www.mccully.co.nz - 12 September 2008
A Weekly Report from the Keyboard of Murray McCully
MP for East Coast Bays
We Have A Date
So November 8th it is. Finally, after waiting till the point where earlier options were no longer logistically feasible,
Helen Clark has announced a date.
According to Clark, the election will be “all about trust”. Such has been the declaration of virtually every other
leader of an unpopular long term government, bereft of any new ideas, and attempting to set the scene for unrelenting
attacks on their opponents.
On that score, we cannot give Clark any marks for imagination or new ideas. But one thing we must give her: If Helen
Clark is prepared to mention the word “trust”, after Owen Glenn’s revelations about her and her party president this
week, she clearly still has a sense of humour.
Clear Message for Defence Chiefs
There was no doubt surrounding the message received by the nation’s Defence chiefs when they rocked up to Parliament’s
Foreign Affairs and Defence select committee on Thursday of this week: the days of political tolerance of budget
blow-outs and bungled procurements are well and truly over. Secretary of Defence, John McKinnon and Chief of Defence
Force, Lt-General Mateparae appeared to report on changes being made following the recently aborted audit of major
Defence projects. And the message they received, from opposition National MPs in particular, could not have been
clearer.
Regular readers will recall that the Auditor-General (A-G) recently took the almost unprecedented step of commencing an
audit of all ten major Defence acquisition projects undertaken in the past decade. The A-G then took the even more
unprecedented step of announcing that he was abandoning the audit. The Ministry of Defence, he said, simply could not
produce numbers of sufficient quality to conduct an audit. To use his words: “My staff were unable to complete the audit
as originally intended. A lot of the detailed information that I expected the defence agencies to have was not readily
available.”
Faced with this humiliation it was expected that Defence chiefs would expend considerable effort to rectify their
book-keeping and management deficiencies. But, apparently not. Instead they opted to present the Foreign Affairs select
committee with a litany of justifications for shoddy budgeting. Just get a load of this:
“The difference between an early estimate and the final price is simply the difference between an unavoidably uncertain
estimate of what the acquisition might cost and what it actually does cost.”
And:
“The current processes are structured so that Ministers can determine, in a cost-efficient way, whether to commit to
moving to the next step. Better accuracy is always to be preferred, but high degrees of accuracy in the early stages are
neither possible nor necessary.”
And that, ladies and gentlemen, is how our Defence chiefs managed, just to take one example, to commit taxpayers to the
acquisition of NH90 helicopters on the basis that they would cost around $500 million, when the actual cost turned out
to be around $800 million. Which is precisely the sort of blowout that the A-G and the select committee (but not,
apparently, the Minister) have been keen to avoid in future.
By taking this approach the Defence bosses are at odds not just with the A-G and the select committee, but also with
their own rulebook. The A-G, in his report, noted that “the Defence Capability Management Framework (CMF) states that
accurate cost estimations are critical at the Approval to Commence stage.” The A-G specifically rejected the Defence
contention that “cost estimates at this point are, at best, an intelligent guess.” Yet Defence bosses were back at the
select committee this week arguing that, at Approval to Commence stage they would “make intelligent assessments of
potential solutions and their possible costs...” Put bluntly, Defence chiefs haven’t listened to a word of the advice
from the A-G, they haven’t listened to the select committee, and they continue to ignore their own rulebook.
Just why, we hear you ask, is this so important? The answer is simple: from the Approval to Commence stage the Defence
chiefs effectively have the Cabinet on the hook. As far as the public is concerned, the project has been approved. A
cynic might well argue that Defence chiefs have turned into a fine art the practice of getting Cabinet sign-up on the
basis of a very low guestimate, then shamelessly ramping up the price on ministers that are then powerless to abort the
process. Which is why their own rulebook, the A-G and the select committee all say they need to get their initial
projections right.
As to who, precisely is at fault, there is a clue in the briefing note supplied to the Committee: “The work from a
project’s beginning until Cabinet’s Approval to Commence an acquisition is primarily the responsibility of the NZDF. The
work following the Approval to Commence is the responsibility of the Ministry.”
So while the note to the committee this week was jointly authored, it appears that the people who have the most serious
problem with numeracy skills belong to General Mateparae.
The situation cannot be allowed to continue. These are large projects, adding up to hundreds of millions, even billions
of dollars of taxpayers’ money. Ministers who are given shonky estimates will make the wrong decisions. This week’s
visit to the select committee gave the Defence chiefs fair warning. If it is not sorted out there will be consequences.
MRV Canterbury
As if to immediately underline the need for major improvements in Defence procurement, the report of the Review of the
MRV Canterbury was released today, under cover of the election date announcement. Regular mccully.co readers will be
aware that the humble Member for East Coast Bays has been predicting from the beginning that any vessel produced by such
a flawed process would have the most serious shortcomings. And so it has been found to be.
After an introductory paragraph of flannel, proclaiming that “HMNZS Canterbury will meet almost all of the requirements of the NZDF Functional Performance Specification, and is
intrinsically safe”, we get down to the appalling truth that the Government has been avoiding for months:
“HMNZS CANTERBURY’s acquisition has been constrained, however, by the initial choice of ship design; it has been managed
to get the ship into service as soon as possible, and it has been characterised by shortcomings in project management
and governance and collective wishful thinking. It is unlikely to meet all the requirements of the contract.
Our key observations are as follows:
HMNZS CANTERBURY is intrinsically safe but remedial work will be required to enable her to perform military functions;
some operating limitations will also have to be accepted. Sea keeping performance is likely to be poor in higher sea
states.
From the outset of the project, there was insufficient appreciation of the
constraints to the ship’s operations imposed by the selection of a commercial
Roll-on, Roll-off (Ro-Ro) design. This has been at the root of differences of
opinion between Tenix, the MoD and NZDF and the shortfalls in performance
being faced today.
The programme has been managed with relentless determination to deliver to
time despite evidence of likely performance shortfalls. There was, however, no
explicit consideration of the risks of doing so.
The complexity and challenges of the programme have been under-estimated
in all respects. The project team has lacked the size and range of skills to
manage a project of the complexity of HMNZS CANTERBURY.
There have been significant shortcomings in the governance of the HMNZS
CANTERBURY acquisition, exacerbated by some strained relationships
between the MoD and NZDF. Reporting of project performance has been
generally inadequate”.
According to Minister Goff, about $20 million will be required to address all of the above. Which ironically is about
the same amount of additional money that would have bought the Navy a top of the line military-specced MRV from an
established supplier.
Sir Geoffrey Palmer SC?
Amongst the screed of government appointments being hastily made in contravention of all established constitutional
convention (which says no significant appointments within three months of an election), we hear that shortly there will
appear a list of the first recipients of the new title of Senior Counsel. Again, without broad-based support, the Clark
Government abolished the role of Queen’s Counsel and created the new position of Senior Counsel.
What better way to reinforce the Clark Government’s contempt for the convention, the Parliament, and the public than to
release the first list of Senior Counsel inside the banned three month period. Well, the only better way would be to
include on that list someone who, in the spirit of the most blatant partisanship has already been appointed to
everything else already. Someone whose appointment would send the clearest two-fingered salute to their political
opponents and a large majority of New Zealanders at the same time. Arise Sir Geoffrey Palmer SC.
ENDS