ANNUAL REPORT 2003-04

DEFENDING AUSTRALIA AND ITS NATIONAL INTERESTS Guide to the Report The format and content of this annual report reflects the requirements developed by the Department of the Prime Minister and Cabinet and approved by the Joint Committee of Public Accounts and Audit in June 2004 under subsections 63(2) and 70(2) of the Public Service Act 1999. The Defence Annual Report 2003-04 addresses the Department of Defence and the Australian Defence Force (ADF), which are collectively referred to as ‘Defence’. The Department of Veterans’ Affairs and the Defence Housing Authority, which are parts of the Defence portfolio, have separate annual reports. The Australian Strategic Policy Institute, funded substantially by Defence, is a Government-owned company incorporated under the Corporations Act 2001 and has a separate annual report. Annual reports and portfolio budget and additional estimates statements are the principal formal accountability mechanisms between the Government, departments and the Parliament. Portfolio budget statements set out performance targets for departmental outputs. Portfolio additional estimates may contain revised targets and annual reports describe achievement against those targets. In addition, Defence’s annual reports are designed to link performance during the year under review with performance forecasts contained in the portfolio budget statements for the following year.

© Commonwealth of Australia 2004 ISSN 1323 5036 ISBN 0642296065 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 the Commonwealth. Requests and inquiries concerning reproduction and rights should be addressed to the Commonwealth Copyright Administration, Intellectual Property Branch, Department of Communications, Information Technology and the Arts, GPO Box 2154, Canberra ACT 2601 or posted at http://www.dcita.gov.au/cca.

ii Senator the Hon Robert Hill Minister for Defence Parliament House

Dear Minister

We hereby present the annual report of the Department of Defence for the year ended 30 June 2004. This report has been prepared in accordance with Section 63 of the Public Service Act 1999. Subsection 63(1) of the Act requires that our report to you be tabled in the Parliament. The report summarises the performance of Defence for 2003-04, and includes other mandatory information required by legislation. In accordance with Section 45 of the Financial Management and Accountability Act 1997 and pursuant to Regulation 19 of that Act, we are satisfied that Defence has prepared appropriate fraud risk assessments and fraud control plans, and has in place appropriate fraud prevention, detection, investigation and reporting procedures and processes that meet the specific needs of Defence and comply with the Commonwealth Fraud Control Guidelines 2002.

Yours sincerely

R C Smith AO, PSM P J Cosgrove AC, MC Secretary General Department of Defence Chief of the Defence Force Contents Guide to the Report ...... ii Letter of Transmittal ...... iii List of Tables and Charts...... vi Corrections to the Defence Annual Report...... x Chapter One – Overview Year in Review ...... 14 Review by the Secretary and the Chief of the Defence Force...... 14 Implementing the White Paper...... 23 Financial Overview...... 37 Program of Administrative Savings...... 57 Accountability Arrangements...... 61 Corporate Governance...... 61 Organisational Changes ...... 62 Organisational Chart...... 63 Senior Executives...... 64 Changes ...... 64 Remuneration for Period in Office...... 64 Study of Parliamentary Process ...... 65 Defence Governance Framework...... 66 Senior Committees...... 66 Chapter Two – Outcome Performance Overview of the Defence Outcomes and Outputs...... 78 Price to Government of Defence’s Outcomes...... 80 Outcome One: Command of Operations ...... 83 Australian Defence Force Operations ...... 96 Australian Defence Force Exercises...... 100 Outcome Two: Navy Capabilities ...... 109 Outcome Three: Army Capabilities...... 127 Outcome Four: Air Force Capabilities ...... 146 Outcome Five: Strategic Policy ...... 158 Defence Cooperation ...... 167 Outcome Six: Intelligence ...... 177 Outcome Seven: Superannuation and Housing Support Services for Current and Retired Defence Personnel ...... 187 Chapter Three – Group Contributions Vice Chief of the Defence Force Group...... 192 Defence Science and Technology Organisation ...... 195 Intelligence and Security Group...... 201 Capability Development Group ...... 204 Corporate Services and Infrastructure Group...... 207 Office of the Chief Information Officer...... 209 Defence Materiel Organisation ...... 212 Public Affairs Branch...... 216 Chapter Four – Capital Budget Overview ...... 220 iv Defence Capability Plan...... 222 Approved Major Capital Equipment Program...... 223 Capital Facilities Projects ...... 240 Other Capital Purchases ...... 255 Capital Receipts...... 256 Chapter Five – People Workforce Overview ...... 260 Performance Against People Matter Priorities for 2003-04...... 275 Non-Operational Training ...... 285 Workplace Equity and Diversity ...... 287 Occupational Health and Safety ...... 291 Annual Report on the Administration and Operation of the Defence Force (Home Loans Assistance) Act 1990 ...... 296 Chapter Six – Management Reforms and Efficiencies Progress on Financial Management Reform...... 302 Defence Materiel Reforms ...... 304 Corporate Services and Infrastructure Reforms...... 308 Commercial Support Program...... 311 Appendices Financial Statements...... 315 Purchaser-Provider Arrangements ...... 401 Internal Audit and Risk Management Arrangements ...... 403 Internal Audit...... 403 Ethics Awareness and Fraud Control...... 403 Portfolio Evaluations ...... 404 Enterprise Risk Management...... 405 External Scrutiny ...... 406 Parliamentary Committees...... 406 Auditor-General’s Reports ...... 411 Defence Force Ombudsman ...... 413 Decisions of Courts and Tribunals...... 413 Legal Expenses ...... 414 Inspector-General of the Australian Defence Force...... 416 Responsiveness to the Ministers and the Parliamentary Secretary ...... 420 The Defence Service Charter...... 421 Ecologically Sustainable Development and Environmental Performance ...... 424 Asset Management...... 434 Discretionary Grants ...... 436 ADF Units and Establishments ...... 440 Consultancies ...... 450 Advertising and Market Research ...... 472 Contracts Exempt from Publication in the Purchasing and Disposal Gazette...... 478 Freedom of Information...... 479 Glossary...... 490 Acronyms and Abbreviations ...... 497 Alphabetical Index...... 499

v List of Tables and Charts

Chapter One – Overview Table 1.1: List of Major Capital Equipment Projects Approved by the Government in 2003-04...... 24 Table 1.2: Revised White Paper Funding from 2001-02 to 2013-14 (Outturned 2004-05 prices) ...... 34 Table 1.3: Current Status of White Paper Funding Allocations (Outturned 2004-05 prices) ...... 35 Table 1.4: Total Defence Resourcing 2003-04 ...... 37 Table 1.5: Statement of Financial Performance...... 39 Table 1.6: Statement of Financial Position...... 44 Chart 1.1: Historical Trends in Defence’s Assets...... 48 Chart 1.2: Historical Trends in Defence’s Liabilities...... 48 Table 1.7: Movements in Defence’s Net Worth 2000-01 to 2003-04 ...... 49 Table 1.8: Use of Cash by Defence in 2003-04 ...... 50 Table 1.9: Current Status of the Appropriation Receivable ...... 51 Table 1.10: Planned Rundown in Cash Levels...... 52 Table 1.11: Net Additional Cost of Operations ...... 53 Table 1.12: Cost of Operations 2003-04...... 56 Table 1.13: Program of Administrative Savings Targets ...... 57 Table 1.14: Administrative Savings Programmed...... 57 Table 1.15: Cost Pressures Offset by Administrative Savings...... 58 Table 1.16: Revenues and Expenses Administered on Behalf of the Government...... 60 Chart 1.3: Organisational Chart ...... 63 Table 1.17: Senior Executive Remuneration 2003-04 ...... 65 Chart 1.4: Senior Defence Committees Structure ...... 67 Table 1.18: Defence Committee Attendance...... 68 Table 1.19: Chiefs of Service Committee Attendance...... 69 Table 1.20: Defence Capability and Investment Committee Attendance ...... 70 Table 1.21: Defence Audit Committee Attendance ...... 71 Table 1.22: Defence Capability Committee Attendance ...... 72 Table 1.23: Defence People Committee Attendance...... 73 Table 1.24: Defence Information Environment Committee Attendance...... 74 Table 1.25: Defence Occupational Health and Safety Committee Attendance...... 75 Chapter Two – Outcome Performance Table 2.1: Cost of Defence Outputs in 2003-04 ...... 78 Table 2.2: Cost to the Government of Departmental Outcomes...... 80 Table 2.3: Overall Cost to the Government of Defence Outcomes (Departmental and Administered)...... 81 Map 2.1: Major ADF Operations during 2003-04...... 82 Table 2.4: Outcome One – Command of Operations in Defence of Australia and its Interests...... 89 Table 2.5: Price Summary of Outputs for Outcome One – Command of Operations in Defence of Australia and its Interests...... 95 Table 2.6: Operations Contributing to the Security of the Immediate Neighbourhood ...... 96 Table 2.7: Operations Supporting Wider Interests...... 97 Table 2.8: Operations for Peacetime National Tasks ...... 98 vi Table 2.9: ADF Joint Exercises...... 100 Table 2.10: Combined ADF / United States Exercises...... 101 Table 2.11: Combined ADF / Five Power Defence Arrangements Exercises ...... 102 Table 2.12: Combined ADF / New Zealand Exercises...... 103 Table 2.13: Other Combined Exercises...... 103 Table 2.14: Outcome Two – Navy Capability for the Defence of Australia and its Interests...... 120 Table 2.15: Price Summary of Outputs for Outcome Two – Navy Capability for the Defence of Australia and its Interests...... 126 Table 2.16: Outcome Three – Army Capability for the Defence of Australia and its Interests...... 139 Table 2.17: Price Summary of Outputs for Outcome Three – Army Capability for the Defence of Australia and its Interests...... 145 Table 2.18: Outcome Four – Air Force Capability for the Defence of Australia and its Interests...... 151 Table 2.19: Price Summary of Outputs for Outcome Four – Air Force Capability for the Defence of Australia and its Interests...... 157 Table 2.20: Outcome Five – Strategic Policy for the Defence of Australia and its Interests...... 162 Table 2.21: Price Summary of Outputs for Outcome Five – Strategic Policy for the Defence of Australia and its Interests...... 166 Table 2.22: Defence Cooperation Summary ...... 167 Table 2.23: South Pacific Region Summary...... 169 Table 2.24: Pacific Patrol Boats by Country...... 171 Table 2.25: South-East Asia Summary ...... 172 Table 2.26: Outcome Six – Intelligence for the Defence of Australia and its Interests . 181 Table 2.27: Price Summary of Output for Outcome Six – Intelligence for the Defence of Australia and its Interests...... 186 Table 2.28: Outcome Seven – Superannuation and Housing Support Services for Current and Retired Defence Personnel ...... 188 Chapter Four – Capital Budget Table 4.1: Defence Financial Performance for the Capital Program 2003-04 ...... 221 Table 4.2: Top 20 Projects by Actual 2003-04 Expenditure...... 223 Table 4.3: Remaining Top 20 Projects by Total Approved Project Cost ...... 234 Table 4.4: Former Top 20 Projects ...... 237 Table 4.5: Approved Major Capital Facilities Projects by State and Federal Electorate ...... 241 Table 4.6: Status of Major Capital Facilities Projects...... 249 Table 4.7: Approved Medium Capital Facilities by State and Federal Electorate ...... 250 Table 4.8: Status of Proposed Medium Capital Facilities Projects ...... 254 Table 4.9: Defence Capital Receipts 2003-04 ...... 256 Chapter Five – People Table 5.1: ADF Permanent Force Average Funded Strength...... 260 Table 5.2: ADF Reserve Funded Strength ...... 260 Table 5.3: APS Average Funded Strength...... 261 Table 5.4: Current Approved Professional Service Provider Strength ...... 262 Chart 5.1: Movements in Actual Civilian Personnel Numbers from Pay 1 2002-03 to Pay 26 2003-04 ...... 262 Table 5.5: Breakdown of Average Funded Strengths by Service and Rank ...... 263

vii Table 5.6: Explanation of Variations in Employee Expenses ...... 264 Table 5.7: Reserves Enhancement Initiatives ...... 266 Chart 5.2: Defence Workforce Staffing as at 30 June 2004...... 266 Table 5.8: Defence Personnel Comparison as at 30 June 2003 and 30 June 2004...... 267 Table 5.9: ADF Permanent and Reserve Forces, and APS Personnel, by Gender and Employment Category...... 268 Table 5.10: APS Personnel by Gender and Category as at 30 June 2004 ...... 269 Table 5.11: Star-ranked Officers as at 30 June 2004...... 269 Table 5.12: APS Senior Executive Service staff as at 30 June 2004 ...... 270 Table 5.13: Distribution of Defence Personnel by Employment Location as at 30 June 2004...... 270 Table 5.14: Distribution of APS Personnel by Employment Location as at 30 June 2004...... 271 Table 5.15: Permanent Force Enlistments 2002-03 and 2003-04 ...... 272 Table 5.16: ADF Permanent Force Recruiting Activity 2002-03 and 2003-04...... 272 Chart 5.3: Permanent Force Recruiting Target versus Achievement for 2002-03 and 2003-04...... 273 Table 5.17: Reserve Force Recruiting Activity for 2002-03 and 2003-04...... 273 Chart 5.4: Reserve Force Recruiting Target versus Achievement for 2002-03 and 2003-04...... 273 Table 5.18: ADF Permanent Force Separations 2002-03 and 2003-04...... 274 Table 5.19: APS Separations 2002-03 and 2003-04...... 274 Table 5.20: High Priority People Initiatives ...... 284 Table 5.21: Graduate Intake Figures ...... 285 Table 5.22: Non-Operational Training ...... 286 Table 5.23: Diversity of all Defence Personnel as at 30 June 2003 and 30 June 2004 .. 287 Chart 5.5: Percentage of Reported Unacceptable Behaviour Incidents by Service for 2003-04 ...... 289 Chart 5.6: Comparison of Reported Unacceptable Behaviour Incidents 2003-04 ...... 290 Table 5.24: Incident Reporting...... 293 Table 5.25: Investigations by Comcare ...... 293 Table 5.26: Comcare Notices ...... 294 Table 5.27: Compensation Claims Received from Defence Employees in 2002-03 and 2003-04...... 294 Table 5.28: Applications for Payment of Subsidy by Type of Assistance ...... 297 Table 5.29: Comparison of Activities ...... 298 Chapter Six – Management Reforms and Efficiencies Table 6.1: Expenditure on Corporate Services and Infrastructure Group-managed Contracts ...... 310 Table 6.2: Commercial Support Program Progress Summary as at 30 June 2004 ...... 311 Table 6.3: Activities in Progress or Under Consideration...... 311 Table 6.4: Activities Not Proceeding Under the Commercial Support Program...... 312 Appendices Legal Expenses Table 7.1: Estimated Expenditure on Internal and External Legal Services in 2002-03 and 2003-04 ...... 414 Table 7.2: Estimated Cost Breakdown of Internal Legal Expenses...... 414 Table 7.3: Estimated Cost Breakdown of External Legal Expenses...... 414

viii Inspector-General of the Australian Defence Force Table 7.4: References to the Inspector-General ADF by Method Received...... 417 Table 7.5: References to the Inspector-General ADF by Outcome ...... 417 Table 7.6: References to the Inspector-General ADF by Subject Matter ...... 418 Table 7.7: References to the Inspector-General ADF by Service ...... 418 Table 7.8: References to the Inspector-General ADF by Gender of Originator ...... 418 Table 7.9: Closed or Referred References Made to the Inspector-General ADF by Length of Time Before Being Closed or Referred...... 418 The Defence Service Charter Table 7.10: Complaints Made to Defence 1999-2000 – 2003-04...... 422 Table 7.11: Percentage of Department Response Times Against the Standard Requirement of Ten Days ...... 422 Table 7.12: Accounts Paid by Due Date...... 423 Ecologically Sustainable Development and Environmental Performance Table 7.13: Defence Environment Panel Projects May 2003-June 2004 ...... 428 Table 7.14: Environmental Incidents Reported in 2003-04 ...... 430 Table 7.15: Defence Referrals in 2003-04...... 431 Discretionary Grants Table 7.16: Grants Awarded in 2003-04 ...... 436 Table 7.17: Army Military History Research Grants Scheme Expenditure ...... 436 Table 7.18: Defence Family Support Funding Program Expenditure 2003-04 ...... 436 ADF Units and Establishments Map 7.1: Significant Australian Defence Bases/Establishments...... 440 Table 7.19: ADF Units and Establishments ...... 441 Consultancies Table 7.20: Use of Consultants by Defence Group...... 450 Table 7.21: Particulars of Consultancy Contracts in 2003-04 ...... 451 Advertising and Market Research Table 7.22: Total Advertising and Market Research Expenditure by Type of Agency...... 472 Table 7.23: Total Advertising and Market Research Expenditure by Group...... 472 Table 7.24: Particulars of Payments by Group for Advertising and Market Research...... 473 Contracts Exempt from Publication Table 7.25: Number of Contract/Standing Offer Exemptions from Publication by Group...... 478 Freedom of Information Table 7.26: Requests for Access to Documents ...... 479 Table 7.27: Time Taken to Answer Requests for Access to Documents ...... 480

ix Corrections to the Defence Annual Report External Consultants The following entries were erroneously omitted due to incorrect coding of payments.

Total Name Purpose Amount Justification Paid $ 2002-03 Corporate Service and Infrastructure Anthony Blunn Review of Defence Legislation 79,200 1 John S Baker Review of Defence Legislation 34,000 1 Defence Materiel Organisation Anthony Blunn Review of Departmental Actions Resulting from Complaints by Australian Flight Test Services 52,200 1 2001-02 Defence Security Authority Anthony Blunn Review of Defence Regional Security Arrangements 48,000 1 2000-01 Corporate Services and Infrastructure Anthony Blunn Scoping study and review of the Defence security function for its capacity to comply with relevant policy and audit requirements 60,000 1

Therefore, the total expenditure by Defence on consultants in 2000-01 was $5,966,569; in 2001-02 was $7,571,075; and in 2002-03 was $14,700,874.

Key to Particulars of Consultancy Contracts Justification 1. Specialised skills or service required not available within Defence 2. Specialised skills or service required not available within time frame 3. Technology not available within Defence

Contracts Exempt from Publication in the Purchasing and Disposal Gazette The correct amount for exemptions made by the Defence Materiel Organisation in 2002-03 was $143,416,208. This figure was incorrectly reported on p.395 of the Defence Annual Report 2002-03 as $12,021,868.

x xi Photo opposite: the Chief of the Defence Force, General Peter Cosgrove AC, MC and the Secretary of Defence, Mr Richard Smith AO, PSM. CHAPTERONE

At the peak of the ADF’s operational Overview tempo in 2003, 3,600 people were deployed overseas This chapter provides an overview of Defence and its performance By the end of June 2004, during 2003-04. The chapter approximately 845 ADF personnel includes a review of the year by were deployed under Operation the Secretary and the Chief of the Catalyst to assist with the rebuilding Defence Force. of Iraq At the peak of Operation Anode in August 2003, over 1,700 ADF personnel were deployed to the Solomon Islands to support police efforts to restore law and order

Special Operations Command was established to streamline command, control and coordination of the special operations forces

As at 30 June 2004, the net value of Defence’s assets (financial assets, land, buildings, specialist military equipment) was $47 billion Chapter One

Year in Review

Review by the Secretary and the Chief of the Defence Force Australia’s strategic environment continued to present complex challenges in 2003-04. Defence remained focused on contributing to global and regional efforts to combat terrorism, and to fostering regional stability. The post September 11 demands on Defence continued to broaden, with increasingly close involvement in whole-of-government national security responses. We have responded well to expanded Government requirements, and it has been a rewarding year for Defence in terms of the Australian Defence Force’s (ADF) performance on operations. In the area of Defence management, much has been achieved in implementing the Kinnaird review’s recommendations for improving Defence’s performance in capability acquisition and procurement and for further reform of the Defence Materiel Organisation. We have continued to work at resolving challenging financial management matters and improving internal coordination. The groundwork for enhanced performance has been laid, but more needs to be done to improve asset and liability accounting. As we write, approximately 2,000 ADF personnel are deployed on operations, around 1,100 of them overseas. They are on Coalition operations in the Middle East, and working with regional partners to help restore the rule of law in the Solomon Islands and to establish a basis for a peaceful democratic future for that nation. They are assisting Customs and Coastwatch to protect our borders and are supporting counter-terrorism security operations at home. Their operational success is made possible by the work of their ADF and civilian colleagues based around Australia.

Australia’s Strategic Environment In the three years since the terrorist attacks of September 2001, we have adjusted to the changed circumstances in our strategic environment and demonstrated our ability to respond quickly to emerging crises, building greater versatility and flexibility into our force structure and planning processes. The threat of terrorism has had a major impact on the environment in which Defence operates. The bombing outside the Australian Embassy in Jakarta this year (after the period reviewed in this annual report) underscored again the intent of transnational terrorists to attack Australian interests abroad. This asymmetric threat has diminished the value of borders and geographic distance, fundamental to Australia’s traditional security posture. Proliferation activities, and the risk of terrorism and weapons of mass destruction coming together, give a particular urgency to Defence’s responses to our changed strategic circumstances. Good, actionable intelligence has been key to our response. Continued investment in the Defence intelligence agencies over this past year has enabled them to develop new technologies to help combat terrorism, and systems to provide enhanced support to ADF commanders in the field. Over the same period, our counter-terrorist capabilities have been strengthened and successfully exercised, with Special Operations Command Headquarters achieving full strength and capability, and expenditure on new capability on course. The Incident Response Regiment is now operationally capable and will reach full maturity by December

14 Year in Review

2005. Defence’s participation in the whole-of-government counter-terrorism Exercise Mercury 2004 demonstrated our capacity to operate simultaneously in two geographically separate regions, and the readiness of the Reserve Response Force to support counter-terrorism operations at short notice. Our hosting of a Regional Special Forces Counter-Terrorism Conference in Australia in June 2004 brought together senior special forces commanders and counter-terrorism officials from 16 countries within the Asia-Pacific region to discuss cooperative counter-terrorism measures across the region. Defence has been a key agency in the multinational Proliferation Security Initiative (PSI), which is working to prevent the transshipment of weapons of mass destruction, contributing ADF assets and policy support to the first multilateral PSI interdiction exercise in September 2003, hosted by Australia in the Coral Sea. We also provided expert advice on the export of defence and dual use items from Australia to limit the potential for exports from Australia becoming components of weapons of mass destruction. Over the past year, Defence has also been involved in whole-of-government efforts to foster national stability, integrity and cohesion in our immediate neighbourhood. Some regional nations, including East Timor, Papua New Guinea and other Pacific Island states, are vulnerable because of internal stresses caused by economic disparity, population pressures and governance challenges. The ADF’s support of Australia’s intervention in the Solomon Islands, at the invitation of that country’s Government, was a key regional success. And Defence’s cooperation program continued to deliver practical assistance to the region through initiatives such as the Pacific Patrol Boat Project and the Papua New Guinea Defence Force Reform Program. In support of national peacetime security tasks, we contributed to whole-of-government domestic security activities in aviation and maritime security during the year, and provided counter-terrorism support to major public events such as the Rugby World Cup 2003 and the visits by the Presidents of the United States and the People’s Republic of China.

Current Operations

The number of ADF personnel deployed overseas peaked in July 2003 at around 3,600. Over the past year, that number has steadily declined with the reduction of personnel in both East Timor and the Solomon Islands. As at 30 June 2004, some 1,100 ADF personnel remained on overseas deployments. Approximately 845 of these were deployed under Operation Catalyst to assist with the rebuilding of Iraq. They protected Australian officials in Iraq, primarily our diplomats, trained the new Iraqi armed forces, and provided our personnel in the Middle East Area of Operations with the logistics and communications support that they needed. They also ran a national headquarters in Baghdad which continues to control both Operation Catalyst and Operation Slipper (our contribution to the war against terrorism). In 2003-04, our Navy personnel conducted over 1,000 successful challenges and 400 compliant boardings in the Persian Gulf to protect Iraqi oil supplies and counter smuggling and other illegal operations. The Air Force flew some 2,000 sorties, provided aeromedical evacuation to nearly 1,000 patients in Iraq, and carried 14,000 passengers and over 12 million pounds of cargo. Two of our AP-3C Orion maritime patrol aircraft and 160 personnel flew over 400 sorties, conducting intelligence, reconnaissance and surveillance missions in the Persian Gulf, the Gulf of Oman and over Iraq. An Air Force air traffic control element served at Baghdad International Airport until 31 July 2004. The detachment processed over 175,000 aircraft

15 Chapter One movements and trained Iraqi air traffic controllers, who have now taken over operations at Baghdad airport. A force protection group of 120 personnel and 12 Australian Light Armoured Vehicles protected Australian Embassy and other government officials and ADF elements in Iraq. ADF training teams contributed to the rehabilitation of Iraq by training the Iraqi 4th and 8th Brigades at Al Kasik and assisting the new Iraqi Coastal Defence Force to develop its patrol boat operations. Around 40 ADF personnel were embedded in the Multi National Force – Iraq to support the transitional and rehabilitation efforts in Iraq and an ADF member served as the Military Adviser to the United Nations Special Representative of the Secretary General. The ADF’s Operation Slipper contributed to the war against terrorism by providing the Operation Catalyst AP-3C detachment, a major fleet unit assigned to Maritime Interception Force operations in the northern Persian Gulf, and a de-mining specialist attached to the United States’ Headquarters in Afghanistan. The Australian-led, multinational operation has been under way in the Solomon Islands since July last year. At its peak in August 2003, over 1,700 ADF personnel were deployed in support of police efforts to restore law and order. Around 100 remained at 30 June 2004 providing support to the police and able to respond to any incident requiring military action. Under Operation Spire, the ADF provided approximately 100 personnel to the United Nations’ (UN) mission in East Timor, undertaking a range of roles to support the UN, mainly performing specialist logistics and engineering and military liaison tasks. The ADF also continued to conduct operations to protect Australia’s borders. The Navy’s patrol boats, the Air Force’s P3-Cs and the Army’s Regional Force Surveillance Units all contributed to Operation Cranberry in northern Australia in support of Coastwatch’s maritime surveillance program to detect illegal activity such as smuggling and illegal fishing. Our naval and air forces also operated under Operation Relex II, a major program to detect, warn and intercept vessels carrying unauthorised arrivals. During 2003-04, the ADF responded to three major humanitarian crises. In response to the earthquake that devastated the city of Bam in Iran in December 2003, an Air Force C-130 aircraft transported in excess of 23,000 pounds of emergency stores. In January this year, an ADF health team deployed to the Pacific Island of Niue in response to tropical cyclone Heta which destroyed most of the country’s infrastructure. The ADF health care facility became the only hospital on the island and treated over 300 patients. A few weeks later, two Air Force Hercules C-130 aircraft transported urgently needed emergency stores to Port Vila in Vanuatu following the devastation caused by tropical cyclone Ivy. In addition to meeting these operational demands, ADF personnel continued to support UN missions in Ethiopia and Eritrea, in the Sinai, and along the Israel, Jordan, Syria, Lebanon and Egypt border and serve as unarmed military observers at headquarters in Jerusalem, the Golan Heights, Southern Lebanon and Gaza.

16 OPERATIONANODE

Operation Anode is the ADF’s contribution to the Australian-led Regional Assistance Mission to the Solomon Islands (RAMSI). The overall RAMSI undertaking is known as Operation Helpem Fren. The ADF deployed to the Solomon Islands in July 2003 in support of the Australian Federal Police, Australian Protective Service and Australian Government civilian officials. The contingent’s first priority was to restore law and order but it has subsequently assisted the Solomon Islands’ Government to reform its key institutions. ADF personnel including elements from the 2nd Battalion Royal Australian Regiment, the Navy’s minehunter vessels and the Air Force’s Caribou detachment worked with forces from Fiji, Tonga, New Zealand and Papua New Guinea.

The workload for military personnel A Seaking helicopter from HMAS Manoora delivers a vehicle deployed to RAMSI was heavy with many to police and military personnel establishing a police presence working 18-hour days for the duration of in a village on the remote Weathercoast on 4 August 2003. Two Seaking helicopters worked throughout the day flying their deployment. 36 sorties and delivering 30 tonnes of stores.

A C-130 Hercules aircraft delivers supplies to Henderson Airfield, Honiara. RAMSI military personnel destroy weapons during a ceremony at Marau, south east of Honiara on the last day of the Solomon Islands gun amnesty on 21 August 2003.

