defence annual report 1999-2000this annual report, together with further information available on...

DEFENCEANNUALREPORT

1999-2000

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Contact Officer

The production of this document was coordinated by the Portfolio Reporting andEvaluation staff of the Department of Defence.

The contact officer to whom comments and inquiries about this report may beaddressed is:

DirectorPortfolio Reporting and EvaluationR1-2-A028Department of DefenceCANBERRA ACT 2600

Telephone: (02) 6265 6277Facsimile: (02) 6265 6246E-mail: [email protected]

Defence Website

Home Pagehttp://www.defence.gov.auAnnual Reporthttp://www.defence.gov.au/budget/99-00dar.htmService Charterhttp://www.defence.gov.au/charters/welcome.html

� Commonwealth of Australia 2000

ISSN 1323 5036ISBN 0 642 29542 5

This work is copyright. Apart from any use as permitted under the Copyright Act 1968,no part may be reproduced by any process without prior written permission from theCommonwealth available from AusInfo. Requests and inquiries concerningreproduction and rights should be addressed to the Manager, Legislative Services,AusInfo, GPO Box 1920, Canberra ACT 2601 or by email [email protected]

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CONTENTSContact details ............................................................................................................................ iiLetter of Transmittal ................................................................................................................ iiiUser Guide...............................................................................................................................viii

SECTION ONE – OVERVIEW.............................................................................................1

Review by the Secretary and the Chief of the Defence Force ...................................3Year in Review .........................................................................................................................8

Contributing to the Defence Outcome .....................................................................8Significant Issues and Developments ........................................................................9ADF Operations in East Timor ................................................................................17Financial Performance.................................................................................................19

- Summary of Defence Appropriations............................................................19- 1999-2000 Financial Performance ..................................................................22- Administered Items...........................................................................................28- Capital Budget....................................................................................................32- Defence Reform Program................................................................................46

Personnel .......................................................................................................................54Accountability Arrangements............................................................................................56

Corporate Governance................................................................................................56- Organisational Changes....................................................................................56- Senior Executive Changes................................................................................56- Defence Organisational Structure Charts......................................................58- Senior Committees............................................................................................60- Internal Audit Arrangements and Risk Management Strategies................63- Ethical Standards...............................................................................................65- Portfolio Evaluations........................................................................................66

External Scrutiny..........................................................................................................68- Parliamentary Committees...............................................................................68- Auditor General’s Reports ...............................................................................72- Defence Force Ombudsman...........................................................................74- Decisions of Courts and Tribunals.................................................................74

Report on the Operation of the Defence Service Charter for 1999-2000..........75People.............................................................................................................................79

- Staffing Overview..............................................................................................79- Workplace Relations .........................................................................................79- Non-Operational Training and Development..............................................80- Social Justice and Equity ..................................................................................81

Purchasing .....................................................................................................................84Assets Management .....................................................................................................86External Consultants ...................................................................................................88Competitive Tendering and Contracting..................................................................89

SECTION TWO – FINANCIAL STATEMENTS .............................................................93

Summary of the 1999-2000 Financial Statements ........................................................951999-2000 Financial Statements ......................................................................................103

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SECTION THREE – OUTPUT PERFORMANCE .......................................................157Resourcing of Defence Outcome and Outputs .........................................................158Defence Operations ...........................................................................................................160

Output 1 ......................................................................................................................161Output 6 ......................................................................................................................165Output 20....................................................................................................................171Output 21....................................................................................................................176

Navy Capabilities................................................................................................................181Output 3 ......................................................................................................................182Output 4 ......................................................................................................................187Output 5 ......................................................................................................................191Output 7 ......................................................................................................................195Output 8 ......................................................................................................................199Output 9 ......................................................................................................................203

Army Capabilities ...............................................................................................................207Output 10....................................................................................................................208Output 11....................................................................................................................212Output 12....................................................................................................................218Output 15....................................................................................................................222

Air Force Capabilities ........................................................................................................225Output 13....................................................................................................................226Output 14....................................................................................................................231Output 16....................................................................................................................237Output 17....................................................................................................................242Output 18....................................................................................................................247Output 19....................................................................................................................253

Policy Advice ........................................................................................................................257Output 2 ......................................................................................................................258Output 22....................................................................................................................260

Appendix A: Australian Defence Force Operations................................................264Appendix B: Australian Defence Force Exercise Program ..................................267Appendix C: Defence Cooperation ..............................................................................275

SECTION FOUR – SUPPLEMENTARY INFORMATION ........................................285Financial Statistics..................................................................................................................286Personnel Statistics ................................................................................................................288Occupational Health and Safety..........................................................................................293Ecologically Sustainable Development and Environmental Performance...................297Freedom of Information ......................................................................................................298Advertising and Market Research .......................................................................................307Annual Report on the Administration and Operation of the

Defence Force (Home Loans Assistance) Act 1990........................................................312

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INDEX.....................................................................................................................................315Glossary...................................................................................................................................316Acronyms ................................................................................................................................320Compliance Index..................................................................................................................323Alphabetical Index.................................................................................................................324

Output Progression 1999-2000 to 2000-01 Chart (fold-out insert inside back cover)

FURTHER INFORMATION AVAILABLE ON THEINTERNET

Available at http://www.defence.gov.au/budget/99-00dar.htm.

CONTENTS

Output Performance InformationGroup Performance InformationDefence Reform Program (summary tables)Consultancy Services (details of individual consultancies)Capital Facilities Expenditure by ElectorateAustralian Defence Force Units and Establishments

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USER GUIDEThe format and content of this annual report reflect the new requirements developedby the Department of the Prime Minister and Cabinet and approved by the JointCommittee of Public Accounts and Audit in May 2000 under subsection 63(2) of thePublic Service Act 1999.The Defence Annual Report 1999-2000 addresses the Department of Defence and theAustralian Defence Force (ADF), which are collectively referred to as ‘Defence’, whilethe Department of Veterans’ Affairs, which is part of the Defence portfolio, has aseparate annual report.The primary purpose of annual reports of departments is accountability, in particular tothe Parliament. Annual reports serve to inform the Parliament (through theresponsible Minister), other stakeholders, educational and research institutions, themedia and the general public about the performance of departments in relation toservices provided.Annual reports and portfolio budget statements are the principal formal accountabilitymechanisms between government, departments and the Parliament. Portfolio budgetstatements set out performance targets for departmental outputs and contributions tooutcomes when funds are appropriated, and annual reports state achievement againstthose targets. This annual report, together with further information available on theinternet, covers all the targets for Defence set out in the Minister for Defence’s PortfolioBudget Statements 1999-2000, as revised, in the Portfolio Additional Estimates Statements1999-2000.

Printed ReportThis report is divided into four sections. Section One contains a review of the year bythe Secretary to the Department of Defence and the Chief of the Defence Force, anoverview of performance for 1999-2000 as well as accountability arrangements. It alsoincludes organisational charts that show the formal structure of Defence as at 30 Juneand 1 July 2000.Section Two contains a summary of the 1999-2000 financial statements, including acomparison with the 1998-99 statements, and the financial statements themselves,required under section 49 of the Financial Management and Accountability Act 1997, whichwere independently audited by the Australian National Audit Office.Section Three contains achievement against performance targets for each of Defence’soutputs as well as information on output expenses, including explanations forsignificant variations from budget estimates. Three appendices are included in thissection covering ADF operations, exercises and Defence cooperation activitiesrespectively.Section Four contains supplementary statistical information, as well as otherinformation required under specific statutory provisions relating to the annual reportsof all Commonwealth departments.Finally, the Index section of this report includes a compliance index which identifieswhere those matters required by the Joint Committee of Public Accounts and Audit tobe included in annual reports are located; a glossary; a list of acronyms; and analphabetical index.

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Electronic ReportThe report can be found at: http://www.defence.gov.au/budget/99-00dar.htm. Theelectronic version of Defence’s annual report has been extensively bookmarked toprovide easy access to relevant sections of the report.

Further Information Available on the InternetThis information has been divided into six segments and has been extensivelybookmarked for easy reference.The first segment, Output Performance Information, reports on achievement againstinitiatives, such as capability enhancements, identified in the Portfolio Budget Statements1999-2000. The second segment, Group Performance Information, reports on achievementagainst performance targets set out in the Group section of the Portfolio Budget Statements1999-2000. The third segment contains summary tables in relation to Defence ReformProgram progress from 1997-98 to the present. The fourth segment contains details ofall individual consultancies for which payment, or part payment, was made during 1999-2000. The fifth segment contains details of capital facilities expenditure by electorate,while the sixth segment contains details of Australian Defence Force units andestablishments.

STYLE CONVENTIONS

In general, figures provided in the tables in this report are rounded to the nearest$1,000, although there are some tables in which the figures are rounded to the nearest$100,000 where appropriate. Figures referred to in the text are usually to the nearestmillion for ease of reading. The rounding convention used is that rounding downwardsoccurs if the end digit is less than five, and rounding upwards occurs if the end digit isfive or more. Totals are the sums of unrounded figures.

SECTION 1

OVERVIEW

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REVIEW BY THE SECRETARY ANDTHE CHIEF OF THE DEFENCE FORCE

INTRODUCTION

This year has been characterised by the breadth and complexity of challenges facingDefence, the foremost of which has been the Australian Defence Force’s operations insupport of the United Nations in East Timor. The departure of the former Secretary,Mr Paul Barratt, in the latter half of 1999 attracted considerable media attention. Issuesrelated to current and future capabilities, retention and recruitment of personnel, andaccountability for decisions have called for innovative solutions and renewedcommitment and dedication from our people. We are addressing these challenges at atime of close public scrutiny of the way Defence does business.

The focus of these challenges centred on a hard-nosed assessment of Defence’sperformance and in charting a clear way ahead; an endeavour that has requiredconsiderable effort during the year.

THE STRATEGIC ENVIRONMENT AND OPERATIONAL ACHIEVEMENTS

Our strategic interests are engaged directly in relations among the Asia-Pacific’s majorpowers, and our most immediate strategic interests are in the arc of islands stretchingfrom Indonesia to the islands of the South-West Pacific. The region is extraordinarilydynamic and complex, and the strategic situation has been quite volatile. It is againstthis backdrop that operations in East Timor, Bougainville and the Solomon Islandstook place during the last year.

The ADF’s performance in East Timor has been marked by widespread and deservedrecognition. Australia assumed a major role in assembling and leading the internationalforce to restore peace and security in East Timor, to protect and support the UnitedNations Assistance Mission in carrying out its tasks, and to facilitate humanitarianassistance operations. At the peak, more than 6,000 Australian personnel wereinvolved in the Interfet operation. A significant part of Defence was involved in oneway or another to provide the necessary support within very short timeframes to ensurethe success of the operation. ADF operations in support of the United NationsTransitional Administration in East Timor peacekeeping force are continuing during2000-01 – there are still over 1,600 troops deployed in East Timor.

In addition to East Timor, the ADF continued to provide significant contributions topeacekeeping operations in other places, such as Bougainville, the Persian Gulf, theSinai and Bosnia. Our operational tempo has increased dramatically in recent years,and in 1999-2000 surpassed the level set in any year since 1972.

PEOPLE MATTER

The key differentiator for any organisation moving into the 21st century lies in itspeople. While there is little doubt that Defence attracts high calibre people, therecruitment, development and retention of quality people is a significant issue. We arefinding it increasingly difficult to attract and retain the people we need. A range ofmeasures are planned to address these issues.

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A ‘results through people’ approach is critical. Defence’s people are highly skilled,willing and able to make a full contribution. They need and deserve an environmentwith clear goals, timely and constructive feedback on their performance, andappropriate terms and conditions of service.

We devoted considerable effort in 1999-2000 to ensuring that Defence’s people werecompetitively remunerated. The new ADF Enterprise Productivity Arrangementcovers members up to and including the rank of Colonel (equivalent) and a separatearrangement covers one and two-star-level ADF officers. The new DefenceEmployees Certified Agreement was accepted by Defence non-Senior ExecutiveService civilian staff and new Australian Workplace Agreements for Defence SeniorExecutive Service officers were put in place.

New accountability and governance arrangements were announced on 23 June 2000.

The 1999 Defence Attitude Survey indicated that most of our people believe thatDefence is a fair and equitable workplace, and that attitudes towards immediatesupervisors are generally positive, whether military or civilian. The survey identifiedmany areas that require improvement to ensure that Defence is more effective and abetter place to work. The ‘results through people’ initiative will assist this end.

DEFENCE PLANNING AND FORCE STRUCTURE

Considerable effort was put into preparing for the Government’s White Paper, due tobe completed later in 2000. A key feature involved the development and release of apublic discussion paper in June 2000 to facilitate an extensive community consultationprocess. This, the first major review of defence policy since 1985, is intended to delivera response to Australia’s strategic circumstances which provides a force structure thatwill enable the ADF to continue to deliver the performance required of it well into thenew millennium.

1999-2000 saw the introduction into service of important new capabilities. Theseincluded the first of two amphibious landing ships, HMAS Manoora, two of the newminehunter vessels HMAS Huon and HMAS Hawkesbury, and two new hydrographicships HMAS Leeuwin and HMAS Melville. Two of the Collins class submarines, HMASWaller and HMAS Collins, performed well during deployments to the United States,demonstrating our ability to understand and resolve the submarines’ shortcomings, andthe considerable value the submarine ‘fast track’ program will contribute to the muchneeded improvement in that capability.

Additional night fighting, radar and thermal surveillance systems for the Land Forceswere acquired under an accelerated acquisition program. This equipment provedparticularly effective in East Timor.

Enhancement of the Air Force’s lead-in fighter capability continued, with theHawk 127 commencing test flights in December 1999. The strategic airlift capabilitywas also enhanced through the delivery of twelve new C-130J Hercules aircraft.

The reduction in ADF personnel numbers continued in 1999-2000 as a result of theongoing market testing activities and in a way consistent with the primary objective ofcontinued movement of uniformed personnel to the sharp end of the ADF.

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FINANCIAL PERFORMANCE

In 1999-2000, Defence achieved an operating result before capital use charge of$5,316m. After payment of the capital use charge of $4,600m, the operating result was$717m.

The 1999-2000 Defence budget strategy included a $380m reduction in major capitalinvestment spending to accommodate increased Defence output costs. A number offactors contributed to these increased costs, including the Government’s decision toincrease the readiness of a second Army brigade, a slower than planned drawdown to50,000 full-time ADF personnel and increased ADF housing, health and removal costs.

A major change in funding occurred part way through the financial year when theGovernment provided $860m in supplementation to the Defence budget to supportAustralia’s military contribution to East Timor. The success of our contribution inEast Timor, and the extent of support provided by a number of other contributingnations without cost recovery, meant that the forecast requirement was not all needed,so Defence was able to return $215m to the Government. The East Timor deploymentresulted in a greater than expected reduction in ADF training exercises and otheractivities and, coupled with ADF recruiting shortfalls, had the effect of Defence outputcosts not increasing to the extent expected. This enabled Defence to partially restorethe reduction in major capital investment towards the end of the financial year.

During 1999-2000, we undertook a fundamental reappraisal of Defence’s financialposition and the underpinning financial management arrangements. In essence,Australia can no longer afford a balanced, self-reliant, capable, and ready Defence forceof 50,000 with its current capabilities within the forward estimates.

A joint review of Defence’s financial management by the Departments of Finance andAdministration and Defence was completed during the year. A number of significantimprovements will be introduced during 2000-01, including a new planning framework,the introduction of performance price arrangements and refinements to the applicationof accrual accounting. These changes should place Defence’s financial managementarrangements on a firmer footing and facilitate progress towards accepted best practice.

The Australian National Audit Office conducted a cross-agency performance audit ofCommonwealth Foreign Exchange Risk Management Practices (Audit Report No. 45), tabled inMay 2000, which resulted in adverse media comment. The report, which was quitecritical, misrepresented Defence’s foreign exchange risk management practices.Defence had conducted its foreign exchange risk management in accordance with aresource arrangement agreed with the Department of Finance and Administration.Under this arrangement, supplementation for currency movements was provided toDefence on a ‘no gain/no loss’ basis. Defence assists in whole-of-government foreignexchange risk management by providing forward projections of its foreign exchangeexposure to Treasury and the Reserve Bank.

DEFENCE REFORM PROGRAM

Implementation of the Defence Reform Program remained on target and substantiallyahead of its initial savings achievement schedule. Cumulative savings increased bysome $130m during the course of the year, bringing the total to date to $476m perannum. This has enabled us to enhance combat capabilities and cover increases in per

Section One

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capita personnel costs. The market testing of garrison support and clerical supportfunctions, as well as some logistics support activities, progressed well throughout theyear. The surge capacity of industry to meet Defence’s operational requirements wasdemonstrated in the response to operations in East Timor as well as Operation SafeHaven, which provided temporary refuge for displaced persons from Kosovo.

The Defence Reform Program has been succeeded by a continuous organisationalimprovement program. This will enable good ideas within the organisation to beharnessed and ensure that we continue to enhance our organisational effectiveness.

MATCHING THE QUALITY OF OUR BUSINESS PERFORMANCE WITH THEADF’S OPERATIONAL PERFORMANCE

The effort that East Timor has taken, in terms of the strain on people and financialresources, has also focused the Government, the community and Defence itself moreacutely on our shortcomings. We have acknowledged that, in certain respects,Defence’s business performance has not matched the ADF’s operational achievements.

We have recognised, in particular, that our relationships with Ministers, theGovernment, the Parliament, the central agencies and industry are not what they shouldbe. We accept this credibility problem and that improved performance over the wholespectrum of our activities is essential to restoring confidence in the Defenceorganisation. This is primarily an issue of leadership and requires an improvement inaccountability and performance, by bringing the organisational, accountability andfinancial structures into alignment.

During 1999-2000, we commenced the task of building and sustaining better workingrelationships with our stakeholders. We set in train an ‘organisational renewal program’to strengthen fundamental linkages between Government policy and Defence’scorporate strategy. We are seeking fundamental renewal of the organisation fromwithin, through a strong focus on leadership and performance. This means an ethos ofachieving results through people. The renewal agenda acknowledges the changes thathave occurred within Defence over the last decade and encourages a more adaptable,efficient and effective organisation – one which is marked by a program and philosophyof continuous organisational improvement, while recognising that people are our mostimportant strength.

A new top structure and simplified committee system that emphasises accountabilityand responsibility in accordance with the chain of command and is aligned with ourfinancial framework was put in place on 1 July 2000. These steps will help to improvedecision-making, and decision support processes and structures, which are currently amajor impediment to functional effectiveness and efficiency. A new business planningcycle was also introduced which focuses on the Government’s strategic priorities,building on the work being done for the White Paper and involving the development ofan annual corporate plan – the Defence Plan.

In addition to these initiatives, considerable effort was expended in 1999-2000 on thereform of acquisition processes. The aim of these reforms is to shorten acquisitiontimes, provide better whole-of-life costing for equipment, reduce transaction costs withindustry and provide the Government with greater transparency and oversight of theacquisition process. These efforts, coupled with the results of an external review of theAcquisition and Support Command organisations, led to the creation on 1 July 2000 of

Review by the Secretary and CDF

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the Defence Materiel Organisation, with a view to improving business performance andthe whole-of-life support of Defence equipment.

Following an extensive review into the public affairs function within Defence, thePublic Affairs and Corporate Communication Division was established this year.Significant restructuring has produced a more streamlined organisation with the abilityto focus on the improvement of Defence’s reputation in the community and among itsstakeholders. The new organisation provides a more strategic approach tocommunication delivery to both external and internal stakeholders, with a strategy to bedeveloped to guide and oversee the whole Defence communications effort.

KEY CHALLENGES IN 2000-01Completion of the White Paper in 2000-01 will provide Defence with the guidancenecessary to develop an annual Defence Plan. This will provide clear direction on whatDefence needs to do to deliver the outputs that the Government requires in the nearterm, and what we need to do to ensure that we have in place the capabilities that theGovernment requires to defend Australia 10-20 years from now.

We will continue to implement, monitor and evaluate the strategies set in place toembed the renewal agenda across the organisation. ‘Defence Matters’ is the term beingused to describe Defence’s balanced scorecard that reflects our unique characteristics.It will report on our performance and communicate our strategy. The aim inimplementing the scorecard is to engage everyone in shaping the future of Defence andto help each individual in the organisation to align their efforts with the Government’sstrategic direction.

Our immediate imperative is to build the confidence of the Government and the publicin the way Defence does business. An internal ‘Defence Matters’ balanced scorecardthat focuses explicitly on the results sought by the Government is one way ofcommunicating that imperative.

Defence has experienced one of its most challenging, yet exciting years during1999-2000. The organisation is now well placed to move ahead into a new phase ofgreater accountability and effectiveness – through the development of better businesspractices and the implementation of clearer leadership principles. The key challenge isto create a more adaptable organisation that is built to last and able to renew itself fromwithin, both now and in the future.

Section One

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YEAR IN REVIEW

CONTRIBUTING TO THE DEFENCE OUTCOMEDefence contributes to a single outcome:

The prevention or defeat of armed force against Australia or its interests.

This outcome provides a comprehensive focus for both combat-related and non-combat tasks that Defence delivers for the Government now and in the longer term.

In 1999-2000, Defence faced considerable challenges in achieving planned andunplanned deliverables required of it by the Government. The Australian DefenceForce (ADF):

Combat Capability

• substantially met the levels of preparedness set in the Chief of the Defence Force’sPreparedness Directive, and subordinate directives, against each capability output.These levels of preparedness refer only to military response options with a warningtime of less than 12 months;

• largely met its major training/exercise program. Exceptions were mainly due tooperations in East Timor;

• successfully undertook operations in East Timor and other operations required bythe Government, including in Bougainville and the Middle East, as well aspreparations for the Olympics; and

Non-Combat Tasks

• fully met all planned and unplanned tasks. These included assistance to the civilcommunity, the Army/ATSIC Community Assistance Project, assistance to civilsearch and rescue, support to civil surveillance, VIP operations and civil emergencyand natural disaster relief. For detailed achievement against performance targets,see Output 21 in Section Three of this document.

While the ADF met immediate operational requirements in 1999-2000, it was fullystretched in many areas to achieve this and, and was at the expense of the longer-termsustainability of Defence capabilities. It was necessary, for example, to draw extensivelyupon equipment, stores and personnel from across the three Services, including thereserve force, to meet operational commitments during the year. In the medium tolonger term, the ADF's ability to undertake higher intensity, concurrent or prolongedoperations is likely to be constrained by personnel shortages, which are exacerbated bycurrent recruitment and retention difficulties, logistic support deficiencies and theincreasing obsolescence and reduced serviceability due to ageing equipment. Furtherdiscussion of these issues continues below and in Section Three.

