Defence Capability Assurance and Oversight — Solving Defence Procurement Problems Bills

The Defence Capability Assurance and Oversight Bill 2023 was introduced to the Senate earlier this year and was the subject of an inquiry by the Senate Foreign Affairs, Defence and Trade Committee, eliciting witnesses from currently serving officers within Defence, from academia and from industry, who put forward their views on the current state of Defence’s ability to consistently conduct the test and evaluation that is required to underpin risk assessments around the acquisition, upgrade or introduction into service of the equipment that Australian forces need.

Overwhelmingly, the witnesses supported the introduction and the passage of this bill and the creation of the Defence Capability Assurance Agency.

For those not familiar with the bill, the supplementary explanatory memorandum refreshes us on the outline:

This Bill creates an independent statutory body responsible for assessing the complex risks associated with materiel procurement and sustainment, including but not limited to technical risks pertaining to performance and certification.

That is during the acquisition phase but it also spans right from the start of that phase, ensuring there are robust and accurate articulations of the requirements that a capability needs, through to the introduction into service and the integration with the force in being, so the accountable officers within Defence know they have timely and accurate information upon which to make their decisions and recommendations to government.

In fact, the objective of the bill, in the supplementary explanatory memorandum, is to:

a. expedite the procurement of defence capability by providing capability managers and the Australian Government a high degree of confidence in the veracity and completeness of the information they use to make timely, risk informed decisions,

b. provide assurance to capability managers, the Australian Government and the Parliament that weapons systems will be available for use when required and effective against extant and emerging threats, and

c. make existing defence procurement processes and requirements more effective and efficient by ensuring:

   i. that risk assessment throughout the capability life cycle is consistently conducted by people who have appropriate qualifications and relevant experience,

   ii. the assessment and reporting of risk is independent, free from overt or unintended bias or influence,

   iii. identified risk is transparent to decision makers, and

   iv. proposed risk mitigations are effective.

That is, where those mitigations are proposed by Defence.

It may surprise people that this bill has had to come forward at all, because the assumption would be there that, if you looked at the rather copious amounts of defence policy in this area, those are exactly the things Defence does.

I have to say: there are many people within the organisation who work diligently and who implement that policy, and many projects come to fruition to force integration successfully. But it is not consistent and there have been enough failures over time, many of which have been the subject of specific ANAO reports as well as Senate inquiries, that have highlighted that this assessment of risk—the articulation of the requirements that are required and the transparent reporting of risk to decision-makers—has not been consistent and has led to failures that affect both the mission capability of the things Australia is buying and the safety of the men and women who operate that equipment. That is not something that is acceptable.

In fact, the ANAO did two specific reports on Defence’s test and evaluation capability, in 2002 and 2015. The Senate foreign affairs, defence and trade committee made specific recommendations in 2012.

Yet, in this most recent review by the Senate foreign affairs, defence and trade committee, we found that many of the failures that were extant over 20 years ago, when the Seasprite debacle occurred, still exist and impact even on very recent projects today.

The overwhelming view of witnesses during that inquiry was that reform is needed, and Defence themselves agreed that reform is needed. They agreed that the principles behind this bill—of independence, of ensuring competent staff, of ensuring transparent reporting to all levels of decision-making, and of accountability to make sure that the policy which Defence already has in place is consistently applied—are worth supporting.

We come to the position, though, where, having established all of that, Defence still said, ‘We can reform internally.’

But a range of witnesses—in fact, everyone bar Defence—highlighted that the history over the last 20 years is that internal reform has been neither effective nor sustainable over time and, with posting cycles and changing priorities, we see that it has lapsed back into the same patterns.

In the context of the 2020 Defence strategic update and the Defence strategic review of 2023, which highlighted the deteriorating strategic circumstances that Australia faces, there is a need to substantially expand both the scope and complexity of Australia’s military capability in a compressed time frame.

So if ever there were a time when the men and women who operate this equipment needed an answer to the question, ‘Will it achieve the mission and will it be safe to operate?’ and the government needed to know, ‘Is there a product on the market that will meet this requirement and, if not, what are the risks of modifying an existing product or developing a new one, will it have an impact on schedule, can we achieve the capability and can we manage the costs that may come with that? ‘ now is the time.

We need that information for the war fighter, the procurement agency, the capability managers—the chiefs of Army, Navy, Air Force and the cyber and space domains—the Australian government, the National Security Committee of Cabinet, this parliament as representatives of the Australian people and the taxpayer to have confidence that governments of either persuasion are getting appropriate and accurate advice from the department.