The high incidence of illegal firearm governance mechanisms and stimulating possession in the Solomon Islands also economic growth. This is an endeavour the meant Australian soldiers operated under Australian Government will continue to significant danger. Local conditions also support by providing specialist contributions posed significant challenges. Four members to RAMSI designed to advance reforms in of one patrol, for example, were swept out health, infrastructure, policing, justice and to sea – and subsequently rescued by locals economic and financial management. in a canoe – after attempting to cross a fast- flowing river mouth. When RAMSI personnel arrived in the Solomon Islands, years of ethnic tension, gang-related violence and police corruption had undermined law and order and the Government’s legitimacy. Within a year, RAMSI has significantly restored public confidence in the Solomon Islands’ Government through arrests of key militants and the confiscation and public destruction of over 3,700 firearms. The improved security situation has allowed the phased withdrawal of military forces and the transition to contracted administrative and logistic support for the Australian Federal Police. A smaller combined ADF and regional military force, including an infantry platoon on quick reaction force duties, remains in the Solomon Islands in support of the continuing police-led activities. Captain Angela Devlin, an Australian Army nursing officer, The focus of RAMSI has shifted from has a few quiet words with a young patient at the Solomon restoring law and order to building durable Islands’ main hospital in Honiara. Year in Review

Intelligence Inquiries Our intelligence agencies operated at a high tempo during the year to support ADF operations and the war against terrorism. They were also the subject of a number of official inquiries. These included the Parliamentary Joint Committee on ASIO, ASIS and DSD inquiry into intelligence on Iraq’s weapons of mass destruction, the Senate Standing Committee on Foreign Affairs, Defence and Trade inquiry into security threats to Australians in South East Asia, and the inquiry by Mr Philip Flood AO into Australia’s intelligence agencies. Mr Flood recommended that the coordination, governance and legislative underpinning of the organisation and operations of Australia’s intelligence community be strengthened. He recommended a cohesive national approach to the priorities and funding of our intelligence agencies and to evaluating their performance. In addition to contributing to community wide responses, the key implementation issues for Defence are to rebalance the Defence Intelligence Organisation’s focus towards Defence requirements, to integrate Defence intelligence assessment priorities into national assessment priorities and to restore a healthy balance of ADF personnel in the Defence intelligence agencies.

Defence Capability and Procurement Reviews During 2003, the Defence Procurement Review (known as the ‘Kinnaird review’) examined the procurement process for major Defence acquisitions. In response to the review’s recommendations, Government directed that the Defence Materiel Organisation, while remaining part of the Defence organisation, should be established as a prescribed agency under the Financial Management and Accountability Act 1997 from 1 July 2005. Defence acted quickly to implement the Kinnaird recommendations. A new Capability Development Group, headed by Lieutenant General David Hurley, was formed to provide better definition both of the capability we require and the equipment or systems solutions to deliver it. We instituted a new process for approving capability proposals which requires the solutions to be better defined, more robustly costed, and their owners more accountable. In February 2004, Dr Stephen Gumley was appointed as the Chief Executive Officer of the Defence Materiel Organisation. With his new management team, Dr Gumley has initiated a program of reform that will professionalise the organisation’s workforce, improve contract management, standardise business practice and process, benchmark the organisation against best practice and improve its relationship with industry. A Defence Procurement Advisory Board made up of senior public and private sector members was established to monitor the implementation of the Kinnaird recommendations. The Board provides strategic advice and support to Dr Gumley on the direction, focus, objectives, planning, management and structure of the organisation. The Defence Capability Plan was reviewed during 2003, with the revised plan endorsed by Government and released in November 2003. Subsequent Government decisions approved the acquisition of M1A1 Abrams tanks, two additional airborne early warning and control aircraft, five air-to-air refuelling aircraft, and an auxiliary oiler to replace HMAS Westralia.

19 Chapter One

Financial Management Defence’s Financial Statements are set out fully in this report. The results in terms of cash management, receivables, revenue appropriations, explosive ordnance holdings, and specialist military equipment exclusive of repairable items are stated fairly. Budget management practices continued the improvement of the last few years. As well, new techniques such as our Portfolio Budgeting system and proposed Force Element Product Costing model attracted interest from other defence ministries and Commonwealth agencies. In relation to certain accrual entries and provisions and their resultant impact, the Secretary could not conclude on the financial statements as a whole. The qualifications identified in previous years remain on the statements for 2003-04, and the scope of some of them has increased. In particular, work by Defence’s Management Audit Branch and the Australian National Audit Office (ANAO) identified shortcomings in stock recording policies and practices. This has had an impact on the level of uncertainty in relation to the reported values of general stores inventory and repairable items, problems which in the past had reflected only pricing issues. This outcome is disappointing, as we had increased significantly the resources committed to trying to achieve compliance with accrual accounting standards and the introduction of other new accounting standards. These efforts were driven by a Project Board chaired by the Secretary and including all Service Chiefs, and guided by our independently chaired Defence Audit Committee. More than 600 staff across the organisation were involved, on a full or part-time basis, and several major accounting companies were contracted in. These efforts will be strengthened in 2004-05. They include remediation plans for each of the qualifications as well as for more generic reforms aimed at meeting not only accrual accounting requirements but also the newly introduced International Financial Reporting Standards. Establishing the Defence Material Organisation as prescribed agency, with its own accounts, will add a further layer to the challenge. To assist in this work, a representative from the Department of Finance and Administration will join the Project Board, together with a private sector accounting specialist. In all of this, Defence and ANAO have accepted that while some of the problems we face might be susceptible to quick remediation, others are more deeply seated and will take some years to resolve as Defence endeavours to reach beyond the Public Service, cash-based arrangements of the past and to attain the corporate-like, accrual-based international standards required of us. In the meantime, cash and budget management policy and practice remain sound, and Defence operations are not evidently affected by the problems.

Other Management Issues We made significant progress in reforming the provision of corporate services under the auspices of our Business Improvement Project. Some 20 initiatives were considered: eight have already been endorsed with implementation under way. These include the consolidation of travel, personnel (military and civilian) and accounts-processing services into two regional business centres and two regional accounts processing centres. To be established in Townsville, Newcastle, Edinburgh and Puckapunyal, these centres will provide more efficient corporate services to Defence, at a significantly reduced cost, while creating regional employment opportunities.

20 Year in Review

We also strengthened the management of our information environment by bringing together the strategy, planning, prioritisation, development, implementation and support elements of Defence’s computing and communications capabilities under the Chief Information Officer Group. This allows much closer alignment between these functions and clearer accountability for all aspects of our information capability. Supporting Defence People The contribution of Defence people to capability and performance has been recognised through a number of significant achievements to improve remuneration, safety and staffing levels. Remuneration and conditions for both ADF members and Defence’s Australian Public Service employees were improved through the ADF Workplace Remuneration Arrangement 2004-06 and the Defence Employees Enterprise Agreement 2004-06. Funding has been provided for the provision of quality living-in accommodation for ADF members for the next three to four years, and the Services Workforce Access Program for Partners, launched in October 2003 to assist partners of ADF personnel to gain employment in new localities, has proved successful. Measures to remedy shortfalls in critical ADF employment categories have been developed and funded for the next three to four years. Funding has also been allocated over the next ten years to implement the Defence Strategic Occupational Health and Safety Plan that aims to develop procedures that will eliminate preventable and work-related injuries. The passage of legislation in May 2004 allowed the new Rehabilitation and Compensation Scheme to come into effect on 1 July 2004. The new scheme maintains comprehensive benefits for ADF members who are injured or become ill in the course of their service, and meets the needs of dependants of members who die as a result of military service.

Advice to the Government and the Parliament Issues related to the handling of detainees in Iraq by Coalition forces exposed shortcomings in information flows within Defence and between the Department and ministers. Our performance on this matter, as we acknowledged, was lacking. We have since reinforced with our people the need to remain sensitive to issues of potential policy interest, and to pay close attention to the standards of accuracy and timeliness in our advice to Government and to Parliament. Internally, we have re-examined and changed some of our higher Defence arrangements related to issues management, coordination and public affairs. We appointed (in July 2004) a Chief of Staff in the Australian Defence Headquarters. The position provides high-level coordination in our headquarters to ensure that significant issues and trends are identified early and managed professionally, in support of our Ministers, the Parliamentary Secretary, the wider government and the Parliament.

21 Chapter One

Defence’s achievements are impressive and the ADF’s operational performance is evidence of that. Defence attracts good people who are passionate about their work. That passion drives our people to persist to overcome the problems we identify, as we identify them. Defence people have again demonstrated the versatility, professionalism and determination that enables the ADF to punch above its weight.

R.C. Smith AO, PSM P.J. Cosgrove AC, MC Secretary General Department of Defence Chief of the Defence Force

22 Implementing the White Paper The Defence White Paper, Defence 2000: Our Future Defence Force, released in December 2000, set the Government’s long-term direction and capability enhancement framework for Defence embodied in the Defence Capability Plan. In February 2003, the Minister for Defence released Australia’s National Security: A Defence Update 2003. The review identified the emergence of new and more immediate threats from terrorism, a renewed attention to the consequences of failing and failed states in our region, and increased concerns about the proliferation of weapons of mass destruction as the major changes to our strategic environment. The review canvassed the implications of the changed strategic environment for Australia’s defence posture and concluded that it called for an increased emphasis on readiness and mobility, interoperability, the development and enhancement of important new capabilities and, where sensible and prudent, a reduced emphasis on capabilities of less importance. In light of these recommendations, recent operational experience and more mature costings of equipment projects, Defence re-examined its capabilities and the Defence Capability Plan through the Defence Capability Review to ensure that the plan continued to reflect our capability requirements in the changed strategic environment. The Government announced the outcomes of the Defence Capability Review in November 2003. Overview of 2003-04 In 2003-04, the Defence Capability Review reaffirmed that the defence of Australia and regional requirements should be the primary drivers of force structure. Tasks such as the protection of Australia’s borders remain as important as ever. In relation to force structure, the review process identified areas requiring a rebalancing of capability and expenditure. These included an increased requirement to strengthen the effectiveness and sustainability of the Army, to provide air defence protection to deploying forces and to enhance their operational and strategic mobility. In considering the review, the Government sought to strike the right balance between maintaining near-term preparedness and longer-term capability. The Government made a number of decisions during the Defence Capability Review that have resulted in some rebalancing of the Defence Capability Plan released in February 2004. In addition to the Defence Capability Plan, which covers the acquisition of new equipment, Defence also takes into account other fundamental inputs to capability, through investment in personnel, facilities, training, doctrine, command and management, organisational and materiel support.

23 Chapter One

A list of the acquisition projects approved by the Government in 2003-04 is provided in the table below. List of Major Capital Equipment Projects Approved by the Government in Table 1.1 2003-04(1)(2)(3) Project Cost Status as at Project No Phase Name Band $m 30 June 04 Support to the development of the Major Capital Equipment Program JP 2089 Phase 1 Tactical Information Exchange Domain - Project Less than $10m 1 Definition Study SEA 4000 Phase 1C Air Warfare Destroyer Study $10m to $20m 1 Capability Technology Demonstrators $10m to $20m Various Project Development Funding $10m to $20m Various First Pass Approval LAND 121 Phase 3A Overland-Field Vehicle and Trailer Fleet - First $10m to $20m 4 Pass Funding Second Pass Approval AIR 5077 Phase 3 Airborne Early Warning and Control $250m to $350m 1 AIR 5276 Phase 5A AP-3C Orion Enhancement $10m to $20m 1 AIR 5276 Phase 8A AP-3C Orion Electronic Support Measures $10m to $20m 2 AIR 5376 Phase 2.3 F/A-18 Hornet Electronic Warfare Self- $250m to $350m Various Protection Upgrade AIR 5376 Phase 3.1A F/A-18 Hornet Structural Refurbishment $50m to $75m 1 AIR 5376 Phase 3.2B F/A–18 Hornet Structural Refurbishment $150m to $200m 3 AIR 5409 Phase 1 Bomb Improvement Program $50m to $75m 4 AIR 5416 Phase 3 Enhanced Electronic Warfare Self Protection for $30m to $50m 4 F-111 AIR 5416 Phase 4A C-130J Electronic Warfare Self Protection $20m to $30m Various DEF 224 Phase 2B Force Level Electronic Warfare $150m to $200m 4 JP 1 Phase R Harpoon Missiles Replacement $30m to $50m FMS purchase(4) JP 2025 Phase 5 Jindalee Operational Radar Network Upgrade $50m to $75m 4 JP 2047 Phase 2A Defence Wide Area Communications Network $10m to $20m 4 JP 2048 Phase 4A HMAS Tobruk Replacement (Risk Less than $10m 4 Reduction/Design Activity) JP 2065 Phase 1 Integrated Broadcast System $10m to $20m 4 JP 2070 Phase 3 Lightweight Torpedo $200m to $250m Alliance contract not yet achieved JP 2080 Phase 2A Defence Management Systems Improvement Less than $10m 4 JP 2085 Phase 1B Explosive Ordnance Warstock $150m to $200m Various JP 8001 Phase 2B.1 Headquarters Joint Operations Command $250m to $350m 4 Collocation LAND 907 Phase 1 Main Battle Tank Replacement $450m to $600m FMS purchase(4) SEA 1102 Phase 3A Laser Airborne Depth Sounder Replacement $10m to $20m 4 SEA 1442 Phase 3 Maritime Communications and Information $30m to $50m 4 Management Architecture Modernisation SEA 1448 Phase 2A ANZAC Anti-Ship Missile Defence $450m to $600m 1 SEA 1654 Phase 2A HMAS Westralia Replacement $100m to $150m 1 Notes 1. This list excludes highly classified projects. 2. This list includes a number of projects that were originally planned for approval in 2001-02 or 2002-03. 3. This list excludes a number of projects that support the development of the new major capital equipment program. 4. Foreign Military Sales.

Key to Project Status Categories 1. Project under way (contract signed). 2. Tender closed. 3. Out to tender. 4. Yet to go to tender.

24 Implementing the White Paper

Initiatives to Improve Capability Land Forces Goal The primary land forces goal remains the provision of land forces that can respond swiftly and effectively to any credible armed incursion on Australian territory and provide forces for more likely types of operations in our immediate region. In 2003-04, Defence’s ability to achieve this goal was enhanced by a range of activities, including: • the Government’s approval and United States Government endorsement of the letter of acceptance for the acquisition of M1A1 Abrams main battle tanks; • continuing development of the Special Forces capability primarily at Holsworthy Barracks, with the expansion of the special operations headquarters, the ongoing development of the second Tactical Assault Group and Incident Response Regiment and high readiness Reserve elements to bolster the ADF’s anti-terrorist capability, the Government’s approval for new training facilities for Australia’s counter-terrorism forces, and the ongoing establishment of a special operations service support company; • the Government’s approval for the construction of new weapons training facilities to enhance marksmanship training and weapon handling; • the completion of new Army training facilities at Lavarack Barracks, Townsville, Queensland and the opening of the new training simulation centre at Robertson Barracks, Darwin, Northern Territory; • the ongoing production of the Tiger armed reconnaissance helicopters; • completion of reliability testing of the Bushmaster infantry mobility vehicle and capability testing of the upgraded M-113 armoured personnel carrier demonstration vehicle; and • contract signature for the delivery of additional Javelin direct fire guided weapons and for the delivery of an enhanced modular bridging capability to increase the ADF’s battlefield mobility. Ground surveillance radars and unattended ground sensors were not accepted into service as anticipated due to equipment failure during testing processes. Progressing the acquisition of self-protection equipment for ADF helicopters and C-130 aircraft has been delayed.

Air Combat Goal The primary air combat goal remains the protection of Australia from air attack, and control of its air approaches to ensure that the ADF can operate effectively against any hostile forces approaching Australia. In 2003-04, Defence’s ability to achieve this goal was enhanced by a range of activities, including: • integration of upgraded radars in the F/A­18 Hornets; • the Government’s approval for structural refurbishment and electronic warfare self-protection systems for the F/A-18 Hornets;

25 Chapter One

• the Government’s approval for the acquisition of an additional two airborne early warning and control aircraft; • selection of the A330T as the new tanker; • selection of the contractor for new enhanced F/A-18 Hornet simulators; • final acceptance for the longer-range advanced medium-range air-to-air missiles introduced in 2001; and • upgrading a range of facilities in accordance with plans.

Maritime Forces Goal The primary maritime forces goal remains the maintenance of an assured capability to detect, deter and repel any maritime forces that pose a threat to our extended maritime approaches. In 2003-04, Defence’s ability to achieve this goal was enhanced by a range of activities, including: • launch of the tenth and final Anzac-class frigate, NUSHIP Perth and delivery of the eighth frigate, HMAS Ballarat; • acquisition of a new oil tanker to replace HMAS Westralia through the purchase of the environmentally compliant commercial tanker, MT Delos, for subsequent conversion; • the Government’s approval for upgrades to the anti-ship missile defences of the Anzac-class frigates and for the acquisition of new lightweight torpedoes to enhance the ADF’s anti-submarine warfare capability; • commencement of a risk reduction study into procurement of two large amphibious ships to replace HMAS Tobruk and one of the two amphibious landing ships; • ‘operational release’ and delivery of additional Evolved SeaSparrow surface-to-air missiles; • selection of designers to develop concept ship designs for Australia’s new air warfare destroyers; • contract signature and initiation of the Armidale-class patrol boat production; • continuation of the P-3 Orion maritime patrol aircraft upgrade program, with the final batch to enter service in 2004-05; • the continuation of the guided missile frigate upgrade program; • contract signature for a 15-year through-life support contract for the Collins-class submarines, including a continuous improvement program to maintain its capabilities and through-life supportability; • construction of the wharf and ammunition storage facility at Eden, New South Wales, to provide for naval ammunitioning; and • ongoing redevelopment of facilities at HMAS Albatross into 2005-06.

26 Implementing the White Paper

Strike Goal The strike goal remains the ability to attack targets within a wide radius of Australia. This could include attacks against credible levels of air defences or interdiction of maritime or land-based threats, including terrorist activities. The ADF will retain its strike capability as the F-111s withdraw from service by around 2010, by upgrading the F/A-18 Hornets and P-3 Orion maritime patrol aircraft, integrating stand-off weapons on these aircraft, satellite-guided weapons on the F/A-18 Hornets, and acquiring airborne early warning and control and air-to air refuelling aircraft. The Army continues to maintain its land based strike capability resident in Special Operations Command, specifically in the Special Air Service Regiment and 4th Battalion (Commando). The land based strike capability has seen continual enhancements with the ongoing development of 4th Battalion (Commando) and enhancements to air and maritime insertion techniques. In 2003-04, Defence’s ability to achieve this goal was enhanced by a range of activities, including: • the Government’s approval for the acquisition of suitable weapons systems to enable the F/A-18 Hornets to conduct all-weather precision bombing operations, for guidance kits to improve the accuracy of the ADF’s current inventory of general purpose bombs and for upgrades to the Harpoon anti-ship missile; • the Government’s approval for the follow-on stand-off weapons solicitation and evaluation, including integration technical definition activities for the F/A-18 Hornet and P-3 Orion aircraft; • Australian firms receiving contracts for the systems development and design phase of the Joint Strike Fighter project; and • a range of enhancements to the Special Forces capability (see the Land Forces Goal). The upgrade of the engineering works at RAAF Amberley, Ipswich, Queensland, has been deferred to more closely align with other facilities projects.

Information Goal The information goal remains the positioning of the ADF to harness advances in information technology to ensure that the ADF has timely, accurate and secure information to fully exploit individual and unit combat capabilities and allow their employment in more flexible ways. In 2003-04, Defence’s ability to achieve this goal was enhanced by a range of activities, including: • enhancing specialist intelligence collection and analysis systems; • awarding the contract for an air defence command and control system; • deploying a surface wave radar in northern Australia for evaluation; • modernisation of Defence’s high-frequency communications system; • construction of the Defence Network Operations Centre at HMAS Harman, Canberra, Australian Capital Territory;

27 Chapter One

• a proposal for further enhancements of the Jindalee Operational Radar Network; and • a proposal for the acquisition of force-level electronic warfare systems.

People Goal The people goal is to ensure that Defence has the right ADF and civilian personnel with the right skills and experience to provide the capabilities we need to undertake complex military operations. In 2003-04, Defence’s ability to achieve this goal, and to improve ADF health and wellbeing, was enhanced by a range of activities, including: • significant progress in implementing the recommendations of the Defence Strategic Workforce Planning Review, including the completion of a comprehensive Defence workforce plan that addresses workforce shortfalls in critical employment categories; • retention of military personnel has been addressed through development of models to assess the costs of replacing personnel and assist better targeting and retention measures; • as key retention measures, improvements to accommodation for single members and a program to assist spouses of ADF members to gain employment; • introduction of a new military compensation scheme, administered by the Department of Veterans’ Affairs, to provide treatment and compensation for ADF members who suffer mental or physical injury or contract a disease as a result of service on or after 1 July 2004; • development and implementation of a whole-of-Defence strategic occupational health and safety plan which addresses a number of important occupational health and safety issues and provides a staged approach to managing and implementing change; • the endorsement of the ADF Workplace Remuneration Arrangement 2004-06, the ADF Star Ranks Remuneration Arrangement 2004-06 and the Defence Employees Certified Agreement 2004-06, and implementation of remuneration initiatives and recommendations following the Government’s agreement to the recommendations from the 2001 ADF Review of Remuneration (the Nunn Review); • the continued targeted approach to education and training, with the launch of the first phase of e-learning implementation and commencing the implementation of the Business Skilling Review; • the opening of the Centre for Military and Veterans’ Health, a joint partnership between the ADF, the Department of Veterans’ Affairs and the University of Queensland, to improve the quality of health care delivered to the ADF by providing a centre of excellence in military health research; • through the Cadet Enhancement Program, improving the standard of accommodation, encouraging the development of cadet leadership and team building skills, trialling the Indigenous Participation Program, commencing delivery of ethical behaviour training and enabling the release of the ADF Cadets Occupational Health and Safety Policy Manual and website. The 2003-04 Budget also continued the Government’s White Paper commitment to allocate $100m per year for high-priority personnel initiatives totalling $500m over five

28 Implementing the White Paper years. Details are shown in Chapter Five – Performance against People Matter Priorities for 2003-04. Alignment of Budget with Strategic Direction Further development of the Defence Management and Finance Plan was undertaken in accordance with the Government’s budget timetable. The 2004-14 Defence Management and Finance Plan was available by 31 October 2003 for the Senior Ministers’ Review. An assessment of Defence’s resourcing position formed part of the Defence Capability Review completed in November 2003 and was reflected in the published 2004-14 Defence Management and Finance Plan. Further work was undertaken to develop the Group-based Organisational Performance Agreements, which are a key element of the Defence Business Model. These agreements underpinned the finalisation of the 2004-05 Budget and have been further enhanced to support the development of the 2005-15 Defence Management and Finance Plan. They are signed by each Group Head with the Secretary and Chief of the Defence Force and set out the Group’s planned performance and resourcing for the budget year and the ten-year period with particular focus on the forward estimates. Monthly reporting to the Defence Committee on corporate and Group financial performance was further strengthened during 2003-04. The regular monitoring of the budget by the Committee reinforced the budget management business rules that have been put in place and ensured improved accountability by senior leaders in managing their budget allocations in accordance with overall strategic priorities. During the course of the year, Defence implemented the recommendations of the Government's Budget Estimates and Framework Review. Having consistently met whole-of-government reporting time frames (other than for the 2003-04 Financial Statements), the focus is now on improving the quality and accuracy of reports and forecasts. Other achievements include: • the successful completion of a number of Government-directed reviews arising out of the Government’s consideration of Defence’s 2003-04 Budget; • progression of the Defence Procurement Review’s recommendations; • development of a Financial Systems Strategy to provide a road map for ongoing improvements to Defence financial systems; and • further development of the budget and output reporting and information system to provide a common budget development and reporting tool for use across Defence and the force element product costing tool. Important work is under way on the financial transformation program. This has been addressed by the Secretary and the Chief of the Defence Force in the Year in Review at the beginning of this chapter. Defence continued to focus attention on high-risk financial areas including assets, inventory, employee leave provisions and other key areas that have been the subject of previous audit qualification. Some improvement has been made in these areas, although greater scrutiny in 2003-04 highlighted the extent of the Department’s challenges and will likely lead to further audit qualifications. Comprehensive remediation programs have now commenced and progress in these activities is regularly reported to the Defence Audit

29 Chapter One

Committee and the Australian National Audit Office. Service Chief/Group Head sign-off statements have been improved, driving a greater degree of accountability for information provided and included in the 2003-04 Financial Statements. Notwithstanding the recurrence of qualifications on the annual financial statements, significant improvements have been made in cash management, debt collection, supplier payment, commitment and lease recognition, financial accounting and management reporting. Defence will continue to build on these enhancements in 2004-05 and beyond. Initiatives to Get the Best Value for the Defence Dollar

New Capability Development and Acquisition Process In 2003, the Government initiated the Defence Procurement Review, led by Mr Malcolm Kinnaird, to examine the procurement process for major acquisitions in Defence. The Government endorsed the recommendations of the Review, a number of which were implemented in 2003-04, including the appointment of a Chief Executive Officer of the Defence Materiel Organisation, the appointment of a chief to lead the newly created Capability Development Group and the establishment of a high-level Defence Procurement Advisory Board. Lieutenant General David Hurley was appointed as Chief of the new Capability Development Group in December 2003. The Group’s role in the capability life cycle is to define the defence capability required for future operations and to provide and assess the options for delivering that capability. This is to be achieved inter alia through the new ‘two pass’ implementation process, in which Defence provides independent analysis of capability development options to the Government, based on a rigorous assessment of technology, cost and schedule risks and whole-of-life costs. This new process applies to all major capital equipment proposals expected to cost more than $50m or of special significance. The new process improves the level of transparency and scrutiny of major capital equipment proposals by the Government, with a similar process established for major capital facilities projects. The ‘two pass’ implementation process consists of three distinct stages and decision points for the Government: entry of projects into the Defence Capability Plan, and first pass and second pass approval. The acquisition cycle is initiated when Defence identifies a capability gap. Defence seeks the Government’s approval to address the gap by inclusion of the proposal to meet the identified gap in the Defence Capability Plan (the forward ten-year plan for capability acquisition proposals). In recognition of the inherent uncertainty at this early stage the Defence Capability Plan can be expected to be less precise about the nature, scope, cost and timing of individual projects, especially in the second-half of the decade. Once the proposal is approved by the Government and included in the Defence Capability Plan, Defence will develop a broad range of options to address the proposal for consideration as part of the first pass approval stage. The first pass stage involves a range of feasible solutions being presented to the Government with information for each solution on what effect might be achieved, indicative cost and schedule, risk and how the option might be further developed. The Government compares each of the options and selects a set of options to be further explored as part of the second pass or acquisition approval process, how industry should be engaged, and the funding required to undertake the detailed analysis of those options.

30 Implementing the White Paper

After first pass approval, the Government is not committed to acquiring the capability, only to the conduct of detailed studies, analysis and, possibly, funded industry studies. The focus of the second pass stage is to subject the options previously approved by the Government at first pass to a detailed and rigorous assessment for Government approval. In most cases, the funding received after first pass will be used to obtain more robust data through studies and industry solicitation, including requests for proposal and tenders. It culminates in approval to acquire the capability solution and support, including a defined acquisition budget, schedule, level of performance, and budgeted whole-of-life cost. The Chief of the Capability Development Group manages the proposals through the first and second pass stages in close consultation with the Defence Materiel Organisation, the Capability Managers, and industry stakeholders. Following second pass approval by the Government, the Defence Materiel Organisation – working closely with the Chief of the Capability Development Group and the Capability Managers – takes carriage of the acquisition, through-life support, and disposal aspects of the projects. More details on the Defence Procurement Review and the six materiel acquisition reform themes can be found in Chapter Six (Reforms), and information on the establishment of the Capability Development Group is contained in Chapter Three (Group Contributions).