Significant Issues and Developments

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SIGNIFICANT ISSUES AND DEVELOPMENTS

DEFENCE OPERATIONS

By any standards 1999-2000 was a momentous year for Defence. The operationaltempo set during the year surpassed that set in any year since 1972. At a peak of over6,000 personnel, operations in East Timor represented our largest overseas deploymentsince Vietnam. Australia assumed a major leadership role in building and then leadingthe multinational forces. These operations demonstrated to the nation – and the worldmore generally – the professionalism of the ADF. There are still over 1,600 troopsdeployed in East Timor and the ADF operations in support of the United NationsTransitional Administration in East Timor (UNTAET) peacekeeping force arecontinuing during 2000-01.

The significance of this task in East Timor cannot be overstated – our major allies andregional neighbours demonstrated their confidence in our leadership by placing theirforces under Australian command for the first time. Our efforts in the field would nothave been possible without the commitment and dedication of those in supportingroles, both civilian and military. Personnel at all levels worked long hours to producethe plans, secure the resources, and put into effect highly professional operations.Supporting forces have been, and remain, critical to the deployment and sustainment ofour operations.

Concurrently, Defence continued to support and plan operations in Papua New Guinea(Bougainville), the Middle East, Bosnia, Africa and Cambodia. The deployment ofHMAS Melbourne to the Persian Gulf as part of the Maritime Interception Force fromMay-October 1999 was the ADF’s ninth such deployment. Additionally, the ADFconducted a heavy exercise program throughout the year.

The Government has committed to support the United Nations activities in EastTimor for the long term and Defence will need to adapt to these demands. The Sydney2000 Olympics has again placed Australia squarely in the international spotlight, andconsiderable effort was devoted in 1999-2000 to preparing the ADF to play asignificant supporting role.

Specific aerial surveillance and patrol boat resources were dedicated to support civilsurveillance and these were fully utilised during 1999-2000. Civil surveillance tasksresulted in the apprehension of 65 foreign fishing vessels and assistance in theapprehension of 69 vessels suspected of transporting illegal immigrants.

Other national support tasks were accepted where resources were available withoutdetriment to Defence activities. During 1999-2000, these included assistance to theDepartment of Immigration and Multicultural Affairs in provision of temporaryaccommodation facilities at RAAF Curtin and at Woomera. A second major task wasassistance to the civil community, through Emergency Management Australia, duringthe cyclone season in northern Australia, where the ADF assisted in fuel deliveries toisolated communities. Other examples of assistance included support following theGlenbrook train disaster and assistance in the clean up of an oil spill in SydneyHarbour.

Thirteen search and rescue tasks were undertaken which required a significantcommitment and involvement of ADF equipment and personnel. The ADF was on

Section One

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standby for the Sydney to Hobart Yacht Race and assistance was provided in the searchfor a missing person near Tennant Creek. Assistance was also provided for therecovery of personnel from the dismasted yacht Ibis, and in a search for missingpersons in the Snowy Mountains.

DEFENCE WHITE PAPER

On 27 June 2000, the Government launched the Defence Review 2000 Public DiscussionPaper, a precursor to a White Paper which is expected to be released later in 2000. Thissignified the first step in a fundamental review of defence policy. A review of thisdepth was last undertaken in the mid-1980s and the last White Paper was produced in1994. Since that time we have seen significant changes in the strategic environment,rapid development of new military technologies and increasing costs and budgetarypressures on Defence.

The public discussion paper facilitated an extensive public consultation process todetermine the views of the Australian people. The aim of the paper has been topromote public consideration of the key defence and security issues facing Australiaand to outline the decisions that the Government will need to make to ensure thatAustralia has a defence force that can meet Australia’s needs. There are policy choicesthat have to be made about:• what we want our armed forces to be able to do;• where we want our armed forces to be able to operate;• the best way to structure the ADF; and• the best way to spend the Defence budget.The public discussion paper provided information about these choices to enable allAustralians to have their say on these important issues.

MORE COMBAT-READY CAPABILITY

The focus on improving our combat capabilities within a largely static budget hasrequired good leadership and sound management. East Timor graphicallydemonstrated not only the political dimension of our current security situation, but alsothe benefits of many of the changes that have been put in place in recent times.

Very close attention has been given to our changing strategic circumstances and to thepreparedness of the ADF. This was tangibly reflected in the Government’s decisionearly in 1999 to increase the preparedness of a second brigade group based on the 1stBrigade in Darwin and to lease a Tasmanian-built catamaran. In addition, in May 2000the Government increased the number of full-time infantry battalions from four to sixand approved an increased number of personnel in the Air Force.

Navy

A key challenge for the Navy throughout the year has been to manage the workforcewith a shortage of personnel and trained staff in key categories. Prioritisation of billets,retention bonuses for personnel in key categories, and the establishment of thePersonnel Action Team were implemented to redress this issue.

The fleet continues to be improved with the introduction into service of newcapabilities. HMA Ships Anzac and Arunta were provisionally accepted into naval


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service and have proven to be valuable additions assisting with the RAN’s presence inthe region. In July 1999, HMAS Waller became the third Collins class submarine to becommissioned. HMAS Manoora, the first of two amphibious landing ships to enterservice, was delivered from the contractor in December 1999 and, after successfullycompleting initial sea trials in March 2000, was deployed to the Solomon Islands inJune.

HMAS Huon was commissioned in May 1999 and HMAS Hawkesbury was delivered inDecember 1999 and commissioned in February 2000 as scheduled. These represent anew generation of minehunter coastal vessels that will significantly improve thatcapability. In addition, the hydrographic fleet was augmented with the commissioningof HMAS Leeuwin and HMAS Melville in May 2000.

In March 2000, the Navy's management processes were reconfigured into forceelement groups to promote a whole-of-life focus upon Navy capability and to betterintegrate the provision of support by other elements of the Defence organisation. Thisshift enables the Chief of Navy to better discharge his responsibilities.

Army

In the case of the Army, the high tempo of operations in 1999-2000 highlighted anumber of capability issues. These included equipment and personnel deficiencies, andfinancial and sustainability issues. The Army required supplementation to achieve bothGovernment-directed operational goals and to meet the costs of reconstituting theRegular Force and remediating the equipment and stores taken from the Reserve Forceto support the East Timor operations.

A modularised recruit training trial, designed to increase the recruitment of part-timesoldiers by providing training options for those people unable to complete 45 days ofcontinuous training, was undertaken. A phased replacement program has beendeveloped with Support Command to address the equipment deficiencies.

Negotiations for procurement of 144 light armoured vehicles have been completed andcontract signature is expected in 2000-01. Under an accelerated acquisition program,the night fighting surveillance capability project introduced additional night fighting,radar and thermal surveillance systems into service that provided the Land Forces witha much needed capability in time for operations in East Timor.

Air Force

The high tempo of recent operations has highlighted an imbalance between resourcesand required Air Force results. This has led to high and unsustainable workloads andhas placed excessive pressure on Air Force personnel. These issues will be the keyfocus for the Air Force in the immediate future with the aim of:

• delivering adequate Air Force capability at sustainable levels; and

• retaining the right people in the Air Force to meet future challenges.

A particular focus during the year was the development and implementation of astrategy to improve recruitment, selection and training of fast jet aircrew to increase thenumber available. The Central Pilot Selection Agency was established to improve themethods of selecting pilots. While the full impact of this change will take some time tobe felt on the front-line, initial indications are positive.

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Enhancement of the Air Force’s lead-in fighter capability continued with the Hawk 127commencing test flights in December 1999. Delivery of the first aircraft is nowexpected in October 2000, with at least six additional aircraft to be available foracceptance by that date. Although this represents a delay, the Macchi jet trainer will beretired in December 2000 as planned.

The strategic airlift capability is also being enhanced through the C-130J project. Allaircraft have been accepted in the first of three post-delivery block upgrades. TheAustralian Defence Force Airworthiness Board recommended and accepted in June2000 that the C-130J-30 aircraft be granted endorsement of an Australian Military TypeCertificate, and the issue of a Limited Service Release for operations.

STRONGER FUTURE CAPABILITY

Defence has focused on its combat capabilities and its people as it has sought to build ahigh-technology defence force. Australia’s enduring geo-strategic situation drivesDefence to this. Australia’s vast distances and small population mean that Defencemust be able to deploy joint forces rapidly, and to apply superior combat powerdecisively, where and when the Government requires – and do it better than anybodyelse. This requires a focus on technology, mobility and quality people to make theessential difference.

Submarine Fast Track ProgramIn accordance with the Government’s decisions arising from the McIntosh/Prescottreport on the Collins class submarine project, a Submarine Capability Team wasappointed in July 1999 to “achieve a fully operational and sustainable submarine capability asquickly as possible, within the approved resources.” At that time, Defence had alreadycommenced a new project to improve the operational capability of the Collins class byevaluating a number of prototype modifications in HMAS Collins. The interimminimum operating capability achievements included:• modifications to the external casing and fin to reduce the noise signature; and• provision of a more reliable and functional combat system through some limited

enhancement of the existing system and the addition of stand-alone equipmentsourced from both the RAN and the United States Navy.

Defence built on the success of the modifications to HMAS Collins to develop a moreextensive proposal to achieve a limited capability in two submarines. This would allowdeployments in a range of operations while options for longer-term improvements tothe combat system deficiencies were reviewed and implemented. The Governmentapproved $266 million in December 1999 to incorporate the limited capability packageinto the next two submarines due for delivery from the Australian SubmarineCorporation – Dechaineux and Sheean. This initiative is known as the ‘fast track’program (Sheean commenced contractor’s sea trials with the majority of platformchanges already incorporated). Both submarines are planned to be available foroperational service in early 2001 with improved capability.

Other InitiativesInstallation of the Phase 1 modifications to the F/A-18, which will improve theaircraft’s self-protection and offensive capabilities and the associated ground supportsystems, is being progressed. Modification of the initial two prototype aircraft forPhase 1 commenced on schedule in April 2000, and modification of all aircraft is due to


13

be completed by the end of 2001. The foreign military sales case for the Phase 2 radaracquisition was agreed in October 1999.

Progress continued in 1999-2000 towards Anzac ship combat system integration andthe upgrade of Anzac shore and maintenance facilities to support the EvolvedSeaSparrow Missile. Anzac Ship 05 – Warramunga will be the first Anzac ship to receivethe Evolved SeaSparrow Missile capability. The first missile firings will be conductedfrom Warramunga during post-delivery trials that are scheduled in mid-2001.

Four frigates (FFGs) have been fitted with the active missile decoy system. Thequalification of the active missile decoy fire control system software has been delayedand, as a consequence, acceptance into naval service was not achieved as planned in1999-2000. Software acceptance is now scheduled for early 2001, followed by the RANoperational readiness evaluation in mid-2001 and acceptance into naval service in late2001.

The FFG upgrade, awarded to Australian Defence Industries (ADI) Ltd, is to beconducted at ADI’s Garden Island facility, commencing with HMAS Sydney in mid-2002 and completing with HMAS Newcastle in late 2005.

The Jindalee Operational Radar Network contract has been novated to RLM. Theprime contractor has taken over control of the radar sites from BAE Systems (formerlyGEC-Marconi), so that all responsibilities for the contract now reside with RLM.Major initial capability demonstrations (detection and tracking) for the Queenslandradar occurred in September 1999 and for the Western Australian radar in December1999. These verified the integrity of the design and interoperability of the basic radarsystem building blocks using ‘legacy’ software. Improved software developed by RLMhas since been installed at all sites and more sophisticated integration validation andtesting is now under way.

The ‘restructuring the Army’ trials were concluded in late 1999 and a final reportdelivered to the Minister in June 2000. The trials generated a large number of insightsthat will inform capability options for the enhanced combat force. The development ofthose options and the design of the enhanced combat force are an ongoing task.

Defence increased its research on technologies related to smart weapons, electronicwarfare, joint systems and information superiority in order to gain greater militaryadvantage from the information revolution, the so-called ‘revolution in military affairs’.In addition, a new Joint Systems Branch in the Defence Science and TechnologyOrganisation was established to give advice on the consequence of the informationrevolution for joint warfare.

CLOSER ALLIANCES AND INTERNATIONAL RELATIONSHIPS

The management of our defence relationships in South-East Asia was tested andhighlighted during the Interfet deployment. The strength of our defence relationshipwith Indonesia contributed directly to the success of Interfet’s deployment, while ourdefence relationships with Thailand, the Philippines, Singapore and Malaysia gave thosecountries the confidence to operate under Australian command.

Defence relations with the United States and New Zealand were pursued through awide range of exercises, training activities and exchanges which have served tostrengthen existing defence ties and provide opportunities to enhance ADF capabilities.

Section One

14

Australia’s network of defence relationships throughout the South-West Pacific regioncontinued to influence the regional strategic environment in which ADF operationsmay be required. Australia remains well positioned to support Bougainville peaceinitiatives and to provide timely support to the Government on developments in Fijiand the Solomon Islands.

1999-2000 saw continued growth in our level of engagement with most regionalcountries, particularly Thailand, the Philippines, Vietnam and Brunei. Thedevelopment of the initial Defence international engagement plan facilitated a morerobust linkage between our strategic policies and the specific objectives of the DefenceCooperation program.

ENHANCED NATIONAL SUPPORT

The market-testing program continued with the aim of improving services and reducingcosts by utilising support services from industry in order to release further funds tocapability. Initiatives during 1999-2000 included the completion of the rationalisationand market testing of garrison support services and most clerical and administrativeservices, the rationalisation of civilian personnel administration and the establishmentof civilian personnel administration centres.

A five-year contract with Qantas to provide travel services to Defence came into effecton 1 March 2000. Under the contract, Qantas will progressively assume responsibilityfor the provision and management of all travel services in Defence, including theeventual move to full e-commerce and the delivery of on-line travel services.

Market testing of logistic support functions continued with 13 market-testing activitiesbeing undertaken throughout Support Command. Decisions were made to outsourceworkshop support to F-111 aircraft, the deeper maintenance of C-130 Hercules aircraftand also the provision and management of medical and dental materiel support to theADF. The functions currently being tested include warehousing and distribution,maintenance of aircraft and other technical equipment and the provision of specialistservices such as laboratories and proof and experimental functions.

As part of the policy of encouraging open and effective competition along withpromoting the development of indigenous industry capabilities, Defence has continuedwith the privatisation of its manufacturing facilities. The sale of ADI was completed inNovember 1999 and the Government embarked on a process that will lead to the saleof its stake in the Australian Submarine Corporation.

The Defence Industry Advisory Council, chaired by the Minister for Defence, mettwice during 1999-2000 and the Industry Policy Consultative Forum met on fiveoccasions. The Defence procurement regional briefing program, which aims to informsmall to medium enterprises of Defence procurements, reached more than 1,200attendees around Australia.

Of the 49 initiatives identified in the Defence and Industry Strategic Policy Statement, 47 arenow complete. A highlight of recent achievements was the launch of the personnelexchange program between Defence and industry. The two remaining tasks are releaseof the F/A-18 Replacement Discussion Paper, which is awaiting release of the WhitePaper, and enhanced contracting support for several trial projects, which has beendelayed so it can be properly embedded in the new acquisition reform agenda.


15

GROWING SKILLS AND KNOWLEDGE

A key focus in 1999-2000 was ensuring that new agreements were in place for allDefence personnel. The Defence Force Remuneration Tribunal endorsed inNovember 1999 the ADF Enterprise Productivity Arrangement for members up to andincluding the rank of Colonel (equivalent) and in December 1999 the arrangement forone and two-star-level ADF officers. New Australian Workplace Agreements forDefence Senior Executive Service officers were approved by the EmploymentAdvocate in April 2000. The Defence Employees Certified Agreement was accepted byDefence non-Senior Executive Service civilian staff in a ballot held in June 2000 andwas certified by the Australian Industrial Relations Commission in July 2000.

The Defence Employees Certified Agreement introduced new civilian performancemanagement arrangements as well as a number of efficiency measures, including theabolition of isolated establishment allowance, streamlined classification arrangementsand simplification of many complex entitlements into a principles-based regime toenable managers and staff to negotiate the best results in each situation in relation tosuch things as removals and travel. Similar efficiencies were introduced, wherepracticable, in the other arrangements and agreements.

The recruitment and retention of quality people are among the highest priorities for theServices. Defence recruited 74% of the ADF full-time (permanent) target and 31% ofthe part-time (Reserve) target. Total enlistments, full-time and part-time, in 1999-2000were 6,646, an increase of 667 compared with 1998-99. The results for the threeServices were mixed. Recruiting for the ADF remains difficult due to the continuingshrinkage of the primary target group of 17-24 year olds, changes in career perceptionsand lifestyle expectations, increased competition in the market place for qualityapplicants, and the current relatively high rate of job availability in the community.

In an endeavour to improve ADF recruiting numbers, an intensive marketing strategy,the ‘lifestyle’ campaign, was introduced to dispel some of the more commonmisconceptions of Service life. Efforts have also focused on reducing barriers toeffective recruitment, in relation to such issues as education standards, medicalstandards and testing, security assessments, and financial constraints. Retentionbonuses for some specialist categories were also implemented in an effort to improveretention rates.

The Defence Service Centre is being developed to provide a free national inquiryservice to Defence personnel and their families on a range of personnel andadministrative matters. The Centre, which is to be located in Cooma, will commenceoperations in November 2000.

During the year, progress was made on a number of education and training initiatives,including the rationalisation of common training schools and courses. Work on theintegration and use of the national training framework has progressed well and a largenumber of Defence education and experience programs have received accreditation.These include medical assistant, catering, aviation, Navy mechanical and electricalengineering and Army trade training.

Parliament approved the Australian Defence College project in December 1999 andconstruction is proceeding on a tight schedule with a completion target of lateDecember 2000 to enable the new course to commence in early 2001.

Section One

16

In line with recommendations of the Defence Efficiency Review in 1997, selectedrecruiting functions were market tested. The successful tenderer, Manpower Services(Australia) Pty Ltd, commenced in September 2000 a twelve-month ‘pilot’ contract toprovide recruiting services to the ADF in Victoria and Tasmania. If the pilot issuccessful, Manpower will be contracted to provide ADF recruiting services Australia-wide for a further five years.

STRONGER LEADERSHIP AND BETTER MANAGEMENT

There has been ongoing work to improve Defence’s decision-making ability in relationto preparedness. During the year, a series of directives was produced to articulate thelevels of preparedness that the ADF is to be able to achieve. These form the basis forthe evaluation of preparedness across the portfolio. Particular focus is currently beingpaid to Defence’s ability to respond to contingencies such as East Timor and theSolomon Islands. A preparedness task force was established to further refine thecurrent preparedness management system by recommending how to improve linkagesbetween strategic guidance, preparedness (both readiness and sustainability), capabilitydevelopment, capability evaluation, and resources.

The implementation of the capability assessment reporting process continued with thepreparation of the 1999-2000 capability assessment reports in April 2000. Anoverarching Defence capability plan is being developed to support implementation ofthe White Paper. The Defence capability plan will define those capabilities required bythe ADF to meet the needs of the Government’s defence strategy.

Considerable effort was devoted to implementing and upgrading the three primarycorporate management information systems. Phase 1 of the Personnel ManagementKey Solution (PMKeyS) project was implemented in September 1999, to provideorganisational structures, personnel administration, recruitment and payroll largely forthe Defence civilian workforce. Implementation of Phase 1 was delayed by some tenmonths due to the unavailability of appropriately skilled Defence personnel and therequirement to redefine and re-scope some of the deliverables.

Project Roman, the new financial information system, continued to be rolled out in1999-2000. The roll-out of Phase 2 has taken longer than originally planned but is nowproceeding in accordance with its revised schedule.

The Standard Defence Supply System is being upgraded to standardise supply-chainmanagement. The logistics enterprise architecture project is developing the policy,procedures and supporting systems required to ensure integration of both existing andfuture systems, including joint logistics systems enhancements.

While the individual systems are being progressively developed or upgraded, it is clearthat the corporate management information systems as a whole are not delivering theinformation required by decision makers, both administratively and operationally. The2000-01 budget included $40m to address these limitations and development ofeffective solutions is a high priority in 2000-01.

Improvements to the major capital acquisition process continued. A comprehensiveacquisition reform program proposal was developed for Government consideration inthe second half of 2000. This program will build on earlier initiatives such as thebusiness process re-engineering project (now into its implementation phase) andincludes measures addressing Government involvement, industry involvement,


17

capability requirements development, acquisition processes, the cost of acquisition, anda range of personnel reforms including career management and development. Thesereforms are in response to concerns raised about Defence’s major capital acquisitionprocess and more generally are part of Defence’s ongoing process improvementactivities.The prime focus of asset management is to assist with the maintenance andimprovement of Defence outputs. During 1999-2000, Defence Estate progressivelyreplaced some 350 individual maintenance contracts, which had been previouslyadministered by the single Services and Science and Technology, with twelvecomprehensive maintenance contracts. The contracts provide for buildingmaintenance, runway and wharf upkeep, dredging and environmental services on allmajor and minor Defence establishments. Full implementation of the contracts isexpected to be achieved by January 2001.The corporate and operational information systems supported by Defence InformationSystems experienced negligible failures or disruptions through the Year 2000 eventperiod. Defence’s Year 2000 preparations were overwhelmingly successful, with noYear 2000-related failures or disruptions reported in any of the mission-critical systemsor equipment it supports.

Defence Information Systems negotiated several enterprise-wide corporate softwarelicensing agreements with specific vendors, an approach which has resulted insignificantly better product pricing to Defence than would otherwise have beenavailable through a more fragmented approach. This enterprise-wide approach hasensured that software procurement appropriately aligns with the preferred commonoperating environment or systems architecture. Discussions to further broaden thescope for these types of software enterprise-wide agreements are currently under waywith selected vendors.

ADF OPERATIONS IN EAST TIMORFollowing a request from the United Nations in September 1999, Australia assembledand led an international force to East Timor to address the deteriorating humanitarianand security situation. This operation was known as Interfet – International Force EastTimor.

With contributions from 22 nations, Interfet was a strong and dedicated force whichsucceeded in meeting its mandate under Chapter VII of the United Nations Charter.That mandate required the force, under the command of then Major General PeterCosgrove from the Australian Army, to restore peace and security in East Timor, toprotect and support the United Nations Assistance Mission in East Timor (UNAMET)in carrying out its tasks and, within force capabilities, to facilitate humanitarianassistance operations.