That is why the witnesses all bar Defence said, ‘Yes, we need an independent agency,’ or, ‘We need independence.’ They support the creation of the DCAA.

Defence had four key objections, which, during the course of the inquiry, were shown to be a misreading of the bill.

One was that they were concerned that the bill didn’t actually create an agency that covered the full scope of test and evaluation. But, as was pointed out, the agency specifically looks to cover the entire capability life cycle, which goes from the conception of a capability and the defining of requirements that are effective and testable, which means that whatever we buy will actually achieve the mission and do so safely, through to assessment of intended solutions, the introduction of the service and the integration with the force.

Their second objection was that perhaps it would cause a duplication of effort.

But, as pointed out by other witnesses at the inquiry, the whole intent of this bill is to streamline efforts, to coordinate existing resources and to add new resources so that assessment of risk is timely and done by competent people, which will actually expedite procurement. There were a number of cases cited by witnesses, some in camera and some in public.

One example that was publicly cited was where concerns about schedules led to Defence saying, ‘We won’t do the kind of test and evaluation that is being proposed.’ Lo and behold, rather than being delivered on time, that project blew out some seven years and was several hundred per cent over the budget.

There are many of those sorts of examples that exist.

The third concern was that it might somehow diminish what they called the accountable officers’ obligation to be able to assure service chiefs and the government around the capabilities that have been procured and offered to government as military response options. But their own policy and their own evidence to the committee identified that test and evaluation is actually the key method by which objective, unbiased, accurate risk is communicated to those same accountable officers around whether or not a mission system can achieve the objectives that are required for it and whether it will be safe.

Their own policy and their own evidence indicates that an organisation which provides more timely, more accurate and more reliable assessments of risk will actually facilitate these officers conducting their roles.

Their fourth concern—and this is dealt with in one of the amendments covered in the supplementary explanatory memorandum—was that the proposal in the bill for the Defence Capability Assurance Agency to have a regulatory function and, to ensure continuity and depth of expertise, a technical mastery area supplied by industry created the possibility that whichever company won that contract might somehow develop a monopoly by setting standards that were inappropriate or that limited other players.

This concern had also been expressed by some from the industry sector.

Discussion during the inquiry and the report of the inquiry highlighted that the explanatory memorandum and the bill should be amended to clarify that the Defence Capability Assurance Agency, as a Commonwealth entity, would be responsible for issuing subsequent contracts for people to deliver services, and that there would be an obligation on the Defence Capability Assurance Agency to make sure the standards set by the regulator met global best practice standards and were comparable with peer organisations, such as the Director Operational Test and Evaluation in the United States, such that they truly represented best practice and didn’t advantage or disadvantage any player in the Australian market.

This means that the range of companies, including a number of small and medium-sized companies in Australia who provide such services, will continue to have a role—in fact, they will have a greater role—in the provision of expert support for Defence both in training and in the planning, conduct and reporting of risk assessment activities.

So in this amendment there is a new clause, subclause (4) at the end of clause 19, which highlights that there is now an obligation on the agency to ensure that the industry partner:

… in maintaining, developing and regulating workforce and infrastructure standards as mentioned in subsection 11(2), does not inhibit effective competition for the defence industry sector to deliver services required by the agency in the performance of its functions.

The legislation envisaged two oversight bodies to ensure accountability and transparency.

One was an inspector-general of defence capability assurance, which would be, similar to the Inspector General of Intelligence and Security, a way of having a group who are cleared and capable of ensuring compliance within organisations that, appropriately, operate behind classifications of information.

This would make sure that Defence engages with the defence capability assurance agencies; takes appropriate note of the reports that are provided; and provides, throughout the decision chain for capability upgrades or modifications that are being introduced into service, transparent reports of the risks it’s identified so that all the way through to the National Security Committee of Cabinet people are able to interrogate what has been done to address risks and so actually expedite decision-making.

The other body was a parliamentary joint committee on defence.

The government’s response to the inquiry of the Joint Standing Committee on Foreign Affairs Defence and Trade into war powers supported the committee’s recommendation to establish a statutory committee on defence.

This essentially replicated the role and purpose of what was envisaged by the recommendation in the DCAA bill. So the second key amendment here is the removal of part 4, which was the establishment of the committee, because the government’s committee will do that.

I look forward to the contributions of other senators to this second reading debate.

Obviously, we don’t have time today to bring this to the second reading vote and the committee stage, but I have distributed amendments that reflect this supplementary explanatory memorandum and I look forward in the New Year to being able to complete this debate and bring forward this change for the benefit of Australia’s national security.