Why Australia’s defence procurement is lacking military precision

No magic bullet for Defence’s procurement problem AFP/Paul Crock.

There is a certain security in the way Australia handles its national security – you can always expect future failures. It’s never too long before there’s a problem, drawing public attention and justifying further inquiries.

Over recent months, the Australian Defence Organisation has gained a great deal of this kind of attention, culminating in a report by the government auditor which revealed serious problems in the way that defence buys Navy ships.

Problems providing equipment to the Australian Defence Force (ADF) have been a recurrent and significant issue in the management of national defence. It’s not that these problems go unnoticed – attempts to review significant weaknesses and more tightly manage the process go back decades. And considerable effort is now being devoted to improve the management of defence acquisition, with the Minister for Defence, Stephen Smith announcing further reforms last week.

But despite these efforts, no one has been able to find a formula to prevent blowouts or inefficiencies in all but the most simple or particularly fortunate military equipment program. So why is this the case?

It’s complicated

Providing equipment to the ADF is a complicated procedure. Currently, the major problem is that defence cannot spend the money allocated to it because technical problems are significantly delaying the projected schedules of major programs.

Issues to do with the complex technical nature of such equipment are well known. And just as complex, is the environment of the defence organisation, the nature of the industry that provide the equipment and the political pressures brought against defence.

These bring into play forces that are often incompatible, not complementary, and of sufficient strength to suggest that the problems of defence procurement will never be solved without a fundamental re-think on how we equip the ADF.

It’s all about risk

Fundamentally, any engineering or construction project is about managing risk, whether it be in Defence or in private companies. Even the smallest misjudgement can be devastating, as Leighton Holdings recently discovered when having to write down its profit projections.

Defence project managers are as aware as their commercial counterparts of the requirements of risk management but defence equipment is built by commercial entities that must put them into effect.

Unfortunately, even when these commercial entities have experience and a good reputation within the defence industry, risk will always play a part. With the now infamous Super Sea Sprite naval helicopter project, the Royal Australian Navy (RAN) wanted to use a flight crew of two instead of the three.

This seemingly small change required the development of a whole new avionics system, undertaken by the well-regarded Litton Systems. But despite its reputation and ability, Litton was unable to deliver and was forced out of the defence systems industry, leaving a project that eventually had to be scrapped.

It is also difficult to quantify risk, particularly as risk does not always increase with the complexity of a project. The automated ship control system for the Collins class submarines was a vital, innovative and highly complex system that was successfully transferred from its Swedish designer, Saab and developed for the Australian vessel.

In contrast, the design and development of a refuelling boom for the new Royal Australian Air Force (RAAF) tanker transport aircraft would seem less complicated. But in fact, problems with the boom have delayed the project by three years and sometimes proved dangerous to aircraft involved in trials.

It takes time and times change

Because defence acquisition programs are so complicated they also take a long time. Defence’s new submarine project, still in its early stages after four years, will continue to deliver vessels into the 2040s. So much will change over this time that the later vessels in the 12 submarine program could well be obsolete.

A theme in the recent Auditor General’s assessment of the purchase of naval equipment was the need to ensure the Navy became a management partner in the acquisition process so that bringing a new ship into service did not become a “voyage of discovery”.

In other words, having to determine after a period of 10 years or more whether the equipment would meet the needs of current circumstances rather than those envisaged a decade earlier when it was originally designed.

This is not a situation confined to the Navy but to most very long-term projects. Recently, Major General John Caligari, in charge of the Army’s modernisation programs, criticised procurement for failing to modify equipment so that it met the needs of soldiers when conditions changed in areas such as Afghanistan. He also observed that attempts to rewrite tender conditions to suit fighting conditions, were regarded as “interference” that could “pervert the outcome” of procurement processes.

General Caligari is right to want appropriate equipment for his troops. But there is a strong and justifiable history behind those whose approach is causing his frustration. In earlier projects, the cause of cost increases often lay in successive changes to equipment specifications. These increased complexity, delayed schedules and produced, sometimes spectacularly, cost overruns.