At its peak, Interfet consisted of approximately 10,000 personnel with Australiacontributing just over half of the force with three infantry battalion groups,headquarters and support units, and maritime and air assets.

In October 1999, the United Nations authorised the establishment of the UnitedNations Transitional Administration in East Timor (UNTAET) to replace the former

Section One

18

UNAMET operation. UNTAET would also incorporate a military component, with anauthorised strength of up to 9,150 personnel including up to 200 unarmed militaryobservers.

To support its contribution to UNTAET, the Australian Government agreed to theraising of two new battalion groups, for at least two years, increasing approvednumbers in the Army from 23,000 to 26,000. The Government also increased approvedAir Force numbers by around 500 to just over 13,500 to provide for an additionalairfield defence squadron and to meet the increase in supporting operations.

The transition from Interfet to a United Nations-mandated peacekeeping operation,under UNTAET, was completed in February 2000. Although its formerresponsibilities as the coalition leader have ceased, Australia continues to make asubstantial contribution to the operation. In June 2000, the strength of thiscontribution was approximately 1,640 personnel. In addition, an Australian, MajorGeneral Mike Smith, is the Deputy Force Commander of UNTAET.

ADF operations support to the UNTAET peacekeeping force is continuing during2000-01.

Table 1.1 shows expenditure on ADF involvement in East Timor in 1999-2000 forboth Interfet and UNTAET.

Table 1.1: Expenditure on ADF Involvement in East Timor – 1999-20001999-2000

Budget Estimate1999-2000

Actual$’000 $’000

Deployment 431,000 429,717Force Generation (Mobilisation) 279,000 97,994Investment 135,000 70,428Capital Use Charge 14,667 9,409Expenditure 859,667 607,548Surplus Funds(1) 36,954Appropriation Drawn Down 644,507

Note1. Funds returned to the Official Public Account in 2000-01.

Financial Performance

19

FINANCIAL PERFORMANCE

SUMMARY OF DEFENCE APPROPRIATIONS

The 1999-2000 direct appropriation for the Department of Defence of $17,593m was$221m higher than the revised estimate of $17,372m. This was primarily due to thespecial appropriation provided for East Timor, the changed accounting treatment of anadvance to Defence last financial year and an increased administered appropriation.

Defence was provided with a special appropriation for East Timor after the finalisationof the 1999-2000 additional estimates. The East Timor appropriation was $860m ofwhich $215m was refunded to government, resulting in appropriations drawn down forEast Timor of $645m.

The administered appropriation of $1,235m represents a reduction of $421m over therevised estimate of $1,656m. This was a result of a different accounting treatmentapplied to the actual result than that applied at budget, in accordance with Departmentof Finance and Administration direction.

Revenues from independent sources were $323m higher than the revised estimate,mainly an accrual adjustment of $250m for the recognition of assets for the first time.Capital receipts were $94m lower than the revised estimate.

Defence recognised a $179m revenue adjustment. This adjustment was made at thedirection of the Department of Finance and Administration, and required that Defencetreat the $179m prior period advance as revenue in 1999-2000. No additional cash wasreceived as a result of this change.

Table 1.2 provides a summary of the estimated funding available to Defence for1999-2000 and that actually received.

Section One

20

Table 1.2: Total Funding for the Department of Defence for 1999-2000

1999-2000Budget

Estimate$’000

RevisedEstimate

$’000

Actual

$’000

Variation

$’000Departmental Items

(A) Appropriation for outputs(1) 14,277,978 15,025,706 15,025,706 0(B) Special appropriation for East Timor 0 0 644,507 644,507(C)Appropriations for departmental outputs 14,277,978 15,025,706 15,670,213 644,507

C=A+B

Administered Items(D) Special appropriations 1,949,673 1,655,936 1,235,154 -420,782(E) Young Endeavour(1) 3,201 2,976 0 -2,976(F) Total administered appropriations 1,952,874 1,658,912 1,235,154 -423,758

(G) Total appropriations net of departmental equity injections 16,230,852 16,684,618 16,905,367 220,749

G=C+F(H) Departmental equity injection 1,278,230 687,170 687,170 0(I) Total appropriations 17,509,082 17,371,788 17,592,537 220,749

I=G+H(J) Capital receipts 223,535 226,547 132,906 -93,641(K) Revenues from independent sources 309,857 302,672 625,181 322,509(L) Revenue adjustment 0 0 179,354 179,354(M)Total Defence funding 18,042,474 17,901,007 18,529,978 628,971

M=I+J+K+L

Note1. The appropriation for the Young Endeavour was transferred to Departmental Items. The actual

appropriation for 1999-2000 is contained in the Departmental Output Appropriation.

Graph 1.1: Source of Defence FundingActual 1999-2000

(A)

81%

(B)

4%(F)

7%

(H)

4%

(J)

1%

(K)

3%

Graph 1.1: Source of Defence Funding Revised Estimate 1999-2000

(A)84%

(B)0%

(F)9%

(H)4%

(J)1%

(K)2%


21

The overall level of financial resources available to Defence was largely determined byDefence’s global cash funding limit, which in 1999-2000 was based on theGovernment’s commitment to maintain Defence cash funding in real terms. Table 1.3sets out total departmental appropriations net of the capital use charge, which equatesbroadly to Defence’s global funding limit.

Table 1.3: Total Departmental Appropriations net of Capital Use Charge

1999-2000Budget

Estimate$’000

RevisedEstimate

$’000

Actual

$’000

Variation

$’000Departmental Items

(A) Appropriation for outputs 14,277,978 15,025,706 15,025,706 0(B) Special appropriation for East Timor 0 0 644,507 644,507(C) Appropriations for departmental outputs 14,277,978 15,025,706 15,670,213 644,507

C=A+B(H) Departmental equity injection 1,278,230 687,170 687,170 0(M)Total departmental appropriations 15,556,208 15,712,876 16,357,383 644,507

M=C+H(N) Capital use charge for outputs 4,463,092 4,536,083 4,536,083 0(O) Capital use charge for East Timor 0 0 9,409 9,409(P) Total capital use charge 4,463,092 4,536,083 4,545,492 9,409

P=N+O(Q) Revenue adjustment 0 0 179,354 179,354(R) Total departmental appropriations net

of capital use charge 11,093,116 11,176,793 11,991,245 814,452R=M-P+Q

Section One

22

1999-2000 FINANCIAL PERFORMANCE

Operating ResultDefence recorded an operating result (net of the capital use charge) of $717m. Thiswas the result of a combination of higher than estimated revenue ($1,111m), higherthan estimated expenses ($331m) and a higher than estimated capital use charge ($64m).The operating result is detailed in the Departmental Operating Statement at Table 1.4below.

Table 1.4: Departmental Operating Statement – Statement of Revenuesand Expenses

1999-2000Budget

Estimate$’000

RevisedEstimate

$’000

Actual

$’000

Variation

$’000REVENUE FROM INDEPENDENT SOURCES

Sale of goods and services 273,288 243,588 296,766 53,178Interest and dividends 14,019 14,019 30,992 16,973Net gain on sale of assets 0 0 3,675 3,675Net gain on foreign exchange 0 0 12,932 12,932Write-back of assets previously expensed 0 0 250,270 250,270Other revenues 22,550 45,065 30,546 -14,519Total revenues from independent sources 309,857 302,672 625,180 322,509

REVENUE FROM GOVERNMENTOperating appropriation 14,277,978 15,025,706 15,205,060 179,354Special appropriation for East Timor 0 0 607,467 607,467Resources received free of charge 0 0 1,898 1,898Total revenues from government 14,277,978 15,025,706 15,814,424 788,719

Total revenue 14,587,835 15,328,378 16,439,604 1,111,227

EXPENSESEmployees 4,414,181 4,772,475 4,964,902 192,427Suppliers 4,026,816 4,221,153 3,847,042 -374,111Depreciation and amortisation 1,653,696 1,781,326 1,800,300 18,974Write-down of assets 0 0 478,173 478,173Net loss on sale of assets 12,077 863 0 -863Interest and other financing costs 1,110 1,141 532 -609Subsidies, benefits and grants 0 0 3,872 3,872Other costs of providing goods and services 16,863 15,337 28,315 12,978

Total Expenses 10,124,743 10,792,295 11,123,136 330,841

Operating result before capital use charge 4,463,092 4,536,083 5,316,468 780,385Capital use charge paid 4,463,092 4,536,083 4,599,955 63,872

Operating result after capital use charge 0 0 716,513 716,513Accumulated results at 1 July 33,404,290 35,024,036 34,904,682 -119,354Adjustment to opening accumulated results 0 0 1,274,258 1,274,258

Total accumulated results at 30 June 33,404,290 35,024,036 36,895,453 1,871,417


23

Revenues from government were substantially higher than the revised estimate as aresult of the special appropriation for the deployment to East Timor. The funding forEast Timor was largely directed to the payment of overseas salaries and allowances tothose deployed in East Timor and to suppliers of goods and services. Table 1.4 showsthat Defence recognised $607m in revenue from government for East Timor, whichincluded an additional $9m revenue to cover the cost of capital (capital use charge) inrelation to East Timor activities. Total drawdowns, reported in Tables 1.2 and 1.3,were $645m, some $37m higher than the revenue requirements for East Timor. Thesefunds were returned to government in the 2000-01 financial year.

Revenues from independent sources exceeded the budget estimate by $323m. This waslargely attributable to the write-back of assets that had previously been expensed. Thisamount represents the growth in depreciable assets held on the Standard DefenceSupply System that were not identified through the procurement process. These wereidentified during a review of items reported on the Standard Defence Supply System.Defence also received higher than anticipated revenue from the sale of goods andservices to foreign governments. Under the new devolved banking arrangements,Defence was able to retain a portion of the interest earned on its bank accounts. Theestimate for 1999-2000 of $14m in interest was exceeded by $17m.

Employee expenses were $192m higher than the revised estimate. This was the resultof the inclusion of East Timor expenditure ($226m), partly offset by an underspend insalaries primarily due to the inability of the Services to meet recruiting targets andhigher than expected separation rates.

Suppliers expenses were lower than anticipated, the main contributing factor beinglower than anticipated inventory consumption, partly offset by increased repair andoverhaul costs. The deployment to East Timor was the most significant contributingfactor, as some scheduled training exercises were cancelled due to the deployment.Depreciation expense was slightly higher than anticipated, largely as a consequence ofthe significant revaluation of assets undertaken in 1999-2000.

Defence does not budget for the write-down of assets other than expensed assets underconstruction, that is the costs of assets under construction that are expensed ratherthan capitalised upon the completion of construction of the asset. The $478m write-down includes expensed assets under construction ($199m), the forgoing of a $93mloan to ADI, and write-downs to specialist military equipment ($46m), inventory (net$72m), land and buildings ($21m), and other infrastructure, plant and equipment($46m). Write-downs and write-offs occur as a part of asset management programs andinclude the writing-off of equipment that is obsolete or damaged beyond repair.

Graph 1.3: Defence Operating Expenses

0 1000 2000 3000 4000 5000

Employ e e s

S upplie rs

De pre c ia t ion a nd a mort isa t ion

Writ e down of a s se t s

$ m

Ac tua l Re vis e d Es tima te

Section One

24

Balance Sheet

The most significant change to the Defence balance sheet was in non-financial assets.Defence does not budget for the revaluation of assets in accordance with establishedaccounting practice. During 1999-2000, approximately 80% of Navy and Air Forcespecialist military equipment assets were revalued resulting in an increase of $3,518m tothe gross value of these assets. Table 1.5 provides a summary of the estimated andactual assets and liabilities as at 30 June 2000.

Table 1.5: Departmental Balance Sheet – Statement of Assets andLiabilities

1999-2000Budget

Estimate$’000

RevisedEstimate

$’000

Actual

$’000

Variation

$’000FINANCIAL ASSETS

Cash 18,514 86,857 137,913 51,056Receivables 307,327 286,509 363,446 76,937

Total financial assets 325,841 373,366 501,359 127,993

NON-FINANCIAL ASSETSLand and buildings 6,335,870 7,483,350 7,605,459 122,109Specialist military equipment 26,344,340 25,685,454 29,196,801 3,511,347Infrastructure, other plant and equipment 3,609,467 3,469,623 3,815,427 345,804Inventories 2,607,844 2,675,027 2,933,463 258,436Intangibles 71,755 92,042 90,263 -1,779Other assets 533,753 915,072 679,036 -236,036

Total non-financial assets 39,503,030 40,320,568 44,320,449 3,999,881Total assets 39,828,871 40,693,934 44,821,807 4,127,874

DEBTFinance leases 0 -678 556 1,234

Total Debt 0 -678 556 1,234

PROVISIONS AND PAYABLESCapital use charge 0 0 51,357 51,357Employees 2,054,680 2,373,302 2,459,591 86,289Suppliers 581,759 453,611 502,375 48,764Other provisions and payables 0 67,009 108,515 41,506

Total provisions and payables 2,636,439 2,893,922 3,121,838 227,916Total liabilities 2,636,439 2,893,244 3,122,394 229,150

Net assets 37,192,432 37,800,690 41,699,413 3,898,724

EQUITYEquity injection appropriation 2,517,004 687,170 687,170 0Asset revaluation reserve 1,271,138 2,089,484 4,116,791 2,027,307Accumulated results 33,404,290 35,024,036 36,895,453 1,871,417

Total equity 37,192,432 37,800,690 41,699,414 3,898,724


25

The higher than budgeted total net asset position is largely a result of $2,027m inupward revaluations, and $1,274m of assets re-recognised under the transitionalprovisions of Australian Accounting Standard 29 (AAS 29). The ownership of all ofDefence’s communications and information technology assets now resides withDefence Information Systems. As a result of this consolidation of asset management,some assets that had previously been expensed as they fell under the $25,000 assetrecognition threshold have been brought back onto the books.

Graph 1.4: Non-Financial Assets 1999-2000

0 5000 10000 15000 20000 25000 30000 35000

La nd a nd building s

S pe c ia lis t milita rye quipme nt

Infra s truc ture , o the r pla nta nd e quipme nt

Inve nto rie s

$ m

Re vis e d Es tima te Ac tua l Outc ome

Section One

26

Cash FlowDefence’s closing cash position at 30 June 2000 was $138m. As mentioned earlier,$37m is East Timor-related, and was repaid in 2000-01. The remainder of the amountwas retained in order to meet payments due before the first 2000-01 cash drawdown on6 July 2000. Table 1.6 provides a summary of the estimated and actual cash flows forthe financial year ending 30 June 2000.

Table 1.6: Departmental Statement of Cash Flows

1999-2000Budget

Estimate$’000

RevisedEstimate

$’000

Actual

$’000

Variation

$’000OPERATING ACTIVITIES

Total cash received 14,587,835 15,328,540 15,973,816 645,276Total cash used 8,047,872 8,871,654 8,262,530 -609,124

Net cash from operating activities 6,539,963 6,456,886 7,711,286 1,254,400

INVESTING ACTIVITIESTotal cash received 223,535 226,547 132,906 -93,641Total cash used 3,578,636 2,822,056 3,913,912 1,091,856

Net cash from investing activities -3,355,101 -2,595,509 -3,781,006 -1,185,497

FINANCING ACTIVITIESTotal cash received 1,278,230 687,170 687,170 0Total cash used 4,463,092 4,548,547 4,560,603 12,056

Net cash from financing activities -3,184,862 -3,861,377 -3,873,433 -12,056

Net increase/(decrease) in cash held 0 0 56,847 56,847Cash at 1 July 18,514 86,857 86,857 0Derecognition of Woomera opening balance 0 0 -10,588 -10,588Effect of exchange rate movements on 1 Julybalance 0 0 4,796 4,796

Cash at 30 June 18,514 86,857 137,912 51,056


27

Net cash inflows from operating activities were $1,254m higher than the revisedestimate. This is a result of a combination of the receipt of the East Timorappropriation ($645m) and a categorisation adjustment ($982m). This categorisationadjustment concerns the treatment of inventory purchases. Inventory purchases wererecorded as an operating activity for budgeting purposes and an investing activity foractual reporting.

Net cash outflows from investing activities were $1,185m higher than the revisedestimate. This result reflects the recategorisation of the inventory purchases as aninvesting cash outflow ($982m), a redirection of funds to make major capital payments($256m), and lower than anticipated proceeds from the sale of capital items ($94m).

Net cash outflows from financing activities were $12m higher than the revised estimate,largely attributable to the higher capital use charge paid, of which $9m was East Timor-related.

Section One

28

ADMINISTERED ITEMS

Administered items are assets, liabilities, revenues and expenses, which are controlledby the Government and managed by the Department on behalf of the Government. Inprevious financial years, operations associated with the Young Endeavour have beenreported as administered items. The appropriateness of this reporting has beenreviewed, and agreement obtained from the Department of Finance and Administrationand the Australian National Audit Office that control of these operations rests with theRoyal Australian Navy. As a result, from 1 July 1999 the operations of the STS YoungEndeavour have been reported as departmental.

In 1999-2000, Defence recorded administered revenue of $1,926m. This comprised theadministered revenue from government of $1,235m, interest of $25m and $666m ofother sources of non-taxation revenue. Other sources of non-taxation revenueincluded contributions for the Defence Forces Retirement and Death Benefits Scheme($253m), the Military Superannuation and Benefits Scheme ($332m), and $80m forforeign governments and the United Nations reimbursements for East Timor.

In relation to the Defence Forces Retirement and Death Benefits Scheme and theMilitary Superannuation and Benefits Scheme contributions, Defence, acting uponadvice from the Department of Finance and Administration, has included the employerand member contributions to these schemes in the 1999-2000 Administered FinancialStatements. In 1998-99 Defence reported member contributions only for theseschemes.

Administered expenses reported a variation of $982m over the revised estimate for1999-2000, attributable to the personal benefits category. Actuarial advice resulted in asubstantial increase in the provision for military superannuation, which was reflected inthe increased expense reported for the 1999-2000 financial year.


29

Table 1.7: Administered Operating Statement – Statement of Revenuesand Expenses

1999-2000Budget

Estimate$’000

RevisedEstimate

$’000

Actual

$’000

Variation

$’000OPERATING REVENUES

Non-taxation revenuesRevenue from government(1) 1,952,874 1,658,912 1,235,154 -423,758Interest and dividends 0 0 24,649 24,649Other sources of non-taxation revenue 81,798 92,626 666,204 573,578

Total non-taxation revenue 2,034,672 1,751,538 1,926,006 174,468

EXPENSESPersonal benefits 1,938,173 1,650,936 2,633,250 982,314Suppliers 0 0 0 0Subsidies 5,000 5,000 4,625 -375Depreciation and amortisation 439 449 0 -449Write-down of assets 0 0 2,470 2,470Other expenses 9,262 2,527 1,028 -1,499

Total expenses 1,952,874 1,658,912 2,641,374 982,462

Operating result – contribution to budget result 81,798 92,626 -715,368 -807,994Extraordinary item -413,709 -318,509 0 318,509Operating result after extraordinary item -331,911 -225,883 -715,368 -489,485

TRANSFERSCash transfer to the Official Public Account 81,798 92,626 578,767 486,141Operating result after transfer -413,709 -318,509 -1,294,135 -975,626Accumulated results at 1 July -22,745,267 -23,248,083 -23,245,613 2,470Adjustments to opening accumulated results 0 0 -6,568 -6,568

Total accumulated results at 30 June -23,158,976 -23,566,592 -24,546,316 -979,724

Note1. The budget and revised estimate contain revenue for the Young Endeavour. As per the note in

Table 1.2, Young Endeavour was transferred to Departmental Items.

Section One

30

Table 1.8: Administered Balance Sheet – Statement of Assets andLiabilities

1999-2000Budget

Estimate$’000

RevisedEstimate

$’000

Actual

$’000

Variation

$’000FINANCIAL ASSETS

Cash 0 0 207 207Receivables 1,504,985 411,631 84,323 -327,308Investments 1,785,035 1,785,035 1,785,029 -6Accrued revenues 1,946 0 0 0

Total financial assets 3,291,966 2,196,666 1,869,559 -327,107

NON-FINANCIAL ASSETSInfrastructure, plant and equipment 7,905 7,949 0 -7,949

Total non-financial assets 7,905 7,949 0 -7,949Total assets 3,299,871 2,204,615 1,869,559 -335,056

PROVISIONS AND PAYABLESPersonal benefits 24,327,735 23,665,270 24,605,042 939,772Other provisions and payables 25,738 563 25,804 25,241

Total provisions and payables 24,353,473 23,665,833 24,630,846 965,013Total liabilities 24,353,473 23,665,833 24,630,846 965,013

Net assets -21,053,602 -21,461,218 -22,761,287 -1,300,069

EQUITYReserves 2,105,374 2,105,374 1,785,029 -320,345Accumulated results -23,158,976 -23,566,592 -24,546,316 -979,724

Total equity -21,053,602 -21,461,218 -22,761,287 -1,300,069


31

Table 1.9: Administered Statement of Cash Flows

1999-2000Budget

Estimate$’000

RevisedEstimate

$’000

Actual

$’000

Variation

$’000OPERATING ACTIVITIES

Cash receivedAppropriations 1,146,442 1,250,112 1,235,154 -14,958Interest and dividends 0 0 24,649 24,649Superannuation contributions 0 0 584,209 584,209Other 81,798 92,626 10 -92,616

Total cash received 1,228,240 1,342,738 1,844,021 501,284Cash used

Personal benefits 1,144,092 1,247,762 1,260,692 12,930Suppliers 0 0 0 0Subsidies 0 0 4,354 4,354Cash to the Official Public Account 81,798 92,626 578,767 486,141Other 2,350 2,350 0 -2,350

Total cash used 1,228,240 1,342,738 1,843,814 501,076Net cash from operating activities 0 0 208 208

INVESTING ACTIVITIESCash received

Cash from the Official Public Account 0 0 0 0Total cash received 0 0 0 0Cash used

Purchase of property, plant and equipment 0 0 0 0Total cash used 0 0 0 0

Net cash from investing activities 0 0 0 0

Net increase/(decrease) in cash held 0 0 208 208Cash at 1 July 0 0 0 0

Cash at 30 June 0 0 208 208

Section One

32

CAPITAL BUDGET

The Capital Budget was reduced by $757m in revised estimates to cover increasedoperating expenses of $380m and an accounting adjustment of $377m for thereclassification of asset purchases as inventory purchases. However, Defence outputcosts did not increase to the extent expected, due to reductions in ADF trainingexercises and other activities arising from the East Timor deployment and ADFrecruiting shortfalls. This enabled $267m to be returned to the Capital Budget afteradditional estimates.

