If a project is approved in a forest …
19 Apr 2018|

One of the key elements of the government’s strategy for national defence is an ambitious recapitalisation of the Australian Defence Force. The 2016 Defence White Paper and its supporting Defence Integrated Investment Program (IIP) announced $195 billion in capital investment over the coming decade.

That’s a big number and getting that money out the door will be challenging, particularly when spending a lot of it requires setting up production lines for ships, submarines and armoured vehicles from a cold start. On the flip side, if Defence got its cost estimates wrong, then the government’s promised 2% of GDP may not be enough to pay for it.

So how is it going? We would like to answer that in ASPI’s forthcoming annual Cost of Defence budget brief (stand by for launch on 24 May). One traditional metric is project approvals—how many, which ones, how many dollars and are they getting pumped through the system on schedule. ASPI has tried to track these over time, with declining success due to Defence’s reduced reporting of this data.

One would hope it would be easier, particularly since Defence says it has met the First Principles Review’s recommendation to establish a single Defence Investment Plan that would include all capital investments, so that all the information should now be in one place and easy to publish.

And yet it has become impossible to answer those questions from the information the government and Defence publish.

For example, on 13 December 2017, Minister Christopher Pyne stated that ‘in 2016–17 we issued 74 defence capability-related project approvals’. The 2016–17 Defence annual report is consistent with this, reporting that ‘a total of 74 capability-related submissions were agreed by Government against an initial plan of 62 as outlined in the 2016 Defence White Paper. These approvals comprised 15 first pass approvals, 31 second pass approvals, 15 other types of IIP project approvals, and 13 capability-related submissions.’

At first blush it would appear that Defence overachieved with the 74 approvals, exceeding expectations by 12. But since 13 of the 74 were ‘capability-related submissions’, it would appear they aren’t actually project approvals per se but some form of more general advice to government.

Nor is it possible to confirm whether the 62 ‘proper’ approvals were originally planned in the IIP, or when they were planned for. Unfortunately the IIP is so vague that it’s difficult to confirm what approvals were originally scheduled for 2016–17. The 2016–17 Portfolio Budget Statements (PBS) listed only 36 projects planned for approval, but these were only capital equipment projects and didn’t include ICT or facilities (tables 68–70)—as a single, integrated investment program logically would.

Quibbling about numbers aside, the main problem is that it’s impossible to confirm what the approvals were. The 2016–17 annual report actually has two separate lists of project approvals achieved—one lists 11, the other lists 15 and three appear on both, making a total of 23—far short of 74. What were the other ones?

It might be possible to piece together other approvals, perhaps by tracking ministerial media releases or by monitoring the AusTender database for notification of contract signatures (assuming one can link an AusTender entry to a specific project). But why should this be necessary? It’s ASPI’s view that not releasing a singly authoritative list of all project approvals falls far short of meeting a minimum duty of transparency and accountability.

There are some signs of improvement, and signs that Defence is meeting the First Principles Review’s recommendation. For example, for the first time, the 2017–18 PBS provided a list of planned approvals that included ICT and facilities projects, as well as equipment projects. There were a total of 59, including eight ICT and nine facilities (tables 64–66). This is a positive development.

However, this doesn’t guarantee that there will now be reliable reporting of all approvals made in a financial year. In the same speech in December 2017, the Minister stated that the government had already made 61 decisions halfway through financial year—not bad when only 59 are planned for the whole year! However the Defence Portfolio Additional Estimates Statements released in February 2018 listed a grand total of … five.

So what’s the big secret? Why wouldn’t the government and Defence want to tell the public (and industry in particular) what it has achieved?

Well, in managing the Defence budget, cash is king. It doesn’t matter that Defence theoretically has a capital budget of $195 billion over 10 years. What matters is this: does it have the cash flow to meets its pressures this year? If unforeseen new costs have arisen, or predicted costs have gone up, Defence has to free up cash somewhere.

There are only limited options. It’s hard to reduce personnel numbers quickly, particularly uniformed people. It’s hard to reduce sustainment costs quickly as a lot of big support contracts are locked in. Plus there’s no point having the ADF if you can’t use it. And approved capital projects are in contract, so they’re hard to reduce or slow down without really annoying industry (and local politicians and workers).

So the bank Defence traditionally goes to is the unapproved capital program. But freeing up cash there means delaying project approvals, or shrinking their scope. If a megaproject needs more cash, then you have to delay or shrink a lot of regular-sized projects to find it. And as we will argue in our budget brief, the megaprojects will be requiring a bigger and bigger share of Defence’s cash flow.

Is that happening? Well, without an IIP that gives clear information about planned project schedules and budgets for all projects, and robust information from the government and Defence on which projects were approved and with what budget, no one will ever know.