Defence + Industry Conference 2002 - Robert Hill

Senator the Hon. Robert Hill

Minister for Defence, Australia

Keynote Address

Defence + Industry Conference 2002

National Convention Centre, Canberra

8:45am, Monday 24 June 2002

Introduction

Welcome to this year’s Defence and Industry Conference. It is good to see such a large turnout.

Strategic environment - overview

A great deal has changed in the Defence community since the last Conference - particularly as a result of the horrific attacks of last September, and the responses which that are still unfolding.

These events have provided a sharp focus for a changing strategic landscape. September 11 revealed the contours of this evolving post-Cold War strategic environment. This environment comprises a complex mixture of traditional threats with others of a non-conventional nature.

The United States has responded to the direct attack upon it with a new sense of resolve and purpose that we have not seen since the Cold War. While the US is capable and willing to respond to these threats on its own, the broad participation in the war on terrorism, clearly demonstrates the view that a shared threat requires a shared response. The definition of international security has significantly broadened.

Australia agrees in principle with US determination to respond more directly and effectively to these challenges. As you are all aware, we have and continue to make a significant contribution to the war on terror. Should there be further calls on us, we would be prepared to consider such calls in the light of the circumstances at the time and within our capacity to do so.

In framing our responses to this changing strategic environment, we have been well served by the White Paper and Defence Capability Plan.

The White Paper identified a range of emerging trends in our security environment, while the DCP set out the capabilities required by the ADF to tackle such challenges.

Through the White Paper, we recognised that Australia faces a range of security challenges. The list is a long one, and includes non-military threats such as:

- cyber attack;

- organised crime and terrorism;

- illegal immigration;

- the drug trade, illegal fishing, piracy and quarantine infringements.

The White paper therefore noted that we expected the ADF to undertake a range of operations other than conventional war both in our own region and beyond. Preparing the ADF for such operations would take a more prominent place in our defence planning than it had in the past.

The range of tasks undertaken by the ADF in recent times demonstrates that these were realistic expectations. These tasks, apart from fighting the war against terror through deployments in Afghanistan and its surrounds, have included:

- border protection operations against the operation of people smugglers;

- fisheries patrols deep into the sub Antarctic;

- peacekeeping in East Timor; and

- the continuing deployment in Bougainville.

Significantly, the ADF has been able to respond both flexibly, quickly and effectively to the emerging security environment. The force has again demonstrated itself to be among the most capable in the world.

The emerging trends and challenges identified in the White Paper and demonstrated so tragically on 11 September are likely to continue.

They have been shown to be more substantial than originally thought. Indeed, some analysts see these new challenges as the primary focus of security for now and the foreseeable future.

Strategic environment - relevance to industry

You might ask, how does all this relate to industry?

Clearly, the strategic environment in which the ADF operates, will define the kind of capabilities we need.

The ADF needs more than ever to be a professional, well equipped force prepared for war fighting roles, available for operations at short notice, and able to be sustained on deployments for extended periods.

It also needs to be flexible so that it can deal with operations other than war and contribute to coalitions. The capability development principles identified in the White Paper - including the importance of interoperability with allies and coalition partners - is more important than ever. The ADF needs to be a capabilities-based, rather than a threat-based, in order to be equipped to meet the unexpected.

But whatever the strategic environment, it is the Defence and industry partnership which actually delivers the necessary capabilities and sustains them. Industry is therefore a fundamental component of our national security.

The responsibility for addressing the security environment is, in effect, shared by the Government, the Defence organisation and industry.

Budget and Strategic Review

For its part, the Government has responded to the challenge by committing $14.3 billion to Defence in the Budget.

This is an increase of over $700 million.

The Government has delivered a Defence budget which will allow us to fund the tempo of ADF operations while continuing to modernise and expand its equipment.

Significantly, the budget maintains the Government’s White Paper commitment of an average annual real growth of 3 percent over the next ten years.

This year will also see the commencement of a number of major new projects, subject to final approval, including:

- Air to Air Refuelling - with a requirement for up to five aircraft at an estimated cost of between $2 and $2.5 billion;

- the Direct Fire Weapon - a man-portable guided weapon for the army; and

- the Battlespace Communications System - to provide modern deployable communications to support ADF land operations.

Industry will benefit from planned Defence spending of $350 million on new major capital projects and new phases of existing projects in 2002-2003.

Overall, the total value of acquisition and support projects that are planned to start in 2002-2003 is about $6.4 billion.

Defence Capability Plan - Supplement

At last year’s conference, the Government also undertook to provide industry with ongoing information and guidance on Defence’s long-term capability plans.

Consistent with that undertaking, we have prepared a supplement to the Defence Capability Plan.

The supplement records recent decisions by the Government on the DCP.

Along with updates to schedules and budgets, the supplement includes three important new projects:

- the establishment of a second Counter Terrorist Tactical Assault Group, to be located on the East Coast;

- the Incident Response Regiment, to strengthen our preparedness and ability to manage the consequences of chemical, biological, radiological, nuclear and explosive incidents; and

- the High Frequency Surface Wave Radar Project, to test its operational value as part of our wider surveillance system.

The DCP and Supplement are the most authoritative and up-to-date sources of information on future projects currently available.

Feedback received from industry about the current DCP indicated that more information on the factors driving industry involvement would be useful.

Consistent with these requests, the supplement provides a greater level of analysis of investment proposals, including identification of sector spending patterns and an outline of timeframes over which the capability is required.

Strategic review

The first annual review of Australia’s strategic security environment since the White Paper is being conducted. In particular, this will include the recent upsurge in terrorist activity.