Table 1.10 provides a summary of the estimated and actual capital budget for the1999-2000 financial year.

Table 1.10: Departmental Capital Budget (excluding East Timor)

1999-2000Budget

Estimate$’000

RevisedEstimate

$’000

Actual

$’000

Variation

$’000CAPITAL BUDGET PAYMENTS

Purchase of infrastructure, plant and equipment 3,190,400 2,594,000 2,849,628 255,628Purchase of land and buildings 377,700 196,800 216,377 19,577Other capital purchases 10,500 31,300 23,078 -8,222

Total capital payments 3,578,600 2,822,100 3,089,083 266,983

FUNDING FOR CAPITAL PAYMENTSEquity injection 1,278,230 687,170 687,170 0Self funding 2,076,835 1,908,383 2,208,117 299,734Capital receipts 223,535 226,547 193,796 -32,751

Total funding for capital payments 3,578,600 2,822,100 3,089,083 266,983

CAPITAL RECEIPTSProceeds on asset disposal 128,560 131,572 132,906 1,334Other capital receipts 94,975 94,975 60,890 -34,085

Total capital receipts 223,535 226,547 193,796 -32,751


33

MAJOR CAPITAL EQUIPMENT

The following table and descriptions provide details on progress and expenditure foreach of the most significant major equipment projects in 1999-2000.

1.11: Top 20 Projects by Forecast 1999-2000 ExpenditureApproved

ProjectCost

(Dec 99)

CumulativeExpenditure

to30 June 2000

1999-2000Budget

Estimate

1999-2000RevisedEstimate

1999-2000Actual

$m $m $m $m $mDec 99 Prices Dec 98 Prices Dec 99 Prices

Maritime and GroundAnzac Ship 6,163.5 4,759.8 365.3 377.3 391.7FFG Upgrade 1,296.3 235.1 - 101.3 106.5Minehunter Coastal 1,217.9 962.5 106.4 97.6 95.1New Submarines 5,046.0 4,836.8 110.2 80.9 110.2Submarine Interim MinimumOperating Capability 93.1 43.9 - 77.3 43.9Night Fighting SurveillanceCapability 150.7 122.7 52.0 60.2 55.9Evolved SeaSparrow Missile 310.4 131.3 74.0 34.0 14.5AerospaceLead-In Fighter Capability 1,023.5 690.4 241.8 280.2 244.5Strategic Airlift Capability 1,059.5 882.5 150.3 168.2 180.2Anzac Helicopter Capability 938.5 551.4 158.5 147.7 115.4P-3C UpdateImplementation

855.1 558.2 129.1 87.9 41.7

Air-to-Air WeaponsCapability 285.0 96.4 - 55.6 49.6F/A-18 Hornet Upgrade 270.9 120.4 40.6 50.6 42.5Electronic SystemsJindalee Operational RadarNetwork 1,198.4 836.1 69.6 83.5 74.4Tactical Air Defence RadarSystems 188.1 79.4 39.3 52.2 41.7Military SatelliteCommunications 328.7 56.1 - 47.5 49.8HF Modernisation 557.0 97.2 80.4 43.1 46.2Active Missile Decoy 178.5 153.1 37.7 38.8 35.4Projects not yet at ContractProjects which have yet to award all significant contracts:• Airborne Early Warning and Control Aircraft• Australian Light Armoured Vehicles – Additional

Section One

34

Anzac Ship Project

Partially Achieved as ForecastPhase 2 of the project is on schedule with Anzac Ship 04 Te Mana, the second of NewZealand's two ships, delivered in October 1999. Anzac Ship 07 Parramatta, waslaunched in June 2000. The keel of Ship 08 Ballarat, is scheduled to be laid in the thirdquarter of 2000. A revision to the delivery schedules for ships 05-10 was agreed withthe prime contractor in July 1999 to accommodate the inclusion of capabilityenhancements in these ships.

Phase 3 of the project, the undersea and surface warfighting upgrade, will enhance thesurface and sub-surface warfare capabilities of all eight Australian Anzac ships. Subjectto agreement on scope and price, the enhancements will be procured through theAnzac ship prime contract by way of contract amendment proposals.

FFG Upgrade

Partially Achieved as ForecastThe prime contract, awarded to ADI Ltd in June 1999, is to be conducted at ADI’sGarden Island facility, commencing with HMAS Sydney in mid-2002 and completingwith HMAS Newcastle in late 2005. The decision to change the lead ship from HMASAdelaide (west coast-based) to HMAS Sydney (east coast-based) allows ADI access to aneast coast-based FFG for shipchecks prior to the installation phase.

The detailed design of the upgrade has progressed, with the preliminary design reviewnow scheduled to be fully completed in the second half of 2000, several months laterthan planned. The critical design reviews will follow. A recovery plan to retrieveschedule is currently being developed, but the slippage is expected to be containedwithin the contracted window for delivery of the upgraded FFGs.

Minehunter Coastal Project

Achieved as ForecastHMAS Hawkesbury (Ship 02) was delivered in December 1999 and commissioned inFebruary 2000. Ship 03 Norman, was delivered in July 2000, four weeks later thanscheduled due to a delay in the provision of modified auxiliary propulsion unitssupplied from Italy. Ships 04-06 are currently under construction and are expected tobe delivered on schedule. Ship 04 Gascoyne, is planned for delivery in early 2001.

New Submarines

Partially Achieved as ForecastAction to acquire and install United States Navy combat system equipment and toimprove the noise characteristics of the Collins-class submarines has progressed.HMAS Collins achieved an interim minimum operating capability by June 2000. Theaim of achieving an interim minimum operating capability in the two ‘fast track’submarines, Dechaineux and Sheean, by the end of 2000, while still achievable, is nowtight with no room for further schedule slippage.


35

Trials of several alternative propellers have been conducted throughout the year, asplanned, but further extensive trials will be required before the optimum propeller/hullshape configuration is finally determined.

Due to a commercial requirement to separate the build contract from the ‘fast track’improvements, Defence accepted delivery of Dechaineux and Sheean in July and August2000 respectively.

Options to bring all six submarines to full capability by the end of 2006 will be putbefore the Government in 2000-01.

Due to the concentration of resources on earlier submarines, progress in launching anddelivering Rankin was not achieved as planned. Launching and delivery of Rankin areboth forecast for 2001.

Night-Fighting Surveillance Capability

Partially Achieved as ForecastDeliveries of night-fighting equipment are continuing. The main production deliverieswill be largely complete by November 2000, with minor deliveries continuing until mid-2001. Contract negotiations for the radar systems are complete and the contracts areready for signature. Source selection for the thermal surveillance systems andunattended ground sensors projects are both complete, with contract signatureexpected for thermal surveillance systems and for unattended ground sensors in the lastquarter of 2000. The project introduced additional night-fighting, radar and thermalsurveillance systems for service in East Timor under an accelerated acquisitionprogram.

Evolved SeaSparrow Missile

Achieved as ForecastThroughout 1999-2000, progress continued towards Anzac combat system integrationand the upgrade of Anzac shore and maintenance facilities to support the missile.Anzac Ship 05 Warramunga will be the first Anzac ship to be delivered with the EvolvedSeaSparrow capability. Missiles are being procured through the Nato SeaSparrowprogram in which Australia is one of thirteen participating governments. Missiledeliveries are scheduled to commence in the first quarter of 2001. The first missilefirings will be conducted from Ship 05 Warramunga, during post-delivery trialsscheduled in mid-2001. A change in the payment schedules for the production missileshas resulted in a more favourable payment profile for the Commonwealth with noimpact on the planned missile deliveries.

Lead-In Fighter Capability

Partially Achieved as ForecastThe first Hawk 127 commenced test flying in December 1999. Delivery of the firstaircraft is now expected in October 2000, with at least six additional aircraft to beavailable for acceptance by that date. This delay, despite considerable effort by thecontractor in completing its obligations under the contract, has caused the RAAF torevise training plans and divert resources from other activities. Contractual provisionswill be invoked to redress this impact. The delay will not affect the imperative for theMacchi jet trainer to be retired in December 2000.

Section One

36

Strategic Airlift Capability

Partially Achieved as ForecastAll 12 C-130J aircraft were accepted by June 2000, a delay of three months. The first ofthree post-delivery upgrades (Block 5.2) was installed on all aircraft by July 2000. TheAustralian Defence Force Airworthiness Board reviewed acceptance of the C-130J-30aircraft into operational service in June 2000 and recommended endorsement of anAustralian Military Type Certificate and the issue of a Limited Service Release foroperations in the Block 5.2 configuration. The second and third upgrades are currentlyscheduled to be completed by October 2001. C-130E aircraft are being withdrawnfrom RAAF service progressively, with the final aircraft retiring at the end ofNovember 2000.

Anzac Helicopter Capability

Partially Achieved as ForecastThe prototype aircraft first flew in October 1999, and the hardware is ready to acceptmost aircraft systems. The contractor has introduced a new schedule for developmentand delivery of software for weapons and sensor integration which has led to a stageddelivery of the helicopter. Contractor delays in software development have impactedon both the full development of the mission simulator and aircraft prototype test flying.Delivery of the first production aircraft in early 2001 will be with an interim capabilitythat will allow initial flight qualification trials and aircrew training. The In-ServiceSupport Centre contract, which extends to 2010, is now in place and ready to supportthe delivery of the first helicopter in April 2001. The final helicopter is due foracceptance in mid-2002, as scheduled. The associated Project Sea 1414 (PenguinMissile) is on schedule for the delivery of missiles for this helicopter.

P-3C Update Implementation

Partially Achieved as ForecastThe delivery of the AP-3C prototype aircraft is not expected before late November2000. This is a direct result of a slower than expected rate of clearance of systemintegration issues within the data management system and navigation system software.An independent review commissioned by the Aerospace Acquisition Division indicatedthat there were no systemic design problems with the data management system and thatthe slow resolution of integration issues was reflective of the complexity of the projectand of highly aggressive scheduling by the contractor. The Commonwealth is pursuingaction to recover the costs incurred as a result of the delays and remains confident thatthe capability sought under this project will be delivered.

Delivery of the mission replay and analysis module was achieved in June 2000.

Delivery of the operational mission simulator and the Systems Engineering Laboratoryhave been delayed as a direct result of slower than expected progress on the AP-3Cprototype aircraft. Delivery of the operational mission simulator remains dependent onthe establishment of an acceptable prototype design baseline. Slower than expectedprogress through operational mission simulator integration and anomaly resolution hasalso impacted upon delivery, which is now not expected until early 2001. The delay inthe delivery of the Systems Engineering Laboratory was due to the system being


37

retained in Greenville, Texas, to support prototype integration and testing. Delivery isnow expected in late 2000.

Air-to-Air Weapons Capability

Achieved as ForecastWork continued on the project to acquire an operational air-to-air weapons capabilityand support infrastructure for the F/A-18. This includes the acquisition of within-visual-range air-to-air missiles and beyond-visual-range air-to-air missiles. Contracts forboth types of missiles were signed in November 1998 with options for further missilestaken up in 1999. Further beyond-visual-range missiles are planned under Phase 3 ofthe project. Deliveries of the beyond-visual-range missiles are scheduled to commencein early 2001 and are anticipated to conclude in 2003. Deliveries for the within-visual-range missile will commence in late 2001 and will conclude in 2002. Work continuedon the integration of advanced short-range air-to-air missiles and advanced medium-range air-to-air missiles on to the F/A-18.

F/A-18 Hornet Upgrade

Achieved as ForecastInstallation of the Phase 1 modifications to the aircraft and ground support systems arebeing progressed as contract changes to the Phase 1 prime contract following detailedplanning and selection of Australian sub-contractors. Modification of the initial twoprototype aircraft for Phase 1 commenced on schedule in April 2000 with modificationof all aircraft due to be completed by the end of 2001.

The Phase 2 radar acquisition foreign military sales case was accepted in October 1999.Installation of the radar and upgrade of associated support systems is planned to occurimmediately following the Phase 1 modifications, commencing with a prototypeinstallation during the second quarter of 2001 with modification of all aircraft due to becompleted by the end of 2002. Source selection of the remaining Phase 2 primeequipment has commenced.

Jindalee Operational Radar Network

Achieved as ForecastThe Jindalee Operational Radar Network contract has been novated to RLM. Theprime contractor has taken over control of the radar sites from BAE Systems (formerlyGEC-Marconi), so that all responsibilities for the contract now reside with RLM.Major initial capability demonstrations (detection and tracking) for the Queenslandradar occurred in September 1999 and for the Western Australian radar in December1999. These verified the integrity of the design and interoperability of the basic radarsystem building blocks using ‘legacy’ software. Improved software developed by RLMhas since been installed at all sites and more sophisticated integration validation andtesting is now under way.

The overall level of technical risk for the project has reduced but there is some schedulerisk. The contractor’s schedule projections indicate that operational release will occurin the first half of 2002 and final acceptance in the second half of 2002. A viable (butunverified) wide area surveillance capability could be made available during the secondhalf of 2001, if required.

Section One

38

Tactical Air Defence Radar Systems

Partially Achieved as ForecastThis project will acquire four tactical air defence radar systems to replace obsoletesystems. The project will also provide a transport capability for the new systems, andsatellite communications between the new systems and the fixed air defence sites. Asforecast, the critical design review was conducted during 1999-2000 but some actionsarising from the review are still to be completed. System production anddevelopmental and acceptance testing has commenced but is experiencing delays.Delivery of the new systems is expected during 2001-02.

Military Satellite Communications

Achieved as ForecastContracts for the provision of an ADF satellite capability, as part of a sharedmilitary/commercial satellite were signed with Cable & Wireless Optus in October1999. The satellite is due for launch in early 2002 and is expected to enter service bymid-2002. Work is continuing on the Defence mobile satellite communicationsnetwork project, which will provide upgraded satellite communication services totactical ADF elements during 2000-01. The theatre broadcast technology demonstratorwas developed further and was successfully deployed to East Timor and also inmaritime trials. After a review of the operational requirement for satellitecommunications for certain aircraft, orders for radios for C-130H aircraft have beenplaced via the United States foreign military sales arrangements. Fitment of the radiosis expected to commence in 2001.

High Frequency Network Modernisation

Partially Achieved as ForecastThe system preliminary design review was completed in early 2000. Access roads to theRiverina sites and the Townsville receiver site have been completed, as have thedetailed design reviews for building and facilities construction at all sites.

Construction work has commenced on the Riverina and North-West Cape sites.Commencement of construction work at the Darwin sites and the Townsvilletransmitter site slipped until the third quarter of 2000 due to delays in getting thenecessary site agreements in place with local authorities. Site building construction atTownsville and Darwin is now scheduled to be completed in late 2000/early 2001. Fit-out of the network management facility in Canberra has been deferred by the primecontractor because of delays in finalising the design. This is now due to commence inlate 2000. These delays will not affect the schedule for completion of the core networkin late 2002.


39

Active Missile Decoy

Partially Achieved as ForecastFour frigates (FFGs), HMA Ships Canberra, Darwin, Melbourne and Newcastle, have beenfitted with the active missile decoy system. The two remaining frigates will follow inearly 2001. The first Anzac ship is planned to be fitted in mid-2001 and the last inDecember 2004. The qualification of the active missile decoy fire control systemsoftware has been delayed and remains a risk. Consequently, acceptance into navalservice was not achieved as planned. Software acceptance is now scheduled for early2001, followed by the RAN operational evaluation in mid-2001 and acceptance intonaval service in late 2001.

Airborne Early Warning and Control Aircraft

Not Achieved as ForecastFinal Government approval for this project was deferred in August 2000 so that theproject can be considered within the context of the Defence White Paper.

Australian Light Armoured Vehicles

Not Achieved as ForecastNegotiations for the procurement of 144 vehicles have been completed and contractsignature is expected in 2000-01. A reduction of six vehicles to 144 has been necessaryto preserve contingency funds and stay within the approved project cost. An optionfor the additional six vehicles may be taken up later in the program. Delivery isexpected in the period 2002-05. This will be confirmed after contract signature.

Other Major Projects Planned for 1999-2000

2CRU/3CRU Control and Reporting Units

Not Achieved as ForecastThis project will provide a ground-based command, control, and communicationssystem at Numbers 2 and 3 Control and Reporting Units. The award of the primeequipment and logistics support contracts did not occur as planned. The contractingstrategy for this project was subsequently amended to allow for the systemrequirements analysis phase to be conducted in advance of contract signature for theprime equipment contract. Contract signature for the prime equipment contract is nowplanned to occur in 2001-02, with the support contract to follow later.

Light Tactical Airlift Capability

Not Achieved as ForecastAs a result of the need to review the competing priorities of all Defence’s current andfuture capability requirements, progression of the light tactical airlift capability projecttender process has been cancelled. The future requirement for such a capability will bereconsidered in the context of the Defence White Paper.

Section One

40

SIGNIFICANT MAJOR FACILITIES

The following table and descriptions provide details on progress and expenditure foreach of the most significant major facilities projects in 1999-2000.

1.12: Significant Major Facilities ProjectsPROGRAM OF WORKS(state, federal electorate andlocality)

ApprovedProject

Cost

$’000


to30 June 2000

$’000

1999-2000Budget

Estimate

$’000


$’000

1999-2000Actual

$’000QUEENSLANDHerbertTownsville – Redevelopment ofLavarack Barracks Stage 2 139,308 25,735 27,700 25,200 23,342Townsville – Redevelopment ofRAAF Base Stage 1 70,100 903 2,000 1,500 891Townsville – Facilities for BlackHawks 22,132 21,533 2,000 2,000 163BlairAmberley – Redevelopment ofRAAF Base 77,400 15,471 30,000 30,000 13,795LeichhardtCairns –Facilities for 51 Far NorthQueensland Regiment 22,517 21,509 17,700 18,800 18,137NEW SOUTH WALESEden/MonaroTwo Fold Bay – NavyAmmunitioning Facility(1) 40,000 1,400 3,600 900 1,400GilmoreHMAS Albatross – Redevelopmentof Naval Base 110,000 46,817 44,600 38,000 38,099PatersonWilliamtown – Eastern RegionOperations Centre Development 18,000 15,362 16,500 15,500 13,970VICTORIACorioPoint Wilson – Navy InterimAmmunitioning Facility(1) 6,100 6,208 1,100 2,700 1,745MaribyrnongAlbion – Decontamination Works 28,635 21,597 8,000 10,900 10,108WESTERN AUSTRALIABrandHMAS Stirling – DevelopmentStage 2 Phase b/c 122,837 122,837 3,000 3,000 22HMAS Stirling – DevelopmentStage 2d 39,471 31,025 1,000 1,000 262HMAS Stirling – DevelopmentStage 3 19,000 17,090 8,373 8,373 7,581


41

PROGRAM OF WORKS(state, federal electorate andlocality)

ApprovedProject

Cost

$’000


to30 June 2000

$’000

1999-2000Budget

Estimate

$’000


$’000

1999-2000Actual

$’000NORTHERN TERRITORYNorthern TerritoryDarwin – Joint Army DeploymentFacility Development Stage 2 268,300 213,263 45,400 29,000 25,589RAAF Darwin – Development ofOperational Facilities 59,458 51,607 29,000 30,900 22,019RAAF Tindal – DevelopmentStage 4 31,377 29,848 500 2,800 843Delamere – Air Weapons RangeDevelopment 12,300 0 500 500 0Timber Creek – Bradshaw StationInfrastructure 53,666 2,739 26,000 1,300 944ACTFraserRussell – Redevelopment ofRussell Offices 226,705 226,705 9,400 800 992CanberraWeston – Collocated Staff Colleges 28,000 5,553 5,000 7,000 5,416

Note1. The Portfolio Additional Estimates Statements 1999-2000 erroneously reported the approved project cost

for the Navy Ammunitioning Facility at Eden, NSW as being $73.1m, which in fact included theapproved cost for the interim facility at Point Wilson (Victoria). In addition, the scope of work for theworks at Eden has been reduced, together with the approved cost for the project.

Lavarack Barracks Redevelopment Stage 2: Continuing

Substantially Achieved as ForecastThis project will provide various facilities and infrastructure, including new singlesoldier living accommodation, to ensure the long-term viability of Lavarack Barracks asthe major base of the ADF Rapid Deployment Force. The project commenced inNovember 1999 as forecast, but minor elements were delayed due to a wet season thatwas more intensive than expected. Stage 3, which is due to commence in 2000-01, willcomplete the redevelopment of the barracks.

RAAF Townsville Redevelopment Stage 1: Continuing

Partially Achieved as ForecastThis project provides new facilities including loading aprons, a combined vehiclemaintenance facility, and aircraft support infrastructure to support the operational roleof RAAF Townsville. An important element of the land acquisition process for theproject, the negotiation of an indigenous land use agreement, is nearing completion.The managing contractor was appointed in February 2000, design work is under way,and construction is expected to commence in October 2000.

Section One

42

RAAF Townsville – Facilities for Black Hawk Helicopters: Completed

Achieved as ForecastThis project provides facilities including hangars, aprons, wash down facilities, fireprotection systems, maintenance workshops and equipment storage areas for thehelicopters operated by the Army’s 5th Aviation Regiment. The project was completedas forecast in November 1999.

RAAF Amberley Redevelopment: Continuing

Partially Achieved as ForecastThis project is to overcome immediate deficiencies in the existing facilities at RAAFAmberley and to provide improved aircraft maintenance, operation, support andtraining facilities. Construction started in mid-2000, and is expected to be completedon schedule by mid-2002.

51 Far North Queensland Regiment: Completed

Substantially Achieved as ForecastThis project provides new and upgraded facilities for 51 Far North QueenslandRegiment at a number of sites. Construction of the main sites was completed asplanned, but a number of minor regional sites were delayed several months by wetweather and access constraints. Work on the last site was completed in June 2000.Three regional sites were deleted from the scope of works when land tenurearrangements could not be agreed.

Navy Ammunitioning Facility: Continuing

Partially Achieved as ForecastThis project will provide a naval ammunitioning facility at Two Fold Bay near EdenNSW to replace the former facility at Newington on the Sydney Olympic site. PointWilson in Victoria is being used as an interim facility. Parliament approved theproposal in June 2000. The project received environmental clearances from theMinister for Environment and Heritage in early June 2000, but native title issues requireresolution. Construction is planned for commencement in September 2001, andcompletion in December 2002.