Efficiency Savings Defence is meeting some of its current budgetary challenges through the implementation of improvement initiatives as part of the Program of Administrative Savings. Based on measures implemented to date, the first tranche of the savings program ($50m) was exceeded in 2003-04, with those savings in excess of targets used to fund transition costs. Further details are provided in Chapter Six (Reforms). Initiatives to Enhance Strategic Relationships Throughout the year, Defence supported an extensive range of strategic relationships through involvement in multilateral arrangements in the Asia Pacific region as well as bilateral defence and security relationships, in particular the alliance with the United States. In 2003-04, Defence strengthened Australia’s international defence relationships through visits, exercises and operations. Notable achievements included: • contributing to post-war efforts in Iraq to ensure stability and contribute to the continuing reconstruction, including by training personnel for the new Iraqi armed forces and advising on the development of the new Iraqi Ministry of Defence; • contributing to the war against terrorism and to international responses to the proliferation of weapons of mass destruction; • further developing relationships in the Pacific in support of the ADF’s contribution to the Regional Assistance Mission to the Solomon Islands; • strengthening security relationships in the Asia Pacific region, including through the provision of further support to Papua New Guinea Defence Force reform, a revised Closer Defence Relations Statement with New Zealand and peace monitoring operations in Bougainville (ceased 26 August 2003); • contributing to UN activities in East Timor and supporting the establishment of the East Timor Defence Force;

31 Chapter One

• improving Australia-United States security cooperation through joint commitments to cooperate on missile defence, to enhance interoperability through initiatives such as formal endorsement of a statement of principles on interoperability, agreement to develop collaboratively the Joint Combined Training Centre and efforts to improve cooperation in regional security engagement; • continuing development of relationships in the Middle East in support of current ADF deployments and our long-term interests in the region, including the commencement of a bilateral defence relationship with the new Iraqi Government; • continuing support for the Five Power Defence Arrangements; and • undertaking a range of defence cooperation activities in our region, including the commencement of the Life Extension Program for Pacific-class Patrol Boats. Updates to the Defence International Engagement Strategic Plan and related plans have continued to improve the provision of integrated and current guidance to Defence on international engagement program objectives. Initiatives to Make the Best Use of Science and Technology and Australian Industry The Government seeks to exploit technological opportunities to enhance ADF capability. To achieve this, Defence relies on its Defence Science and Technology Organisation and a competitive industry base to support a technologically advanced ADF. In 2003-04, Defence’s ability to achieve this goal was enhanced by a range of activities, including: • continuing its science and technology program and contributing to the Government’s national research priorities, focusing on the ‘Safeguarding Australia’ priority1; • working closely with government research agencies to improve collaboration with universities and industry, especially with a view to enhancing Australia’s national science and innovation system2; • undertaking high-priority research into transformational defence technologies, network centric warfare, battlespace automation, defence against terrorism, ADF platform analysis and reducing the costs of ownership and operations; • continuing the Capability and Technology Demonstrator Program to investigate how new, technology-driven capabilities can be introduced into wider ADF service, with the Government approving eight high technology proposals from industry to enhance communications networking, tactical sensors and data fusion; and • embracing the recommendations of the review by Mr Robert Trenberth of the Defence Science and Technology Organisation’s ‘external engagement and contribution to Australia’s wealth’, by developing a plan to improve technology access for industry,

1 National research priorities are coordinated by the Department of Education, Science and Training. Additional information is available at: http://www.dest.gov.au. 2 The mapping of Australia’s science and innovation system was coordinated by the Department of Education, Science and Training. Additional information is available at: http://www.dest.gov.au.

32 Implementing the White Paper

especially small to medium enterprises, and enhancing existing commercialisation mechanisms for technology transfer in order to build national wealth3. Financial Summary

Status of White Paper Funding Defence's departmental funding in 2004-05 and beyond continues to be based primarily on the allocations approved by Government in the context of the Defence White Paper. This additional funding will total $28.1 billion over the 13 years commencing in 2001-02, as shown in Table 1.2, and represents the most specific long-term funding commitment for Defence for more than 25 years. The additional White Paper funding is being applied to: • the Defence Capability Plan, containing a program of capital investment in addition to the investment program already planned; • provision for the net through-life support costs of the capability enhancements in the Defence Capability Plan; • provision for 2 per cent real growth in personnel costs from 2004-05 onwards, reflecting more accurately the cost of maintaining a highly skilled workforce in a sustainable way. In the 2004-05 Budget, the Government increased this funding provision to 2.5 per cent real growth for military employee expenses; and • funding a number of budget baseline cost pressures, including logistics shortfalls, assisted by a programme of administrative savings. After taking account of the reprogramming of the Defence Capability Plan agreed by the Government in the 2004-05 Budget, actual expenditure totals $2.4 billion over the period 2001-02 to 2003-04. The 2004-05 Budget includes a further $1.7 billion in White Paper funding, and an additional $8.0 billion is included in the forward estimates. The remaining additional funding, totalling $16.1 billion, is to be provided over the remainder of the period to 2013-14. Table 1.3 provides details of White Paper expenditure to date and future allocations in 2004-05 outturned prices, including the reprogramming agreed in the 2004-05 Budget, and the subsequent bringing forward of $170m of these funds to facilitate the acquisition of two additional airborne early warning and control aircraft.

3 Under the direction of the Minister, the Trenberth review investigated the Defence Science and Technology Organisation’s external engagement and role in national wealth creation. Additional information is available at: http://www.dsto.defence.gov.au/trenberth.html.

33 Chapter One $b 6.7 28.1 Total 201.1 235.9 (1) $b 22.7 13-14 21.9 (1) $b 21.9 12-13 21.1 (1) $b 21.4 11-12 6 Budget context. 6 Budget $b t. 0.55.9 0.5 0.4 0.5 0.3 0.5 0.2 14.6 20.5 21.0 10-11 $b -05 prices) 20.0 09-10 $b n in the 2004-05 Budge 2004-05 the n in 18.7 08-09 of the matter of the in2005-0 the $b 17.9 07-08 $b 0.42.7 0.5 3.4 0.5 4.1 0.5 5.2 13.8 14.0 14.1 14.3 16.9 06-07 $b 16.1 05-06 $b 15.9 04-05 at zero growth pending Government consideration to reflect reprogramming of the Defence Capability Pla Capability Defence the of reprogramming reflect to $b 15.3 03-04 $b 14.2 02-03 $b 0.70.5 0.6 0.9 0.5 1.0 0.5 1.7 0.5 1.9 12.7 12.7 13.8 13.8 13.8 13.8 01-02 Revised White Paper Funding from 2001-02 to 2013-14 (Outturned 2004 (Outturned 2013-14 to 2001-02 from Funding Paper White Revised (2) Funding guidance after 2010-11 to remain is assumed The White Paper funding increase has been adjusted been has increase funding Paper White The

Table 1.2 Defence Funding from Government East Timor / Force Generation Defence White Paper Increase Total Notes 1. 34 2. Implementing the White Paper 83 64 20 $m -18 153 Total 2,850 2,850 3,055 1,653 19,210 28,058 programmed to the $m 213 13-14 $m 298 12-13 - - - 4,709 ------59 - - $m 105 - - 191 298 213 354 11-12 ------2011-12. 75 - - - 0 05 56 - - - 986 $m 10-11 3,374 - - - 3,843 354 298 213 19,513 5,884 anned. early and control warning aircraft. programmed to 2008-09 - 2011-12. 2008-09 to programmed (1)(2) ding in the period 2004-08, re in this amount period the ding with $m ices) 09-10 5,191 , in fun , eprogrammed to 2008-09 to eprogrammed $m 08-09 4,084 . a further two airborne two further a m 2004-05 onwards are pl are onwards 2004-05 m $m 07-08 3,423 nt agreed in the 2003-04 Budget, re Budget, 2003-04 the in agreed nt - - -188 - - - 220 - - - 165 169 172 -5 - 13 83 77 196 323 457 600 $m -90 - 179 280 162 284 418 500428 591 454 630 482 508 580 279 418 513 674 7 505 650 805 965 1,180 137 143 149 155 1 -374 -133 - 200 135 06-07 2,234 2,345 2,241 2,749 1,770 2,212 2,617 3,397 2,693 $m 05-06 1,887 Plan and revisions to the and Plan rateexpenditure of capital Projects $m to 20 per cent that Governme cent per to 20 04-05 1,676 priation receivable, reprogrammed to 2008-09. to reprogrammed receivable, priation e revised timetable for entryequipment of into service ce Capability represent actual expenditure, whereas the figures fro figures the whereas expenditure, actual represent 15 cent per $m e Approved Major Capital Equipment Program in 2003-04, r 2003-04, in Program Equipment Capital Major Approved e 985 ted with the decision to proceed with the acquisition of acquisition the with proceed to decision the with ted 03-04 $m 859 02-03 - 8- 21- - 60 - 172 - - 236 116 367 130 -- -200------212 - -500 -199- -- 170 - -141 - - 8 -74 - -- - -303 ------21 - - -133 193 234 -62 - 236 367 $m 510 1,051 1,506 1,537 1,663 510 851 964 1,264 1,219 510 01-02 (3) (4) (5) (6) (7) (8) Current Status of White Paper Funding Allocations (Outturned 2004-05 pr (Outturned Allocations Funding Paper of White Status Current period 2009-10 to 2013-14. Figuresmay not add due to rounding. 2003-04 and 2002-03 2001-02, in shown figures The Represents the bringing forward of $170m associa $170m of forward bringing the Represents $500m representing the projected underspend in th in underspend projected the representing $500m Reprogramming of the original allocation to reflect th $200m underspend in 2002-03 held in Defence’s appro Defence’s in held 2002-03 in underspend $200m $642m relating to increasing rate slippage the from A reduction of $884m reflecting changes to the Defen 35 Original Allocation Original Reprogramming Reprogramming Reprogramming Reprogramming Reprogramming Capital Revised allocation Original Reprogramming AllocationRevised Allocated Unallocated Allocation Total Total Major Capital Equipment Through-life Support Costs for Defence Capability Plan Capability Costs for Defence Support Through-life Costs In Personnel Real Growth 2% Baseline Adjustment

Table 1.3 Notes 1. 2. 7. 5. 8. 3. 4. 6. Chapter One

Major Capital Equipment The additional funding of $19.5 billion (in 2004-05 outturned prices) was allocated to the Unapproved Major Capital Equipment Program and now forms part of the overall investment program. The additional funding was not for the entirety of the Defence Capability Plan funding but represented a top-up of the existing Major Capital Investment Program, which covers both the Unapproved Major Capital Equipment Program and the Approved Major Capital Equipment Program. To the end of 2003-04, $2.3 billion of the $19.5 billion has been spent on new projects.

Through-life Support Costs for Defence Capability Plan Projects The net through-life support costs of new capability acquired as part of the Defence Capability Plan are being progressively allocated as new equipment enters service. The funding is to ensure that sufficient trained personnel and operating costs are available to operate the equipment on delivery. The phasing of the funds has been adjusted to reflect revised delivery dates of the equipment and is now estimated at $2.9 billion over the decade.

Two per cent Real Growth in Personnel Costs The allocation of $4.7 billion for the 2 per cent real per capita growth in personnel costs commences in 2004-05. Of this, $3.1 billion has already been allocated over the period to 2010-11 to cover part of the cost of the new ADF Workplace Remuneration Arrangement and the Defence Employees Certified Agreement. Funding has also been allocated for the last Service Allowance increase and to cover cost increases in housing, health and fringe benefits tax, which are rising at substantially higher rates than the non-farm gross domestic product deflator. An amount of $1.7 billion remains unallocated and has been quarantined to contribute to the funding of future salary, allowance and conditions of service increases as they arise, including health services, housing and fringe benefits tax.

Operating Baseline Adjustment An amount of $1.5 billion was allocated to meet cost pressures identified through the Defence White Paper 2000 process including logistics shortfalls, some of which were also required to be offset by the now-complete $200m Administrative Savings Program, which is complete. On the basis that the allocations are now embedded in baseline allocations and will be spent in the years concerned, this aspect of the Defence White Paper is now considered complete.

36 Financial Overview

2003-04 Summary Defence is required to present three financial statements prepared according to Australian Accounting Standards (Operating Statement, Balance Sheet and Cash Flow Statement). Separately, a Defence resourcing presentation shows the total funds available to Defence in any given year. The total Departmental funding element of this presentation is the most common way of measuring Defence’s budget, and is consistent with the presentation of the Defence White Paper 2000. At the time of the publication of the 2004-05 Budget, the projected level of resourcing available to Defence in 2003-04 was $17,641m, comprising total departmental funding of $15,625m and a further $2,017m for the administered appropriation (see the Portfolio Budget Statements 2004-05, p.23). The total departmental funding allocation of $15,623m (serial 7) comprised funding from Government for outcomes of $14,570m, an equity injection of $618m, own-source revenue of $331m and net capital receipts of $106m. The actual result for 2003-04 was $551m higher than the projected result due to an additional $249m in total departmental funding and a further $303m in the administered appropriation. Table 1.4 summarises the total Defence resourcing in 2003-04 compared to the projected result. Table 1.4 Total Defence Resourcing 2003-04

2002-03 2003-04 Actual Budget Revised Projected Actual Variation Result (1) Estimate Estimate Result Result Serial $’000 $’000 $’000 $’000 $’000 $’000 Departmental Revenue from Government for Price of 1 18,230,325 Outcomes 14,398,319 14,579,557 14,569,666 14,636,157 66,491 2 995,201 Equity Injection 1,020,524 706,334 617,634 706,334 88,700 3 19,225,526 Total Revenue from Government (1+2) 15,418,843 15,285,891 15,187,300 15,342,491 155,191 4 387,481 Own-Source Revenue(2) 280,945 330,791 330,791 428,849 98,058 5 181,517 Net Capital Receipts 106,484 106,484 106,484 101,961 -4,523 6 268,998 Sub total 387,429 437,275 437,275 530,810 93,535 7 19,794,524 Total Departmental Funding (3+6) 15,806,272 15,723,166 15,624,575 15,873,301 248,726 Administered 8 2,594,657 Administered Appropriation(3) 2,236,481 2,228,600 2,016,900 2,319,500 302,600 9 22,389,181 Total Defence Resourcing (7+8) 18,042,753 17,951,766 17,641,475 18,192,801 551,326 Notes 1. The revenue from the Government for Price of Outcomes in 2002-03 includes funding for the Capital Use Charge of $5,056m which was discontinued in 2003-04. 2. Own-source Revenue (serial 4) includes sales of goods and services ($253m), interest ($143,000), net foreign exchange gains ($17m), other revenues ($156m) and resources received free of charge ($3m). 3. The Administered Appropriation (serial 8) covers costs associated with the military superannuation schemes, and also covers the provision of housing subsidies to current and retired Defence personnel. The administered appropriation is managed by the Department of Finance and Administration (Commonwealth Superannuation) and the Defence Housing Authority (housing subsidies) on Defence’s behalf. More details on the administered appropriation is provided at page 59 and Table 1.16.

37 Chapter One

Operating Performance The purpose of the Statement of Financial Performance is to measure and report the result of Defence’s activities over the financial year period. It also highlights whether Defence is operating at a sustainable level in the short-term. When the 2004-05 Budget was published, Defence adjusted its 2003-04 projected operating position from a surplus of $128m to a loss of $810m. The increase in operating expenses of $937m was primarily due to the following large non-cash transactions that were considered necessary at the time, namely: • a net increase in Depreciation Expense designed to correct accumulated depreciation associated with the migration of assets from the Defence Financial Management Information System to the new financial system, the Resource and Output Management and Accounting Network (+$265m), comprising an increase in Specialist Military Equipment (+$550m) and a reduction in Other Plant and Equipment (-$285m); • the proposed transfer of the 3 per cent Defence Force Retirement and Death Benefits superannuation productivity scheme from the Administered to the Departmental accounts (+$220m); and • two one-off accrual adjustments to correct annual leave and long service leave provisions (+$73m) and the current year leave on-costs calculation (+$75m). Subsequently, the Minister for Finance and Administration approved a reduced loss of $484m following agreement between Defence and the Department of Finance and Administration that the proposed transfer of the Defence Force Retirement and Death Benefits scheme from the Administered to Departmental accounts was unnecessary, and after allowing for the recognition of accrued appropriation revenue of $65.8m for initiatives approved by the Government for implementation in 2003-04, but with reimbursement in 2004-05. In the event, Defence achieved an operating loss of $532m in 2003-04, which was within $48m of the Minister for Finance and Administration’s approved loss. The result represented an improvement (or reduction in the loss) of $278m compared with the projected result for 2003-04, which is used for comparative purposes. Table 1.5 provides details.

38 Financial Overview

Table 1.5 Statement of Financial Performance 2003-04 Budget Revised Projected Actual Variation(1) Estimate Estimate Result Result $’000 $’000 $’000 $’000 $’000 REVENUE Revenues from ordinary activities Revenue from Government(2) 14,398,319 14,579,557 14,569,666 14,639,217 69,551 Sales of Goods and Services 239,014 243,085 243,085 252,883 9,798 Interest ---143 143 Revenue from Sale of Assets - 306,384 306,384 185,159 -121,225 Net Foreign Exchange Gains ---16,552 16,552 Assets Now Recognised 278,000 278,000 278,000 579,828 301,828 Other Revenue 41,931 87,706 87,706 156,211 68,505 Revenue from ordinary expenses 14,957,264 15,494,732 15,484,841 15,829,993 345,152 EXPENSE Expenses from ordinary activities (excluding borrowing cost expense) Employees 6,575,305 6,544,605 6,932,305 6,827,421 -104,884 Suppliers 4,979,608 5,278,452 5,552,967 5,302,088 -250,879 Grants 1,874 1,874 1,874 7,183 5,309 Depreciation and Amortisation 2,826,637 2,826,654 3,091,654 2,799,405 -292,429 Value of Assets Sold - 306,384 306,384 163,575 -142,809 Write-down of Assets 378,000 378,000 378,000 1,152,818 774,818 Other Expenses ---75,158 75,158 Expenses from ordinary activities 14,761,424 15,335,969 16,263,184 16,327,649 64,464 (excluding borrowing cost expense) Borrowing Cost expense 31,920 31,263 31,263 34,148 2,885 Net accumulated result 163,920 127,500 -809,606 -531,804 277,802 Notes 1. The variation is between actual result as disclosed in the 2003-04 audited financial statements and the projected result as disclosed in the Portfolio Budget Statements 2004-05. 2. Revenue from Government includes resources received free of charge ($3.06m in 2003-04). Explanation of Major Variations The improvement in Defence’s overall operating performance of $278m was composed of an increase in revenue of $345m, an increase in expenses of $64m and an increase in borrowing costs of $3m. Revenue (+$345m) The higher level of revenue resulted from an increase in appropriations revenue from Government (+$70m), a reduction in revenues from sale of assets (-$121m), foreign exchange gains (+$17m), assets and inventories now recognised (+$302m), and other revenues (+$69m). These variations are explained below. • Revenue from Government (+$70m) – This increase was due primarily to the recognition of accrued appropriation revenue of $65.8m in 2003-04 for initiatives approved by Government in the 2004-05 Budget for which cash was required in 2003-04 but will be reimbursed in 2004-05. These initiatives include: - the reimbursement by the Government of property disposal costs incurred by Defence in 2002-03 (+$31.8m);

- land and sales tax associated with Defence Housing Authority competitive neutrality (+$20m);

39 Chapter One

- Defence Procurement Review Implementation costs associated with the establishment of the Defence Materiel Organisation as a prescribed agency (+$5.3m);

- the Point Nepean Community Grant (+$5m); and

- additional contribution to the Papua New Guinea Defence Reform program (+$3.7m).

• Sale of Goods and Services (+$10m) – Higher than anticipated sales due to: - sale of equipment to other government agencies (+$7m); and

- increased fuel sales to foreign governments (+$3m).

• Revenue from Sale of Assets (-$121m) – The result was lower than projected largely due to: - delays in the property sales program as a result of Government decisions, the need to refer works at Randwick, New South Wales, to the Public Works Committee, and variations in project scheduling for various reasons including the lead time required to consider local and State Government priority sale proposals (-$118m);

- an overestimate of the expected proceeds from other property, plant and equipment (-$34m);

- lower than anticipated receipts from a program of sales of F/A-18 Hornet aircraft radar equipment to the United States Navy (-$13m); and

- the revenue received from the sale of housing for which Defence owes an annuity to the Defence Housing Authority (+$44m).

• Net Foreign Exchange Gains (+$17m) – Net variations due to the timing difference between invoices for transactions in foreign currencies entering the system and being paid. • Assets and Inventories Now Recognised (+$302m) – This increase primarily comprises: - the reconciliation of the Resource and Output Management and Accounting Network Fixed Asset Register to the Standard Defence Supply System – Defence’s inventory management system – following the introduction of Standard Defence Supply System version 4 (+$158m);

- the reclassification of certain fixed assets in Standard Defence Supply System as inventory (+$78m);

- the recognition for the first time of maritime ranges assets (eg. sonar equipment) (+$40m), and assets identified following site audits and other remediation activities (including sites at Exmouth, Western Australia and Mulwala, New South Wales) (+$75m); and

- reclassification of a prior year adjustment to other revenue in respect of AIR 5400 (air-to-air missiles for the F/A-18 Hornet aircraft) (-$49m).

40 Financial Overview

• Other Revenue (+$69m) – This increase was due to a number of factors including: - the reclassification of a prior year adjustment from assets now recognised in respect of AIR 5400 (air-to-air missiles for the F/A–18 Hornet aircraft) (+$49m);

- the receipt of liquidated damages, including for the Hornet Upgrade, Armed Reconnaissance Helicopter, Lead-In-Fighter and High Frequency Modernisation projects used to fund a program of rectification works caused by delays in these projects (+$12m); and

- the changes in accounting treatment of revenue collected under garrison support contracts, which is no longer offset against expenses (+$8m).

Expenses (+$64m) Lower employee (-$105m), suppliers (-$251m), depreciation (-$292m) and value of assets sold (-$143m) expenses were largely offset by higher write-downs of assets and inventory (+$775m) and other expenses (+$75m) to produce an overall increase of $64m. These variations are explained below. • Employee Expenses (-$105m) – The change is a result of two major factors: - a decision not to proceed with the proposed transfer of the Defence Force Retirement and Death Benefits superannuation productivity scheme from the Administered to the Departmental accounts (-$220m). After detailed discussions with the Australian National Audit Office (ANAO) and the Department of Finance and Administration, this transfer did not occur;

- higher long-term incapacity payments, medical payments and establishment costs for claims identified by the Actuary Review of compensation expense (+$120m); and

- a number of further variations which were offsetting in nature and are explained in detail at pp. 264-66 in Chapter 5 (People).

• Supplier Expenses (-$251m) – The variation in supplier expenses is made up of a reduced level of inventory consumption (-$127m) and a lower level of expenses in other suppliers (-$123m). The reduced level of inventory consumption was due to: - an overstatement of the inventory consumption estimate (-$86m); and

- the flow through of improvements in the pricing of explosive ordnance (-$40m).

The variation in other suppliers of -$123m was due to: - redirection of funding to inventory purchases as Defence progressively reduces backlogs in this area (-$93m);

- the rephasing of funding for Operation Catalyst (-$14.6m) and Operation Anode (-$12.8m) into 2004-05 and future years (-$27m);

- rephasing of some information systems and business improvement projects to 2004-05 to reflect changed schedules for these projects (-$12m);

- lower levels of expenses incurred on Defence’s recruitment contract due to improvement in separation rates (-$11m);

41 Chapter One

- reduced level of expenses by the Intelligence and Security Group to offset higher civilian employee expenses in that Group (-$8m);

- the changed method of accounting for revenue collected under garrison support contracts which are no longer offset against expenses (+$8m); and

- the payment to the University of New South Wales for Australian Defence Force Academy staff superannuation liabilities (+$20m).

• Grants (+$5m) – The higher than anticipated expenditure on grants was as a result of: - the Point Nepean community grant (+$5m);

- the Mornington Peninsula land grant (+$1m); and

- the reclassification of a grant from Defence Science and Technology Organisation as supplier expenses (-$1m).

• Depreciation and Amortisation (-$292m) – The variation in depreciation and amortisation is mainly made up of the following components: - the non-requirement to proceed with the anticipated adjustment in specialist military equipment relating to the migration of assets from the Defence Financial Management Information System to the Resource and Output Management and Accounting Network (-$550m);

- greater than anticipated adjustment (-$297m in lieu of -$285m) in other property, plant and equipment required to correct an error in the migration of assets from the Defence Financial Management Information System to the Resource and Output Management and Accounting Network (-$43m);

- the reclassification of some operating leases into finance leases (+$24m);

- an understatement of the depreciation estimate (+$46m);

- a review of the useful life on the repairable items on a number of platforms, including F-111 aircraft, Fremantle-class patrol boats and Leopard Tanks (+$58m);

- revaluation of buildings and infrastructure (+$68m); and

- net movements from asset revaluations, assets under construction roll-out, assets first recognised and property sale delays (+$105m).

• Value of Assets Sold (-$143m) – The result was lower than projected largely due to: - the delay in the property sales program due to Government decisions, the need to refer works at Randwick, New South Wales, to the Public Works Committee, and variations in project scheduling for various reasons including the lead time required to consider local and State Government priority sale proposals (-$139m). This variation includes a $21m difference between the revenue received and the market valuation of the relevant properties;

- an overestimation of the expected proceeds for other property, plant and equipment (-$34m);

42 Financial Overview

- lower than anticipated receipts from a program of sales of F/A-18 Hornet aircraft radar equipment to the United States Navy (-$13m); and

- the value of housing annuity assets sold for Defence by the Defence Housing Authority (+$44m).

• Write-down of Assets and Inventory (+$775m) – The variation comprises write-downs of the value of assets (+$574m) and write-downs of inventory (+$201m). The increase in the write-down of assets results mainly from: - write-down of specialist military equipment, including assets under construction, following project-initiated reviews of, among other things, LAND 75 – Battlefield Command System, SEA 1114 – Submarines and JP 2070 – Lightweight Torpedos (+$174m);

- asset disposals, including F/A-18 Hornet aircraft radars, Black Hawk helicopters and night vision goggles (+$163m);

- the transfer of assets, including from George’s Heights and Chowder Bay to the Sydney Harbour Foreshore Trust (+$98m);

- the reclassification of certain fixed assets in the Standard Defence Supply System as inventory (+$78m); and

- an adjustment to account for the change from $1,000 to $2,000 in the asset threshold for administrative assets, and the removal of grouping of these assets (+$61m).

Additional write-downs of inventory (+$201m) resulted mainly from: - a large scale review of Defence’s inventory holdings by the Defence Materiel Organisation which led to $99m of inventory being recognised as obsolete;

- the flow through of improvements in the pricing of explosive ordnance (+$74m), of which $40m of written-down inventory was subsequently consumed; and

- an increase in inventory disposals (+$28m).

• Other Expenses (+$75m) – Defence did not budget for, or forecast, any other expenses. In the event, $75m in other expenses were incurred during 2003-04, including: - an increase in the provision for Defence’s share of the Commonwealth’s common law liability for asbestos-related diseases (+$60m);

- corrections arising from the reconciliation of Defence Housing Authority annuity balances (+$11m); and

- resolution of past errors in accounting for the transfer of expense and revenue items between departmental and special public monies accounts. Items transferred after 30 June 2003 have been accounted for correctly (+$4m).

43 Chapter One

Defence’s Financial Position The Statement of Financial Position sets out Defence’s assets, liabilities and equity as at 30 June 2004. Also known as the balance sheet, its purpose is to provide a snapshot of the long-term sustainability of the organisation. Defence had net assets of $46.6 billion as at 30 June 2004, which was $1.5 billion higher than the projected result. Table 1.6 provides details Table 1.6 Statement of Financial Position 2003-04 Budget Revised Projected Actual Variation(1) Estimate Estimate Result Result $’000 $’000 $’000 $’000 $’000 ASSETS ` Financial Assets Cash 100,000 99,557 99,557 237,809 138,252 Appropriate Receivable(2) 960,434 967,078 640,915 537,660 -103,255 Other Receivables 513,392 282,533 282,340 239,383 -42,957 Total Financial Assets 1,573,826 1,349,168 1,022,812 1,014,853 -7,959 Non-Financial Assets Land and Buildings 8,210,737 9,129,857 9,129,857 10,059,528 929,671 Specialist Military Equipment 32,634,746 32,391,255 31,023,115 30,640,503 -382,612 Infrastructure, Plant and Equipment 4,599,377 4,592,434 4,850,394 5,102,998 252,604 Intangibles 84,804 130,637 130,637 299,103 168,466 Heritage and Cultural - 19,047 19,047 26,010 6,963 Inventories 3,638,087 3,807,870 3,886,800 4,464,895 578,095 Other Non Financial Assets 564,424 718,548 718,548 689,681 -28,867 Total Non-Financial Assets 49,732,175 50,789,648 49,758,398 51,282,718 1,524,320 Total ASSETS 51,306,001 52,138,816 50,781,210 52,297,571 1,516,361 LIABILITIES Debt Leases 336,115 331,177 331,177 367,943 36,766 Total Debt 336,115 331,177 331,177 367,943 36,766 Provisions and Payables Employees 3,140,418 3,389,983 3,758,183 3,907,315 149,132 Suppliers Payables 1,033,744 1,200,066 1,200,066 1,017,313 -182,753 Other Payables 15,052 373,729 373,729 407,723 33,994 Total Provisions and Payables 4,189,214 4,963,778 5,311,978 5,332,351 373 Total LIABILITIES 4,525,329 5,294,955 5,663,155 5,700,295 37,140 NET ASSETS 46,780,672 46,843,861 45,118,055 46,597,276 1,479,221 EQUITY Capital 3,315,772 2,290,527 1,501,827 1,774,924 273,097 Reserves 6,166,143 7,281,144 7,281,144 8,209,463 928,319 Accumulated Surpluses 37,298,757 37,272,190 36,335,084 36,612,889 277,805 TOTAL EQUITY 46,780,672 46,843,861 45,118,055 46,597,276 1,479,221 Notes 1. The variation is between actual result as disclosed in the 2003-04 audited financial statements and the projected result as disclosed in Defence’s Portfolio Budget Statements 2004-05. 2. Appropriation Receivable represents undrawn appropriations from the Commonwealth as at 30 June 2004.

