The defence budget is out of control. So what’s new?

It’s D-day again for defence — the ritual recoil in horror as a new government pulls back the veil on spending. So that’s D as in déjà vu. 

This time the defence minister is Richard Marles, who has found that defence projects have blown out by at least $6.5bn and are running a cumulative 97 years behind schedule.

Timing is everything, of course. Marles’ announcement of massive cost overruns comes in the run-up to the budget. The defence minister is set to introduce a system designed to contain blowouts in the future. This would involve monthly reports to ministers and “early warning” rules that would act as red flags for closer scrutiny.

Does it feel like we’ve been here before?

Well, yes. So much so that the Australian National Audit Office (ANAO) — which routinely finds time and budget blowouts on major defence projects — has been moved to conduct its own review of defence spending reviews. That’s how intractable the problem has become. Talk about its own industry.

The ANAO found that “concerns over defence’s ability to deliver capabilities on time and on budget to specified technical requirements” had caused “successive governments and ministers to initiate reviews of the organisation’s management of capability development”.

“One of the most substantial reforms arising from these reviews has been two-pass government approval for major capability development projects, originally introduced as a result of the Defence Governance, Acquisition and Support Review in 2000. Two-pass approval was intended to give government greater control over capability development.

“The Defence Procurement Review, chaired by Mr Malcolm Kinnaird AO (the ‘Kinnaird Review’), followed in 2003. This review recommended strengthening the two-pass process and led to the creation of the Capability Development Group (CDG) in defence to give focus to and improve capability definition and assessment,” the ANAO reported.

“Later reviews, such as the Defence Procurement and Sustainment Review, chaired by Mr David Mortimer AO (the ‘Mortimer Review’) and completed in 2008, extended the thinking of Kinnaird and sought to strengthen the framework established after 2003. This framework — the two-pass system — remains in place and forms the backbone of capability development and materiel acquisition within defence.”

So there it is. Reviews in 2000, 2003 and 2008. 

The ANAO reported all this in 2013 and added a prophetic conclusion.

“Most of the reviews acknowledged that defence can demonstrate incremental improvements in some areas of capability development but finds it harder to demonstrate lasting change.”

Why no change?

Defence officials argue that currency fluctuations and price indexation account for a proportion of cost blowouts. But that’s not the full story. Earlier defence reviews found that commissioning a bespoke design, as opposed to an off-the-shelf design — a MOTS (military off-the-shelf design), to use defence jargon — was safer and would cut down on budget and time blowouts.

Last year the ANAO reported that, from 2005, defence did indeed begin to increase the proportion of MOTS acquisitions, which it said were generally “lower risk” projects and therefore more likely to meet schedule timelines.

From 2014, though, the proportion started to slip, with a continuing trend, where “developmental projects had become more ‘Australianised'”. The ANAO noted this was an indicator of the difficulty associated with the procurement process.

In an interview before he left Parliament this year, former South Australian senator Rex Patrick cited government commissioning of “unique capability” design as a key problem. Patrick, who spent the bulk of his pre-parliamentary career in and around defence, pointed to the Hunter-class future frigate project as a case in point.

The design for the Hunter-class frigates — a fleet of nine anti-submarine warfare frigates — was modified to “meet Australia’s requirements”, according to the builder, BAE Systems Australia. The design is “based on” BAE Systems’ Type 26 Global Combat Ship for the Royal Navy, according to BAE.

“The problem here in Australia is we have [defence force heads] making recommendations to cabinet ministers who have no project management experience,” Patrick said. “They don’t understand project risk. So we end up with something like a bespoke design being presented to a cabinet by people who wear flashy uniforms, lots of gold on their epaulettes and off they take us down a pathway which is hugely risky, hugely costly and generally ends in tears,” Patrick said.

Add to this Australia’s fleet of eight nuclear-powered submarines, which are to be built under the AUKUS partnership, at a cost already estimated by the Australian Strategic Policy Institute to be close to $180 billion over the decades to come.