HMAS Albatross Redevelopment Stages 1 and 2: Continuing

Achieved as ForecastThis project will update various facilities including aircraft support, storage andmaintenance facilities, the air traffic control tower, explosive ordnance storage andloading facilities, and training facilities. Stage 1 is within budget and is expected to becompleted in April 2001. Parliamentary approval to proceed with Stage 2 works wasreceived in May 2000.


43

RAAF Williamtown, NSW Eastern Region Operations Centre: Continuing

Achieved as ForecastThis project provides new facilities to accommodate air defence operations andtraining. The major part of the project (the Eastern Region Operations Centrebuilding) was completed on schedule in August 2000. It is anticipated that minorancillary works associated with the project will be completed in June 2001.

Point Wilson Interim Navy Ammunitioning Facility: Complete

Achieved as ForecastPoint Wilson is being used for ammunitioning until completion of the facilities at Eden,New South Wales. The works at Point Wilson included the upgrading of existingexplosive ordnance storehouses and security systems, construction of transit andmaintenance activity facilities, and increasing the cathodic protection of the wharves.These works were completed at the end of June 2000.

Albion Explosives Factory Decontamination: Continuing

Achieved as ForecastThis project will decontaminate and remediate the former Albion Explosives Factorysite. Work commenced in March 1999 and is progressing on schedule and withinbudget for completion by January 2001. Progressive transfer of the site to the UrbanLand Council for development and public sale commenced in May 1999 and isscheduled for completion by August 2009.

HMAS Stirling Stage 3: Completed

Achieved as ForecastThis project was the final stage to complete the development of HMAS Stirling as partof the two-ocean basing policy. The project was completed under budget and ahead oftime in January 2000.

Joint Army Deployment Facility Development Stages 1 and 2: Continuing

Achieved as ForecastThis project provides facilities in support of the Army’s programmed relocation of the1st Brigade to Darwin. The first stage of this project, approved by the Government in1992, was completed in 1999, within budget. The second stage, approved in 1995, hasbeen increased in scope and will be completed in February 2001, within the amendedprogram and within the original budget.

RAAF Darwin, Development of Operational Facilities: Continuing

Partially Achieved as ForecastThis project provides enhanced operational works at RAAF Darwin, including aircraftloading aprons, fuel farm, operations/technical facility and a base command post, andthese works are substantially complete. Some parts of the project have been delayed bycoordination difficulties with the air traffic control equipment project and budgetaryconcerns. Subject to budgetary constraints, construction of the central emergencypower station and engineering services is intended for late 2000-01.

Section One

44

RAAF Tindal – Development Stage 4: Continuing

Partially Achieved as ForecastTindal Stage 4 is substantially complete. Tindal Stage 5 has been deferred to 2003-04for a decision on the future of the project.

Delamere Air Weapons Range, Electronic Range Development: ToCommence

Not Achieved as ForecastFacilities provided by this project will support the Air Combat Training System (ProjectAir 5395), and will include emitter sites, domestic accommodation, maintenancefacilities and associated civil works in the Delamere area. Consideration by the JointStatutory Committee on Public Works is anticipated in mid-November 2000, withconstruction starting in April 2001 and concluding in August 2002. Facilities works willcommence after Parliamentary endorsement of the project has taken place, and afterDefence has signed the required contracts for this project (intended for November2000). Construction is also dependent upon the acquisition of land, including thedevelopment of an indigenous land use agreement.

Bradshaw Station Infrastructure: Continuing

Not Achieved as ForecastThis project provides the necessary infrastructure to allow the use of the Bradshawproperty as a field training area for the 1st Brigade. Significant delays have beenexperienced and the project is now some three years behind its original program. Thereis a native title claim and an Aboriginal land rights claim over the property and someadjoining areas required for access. An indigenous land use agreement is currentlybeing negotiated between Defence, the claimants and the Northern Land Council.

Russell Offices Redevelopment: Continuing

Achieved as ForecastThis project replaces sub-standard facilities and will enhance the capability for strategicand operational command in an integrated and joint environment. Construction of thetwo new buildings and the refurbishment of four older buildings was completed byDecember 1999 (buildings R3 and R4 were occupied in April 1999, R8 in May 1999,and R7 in December 1999), and 4,600 staff have been relocated into their new workingenvironment. Remaining roads, carparks and landscaping will now be completed byDecember 2000, within the cost cap, and eight months early.

Collocated Staff Colleges: Continuing

Achieved as ForecastThis project will collocate the existing single-Service staff colleges with the AustralianDefence College at Weston Creek, ACT. Parliament approved the project in December1999 and construction is proceeding on a tight schedule with a completion target of lateDecember 2000 to enable the new course to commence in early 2001.


45

New Major Projects in 1999-2000

Enoggera Barracks – Rationalisation of Catering Service: Continuing

Not Achieved as ForecastThis project will redress inefficiencies at Gallipoli Barracks, Enoggera, throughrationalisation of the existing messing facilities and upgrade of selected living-inaccommodation. This project was targeted for submission to the Joint StatutoryCommittee on Public Works in mid-2000. However, because of changing activities andrequirements in the 7th Brigade, largely due to the East Timor commitment,presentation to the committee has been re-scheduled to early 2001.

DSTO Rationalisation, Melbourne: Continuing

Achieved as ForecastThis project relocates functions from Maribyrnong to Fishermans Bend, includingintegration of common functions, and construction of enhanced facilities, permittingdisposal of Maribyrnong. After approval by Parliament in late June 2000, work isexpected to start in early 2001, with Stage 1 planned for completion in September 2002,and Stage 2 in December 2003.

RAAF Edinburgh Redevelopment Stage 1: Continuing

Partially Achieved as ForecastThis project will provide new facilities in the technical area and includes newadministrative, warehousing and aircraft shelter facilities. Due to budgetary pressures,Stage 1 is now planned to commence in 2000-01. With the completion of requireddepartmental processes, the Joint Statutory Committee on Public Works held a hearingon Stage 1 in August 2000, and parliamentary consideration is anticipated by the end of2000.

RAAF College Development: Continuing

Not Achieved as ForecastThis project will collocate initial officer training, currently at Point Cook, and other-rank recruit training, currently at Edinburgh, to achieve economies in training andadministration and replace sub-standard facilities. The project has been delayed untilfurther studies are undertaken to determine the preferred location for the College.

Section One

46

DEFENCE REFORM PROGRAM

Overview

The Defence Reform Program was instituted in April 1997. The principal aim was toensure that Defence focused clearly on the achievement of its primary mission. Thebenefits of reform have been reflected through improved management arrangements,some rationalisation of higher Defence committee structures, and an increasedemphasis on long-term planning. Throughout 1999-2000, efficiencies have continuedto flow from improvements in the control of supporting functions. Resources madeavailable through these efficiencies continue to be redirected to improving combatcapabilities.

1999-2000 saw a joint review of Defence financial management arrangementsundertaken in conjunction with the Department of Finance and Administration. Thisreview proposed a new planning framework, the introduction of performance pricearrangements and further refinement of the application of accrual accounting. Thesechanges, together with ongoing structural change, severely challenge our ability topursue the baseline first established in 1996 during the Defence Efficiency Review.Clearly, the Defence Reform Program needed updating and it was decided to move to aprogram of continuous organisational improvement. As part of implementing thischange, the Defence Reform Program Strategic Management and Reporting Team wastransformed into the Organisational Effectiveness Branch with ongoing responsibilitiesfor management and reporting of improvement activities.

With the move to a new planning environment to operate from 2001-02, the DefenceReform Program will be closed both administratively and from an accounting sense.An internal review in 2000-01 will reconcile the original list of initiatives againstachievements. Completed initiatives will not be carried forward within a cumulativereporting regime, while current and yet to be commenced initiatives will be includedwithin the new Defence Plan as elements of an ongoing improvement program.

Resource Efficiencies

The implementation of the Defence Reform Program remains on target andsubstantially ahead of its initial savings achievement schedule. By 30 June 2000, theongoing gains were $476m per annum, compared with a revised estimate of $523m perannum (a shortfall of $47m or 9%). The bulk of this shortfall was due to an error inthe additional estimates, which incorrectly identified $22m as unallocated administrativesavings when it had been counted elsewhere. The remainder of the variation isexplained in the following paragraphs. The final achievement was $2m or 0.4% abovethe budget estimate.

Science and Technology

During the year, the decision was made not to proceed with the contracting out ofsome test and evaluation functions. This resulted in a shortfall in science andtechnology savings of $1m.


47

Logistics

The market-testing program is now addressing major activities in Support Command.Some large projects, including the explosive ordnance storage maintenance anddistribution system, have suffered some delays. This has consequently delayed savingsin operating costs, predominantly in salaries resulting in a $13.4m shortfall against therevised estimate.

Administrative Support

Administrative support realised $10m in excess of the additional estimates whichalready had been adjusted upwards at additional estimates. The savings have beenharvested based on the anticipated results in commercialisation activities related toSydney fire services, and clerical and administrative activities in south-west Sydney andthe south coast of NSW, and the Riverina Murray Valley region.

Unallocated Savings

No unallocated savings have been identified during the period. This method oftargeting savings will be changed after the full reconciliation of the Defence ReformProgram. Savings will be identified against specific initiatives.

Capital Facilities

A $2m shortfall in savings required from the capital facilities program is due to delays inthe transfer of properties to state governments under the Federation Fund.

$125m Administrative savings

The $125m pa administrative savings program is reported in note 6 to Table 1.13. Theunallocated $22m was added in error at the 1999-2000 additional estimates when in factit had been allocated to Land Force capabilities. Shortfalls in expenditure were due tothe non-occurrence of planned F-111 documentation ($1.2m) in strike; the fitting ofAnzacs 01 and 03 with ex-DDG equipment, which enabled the deferral of $1.8m inexpenditure on C3I equipment; fewer members than anticipated taking up the pilotretention bonus ($1.8m); and fewer Reservists than expected taking up the HomeOwners Loan Scheme consequent on its extension to them ($1.8m) in PersonnelInitiatives. Additional expenditure of $49m was paid into the United States ForeignMilitary Sales trust account from Strike ($6m) and Maritime and Air Defence ($43m) toassist in meeting the March 2000 quarterly payment.

Section One

48

Table 1.13: Defence Reform Program Cumulative Resources Available forReinvestment(1)

Defence Reform ProgramInitiative

1999-2000Budget

Estimate


1999-2000Actual

Variation(99-00 Actual lessRevised Estimate)

$m $m $m $m %Defence Command andManagement 17 16 16 0 0Intelligence 3 3 3 0 0Capability Development 0 0 0 0 0Acquisition and Industry 31 32 31 -1 -3.1Science and Technology 3 3 2 -1 -33.3Facilities and Long Term ForceDisposition 10 10 10 0 0Logistics 107 102 88 -14 -13.7Personnel Planning 70 10 10 0 0Education and Training 39 44 44 0 0Administrative Support 259 371 381 10 2.7Information Management 18 15 15 0 0Defence Cooperation 0 0 0 0 0Total 557 606 601 -5 -0.8Other:Unallocated(2) 17 17 0 -17 -100Superannuation 82 93 90 -3 -3.2Fringe Benefits Tax 18 21 20 -1 -4.8Total Gross ResourcesAvailable(3) 674 737 711 -26 -3.5Provision for contractor support– Contracts Funded(4) -220 -256 -254 2 -3.1Total Net Resources Available 455 482 457 -24 -5Add One-Off Savings(5)

Capital Facilities 15 15 13 -2 -13.3Equipment and Stores 0 0 0 0 0In-year Handbacks 0 0 2 2Defence Cooperation (one-offelements) 4 4 4 0 0Total One-Off Savings 19 19 19 0 0Unallocated $125mAdministrative Savings(6) 0 22 0 -22 -100Total Resources Available forReinvestment 474 523 476 -47 -9


49

Notes1. Figures may not add due to rounding.2. Unallocated funds will no longer be reported in this format and will be rolled into the continuous

program of improvements in future.3. The resource reallocations listed in the table are the gross resource reallocations to be achieved,

including the salary and operating costs of support areas to be market tested.4. This line represents the cost of contracts for service delivered by external providers as a result of

Defence Reform Program initiatives.5. One-off gains relate to the facilities sales program, Defence Cooperation gains, and other one-off

reform program-related gains.6. In the 1996-97 budget, Defence made a reduction in administrative expenditure totalling $125m per

annum (subsequently increased to $136m per annum), which has been reallocated to a range ofcapability-related expenditure initiatives. Reinvestment of the unallocated savings from 1998-99onwards has been combined with the Defence Reform Program reinvestment for reporting purposes.Reinvestment details for the $125m administrative savings are as follows:

1999-2000Budget

Estimate


1999-2000Actual

Variation (99-00Actual less Revised

Estimate)$m $m $m $m %

Programmed Savings 136 136 136 0 0-Land Force Capabilities 118 60 62 2 3.3-Strike 51 29 33 4 13.8-Maritime and Air Defence 44 3 48 44 1,466.6-C3I 7 4 2 -2 -50-Personnel Initiatives 17 17 13 -4 -23.5-Other Government Initiatives 1 1 1 0 0

Total Reinvestment 238 114 158 44 38.5Unallocated Savings -102 22 -22 -0 0

The budget allocation of $238m was reduced for additional estimates to $114m with a subsequentactual of $158m. Major expenditure activities comprised personnel retention initiatives including thepilot retention bonus; and a range of combat-capability enhancements, including the acquisition ofnight fighting equipment; additional Harpoon missiles; and air-to-air and air-to-surface weapons.

Section One

50

Table 1.14: Cumulative Defence Reform Program Military PersonnelReductions(1)(2)


1999-2000Budget

Estimate


1999-2000Actual


%Defence Command andManagement 195 180 148 -32 -17.8Intelligence 22 22 26 4 18.2Capability Development -1 -1 -1 0 0Acquisition and Industry 238 238 198 -40 -16.8Science and Technology 44 44 30 -14 -31.8Facilities and Long Term ForceDisposition 56 56 56 0 0Logistics 1,397 1,397 901 -496 -35.5Personnel Planning 604 604 604 0 0Education and Training 621 725 731 6 0.8Administrative Support 2,908 3,421 3,421 0 0Information Management 126 126 126 0 0Total Service Reductions 6,210 6,812 6,240 -572 -8.4

Notes1. These savings represent cumulative ongoing totals of actual personnel numbers to be reduced or

redirected to priority combat positions in any given year as a result of rationalisation, streamlining ormarket testing activities carried out as part of the Defence Reform Program. They do not representaverage strength figures because of uncertainties due to the market testing program.

2. These figures do not include the reinvestment of Defence Reform Program resources in ADF or APSpersonnel (see Table 1.16).


51

Table 1.15: Cumulative Defence Reform Program Civilian PersonnelReductions(1)(2)


1999-2000Budget

Estimate


1999-2000Actual


%Defence Command andManagement 181 183 185 2 1.1Intelligence 32 32 32 0 0Capability Development 0 0 0 0 0Acquisition and Industry 295 307 307 0 0Science and Technology 10 10 1 -9 -90Facilities and Long Term ForceDisposition 91 91 91 0 0Logistics 903 903 770 -133 -14.7Personnel Planning 239 239 239 0 0Education and Training 118 121 94 -27 -22.3Administrative Support 1,107 1,965 1,965 0 0Information Management 181 76 76 0 0Total Civilian Reductions 3,157 3,927 3,760 -167 -4.3

Notes1. The figures in the table represent the cumulative ongoing reductions of actual personnel numbers

rather than the average strength.2. These figures do not include the reinvestment of Defence Reform Program resources in ADF or APS

personnel (see Table 1.16).

Defence Reform Program Reinvestment

A total of $554m was reinvested in Defence capability in 1999-2000. The focus ofreinvestment changed from new capital investment and the recovery of logisticsshortfalls to support for current capability (reflecting the deteriorating regional strategiccircumstances) and the maintenance of the ADF full-time strength at no lower than50,000. As at 30 June 2000, cumulative Defence Reform Program savings of $1,138mhave been reinvested in current and future capability ($848m) and in transition costs($290m).

New Capital Investment

1999-2000 was the first year Defence Reform Program reinvestment has occurred innew capital investment. An additional $85m was transferred to the new capitalinvestment program as part of the budget. Some of the immediate benefit of this waslost when specific project schedules were adjusted as part of the additional estimatesprocess. Nevertheless, the overall position of new capital investment is $85m better offthan it would have been without Defence Reform Program savings.

Section One

52

Amphibious Capability

In 1999-2000, the Defence Reform Program contributed $34m to improving andmaintaining ADF amphibious capability, bringing the cumulative total to $67m. Themajor achievements have been the retention and continued operation of HMAS Tobruk($6m), a contribution to the refurbishment of HMA ships Kanimbla and Manoora ($11m)and the lease of HMAS Jervis Bay ($16m).

Capability-Related Logistics

In 1999-2000, $181m was allocated to capability-related logistics, bringing thecumulative total to $391m. $84m was provided to offset the costs associated with theincreased readiness of the 1st Brigade and related units in 1999. Similar reallocationswill apply in 2000-01. The balance of expenditure in 1999-2000 was directed to NavalAviation ($23m), Army Aviation ($19m), F/A-18 support ($29m), Maritime Patrol($8m) and Airlift ($18m).

New Capabilities – Net Personnel and Operating Costs

1999-2000 expenditure totalled $66.3m, bringing the cumulative total to $146m. Thisallocation is to augment the net personnel and operating costs associated with bringinginto service new capabilities. Expenditure has been directed to the Anzac frigates($8m), Collins submarines ($6m), Super SeaSprite helicopters ($9m support, $10msalaries and training), hydrographic ships ($4m), Army aviation ($4m), the lead-infighter ($9m) and the B-707 simulator ($3m).

Defence Science

To date, $30m, including $15m in 1999-2000, has been invested in support of a rangeof capability outputs. This investment has facilitated additional science and technologyresearch projects in support of land operations, command and control, informationwarfare, weapons systems, the new submarine fleet, defence against biological weapons,surveillance, and the survivability and maintainability of ADF weapons platforms.

Provision for 50,000 ADF

The Defence Reform Program proposed reductions in the ADF permanent force to42,700 personnel (from a baseline of 56,600) through reductions and the results of themarket testing of Service positions. The subsequent decision to maintain the ADF atabout 50,000 represents by far the largest proposed reinvestment of Defence ReformProgram savings. To date $118m has been provided ($64m in 1999-2000) and themature annual reinvestment would be $649m were the policy to be pursued. A recentdecision that the ADF will not pursue an arbitrary minimum number necessitatesongoing review of this reinvestment. The $32m variation from the revised estimate toactual relates largely to Navy’s lower than planned reinvestment in personnel due to thedeterioration in recruiting and retention.

Pilot Training

$9m has been invested to enhance Defence capabilities for Air Strike/Reconnaissanceand Tactical Fighter Operations by addressing the fast jet pilot shortfall. Theinvestment seeks to increase the number of fast jet-suitable graduates from the pilots’course from around 10 per year to between 20 and 25 per year.


53

Transition Costs

Transition costs of $102m were expended in 1999-2000 bringing the cumulative total to$291m. This expenditure was lower than expected by some $30m due to slippage ofsome major market testing activities from: the RAAF ($8m) including delays at theRAAF School of Technical Trades, Aircraft Research and Development Unit Package 2and RAAF civilian redundancies in Garrison Support at 305/306 Wing; SupportCommand ($3m) due to slippage of Naval Aviation Logistic Management Squadronvoluntary redundancies; and Defence Personnel Executive ($19m) due to slippage inthe establishment of the Defence Service Centre in Cooma.

Table 1.16: Reinvestment of Available Defence Reform ProgramResources(1)


1999-2000Budget

Estimate


1999-2000Actual


$m $m $m $m %Net Ongoing Resources Available 455 482 457 -24 -5Defence Reform Program One-Off Savings 19 19 19 0 0Unallocated $125mAdministrative Savings 0 22 0 -22 -100Total Resources Available forReinvestment 474 523 476 -47 -9Reinvestment Initiative Details-New Capital Investment 85 85 85 0 0-Amphibious Capabilities 26 26 34 8 30.7-Capability-Related LogisticsCosts 120 120 181 61 50.8-New Capabilities – NetPersonnel and Operating Costs 68 68 66 -2 -2.9-Defence Science – CapabilityProjects 15 15 15 0 0-Provision for 50,000 ADF 45 95 64 -32 -33.7-Pilot Training 5 5 5 0 0-DRP Transition Costs 82 133 102 -30 -23.0Total Reinvestment(2) 446 547 554 7 1.2

Notes1. Totals may not add due to rounding.2. Gross expenditure levels for these initiatives exceeded savings as additional funding was directed to

capability-related logistics to accord with changing strategic priorities. The additional funding occurredas part of additional estimates and anticipates ongoing savings.

Section One

54

PERSONNELA summary of personnel estimates and actual numbers for 1999-2000 is provided in thefollowing table. The permanent ADF average strength for 1999-2000 was 51,027, anincrease of 914 from the estimated actual for 1999-2000 of 50,113. This increase islargely a result of Reservists becoming full-time to assist in East Timor.

The 1999-2000 Reserves actual numbers were 22,007, a decrease of 8,688 from the1999-2000 estimated actual of 30,695. This decrease is due to ongoing problems withrecruitment and separation, 966 Reservists who transferred to the permanent force aswell as other Reservists becoming full-time, on a temporary basis, to assist in the ADF’sEast Timor operations.

The Government will provide additional funding to Defence in 2000-01 to enhance theoperational effectiveness of the Reserves. Initiatives being considered by theGovernment include promoting retention of Reserve personnel by improving trainingof individuals and by providing support for their employers.

Total civilian average strength for 1999-2000 was 16,417, an increase of 126 from the1999-2000 estimated actual of 16,291. This broadly reflects the impact of civilianisationacross the Defence organisation.

More detailed information on personnel can be found in the personnel statisticssegment in Section Four of this document.

Table 1.17: Defence Staffing(1)(2)

Personnel 1999-2000Budget

Estimate


1999-2000Actual


Personnel Numbers – Average Strength %Permanent Forces

Navy 13,550 13,190 12,887 -303 -2.3Army 23,200 22,885 24,089 1,204 5.3Air Force 13,250 14,038 14,051 13 0.1

Total Permanent Forces 50,000 50,113 51,027 914 1.8

ReservesNavy 1,803 1,803 1,746 -57 -3.2Army 26,850 26,850 18,528 -8,322 -31.0Air Force 2,042 2,042 1,733 -309 -15.1

Total Reserves 30,695 30,695 22,007 -8,688 -28.3

Civilian 16,471 16,237 16,362 125 0.8Trust Account Staff 89 54 55 1 1.9Total Civilian 16,560 16,291 16,417 126 0.8

Total Staffing 97,255 97,099 89,451 -7,648 -7.9Notes1. Staffing numbers are average funded strengths.2. The figures for Reserves represent the average number of personnel funded, rather than full-time staff-

year equivalents.