44 Financial Overview

Explanation of Major Variations The variation in Defence’s net asset position of +$1,479m resulted from an increase in assets of $1,516m and a minor increase in liabilities of $37m. Total Assets (+$1,516m) Assets were $1,516m higher than the projected result, mainly due to: • Financial Assets (-$8m) – Defence’s financial assets comprise its cash position, the appropriation receivable and other receivables. Overall, financial assets were $8m lower than the projected result primarily due to: - the cash balance being $138m higher than projected. This was largely the result of the 1 July 2004 payday monies being drawn down by Defence on 30 June 2004, and being paid out on 1 July 2004 (+$150m);

- the appropriation receivable being $103m lower than forecast. This was the result of Defence drawing on the receivable for the payday on 1 July 2004 (-$150m) and the settlement payment to Kockums (-$25m), offset by the recognition of an Appropriation from Government for initiatives approved by Government for implementation in 2003-04 which will be reimbursed in 2004-05 (+$65m); and

- lower other receivables (-$43m), mainly due to a reduction in Advances and Loans as a result of the changed accounting treatment of funds held in the United States under Foreign Military Sales arrangements (-$59m).

• Land and Buildings (+$930m) – The land and building balance was $930m higher than the projected result due mainly to a number of factors, including: - revaluation of land and buildings through a significant revaluation process by Corporate Services and Infrastructure Group (+$746m);

- the delay in the 2003-04 property sales program (+$118m);

- assets identified following site audits and other remediation activities (including sites at Exmouth, Western Australia and Mulwala, New South Wales)(+$75m);

- adjustment to accumulated depreciation to correct errors in the migration of assets from the Defence Financial Management Information System to the new financial system, the Resource and Output Management and Accounting Network (+$63m);

- reclassification of assets (including Weston Creek, Australian Capital Territory) from operating leases to finance leases (+$36m); and

- transfer of assets, including at George’s Heights and Chowder Bay to the Sydney Harbour Foreshore Trust (-$98m).

• Specialist Military Equipment (-$383m) – After allowing for the non-requirement to proceed with the anticipated adjustment to accumulated depreciation (+$550m), the remaining variation (-$933m) comprised: - the reclassification of assets acquired as part of capital projects from Assets Under Construction to inventory, upon roll-out (-$456m);

45 Chapter One

- the reclassification of certain specialist military equipment assets into other plant and equipment and other classes of assets, including the Defence equipment aboard the Optus C1 satellite (-$255m);

- write-down of assets under construction through project-initiated reviews including LAND 75 – Battlefield Command System, SEA 1114 – Submarines and JP 2070 – Lightweight Torpedos (-$174m);

- asset disposals including F/A-18 Hornet aircraft radars, Black Hawk helicopter and night vision goggles (-$163m);

- a review of the useful life on the repairable items on a number of platforms, including F-111 aircraft, Fremantle-class patrol boats and Leopard Tanks (-$58m);

- other net variation in capital payments and roll-out of assets under construction (-$37m);

- the recognition for the first time of maritime range assets (+$40m); and

- the deposit payments for the additional two airborne early warning and control aircraft (+$170m).

• Infrastructure, Plant and Equipment (+$253m) – The movements were predominantly due to: - the reclassification of certain specialist military equipment assets into this asset class (+$255m);

- net variations relating to purchase of information technology assets and reclassification of operating leases as finance leases (+$145m);

- adjustment to accumulated depreciation to correct errors in the migration of assets from the Defence Financial Management Information System to the new financial system, the Resource and Output Management and Accounting Network (-$20m);

- an adjustment to account for the change from $1,000 to $2,000 in the asset threshold for administrative assets, and the removal of grouping of these assets (-$61m);

- the reclassification of certain equipment items into software (-$66m); and

- a net revaluation increase and higher than anticipated depreciation expense were largely offsetting in nature.

• Intangibles (+$168m) – This variation mainly comprises: - additional purchases made during the year, including the settlement relating to submarine intellectual property rights, the capitalisation of the PMKeyS Enhancement, employee self-service developments and associated software licensing (+$102m); and

- the reclassification of certain equipment assets to software (+$66m).

46 Financial Overview

• Inventory (+$578m) – The increase in inventory holdings of $578m comprises: - the reclassification of assets acquired as part of capital projects from assets under construction to inventory, upon roll-out (+$456m);

- reconciliation of the Resource and Output Management and Accounting Network fixed asset register to the Standard Defence Supply System – Defence’s inventory management system – following the introduction of version 4 (+$158m);

- an overstatement of the original inventory consumption estimate (+$86m);

- additional inventory purchases as Defence progressively reduces backlogs in this area (+$78m);

- an increase in inventory disposals (-$28m);

- the flow through of improvements in the pricing of explosive ordnance (-$74m); and

- a large scale review of Defence’s inventory holdings by the Defence Materiel Organisation which led to $99m of inventory being recognised as obsolete (-$99m).

Total Liabilities (+$37m) Liabilities were $37m higher than planned due to: • Leases (+$37m) – Leases were higher due to the reclassification of operating to finance leases in respect of the IBM Enterprise Licence Agreement (+$31m) and the lease of the Weston Creek Australian Defence College site (+$31m). This was offset by a buy- out of a number of Defence Housing Authority annuity properties (-$34m). • Employees (+$149m) – The increase in employee liabilities is due to a number of factors, including: - an adjustment to military compensation as per actuarial advice (+$120m);

- higher than anticipated leave provisions (+$108m);

- an understatement of the original estimate for compensation expense (+$96m);

- the effect of future pay rises contained in the Defence Employees Certified Agreement on civilian leave liabilities (+$30m);

- the recognition in 2003-04 of the 2004-05 redundancy costs related to the transition to the new Defence Integrated Distribution System (+$23m); and

- not proceeding as planned with the transfer of the 3 per cent productivity liability of the Defence Force Retirement and Death Benefit Scheme from the administered budget to the departmental budget (-$220m).

• Supplier Payables (-$183m) – The decrease was largely due to the non-recurrence of several large major capital equipment-related payables from June 2003 (including one for the additional early warning and control project), combined with an improvement in Defence’s claim payment performance from 83 per cent to 89 per cent.

47 Chapter One

• Other Payables (+$34m) – This increase relates primarily to a growth in the provision created by Defence for its share of the common law liability associated with asbestos-related diseases (+$60m). This was offset by the settlement of a fringe benefits tax refund owed to the Department of Finance and Administration (-$22m).

Trends in Defence Assets and Liabilities Chart 1.1 shows the actual movement of major categories of assets since 2000-01. Over this period assets have increased by $3.8 billion from $48.2 billion to $52.0 billion. Chart 1.1 Historical Trends in Defence’s Assets

60

55

50

45

40

$ Billion 35

30

25

20 2000-01 2001-02 2002-03 2003-04

Specialist military equipment Land and building Other infrastructure, plant and equipment Inventory Other Assets Appropriation Receivable Cash Other Receivables

Chart 1.2 shows the actual movement of major categories of liability since 2000-01. Over this period liabilities have increased by $1.7 billion from $4.0 billion to $5.7 billion. Chart 1.2 Historical Trends in Defence’s Liabilities

6

5

4

3 $ Billion

2

1

0 2000-01 2001-02 2002-03 2003-04 Employee Entitlements Suppliers Payables Other Payables Finance Leases

48 Financial Overview

Defence’s net worth has increased over the period since 2000-01 by $2.1 billion from $44.2 billion to $46.3 billion as follows: Table 1.7 Movements in Defence’s Net Worth 2000-01 to 2003-04 2000-01 2001-02 2002-03 2003-04 $b $b $b $b Assets 48.2 50.0 51.4 52.0 Liabilities 4.0 4.4 5.2 5.7 Net Worth 44.2 45.6 46.2 46.3 Defence’s Cash Position

Overview Defence sources its annual cash requirements mainly from appropriations (appropriations for outcomes and the equity injection), own-source revenue, capital receipts and cash reserves. The allocations are subject to Government approval as part of the annual budget process. Once funds are appropriated for Defence purposes, they remain in Defence’s accounts even if not fully used in the budget year. They are held as an appropriation receivable in the Official Public Account and are available to meet liabilities as they fall due, including employee liabilities, subject to Government approval. With the approval of the Government, Defence had planned to have cash reserves totalling $741m at 30 June 2004, comprising cash at bank ($100m) and $641m held in the appropriation receivable. At the end of the financial year, there was $238m in the bank and $538m in the appropriation receivable, for a total of $776m - some $35m higher than forecast. Use of Cash in 2003-04 Defence was able to source $17,746m in cash in 2003-04 and used $17,508, leaving it with a cash balance at 30 June 2004 of $238m. This was $138m higher than the $100m forecast due mainly to the need to draw down $150m on 30 June 2004 for the pay day on 1 July 2004. When this factor is taken into account, the balance reduces to $88m, representing an underlying variance of $12m, which was within 0.06 per cent of the total available cash. Table 1.8 provides details.

49 Chapter One

Table 1.8 shows the actual movement of cash in 2003-04. Table 1.8 Use of Cash by Defence in 2003-04 2003-04 Actual Result $’000 Sources of Cash 2003-04 Opening Cash at Bank 99,557 Appropriation Bills No 1 & 3 14,570,357 Appropriation Bills No 2 & 4 706,334 - equity injection Own-source revenue (1) 676,511 GST refund from Australian Taxation Office 710,088 Effect of Exchange Rate Movements 16,552 Cash from Official Public Account (1) 966,218 Sub-total: Cash Available 17,745,617 Use of Cash Employee Payments 6,237,818 Suppliers 5,382,002 GST Expenses - Other operating expenses (grants, borrowing costs and other) 82,496 Purchase of Specialist Military Equipment 2,454,482 Purchase of Property, Plant and Equipment 720,524 Purchase of Inventory 1,202,210 Repayments of Debt 117,982 Return of contributed equity 742,418 Cash transfer to Official Public Account(2) 567,877 Sub-total: Cash Used 17,507,809 2003-04 Closing Cash at Bank 237,809 less Draw Down for 1 July 2004 Pay Day 150,225 Underlying Cash Balance 87,584 Notes 1. Includes sale of goods and services ($274.3m), other revenue ($157.9m), proceeds from sale of assets ($184.4m), reclassification of foreign military sales advance payments as cash (+$59.7m) and interest revenue ($0.1m) 2. See Table 1.9 for detailed breakdown of this figure. Current Status of the Appropriation Receivable Defence used all of its 2003-04 appropriations, its own source revenue, and part of its cash reserves in 2003-04 (with the approval of the Government), leaving $538m in the appropriation receivable, or $103m less than the forecast of $641m. The reasons for the variation are explained in Table 1.9, but the major variation was the draw-down on 30 June 2004 of $150m for the pay day on 1 July 2004. The withdrawal more than fully explains the $103m reduction in the appropriation receivable.

50 Financial Overview

Table 1.9 Current Status of the Appropriation Receivable 2003-04 Budget Revised Projected Actual Variation Estimate Estimate Result Result $’000 $’000 $’000 $’000 $’000 2003-04 Opening Appropriation Receivable position 706,075 870,201 870,201 870,201 - less Cash Outflows Return of 2002-03 Operations funds (Relex II, Citadel and Slipper) not spent in that year - -26,916 -26,916 -26,916 - Reprogramming of major capital equipment funds in 2002-03 - - -200,000 -200,000 - Return of 1997-98 and 1998-99 Fringe Benefits Tax funds from the Australian Taxation Office -- --22,020 -22,020 Return of funds for the Defence Housing Authority competitive neutrality from 2000-01 and 2002-03 -- --7,900 -7,900 Reprogramming of major capital equipment funds in 2003-04 (funds transferred to Official Public Account) - - -500,000 -330,000 170,000 Cash used to reduce employee liabilities in 2003-04 -46,900 -46,900 -46,900 -46,900 - Use of excess 2002-03 property proceeds to fund needs in 2003-04 - - -95,756 -95,756 - Other employee and supplier costs -- --3,027 -3,027 Defence Procurement Review implementation costs - - -5,300 -5,300 - Second tranche of the Papua New Guinea Defence Force Reform Program (part) - - -3,700 -3,700 - Commercialisation of Defence Housing Authority costs - - -20,000 -18,500 1,500 Point Nepean Community Grant - - -5,000 -5,000 - Property disposal costs from 2003-04 - - -31,800 -22,374 9,426 Mulwala tendering costs - - -3,600 -3,600 - 27th pay draw down on 30 June 2004 -- --150,225 -150,225 Submarine intellectual property settlement -- --25,000 -25,000 Sub-total: Cash Outflows (1) -46,900 -73,816 -938,972 -966,218 -27,246 plus Cash Inflows Reimbursements for Operation Bastille (Iraq) 2002-03 expenditure 248,570 112,900 112,900 112,900 - Reimbursements for Operation Bel Isi (Bougainville) 2002-03 expenditure 10,090 14,600 14,600 14,600 - Provision to meet future liabilities 42,540 42,540 42,540 42,540 - Operation Citadel rephasing - - 11,100 11,100 - Operation Catalyst rephasing - - 27,700 27,700 - Operation Anode rephasing -- -27,500 27,500 Return of major capital equipment funds in 2003-04 to the appropriation receivable - - 500,000 330,000 -170,000 Locally engaged staff salaries from the Department of Foreign Affairs and Trade 59 846 846 846 - Intelligence projects -- -691 691 Sub-total: Cash Inflows (1) 301,259 170,886 709,686 567,877 -141,809 2003-04 Closing Cash Appropriation Receivable position 960,434 967,271 640,915 471,860 -169,055 Accrual Appropriation Receivable(2) -- -65,800 65,800 Total Appropriation Receivable 960,434 967,271 640,915 537,660 -103,255 Notes 1. Cross reference to Table 1.8. 2. The accrual appropriation receivable was due to the recognition of accrual appropriation revenue for initiatives approved by the Government for which cash will be reimbursed in 2004-05.

51 Chapter One

Planned Rundown in Cash Levels Table 1.10 shows how Defence intends to progressively reduce its cash reserves over the forward estimates in accordance with the schedule agreed by the Government. Table 1.10 Planned Rundown in Cash Levels 2003-04 Use of Cash Reserves 2004-05 2005-06 2006-07 2007-08 Actual Budget Forward Forward Forward Result Estimate Estimate Estimate Estimate $’000 $’000 $’000 $’000 $’000 870,201 Opening balance of cash reserves held 471,860 599,410 544,310 469,010 by Department of Finance and Administration on behalf of Defence -26,916 Return of 2002-03 Operation ---- underspend (Relex II, Citadel and Slipper) -200,000 Return of Capital underspend in ---- 2002-03 -22,020 Return of 1997-98 and 1998-99 fringe ---- benefits tax return from the Australian Taxation Office -7,900 Return of underspend Defence Housing ---- Authority supplementation from 2000-01 and 2002-03 -46,900 Cash used to reduce employee liabilities -34,800 -52,600 -75,300 -97,000 in 2003-04 -95,756 Use of cash reserves (part of 2002-03 ---- property proceeds) for funding needs in 2003-04 -3,027 Other employee and supplier costs ---- -5,300 Defence Procurement Review 5,300 - - - implementation costs -3,700 Part of the second tranche of the Papua 3,700 - - - New Guinea Defence Reform Program -18,500 Commercialisation of Defence Housing 18,500 - - - Authority costs -5,000 Point Nepean Community Grant costs 5,000 - - - -22,374 Property disposal costs from 2003-04 22,374 - - - -3,600 Mulwala tendering costs 3,600 - - - -150,225 27th pay ---- -25,000 Kockums Settlement 25,000 - - - 112,900 Reimbursements for Operation Bastille ---- (Iraq) 2002-03 expenditure 14,600 Reimbursements for Operation Bel Isi ---- (Bougainville) 2002-03 expenditure 42,540 Provision to meet future liabilities 143,367 - - - 11,100 Operation Citadel rephasing -11,100 - - - 27,700 Operation Catalyst rephasing -25,200 -2,500 - - 27,500 Operation Anode rephasing -27,500 - - - 846 Locally engaged staff salaries from ---- Department of Foreign Affairs and Trade 691 Intelligence projects -691 - - - 471,860 Cash Reserves as at 30 June 599,410 544,310 469,010 372,010

52 Financial Overview

ADF Operations The Government provided $910.9m in the 2003-04 Budget for the net additional costs of current operations including $319.9m for force generation. Funding levels were increased by $88.5m to $999.4m in the 2003-04 Additional Estimates, and further adjustments were made in the 2004-05 Budget process (see Projected Result). Subsequently, the Government agreed to a request by Defence to re-program $14.6m relating to Operation Catalyst and $12.8m relating to Operation Anode from 2003-04 to 2004-05, resulting in a final allocation for current operations in 2003-04 of $933.2m. After taking into account the re-programming of funds to 2004-05, actual expenditure was $933.7m or $0.5m more than the final allocation as shown at Table 1.11. Table 1.11 Net Additional Cost of Operations 2003-04 Budget Revised Projected Final Actual Variation Estimate Estimate Result Allocation Result $’000 $’000 $’000 $’000 $’000 $’000 Deployment (Citadel) 260.7 233.1 157.0 157.0 169.1 12.1 Force Generation 319.9 319.9 384.9 384.9 384.9 - Sub Total East Timor 580.6 553.0 541.9 541.9 554.0 12.1 Catalyst(1) 282.9 282.9 255.2 240.6 240.6 - Anode - 111.1 111.1 98.3 90.4 -7.9 Slipper -5.0 -5.0 -5.0 -5.0 -5.0 - Relex II 17.8 17.8 17.8 17.8 15.9 -1.9 Bel Isi II - 5.0 5.0 5.0 3.0 -2.0 Safebase 34.6 34.6 34.6 34.6 34.8 0.2 Total 910.9 999.4 960.6 933.2 933.7 0.5 Note 1. Includes remaining funding from Operations Bastille and Falconer. Explanations of Variations

East Timor including Operation Citadel (+$12.1m) Operation Citadel was established to replace Operation Tanager following East Timor’s independence in May 2002. Its objective was to contribute to the UN support to East Timor. In addition, the Government provided additional funding for force generation to sustain two battalion groups, provide for an additional airfield defence squadron and meet the increased costs of supporting operations covering the period to 2004-05. The extra forces were to ensure the ADF could deal with contingencies such as East Timor into the future. As part of the White Paper funding commitment, funding of $448.9m in today’s prices was allocated on an on-going basis from 2004-05. All up, the 2003-04 Budget provided $580.6m for East Timor-related operations comprising $260.7m for deployment (Operation Citadel) and $319.9m for force generation. The mix of the two elements of the East Timor budget was varied in the 2004-05 Budget context (see Portfolio Budget Statements 2004-05 p.35) having regard for the actual costs incurred in 2002-03, the rate of force generation build up and the progressive wind down of the deployment. The final result for East Timor operations was $12.1m more than the final allocation mainly due to increased capital expenditure (+$10.0m) and increased ADF personnel costs (+$5.7m) offset by reduced ADF movement and communications costs (-$4.5m). Australia has been a lead participant in successive UN missions in East Timor to date. The UN approved a one-year extension of the current UN mission in East Timor to May 2005.

53 Chapter One

Operation Spire, an Australian contribution to the United Nations Peace Keeping Force, forms a major part of the extended UN mission. To give effect to the Australian contribution, the Government provided supplementation of $20.1m over financial years 2004-05 ($16.0m) and 2005-06 ($4.1m) for Operation Spire. Operation Catalyst (Nil) Operations Bastille and Falconer were Australia’s predeployment to the Middle East and its contribution to the United States-led war in Iraq. In July 2003, the ADF transitioned into Operation Catalyst. Operation Catalyst is the ADF’s contribution to developing a secure environment in Iraq, assisting national rehabilitation and facilitating the transition to Iraqi self-government in June 2004. The net additional cost of operations in Iraq as published in the Portfolio Budget Statements 2004-05 (p. 36) was $776.3m including $131.6m for the continuation of Operation Catalyst beyond the transition to self-government and throughout 2004-05. The Government subsequently agreed to Defence reprogramming $14.6m from 2003-04 to 2004-05, associated with timing issues for inventory purchases and equipment remediation programs. After allowing for this adjustment to the estimates, the actual result was in line with the final allocation. Operation Anode (-$7.9m) Operation Anode is the Defence contribution to the Regional Assistance Mission to the Solomon Islands. In the 2003-04 Additional Estimates, the Government provided Defence with supplementation totalling $133.3m spread over two financial years. The Government subsequently agreed to Defence reprogramming $12.8m from 2003-04 to 2004-05 and has provided additional supplementation of $4.7m in 2004-05, $8.9m in 2005-06 and $3.4m in 2006-07 to allow an ADF contingent to remain deployed to the Solomon Islands for up to two years to support Regional Assistance Mission to the Solomon Islands and provide the capacity to respond to any serious security threat. After the re-programming of funds to 2004-05, the actual result for Operation Anode in 2003-04 was $7.9m less than the final allocation mainly due to reduced ADF personnel, logistic and movement costs. Operation Slipper (Nil) Operation Slipper is the ADF contribution to the war against terrorism. There are support elements assigned to both the coalition operation against terrorism and the rehabilitation operation in Iraq (Operation Catalyst). As assets deployed under Operation Slipper are dual assigned to Operation Catalyst, any expenditure for Operation Slipper is captured and reported against Operation Catalyst. Operation Relex II (-$1.9m) Operation Relex II involves the conduct of air and surface surveillance and interception operations to protect Australia’s northern and western borders from unauthorised boat arrivals. The actual result for Operation Relex II was $1.9m less than the approved allocation mainly due to inventory purchases for ships deployed on the operation being less than originally estimated.

54 Financial Overview

Operation Bel Isi II (-$2.0m) Operation Bel Isi II commenced in 1998 with the objective of supporting the regional Peace Monitoring Group to monitor and report on the maintenance of the cease-fire on Bougainville. The ADF involvement in Operation Bel Isi II ceased in August 2003. Defence was supplemented $5.0m in the 2003-04 Additional Estimates to cover the estimated cost of the operation post 30 June 2003. The actual result for Operation Bel Isi II was $2.0m less than the projected result due to final logistics and transport support costs involved in completing the operation being less than anticipated. Operation Safebase (+$0.2m) Operation Safebase provides enhanced protective security measures for Defence personnel and facilities. The actual result for Operation Safebase was $0.2m more than the projected result due to guarding services and facilities upgrades costs being higher than anticipated.

Status of Funding from all Operations Table 1.12 provides a summary of the current actual and planned expenditure on operations covering the period 1999-2000 to 2006-07.

55 Chapter One $m Total ormalised quired, with - 47.7 - 20.1 - 1,868.2 - 491.0 -- 81.9 132.4 - 1,305.7 - 3,194.0 $m 3.4 142.4 4.0 776.4 7.4 4,865.8 2006-07 Forward Estimate ------$m 4.1 8.9 4.1 2005-06 Forward Estimate - - - $m Budget 2004-05 Estimate ions in 2003-04 (see Table 1.11). This is yet to be f be to yet is This 1.11). Table (see 2003-04 in ions ing on these funds from 2004-05not re is onwards - 16.0 $m 3.0 -5.0 90.415.9 39.7 34.8 16.0 36.1 169.1384.9 554.0 11.1 240.6 27.1 227.2 19.3 933.7 346.1 32.3 Result Actual 2003-04 - - t increases in other operat $m 17.5 n purposes. Separate report Separate n purposes. 172.4 406.9 579.3 Result Actual 2002-03 - 285.3 $m Result Actual 2001-02 - --- 320.0 22.2 176.0 27.0 27.8 34.5 $m Result Actual 2000-01 anation. ------20.0 10.1 14.6 $m y reducedy by $7.9m from $150.3m to $142.4m to offse 429.7168.4598.1 335.9 462.6 798.5 187.5 445.4 632.9 598.1 818.5 1,012.2 1,1 Result Actual efence’s funding base from 2004-05 for force generatio force for 2004-05 from base funding efence’s astille and Falconer. 1999-2000 Cost of Operations 2003-04 (1) (2) (3) TheOperation Anodehas allocation been notionall Includes remaining funding from OperationsB Government. with the An ongoing amount of $448.9m is included in D in is included $448.9m of amount ongoing An anyvariationexplained in main body the of Defence’s expl 56

3. 2. Table 1.12 Table East Timor Citadel Force Generation Spire EastSub Total Timor Catalyst Anode Slipper Relex II II Bel Isi Safebase Total Notes 1. Program of Administrative Savings In the context of the 2003-04 Budget, the Government agreed that Defence would absorb a range of cost pressures through a program of administrative savings. The five-year program is designed to deliver ongoing savings of $200m per annum by 2007-08. The annual savings targets are shown in Table 1.13. Table 1.13 Program of Administrative Savings Targets 2003-04 2004-05 2005-06 2006-07 2007-08 Ongoing $m $m $m $m $m $m Savings target 50 100 150 175 200 200 The savings targets for 2003-04 have been fully achieved and are detailed in Table 1.14. Table 1.14 Administrative Savings Programmed 2003-04 2004-05 2005-06 2006-07 2007-08 $m $m $m $m $m Reductions in civilian workforce 9.5 28.4 46.5 46.5 46.5 Reductions in non-capability related suppliers, including professional service providers 22.0 41.7 41.7 41.7 41.7 Reductions in overseas travel 7.4 7.4 7.4 7.4 7.4 Reductions in domestic travel 11.5 11.5 11.5 11.5 11.5 Renegotiation of the Australian Defence Force Academy agreement 0.9 1.9 1.9 1.9 1.9 Reductions in non-operational overseas positions 4.8 13.4 19.2 20.4 20.3 Rationalisation of civilian personnel administration centres 1.3 1.3 1.3 1.3 1.3 Rationalisation of the former Public Affairs and Corporate Communication Division 2.7 3.2 3.2 3.2 3.2 Removal from service of three P-3 Orion derivative training aircraft - - 5.5 5.5 4.0 Savings Programmed to date 60.2 108.8 138.2 139.4 137.8 Savings Target 50.0 100.0 150.0 175.0 200.0 Savings in excess of target (+)/remaining savings to be achieved (-) +10.2 +8.8 -11.8 -35.6 -62.2 Administrative savings to date have been achieved by: • reductions in the civilian workforce (more details are provided in Chapter 5 - Workforce Overview); • reductions in non capability-related supplier expenses, including professional service providers; • a 20 per cent reduction in overseas travel; • a 10 per cent reduction in domestic travel; • renegotiation of the Australian Defence Force Academy agreement, resulting in savings totalling $0.9m in 2003-04 and $1.9m in the years thereafter; • a reduction in non-operational overseas positions of 110 personnel programmed in 2003-04 and in the years thereafter;

57 Chapter One

• the rationalisation of the civilian personnel administration centres from three to two locations; • the rationalisation of the former Public Affairs and Corporate Communication Division; and • the removal from service of three P-3 Orion derivative training aircraft, following the introduction of the advanced flight simulator, resulting in operational savings, which have been redirected to P3-C Orion aircraft logistics. Savings achieved and planned are being used to offset the unavoidable cost pressures shown in Table 1.15, thus ensuring cuts to capability are not required to absorb these costs in the longer term. Table 1.15 Cost Pressures Offset by Administrative Savings 2003-04 2004-05 2005-06 2006-07 2007-08 $m $m $m $m $m Establishment of the Chief Information Office 4.9 4.9 4.9 4.9 4.9 Comcare premium increases 13 13 13 13 13 Comsuper administration charge 5.4 5.4 5.4 5.4 5.4 Additional legal services and compensation costs 4.0 4.0 4.0 4.0 4.0 Establishment of the Defence Service Centre call centre (Cooma, New South Wales) 9.5 9.5 9.5 9.5 9.5 Defence Reform Program contracts(1) 80.0 100.0 100.0 100.0 100.0 Portfolio contribution to service allowance increase 29.8 29.8 29.8 29.8 29.8 Defence Force Remuneration Tribunal allowance increases 7.0 7.0 7.0 7.0 7.0 Remuneration reform project costs 13.2 13.2 13.2 13.2 13.2 Overseas leases costs 2.3 2.3 2.3 2.3 2.3 P-3 Orion logistic shortfalls --5.5 5.5 5.5 Total cost pressures requiring funding 169.1 189.1 194.6 194.6 194.6 Savings to be used as offsets 50.0 100.0 150.0 175.0 200.0 To be absorbed from elsewhere in budget 119.1 89.1 44.6 19.6 -5.4 Note 1. Covers Defence Reform Program contracts not able to be funded due to lower than planned Defence Reform Program savings.

