‘Room for improvement’ across defence spending: Senator Reynolds CSC

Speaking to the Defence Connect Podcast, Senator Reynolds, a former Australian Army brigadier, said the 117 years since Australia's Federation has failed to deliver the certainty and value for money across Defence projects.

"I'd make the observation that I think from Federation, the Parliament hasn't been engaged enough in terms of the defence strategy for Australia in terms of its long-term implementation and oversight," Senator Reynolds said.

Despite previous governments generally achieving bipartisan support for Defence deployments, long-term programs, budget funding and the implementation of Defence capabilities has struggled for years. Senator Reynolds is currently chairing an inquiry into the risks and benefits of a long-term bipartisan agreement on funding and planning for Defence projects that is seeking to change this culture.

The West Australian senator, who served in the ADF for 29 years, said choosing the best and most affordable capability will be crucial as Defence embarks on $200 billion worth of spending on platforms, sustainment and estate.

"I also chair the joint standing committee on foreign affairs, defence and trade, the defence subcommittee, and that is more of a longitudinal committee, so we're looking at the long-term reform programs, capability implementation, and we've got very engaged and very knowledgeable committee members from both the House and the Senate," she explained.

"It's in that committee where we're really looking at the longer-term implications, that we think we've got a greater role over numerous governments to make sure that Australian money is not only being well spent but we're getting the best possible capability for what we can afford. And there's clearly room for improvement."

So far this committee has heard that the once maligned Collins Class project was the victim of political games, with Liberal senator for South Australia David Fawcett, a former Lieutenant Colonel in the ADF, admitting his party used tactics to tarnish the project's reputation and that of then-opposition leader Kim Beazley, jeopardising the maintenance support of the navy platform.

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"I say this as a proud member of the Coalition," Senator Fawcett said at the inquiry, "the reason the Collins Class had so many issues was a lack of maintenance support, and that was partly because the Coalition saw it as a really good tool to beat Kim Beazley, as the leader of the opposition, around with.

"Lack of support led to huge cost and lost opportunity. Yes, it has recovered now, thanks to the Coles review. And we can point to either side of the political divide, but I make that point deliberately so that people don't think I'm just beating up on the opposition. There are decisions that are made for political reasons."

Reynolds and Fawcett are not the only former ADF personnel in the Senate calling for reform across Defence spending. Earlier this year, Centre Alliance senator Rex Patrick, a former submariner and defence industry project manager, made explosive claims that Defence is intentionally cooking the books to hide billion-dollar project cost blowouts, calling for the introduction of a new project reporting system.

In a speech to the Senate in February, Senator Patrick said massive overspend on projects, to the tune of $21.5 billion, is being hidden behind the department's phrase 'approved budget', and its process of first and second pass approval. 

First pass approval is when the department is considering options for a particular capability and then fully costs these options. The next stage in the process, known as second pass approval, is when options are presented to government and the winning solution is decided on, along with the final total cost for the complete capability, and the budget is formally approved.

The $21.5 billion figure was listed under 'Total budget variation from second pass approval' in the ANAO's Major Projects Report, which examined 27 projects.

Senator Patrick said the trouble with budgets comes after the stage when projects slip or suffer currency variation or "they realise they forgot to include something" and Defence seek a change in the 'approved budget'.

"Defence, in a tactic that appears to have tacit approval from the ANAO, then reports project status against the new ‘approved budget’, not against the total cost the government committed to at second pass," Senator Patrick said.

The MRH-90 Taipan Multi Role Helicopter project, referred to in the ANAO report, is a prime example of this, according to the senator.

The 60-month-late project's budget at second pass approval in 2004 was $953 million. $3 billion has been spent on the helicopters so far and, according to Defence, they are still $705 million under their approved budget of $3.7 billion.

"Along the way they've had a number of ‘scope changes’, including a line item to ‘upgrade’ the current Blackhawk helicopters, which they had to do because the Multi-Role Helicopter capability is so late getting into service," Senator Patrick said.

"The entire defence project budget is like this ... The ANAO, thankfully, provides one number in its report: the total budget variation since second pass approval. In 2011-12 it was $5.9 billion. In the years that followed it jumped to $6.5 billion, then to $16.8 billion and then to $18.5 billion. This year, across the 27 major defence acquisitions in the ANAO report, it's the number I just talked about: $21.5 billion. That's a $21.5 billion blowout compared to what the government approved when it committed to the projects. Just lock that figure in the mind: $21.5 billion. But according to Defence there is no problem."

Senator Patrick is calling on Defence to change its reporting process to where the financial status is reported against its original budgets.

"This has to change. We must report the project financial status against the original budget. It’s a matter I will be taking up with the auditor-general and Defence at estimates," he said.

"Once we get the reporting right, we can move to addressing the blowouts themselves."

A joint committee of public accounts and audit report, led by Liberal senator Dean Smith, also recommended that Defence becomes more transparent on its financial reporting on sustainment. The committee found that while the financial reporting on Defence sustainment is mostly "adequate", there were overarching problems including "variations in descriptive information, including no explanation of variations in full-year outcomes, the use of different terminology across documents, and missing links between what was planned and what was actually achieved".