Personnel

55

Table 1.18: Breakdown of Personnel Numbers by Service and Rank byAverage Funded Strength(1)

1999-2000Budget Estimate

1999-2000Revised Estimate

1999-2000Actual

NAVY1 Star Officers and above 33 33 35Senior Officers(2) 379 356 357Officers 2,569 2,432 2,421Other Ranks 10,569 10,369 10,074Reserves 1,803 1,803 1,746Total Navy 15,353 14,993 14,633

ARMY1 Star Officers and above 44 45 45Senior Officers(2) 508 541 551Officers 4,244 4,300 4,462Other Ranks 18,404 17,999 19,031Reserves 26,850 26,850 18,528Total Army 50,050 49,735 42,617

AIR FORCE1 Star Officers and above 33 35 36Senior Officers(2) 476 452 471Officers 3,634 3,614 3,468Other Ranks 9,107 9,937 10,076Reserves 2,042 2,042 1,733Total Air Force 15,292 16,080 15,784

CIVILIANSSenior Executives 99 99 104Senior Officers(2) 3,126 3,054 3,157Others 13,246 13,085 13,101Total 16,471 16,237 16,362

Trust Account Staff 89 54 55Total Civilians 16,560 16,291 16,417TOTAL DEFENCE 97,255 97,099 89,451

Notes1. The 1999-2000 average funded strength of the Permanent Force by Service was: Navy 12,887; Army

24,089; Air Force 14,051.2. Senior Officers are Executive Levels 1 and 2.

Section One

56

ACCOUNTABILITY ARRANGEMENTS

CORPORATE GOVERNANCE

ORGANISATIONAL CHANGES

Several organisational changes occurred during 1999-2000 as part of continuingimprovements to Defence management. The number of Groups was reduced from 14to 12, with effect from 1 July 1999. Groups Seven and Eight (the Joint Education andTraining and Defence Personnel Executive Groups) were amalgamated to reflect theirassociated functions and future rationalisation. Group 14 (Finance and InspectorGeneral) was incorporated into the Defence Headquarters. Defence Public Affairsfunctions were transferred from the Defence Corporate Support Group to DefenceHeadquarters.

From 28 October 1999, the functions of the Defence Intelligence Organisation, theDefence Signals Directorate and the Australian Imagery Organisation were overseenand coordinated by the new Defence Intelligence Board.

On 23 June 2000, the Secretary and the Chief of the Defence Force announced a newbusiness model for Defence to take effect from 1 July 2000. The business model, andconsequent organisational restructuring, focus on the two key dimensions of Defence’srelationship with the Government: the Government as the purchaser of our outputs –Defence’s primary management focus will be on the delivery of outputs toGovernment, largely capabilities; and the Government as the owner of our business –stronger corporate governance arrangements will be introduced, including cleareraccountabilities, to reinforce the focus on Defence’s ability to sustain its delivery ofoutputs and achieve budgeted financial results.

The revised structures are depicted on pages 58 and 59. One diagram shows theorganisational structure as at 30 June 2000, while the other shows the structure from1 July 2000 onwards.

SENIOR EXECUTIVE CHANGES

Dr Allan Hawke succeeded Mr Paul Barratt as Secretary in October 1999. AdmiralChris Barrie’s appointment as Chief of the Defence Force was extended until 2002. Anew appointment – Under Secretary Defence Acquisition – saw Mr Mick Roche joinDefence from the Australian Customs Service in November 1999. Vice Admiral DavidShackleton assumed the role of Chief of Navy in July 1999. Air Vice Marshal ErrolMcCormack’s appointment as Chief of Air Force was extended until August 2001 andDefence bade farewell to Lieutenant General Frank Hickling after his long anddistinguished career. Lieutenant General Peter Cosgrove replaced him as Chief ofArmy in July 2000.

Air Marshal Doug Riding, Vice Chief of the Defence Force, retired in June 2000 andwas replaced by Lieutenant General Des Mueller, formerly Support CommanderAustralia. Mr Rob Tonkin, formerly Deputy Secretary Resources and Management, leftDefence to take up an appointment with the ACT Government and Mr Garry Jones,former Deputy Secretary Acquisition, accepted an offer of voluntary redundancy. MrMartin Brady was appointed Chairman of the Defence Intelligence Board.

Corporate Governance

57

SENIOR EXECUTIVE OFFICERS – REMUNERATION FOR PERIOD IN OFFICE

Senior executive officers’ remuneration in the table below includes salaries, employersuperannuation contributions, long service leave accrued during the period of officeand other benefits. Not all of the benefits included in the calculations can be cashedout and some are net of an employee contribution. Performance bonuses were notpaid to executives in 1999-2000.

Secretary

Dr Allan Hawke from 21 October 1999 $210,000-$219,999

Chief of the Defence Force

Admiral Chris Barrie AO $330,000-$339,999

Vice Chief of the Defence Force

Air Marshal Doug Riding AM DFC to 5 June 2000 $240,000-$249,999

Lieutenant General Des Mueller AO from 5 June 2000 $20,000-$29,999

Chief of Navy

Vice Admiral David Shackleton AO $260,000-$269,999

Chief of Army

Lieutenant General Frank Hickling AO $270,000-$279,999

Chief of Air Force

Air Marshal Errol McCormack AO $280,000-$289,999

Under Secretary

Mr Mick Roche from 10 November 1999 $130,000-$139,999

SENIOR PUBLIC OFFICIALS’ STUDY OF PARLIAMENTARY PROCESSES

Following a resolution of the Senate requiring that Senior Executive Service officersundertake study of the principles governing the operation of, and accountability to, theParliament, Defence, along with all Commonwealth departments, was required by theSenate to report on compliance with the resolution. Defence’s report was tabled inNovember 1999 and is included in the Senate Committee of Privileges 89th Reporttabled in April 2000.

Defence committed, inter alia, to ensuring that Senior Executive Service and military-equivalent officers attended a seminar on Public Servants’ Accountability, Rights andResponsibilities – The Impact of the Parliamentary Privileges Act conducted by the PublicService and Merit Protection Commission. To date, 139 Senior Executive Service andmilitary-equivalent officers have attended the seminars.

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Section One

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SENIOR COMMITTEES 1999-2000

Defence Executive

Membership comprised the Secretary (Chair), the Chief of the Defence Force, ViceChief of the Defence Force, Chief of Navy, Chief of Army, Chief of Air Force, DeputySecretary Strategy, Deputy Secretary Acquisition, Chief Defence Scientist and DeputySecretary Resources and Management, as well as two independent external members.

Chiefs of Staff Committee

Membership comprised the Chief of the Defence Force (chair), the Vice Chief of theDefence Force, Chief of Navy, Chief of Army and Chief of Air Force. The Secretary isa permanently invited member and attends all meetings. The Deputy Secretaries andappropriate officers may be invited to attend meetings for matters affecting theirfunctional areas of responsibility.

The Defence Audit and Program Evaluation Committee

Membership comprised the Deputy Secretary Resources and Management (chair), theVice Chief of the Defence Force, Under Secretary Defence Acquisition, CommanderSupport Australia and an appointed independent member. The Auditor General, orrepresentative, were accorded observer status. The committee was advised by the FirstAssistant Secretary Resources and Financial Programs, the Head of Management andReporting Division and the Inspector-General. In May 2000, Mr Paul McGrath AM,an independent member, was appointed to succeed the former Deputy SecretaryResources and Management as chair of the committee.

The Defence Capability Committee

Membership comprised the Vice Chief of the Defence Force (chair), Deputy SecretaryStrategy, Deputy Secretary Acquisition and Deputy Secretary Resources andManagement. Appropriate officers were invited by the Chair to attend meetings formatters affecting their functional areas of responsibility. These included the Chief ofNavy, Chief of Army, Chief of Air Force, Chief Defence Scientist and Head DefenceEstate. The Assistant Secretary, Defence, Foreign and Legal, and the Department ofFinance and Administration had a standing invitation to attend all meetings.


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SENIOR COMMITTEES 2000-01 ONWARDS

On 23 June 2000, the Secretary and the Chief of the Defence Force announced newgovernance arrangements in Defence, with a view to providing greater assurance to theMinister. The first step in implementing comprehensive new governance arrangementsinvolved simplifying and clarifying the committee structure. From 1 July 2000, therehave been five key committees:

Minister’s Defence Improvement Committee

Membership comprises the Minister for Defence (chair), the Secretary, the Chief of theDefence Force, and two independent external members appointed by the Minister –Mr Graeme McGregor and Dr John White.

The Defence Improvement Committee is a major vehicle for overseeing continualimprovements at all levels of Defence in management and accountability. Its purposeis to ensure that the Government receives value for money for the dollars expended onDefence.

Defence Committee

Membership comprises the Secretary (chair), the Chief of the Defence Force, the ViceChief of the Defence Force, Chief of Navy, Chief of Army, Chief of Air Force, UnderSecretary Defence Materiel, Deputy Secretary Strategy, Chief Finance Officer, ChiefDefence Scientist, Chair Defence Intelligence Board and Deputy Secretary CorporateServices.

MINISTER


Minister’s Defence Improvement Committee

CDF SEC

Defence Committee

Defence Capability andInvestment Committee

Defence Audit Committee

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The Committee focuses on the strategic direction of Defence – the key issues involvingimplementation of the Government’s Defence policy and priorities. It has an explicitadvisory role to the Secretary and the Chief of the Defence Force in their role asexecutive decision makers.


Membership comprises the Chief of the Defence Force (chair), the Vice Chief of theDefence Force, Chief of Navy, Chief of Army and Chief of Air Force. The Secretary isa permanently invited member.

The Chiefs of Staff Committee provides military advice to the Chief of the DefenceForce to assist him in discharging his command responsibilities and providing militaryadvice to the Government.

Defence Capability and Investment Committee

Membership comprises the Vice Chief of the Defence Force (chair), the UnderSecretary Defence Materiel, Deputy Secretary Strategy and the Chief Finance Officer.

The Defence Capability and Investment Committee is charged with ensuring thatGovernment is provided with sound options for major capital investments. Eachmember of the Committee is required to sign off, as far as his or her area ofresponsibility is concerned, that the options put to Government are sound andachievable.

Defence Audit Committee

Membership comprises Mr Paul McGrath, AO (chair) and Mr Will Laurie ofPricewaterhouseCoopers (deputy chair), both independent external members of thecommittee, along with Mr Frank Lewincamp, Mr Rod Corey and Major General PeterDunn. The Chief Finance Officer and Inspector General attend as advisers. TheAuditor-General, or representative, attends as an observer.

The Defence Audit Committee, as required by section 46 of the Financial Managementand Accountability Act 1997, is responsible to the Secretary for: approval of internal auditplans; provision of advice on action to be taken on matters raised in internal auditreports and Defence-related Auditor-General and Joint Statutory Committee of PublicAccounts and Audit reports, and assurance that all identified matters of concern arebeing addressed; and reviewing the preparation and audit of the Defence financialstatements and provision of advice on their adequacy.


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INTERNAL AUDIT ARRANGEMENTS AND RISK MANAGEMENT STRATEGIES

Defence Audit and Program Evaluation Committee

The Defence Audit and Program Evaluation Committee met nine times (July,September (twice), December, February, March, May and June (twice)) in 1999-2000,compared to four times in 1998-99. During the year, the composition and functions ofthe committee were revised and agreed to by the Secretary to the Department ofDefence as Chief Executive to better accord with section 46 of the Financial Managementand Accountability Act 1997 and the associated Financial Management and AccountabilityOrders (Finance Minister’s Orders).

In May 2000, Mr Paul McGrath AM, an independent member, was appointed tosucceed the former Deputy Secretary Resources and Management as chair of thecommittee. The balance of the committee's membership was drawn from the thenDefence Executive and comprised the Vice Chief of the Defence Force as deputy chair,Under Secretary Defence Acquisition, Commander Support Australia, and an appointedindependent member (Mr Will Laurie – PricewaterhouseCoopers). The Auditor-General, or representative, had permanent observer status, while the committee wasadvised by the First Assistant Secretary Resources and Financial Programs, the Head ofManagement and Reporting Division and the Inspector-General.

During 1999-2000, the committee addressed the following subjects:

• Management Audit Branch annual report for 1998-99 and audit work program for2000-01;

• 1999-2000 ANAO performance audit work program;

• Defence Financial Statements 1998-99 progress report;

• Consideration of the 1998-99 Defence Financial Statements, including lessonslearned and issues arising and an ANAO audit report on the 1998-99 FinancialStatements audit;

• Progress report on the 1999-2000 portfolio-level evaluation results;

• Progress report on the follow-up of internal and external audit and Joint StatutoryCommittee of Public Accounts and Audit recommendations on Defence’s auditrecommendations management system;

• Management strategy for the 1999-2000 Defence Financial Statements;

• Medium-term audit strategy 2000-03;

• Schedule of portfolio-level evaluations 1999-2001;

• Implementation of Defence Fraud Control Plan No. 3;

• Fraud, theft and loss information;

• Management Audit Branch – October 1999 Report to Group Managers;

• Management Audit Branch – October 1999 to March 2000 Report to GroupManagers;

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• Progress report on the ANAO performance audit of Management Audit Branch(ANAO Report No. 50 Management Audit Branch – Follow-up);

• Report on progress on program evaluation report: Defence Community Organisation;

• Group risk assessments for the February and May 2000 trial ‘hard closes’ ofDefence accounts; and

• Defining matters of concern to meet responsibilities of an audit committee undersection 2.1.2(c) of the Financial Management and Accountability Orders.

On 23 June 2000, the Secretary to the Department of Defence announced that thecommittee would be replaced by the Defence Audit Committee as part of a newDefence corporate governance structure to take effect from 1 July 2000.

Risk Management Strategies

There has been a growing recognition across the Australian Public Service of riskmanagement as a central element of good corporate governance. Defence iscommitted to establishing a comprehensive and systematic approach to riskmanagement, consistent with its core values and leadership behaviours.

Defence has established a strategic risk management unit with responsibility forimplementing a systematic and cohesive management framework covering the fullrange of Defence’s operational and financial risks, and while taking account of extantrisk management arrangements.

Achievements during 1999-2000 include significant progress towards the inclusion ofDefence’s insurable risks in Comcover, the Commonwealth’s self-insurance fund. Aschedule of cover in respect of Defence’s legal liabilities has been in place since 1 July2000 with insurance policies covering property and assets expected to be in place earlyin 2001.

A strategic risk management policy will be in place during 2000-01. This policy willestablish senior management’s commitment to risk management, establish a Defence-wide standard for managing risk and provide a framework for conducting riskmanagement programs at all levels of the organisation.

The Portfolio Evaluations segment contains a summary of the 1999-2000 evaluation onrisk management.


65

ETHICAL STANDARDS

Initiatives during 1999-2000 in relation to revitalising ethical standards in Defenceinclude:

Organisational Renewal ProgramThe organisational renewal program which commenced within Defence in 1999-2000 isunderpinned by the Australian Public Service (APS) values in the Public Service Act 1999and Defence’s own values, and will minimise the stifling impact on innovation of a‘rules-bound’ culture.

Civilian Performance FrameworkFollowing the certification of the Defence Employees’ Certified Agreement 2000-2001, arevised civilian performance scheme, the Civilian Performance Framework, has beenintroduced. The Civilian Performance Framework comprises two elements – the‘performance exchange’ and the ‘plan on a page’. The ‘performance exchange’ is aformal meeting between supervisor and employee to talk about their work, theirexpectations and responsibilities, how their work relates to broader workplans and anylearning and development needs. Performance exchanges are expected to occur at leasttwice each year. The ‘plan on a page’ is a simple, yet important, way of recording theperformance exchange discussion.

A mandatory key expected result of each ‘plan on a page’ is: ‘Adheres to Defencevalues, demonstrates behaviours consistent with those values and with APS values.’The intention is that performance exchanges must involve active consideration ofworkplace behaviour and its alignment with prescribed values.

In addition, as well as a continuing focus on the link between individual performanceand organisational performance, the Civilian Performance Framework incorporates agreater emphasis on the relationship between supervisors and employees, including:

• better communication channels;

• the development of trust and honesty; and

• a commitment to growth and development.

Governance and Accountability StructuresIn the latter half of 2000, in line with such initiatives as the Civilian PerformanceFramework, Defence is overhauling its governance and accountability structuresincluding achieving better alignment with business goals, building better decisionsupport tools and promoting Defence values in ways that increase trust. It is intendedthat these revised governance arrangements will, to the greatest extent practicable, bevalues-based.

Review of APS Employment ActionsA policy document, Review of Employment Actions in the Department of Defence, has beenproduced and made available to all employees to ensure Defence has in place a fairsystem of review of decisions taken in respect of APS employees.

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Procedures for Dealing with MisconductA policy document, Policy and Procedures Concerning Breaches of the Code of Conduct, has beenproduced and made available to all employees.

Ethical Standards in the Use of Electronic CommunicationEthical standards of behaviour for the use of email, internet and intranet are continuallybeing promulgated via:

• log-in prompts;

• departmental instructions;

• supporting examples published in Defence’s ethics newsletter, Ethics Matters; and

• intranet ethics web pages.

Policy on the Receipt of Gifts and Other BenefitsDefence has a range of instructions addressing the non-acceptance of offers of freetravel and accommodation, receiving gifts, official hospitality, frequent flyer schemesand conflict of interest matters. Specific guidance was issued in March 2000concerning offers to Defence employees in relation to activities connected with theOlympic Games. The Secretary and the Chief of the Defence Force issued a revisedpolicy on conflict of interest in September 2000.

The Code of Conduct and Employee Dealings with ContractorsDefence has published instructions, guidelines and supporting material on working withindustry since 1992. A code of conduct for personnel in Defence and industry waspublished and distributed in a policy statement, Defence and Industry – An EthicalRelationship, in 1999.

PORTFOLIO EVALUATIONS

Portfolio Evaluation Strategy

The Defence portfolio evaluation strategy is promulgated as a Defence Instruction(General). In accordance with that strategy, the then Defence Executive authorised aschedule of portfolio evaluations covering 1999-2000 and 2000-01. In 1999-2000, theprincipal evaluation topics included Strategic Workforce Management, Risk Management,Strategic Management of Defence Contracting and Australian Public Service Career Management inDefence, plus further activity on Customer-Provider Arrangements.

In 2000-01, the principal evaluation topics will include Enterprise Resource Planning inDefence and Defence Progress in Pursuing the National Support Agenda. Reports on theseevaluations will be forwarded to the Defence Committee through the Defence AuditCommittee.


67

Schedule of Portfolio-level Evaluations for 1999-2000:

The following evaluation activities were completed in 1999-2000:

Strategic Workforce Management – The final evaluation assessment report was presented tothe Secretary and the Chief of the Defence Force. The principal recommendation inthe report was the need for Defence to set in place a defined strategic workforcemanagement system. The report concluded that a great deal of attention was focusedon the recruitment, training and career management of personnel but with insufficientlinkages to strategic policy direction and capability development proposals. To ensureworkforce considerations are an integral component to the achievement of overallDefence capability, further recommendations were made regarding the role of HeadDefence Personnel Executive, as a full member of the then Defence Executive, as wellas a clarification of the roles of other key players. The report noted that specificattention needed to be concentrated on compiling reliable and accessible personneldata, with a better exposure and understanding of both internal and externaldemographic and labour market realities.

Customer-Provider Arrangements – The final assessment report was forwarded to theSecretary and the Chief of the Defence Force. The evaluation was conducted as an‘assessment’ only, to build on the previous survey undertaken and to take account ofthe evolving situation. The report concluded that Defence had the basis of goodcustomer-provider arrangements on which a more effective and relevant purchaser-provider regime could be developed as a natural progression.

Risk Management – This activity was also undertaken as an evaluation assessment,although the completion of the report was delayed due to staff shortages. The finaldraft was endorsed by the evaluation advisory group in May 2000 and presented to theSecretary and the Chief of the Defence Force. The report’s recommendationshighlighted that, while there were elements of effective risk management at lower levels,there was no evidence of an overarching framework across Defence. The draftrecommendations also suggested that a Defence-wide commitment to risk managementbe embraced by senior executives, that the Australian/New Zealand Standard for riskmanagement be adopted and that a risk management regime be implemented, notingthat there would be cost implications. For further information, see the RiskManagement Strategies segment earlier in this section.

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EXTERNAL SCRUTINY

PARLIAMENTARY COMMITTEES

The Department dealt with a number of parliamentary committees over the course ofthe year. This segment reports on the status of inquiries or other action byparliamentary committees in relation to the Defence organisation in 1999-2000.

Joint Statutory Committees

Public Accounts and AuditReport 370, November 1999 – Review of Auditor-General’s Reports 1997-98, Fourth Quarter

This report considered life-cycle costing in the Department of Defence andmanagement of Commonwealth guarantees, indemnities and letters of comfort. Aspreviously reported, Defence provided a submission and attended a hearing in 1998-99.

Report 372, December 1999 – Corporate Governance and Accountability Arrangements forCommonwealth Government Business Enterprises

Defence provided a submission to the inquiry and attended the subsequent publichearing that was held on 22 October 1999.

Inquiry into Contract Management in the Australian Public Service

Defence attended a public hearing held on 31 March 2000.

Review of Auditor-General’s Reports, First Quarter 1999-2000

Defence attended a public hearing held on 3 December 1999. The hearing examinedAudit Report No. 2, 15 July 1999, Use of Financial Information in Management Reports andAudit Report No. 10, 10 September 1999, Control Structures of Major Commonwealth Agencies.

Review of Auditor-General’s Reports, Second Quarter 1999-2000

Defence attended a public hearing held on 16 May 2000. The hearing examined AuditReport No. 13, October 1999, Management of Major Equipment Acquisition Projects.

Briefing on Collins Class Submarines Project

The Secretary was invited to a private briefing on 16 February 2000 to address mattersarising from the committee’s watching brief on the Collins class submarines project,together with issues arising from the Government response to Report 368, NewSubmarine Project Department of Defence.

External Scrutiny

69

Public WorksRedevelopment of Darwin Naval Base

The project will provide a new 146-metre wharf, three additional dry land berths forpatrol vessels, increased fuel holding capacity and other upgraded facilities. The projectis in construction and will be completed in June 2001. The project was referred to thecommittee on 6 July 1999 and approved by Parliament in September 1999.