58 Program of Administrative Savings

Administered Items

Administered Revenue (+$50m) The revenues administered on behalf of the Government include dividend payments by the Defence Housing Authority, military employee superannuation contributions and other non-taxation revenues (including reimbursement from the United Nations for costs associated with East Timor). Once collected by Defence, all of these revenues were returned to the Government through the Official Public Account. Total revenues were some $52m higher than the projected result of $810m, with the variation relating to an increase in military superannuation contributions reflecting a small increase in military personnel numbers as the ADF grows to the White Paper targets, and higher contributions by members reflecting the outcome of the ADF Workplace Remuneration Arrangement. Administered Expenses – Special Appropriation (+$303m) These expenses, administered on behalf of the Government, comprise: • administered superannuation expenses representing members’ accrual expenses and interest expenses for the two military superannuation schemes (Defence Force Retirement and Death Benefits and Military Superannuation and Benefits Schemes). The cash payments of benefits paid under these schemes are subject to biannual indexation of benefits, similar to the Australian Public Service superannuation schemes; • the Defence HomeOwner Scheme, which provides assistance to current and retired Defence personnel. This scheme provides a subsidy on the interest payable on a home loan for members of the ADF under the Defence Force (Home Loans Assistance) Act 1990; and • the retention benefit is a lump sum of one times salary paid directly to military personnel who, on completion of 15 years service, undertake to complete a further five years service. It is not a superannuation benefit, but is an incentive payment made via the administered accounts. Financial Results Administered expenses were some $303m higher than the projected result of $2,017m with $281m relating to an increase in military superannuation benefit payments. The increase reflects the most recent Australian Government Actuary’s assessment of superannuation liability, compared with the information available at the time that the projected result was calculated. The revised actuarial assessment reflects higher consumer price index and wage growth than was anticipated in the previous actuarial report. Table 1.16 provides details.

59 Chapter One $m 702 2,273 3,929 1,334 Variation -- $m 2,273 3,929 8,202 Result Actual 20,336 -2,664 27,29722,792 -,2,103 22,792 230,698 604,885 47,202 862,121 50,074 2,261,210 281,210 2,319,500 302,600 - - - - 2003-04 $m 7,500 Result Projected - - - - $m 7,400 21,200 29,400 23,000 23,000 Revised 354,100 229,364 557,683 557,683 934,783 810,047 Estimate 2,200,000 1,980,000 2,228,600 2,016,900 - $m 1,114 7,394 Result Actual - 56,918 $m 8,604 6,411 Result Actual - - 12,269 88,604 $m 661 1,322 22,450 6,555 Result Actual 24,000 88,636 373,525 22,013 30,560 21,162 on Behalf of the Government of the on Behalf 2000-01 2001-02 2002-03 557,423127,361 607,195 123,364 551,849 59,285 710,767 850,249 1,042,691 2,657,356 2,240,395 2,477,497 2,685,924 2,289,635 2,594,657 Revenues and Expenses Administered and Expenses Revenues

60 Table 1.16 Table Revenues Administered on behalf of Government Interest Housing Dividends Military superannuation contribution’s Foreign government and UN reimbursements for East Timor Assets now recognised – retention benefit prepayment Other of Government on behalf Revenues Administered Total Expenses Administered on Behalf of Government Military superannuation benefits Retention benefits Housing subsidies Other Total expenses from ordinary activities Accountability Arrangements

Corporate Governance

Defence – its organisation and functions The organisation known as ‘Defence’ comprises the Australian Defence Force (ADF) and the Department of Defence. Defence is staffed by Australian Public Service (APS) and ADF personnel. While some parts of Defence are almost exclusively military or civilian, most are not. In most of our organisations, military and civilian personnel work together, each bringing particular expertise and experience, to deliver Defence outcomes. The ADF is made up of the three Services (Navy, Army and Air Force) but many ADF members work in the Defence Groups. The Defence Groups are the other high-level Defence functional areas that deliver Defence outcomes and/or support those that do. The Services and Groups are broadly categorised into one of the three groupings below, according to the nature of their core work. But each Group and Service also supports, fundamentally in many cases, the ability of the others to achieve Defence outcomes. Delivering Defence Outcomes Defence is directly responsible for delivering six core outcomes to the Government. Outcome One, Defence Operations, is the core business of the Chief of Joint Operations. The Services deliver the Navy, Army and Air Force outcomes (Defence Outcomes Two, Three and Four). Outcomes Five and Six are delivered by the Strategy Group and Intelligence Group respectively. Other Defence Groups are divided into two broad categories: Enabling Groups and Owner Support Groups. Enabling Defence Outcomes The Enabling Groups are those that provide the equipment, infrastructure and support that underpin Defence’s ability to deliver its outcomes. The Defence Materiel Organisation buys, maintains, upgrades and disposes of the specialist military equipment used by the ADF to train for and conduct operations. Corporate Services and Infrastructure Group provides the accommodation (including living accommodation for many ADF members), training facilities, information and voice services and garrison support necessary to run Defence. The contribution of these Groups is detailed in Chapter Three. Supporting our owner The Owner Support Groups provide specialist advice and support to the Government and Defence to ensure the efficient and effective operation of Defence and the development of our future capability. The Capability Development Group, the Defence Science and Technology Organisation and the Chief Information Officer’s Group are all owner support groups and their work and their contributions to the Defence Outcomes are detailed in Chapter Three. The Chief Finance Officer, Defence Personnel Executive and the Inspector-General Groups are also owner support groups, but their contributions are identified in other areas of this report. The Chief Finance Officer Group is responsible for the financial information

61 Chapter One provided in this report including the Financial Statements, Financial Overview, Capital Budget overview and the Price to Government and Explanation of Significant Variations analysis for each of the Defence Outcomes. The work of the Defence Personnel Executive is reported in Chapter Five (People) and that of the Inspector-General is discussed in the ‘Internal Audit and Risk Management Arrangements’ section of the Appendices.

Organisational Changes In response to a recommendation of the Defence Procurement Review, the Capability Development Group was established in February 2004 and is headed by Lieutenant General David Hurley. It comprises Capability Systems Division, Capability Investment and Resources Division, Capability and Plans Branch, the Directorate of Trials, and the Office of Interoperability. In February 2004, the Strategic Policy Group was renamed the Strategy Group. The Strategy Group comprised three divisions: International Policy, Strategic Policy, and Ministerial Services and Public Affairs. The last of these divisions was an amalgamation of the former Public Affairs and Corporate Communication Group and the Defence Improvement Division4. In March 2004, a new Joint Operations Command was formed to provide a simpler and more direct command and control arrangement for the ADF on operations. Vice Admiral Russ Shalders was appointed the first Chief of Joint Operations, while continuing in his position as the Vice Chief of the Defence Force. The Command brought into one structure the Strategic Operations Division, the former Headquarters Australian Theatre, Headquarters Northern Command’s operational responsibilities, the Joint Logistics Command and the Deployable Joint Force Headquarters. The former Headquarters Australian Theatre is now Headquarters Joint Operations Command under the command of Major General Mark Evans who has been appointed as deputy to Vice Admiral Shalders.

Organisational Chart The following chart depicts the structure of the organisation as at 30 June 2004.

4 In July 2004, the Secretary and the Chief of the Defence Force created a new position of Chief of Staff Australian Defence Headquarters, supported by the newly formed Coordination and Public Affairs Division. This division was drawn principally from the former Ministerial Services and Public Affairs Division and was established on 1 September 2004. Mr Michael Pezzullo was appointed in the dual role of Chief of Staff Australian Defence Headquarters and Head Coordination and Public Affairs.

62 Accountability Arrangements

63 Chapter One

Senior Executives

Changes Mr Mick Roche, Under Secretary Defence Materiel, retired in August 2003 and was replaced by Dr Stephen Gumley, who was appointed as the Chief Executive Officer of the Defence Materiel Organisation on 25 February 2004. Rear Admiral Kevin Scarce acted in the position of Under Secretary Defence Materiel from August 2003 until his retirement in February 2004, with Air Vice-Marshal Norman Gray filling the position for the brief period between Rear Admiral Scarce’s retirement and Dr Gumley’s commencement. Dr Roger Lough was appointed as the Chief Defence Scientist on 8 October 2003, following the retirement of Dr Ian Chessell. Mr Patrick Hannan, Chief Information Officer, retired from Defence on 21 November 2003. Pending a permanent appointment, the position is being filled by Air Vice-Marshal Julie Hammer. Lieutenant General David Hurley was appointed as Chief of the Capability Development Group on 22 December 2003. Ms Jenny McKenry, Head Public Affairs and Corporate Communication, retired from Defence in April 2004 following the amalgamation of the Public Affairs and Corporate Communication Division and the Defence Improvement Division. These two organisations combined to form the Ministerial Services and Public Affairs Division, headed by Mr Mark Cunliffe5.

Remuneration for Period in Office Remuneration for key Defence executives included in Table 1.17 below includes salary and allowances, accrued superannuation, redundancy payments, accrued leave, car parking, motor vehicle costs and fringe benefits tax. In addition, for ADF members it includes the value of health and housing subsidies and a number of other miscellaneous allowances such as career transition training, separation and retention allowances.

5 On 26 July 2004, Mr Mark Cunliffe was appointed as head of the new Defence Legal Division, within the Corporate Services and Infrastructure Group.

64 Accountability Arrangements

Table 1.17 Senior Executive Remuneration 2003-04 Remuneration Position and name $ Secretary Mr Richard Smith 440,000 to 449,999 Chief of the Defence Force General Peter Cosgrove 420,000 to 429,999 Under Secretary Defence Materiel Mr Mick Roche (from 1 July 2003 to 15 August 2003) 50,000 to 59,999 Chief Executive Officer of the Defence Materiel Organisation Dr Stephen Gumley (from 25 February 2004 to 30 June 2004) 190,000 to 199,999 Vice Chief of the Defence Force/Chief of Joint Operations Vice Admiral Russ Shalders 330,000 to 339,999 Chief of Navy Vice Admiral Chris Ritchie 370,000 to 379,999 Chief of Army Lieutenant General Peter Leahy 340,000 to 349,999 Chief of Air Force Air Marshal Angus Houston 290,000 to 299,999 Study of Parliamentary Process Defence acknowledges the need for Senior Executive Service and ADF star-ranked officers, particularly those newly appointed, to attend parliamentary principles and process training. Training targeted at senior levels was conducted during 2003-04 by the Department of the Senate through its seminar Parliament, Privilege and Accountability. As at 30 June 2004, 55 per cent of current senior executive officers and 36 per cent of current star-ranked officers had attended the training course or viewed the video of the course. As a majority of new appointments to the senior leadership in 2003-04 were made towards the end of the financial year, those officers will undertake training in 2004-05. In 2004-05, Defence will implement a broad strategy to promote senior staff awareness of the parliamentary process and accountability.

65 Chapter One

Defence Governance Framework In 2003-04, Defence continued its drive for improved governance. In October 2003, the Defence Committee agreed to adopt the Australian National Audit Office definition of corporate governance and implement an adaptation of the Australian National Audit Office’s ‘house of governance’ model, as the basis of the Defence governance framework. This framework has embedded within it a number of key accountability documents and measures, including the Ministerial Directive, Group Head and Service Chief charters, organisational performance agreements and performance evaluations of senior committees. Senior Committees The senior Defence committees are one of the key elements of Defence’s governance framework. In essence, all the senior Defence committees continue to be advisory with the chair exercising executive authority. Following significant changes in 2002-03 to the format and structure of the senior committees, notably the reinvigoration of the Defence Capability and Investment Committee, redefining the role of the Defence Capability Committee and convening the Defence Occupational Health and Safety Committee, 2003-04 was a year for consolidation. Achievements for the year included: • the significant contribution of the Defence Capability and Investment Committee to the Defence Capability Review; • implementation of the new ‘two pass’ approval process by the Defence Capability Committee, as agreed by the Government in its consideration of the Defence Procurement Review; and • the publication of the Defence Occupational Health and Safety Strategic Plan 2004-2006 by the Defence Occupational Health and Safety Committee. Performance evaluations for the Defence People Committee and the Defence Capability Committee were undertaken in January 2004 and March 2004 respectively. The committees are now addressing governance areas identified for improvement by those evaluations, including enhancing the Defence People Committee’s ability to shape its work program and strategic focus, a membership review of the Defence Capability Committee and a review of relationships between, and responsibility of, the capability-related committees. There were eight senior Defence committees in 2003-04. Their roles and membership are explained below.

66 Defence Governance Framework

Chart 1.4 Senior Defence Committees Structure

MINISTER

CDF SECRETARY

Chiefs of Service Committee Defence Committee

Defence Capability and Investment Committee

Defence Capability Committee

Defence Defence Information Defence Occupational Defence Audit Environment Health and Safety People Committee Committee Committee Committee

Defence Committee The Defence Committee is the pre-eminent committee in Defence. Its role is to make decisions that assist in achieving the results specified in the Ministerial Directive to the Secretary and the Chief of the Defence Force. These include successful joint conduct of military operations, with the Chief of the Defence Force retaining sole command authority; provision of capability to enable our armed forces to defend Australia and its national interests; timely and responsive advice; proper stewardship of people and of financial and other resources, including operating within budgeted financial performance; and appropriate evaluation and reporting documents, including an annual Defence Management and Finance Plan, the Defence Capability Plan, and periodic strategic reviews and Defence White Paper 2000 reports. The Defence Committee gives direction and assesses performance in delivering those results, with a focus on the longer term. In 2003-04, members were the Secretary (chair), Chief of the Defence Force, Under Secretary Defence Materiel/Chief Executive Officer of the Defence Materiel Organisation, Vice Chief of the Defence Force/Chief Joint Operations, Chief of Navy, Chief of Army, Chief of Air Force, Chief of the Capability Development Group, Chief Defence Scientist, Chief Finance Officer, Deputy Secretary Corporate

67 Chapter One

Services, Deputy Secretary Intelligence and Security, Deputy Secretary Strategy, Chief Information Officer, and Head Defence Personnel Executive. The committee held 11 scheduled business meetings in 2003-04 and one extraordinary meeting. Attendance was as follows: Table 1.18 Defence Committee Attendance Meetings Meetings Position and Name Held Attended Secretary (Mr Richard Smith) 12 11/1* Chief of the Defence Force (General Peter Cosgrove) 12 9/3* Under Secretary Defence Materiel (Mr Michael Roche until 15 August 2003) 2 2 (Rear Admiral Kevin Scarce – acting from 18 August 2003 until 11 February 2004) 5 5 (Air Vice-Marshal Norman Gray – acting from 12 February 2004 until 24 February 2004) 1 1** Chief Executive Officer of the Defence Materiel Organisation (Dr Stephen Gumley from 25 February 2004) 5 5** Vice Chief of the Defence Force/Chief Joint Operations (Vice Admiral Russ Shalders) 12 11/1* Chief of Navy (Vice Admiral Chris Ritchie) 12 9/3* Chief of Army (Lieutenant General Peter Leahy) 12 10/2* Chief of Air Force (Air Marshal Angus Houston) 12 11/1* Chief of the Capability Development Group (Lieutenant General David Hurley from 22 December 2003) 66 Chief Defence Scientist (Dr Ian Chessell until 7 October 2003) 3 3 (Dr Roger Lough from 8 October 2003) 9 8/1* Chief Finance Officer (Mr Lloyd Bennett) 12 11/1* Deputy Secretary Corporate Services (Mr Alan Henderson) 12 11/1* Deputy Secretary Intelligence and Security (Mr Ron Bonighton) 12 11/1* Deputy Secretary Strategy (Mr Shane Carmody) 12 9/3* Chief Information Officer (Mr Patrick Hannan until 21 November 2003) 5 5** (Air Vice-Marshal Julie Hammer – acting from 21 November 2003) 8 7**/1* Head Defence Personnel Executive (Rear Admiral Brian Adams) 12 10/2* * Substitute attended in place of member. ** Departing member and new member both attended one meeting together. Chiefs of Service Committee The Chiefs of Service Committee provides military advice to the Chief of the Defence Force to assist him in discharging his responsibilities in command of the ADF, and as principal military adviser to the Government. In 2003-04, membership comprised the Chief of the Defence Force (chair), the Secretary, Vice Chief of the Defence Force/Chief Joint Operations, Chief of Navy, Chief of Army and Chief of Air Force. Deputy Secretary Strategy is a permanently invited member.

68 Defence Governance Framework

The committee met 19 times in 2003-04. Attendance was as follows: Table 1.19 Chiefs of Service Committee Attendance Meetings Meetings Position and Name Held Attended Chief of the Defence Force (General Peter Cosgrove) 19 18/1* Secretary (Mr Richard Smith) 19 16 Vice Chief of the Defence Force/Chief Joint Operations (Vice Admiral Russ Shalders) 19 16/1* Chief of Navy (Vice Admiral Chris Ritchie) 19 13/6* Chief of Army (Lieutenant General Peter Leahy) 19 16/3* Chief of Air Force (Air Marshal Angus Houston) 19 18/1* Deputy Secretary Strategy (Mr Shane Carmody) 19 15/3* * Substitute attended in place of member. Defence Capability and Investment Committee The Defence Capability and Investment Committee’s role is to strengthen independent review of major capability and investment issues by seeking to ensure that resourcing, including capital investment and operating costs, is consistent with Defence’s strategic priorities and resourcing strategy. The committee focuses on: • the overall shape of capability/balance of resource allocation/ten-year Defence Plan; • force structure, including Service plans; • the balance between the different organisational performance agreements; • force disposition; • the broad new major investment program; • operating/capital mix; and • other issues with a significant impact on capability. In 2003-04, members were the Secretary (chair), Chief of the Defence Force, Under Secretary Defence Materiel/Chief Executive Officer of the Defence Materiel Organisation, Chief of Navy, Chief of Army and Chief of Air Force. The Chief of the Capability Development Group became a member in March 2004. Vice Chief of the Defence Force/Chief Joint Operations, Chief Defence Scientist, Chief Finance Officer and Deputy Secretary Strategy attended as advisers.

69 Chapter One

The committee held nine scheduled business meetings in 2003-04 and nine extraordinary meetings. Attendance was as follows: Table 1.20 Defence Capability and Investment Committee Attendance Meetings Meetings Position and Name Held Attended Secretary (Mr Richard Smith) 18 17/1* Chief of the Defence Force (General Peter Cosgrove) 18 17/1* Under Secretary Defence Materiel (Mr Michael Roche until 15 August 2003) 4 4 (Rear Admiral Kevin Scarce – acting from 18 August 2003 until 11 February 2004) 8 8 (Air Vice-Marshal Norman Gray – acting from 12 February until - - 24 February 2004) Chief Executive Officer Defence Materiel Organisation (Dr Stephen Gumley from 25 February 2004) 6 6 Chief of Navy (Vice Admiral Chris Ritchie) 18 14/4* Chief of Army (Lieutenant General Peter Leahy) 18 12/6* Chief of Air Force (Air Marshal Angus Houston) 18 18 Chief Capability Development Group (Lieutenant General David Hurley from 22 December 2003) 65/1* Advisers Vice Chief of the Defence Force/Chief Joint Operations (Vice Admiral Russ Shalders) 18 16/1* Chief Defence Scientist (Dr Ian Chessell until 7 October 2003) 7 6 (Dr Roger Lough from 8 October 2003) 11 10/1* Chief Finance Officer (Mr Lloyd Bennett) 18 15/3* Deputy Secretary Strategy (Mr Shane Carmody) 18 14/2* * Substitute attended in place of member/adviser. Defence Audit Committee Under Section 46 of the Financial Management and Accountability Act 1997, a Chief Executive must establish and maintain an audit committee for the agency, with the functions and responsibilities required by the Finance Minister’s Orders. The Defence Audit Committee is the only senior Defence committee that has its authority located in law. The Defence Audit Committee is responsible for: • reviewing the preparation and audit of the Defence financial statements and providing advice to the Secretary on: - the adequacy of these statements; and - the adequacy of accounting policies, procedures and systems. • approving Defence annual internal audit plans, medium-term audit strategy, and evaluation programs and activity; • reviewing internal and external audit reports and providing advice to the Secretary on action to be taken; • monitoring and providing advice to the Secretary on risk management policies and practices, including Defence enterprise risk management;

70 Defence Governance Framework

• reviewing the Defence fraud control plan and monitoring the implementation of Group/Service fraud control plans; and • monitoring the conduct of ethics awareness activities within Defence. In 2003-04, members were Mr Paul McGrath (chair) and Mr Will Laurie (deputy chair) – both independent, external members of the committee – Mr Mark Cunliffe, Mr Peter Dunn, Air Vice-Marshal Norman Gray, Mr Ian McKenzie, Ms Shireane McKinnie, Brigadier Mike Silverstone and Commodore Clint Thomas. The Chief Finance Officer and Inspector-General attended as advisers. Representatives of the Auditor-General attended as observers. Defence members of the Defence Audit Committee attend meetings in their capacities as senior officers of Defence, not as representatives of their substantive positions and, as such, substitutes are not permitted. The committee held 11 scheduled business meetings in 2003-04 and two extraordinary meetings. Attendance was as follows: Table 1.21 Defence Audit Committee Attendance Meetings Meetings Position and Name Held Attended Mr Paul McGrath 13 12 Mr Will Laurie 13 11 Mr Peter Dunn (until 23 October 2003) 52 Mr Mark Cunliffe (until 10 December 2003) 87 Ms Shireane McKinnie (until 10 December 2003) 88 Brigadier Mike Silverstone (until 10 December 2003) 85 Air Vice-Marshal Norman Gray (from 11 February 2004) 54 Mr Ian McKenzie (from 11 February 2004) 54 Commodore Clint Thomas (from 11 February 2004) 55 * As members of the committee are personally appointed by the Secretary and membership is not linked to substantive positions, commencement and finishing dates for members relate specifically to committee meeting dates. Defence Capability Committee The role of the Defence Capability Committee is to consider and develop options for current and future capability. The committee focuses on individual major capital investment projects to ensure: • consistency with the Defence White Paper 2000 and the Defence Capability Plan; • a whole-of-life and whole-of-capability perspective; • an acceptable return on capital expenditure; • there are no unmanageable strategic, technical, schedule or financial risks; and • rigorous, independent scrutiny of capability, cost, schedule and risk. In March 2004, the position of chair of the Defence Capability Committee was passed from the Vice Chief of the Defence Force/Chief Joint Operations to Chief Capability Development Group. In 2003-04, members were the Vice Chief of the Defence Force/Chief Joint Operations (chair), Chief Capability Development Group (chair), Deputy Secretary Strategy (deputy chair), a representative of the

71 Chapter One

Under Secretary Defence Materiel/Chief Executive Officer Defence Materiel Organisation, Chief Defence Scientist, Chief Finance Officer, Deputy Chief of Navy, Deputy Chief of Army, Deputy Chief of Air Force, First Assistant Secretary Capability, Investment and Resources, Head Capability Systems, Head Defence Personnel Executive and Deputy Chief Information Officer. Deputy Secretary Intelligence and Security and Deputy Secretary Corporate Services (or a representative) and a representative from the Department of Finance and Administration attend as permanently invited members. The committee held 11 scheduled meetings in 2003-04. Attendance was as follows: Table 1.22 Defence Capability Committee Attendance Meetings Meetings Position and Name Held Attended Vice Chief of the Defence Force/Chief Joint Operations (Vice Admiral Russ Shalders) 76/1* Chief Capability Development (Lieutenant General David Hurley) 55 Deputy Secretary Strategy (Mr Shane Carmody) 11 5/3* Chief Executive Officer Defence Materiel Organisation representatives: Dr Ian Williams 3 2/1* Air Vice-Marshal John Monaghan 8 5/3* Chief Defence Scientist (Dr Ian Chessell until 7 October 2003) 3 3 (Dr Roger Lough from 8 October 2003) 8 7/1* Chief Finance Officer (Mr Lloyd Bennett) 11 11 Deputy Secretary Corporate Services: Mr Alan Henderson 4 4 Mr Mike Scrafton (representative) 1 1 Mr Michael Pezzullo (representative) 6 5/1* Deputy Secretary Intelligence and Security (Mr Ron Bonighton) 11 4/7* Deputy Chief of Navy (Rear Admiral Rowan Moffitt until 4 June 2004) 10 7/3* (Rear Admiral Max Hancock from 5 June 2004) 1 1 Deputy Chief of Army (Major General Frank Roberts until 18 May 2004) 10 6/4* (Major General Ian Gordon from 19 May 2004) 1 1 Deputy Chief of Air Force (Air Vice-Marshal Chris Spence until 25 February 2004) 7 5/2* (Air Vice-Marshal Roxley McLennan from 26 February 2004) 4 4 First Assistant Secretary Capability, Investment and Resources (Dr Ralph Neumann) 11 11 Head Capability Systems (Air Vice-Marshal Kerry Clarke) 11 11 Head Defence Personnel Executive (Rear Admiral Brian Adams) 9 8/1* (Mr Peter Sharp – acting from 28 August 2003 until 7 November 2003) 2 2/1* Deputy Chief Information Officer (Rear Admiral Peter Clarke until 8 August 2003) 1 1 (Air Vice-Marshal Julie Hammer from 9 August until 5 5 23 November 2003) (Brigadier Peter Lambert – acting from 24 November 2003) 5 4/1* Department of Finance and Administration representative 11 11 * Substitute attended in place of member.

72 Defence Governance Framework

Defence People Committee The purpose of the Defence People Committee is to provide a strategic focus on, and to be an advocate for, the important place of people in supporting Defence capability. This committee supports the Defence Committee by ensuring that Defence takes a more strategic approach to people. It is responsible for providing advice, and making recommendations, to the Defence Committee and Defence Capability and Investment Committee on strategic people issues. The committee is also responsible for recommending to the Minister Assisting the Minister for Defence the allocation of the $100m annual provision, until 2005-06, for people improvement initiatives and monitoring its expenditure. In 2003-04, members were the Head Defence Personnel Executive (chair), Vice Chief of the Defence Force/Chief Joint Operations, Deputy Secretary Corporate Services, Deputy Chief of Navy, Deputy Chief of Army, Deputy Chief of Air Force, First Assistant Secretary Budget and Financial Planning, First Assistant Secretary Personnel and Ms Noela L' Estrange, an independent, external member of the committee. The committee held ten scheduled business meetings in 2003-04 and one extraordinary meeting. Attendance was as follows: Table 1.23 Defence People Committee Attendance Meetings Meetings Position and Name Held Attended Head Defence Personnel Executive (Rear Admiral Brian Adams) 7 7 (Mr Peter Sharp – acting from 28 August to 7 November 2003) 4 4 Vice Chief of the Defence Force/Chief Joint Operations (Vice Admiral Russ Shalders) 11 7 Deputy Secretary Corporate Services (Mr Alan Henderson) 11 8/2* Deputy Chief of Navy (Rear Admiral Rowan Moffitt until 3 June 2004) 10 5/5* (Rear Admiral Max Hancock from 4 June 2004) 1 1 Deputy Chief of Army (Major General Frank Roberts until 18 May 2004) 9 8/1* (Major General Ian Gordon from 19 May 2004) 2 0/2* Deputy Chief of Air Force (Air Vice-Marshal Chris Spence until 25 February 2004) 8 3/5* (Air Vice-Marshal Roxley McLennan from 26 February 2004) 3 3 First Assistant Secretary Budget and Financial Planning (Mr George Veitch) 11 10/1* First Assistant Secretary Personnel (Mr Peter Sharp – acting Head Defence Personnel Executive from 6 6 28 August to 7 November 2003) (Ms Sue Parr – acting from 28 August to 21 October 2003 and 28 April to 14 June 2004) 5 5 Ms Noela L’Estrange (independent member) 11 9 * Substitute attended in place of member.

