I said, it is proceeding at a glacial pace, but we are gradually moving towards greater transparency and clarity on sustainment, and I say we bring it on sooner rather than later.

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