While the review is likely to lead to some adjustment to the Capability Plan, there is no reason to expect major change. This is because the trend towards asymmetric rather than conventional conflict had been anticipated.

The Government will announce the outcomes of the strategic review by the end of the year and any complementary adjustments to the Capability Plan. A fully revised, unclassified DCP will be released as soon as possible after that process.

Shared responsibilities

We believe that the Government is doing its part in the Defence-industry relationship.

The budget is funding the modernisation of capability, notwithstanding the cost of ADF deployments. We have been able to improve predictability both in the short and longer term.

However, it needs to be said that the broader community expects us, collectively, to deliver value for money. It also expects us to deliver capability on time.

This is a shared challenge for Defence and industry.

Defence has admitted the need for reform of its acquisition processes, and has been implementing a range of reforms.

These include the creation of the Defence Materiel Organisation, new contracting procedures, streamlined source selection and early industry involvement in capability development. We will continue to strive to do even better.

However, Defence is only one part of the equation.

Industry also shares the responsibility to meet the trinity of budget, schedule and performance.

Contractors freely sign up to do business with Defence. They must be prepared to meet their commitments on capability within price and on time.

Programs like Company Scorecards will, over time, identify which contractors are continually failing to deliver on their promises and increasingly, the Government will seek to work with those contractors who have a record of good project performance when letting future work.

Industry plans

The other key area of reform is implementation of the new strategic alliance approach to Defence industry policy.

As you know, late last year the Government agreed to implement an approach aimed at sustaining those key industry capabilities that are strategically important to delivering and sustaining ADF capability.

The Government is determined to deliver on the commitments it has made in this area.

A number of key defence industry sectors have been identified, for which the new strategic approach might be applicable. These are:

- Naval Shipbuilding and Repair;

- Electronic Systems;

- Aerospace; and

- Land and Weapons Systems.

Work is well under way in developing “Sector Plans’ for these areas.

The sector plans are being developed by the Department in co-operation with government and industry stakeholders.

In particular, four sector-specific working groups, with significant industry representation, have been established under the auspices of a sub-committee of the Defence and Industry Advisory Council.

One clear message from the working groups is that each sector is diverse, complex and to a large extent unique. What is appropriate in one sector will not necessarily translate to another.

Naval shipbuilding and repair

In the case of naval shipbuilding and repair, the sector plan will examine the Navy’s current and future requirements, Australia’s current industrial capabilities and capacity, and Defence’s long-term requirements.

Based on this information, the plan will identify those industry capabilities and skills required to meet Defence’s requirements.

It will also describe a contractual and corporate governance framework for a consolidated industry structure and include a detailed implementation framework.

Aerospace

In the aerospace sector, we are most likely to be dealing with foreign primes for acquisition. However, we also have a range of highly skilled Australian SMEs with important niche capabilities.

In these circumstances, major change in the industry base can be leveraged through the management of Defence acquisition. For example, Defence would be seeking to leverage maximum investment in Australian industry and to provide in-country support. We would also be looking to participate in production as part of the global supply chain - as in the case of AIR87 (the Armed Reconnaissance Helicopter).

Electronics

Electronics is the most diverse and complex of the sectors. Defence deals predominantly with second and third tier industry and equipment suppliers, as part of acquisition and support contracts. The strategies available in other sectors - such as consolidating demand and alliancing with primes - are not necessarily applicable.

Recognising the diversity of this sector, the working group has focussed in the first instance on the high risk areas of software development and systems integration.

However, progress has been slower than I would like, and the Department is reviewing its approach to this body of work.

Land and weapons

The Land and Weapons sectors has had a lower priority, because the supply and demand picture suggests that overarching strategic arrangements may not be as necessary.

However, there is a need for strategic thinking on a number of key projects, most notably Land 125 - Wundurra (Soldier Combat System) - which offers the prospect of participation in global supply chains.

The way forward for industry plans

In summary, the best developed of the plans so far is that for naval shipbuilding and repair - not least because an industry consensus has emerged on the nature of the problem and the broad framework for a solution.

However, it is important to recognise that the sector plans are not intended to specify which Defence companies will be engaged in the future, or where specific activities should be undertaken.

They are about clearly specifying long-term Defence requirements and how we believe those requirements can best be delivered.

The best way forward, in some cases, may be to release our requirements and invite industry to respond through a structured and transparent process.

A process of this sort would have the significant advantage of making clear our requirements while leaving the commercial decisions to industry.

The timing of such implementation activity will necessarily be staggered.

The intention was not to develop the sector plans in parallel. The priorities are the naval shipbuilding and repair sector and key aerospace projects, where timing is more critical in terms of rolling-out the Defence Capability Plan, and the potential pay-off from a new approach.

The naval shipbuilding and repair sector plan will be completed in September this year when it will be considered by the Government. This will be necessary as the high-end naval shipbuilding strategic partner should be in place before we proceed to seek design advice on the new armed warfare destroyers. We have funds for the design stage and therefore need to make progress.

The other sector plans are scheduled for completion in November.

Conclusion

In conclusion, the Government is committed to supporting a Defence Force that meets our current and future security needs.

That commitment is manifest through the Budget, the introduction of an annual strategic review process, and the release of the DCP supplement.

We are also committed to an effective Defence-industry partnership, which recognises the obligations on each of its members.

Australia faces a range of security challenges with finite resources. To face these challenges successfully requires Government, Defence and industry to each play their part. Industry has an essential role in delivering capability as specified, within budget and on schedule.

We are also committed to longer-term reform through our industry policy framework, to ensure that we can deliver and sustain strategic capability well into the future. Those reforms will have the further benefit of strengthening the Defence industry base.

In every way, we are partners in this.

On that note, I am pleased to declare the conference open.

ENDS

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