73 Chapter One

Defence Information Environment Committee The Defence Information Environment Committee provides advice to the Chief Information Officer on the governance of the Defence information environment to meet Defence requirements. The role of the committee is to advise the Chief Information Officer, as coordinating capability manager for the information environment, on monitoring the development and sustainment of the current information environment and guiding the design and development of the information environment that will support future decision making in Defence, including future joint command decision making. The policy and strategic plans approved by the committee inform enterprise-wide policy and planning for Defence. In 2003-04, membership comprised the Chief Information Officer (chair), Deputy Chief Information Officer, Head Capability Systems, Chief Finance Officer, Commander Australian Theatre/Deputy Chief of Joint Operations Command, Head Defence Personnel Executive, Assistant Secretary Information Technology/Director General Capability and Support to Operations, Head Management Information Systems, Deputy Chief of Navy, Deputy Chief of Army, Deputy Chief of Air Force, Head Electronic Systems, Director Information Science Laboratory and Head Information Systems Division. The Director-General Information Policy and Plans, and Assistant Secretary Information Strategies and Futures were invited observers. The committee held nine scheduled business meetings in 2003-2004. Attendance was as follows: Table 1.24 Defence Information Environment Committee Attendance Meetings Held Meetings Position and Name Attended Chief Information Officer (Mr Patrick Hannan until 21 November 2003) 3 3 (Air Vice-Marshal Julie Hammer – acting from 24 November 2003) 6 6 Deputy Chief Information Officer (Rear Admiral Peter Clarke until 8 August 2003) 2 2 (Air Vice-Marshal Julie Hammer from 11 August 2003) 1 - (Brigadier Peter Lambert – acting from 24 November 2003) 6 5/1* Head Capability Systems (Air Vice-Marshal Kerry Clarke) 93/6* Chief Finance Officer (Mr Lloyd Bennett) 90/8* Commander Australian Theatre/Deputy Chief of Joint Operations Command (Rear Admiral Mark Bonser until 13 April 2004) 7 0/7* (Major General Mark Evans from13 April 2004) 2 0/2* Head Defence Personnel Executive (Rear Admiral Brian Adams) 90/8* Assistant Secretary Capability Assurance/Director General Intelligence Capability and Support to Operations (Mr John McCarthy until 4 February 2004) 4 2/1* (Brigadier Silverstone from 5 February 2004) 3 1/2* (Mr Craig Wood – acting from 3 May 2004) 2 2 Head Management Information Systems (Mr Peter Dunn until 12 November 2003) 3 2/1* (Mr John Peters – acting from 13 November 2003) 6 5/1* Deputy Chief of Navy (Rear Admiral Rowan Moffitt until 4 June 2004) 90/7*

74 Defence Governance Framework

Deputy Chief of Army (Major General Frank Roberts until 19 May 2004) 8 0/8* (Major General Ian Gordon from 19 May 2004) 1 0/1* Deputy Chief of Air Force (Air Vice-Marshal Chris Spence until 26 February 2004) 5 0/5* (Air Vice-Marshal Roxley McLennan from 26 February 2004) 4 0/4* Head Electronic Systems Division (Ms Shireane McKinnie) 95/4* Director Information Sciences Laboratory (Mr Neil Bryans) 97/2* Head Information Systems Division (Mr David Kenny) 97/2* * Substitute attended in place of member. Defence Occupational Health and Safety Committee The purpose of the Defence Occupational Health and Safety Committee is to oversee the Defence Occupational Health and Safety Strategic Plan, assess Defence’s occupational health and safety performance, monitor the risks to people’s well-being, evaluate Defence-wide compliance with occupational health and safety requirements and oversee the progression and management of Defence-wide initiatives and improvements in occupational health and safety performance. In 2003-04, members were the Head Defence Personnel Executive (chair), Vice Chief of the Defence Force/Chief Joint Operations, Deputy Chief of Navy, Deputy Chief of Army, Deputy Chief of Air Force, Head Airborne Surveillance and Control, and Head National Operations Division. The committee held seven scheduled business meetings in 2003-04. Attendance was as follows: Defence Occupational Health and Safety Committee Table 1.25 Attendance Meetings Meetings Position and Name Held Attended Head Defence Personnel Executive (Rear Admiral Brian Adams) 5 5 (Mr Peter Sharp – acting from 28 August 2003 to 7 November 2003) 2 2 Vice Chief of the Defence Force/Chief Joint Operations (Vice Admiral Russ Shalders) 76 Deputy Chief of Navy (Rear Admiral Rowan Moffitt until 3 June 2004) 6 3/3* (Rear Admiral Max Hancock from 4 June 2004) 1 0/1* Deputy Chief of Army (Major General Frank Roberts until 18 May 2004) 6 4/2* (Major General Ian Gordon from 19 May 2004) 1 1 Deputy Chief of Air Force (Air Vice-Marshal Chris Spence until 25 February 2004 ) 5 3/2* (Air Vice-Marshal Roxley McLennan from 26 February 2004 ) 2 2 Head Airborne Surveillance and Control (Air Vice-Marshal Norman Gray) 76 Head National Operations Division (Mr Ken Moore) 4 3/1* (Brigadier Mike Swan – acting from 15 December 2003 to 18 June 2004) 3 3 * Substitute attended in place of member.

75 Photo opposite: Australian soldiers from the 2nd Battalion Royal Australian Regiment based in Townsville conduct a street patrol in Baghdad in mid-2003. The soldiers were part of the ongoing security detachment deployed to Iraq to provide security for Australian Government personnel working in Baghdad. CHAPTERTWO

15 current ADF operations and 19 Outcome that were ceased or completed met Performance Government direction in 2003-04 39 ADF domestic and international Defence’s achievements against exercises were completed successfully, seven outcomes are measured but 24 were cancelled due primarily to against the targets set by the the high operational tempo Government for each of the supporting outputs. Navy personnel conducted over 1,000 successful challenges and 400 compliant boardings in the Persian Gulf

The Air Force’s C-130 Hercules aircraft deployed in the Middle East Area of Operations carried over 12 million pounds of cargo and 13,500 passengers

Defence spent over $70 million on defence cooperation activities with South East Asian and Pacific Island countries

You can send a message of support to deployed Navy, Army and Air Force personnel by emailing [email protected] Chapter Two

Defence Outcomes and Outputs In 2003-04, Defence moved to a new outcome and output structure, as required by the Government. This involved moving from one to seven outcomes and from six to thirty outputs. Defence outcomes are the results that the Government seeks from Defence, and are achieved by the successful delivery of outputs, to the standards set in the Portfolio Budget Statements 2003-04 (released in May 2003) and, where applicable, as revised in the Portfolio Additional Estimates Statements 2003-04 (released in February 2004). The Defence Annual Report 2003-04 reports our achievement against these targets, as well as the projected results contained in the Portfolio Budget Statements 2004-05 (released in May 2004). Table 2.1 provides details on the cost of Defence’s capability-based outcomes and outputs in 2003-04, showing the budget estimate, revised estimate, projected result and actual result. Table 2.1 Cost of Defence Outputs in 2003-04 Budget Revised Projected Actual Estimate Additional Result(2) Result(3) Estimate (1)

2003-04 2003-04 2003-04 2003-04 Outcome /Output $m $m $m $m 1. Command of Operations in Defence of Australia and its Interests 1.1 Command of Operations 409 412 375 479 1.2 Defence Force Military Operations and Exercises 418 295 426 240 1.3 Contribution to National Support Tasks 18 9 9 21 Sub-Total Outcome 1 845 716 810 740 2. Navy Capability for the Defence of Australia and its Interests 2.1 Capability for Major Surface Combatant Operations 1,487 1,281 1,363 1,368 2.2 Capability for Naval Aviation Operations 472 470 486 520 2.3 Capability for Patrol Boat Operations 261 272 275 265 2.4 Capability for Submarine Operations 774 836 878 845 2.5 Capability for Afloat Support 215 195 218 197 2.6 Capability for Mine Warfare 334 377 391 386 2.7 Capability for Amphibious Lift 366 363 366 372 2.8 Capability for Hydrographic and Oceanographic Operations 178 216 233 225 Sub-Total Outcome 2 4,088 4,011 4,211 4,177 3. Army Capability for the Defence of Australia and its Interests 3.1 Capability for Special Forces Operations 445 411 335 423 3.2 Capability for Mechanised Operations 801 845 866 847 3.3 Capability for Light Infantry Operations 1,020 998 1,035 900 3.4 Capability for Army Aviation Operations 450 528 593 593 3.5 Capability for Ground-Based Air Defence 93 123 176 123 3.6 Capability for Combat Support Operations 408 422 496 411 3.7 Capability for Regional Surveillance 87 94 150 128 3.8 Capability for Operational Logistic Support to Land Forces 433 535 522 534 3.9 Capability for Motorised Infantry Operations 574 482 577 497 3.10 Capability for Protective Operations 535 467 530 632 Sub-Total Outcome 3 4,845 4,905 5,280 5,086 4. Air Force Capability for the Defence of Australia and its Interests 4.1 Capability for Air Combat Operations 1,780 1,744 1,889 1,804 4.2 Capability for Combat Support of Air Operations 424 592 571 632 4.3 Capability for Strategic Surveillance 369 475 1,052 592

78 Defence Outcomes and Outputs

4.4 Capability for Maritime Patrol Aircraft 535 560 933 641 4.5 Capability for Airlift 896 838 - 831 Sub-Total Outcome 4 4,004 4,208 4,445 4,501 5. Strategic Policy for the Defence of Australia and its Interests 5.1 Capability for Strategic and International Policy, Activities and Engagement 170 173 173 176 5.2 Capability for Military Strategy and Strategic Operations 43 30 47 30 Sub-Total Outcome 5 213 203 220 206 6. Intelligence for the Defence of Australia and its Interests 6.1 Intelligence 403 409 413 457 Sub-Total Outcome 6 403 409 413 457 Total Cost of Defence Outputs(4) 14,398 14,452 15,379 15,168 Notes 1. The Revised Additional Estimate figures have been adjusted since the Portfolio Additional Estimates Statements 2003-04 to reflect an improved costing methodology. 2. The Projected Result is consistent with the Portfolio Budget Statements 2004-05. 3. The total cost of Defence outputs, shown in this table ($15,168m), relates to Departmental expenses and revenues. The actual total cost of Defence outputs does not include $1,457m of net administered expenses and revenues. 4. Figures do not add due to rounding. The figures cross-reference to the bottom line figures contained in Table 2.2. The seventh outcome, Superannuation and Housing Support Services for Current and Retired Defence Personnel, covers activities not directly connected to the delivery of the capability outcomes and outputs. Outcome Seven is described on pp 187-88. Defence continues to refine its cost attribution rules in order to improve the accuracy of its output costs. There are a number of variables that can influence output costs, including changes to preparedness levels and activity rates, operations, and redirecting funds to meet changing priorities and emergent cost pressures. Changes in the distribution of the workforce and technical adjustments aimed at improving the accounting for Defence’s assets and liabilities can have a major impact. Many of the variations evident between the projected and actual result in 2003-04 reflect accounting adjustments and refinements to attribution rules. There have been few changes to preparedness and activity levels from that which were planned, and few significant real variations between the projected and actual result.

79 Chapter Two

Price to Government of Defence Outcomes Table 2.2 Cost to the Government of Departmental Outcomes Budget Revised Projected Actual Variation(5) Variation Estimate Additional Result(2) Result(3) Estimate(1)

2003-04 2003-04 2003-04 2003-04 2003-04 2003-04 $’000 $’000 $’000 $’000 $’000 % Operating Expenses Employees – Military 5,298,139 5,211,106 5,598,806 5,464,216 -134,590 -2.4 Employees – Civilian 1,341,583 1,333,499 1,333,499 1,363,205 29,706 2.2 Sub-Total Employees 6,639,722 6,544,605 6,932,305 6,827,421 -104,884 -1.5 Suppliers expense 4,130,081 4,421,868 4,695,659 4,571,939 -123,720 -2.6 Inventory consumption 949,031 857,308 857,308 730,150 -127,158 -14.8 Sub-Total Suppliers 5,079,112 5,279,176 5,552,967 5,302,089 -250,878 -4.5 Grants 1,873 1,150 1,874 7,183 5,309 283.3 Depreciation and amortisation 2,826,637 2,826,654 3,091,654 2,799,405 -292,249 -9.5 Value of assets sold - - 306,384 163,575 -142,808 -46.6 Write-down of assets 378,000 378,000 378,000 1,152,818 774,819 205.0 Borrowing costs 31,920 31,263 31,263 34,148 2,884 9.2 Other expenses - - - 75,158 75,158 - Total Operating Expenses from Ordinary Activities 14,957,264 15,060,848 16,294,447 16,361,797 67,351 0.4 Revenues Sale of goods and services -239,014 -243,085 -243,085 -252,883 -9,798 4.0 Revenue from sale of assets - - -306,384 -185,159 121,225 -39.6 Assets now recognised -278,000 -278,000 -278,000 -579,828 -301,828 108.6 Other revenues(4) -41,931 -87,706 -87,706 -175,966 -88,260 100.6 Total Own Source Revenues -558,945 -608,791 -915,175 -1,193,836 -278,661 30.4 Price to Government for Defence Outcomes 14,398,319 14,452,057 15,379,271 15,167,962 -211,310 -1.4 Notes 1. The Revised Additional Estimate figures have been adjusted since the Portfolio Additional Estimates Statements 2003-04 to reflect an improved costing methodology. 2. The Projected Result is consistent with the Portfolio Budget Statements 2004-05. 3. The Actual Price to Government for Defence Outcomes, shown in this table ($15,168m), does not include $1,457m of net administered expenses and revenues. 4. The Actual Result amount for Other revenues includes interest and dividends, net foreign exchange gains/losses and resources received free of charge. 5. The variation figures are the difference between the Actual Result and the Projected Result.

80 Price to Government of Defence Outcomes $’000 7,183 2003-04 34,148 75,158 730,150 163,575 -252,883 -185,159 -579,828 -175,966 -862,121 5,464,216 1,363,205 6,827,421 4,571,939 5,302,089 2,799,405 1,152,818 2,319,501 1,457,379 Grand Total -1,193,836 16,361,797 15,167,962 ------$’000 2003-04 -839,512 Outcome 7 2,296,708 1,457,196 Defence Personnel Superannuation and Current and Retired and Current Housing Services for Services Housing 183 $’000 Total 7,183 2003-04 34,148 75,158 22,793 -22,609 730,150 163,575 Outcomes -252,883 -185,159 -579,828 -175,966 5,464,216 1,363,205 6,827,421 4,571,939 5,302,089 2,799,405 1,152,818 -1,193,836 16,361,797 15,167,962 Departmental - - 122 360 -146 -146 $’000 1,664 2,769 -2,821 -2,497 -5,958 -4,957 2003-04 58,175 69,894 33,464 -16,232 152,894 154,350 211,069 154,350 473,693 457,460 Outcome 6 Intelligence - - - 38 668 579 275 973 -962 $’000 4,325 -8,649 -1,575 -1,067 2003-04 45,787 37,764 12,998 83,551 -12,253 114,630 115,299 218,037 205,784 Outcome 5 Strategic Policy Strategic - $’000 2,233 9,063 -1,322 -1,322 2003-04 53,419 17,843 -52,448 -45,653 -47,716 354,138 241,476 364,328 Air Force -213,498 -359,315 Outcome 4 1,307,890 1,375,481 1,134,107 Capabilities 1,662,028 1,616,957 4,859,979 4,500,663 - -127 -127 $’000 Army 2,912 2003-04 80,915 15,354 29,347 ce Outcomes (Departmental and ce Outcomes Administered) -81,963 -95,983 -27,685 400,981 274,619 576,366 224,535 -104,560 -310,190 Outcome 3 2,495,214 1,296,372 Capabilities 2,896,195 1,570,990 5,396,614 5,086,424 - -627 -627 Navy $’000 1,627 7,766 2003-04 23,367 18,770 -47,315 -34,490 -41,259 335,940 170,104 953,422 410,289 -207,868 -330,931 Outcome 2 1,274,253 1,312,843 Capabilities 1,610,192 1,482,947 4,508,380 4,177,449 251 $’000 3,631 1,331 5,458 2,405 -5,574 2003-04 81,489 43,283 61,289 22,793 -59,688 -46,369 -53,282 -20,387 282,897 318,263 107,203 364,386 361,546 905,095 740,181 -164,913 Outcome 1 Operations Command of Command Overall Cost to the Government of Defen of Government the Cost to Overall

Employees – Employees Military - Civilian Employees expense Suppliers consumption Inventory Grants Depreciation and amortisation sold assets of Value Write-down of assets Borrowing costs expenses Other Sale of goods and services Revenue from sale of assets Assets now recognised Other revenues Expenses Revenues 81 Table 2.3 DEPARTMENTAL Expenses Operating Sub-Total Employees Suppliers Sub-Total Expenses Operating Total Activities Ordinary from Revenues Source Own Total Revenues for Government to Price Defence Departmental Outcomes ADMINISTERED for Government to Price Defence Administered Outcomes Chapter Two Major Australian Defence Force Operations during 2003-04 Bel Isi II Isi Bel Bougainville 2003 1998–August April Anode Islands Solomon 2003 August commenced Spire Timor East 2004 May commenced Citadel Timor East 2004 2002–May May Gaberdine of Department the to support logistic Affairs Indigenous and Immigration 2004 2001–June August

Palate Afghanistan 2004 2003–June April Relex II Relex approaches sea northern 2002 March commenced Cranberry and sea northern Mistral Ocean Southern 1998 commenced air approaches air 1997 June commenced

Catalyst Area East Middle Falconer 2003 2003–July March commenced July 2003 July commenced of Operations of – Falconer following Pomelo Eritrea and Ethiopia 2001 January commenced Mazurka Sinai commenced 1982 September Paladin Lebanon and Israel 1956 June commenced

commenced October 2001 October commenced Slipper Global terrorism against war the

82 Outcome One: Command of Operations Joint Operations Command was established on 16 March 2004 to provide simpler and more effective command and control arrangements for ADF forces on operations. Responsibility for delivery of Outcome One passed from the Commander Australian Theatre to the Chief of Joint Operations, who is dual-roled as the Vice Chief of the Defence Force.1 The Chief of Defence Force has directed the Chief of Joint Operations to execute command of ADF military operations and exercises and the ADF contribution to national support tasks on his behalf. Joint Operations Command has seven major components: • Strategic Operations Division; • Headquarters Joint Operations Command; • Maritime Component Joint Operations Command; • Land Component Joint Operations Command; • Air Component Joint Operations Command; • Special Operations Component Joint Operations Command; and • Joint Logistics Command. Strategic Operations Division continues to focus on strategic, international and whole-of-government issues, including planning and interaction with the UN. The new headquarters assumed the responsibilities of the Headquarters Australian Theatre with an improved relationship with the component headquarters. Joint Logistics Command continues to support ADF activities with a renewed focus on supply chain support to Defence operations. During the year, the ADF conducted military campaigns and operations and provided emergency and non-emergency support as required by the Government. It undertook overseas deployments and various joint and combined exercises involving the three Services and allied or regional military forces. These activities have generally proceeded as forecast in the Portfolio Budget Statements 2003-04. Defence maintained its command capability through Headquarters Joint Operations Command and component headquarters. This provided the capacity and communications capability to implement strategic plans and provide operational-level guidance to assigned forces. Joint force preparedness was developed in accordance with ADF preparedness requirements and evaluated through operational outcomes and the exercise program. Performance Summary During 2003-04, the ADF sustained a major commitment to the Australian whole-of-government effort to assist in the rehabilitation of Iraq under Operation Catalyst, following the completion of Operation Falconer in July 2003. The volatility of the Middle East Area of Operations required a flexible and innovative approach to the conduct of

1 See Chapter One – Organisational Changes for details of senior appointments.

83 Chapter Two operations. The ADF has maintained ground forces in Iraq in command and protective roles, including military staff officers embedded in coalition headquarters and, more recently, forces undertaking training tasks to support the establishment of Iraqi military forces. The ADF has maintained a frigate on duty in the Arabian Gulf and P-3 Orion maritime patrol aircraft and C-130 Hercules aircraft and support crews in the Middle East Area of Operations. The ADF has maintained concurrently a small commitment under Operation Slipper to contribute to the international coalition against terrorism, including both the frigate and the P-3 Orion aircraft being assigned to Operations Catalyst and Slipper. A modest deployment under Operation Palate supported the United Nations Assistance Mission in Afghanistan from April 2003 to June 2004. Operations Mazurka, Paladin and Pomelo continued as the ADF contribution to other UN peacekeeping commitments beyond our immediate region. Operation Osier, the deployment of ADF personnel as part of the Stabilisation Force in Bosnia-Herzegovina and Croatia, and the Kosovo Force in Kosovo, was completed in February 2004. In Australia’s immediate region, the overall ADF commitment was reduced during 2003-04. Operation Bel Isi II was successfully completed in August 2003 with the withdrawal of all ADF assets from Bougainville. Operation Citadel in East Timor continued, with force reductions in line with the drawdown and changes in the UN mandate. In May 2004, Operation Citadel was subsumed by Operation Spire, a smaller multinational force of which the ADF provides about 25 per cent of the military component, primarily in support roles. Operation Anode commenced in July 2003 as an ADF-led multinational regional force commitment to assist the Government of the Solomon Islands. Operation Anode was a major ADF commitment to support the coalition police forces in restoring the rule of law in the Solomon Islands. The ADF combined with forces from New Zealand, Papua New Guinea, Fiji and Tonga to provide a secure and stable environment and robust logistic support. This allowed the Australian Federal Police and the regional police forces to assist with redeveloping the Royal Solomon Islands Police and restoring public confidence. The improved security situation has allowed the phased withdrawal of military forces and the transition to contracted administrative and logistic support for the Australian Federal Police. A smaller combined ADF and regional military force remains in the Solomon Islands in support of the ongoing police-led activities. The ADF continued to contribute to peacetime national tasks as directed by the Government. This contribution was made predominantly through Operation Relex II: the conduct of air and surface patrols across Australia’s northern approaches to deter unauthorised boat arrivals. The ADF’s contribution to the civil surveillance program, in cooperation with Coastwatch, was provided through Operations Relex II and Cranberry. Support to the Department of Immigration and Multicultural and Indigenous Affairs to manage any increase in unauthorised boat arrivals through Operation Gaberdine ended in June 2004. Customs-led surface patrols of the Southern Ocean were supported through Operation Mistral. Surveillance tasks conducted previously under Operations Burbage, Osteal and Mellin were subsumed into Operation Cranberry. Other surveillance operations that were conducted when resources were available included Operations Estes and Solania.

84 Outcome One: Command of Operations

The other operations and activities undertaken by the ADF during the year were: • Operation Gemsbok: support to Coastwatch and the Australian Fisheries Management Authority in apprehending a foreign vessel that was fishing illegally in the Heard Island – McDonald Island Exclusive Economic Zone; • Operation Scrummage: ceremonial, protocol and security support during the Rugby World Cup; • Operation Miata: security support during the visit to Australia by the President of the United States of America; • Operation Fluent: security support during the visit to Australia by the President of the People’s Republic of China; • Operation Iran Assist: disaster relief following a major earthquake in Iran; • Operation Niue Assist: deployment of an ADF medical team to assist in disaster relief following the impact of Cyclone Heta; • Operation Nauru Assist: providing an explosive ordnance demolition team to dispose of World War II-era unexploded ordnance; • Operation Vanuatu Assist: assisting in disaster relief following Cyclone Ivy; and • Operation Mistral: providing support to Australian Customs civil surface patrols of the Southern Ocean. Capability Performance Information

Performance targets

Output 1.1 Command of Operations The Chief of Joint Operations is required to plan, mount and conduct ADF campaigns, operations and other activities as directed by the Chief of the Defence Force. Planning includes maintaining situational awareness, preparing operational concepts and plans, assessing ADF joint preparedness against the military response options that may be made available to the Government, and developing other plans as directed by the Chief of the Defence Force. Effective command relies on clear command arrangements supported by timely and reliable communications and information systems. Performance Targets Performance Australian operational concepts are developed to Achieved. Ongoing development of current and support ADF planning against credible new Australian operational concepts. contingencies. The Joint Operations Command Operational Achieved. The previous Joint Operations

Quality Preparedness Requirement provides guidance for Command operational preparedness requirement joint force preparedness in accordance with the was updated and joint preparedness is assessed and Chief of the Defence Force’s direction. reported monthly. Theatre command of ADF forces is effective and This target was achieved. Effective command was the Government’s strategic objectives for operations improved with the appointment of the Chief of are achieved. Joint Operations and implementation of revised

Quantity joint command arrangements.

85 Chapter Two

Output 1.2 Defence Force Military Operations and Exercises ADF military operations, exercises and other activities contribute to the achievement of the Government’s strategic objectives, as defined in the Defence White Paper 2000. The following tables list ADF operations conducted over the year against these strategic objectives. ADF joint and combined exercises are included in the Program of Major Service Activities. Exercise objectives include training in warfighting and related skills, confirming interoperability and joint capability and effective engagement with allies and regional partners. Performance is summarised below, with additional information in the supporting tables. Performance Targets Performance ADF operations meet Government directives. Achieved. 15 current operations and 19 that were ceased or completed met Government direction in 2003-04. Forces identified in the Joint Operations Command Achieved. Joint preparedness levels were Operational Preparedness Requirement for monitored against the Joint Operations Command

y operational tasks maintain required preparedness Operational Preparedness Requirement. levels. Preparedness deficiencies were reported and remedied where possible.

Qualit ADF forces are effectively deployed and sustained. Achieved. ADF forces continued to be effectively deployed and sustained. The Program of Major Service Activities is Achieved. The Program of Major Service reviewed regularly and modified as required. Activities was regularly reviewed and modified in response to changing priorities, world events and to meet identified training deficiencies. Number of current ADF operations. 15 current ADF operations including: 3 contributing to the security of the immediate neighbourhood; 5 supporting wider interests; and 7 peacetime national tasks.

y Number of completed ADF operations. 19 completed ADF operations including: 2 contributing to the security of the immediate neighbourhood; 3 supporting wider interests; and 14 peacetime national tasks. Quantit Total number of exercises programmed over 63 ADF exercises programmed in the Program of 2003-04. Major Service Activities. Number of conducted ADF exercises. 39 programmed exercises were conducted. Number of cancelled ADF exercises. 24 programmed exercises were cancelled.

Output 1.3 Contribution to National Support Tasks The ADF may be called upon to provide emergency and non-emergency assistance to the Australian community in non-combat-related roles. Tasks the ADF may be requested to undertake include emergency assistance, search and rescue, disaster recovery, surveillance and security or non-emergency law enforcement roles. These tasks are categorised as Defence Assistance to the Civil Community. The ADF can be requested to undertake law enforcement-related tasks where the use of force by Defence personnel may be required (Defence Force Aid to Civilian Authorities). The ADF also contributes to the civil surveillance program, providing maritime surveillance that is tasked routinely in accordance with the Government’s direction.