HMAS Albatross Redevelopment Stages 1 and 2

This project will update various facilities including aircraft support, storage andmaintenance facilities, the air traffic control tower, explosive ordnance storage andloading facilities, and training facilities. Construction work on Stage 1 is within budgetand is expected to be complete in April 2001. Stage 2 of the project was referred to thecommittee on 1 March 2000 and parliamentary approval to proceed was received on 11May 2000.

Navy Ammunitioning Facility

This project will provide a naval ammunitioning facility at Two Fold Bay, near Eden,NSW to replace the former facility at Newington on the Sydney Olympic site. PointWilson in Victoria is being used as an interim facility.

The project was referred to the committee on 2 March 2000 and parliamentaryapproval was received in June 2000, while environmental clearances from the Ministerfor Environment and Heritage were granted in early June 2000, but native title issuesrequire resolution. Construction will commence in September 2001 with completionexpected by December 2002.

Collocated Staff Colleges

This project will collocate the existing single-Service staff colleges with the AustralianDefence College at Weston Creek ACT. The project was referred to the committee on30 March 1999 and Parliament approved the project in December 1999. Constructionis proceeding on a tight schedule with a completion target of late December 2000 toenable the new course to commence in early 2001.

DSTO Rationalisation, Melbourne

This project relocates functions from Maribyrnong to Fishermans Bend, includingintegration of common functions, and construction of enhanced facilities, permittingdisposal of Maribyrnong. The project was referred to the committee on 28 March 2000and was approved by Parliament on 29 June 2000. Work is expected to start in early2001, with Stage 1 planned for completion in September 2002, and Stage 2 inDecember 2003.

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Joint Standing Committees

Foreign Affairs, Defence and TradeInquiry into Military Justice Procedures

The Government response had not been tabled by 30 June 2000.

Inquiry into the Level of Funding Required for the Australian Defence Force

Discussions between the Departments of the Prime Minister and Cabinet and Defencein November 1999 led to the conclusion that the Government response should bemade in the context of the Defence White Paper due for release later in 2000.

Inquiry into the Suitability of the Australian Army for Peacetime, Peacekeeping and War

Defence witnesses appeared before the inquiry on 17 March and 2 June 2000. Thedepartment provided answers to a series of questions asked by the committee on23 June 2000.

Inquiry into the Circumstances of the Sinking of HMAS Sydney off the Coast of Western Australiain November 1941

The Government response was tabled on 29 June 2000.

Inquiry into the Bougainville Peace Process and Prospects for the Future

The report of the inquiry was tabled on 27 September 1999. Defence contributed tothe Government response which had not been tabled as at 30 June 2000.

Inquiry into Australia’s Relations with the Middle East

The Defence submission to the inquiry was submitted on 18 April 2000.

Inquiry into Australia’s Relations with the United Nations in the Post-Cold War Environment

The Defence submission to the inquiry was submitted on 4 May 2000. Defencewitnesses appeared before the committee on 19 May 2000.

Visit of the Defence Sub-Committee of the Joint Standing Committee on Foreign Affairs, Defence andTrade to Sydney Harbour Foreshores Defence Properties 14 November 1997

The Government response was tabled on 9 March 2000.

National Capital and External TerritoriesInquiry into the Provision of Health Services to Norfolk Island

The Defence submission to the inquiry was submitted on 29 February 2000.

Treaties‘An agreement to extend the period of operation of the Joint Defence Facility at Pine Gap’

The Government response was tabled on 22 June 2000.

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Senate Standing Committees

Finance and Public Administration Legislation CommitteeInquiry into the Format of the Portfolio Budget Statements

Defence provided a submission to the committee on 21 July 1999. The committee’s(second) report was tabled on 29 October 1999.

Foreign Affairs, Defence and Trade Legislation CommitteeDefence witnesses appeared before the committee on four occasions. Each appearancerelated to Defence’s ongoing performance and external reports, including the DefenceAnnual Report 1998-99, the Defence Portfolio Additional Estimates Statements 1999-2000 andthe Defence Portfolio Budget Statements 2000-01. The Secretary and the Chief of theDefence Force appeared by invitation of the committee in late May 2000 to answerquestions related to the Defence Portfolio Budget Statements 2000-01.

Approximately 190 questions were taken on notice at the hearings and responsesprovided. Responses are available on the Senate committee web site together withtranscripts of the hearings.

The committee also produced a report examining the Defence Annual Report 1998-99.The committee was pleased with the improvement shown in the annual report,especially in the area of performance assessment where Defence addresseddepartmental performance against performance measurement as forecast in the DefencePortfolio Budget Statements 1998-99.

Foreign Affairs, Defence and Trade References CommitteeInquiry into East Timor

A briefing on East Timor was provided to members of the committee on 8 September1999.

Inquiry into the Sale of ADI Limited

The committee released its report on 16 February 2000. The Government responsehad not been tabled by 30 June 2000.

House of Representatives Standing Committees

Communications, Transport and the ArtsInquiry into Managing Fatigue in Transport

Defence witnesses appeared before the inquiry on 9 November 2000.

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AUDITOR-GENERAL’S REPORTS

Six Auditor-General’s reports relating specifically to Defence were tabled during theyear. The findings and recommendations of each report have been referred to therelevant functional area within Defence for implementation.

Audit Report No. 13, 11 October 1999 – Performance Audit – Management of Major EquipmentAcquisition Projects

The audit objective was to assess Defence’s higher-level management of majorequipment acquisition projects. The audit aimed to formulate practicalrecommendations that would both enhance Defence’s management of majoracquisition projects and provide a degree of assurance about its continuing apparentcapacity to do so efficiently and effectively.

The ANAO made six recommendations with which Defence agreed, four withqualification.

Audit Report No. 26, 14 January 2000 – Performance Audit – Army Individual Readiness Notice

The objective of the audit was to assess the efficiency and administrative effectivenessof the readiness notice and to identify possible areas for improvement.

The audit focused on all aspects of the notice from its development andimplementation to its current operation and results. The scope of the audit includedfull-time and part-time Army members.

Defence agreed, or agreed-in-principle, with six of the recommendations and disagreedwith two.

Audit Report No. 35, 3 April 2000 – Performance Audit – Retention of Military Personnel

The objective of the audit was to review the management of personnel retention withinthe ADF with a view to evaluating the measures Defence has in place to monitor andcontrol the flow of trained personnel from the Services.

The ANAO made nine recommendations designed to assist Defence in managingmilitary personnel retention and improving retention rates. Defence agreed with therecommendations, but with qualifications in respect of one.

Audit Report No. 37, 4 April 2000 – Performance Audit – Defence Estate Project Delivery

The objective of the audit was to assess the efficiency and administrative effectivenessof the project delivery function, with a view to highlighting effective practice and,where appropriate, making practical recommendations to enhance facilities projectmanagement.

The audit examined two major projects as case studies. These were the facilitiesrequired for the increased Army presence in the north and the Russell officesredevelopment. Three smaller projects were also reviewed.

The ANAO made eight recommendations, aimed at improving the efficiency andadministrative effectiveness of Defence estate project delivery. Defence agreed with allof these recommendations.

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Audit Report No. 40, 26 April 2000 – Performance Audit – Tactical Fighter Operations

The audit objectives were to assess whether the resources used to provide the F/A-18tactical fighter force operational capability are managed cost-effectively and to identifyareas for improvement in the coordination, planning and practices employed in theadministration of tactical fighter operations.

The ANAO made 11 recommendations designed to improve management. Defenceagreed with all recommendations, two with qualification.

Audit Report No. 50, 29 June 2000 – Performance Audit – Management Audit – Follow-up

The objective of this follow-up audit was to assess whether Defence had takenappropriate action on the recommendations in a 1995 audit report and to assesswhether the effectiveness of the internal audit function could be improved.

The ANAO made four recommendations relating to Management Audit Branch’soperations and to the then Defence Audit Program and Evaluation Committee’scharter. Defence agreed with the recommendations, one in principle.

Defence also participated in or contributed to the following cross-agency Auditor-General’s reports:

• Audit Report No. 2, 15 July 1999 – Financial Control and Administration Audit – Use ofFinancial Information in Management Reports

• Audit Report No. 9, 25 August 1999 – Performance Audit – Managing Pest and DiseaseEmergencies

• Audit Report No. 18, 15 November 1999 – Performance Audit – Electronic Service Delivery,including Internet Use, by Commonwealth Government Agencies

• Audit Report No. 21, 10 December 1999 – Financial Statement Audit – Audits of theFinancial Statements of Commonwealth Entities for the Period Ended 30 June 1999

• Audit Report No. 22, 22 December 1999 – Performance Audit – Weather Services in theBureau of Meteorology

• Audit Report No. 25, 5 January 2000 – Performance Audit – Commonwealth ElectricityProcurement

• Audit Report No. 38, 6 April 2000 – Performance Audit – Coastwatch

• Audit Report No. 39, 13 April 2000 – Performance Audit – Coordination of ExportDevelopment and Promotion Activities Across Commonwealth Agencies

• Audit Report No. 41, 28 April 2000 – Performance Audit – Commonwealth EmergencyManagement Arrangements

• Audit Report No. 45, 31 May 2000 – Performance Audit – Commonwealth ForeignExchange Risk Management Practices

• Audit Report No.47, 20 June 2000 – Performance Audit – Survey of Fraud ControlArrangements in APS Agencies

• Audit Report No. 52, 30 June 2000 – Financial Statement Audit – Control Structures asPart of the Audits of Financial Statements of Major Commonwealth Agencies for the PeriodEnded 30 June 2000

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DEFENCE FORCE OMBUDSMAN

During the year, one formal report was referred to the Chief of the Defence Forcepursuant to section 15 of the Ombudsman Act 1976. That report related to a previouslyreported incident at an Air Force base. The Defence Force Ombudsmanrecommended that apologies should be made and compensation paid to the partiesinvolved in the incident and remedial action be taken on various aspects ofadministration. The matters are being settled in accordance with the recommendations.Administrative reforms that were agreed by Defence are being implemented.

While there were no other formal reports issued by the Ombudsman relating to theoperations of the ADF during 1999-2000, the Defence Force Ombudsman has raisedagain the matter of ongoing delays in the processing of redresses of grievance for ADFmembers. In May 2000, Defence accepted the Ombudsman’s proposal to jointlyreview the ADF redress system and the Ombudsman’s interaction with that system.This review builds upon the performance audit of the redresses of grievance system inthe ADF tabled by the Australian National Audit Office in June 1999. The report ofthe review was handed to the Secretary and Chief of the Defence Force on 5September 2000.

A new manual, Australian Defence Force Publication 202 (ADFP 202) – AdministrativeInquiries Manual was released on 15 May 2000. This manual is based on theOmbudsman’s recommendations following his identification of systemic issues relatingto the way the ADF handled allegations of serious offences.

DECISIONS OF COURTS AND TRIBUNALS

During the year, there were no decisions of a court or tribunal in relation to mattershandled by the Defence Legal Office which resulted in a significant change to currentlaw.

Litigation continued in relation to common-law actions for negligence by former crewmembers of the former HMAS Melbourne. Generally, the plaintiffs are claiming post-traumatic-stress disorder arising out of the collision of former HMA Ships Voyager andMelbourne in 1964. All claims have been lodged and are subject to the defence that theclaims are statute-barred under statute of limitations legislation. Matters are beingsettled on a case-by-case basis.

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REPORT ON THE OPERATION OF THE DEFENCESERVICE CHARTER FOR 1999-2000The Defence Service Charter was introduced on 1 August 1998. As part of itsreporting obligations under the charter, Defence provides input to an annual whole-of-government report compiled by the Department of Finance and Administration andreports to the Minister for Defence annually on the extent to which it is meeting theperformance standards relating to the charter. The following report, which is a fullreprint of the departmental report to the Minister for Defence, includes all theinformation provided by Defence in relation to the whole-of-government report.

BACKGROUND

The Defence Service Charter was developed as part of a whole-of-government initiativeto provide better service to the public across Commonwealth departments andagencies.

The Defence Service Charter is a short plain-language document which sets out thequality of service customers can expect to receive from the Department of Defence.The term ‘customer’ refers to the people whom the department is seeking to serve,bearing in mind that Defence is not a traditional ‘service provider’ with a well-definedcustomer base. The charter also outlines avenues for taking up complaints, the meansof commenting on the charter and the way the charter is kept up to date.

The Defence Service Charter assists Defence in focusing on identifying the needs of itscustomers, the level of service it is committed to provide and what it will do if it doesnot meet that goal. By monitoring compliance with the charter and reviewing itsrequirements regularly, Defence will keep the charter current and challenging, so as toensure that the quality of service provided is of the highest standard possible.

PERFORMANCE STANDARDS

The key performance standards in the Defence Service Charter are that:• dealings with customers will be handled in a professional manner with courtesy and

cooperation;• privacy and confidentiality will be observed;• responses to any questions or complaints will be open and accurate;• all telephone inquiries will be answered promptly during normal business hours;• officers will identify themselves to customers on the telephone by name or section;• officers will listen to what customers have to say and strive to use language which is

clear to customers;• if Defence cannot answer a query immediately, officers will take customer contact

details and ensure that a response is provided within two working days;• if a customer writes to Defence, a response will be sent, in writing, within 15

working days and will contain a contact name and telephone number; and• if Defence does not meet these standards, officers will explain what has happened

and try to put things right. Defence will not hesitate to apologise if it is wrong.

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PERFORMANCE MONITORING

Individual business units within the Defence organisation have systems in place to trackcomplaints and collate information to forward to a portfolio coordination area withinDefence. Portfolio policy and procedures have been put in place in relation to the typeand extent of information collected.• Monitoring and reporting, under Australian Standard 4269 on Complaints

Handling, is targeted at external complaints/compliments (ie from members of thepublic) rather than at internal complaints. Complaints are reported only if theyrelate to services provided (ie the process), not to decisions made.

• Reporting is on a ‘by exception’ basis. This means that reporting occurs for writtencomplaints only. Written complaints referred to first assistant secretary (two-star)and equivalents or above are recorded.

• Where a complaint is resolved either by the desk officer or within the regionaloffice without recourse to senior levels, no information is recorded for servicecharter purposes.

• Information on feedback and compliments is collected from a variety of sources(surveys, conferences, orally to regional offices or bases, contact with customers orthe general public) and is collected by individual business units.

Defence currently reviews the Defence Service Charter on an annual basis and willcommission an independent external review of the charter in 2001.

PERFORMANCE IN 1999-2000The extent to which all standards were met during the year has improved in 1999-2000with an 18% drop in complaints compared with 1998-99. Increased awareness of staffservice obligations has resulted in an improved level of service provided to clients. Ofnote was the significant improvement in the amount of time taken by the departmentto prepare material to enable the Ministers to reply to correspondence. This wasidentified as a particular problem in last year’s report and a number of initiatives totighten up processes have been taken to improve performance in this area. Theseinitiatives have included the introduction of an evaluation proforma developed inconsultation with the Ministers’ and the Parliamentary Secretary’s offices. Theproforma essentially is a quality-control mechanism providing feedback from Ministersand their staffs. In addition, higher priority has been given to improving responsetimes and better reporting procedures are now in place. The improvement in responsetimes resulting from these changes can be seen in the following table:

Table 1.19: Percentage of Departmental Response Times AgainstStandard Requirement of 15 Days

1997-98 1998-99 1999-2000Number of Letters Received 8,867 8,428 9,421Average % of Responses that met 15-Day StandardRequirement 54% 50% 75%

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Another portfolio performance indicator which measures customer service is that ofpayment of accounts. Defence has set its account payment benchmark at 95% of allaccounts to be paid and cheques to be with recipients within the nominated tradingterms which is generally 30 days from receipt of a correctly rendered invoice andreceipt of the goods or services. As can be seen in the table below, Defence’sperformance has fallen short of the benchmark, although it should be noted that 99%of claims were paid within 30 days of the due date.

While Defence’s performance in 1999-2000 was below the desired performancestandard, a design feature has been added to the new Defence financial managementsystem which should facilitate the timely payment of accounts in future. This designfeature enables accounts to be paid automatically based on goods receipt advice.

Table 1.20: Percentage of Accounts Paid by Due DateFinancial Year Number of

Accounts PaidAccounts Paid by

Due Date% of Accounts Paid

by Due Date1999-2000 1,126,057 924,579 82.11998-99 1,142,887 979,914 85.71997-98 994,547 923,032 92.81996-97 1,164,865 1,081,368 92.81995-96 1,262,037 1,067,125 84.6

Cooperation and consultation with industry groups and the Australian community wasalso an area in which Defence continues to improve its performance. In particular, theGovernment is conducting a fundamental review of defence policy and, as part of thereview, is running an extensive consultation process taking into account the views ofthe Australian community. The public consultation program is led by Mr AndrewPeacock, former politician and past Australian Ambassador to the United States, andincludes public meetings across Australia. The program will ensure that all interestedpeople and groups have an opportunity to have their views heard and that these arepassed to the Government. Particular care has been taken to ensure that regional andrural Australia will be able to participate. Feedback from this consultation process willbe reported in the 2000-01 report.

CUSTOMER FEEDBACK AND COMPLAINTS

The avenues open to customers to complain or to provide feedback, together withcontact details, are stated in the charter in a step-by-step format. They include phoningor writing to the Defence contacts listed in the charter, the particular area concerned,the supervisor of the area, or through the Minister for Defence or their local Memberof Parliament or Senator. In addition, clients can contact the Commonwealth DefenceForce Ombudsman.

During 1999-2000, Defence recorded 307 complaints. Although the average time takento resolve complaints varied across the Defence organisation, most complaints wereable to be resolved within the stated performance standard of 15 working days.Business units report that the most common complaints were related to general aircraftnoise from a number of locations, concerns regarding the proposed disposal ofDefence sites, concerns regarding the outsourcing of Defence services, and recruitmentissues, particularly the speed of processing applications for enlistment.

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The most common compliments business units received were for the success of theEast Timor deployment, the overall level of Defence assistance to the civil community,especially in relation to assistance with Aboriginal community projects, professionalismin service delivery and customer service within the Careers References Centres.

Business units reported that approximately 90% of complainants considered thatDefence handled their complaint in a satisfactory way. This was measured primarily bythere being no repeat complaints.

A number of improvements to service delivery have been made as a result of customerfeedback. As noted above, there has been a significant improvement across theorganisation in providing timely responses to departmental and ministerialcorrespondence, including more use of interim responses. More specifically, individualbusiness units report the following improvements having been made:• The Air Force has ensured that, where possible, complainants have been contacted

by telephone by RAAF staff to acknowledge their concerns and to try to resolvethe issue as soon as possible.

• The Army has made it a priority to reduce complaints related to specific incidentsby identifying potential problems and providing advance warning to the generalpublic through briefings, media releases and letter box drops about potentialdisruption to communities by Army activities.

• Defence Personnel Executive has introduced a standard operating procedure toensure that, in more complex cases where procedures could take some time,applicants are periodically informed of the status of their applications.

• To facilitate the timely payment of accounts, a design feature was added to the newDefence financial management system which enabled accounts to be paidautomatically based on goods receipt advice.

AWARENESS OF CHARTER

The Defence Service Charter has been distributed throughout the Defenceorganisation, it is available electronically on the internal and external Defence web sitesand is included in induction training of new staff. Copies of the charter have also beendistributed through Canberra and the regions and displayed in prominent places atbases, public information, recruiting and acquisition offices.

A review was undertaken during the year to evaluate the awareness of the ServiceCharter within Defence. This review, inter alia, highlighted patchy awareness across theorganisation, with some areas reporting 100% awareness while others were close tozero. Action arising as a consequence of the review will occur during 2000-01 andresults will be reported in the 2000-01 report.

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PEOPLE

STAFFING OVERVIEW

The strength of the permanent component of the ADF as at 30 June 2000 was 50,755(comprising 12,527 Navy, 24,164 Army and 14,064 Air Force personnel). Enlistmentsfor the twelve months to 30 June 2000 were 4,947 made up of 4,247 men and 700women. This is 1,242 (33%) more than for 1998-99. Navy enlistments decreased by 74(7%), Army enlistments increased by 951 (48%) and Air Force enlistments increased by365 (54%) when compared with the figures for 1998-99. Although this represents aslight improvement, none of the Service recruiting targets was met. Navy met 57% ofits target, while Army and Air Force achieved 83% of their full-time targets.

Separations for the twelve months to 30 June 2000 were 6,467. This is 178 (2.68%) lessthan for 1998-99. Navy separations decreased by 13 (0.75%), Army separationsincreased by 8 (0.25%) and Air Force separations decreased by 173 (9.63%) comparedwith the same period last year.

Since June 1999 the number of Reserves with training obligations has decreased by14% from 24,848 to 21,346. The Navy increased by 5 (0.40%) to 1,222, the Armydecreased by 4,056 (18%) to 17,903 and the Air Force increased by 549 (32%) to 2,221.Of concern was poor Army General Reserve enlistments, which achieved only 33% ofthe target.

Army and Air Force numbers reflect the continued drawdown to the post-DefenceReform Program strengths of 23,000 and 13,000 respectively by 1 July 2001. However,Government also funded those Services for increased workforce strengths of 3,000 and555 respectively for ongoing operations in East Timor.

Failure to meet recruiting targets, combined with separations, is creating increasingworkforce gaps within the Services. Navy is most affected with vacancies of almost2,000 against requirements, resulting in higher workloads to be shared among itspeople. Chief of Navy has released strategies aimed at rectifying the shortfalls in Navy.

At 30 June 2000 there were 16,295 Defence civilian personnel. This is a decrease of896 compared to 30 June 1999.

A corporate-level Defence workforce plan is being developed. It will articulate allcategories of personnel (military and civilian) required to develop and deliver currentand future ADF capabilities at required performance levels. The plan will recognisethat the requirement for military personnel is based not only on immediate staffingrequirements, but also on the need to develop professional military skills and expertise,and will take account of Service trade and rank structures, training throughputs, andretention and recruiting issues.

WORKPLACE RELATIONS

Civilian

The Department successfully negotiated a new certified agreement, the ‘DefenceEmployees Certified Agreement 2000-2001’, with employees and their representatives.

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The agreement built upon the Department’s extensive program of change under theDefence Reform Program. The efficiency gains from productivity initiatives such asthe Personnel Management Key Solutions project and the Government’s performanceimprovement processes, including the Commercial Support Program, will help fund thecompetitive pay increase that employees receive under the agreement. As well as thepay increases, the agreement streamlines leave conditions and introduces improvedstructural and salary progression arrangements. The Department benefits by increasedproductivity in personnel processing activities and in further implementation ofefficiency measures.

