31 March 2009

The accountability of Defence

There are some propositions in today’s editorial in the Australian Financial Review that should not go unchallenged:

“[Defence] lacks accountability to the minister and taxpayers, in defiance of the basic principles of the Westminster system”

This is nonsense. The Department of Defence is subject to exactly the same accountability framework under the Financial Management and Accountability Act 1997 and the Public Service Act 1999 as every other Commonwealth Government Department. As with other Departments, all accountability in the Department of Defence is vested in the Secretary, who is accountable for all of the business of the Department, all of its finances and all of its assets. The Secretary, Department of Defence, together with the Chief of the Defence Force and other senior civilian and military officers regularly appear before Senate Estimates Committees.

There is a history to this which is worth recounting in some detail because for the last 25 years Ministers themselves have a more direct accountability for Departmental management than Ministers on either side of politics have been prepared to acknowledge whenever the going gets a bit rough.

Prior to Public Service Act reforms introduced in 1984, each Department was led by an officer who was described as its Permanent Head and who, whilst removable from office or transferable to another office under certain circumstances, was for all intents and purpose permanent head in fact as well as in name.

The 1984 amendments to the Public Service Act and the parallel introduction of the Members of Parliament (Staff) Act made, by design, some very significant changes to this system. Prior to these amendments, s. 25(2) of the Public Service Act had provided that

The Secretary of a Department shall be responsible for its general working, and for all the business thereof, and shall advise the Minister in all matters relating to the Department.

That sub-section was amended to read

The Secretary of a Department shall, under the Minister, be responsible for its general working and all the business thereof, and shall advise the Minister in all matters relating to the Department

The rationale for this very significant change was spelled out by the then Minister assisting the Prime Minister for Public Service Matters, the Hon John Dawkins, in his Second Reading Speech on 9 May 1984. Amongst the reasons given, Mr Dawkins said:

There is a need for Ministers to supervise more closely the management of their departments and for departments to be more responsive and accountable to their Ministers.

New arrangements need to be made for senior management in the Public Service to ensure a fully productive relationship between it and governments.

Processes of resource allocation need to be improved by a closer involvement of Ministers.

Thus from 1984 on, Ministers were to be directly involved in the administration of their departments.

This approach was carried into the Howard Government’s Public Service Act 1999, the relevant section of which reads:

57 Responsibilities of Secretaries

(1) The Secretary of a Department, under the Agency Minister, is responsible for managing the Department and must advise the Agency Minister in matters relating to the Department.

(2) The Secretary of a Department must assist the Agency Minister to fulfil the Agency Minister’s accountability obligations to the Parliament to provide factual information, as required by the Parliament, in relation to the operation and administration of the Department.

So the Secretary manages the Department under the Agency Minister, and merely assists the Minister to fulfil the Minister’s accountability obligations to the Parliament.

No lack of accountability there.

“Defence [has] frequent cost overruns across its programs”

True, but so simplistic as to be devoid of information content.

With rare exceptions, major defence capital equipment projects involve technological achievements that have never been accomplished before. As with scientific research or criminal investigations, we do not know what we do not know, and so it is very difficult to make a precise estimate of cost or of the time it will take to bring the project to finality.

This means that the project prescriptions for a new platform have a large element of the aspirational about them: we define the desired combat capability, payload, operating range, stealth characteristics, crew survivability parameters, and delivery schedule, and ask the global defence primes with the relevant capabilities to tender for the project.

The companies bid in good faith, but who knows whether that complex bundle of parameters can be brought to finality within the required schedule and budget, or indeed at all. Sooner or later the time comes to make tough decisions about tradeoffs – do we want to sacrifice range to maintain payload, are we prepared to spend more money to resolve technological problems in the interest of maintaining the delivery schedule, or are we prepared to let the schedule slip to keep the project within budget?

The situation is made more complex by changes in the scope of work, or changes in the threat environment requiring, for example, better electronic warfare self-protection or better stealth characteristics.

An additional element of the “cost overrun” scene is the fact that governments rarely make a realistic provision for contingency, preferring to appropriate funds for contingencies when they arise, rather than put them in the forward estimates. For example, the Collins Class submarine project, arguably the biggest technological challenge Australia has ever undertaken, started life with 2.5% contingency, whereas a CBD office block project would have something more like 15-20%. The screams about cost overruns started as we began, in the final stages of the project, to draw down the 2.5% contingency.

Compared with its peers in the United States and the United Kingdom, the Department of Defence performs creditably in relation to its major capital acquisition projects.

“[It] is plausible [that] the [alleged] investigation ... was payback for the Minister’s efforts to find more than $20 billion of savings over the decade. ... The threat to crack down on perks such as butlers and first-class travel for the top brass has offended senior people”.

This is nothing short of bizarre.

I can imagine (just) some sort of security-oriented effort based on misplaced zeal about some perceived security problem involving the Minister. The notion that the senior and responsible people, civilian or military, who run Defence would respond to an anticipated loss of perks by mounting an illegal investigation of the Minister for Defence is the stuff of fantasy.

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