86 Outcome One: Command of Operations

Peacetime national tasks undertaken by the ADF may include support to other government departments and agencies to secure the Australian coastline from illegal immigration, smuggling, quarantine evasion and other intrusions to Australian sovereignty, countermeasures (including chemical, biological, radiological responses) and counter-terrorism responses, search and rescue and natural disaster relief. Performance Targets Performance The ADF contribution to peacetime national tasks Achieved. 7 current ADF operations and 8 meets Government directives. completed operations met Government direction for peacetime national tasks in 2003-04. 5 operations ceased and their objectives were incorporated into other activities. The ADF met all Government priorities for peacetime national tasks in 2003-04. Forces identified in the Joint Operations Command Achieved. Preparedness levels were continuously Operational Preparedness Requirement for Defence monitored against the Joint Operations Command Assistance to the Civil Community, Defence Force Operational Preparedness Requirement. Aid to Civilian Authorities and search and rescue, maintain required preparedness levels. ADF forces are effectively deployed and sustained. Achieved. ADF forces continued to be effectively deployed and sustained. The ADF response to requests for search and rescue Achieved. and emergency assistance tasks are effectively managed and reported. ADF support to the civil surveillance program, in Achieved. ADF support to the civil surveillance consultation with Coastwatch, was provided at the program was conducted with priority given to following resource levels: Operation Relex II. Some patrols in support of Operation Relex II were conducted in the civil surveillance program area of operations and met both requirements. The rate of effort for these activities over 2003-04 was: y - 250 flying hours by AP-3C surveillance aircraft. 11.2 P-3 Orion flying hours solely in support of the civil surveillance program, with an additional 1,835.8 P-3 flying hours in support of Operation Qualit Relex II – a total of 1,847 P-3 flying hours. - 1,800 Fremantle-class patrol boat days 549 Fremantle-class patrol boat days in support of civil surveillance program and 1,265 Fremantle-class patrol boat days in support of Operation Relex II – a total of 1,814 Fremantle-class patrol boat days. The ADF continues to conduct minor emergency Achieved. and non-emergency assistance tasks from local resources where feasible. National support tasks undertaken by the ADF as Achieved. significant emergency assistance, public events of significance and non-emergency law enforcement are effectively undertaken, managed and reported. National support tasks undertaken by the ADF as Achieved. The ADF continued to provide Defence Force Assistance to Civilian Authorities consequence management, (biological and are effectively managed and reported. radiological) and counter-terrorism capabilities. Defence Assistance to the Civil Community:(1) The following tasks were completed: Category One – local emergency assistance; - the ADF was actively involved in the local community and provided local emergency assistance within resources; Category Two – general emergency assistance; - nil; Category Three – civil emergency or disaster - nil; recovery;

87 Chapter Two

Category Four – public events of significance and - the ADF supported 21 public events of general non-emergency assistance; significance and 12 non-emergency assistance tasks during the year as approved by the Government; Category Five – minor non-emergency assistance; - the ADF provided non-emergency assistance and within local resources; and Category Six – non-emergency law - 23. enforcement-related tasks. Defence Force Aid to Civilian Authorities. No requests. Search and rescue tasks undertaken involving ADF Nine search and rescue tasks were undertaken. assistance. Specified Army/Aboriginal and Torres Strait The Army coordinated and managed the Islander Commission Community Assistance Army/Aboriginal and Torres Strait Islander Program milestones are met. Commission/Army Community Assistance Program. During 2003-04, 200 Army engineers, primarily from the 17th Construction Squadron and 3rd Combat Engineer Regiment, deployed to Palm Island in North Queensland. Palm Island is located some 70 kilometres north-east of Townsville and is home to 4,000 people from over 40 different tribal groups. The project consisted of $8.4m of works including the construction of

Quality houses and roads and the provision of health, employment and training activities over a five-month period. The 2004 program is currently under way in the Northern Peninsula Area of the Northern Territory. Elements of the 19th Chief Engineer Works and the 21st Construction Squadron are the primary Army construction assets deployed. The project budget is $6m and the three aboriginal communities of Injinoo, Umagico and New Mapoon will benefit from the following works: - 12 new houses (Army and civil contractors); - renovations (civil contractor); - site servicing (Army with external funding); - fluoridation (civil contractor); - solid waste disposal (Army); - Snake Gully infrastructure upgrade (civil contractor); - drainage and fencing (civil contractor); - piggery upgrade (civil contractor); - community and training (Army); and - provision of health services (Army). Note 1. Defence Assistance to the Civil Community comprises six categories: Counter-disaster and emergency assistance Category 1 – emergency assistance for a specific task provided by a local commander or administrator, from within his or her own resources, in localised emergency situations when immediate action is necessary to save human life, alleviate suffering, prevent extensive loss of animal life or prevent widespread loss or damage to property. Category 2 – emergency assistance in a more extensive or continuing disaster where action is necessary to save human life or alleviate suffering, prevent extensive loss of animal life or prevent loss or damage to property and when state or territory resources are inadequate. Category 3 – assistance associated with a civil emergency or disaster recovery, which is not directly related to the saving of life or property. Non-emergency assistance Category 4 – non-emergency assistance provided to other government departments or authorities, to the states or territories, local government or other authorities or organisations, commercial enterprises, non-profit organisations or individuals or bodies in the general community. Category 5 – non-emergency assistance of a minor nature, excluding flying tasks, provided to local organisations and which is within the capacity of a local commander or administrator’s resources and authority. Category 6 – support to civil authorities in the performance of non-emergency law enforcement-related tasks where there is no likelihood that Defence personnel will be required to use force.

88 Outcome One: Command of Operations

Price to Government Outcome One – Command of Operations in Defence of Australia and its Table 2.4 Interests Budget Revised Projected Actual Variation(5) Variation Estimate Additional Result(2) Result(3) Estimate(1)

2003-04 2003-04 2003-04 2003-04 2003-04 2003-04 $’000 $’000 $’000 $’000 $’000 % Operating Expenses Employees – Military 295,704 190,802 225,648 282,897 57,250 25.4 Employees – Civilian 88,975 76,388 76,725 81,489 4,763 6.2 Sub-Total Employees 384,680 267,190 302,373 364,386 62,013 20.5 Suppliers expense 364,349 388,477 456,174 318,263 -137,911 -30.2 Inventory consumption 82,554 77,141 46,117 43,283 -2,834 -6.1 Sub-Total Suppliers 446,903 465,618 502,291 361,546 -140,745 -28.0 Grants 87 44 89 251 161 180.5 Depreciation and amortisation 57,600 67,798 80,254 61,289 -18,964 -23.6 Value of assets sold - - 10,325 3,631 -6,695 -64.8 Write-down of assets 18,023 11,244 11,220 107,203 95,984 855.5 Borrowing costs 933 1,207 1,462 1,331 -131 -9.0 Other expenses -136 12 - 5,458 5,458 - Total Operating Expenses from Ordinary Activities 908,091 813,114 908,014 905,095 -2,919 -0.3 Revenues Sale of goods and services -44,649 -85,549 -74,968 -59,688 15,281 -20.4 Revenue from sale of assets - - -10,325 -5,574 4,751 -46.0 Assets now recognised -16,124 -8,444 -8,704 -46,369 -37,666 432.8 Other revenues (4) -1,915 -2,624 -3,554 -53,282 -49,728 1399.2 Total Own Source Revenues -62,688 -96,618 -97,551 164,913 -67,362 69.1 Price to Government for Outcome One 845,403 716,496 810,463 740,181 -70,282 -8.7 Notes 1. The Revised Additional Estimate figures have been adjusted since the Portfolio Additional Estimates Statements 2003-04 (p.25) to reflect an improved costing methodology. 2. The Projected Result is consistent with the Portfolio Budget Statements 2004-05. 3. The Actual Price to Government for Outcome One, shown in this table ($740.181m), relates to Departmental expenses and revenues. The Actual Price to Government for Outcome One does not include $2.405m of administered expenses and revenues, which comprise other expenses ($22.793m) and other revenues ($20.387m). 4. The Actual Result amount for Other revenues includes interest and dividends, net foreign exchange gains/losses and resources received free of charge. 5. The variation figures are the difference between the Actual Result and the Projected Result. Explanation of Significant Variations The overall price of Outcome One was $70.3m lower than the 2003-04 projected result, representing a decrease of 8.7 per cent. The major variations were due to: • a net increase in military employee expenses (+$57.3m) due to: Salary and allowances - an overestimate of long service and annual leave to be paid in 2003-04 (-$0.8m);

- an overstatement of the military employees salaries estimates in 2003-04 (-$0.8m);

- decreased take-up rate and overstatement of the estimate for the Home Purchase Assistance Scheme (-$0.6m);

- an overstatement of salary advances (-$0.5m);

89 Chapter Two

Superannuation - the decision not to proceed with the proposed transfer of the liability for the Defence Force Retirement and Death Benefits Scheme 3 per cent productivity benefit from the administered to departmental accounts (-$11.4m);

- an overstatement of military superannuation estimates in 2003-04 (-$0.3m);

Leave liability - an overestimate of the impact of the workplace remuneration arrangement on leave liability and the implementation of a new methodology for calculating attrition rates on annual and long service leave provisions (-$0.1m);

Housing - an increase in housing expenses including buy-out of old, on-base housing annuities and increased take-up rate by members without dependents using rental assistance rather than living-in accommodation (+$0.5m);

Compensation - a decrease in the number and value of claims for lump sum compensation for permanent impairment (-$0.5m);

Health - increased health costs relating to medical and professional fees (+$0.9m);

Fringe benefits tax - an underestimate of fringe benefits tax payable for rental allowance for members without dependents (+$1.5m);

Reserves - increased activity by officers and instructors of cadets and a higher than projected use of Reserve days by non-Service Groups (+$0.2m);

Cost attribution - a redirection of Land Command salaries to Outcome One incorrectly attributed to Outcome Three in the projected result (+$59.4m); and

- progressive refinement of Defence's cost attribution rules to reflect changes in workforce distributions and expenditure patterns and other variations (+$9.6m).

• a net increase in civilian employee expenses (+$4.8m) due to: Salary and allowances - the recognition of Defence Integrated Distribution System redundancy costs in 2003-04, rather than in 2004-05 as originally planned (+$1.4m);

- lower full-time equivalent-average personnel than projected in 2003-04 (-$0.2m);

- an overstatement of civilian employee salaries in 2003-04 (-$1.3m);

90 Outcome One: Command of Operations

Superannuation - payment to the University of New South Wales for Australian Defence Force Academy staff superannuation liabilities from supplier expenses rather than civilian employee expenses (-$1.8m);

- an underestimate of the impact of the changing profile of members in the Commonwealth Superannuation Scheme and Public Sector Superannuation schemes (+$0.8m);

Leave liability - an increase in the future leave liability costs resulting from the new Defence Employee Certified Agreement (+$1.8m);

- an increase in the future leave liability costs resulting from the Commonwealth Superannuation Scheme and Public Sector Superannuation rate increases on leave liabilities (+$0.5m);

- a recalculation of accrued leave balances arising from actuarial reviews and errors in certain aspects of the estimates (+$0.5m);

Other - a variation in health costs reflecting more emphasis by Defence on the health and wellbeing of its civilian workforce and other minor variations (+$0.1m); and

Cost attribution - progressive refinement of Defence's cost attribution rules to reflect changes in workforce distributions and expenditure patterns (+$3.0m).

• a net decrease in supplier expenses (-$137.9m) due to: - payment to the University of New South Wales for Australian Defence Force Academy staff superannuation liabilities (+$1.4m);

- changes in accounting treatment of revenue collected under garrison support contracts, which is no longer offset against expenses (+$2.3m);

- lower levels of expenses incurred on Defence’s recruitment contract due to improvement in separation rates (-$0.5m);

- the rephasing of some information systems and business improvement projects to 2004-05 to reflect changed schedules for these projects (-$0.8m);

- the rephasing of funding for Operation Catalyst (-$14.6m) and Operation Anode (-$12.8m) into 2004-05 and future years (-$27.4m);

- the redirection to inventory purchases as Defence progressively reduces backlogs in this area (-$6.5m);

- the redirection of major capital project costs to Outcome Four for the Joint Strike Fighter, incorrectly attributed to Outcome One in the projected result (-$54.8m); and

91 Chapter Two

- progressive refinement of Defence's cost attribution rules to reflect changes in workforce distributions and expenditure patterns and other variations (-$51.6m).

• a net decrease in inventory consumption (-$2.8m) due to: - the flow through of improvements in the pricing of explosive ordnance (-$2.2m);

- an overstatement of inventory consumption estimate (-$4.6m); and

- progressive refinement of Defence’s cost attribution rules to reflect changes in workforce distribution and expenditure patterns and other variations (+$4.0m).

• a net increase in grants due to a reclassification of research agreements between the Defence Science and Technology Organisation and universities, the Point Nepean community grant, the Mornington Peninsula land grant and refinement to cost attribution rules (+$0.2m). • a net decrease in depreciation and amortisation expense (-$19.0m) due to: - net movements from asset revaluations, assets under construction roll-out, assets first recognised and property sale delays (+$2.3m);

- a revaluation of buildings and infrastructure (+$2.7m);

- a review of the useful life on the repairable items on a number of platforms (+$1.3m);

- an understatement of the depreciation estimate (+$1.0m);

- the reclassification of some operating leases into finance leases (+$0.9m);

- greater than anticipated adjustment in other property, plant and equipment required to correct an error in the migration of assets from Defence’s legacy financial system, Defence Financial Management and Information System (DEFMIS) to the Resource and Output Management Accounting Network (ROMAN) (-$0.9m);

- the non-requirement to proceed with the anticipated adjustment in specialist military equipment relating to the migration of assets from Defence's legacy financial system (DEFMIS) to ROMAN (-$12.1m); and

- progressive refinement of Defence's cost attribution rules to reflect changes in workforce distributions and expenditure patterns and other variations (-$14.2m).

• a net decrease in the value of assets sold (-$6.7m) due to: - the value of assets sold for which Defence owes an annuity to the Defence Housing Authority (+$1.8m);

- an overestimation of the expected proceeds for other property, plant and equipment (-$1.0m);

- the delay in the property sales program due to Government decisions, the need to refer works at Randwick, New South Wales, to the Public Works Committee, and variations in project scheduling for various reasons including the lead time required to consider local and State Government priority (-$4.8m); and

92 Outcome One: Command of Operations

- progressive refinement of Defence's cost attribution rules to reflect changes in workforce distributions and expenditure patterns and other variations (-$2.7m).

• a net increase in write-down of assets (+$96.0m) due to: - asset disposals including F/A-18 Hornet aircraft radars, Black Hawk helicopters and night vision goggles (+$19.0m);

- the write-down of specialist military equipment, including assets under construction through project-initiated reviews including LAND 75 – Battlefield Command System, SEA 1114 – Submarines and JP 2070 – Lightweight Torpedoes (+$12.4m);

- a large scale review of Defence's inventory holdings by the Defence Materiel Organisation which led to inventory being recognised as obsolete (+$9.2m);

- the transfer of assets, including George's Heights and Chowder Bay to the Sydney Harbour Foreshore Trust (+$3.8m);

- the reclassification of certain fixed assets in Standard Defence Supply System as inventory (+$6.2m);

- the flow through of improvements in the pricing of explosive ordnance, including inventory consumed throughout the year and inventory still to be consumed (+$6.9m);

- an adjustment to account for the change from $1,000 to $2,000 in the asset threshold for administrative assets, and the removal of grouping of these assets (+$1.7m);

- an increase in inventory disposals (+$2.6m);

- the incorrect capitalisation of the Forward Operating Base facilities at Moleana in East Timor (+$15.7m);

- the write-down to correct error in the capitalisation of information technology equipment for the Joint Intelligence Centre (+$6.3m); and

- progressive refinement of Defence's cost attribution rules to reflect changes in workforce distributions and expenditure patterns and other variations (+$12.2m).

• a net decrease in borrowing costs (-$0.1m) due to: - the reclassification of some operating leases into finance leases (+$0.1m); and

- progressive refinement of Defence's cost attribution rules to reflect changes in workforce distributions and expenditure patterns and other variations (-$0.2m).

• a net increase in other expenses (+$5.5m) due to: - an increase in provision for Defence's share of the Commonwealth's common law liability for asbestos-related diseases (+$4.4m);

- corrections arising from the reconciliation of Defence Housing Authority annuity balances (+$0.8m); and

93 Chapter Two

- the resolution of past errors in accounting for the transfer of expense and revenue items between Defence and special public monies accounts (items transferred after 30 June 2003 have been accounted for correctly) (+$0.3m).

• a net increase in sales of goods and services (+$15.3m) due to: - increased fuel sales to foreign governments (-$0.7m);

- the sale of equipment to other government agencies (-$1.6m); and

- progressive refinement of Defence's cost attribution rules to reflect changes in workforce distributions and expenditure patterns and other variations (+$17.6m).

• a net decrease in revenue from sale of assets (+$4.8m) due to: - the delay in the property sales program due to Government decisions, the need to refer works at Randwick, New South Wales, to the Public Works Committee, and variations in project scheduling for various reasons including the lead time required to consider local and state government priority sale proposals (+$4.0m);

- an overestimation of the expected proceeds for other property, plant and equipment (+$1.0m);

- the revenue received from the sale of housing for which Defence owes an annuity to the Defence Housing Authority (-$1.8m); and

- progressive refinement of Defence's cost attribution rules to reflect changes in workforce distributions and expenditure patterns and other variations (+$1.6m).

• a net increase in assets now recognised (-$37.7m) due to: - assets identified following site audits and other remediation activities (-$2.9m);

- the reclassification of certain fixed assets in the Standard Defence Supply System as inventory (-$6.2m);

- the reconciliation of the ROMAN fixed asset register to the Standard Defence Supply System – Defence’s inventory management system – following the introduction of Standard Defence Supply System version 4 (-$12.6m); and

- progressive refinement of Defence's cost attribution rules to reflect changes in workforce distributions and expenditure patterns and other variations (-$16.0m).

• a net increase in other revenues (-$49.7m) due to: - Australian National Audit Office audit services received free of charge (-$0.9m);

- the changes in accounting treatment of revenue collected under garrison support contracts, which is no longer offset against expenses (-$2.3m);

- the receipt of liquidated damages including for the high frequency modernisation project to fund a program of rectification works caused by delays in the projects (-$5.3m);

- the net variations due to the timing difference between invoices for transactions in foreign currencies entering the system and being paid (-$5.0m); and

94 Outcome One: Command of Operations

- progressive refinement of Defence's cost attribution rules to reflect changes in workforce distributions and expenditure patterns and other variations (-$36.2m). Price Summary of Outputs for Outcome One – Command of Operations Table 2.5 in Defence of Australia and its Interests Budget Revised Projected Actual Variation(4) Variation Estimate Additional Result(2) Result(3) Estimate(1)

2003-04 2003-04 2003-04 2003-04 2003-04 2003-04 $’000 $’000 $’000 $’000 $’000 % Output 1.1 – Command of Operations 408,959 412,232 375,310 479,384 104,074 27.7 Output 1.2 – Defence Force Military Operations and Exercises 418,433 294,773 426,446 240,223 -186,224 -43.7 Output 1.3 – Contribution to National Support Tasks 18,011 9,491 8,706 20,575 11,869 136.3 Price to Government for Outcome One 845,403 716,496 810,463 740,181 -70,281 -8.7 Notes 1. The Revised Additional Estimate figures have been adjusted since the Portfolio Additional Estimates Statements 2003-04 (p.27) to reflect an improved costing methodology. 2. The Projected Result is consistent with the Portfolio Budget Statements 2004-05. 3. The Actual Price to Government for Outcome One, shown in this table ($740.181m), relates to Departmental expenses and revenues. The Actual Price to Government for Outcome One does not include $2.405m of administered expenses and revenues, which comprise other expenses ($22.793m) and other revenues ($20.387m). 4. The variation figures are the difference between the Actual Result and the Projected Result.

95 Chapter Two

Australian Defence Force Operations The following tables list ADF operations conducted in 2003-04, in line with the Government’s strategic objectives of contributing to the security of the immediate neighbourhood, support to wider interests and peacetime national tasks. Operations Contributing to the Security of the Immediate Table 2.6 Neighbourhood Operation Forces Objective and status Gateway Air Force Objective: To conduct northern Indian Ocean and South China Sea maritime surveillance patrols. 1981 – continuing Status: Current. Contribution: Operation Gateway continued to be conducted at a reduced rate of effort due to assets being assigned to Operations Relex II, Slipper and Falconer, and the P-3 Orion maritime patrol aircraft upgrade program. Bel Isi II ADF Objective: To support the United Nations Peace Monitoring Group to monitor and report on the maintenance of the cease-fire April 1998 – in Bougainville by contributing specialist medical, logistic, 26 August 2003 communications and transport capabilities. Status: Completed. Contribution: The ADF provided support to the United Nations Peace Monitoring Group in Bougainville. Support included 35 ADF personnel and a Navy landing craft supported by a weekly Air Force C-130 air logistic support service and commercial shipping from Townsville. Operation Bel Isi II ceased on 26 August 2003. Citadel ADF Objective: To contribute to the United Nations Mission in Support of East Timor May 2002 – 19 May 2004 Status: Completed. Contribution: Support to United Nations Mission in Support of East Timor continued, with approximately 440 personnel deployed. Anode ADF Objective: To support the coalition police forces in restoring the rule of law in the Solomon Islands. July 2003 – continuing Status: Current. Contribution: As at the end of June 2004, Australia’s contribution in restoring the rule of law in the Solomon Islands included headquarters staff, a minor war vessel, an engineering element and an infantry platoon. A total of 361 ADF personnel were deployed on Operation Anode at 30 June 2004. Spire ADF Objective: ADF contribution to an extension of the United Nations Mission in Support of East Timor mandate for the mission May 2004 – continuing in East Timor. Status: Current. Contribution: Australia’s contribution to Operation Spire is 100 logistics support personnel, mainly employed in engineering, maintenance and transport roles and supported by an Australian National Command Element.

96 Outcome One: Command of Operations

Table 2.7 Operations Supporting Wider Interests The ADF was involved with, and continues to contribute to, international coalitions of forces beyond the immediate neighbourhood. These operations ranged from peacekeeping to high-intensity conflict. Operation Forces Objective and status Paladin Army Objective: To contribute to the United Nations Truce Supervisory Organisation in the Middle East. This force of unarmed military June 1956 – continuing observers supervises, observes and reports on the various cease-fire arrangements, truces and peace treaties negotiated between Israel and neighbouring Arab nations since 1948. Status: Current. Contribution: 11 military observers are currently deployed with the United Nations Truce Supervisory Organisation. Mazurka ADF Objective: To provide personnel to the Multinational Force and Observers to monitor the security arrangements in the Sinai. September 1982 – Status: Current. continuing Contribution: A contribution of 25 military personnel to the Multinational Force and Observers continue to monitor security arrangements. Osier Army and Objective: To deploy ADF personnel as part of the Stabilisation Air Force Force in Bosnia-Herzegovina and Croatia, and the Kosovo Force March 1997 – June 2004 in Kosovo. In both cases, personnel serve as individuals attached to United Kingdom forces. Status: Completed. Contribution: Eight military personnel were deployed to Bosnia-Herzegovina with the Multinational Division South-West and Kosovo Force in specialist appointments. Pomelo Army Objective: To contribute to UN peacekeeping efforts in Africa as part of the United Nations Mission in Ethiopia/Eritrea. January 2001 – continuing Status: Current. Contribution: Two military personnel continue to contribute to United Nations peacekeeping efforts. This contribution is expected to end in early 2005.

Slipper ADF Objective: To contribute to the United States-led operation against international terrorism and the multinational maritime October 2001 – continuing interception force in the Persian Gulf. Status: Current. Contribution: The ADF contribution to the Middle Eastern area of operations supporting the war against terrorism continued. Deployed forces included: - an Australian National Headquarters element; - a maritime element of 1 frigate; - an aviation element of 2 P-3 Orion maritime patrol aircraft; and - 1 Army officer working in a coalition headquarters in Afghanistan. Falconer ADF Objective: To contribute to the United States-led coalition operation against Iraq. March 2003 – 24 July 2003 Status: Completed on 24 July 2003 when the ongoing commitment to the United States-led operations was transitioned to Operation Catalyst. Contribution: The ADF contribution deployed to the Middle Eastern area of operations included: - an Australian National Headquarters element; - a special operations element; a maritime element, including 2 frigates, an amphibious ship, a clearance diving team and 2 P-3 Orion maritime patrol aircraft; and - an aviation element, including 14 F/A-18 Hornet aircraft, 2 C-130 Hercules aircraft, and three Chinook heavy lift helicopters.

97 Chapter Two

Palate Army Objective: To contribute to the United Nations assistance mission in Afghanistan. April 2003 – June 2004 Status: Completed. Contribution: One military member was deployed to UN assistance mission. Catalyst ADF Objective: To contribute to the United States-led coalition for (following Falconer) stabilisation and recovery operations in Iraq. Status: Commenced 16 July 2003. July 2003 – continuing Contribution: The ADF contribution deployed to the Middle Eastern area of operations has comprised approximately 880 personnel on average. Forces included: - an Australian National Headquarters element; - a maritime element of 1 frigate; - aviation elements, including 2 C-130 Hercules aircraft, 2 P-3 Orion maritime patrol aircraft and an air traffic control detachment; - a security detachment to provide force protection and escort to the Australian Mission in Iraq; - a contingent of ADF and civilian personnel working as embedded staff in various coalition headquarters; and - 2 ADF training teams supporting training of the Iraqi Army and the Iraqi Coastal Defence Force.

Table 2.8 Operations for Peacetime National Tasks The ADF was called upon to undertake a number of regular and occasional tasks in support of national interests over 2003-04. These included specific and ongoing commitments to coastal surveillance, support to the Department of Immigration, Multicultural and Indigenous Affairs and support to the Australia Customs Service. Operation Forces Objective and status Estes Navy Objective: To conduct surface patrols in Bass Strait. Status: Current. 1980 – continuing Contribution: This operation is being reviewed with an intent to incorporate it into an Australian Theatre Surveillance Campaign. Solania Navy and Objective: To conduct South West Pacific maritime surveillance Air Force patrols. 1988 – continuing Status: Current. Contribution: Operation Solania was conducted at a reduced rate of effort due to higher operational commitments. One Solania patrol was conducted in early 2004. Burbage Navy and Objective: To conduct Indian Ocean maritime surveillance Air Force patrols. 1995 – June 2004 Status: Ceased. Contribution: The intent and tasks of this operation have been incorporated into Operation Cranberry. Osteal Navy and Objective: To conduct Coral Sea maritime surveillance patrols. Air Force Status: Ceased. 1995 – June 2004 Contribution: The intent and tasks of this operation have been incorporated into Operation Cranberry. Mellin Navy and Objective: To contribute to Torres Strait and Timor Gap maritime Air Force surveillance patrols. 1995 – June 2004 Status: Ceased. Contribution: The intent and tasks of this operation have been incorporated into Operation Cranberry. Beachcomber Navy and Objective: To collect beach information in Australia for Army operational planning. 1996 – June 2004 Status: Ceased. Contribution: The capability of this operation has been incorporated into amphibious exercises.

98 Outcome One: Command of Operations

Prowler Navy and Objective: To collect military geographic information in northern Army Australia. 1996 – June 2004 Status: Ceased. Contribution: The capability of this operation has been incorporated into amphibious exercises. Cranberry ADF Objective: To coordinate the intelligence and provide surveillance information to the civil authorities that are operating in northern June 1997 – continuing Australia. Status: Current. Contribution: Surveillance continued to be conducted using a range of ADF assets including Fremantle-class patrol boats, P-3 Orion maritime patrol aircraft and Regional Force Surveillance Units. Mistral Navy and Objective: To support Australian sovereign rights and fisheries Air Force law enforcement in the Southern Ocean by supporting the 1998 – continuing Australian Fisheries Management Authority and Australian Customs Southern Ocean fisheries patrols. Status: Current. Contribution: This is the overarching operation covering ADF support to surveillance and patrol of the Southern Ocean. Gaberdine ADF Objective: To provide support to the Department of Immigration, Multicultural and Indigenous Affairs to manage any increase in August 2001 – June 2004 unauthorised boat arrivals. Status: Completed. Contribution: The ADF provided logistic and transportation support to the Department of Immigration, Multicultural and Indigenous Affairs including tents, construction and facilities support. Relex II ADF Objective: To conduct air and surface patrols across Australia’s northern approaches to deter unauthorised boat arrivals. March 2002 – continuing Status: Current. Contribution: The ADF continued to provide support to the whole-of-government effort to deter unauthorised arrivals by sea in Australia’s north-west approaches. ADF support included: - 1 frigate, one amphibious ship; - 2 P-3 Orion maritime patrol aircraft; - up to 6 Fremantle-class patrol boats; and - up to 3 Army transit security elements. Gemsbok Navy and Objective: ADF support to Coastwatch and Australian Fisheries Air Force Management Authority-led, and Republic of South Africa assisted, August – October 2003 apprehension of the foreign fishing vessel Viarsa 1 in the Southern Ocean. Status: Completed. Contribution: The Navy provided a team to return Viarsa 1 to Australia after being apprehended by Australian Fisheries Management personnel with the assistance of the South African Defence Force. The Air Force provided C-130 aircraft to transport personnel to South Africa. Scrummage ADF Objective: ADF support to the Rugby World Cup. Status: Completed. September – Contribution: Ceremonial, protocol and security support. November 2003 Miata ADF Objective: ADF support to the visit to Australia by the President of United States of America. October 2003 Status: Completed. Contribution: Security support. Fluent ADF Objective: ADF support to the visit to Australia by the President of the People’s Republic of China. October 2003 Status: Completed. Contribution: Security support.