Military

The Department also successfully negotiated a new workplace arrangement withmembers of the ADF. The ADF Enterprise Productivity Arrangement: 1999-2002 wasapproved by the Defence Force Remuneration Tribunal on 11 November 2000 for aperiod of three years.

The arrangement delivered an initial pay increase of 3% with subsequent increases overthree years totalling 10%. Improved conditions of service for ADF members includeincreases in reunion travel and discharge removal entitlements.

NON-OPERATIONAL TRAINING AND DEVELOPMENT

In 1999-2000, Defence spent $44.2m on purchasing non-operational training anddevelopment activities. This included expenditure on professional service providers fordelivery of training courses, and on activities such as attendance at conferences andseminars, external training courses, information technology training and attendance forboth Service and civilian members at university for an approved course of study.

Major initiatives included the provision of training for the roll-out of the civilianperformance management scheme (now the Civilian Performance Framework) acrossDefence.

Defence continued to give high priority to the recruitment of graduates. In 1999-2000,Defence employed 56 graduates under the general Australian Public Service scheme, 47graduate acquisition trainees and 36 graduate acquisition trainee engineers. Thecorresponding figures for 1998-99 were 50, 46 and 20 respectively.

As a result of devolving responsibility for training to individual Groups, a consolidatedrecord of attendance of personnel at external training courses is no longer available.The corporate personnel management system, which is currently under development,will include a professional development and training database that will record non-operational training statistics. On current timing, the first statistics to be recorded willbe during 2000-01.

Major internal training providers in Defence have recorded the following informationon attendances and training days for the non-operational training and development thatthey manage. This includes the areas of resource management education and training,acquisition education and training, the joint education and training agency (now thepeople development agency) and regional education, training and development units.

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Table 1.21: Non-Operational Internal Training Statistics – MajorProviders Only

Person-Days Spent on Training Non-Operational Training Course Attendances44,617 26,382

SOCIAL JUSTICE AND EQUITY

Defence’s personnel policies and practices are based on merit and a ‘fair go’ for all staffphilosophy. During 1999-2000, Defence continued to report and manage incidents ofunacceptable behaviour, launched an equity and diversity website, increased the numberand diversity of trained equity advisers and developed awareness training and aneducation competency framework.

Equity and Diversity

Defence has a commitment to equity and diversity in the workplace and in itsmanagement practices. In 1997, the Defence Equity Organisation was established toembed equity and diversity in Defence. To ensure a commitment to equity throughoutDefence, the Defence Equity Organisation has developed and implemented a numberof specific initiatives.

The Workplace Equity and Diversity Plan 1998-2001, issued in October 1998, helps tocreate an environment in which equity and diversity are recognised as being essential tobest practice and need to be incorporated into day-to-day business in Defence.

During 1999-2000, two new Defence policy instructions were issued to explain equityand diversity and the responsibilities of leaders, managers and supervisors:

• Equity and Diversity in the Department of Defence, Departmental Personnel InstructionNo. 4/99.

• Equity and Diversity in the Australian Defence Force, Defence Instruction (General)Personnel 50-1.

Three free-call 1800 equity advice lines and a comprehensive network of more than1,700 trained equity advisers provide support and advice on equity matters toindividuals, managers and commanding officers. At the second annual AustralianPublic Service Workplace Diversity Awards in March 2000, Defence was presentedwith a commendation in the ‘open’ category for its equity adviser network and 1800free-call equity advice lines.

The Defence Equity Organisation maintains websites on both the internet and Defenceintranet to promote equity and diversity and to offer access to equity advice, trainingand publications. In addition, a series of promotional publications have been preparedto ensure a high profile of equity and diversity issues across Defence.

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Unacceptable Behaviour Policy

All personnel have a basic right to work in an environment free from harassment anddiscrimination. All personnel also have an individual responsibility to treat others fairly.Any behaviour that constitutes, accepts or promotes discrimination or harassment isunacceptable.

Defence has a total commitment to the policy of zero tolerance of any form ofharassment, discrimination, sexual offences and any other unacceptable behaviour.Even though the zero tolerance policy exists, incidents of unacceptable behaviour mayoccur. Irrespective of whether a formal complaint is made, Defence has aresponsibility to:

• prevent and eliminate all forms of harassment and discrimination in the workplaceand not to tolerate such behaviour;

• investigate complaints seriously in a timely, sensitive and thorough manner; and

• take firm, corrective action.

To raise staff awareness of workplace harassment as an issue, Defence has implementeda number of initiatives.

Defence has developed and promulgated anti-harassment policy instructions. Theinstructions define unacceptable behaviour, and detail the management of suchbehaviour and incident reporting procedures. The instructions are:

• Preventing, Managing and Eliminating Discrimination, Harassment and UnacceptableBehaviour in the Department of Defence; Departmental Personnel Instruction No. 3/99.

• Discrimination, Harassment, Sexual Offences, Fraternisation and other Unacceptable Behaviourin the Australian Defence Force, Defence Instruction (General) Personnel 35-3.

In May 2000, the Defence Plain-English Guide to Managing and Eliminating UnacceptableBehaviour in the Workplace was issued to provide an overview of the procedures involvedin the management of unacceptable behaviour in the workplace.

Education and Training

Defence expends considerable resources on training its people in equity and diversity.To this effect, a competency-based education framework and a broad and multi-facetedtraining strategy have been developed. The strategy will provide training opportunitiesat all levels of Defence, varying in complexity commensurate with the workplacecircumstance. The strategy has four aspects:• equity awareness training;• equity adviser training;• general presentations to commanders, workshops and conferences; and• an ADF/APS career development equity training course.

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Disability

A Defence Disability Action Plan 1999-2003 was issued in September 1999 to ensure thatDefence APS staff with a disability receive fair treatment and are not unfairlydisadvantaged in any aspect of their employment.

Indigenous Australians

A Defence Indigenous Staff Recruitment and Career Development Action Plan 1999-2003 wasissued in December 1999. The plan provides implementation action to focus attentionand resources on the employment of Defence APS indigenous Australians.

An ADF Aboriginal and Torres Strait Islander recruitment and career developmentstrategy aims to increase the proportion of Aboriginal and Torres Strait Islander peoplein the ADF.

Women

The primary role of the ADF is to protect Australia and its citizens. To perform thattask effectively, the ADF aims to attract and retain people of high quality to maintainAustralia’s defence capabilities. Women are fundamental to this requirement and theADF does not seek to become divorced from the social, economic, organisational andindustrial trends occurring in this country. The reality of increased involvement ofwomen in all aspects of Australian society and life cannot be ignored. To deny womenthe opportunity to participate as full members of the ADF would deny the ADF accessto their talents.

The current policy is to provide equality of opportunity consistent with operationaleffectiveness. Men and women compete equally for all employment except for thefollowing types of combat units:

• Navy – clearance divers;

• Army – armour, artillery, infantry, combat engineer; and

• Air Force – ground defence officers and airfield defence guards.

Approximately 88% of ADF employment categories are open to women. A restrictionhas been imposed on women within some employment areas for occupational healthand safety reasons, where use of embryo-toxic substances could endanger their health;for example, surface finishers and electroplaters within the Air Force.

In August 1999, the Minister Assisting the Minister for Defence agreed thatcompetencies should be developed for engineers, artillery, armour and infantry(including airfield defence guards).

The competencies for employment categories and critical mass limits are beingdeveloped before bringing forward proposals to open up further employmentcategories to women. The Navy is separately progressing the issue of women in theclearance diver category.

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PURCHASINGThe Defence Purchasing Policy Manual outlines how Defence will abide by Commonwealthprocurement guidelines in its purchasing activities. The core policies and principles are:• value for money;• open and effective competition;• ethics and fair dealing;• accountability and reporting;• national competitiveness and industry development; and• support for other Commonwealth policies.To ensure that staff involved in procurement activities are aware of the Commonwealthguidelines and their responsibilities under them, Defence runs a procurement trainingprogram. In 1999-2000, 1,400 Defence personnel undertook training in ‘simple’procurement and 2,400 modules of the ‘complex’ procurement program werecompleted. In addition, 33 people achieved the graduate certificate in strategicprocurement.

Defence places responsibility on the liability approver to ensure that value for moneyhas been achieved in every contract. The Department of Finance and Administration’spurchasing advisory and complaints service has advised that it received no complaintsconcerning Defence procurement in regard to the issues of open and effectivecompetition and ethics and fair dealing during the year. It did advise that there werequeries about how to do business with Defence and, consequently, additional ways tocommunicate requirements to industry are being examined by Defence. Defencecurrently utilises advertising, gazettal, the Industrial Supplies Office network and (forsome procurements) the internet.

Defence uses the Commonwealth Government Gazette to report all contracts over $2,000except where the liability approver gained a gazettal exemption. In addition, Defenceuses its ‘Buying Australian’ website to promulgate purchases over $100,000 and toadvise reasons why these purchases were made off-shore. The level of complianceagainst this requirement is improving but is less than satisfactory and an audit ofpurchases that have not been promulgated is currently under way. The liabilityapprover for each non-reporting contract will be identified and asked to explain whythis has not occurred.

Defence has an Australian industry involvement program which seeks to encourage thedevelopment of Australian and New Zealand industry. All contracts worth more than$5m are required to have an industry involvement plan, along with tenderers’ having toapproach the Industrial Supplies Office network to identify opportunities for Australianand New Zealand industry. For militarily significant acquisitions (usually capitalequipment acquisitions), more stringent industry requirements apply with the aim ofdeveloping support for ADF capabilities. As part of the policy of encouraging openand effective competition along with promoting the development of Australian andNew Zealand industry capabilities, Defence has continued with the privatisation of itsmanufacturing facilities. Last November, the sale of ADI was completed and theGovernment is currently undertaking a process which will lead to the sale of its stake inthe Australian Submarine Corporation.

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85

The Defence Purchasing Policy Manual emphasises the need for Defence purchasingactivities to be in line with government policies. In the past year, there has been aparticular emphasis on ensuring the effective implementation of the Defence policy onintellectual property. This policy offers Australian industry the use and/or ownershipof intellectual property, including intellectual property developed under a contract,where it will be exploited to the benefit of national defence capability and where theintellectual property is not subject to constraints.

A major program of reform to Defence acquisition procedures is currently beingimplemented. The aim of these reforms is to shorten acquisition times, provide betterwhole-of-life costing for equipment, reduce transaction costs with industry and providethe Government with greater transparency and oversight of the acquisition process.These reforms are in response to concerns raised by the Minister for Defence aboutDefence’s major capital acquisition process and, more generally, are part of Defence’songoing process improvement activities.

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ASSETS MANAGEMENT

Land and Facilities

The Defence Estate Organisation is responsible for all land, buildings andinfrastructure assets. It manages the estate functions of investment, reinvestment,repairs and maintenance, acquisition, leasing and divestment.

Land and facilities asset management is undertaken under the framework of an estatestrategic plan. This plan influences decisions at all stages of the asset management cyclewith existing assets being classified as having a short-term, a medium-term or a long-term use.

Defence property management is significantly influenced by operational requirementswith many properties providing the platform from which capabilities are launched forboth training and operational purposes. Notwithstanding this influence, feasiblealternatives to ownership are examined during the pre-acquisition phase of projectdevelopment, including non-budget financing where possible.

The linkages between the various activities in the asset management cycle have beenimproved to ensure a holistic approach. Comprehensive maintenance contracts are inplace with industry to assist the ongoing reform of maintenance planning and executionwhich incorporates asset appraisals. A three-year revaluation program has beenimplemented and monthly reporting of assets has been adopted as part of the accrualaccounting regime.

Rationalisation of the Defence estate is continuing within the broader Commonwealthreforms to ensure the most effective use of Commonwealth property assets. Acomprehensive disposal plan has been established which is being carefully managed tomaximise the return to government, although the issues associated with the sale ofDefence properties are inevitably complex and highly sensitive.

The Defence Estate Management Guide has been developed covering policy andprocedures for all aspects of the management of Defence real estate.

Information Technology and Telecommunications

Information technology and telecommunications strategic planning was undertaken bythe Defence Information Environment Board in conjunction with the development ofrelevant financial plans. The assessment of technical application, functionality, age, costeffectiveness, benefits and risk analysis are considerations in the decision to acquireassets. Sale and lease back arrangements are under consideration for equipment. Acompetitive and cost-effective approach to asset disposals has been established. During1999-2000, a national census and valuation of all information technology andtelecommunications assets was undertaken. A detailed asset profile and improvedrecording and reporting arrangements have been developed as a result.

Inventory Holdings

Support Command Australia had responsibility for the management of Defenceinventory holdings which, at 30 June 2000, included some 1.6 million line items ofinventory with a gross value of $3,600m.

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During 1999-2000, Support Command Australia applied significant attention to themanagement of inventory holdings including identifying and disposing of obsolete andsurplus stock holdings. This resulted in a considerable reduction in the provision madein the accounts for obsolesence from $935m at 30 June 1999 to $693m at 30 June 2000.

Defence inventory has been subjected to considerable audit and management scrutinyover the past three years. A number of projects to rationalise, standardise and improvelogistics business processes have been initiated, including Supply Chain Managementand a major upgrade of the Standard Defence Supply Systems. Through these projectsand other initiatives, Defence is currently seeking to improve inventory managementincluding data integrity, personnel skills, processes and information. The otherinitiatives include improved vendor-held stock arrangements and inventorysegmentation which have been subject to a number of trials.

Implementation of a new ammunition information system project was progressedwhich will provide full tri-Service functionality and enhance financial reporting,management reporting and explosives ordnance inventory management, includingobsolesence.

Overall, significant improvements have been made, with opportunities being pursuedfor further improvements.

Repair and Maintenance

Some $642m was spent by the Support Command Australia organisation on repair andmaintenance in 1999-2000.

Naval repair and refit of major fleet vessels (FFG and Anzac class ships), Collins classsubmarines, Fremantle class patrol boats and minor fleet vessels was carried out andhelicopters maintained together with technical and engineering support to meetregulatory requirements. The major activities completed during this period included therefits of HMA Ships Westralia, Newcastle and Canberra and the docking of HMAS Tobruk.The scheduled post-delivery availability for HMAS Collins was progressed at Adelaidethroughout the year and the acceptance of HMAS Manoora after substantial repair andmaintenance work was achieved. The life-of-type extension for the landing craft heavycommenced in Cairns in October 1999 with final completion of the sixth landing craftscheduled for 2002. Much effort was directed into improving the processes employedin maintenance management and work package development. The implementation ofthese processes should lead to an increase in the effectiveness of ship repair activities.

Army Mack and Mercedes trucks, Land Rovers, Leopard tanks, M113 and ASLAVvehicles, communications equipment and Army helicopters were repaired. Vehicles arerepaired to a taskworthy state that meets safety requirements. There is an increasingrepair liability across all B-class vehicles (trucks) and critical items are given a highpriority for repair. Some backlog continues for less critical items.

Air Force repair work was carried out in accordance with the planned maintenancecycle for the F/A-18 Hornet, F-111 aircraft and lead-in fighter. Deeper-levelmaintenance of B-707 airframes and engines, C-130 airframes and T56 engineoperational maintenance assisted the airlift and maritime patrol groups to sustainrequired rates of effort and aircraft availability. Technical services support and routinemaintenance on the Falcon special purpose aircraft were also provided.

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EXTERNAL CONSULTANTSA ‘consultancy’ is a contract which is let for the investigation, review or evaluation (butnot implementation) of policy, proposals or activities with a requirement:• to provide information and advice on the development or refinement of Defence

processes; or• to assist Defence management in decision making.

In seeking value for money, external consultancy services are contracted for one ormore of the following reasons:• the need for specialised skills;• rapid access to the latest technology and experience in its application;• need for independent study;• need for a change agent or facilitation.

When contracting for a consultant, value for money considerations relate not only tocost, but to the experience and previously demonstrated capabilities of the consultant;the location of the consultant and the associated travelling costs; the capacity of theconsultant’s locally-based resources to provide continuing services at levels likely to berequired during the course of the engagement; and the consultant’s professionalstanding and reputation.

The terms and conditions governing the relationship between the Commonwealth andthe consultant are contained in the contract for the provision of those services.

The table below summarises Defence use of consultants, on a Group basis, for1999-2000. For a more detailed breakdown of consultancies, please refer toConsultancy Services in the additional annual report information available on theDefence website.

Table 1.22: Defence Use of Consultants for 1999-2000Group Number of Consultants Expenditure in 1999-2000

$Defence Headquarters 53 3,009,509Navy 23 1,508,532Army 10 108,290Air Force 5 39,137Intelligence 4 100,540Support Command 49 6,047,283Personnel Executive 97 5,471,315Acquisition 87 4,144,988Science and Technology 33 319,539Defence Estate 60 907,970Information Systems 11 736,915Corporate Support 6 235,765Total 438 22,629,783

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COMPETITIVE TENDERING AND CONTRACTING

COMMERCIAL SUPPORT PROGRAM

Overview

The Commercial Support Program is Defence’s primary mechanism for undertakingCompetitive Tendering and Contracting. The program, which began in 1991 aftergovernment endorsement of an interdepartmental committee’s recommendations, aimsto ensure that support services are provided to Defence in the most cost-effectivemanner.

The program seeks to maximise the use of civilian infrastructure by contracting outsupport services suitable for market testing where it is operationally feasible, a viablemarket exists and industry can demonstrate better value for money. This market testinghas resulted most often in Defence support being provided through service contractswith industry, less often in Defence support being provided by in-house teams and,occasionally, in the retention of the original support structure. As at 30 June 2000, theprogress summary showed:

CSP Evaluation Decisions Made 103Commercial Contracts 71 (69%)In-House Team Directives 26 (25%)Status Quo (Original Support Structure) 6 (6%)

Number of Positions Tested 12,447Projected Annual Recurring Savings $310mMean Projected Savings Percentage 31.5%

Market Testing Decisions for 1999-2000

The Portfolio Budget Statements 1999-2000 (page 12) contained an ambitious market-testing program with 28 decisions expected to be made within 1999-2000. The focus ofthe program was on the completion of garrison support, clerical and administrative andmajor logistics activities and the commencement of the health services activities.

Market testing of all garrison support (messing, cleaning, guarding and domesticservices) activities has been completed. The clerical and administrative decisions wereannounced in the September 2000 quarter, with the major logistics decisions expectedbefore December. A significant portion of the health services program has beenrescoped with two activities now at or near the tender stage.

The table below lists the 12 activities for which decisions were announced during1999-2000. Decision announcements for the first three activities slipped from 1998-99.

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Table 1.23: Decisions Announced during 1999-2000Activity Name Expected

ContractValue

$m

ContractPeriod

(years)(1)

ExpectedAnnualSavings

$m

TotalPositionsEvaluated

DecisionDate

Garrison Support –Southern Victoria 285.0 5 10.9 440

August1999

Aircraft Research and DevelopmentUnit – Maintenance Services 11.8 5 1.7 71

September1999

Class 8 Medical and Dental SupplyChain Management 25.5 5 1.4 67

October1999

Garrison Support– Riverina and Murray Valley 65.0 4 2.4 154

October1999

Garrison Support– South Coast of NSW 81.5 5 5.6 198

November1999

Garrison Support– Western Sydney 68.4 5 5.0 213

November1999

Clerical and Administrative Support– South Australia 24.8 5 2.7 115

November1999

501 Wing (RAAF Amberley) –F-111 Workshop 13.8 3 0.2 60

December1999

503 Wing (RAAF Richmond) C-130Deeper Maintenance 202.6 7 2.6 243

February2000

Clerical and Administrative Support– Queensland 21.1 5 2.8 91

February2000

Clerical and Administrative Support– Southern Victoria 27.7 5 6.4 190

April2000

ADF Recruiting(2) 250.0 6 25.7 481 June 2000

Notes1. Options to extend the contracts may exist.2. Pilot phase for one year. If successful, second phase for five years.

Due to the scale of activities, their complexity and initial tight tendering timelines someslippages were expected. The decision announcements which have slipped beyond30 June 2000 are listed in the table below.

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Table 1.24: Decisions Announced after 30 June 2000Activity Name Forecast Date Expected Date501 Wing (RAAF Amberley) – Avionics Workshop April 2000 July 2000501 Wing (RAAF Amberley) – F-111 Weapons System May 2000 August 2000503 Wing Avionics April 2000 July 2000Australian Defence Force Explosive Ordnance Project November 1999 October 2000Defence Integrated Distribution System March 2000 October 2000Army Engineering Agency Laboratories/Ranges(1) May 2000 October 2000Re-testing of Facilities and Property Operations – DSTOMelbourne December 1999 July 2000Clerical and Administrative Support – ACT/Southern NSW May 2000 August 2000Clerical and Administrative Support – Sydney Central(2) June 2000 September 2000Clerical and Administrative Support – Sydney West/South(2) June 2000 September 2000

Notes1. Became two activities.2. Sydney Clerical and Administrative activities combined into one activity.

Some activities in the Portfolio Budget Statements 1999-2000 table had not been fullyscoped when the timelines were estimated. For example, at the minor end of the scale,the Australian Defence Force Explosive Ordnance Project included some positionslater moved to another activity. At the major end of the scale, the Non-OperationalHealth Services activity (more properly the rationalisation and market testing ofNational Support Area Health Services) has been split into as many as eight regionalactivities. The status of the remainder of the 28 activities listed in the Portfolio BudgetStatements 1999-2000 is in the table below.

Table 1.25: Other Market Testing Activities(1)

Activity Name StatusNaval Materiel Requirements DataManagement

Scope being reviewed.

Joint Logistics Unit – SouthEdinburgh Airfield Services

Scope reviewed, activity combined primarily withmechanical engineering operational maintenance function

Mechanical EngineeringOperational Maintenance Function

Scope reviewed, function rationalised with some partsplaced to service contracts

Defence Personnel Records Subsumed within Clerical and Administrative Support –ACT/Southern NSW

Routine Pathology Services Scope reviewed, timeline yet to be re-announcedVictorian Health Services Scope reviewed, timeline extended, in tendering processNon-Operational Health Services Split into regional Commercial Support Program activitiesRoutine Radiology Services Subsumed within other Commercial Support Program

health activitiesNote1. Optometry was erroneously included in the Portfolio Budget Statements 1999-2000 as a market testing

activity. The activity related to optometry services was, in fact, a re-advertising of service-providercontracts.

defence annual report 1999-2000this annual report, together with further information available on...

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