27 April 2009

Submarines: do we need an arbitrator?

In Submarines: Chairman ASC to Prime Minister I commented on a recent report in the Australian Financial Review that the Chairman ASC had written to the Prime Minister in relation to certain problems between ASC and the Defence Materiel Organisation (DMO).

Today’s AFR reports (p. 4) that the Prime Minister is being urged to appoint an independent arbiter to resolve these issues.

As far as the future submarine is concerned, we do not need arbitration. We simply need a Government decision that the Government’s submarines will be designed and built by the Government’s submarine builder.

If there is a real issue between DMO and ASC concerning the timeliness and cost of ASC’s maintenance services for the Collins class submarines, it is surprising that it could not be resolved at the working level, very surprising that it could not be resolved at senior executive level, and disturbing that it had to go beyond the two CEOs. This is an issue between two taxpayer owned and funded entities in the one portfolio.

Perhaps, rather than an arbitrator, we need a client’s engineer to manage the contractual relationship between DMO and ASC at an appropriate remove from both organisations. There are companies with the skills and domain knowledge to perform that function.

Nothing in what we know of this affair allays my scepticism about the desirability of DMO becoming an Executive Agency as recommended by David Mortimer in the report of the Defence Procurement and Sustainability Review. The procurement and sustainment of defence equipment is so central to the functions of the Defence Department (providing the Government with the capacity to apply lethal force) that it should clearly and unambiguously be one of the accountabilities of the Secretary, Department of Defence. This means that the Head, DMO should be directly and solely accountable to the Secretary. This sounds like a Deputy Secretary function to me. Making DMO a Prescribed Agency was a bridge too far.

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