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Submarine report: department shopping list needs to be contestable

Advice from the Department of Defence must be subject to more scrutiny from other agencies, according to the privately commissioned review of Australia’s Future Submarine Program.

Part of the problem is that it enjoys a “privileged position” in the public service and its advice about military needs is too readily accepted by government without sufficient scrutiny from financial gatekeepers, according to the report.

Beyond the headline argument — buying French subs that are still on the drawing board “is extravagantly expensive, highly risky and, in an era of heightened tensions in the Asia Pacific, compromises the future defence of Australia” — lies a sharp critique of the policy process that led to this and other major military investments.

 “It seems very clear that Defence could benefit by working closely with other specialist government departments, particularly Treasury and Finance.”

The report by Insight Economics, a small firm heavy with Australian Public Service experience, argues that Treasury, the Department of Finance and other relevant agencies should play a bigger role in testing out Defence acquisition proposals.

It says the department has often shown “an unwillingness to make trade-offs in initial capability requirements that are over-ambitious” and decided the ADF needs custom-made hardware, which has left it worse off in the end when risky projects didn’t go to plan:

“By making the perfect the enemy of the good, Defence can end up with an outcome that is not only less than good, but is delivered late at excessive cost.”

The report partly attributes this to the high degree of budgetary freedom afforded to the department and its minister. “It has a single line budget allocation,” the authors explain. “Within that overall budget, the Minister can choose to allocate funding to programmes without any significant scrutiny from other government agencies.”

They suggest this is an obvious failing of the current process: “It seems very clear that Defence could benefit by working closely with other specialist government departments, particularly Treasury and Finance.”

The hired economists acknowledge the Department of Defence is not short on technical and strategic expertise, and that other countries face similar issues. But they think it needs help with assessing the risks of big acquisitions and making pragmatic choices, and they aren’t even sure the required expertise can be found within the APS.

“It has a poor record in assessing the risks involved in various programmes and the probability that their costs and schedules will overshoot significantly, or even that the technological risks are too great and that the required capability may never be delivered,” the report states.

“It may be that these skills are lacking in government more generally and that in order to appraise these massive investments efficiently and effectively, government may well need to recruit significant expertise from the private sector.”

The authors contend the department needs to get a lot better at using “basic investment appraisal techniques” when looking over various options to deliver the desired military capabilities. They aren’t sure if it even does this at all currently.

“Any examination of the evidence given by Defence to various inquiries into procurement suggests that the disciplines of financial economics are not consistently applied to major investment projects within the department,” the authors note.

“By making the perfect the enemy of the good, Defence can end up with an outcome that is not only less than good, but is delivered late at excessive cost.”

The report is also highly critical of the “competitive evaluation process” for the submarine decision. The authors note “there was very little Cabinet consideration of this enormous investment” and that the executive arm of government actually only picked a “design partner” — meaning the pros and cons of the Shortfin Barracuda subs themselves were subject to unusually limited scrutiny.

Only four working days elapsed between the Minister for Defence recommending manufacturer DCNS to the National Security Committee of Cabinet and the Prime Minister announcing the decision.

The reviewers take the view that other agencies — particularly “coordinating departments” — did not have enough time to evaluate the Defence proposal and challenge it, if necessary, in advice their own ministers could take to Cabinet.

“In short, it is not at all clear that Ministers had anywhere near enough information, or access to an informed assessment from officials, to be able to interrogate the Minister for Defence’s proposal in any great depth,” they write, after setting out two pointed questions:

  • “When was a Cabinet submission circulated for coordination comments, if at all?”
  • “Did any department, including the coordinating departments, have any genuine opportunity to comment in depth on Defence’s proposal?”

The authors of the hard-hitting report drew on a wide range of high-level sources including senior Defence officials and independent experts with impeccable CVs like strategic studies professor Hugh White, who launched it at the National Press Club yesterday alongside Michael Keating, one of the firm’s four directors and a former head of the APS.

“Since we acknowledge our limited expertise in the technological attributes of contemporary submarines, we have not attempted to work on this project in an economists’ vacuum,” the authors write. They consulted various experts including former and current senior officials at the Department of Defence, such as the head of the future submarine project, Rear Admiral Greg Sammut.

Top image downloaded from invest.sa.gov.au

Author Bio

Stephen Easton

Stephen Easton is a journalist at The Mandarin based in Canberra. He's previously reported for Canberra CityNews and worked on industry titles for The Intermedia Group.