Since the 1980s, the objective of defence acquisition processes has been to produce a firm understanding of the scope of the project before commencing construction and, based on this, to agree some form of cost controlled contract with the producer. It will be a difficult task to introduce the flexibility needed by those on the ground without reawakening the spectre of past disasters.

There’s politics too

Even if you overcome all of these issues of shifting needs, risks and the complexity of long-term projects, reaching a firm contractual agreement with your commercial supplier may not mean you are successful. Commercial entities run to their own demands and these may not continue to coincide with those of defence or the government.

The combat system of the Collins submarines became a notorious failure and had to be replaced. There were several reasons for this but chief among them was the early departure of the company with the most expertise in the field from the consortium contracted to develop the system.

The capacity of the Australian Submarine Corporation (ASC) was severely reduced when one of the constituent companies was asset stripped after a hostile takeover. Eventually, when the submarine designer and consortium partner, Kokkums, was itself taken over by a rival, the government was forced to acquire ASC.

A long and costly legal battle for intellectual property rights followed and greatly complicated relationships at a time when every effort was needed to overcome the problems then affecting the submarines. Ultimately, it is only the Commonwealth that can be guaranteed to have retained its interest in the success of a project.

No magic bullets: why off-the-shelf isn’t the answer.

For all these reasons, the defence equipment horror story is most likely one that will continue to be heard. While this doesn’t mean governments should stop striving to improve defence acquisition, they should realise there’s no magic bullet.

There are expectations that selecting equipment off-the-shelf will overcome many difficulties but it is not that simple. Experience with some projects has been promising, with the acquisition of Super Hornet interim strike fighters and C-17 freighter aircraft having been trouble-free. Yet the progress of the most important military off-the-shelf project for the ADF, the RAAF’s next fighter aircraft (the F-35 Joint Strike Fighter) has been amongst the most trouble plagued of all.

In this instance, off-the-shelf doesn’t really mean off-the-shelf, it instead means Australia will buy into a large-scale American production. Although the US shoulders the project risk in developing the F-35, the aircraft incorporates highly advanced technology and none of its purchasers can protect themselves against cost increases, time delays and performance shortfalls that arise from problems with this technology.

This level of risk comes with any equipment intended to be central to Australia’s future defence capabilities, especially those for combat. Off-the-shelf to some may mean safe to buy because of widespread usage, but in fact the ADF is likely to consider such equipment to be inadequate for any crucial combat role.

Acquiring adequate equipment is likely to continue to have risk factors high enough to invite trouble. This means that government cannot do better than ensure access to the means to address any problem with defence equipment when it arises. This involves scientific backup from the Defence Science and Technology Organisation, experience in the Defence Materiel Organisation, expertise and training in the services, access to the technological resources of allies and the identification of competent commercial alternatives.

We Need You: the right skills for the job.

All of these involve people and their training and employment. This is as much of a troubled area for defence today as equipment acquisition. For decades, Defence has been subject to selective deskilling as efficiency programs have sought to reduce the costs of running defence. Many of the activities that developed the skills needed to rectify problems in equipment performance have been transferred to the private sector, meaning long-held knowledge is often lost.

The Audit report records that in no area does the RAN have more than 70 percent of the marine engineers it needs for current requirements. This is not enough for normal operations, let alone if one of the major projects goes awry.

Yet the basis of the government’s current reforms is more cuts – $20 billion of savings over 10 years. Improving administrative efficiency is a valid objective but could involve false economies if it results in the loss of further personnel needed to rescue future equipment programs gone wrong.

Even though, the government is reducing allocations to the equipment program to help reduce the Budget deficit because defence has been unable to spend the money allocated for equipment.

In an environment subject to so many countervailing pressures, the capacity to deliver successful equipment projects has to be sustained by some very careful thinking about both the projects themselves and the environment needed to sustain their development and entry to service.