99 Chapter Two

Iran Assist Air Force Objective: To provide disaster relief to the government of Iran in the aftermath of an earthquake. December 2003 – Status: Completed. January 2004 Contribution: The Air Force provided one C-130 Hercules aircraft to support the Australian Agency for International Development to transport humanitarian aid to Iran. Niue Assist Army and Objective: To provide disaster relief and medical support to the Air Force Pacific island of Niue in the aftermath of Cyclone Heta. January 2004 Status: Completed. Contribution: An Air Force C-130 aircraft transported a 17 member medical team to Niue to provide health care and environmental health from 9-23 January 2004. Vanuatu Assist Air Force Objective: To provide disaster relief to Vanuatu in the aftermath of Cyclone Ivy. February – March 2004 Status: Completed. Contribution: 2 C-130 Hercules aircraft supported Emergency Management Australia and the Australian Agency for International Development by transporting humanitarian stores and a liaison officer to Vanuatu. Nauru Assist Air Force Objective: To provide assistance in the disposal of World War II-era unexploded ordnance. April 2004 Status: Completed. Contribution: The Air Force provided a two-person explosive ordnance demolition team. Australian Defence Force Exercises The following tables list the exercises planned and conducted by the ADF during 2003-04 as described in the Portfolio Budget Statements 2003-04 and the Portfolio Additional Estimates Statements 2002-03. Table 2.9 ADF Joint Exercises Exercise Forces Objective and performance Day Bubble Navy and Objective: To conduct familiarisation training in multi- Special swimmer release techniques from submarines. July 2003 Forces Performance: Achieved. The exercise provided valuable training for both the Special Forces and the Navy’s Collins-class Conducted submarine capability. Day Shark Air Force Objective: To test counter-terrorist troops offshore and Special manoeuvrability using C-130 aircraft. August 2003 Forces Performance: Achieved. The exercise provided valuable training for both the Special Forces and the Air Force’s C-130 Conducted aircrews. Vital Launch 04 ADF Objective: To practise Deployable Joint Force Headquarters and component staff in the methods, procedures, planning and March 2004 conduct of joint and combined operations through participation in the joint military appreciation process. Conducted Performance: Achieved. A successful enabling exercise in preparation for Exercise Vital Prospect. Mercury 04 ADF and Objective: The multi-jurisdictional exercise Mercury 04 was other designed as a follow on activity to the national counter-terrorism March 2004 government exercise, but the scope and complexity of the activity has greatly agencies increased. Mercury 04 was the inaugural multi-jurisdictional Conducted exercise. Performance: Achieved. A very successful exercise with many lessons learnt. The interaction between government departments at the strategic-level was of particular value.

100 Outcome One: Command of Operations

Northern Trilogy 2004 ADF Objective: To exercise Headquarters Northern Command in providing support to a consequence management incident, which May 2004 involves chemical, biological or radiological material. Performance: Achieved. (As part of Exercise Mercury 04.) Subsumed into The Multi-jurisdictional Exercise Mercury 04 provided an Exercise Mercury 04 excellent opportunity to exercise Commander Northern Command and his staff.

Table 2.10 Combined ADF / United States Exercises Australian Exercise Objective and performance Forces Gold Eagle 03 Army Objective: To develop further the interoperability between the Australian Army and the United States Marine Corps in May – July 2003 combined operations by conducting a field training or amphibious exercise. Conducted Performance: Achieved. The exercise provided an opportunity to improve the knowledge of ADF personnel as part of their professional development and to provide exposure to the latest procedures and thinking by Australia’s major allies. Pacific Reserve 03 Army Objective: To develop further the interoperability between the Australian Army Reserve and the United States Army Reserve July 2003 by undertaking a field training exercise. Performance: Achieved. A valuable exercise for the Conducted participating forces. Pacific Bond 03 Army Objective: To improve interoperability between the Australian Army and the United States Army by conducting a field training July – August 2003 exercise. Performance: Achieved. Exercises conducted with other Conducted countries provide professional development for ADF personnel. The ADF benefits from the insight into the latest procedures and thinking of Australia’s major allies. Lungfish 03 Navy and Objective: To practise undersea warfare with joint and Air Force independent maritime patrol aircraft cooperation and to practise August 2003 and develop combined Navy/United States Navy submarine operations. Conducted Performance: Achieved. A valuable exercise for both the ADF and United States submarine forces. Crocodile 03 ADF Objective: To exercise Australian and United States forces in the conduct of an Australian-led, United States-supported September 2003 warfighting campaign by conducting a command post exercise and a field training exercise. Conducted Performance: Achieved. The exercise was conducted successfully and tested high end warfighting capability and interoperability with United States forces. Extendex 03-4 Air Force Objective: To conduct maritime patrol aircraft undersea warfare training. September 2003 Performance: Cancelled due to the high operational tempo experienced by the United States and Australian forces. Cancelled Extendex 04-1 Air Force Objective: To conduct maritime patrol aircraft undersea warfare training. December 2003 Performance: Cancelled due to the high operational tempo experienced by the United States and Australian forces. Cancelled Extendex 04-2 Air Force Objective: To conduct maritime patrol aircraft undersea warfare training. March 2004 Performance: Cancelled due to the high operational tempo experienced by the United States and Australian forces. Cancelled

101 Chapter Two

Gold Eagle 04 Army Objective: To develop further the interoperability between the Australian Army and the United States Marine Corps in March 2004 combined operations by conducting a field training exercise. Performance: Achieved. A valuable exercise for the Conducted participating forces. Lone Arrow Air Force Objective: To conduct C-130 aircraft training for selected combat airlift instructor aircrew. March 2004 Performance: Cancelled due to the high operational tempo experienced by the United States and Australian forces. Cancelled Tricrab 04 Navy and Objective: To improve interoperability with the United States Air Force Navy by conducting an explosive ordnance demolition and mine April – May 2004 clearance diving exercise. Performance: Cancelled due to the high operational tempo Cancelled experienced by the ADF and United States forces. Air Warrior II 2004 Air Force Objective: To train airlift and ground force crews in short-notice tactical operations and combat airlift. June 2004 Performance: Cancelled due to the high operational tempo experienced by the United States and Australian forces. Cancelled Extendex 04-3 Air Force Objective: To conduct maritime patrol aircraft undersea warfare training. June 2004 Performance: Cancelled due to the high operational tempo experienced by the United States and Australian forces. Cancelled

Table 2.11 Combined ADF / Five Power Defence Arrangements Exercises Australian Participating Exercise Objective and performance Forces Countries Flying Fish 03 ADF Malaysia, Objective: To exercise assigned Five Power Singapore, Defence Arrangement forces in the conduct of June-July 2003 New Zealand joint and combined operations in a multi-threat and United environment for the defence of peninsular Conducted Kingdom Malaysia and Singapore so as to enhance interoperability and strengthen the professional relationship between the defence forces of the five nations. Performance: Achieved. The exercise was successfully conducted despite force levels from participating nations being reduced due to real world tasking. Interoperability and professional relationships between participating nations were improved. Suman Warrior 03 Army Malaysia, Objective: To exercise the armies of the Five New Zealand, Power Defence Arrangements in combined land September – October 2003 Singapore operations by conducting a brigade to unit-level and United command post exercise. Conducted Kingdom Performance: Achieved. The exercise was conducted successfully and participating forces gained valuable experience in combined land operations. Bersama Shield 04 Navy and Malaysia, Objective: To practise and develop operational (formerly the Integrated Air Air Force New Zealand, procedures and tactics with Five Power Defence Defence System air defence Singapore Arrangements units in a joint/combined maritime exercise) and United exercise. Kingdom Performance: Achieved. The exercise provided May 2004 an opportunity to improve anti-air warfare interoperability between participating nations. Conducted

102 Outcome One: Command of Operations

Table 2.12 Combined ADF / New Zealand Exercises Australian Exercise Objective and performance Forces Wyvern Primo 03 Army Objective: To exercise the Australian crisis management machinery to resolve an offshore hostage incident. June – September 2003 Performance: Achieved. A very successful exercise with many (revised date) valuable lessons learnt. Good value to both the Australian and New Zealand counter-terrorism organisations. Conducted PWO Sea Assessment Navy and Objective: To improve the ability of students to act as Defence Week Air Force Watch Principal Warfare Officers at sea by undertaking training and subsequent assessment. November 2003 Performance: Achieved. The exercise provided practical training for future warfare officers of both the ADF and New Conducted Zealand Defence Force prior to graduation. Aswex 2003 Navy and Objective: To improve undersea warfare skills in all Air Force participating maritime units and exercise interoperability November 2003 between maritime undersea warfare platforms. Performance: Achieved. The exercise increased the proficiency Conducted of participating units in their ability to detect, track and prosecute conventionally powered submarines. Ocean Protector 04-1 Navy and Objective: To return the surface combatant, major amphibious Air Force and afloat support, submarine and mine countermeasures force January – February 2004 element groups to the minimum level of capability following a reduced activity period. Conducted Performance: Achieved. The exercise was conducted successfully and an increase in operational capability achieved. Tasman Exchange 03 Army Objective: To improve interoperability between Australian and New Zealand armies by conducting a field training exercise. March – April 2004 Performance: Achieved. The exercise was conducted (revised date) successfully with improved interoperability between the Australian and New Zealand armies. Conducted Vital Prospect 04 ADF Objective: To practise Deployable Joint Force Headquarters and component staff in the methods, procedures, planning and May 2004 conduct of joint and combined operations through participation (revised date) in the joint military appreciation process. Performance: Achieved. The exercise was conducted Conducted successfully with the Deployable Joint Force Headquarters successfully deployed to provide an operational-level of command and control to simulated forces. New Zealand Defence Force personnel observed the exercise.

Table 2.13 Other Combined Exercises Australian Participating Exercise Objective and performance Forces Countries Focused Logistics ADF Canada, United Objective: To facilitate Australian input into Wargame 03 Kingdom and the United States multilateral logistics objectives United States identified in Joint Vision 2010. April – July 2003 Performance: Achieved. The main focus was multinational planning and command post Conducted exercise. A high-level of multinational logistic interoperability was achieved.

103 Chapter Two

Rifle Company Army Malaysia Objective: To provide an opportunity for Butterworth training and exercising in Malaysia and to train with elements of the Malaysian Armed Forces. May – August 2003 Performance: Achieved. The exercise provided ongoing training in tropical conditions Conducted and opportunities to work with the Malaysian Armed Forces to improve interoperability between the two countries. Long Look 03 Army United Objective: To broaden the military experience Kingdom and knowledge of selected personnel and to June – September 2003 promote cooperation between the two countries. Performance: Achieved. Valuable experience Conducted gained by both the United Kingdom and Australia. Paradise 03 Navy and Papua New Objective: To improve interoperability with the Air Force Guinea Papua New Guinea Defence Force by July 2003 conducting an annual maritime surveillance exercise with Navy patrol boat elements. Cancelled Performance: Cancelled due to the high operational tempo experienced by the Australian Patrol Boat elements. Night Tiger 03 Air Force, Malaysia Objective: To develop relations and improve and Special interoperability by conducting training with the July 2003 Forces Malaysian Special Forces. Performance: Cancelled due to the high Cancelled operational tempo experienced by the ADF. Taa Nok In Sii 03-1 Air Force Thailand Objective: To progressively develop Royal Thai Navy maritime air surveillance capability July 2003 and combined Royal Thai Navy and Air Force surveillance procedures. Conducted Performance: Achieved. Singas Exchange 03 Army Singapore Objective: To broaden the military experience and professional knowledge of selected July 2003 – March 2004 personnel and to promote continued cooperation between the two countries. Conducted Performance: Achieved. Valuable experience gained by the Australian Army and the Singapore Defence Force. Kakadu VI/03 Navy and Brunei, India, Objective: To conduct a series of graduated Air Force Indonesia, training activities with regional naval and air July – August 2003 Japan, forces in all areas of maritime warfare, in order Malaysia, New to improve preparedness, interoperability and Conducted Zealand, mutual understanding. Philippines, Performance: Achieved. In addition to the Papua New valuable training and interoperability Guinea, opportunities, the exercise provided an excellent Republic of conduit for international engagement activities. Korea, Singapore, Thailand and Vietnam. Red Flag 03-4 Air Force Belgium, Brazil, Objective: To conduct a long-range Canada, France, deployment and participate in a multinational August 2003 Germany, large force employment exercise. Israel, Performance: Cancelled due to the high Cancelled Singapore, operational tempo being experienced by the Spain, ADF. Thailand, Turkey, United Kingdom and United States.

104 Outcome One: Command of Operations

Tamex 03-3 Navy and United States Objective: To practise combined maritime Air Force patrol aircraft undersea warfare operations and August 2003 improve interoperability the United States Navy. Cancelled Performance: Cancelled due to the high operational tempo experienced by United States and Australian forces. Pacific Protector Navy Japan, United Objective: To practise international efforts for States and constraining trade in weapons of mass September 2003 French Armed destruction. Forces in New Performance: Achieved. The exercise Conducted Caledonia objectives were achieved and provided an excellent start to the United States-led Proliferation Security Initiative. Pacific Airlift Rally 03 Air Force Bangladesh, Objective: To improve regional engagement Brunei, and coalition airlift development through a September 2003 Canada, India, military airlift symposium and command post Indonesia, exercise to exchange humanitarian airlift, Conducted Japan, Laos, air-land and airdrop delivery techniques for Malaysia, specific regional aircraft. Mongolia, Performance: Cancelled due to the high Philippines, operational tempo experienced by United States Papua New and Australian forces. Guinea, Republic of Korea, Singapore, Thailand, United States, Vietnam, Russia and Sri Lanka Equateur 03 ADF France, New Objective: To conduct operational-level Zealand and planning for non-combatant evacuation October 2003 Tonga operations in a benign environment. Performance: Achieved. The exercise Conducted provided a good enabler for the field training exercise Croix Du Sud. Haringaroo 03-3 Army Malaysia Objective: To practise combined operations requiring interoperability at a tactical-level with October 2003 elements of the Malaysian Army. Performance: Cancelled due to the high Cancelled operational tempo experienced by the Australian Air Lift Group. Night Falcon 03 Special Papua New Objective: To practise regional deployment of a Forces Guinea Special Air Services troop and to conduct war October – roles training and non-special forces training November 2003 with the Papua New Guinea Defence Force. Performance: Achieved. The exercise Conducted provided a good opportunity to operate with the Papua New Guinea Defence Force in Papua New Guinea. Wallaby 03 Army Singapore Objective: To improve interoperability by conducting a field training exercise with October – Singapore. November 2003 Performance: Achieved.

Conducted Longreach 03-1 Deployable New Zealand Objective: To practise the Deployable Joint Joint Force and Papua Force Headquarters in contingency. November 2003 Head- New Guinea Performance: Cancelled due to the high quarters operational tempo being experienced by the Cancelled Australian Air Lift Group.

105 Chapter Two

Night Leopard 03 Special Brunei Objective: To conduct bilateral special forces Forces war roles training with the Royal Bruneian November – Armed Forces Special Combat Squadron. December 2003 Performance: Achieved. A very successful inaugural special forces exercise with Brunei. Conducted Star Tiger 03 Special Malaysia Objective: To develop interoperability between Forces the Malaysian Special Forces and Australian November – Commando Regiment by conducting special December 2003 forces training. Performance: Cancelled due to the high Cancelled operational tempo experienced by the Australian Air Lift Group. Taa Nok In Sii 03-2 Air Force Thailand Objective: To progressively develop Royal Thai Navy maritime air surveillance capability November – and combined Royal Thai Navy and Air Force December 2003 surveillance procedures. Performance: Cancelled due to the high Cancelled operational tempo experienced by the Australian Maritime Patrol Group. Rifle Company Army Malaysia Objective: To provide an opportunity for Butterworth training and exercising in Malaysia and to train with elements of the Malaysian Armed Forces. November 2003 – Performance: Achieved. The exercise February 2004 provided ongoing training in tropical conditions and opportunities to improve interoperability Conducted with the Malaysian Armed Forces. Tamex 03-4 Navy and Unites States Objective: To practise combined maritime Air Force patrol aircraft undersea warfare operations and December 2003 improve interoperability with the United States Navy. Cancelled Performance: Cancelled due to the high operational tempo experienced by the United States and Australian forces. Tasmanex 04 Navy and New Zealand Objective: To develop interoperability between Air Force and France New Zealand and France by conducting February 2004 combined maritime operations including maritime surveillance, undersea warfare and Conducted mine countermeasures operations. Performance: Achieved. The exercise provided further maritime training opportunity, building on the skill sets achieved during Exercise Ocean Protector. Southern Tiger 04 Army Malaysia Objective: To improve interoperability between the Australian and Malaysian Armies at the March 2004 tactical level. Performance: Achieved. The exercise Conducted provided a good opportunity to improve interoperability between the ADF and Malaysian land forces.

106 Outcome One: Command of Operations

Tempest Express-6 ADF Canada, Fiji, Objective: to practise activating a Joint Task France, India, Force and transition to an Australian-led March 2004 Indonesia, coalition task force in a crisis action planning Japan, environment. Conducted Malaysia, Performance: Achieved. This exercise was Mauritius, conducted as part of a series of United States-led New Zealand, training activities in various countries around Philippines, the region. The exercise was very successful and Papua New all objectives were achieved. Guinea, Singapore, the Solomon Islands, Thailand, Tonga, United Kingdom, United States, Vanuatu, Bangladesh, China, Republic of Korea, Madagascar, Maldives, Nepal, Russia, Sri Lanka and UN Tamex 04-1 Navy and Unites States Objective: To practise combined maritime Air Force patrol aircraft undersea warfare operations and March 2004 improve interoperability with the United States Navy. Cancelled Performance: Cancelled due to the high operational tempo experienced by the United States and Australian forces. Taa Nok In Sii 04-1 Air Force Thailand Objective: To progressively develop Royal Thai Navy maritime air surveillance capability April 2004 and combined Air Force and Royal Thai Navy surveillance procedures. Conducted Performance: Achieved. Bell Buoy 04 Navy Canada, Objective: To exercise and develop regional Chile, Republic naval control and protection of shipping April – March 2004 of Korea, doctrine and procedures and improve Singapore, interoperability by conducting a naval control Conducted United and protection of shipping combined operations Kingdom, exercise. United States, Performance: Achieved. The exercise South Africa provided a good opportunity for nations to work and France together to exchange and coordinate merchant shipping information and naval control and protection of shipping procedures. Tamex 04-2 Navy and United States Objective: To practise combined maritime Air Force patrol aircraft undersea warfare operations and June 2004 improve interoperability with the United States Navy. Cancelled Performance: Cancelled due to the high operational tempo experienced by the United States and Australian forces. Rimpac 04 Navy and Canada, Chile, Objective: To improve interoperability with Air Force Japan, Republic regional forces to operate in coalition June – July 2004 of Korea, United arrangements by conducting a combined Kingdom and maritime warfare exercise. Conducted United States. Performance: Achieved. The exercise provided a valuable opportunity for the Deployable Joint Force Headquarters (Maritime) to participate and exercise command in a multinational exercise.

107 Chapter Two

Croix Du Sud ADF France, New Objective: To improve interoperability with Zealand and France, New Zealand and Tonga in a combined June 2004 Tonga exercise with a focus on non-combatant (was revised from April evacuation. 2004) Performance: Achieved. The exercise was conducted successfully within the exercise Conducted scenario.

108 Outcome Two: Navy Capabilities The Navy provided maritime forces that contributed to the ADF’s capacity to defend Australia, contributed to regional security, supported global interests, shaped the strategic environment and protected national interests. Navy capabilities provide maritime patrol and response, interdiction and strategic strike, protection of shipping and offshore territories and resources, maritime intelligence collection and evaluation, hydrographic and oceanographic operations, combat search and rescue, and escort duties. Peacetime activities include maritime surveillance and response within the Australian exclusive economic zone in support of Coastwatch, hydrographic, oceanographic and meteorological support operations, distribution of humanitarian aid, and maritime search and rescue. Performance Summary During 2003-04, the Navy maintained support for the ADF’s involvement in operations ranging from the war against terrorism to the maintenance of maritime surveillance and sovereignty. During this period, the Navy achieved routine and operational goals including commitments to: • Operation Slipper – ADF support to the war against terrorism; • Operation Catalyst – ADF contribution to the rehabilitation of Iraq; • Operation Cranberry – ADF support to conduct civil surveillance in northern Australia and to contribute to the civil surveillance program; • Operation Relex II – ADF support to the whole-of-government approach to deter unauthorised boat arrivals; • Operation Anode – ADF support to the whole-of-government program of strengthened assistance to the Solomon Islands Government; and • continued support to Australian sovereign rights and fisheries law enforcement in the Southern Ocean. The Navy also provided considerable support to collaborative single Service, joint, and combined training, including participation in a variety of unilateral, bilateral and multilateral exercises in Australia and overseas. These activities enabled the Navy to successfully maintain the required levels of preparedness and interoperability with allied and regional armed forces to undertake operational tasks. In 2003-04, approval was given to acquire the Standard Missile Two, as a replacement for the dated Standard Missile One, to enhance the surface combatant force capability. The delivery of new short-range missile, the Evolved SeaSparrow Missile, for the Anzac-class frigates and upgraded Adelaide-class guided missile frigates occurred during the reporting period.

109 Chapter Two

Mitigation of key risks

Personnel During 2003-04, the Navy’s full-time workforce grew from 13,164 in the previous year to 13,459 as a result of strategies to improve Navy’s recruitment and retention2. The Navy recruited 1,514 members this year, which is consistent with the 2002-03 result. Some critical employment categories, such as marine technicians and seaman officers, are growing in strength, but both categories will still take some time to recover fully to their required strength due to a shortage of sea training positions, which limits the number of new recruits able to enter into training, and higher than desirable separation rates. Other categories, including engineering officers, aircrew, medical doctors, electronic technical and some seaman sailor categories are still suffering the effects of continuing high separation rates and poor recruiting results in previous years. Overall discharge rates decreased to around 10.1 per cent, well below the five-year average of 12.8 per cent. In 2003-04, the sailor separation rate was 10.8 per cent and the officer separation rate was 7.69 per cent, which is below the five-year average of 12.9 per cent for sailors and 8.8 per cent for officers. In 2003-04, the training force grew from 2,044 to 2,229, which reflected the increased number of recruits, with many training schools at or near capacity. The recruiting drive for the next four years will target all critical categories. To remain within average funded strengths, steady recruiting levels will be maintained until 2007-08 when new ships will be introduced into service, which will require an increase in personnel numbers. The Navy has reduced training time frames and introduced targeted retention initiatives to improve recruiting and retention. Some categories will continue to require greater emphasis because they are competing with the commercial sector for a limited workforce. New approaches to recruiting technical categories associated with the Government apprenticeship initiatives have been introduced and early results are encouraging. The critical category management program, which places particular emphasis on recruitment, training and retention of sailors and officers, has resulted in a wider awareness of problems and increased activity to rectify them, such as: • closer control of training and increased recruiting closely matched to training capacity for seaman and aircrew officers; • an integrated management plan involving retention incentives, increased recruiting and changed employment arrangements and training for electronic technicians; • occupational analysis, reviews of training content and options for the provision of communications information services; and • an examination of the workforce requirements and training for submariner categories. The Navy has implemented a number of initiatives in 2003-04 to improve its retention rates, including seaman officer mentoring program development, an aviation employment environmental scan, and sea familiarisation and skills development centres in Cairns, Queensland and Darwin, Northern Territory.

2 The Navy’s workforce data represents actual total paid strength, including Reservists undertaking continuous full-time service. This is a different measure to that used in Chapter Five (People).

110 Outcome Two: Navy Capabilities

Logistics The Navy’s ability to support the current force structure and meet preparedness requirements improved in 2003-04. An injection of $72.4m was applied to critical unfunded logistic requirements, leading to an overall improvement in preparedness.

Operations The Navy continues to meet all operational commitments within the high tempo of concurrent operations, while remaining aware of the requirement to reconstitute and maintain the full range of Navy capabilities. Reconstitution was largely completed for force elements returning from operations, while capability and preparedness for more complex warfighting skills will be further enhanced with the conduct of planned major exercises in 2004-05. Navy units maintain a high degree of interoperability with allied forces through participation in Operation Catalyst and multinational exercises.

Air warfare capability The upgrade program designed to improve area air warfare and anti-ship missile defence capabilities within the Adelaide-class guided missile frigates has commenced with HMAS Sydney. The upgrade program for the Anzac-class frigates is expected to be approved in 2004-05. Three international ship designers were selected to develop concept ship designs to enable the selection of Australia’s new air warfare destroyers. The destroyers will provide a maritime-based area air warfare capability, which is a critical component of an ADF air warfare system. The first ship is due to enter service in 2013.

Undersea warfare capability The introduction into service of HMAS Rankin, which occurred in March 2003, increased the overall availability of submarines throughout 2003-04 to contribute to the training of surface and aviation forces. In September 2004, HMAS Farncomb completed the first full-cycle docking, which includes a major overhaul and refurbishment of the vessel. Although the overall availability of the submarine force was increased, it was affected by delays for those submarines undertaking the extended maintenance program. Capability Performance Information

Force Structure Output 2.1 Capability for Major Surface Combatant Operations The surface combatant force provides a capability for major surface combatant operations, which comprises of six Adelaide-class guided missile frigates and five Anzac-class frigates, rising to eight by 2006. The sixth Anzac-class frigate, HMAS Ballarat, was commissioned in June 2004 (previously planned for August 2004). The Defence Capability Review identified two Adelaide-class guided missile frigates to be decommissioned by 2006, which will coincide with the introduction of the last of the Anzac-class ships. The completion of the upgrade program for the remaining Adelaide-class guided missile frigates is planned for 2008.

111 Chapter Two

The surface combatant force is capable of dealing with regional surface and submarine threats. The Navy also maintained the ability to protect land forces committed to lower-level operations through continuation training in naval gunfire support. Training in air warfare was also conducted to ensure that surface combatants could provide protection to land forces within the range and limitations of fitted weapon systems. Performance Targets Performance Achieve levels of preparedness directed by the Achieved. Levels were met in accordance with Chief of the Defence Force for military response current preparedness directives. options with a warning time of less than 12 months. Achieve a level of training that maintains core Substantially Achieved. Through a program of skills and professional standards across all warfare reconstitution, collective training in warfare areas. disciplines has improved markedly and there have been significant improvements in career and individual training. The aims of the reconstitution process have therefore been met and the principle Quality included in routine planning. Achieve mission capability(1) for assigned tasks. Substantially Achieved. 89 per cent (2,570 days) for the force. Mission capability was not fully achieved due to various, system-related defects. Class achievements: Guided missile frigates – 89 per cent (1,275 days). Anzac-class frigates – 90 per cent (1,295 days). 6 guided missile frigates – 1,498 Unit Ready Days 6 guided missile frigates – 96 per cent (1,431 URD (URD)(2) achieved). The underachievement was due to unscheduled maintenance. 5 Anzac-class frigates – 1,402 URD 5 frigates – 103 per cent (1,447 URD achieved).

Quantity The overachievement was due to a reduction in scheduled maintenance. Notes 1. Mission capability measures capability for assigned tasks. It is defined as the required level of unit readiness for the actual tasking for which the force element has been scheduled at any time through its operational cycle. Tasking includes all scheduled activities to achieve assigned Defence operations, international engagement requirements and levels of preparedness required for a military response. Mission capability is assessed against Unit Ready Days (URD) achieved to produce a percentage. The mission capability performance is calculated by dividing the URD achieved by the total number of mission capability days recorded throughout the year to produce a percentage. 2. URD is the number of days that a force element is available for tasking by the Maritime Commander outside of major maintenance and within planned readiness requirements (see Portfolio Budget Statements 2003-04, p.56, for further explanation).

Output 2.2 Capability for Naval Aviation Operations The naval aviation force provides a capability for naval aviation operations that will be enhanced by the introduction of ten Super Seasprite helicopters. The Super Seasprite will provide a number of embarked flights for the Anzac-class frigates, and an enhanced capability for surface surveillance, anti-ship warfare, and contact investigation. Seahawk helicopters, already in service, provide the flights for embarkation in Adelaide-class guided missile frigates. A Sea King Squadron is maintained for maritime utility operations, including troop lift and a range of logistic tasks, and Squirrel helicopters provide initial helicopter aircrew training. Seahawk and Sea King helicopters met all planned operational commitments as well as a number of additional, short-notice tasks. Squirrel helicopters met their training targets with minor exceptions due to aircraft operating limitations of the airframe and environmental factors. Kalkara target operations in support of Navy and Air Force training and missile testing met tasking assignments.

112 Outcome Two: Navy Capabilities

Performance Targets Performance Achieve levels of preparedness directed by the Achieved. Levels were met in accordance with Chief of the Defence Force for military response current preparedness directives. options with a warning time of less than 12 months. Achieve a level of training that maintains core Substantially Achieved. The Naval aviation force skills and professional standards across all substantially achieved a level of training that warfare areas. maintained and improved core skills and professional standards, particularly in anti-submarine wafare. The commitment to the number of flights at sea was temporarily reduced to meet individual training and helicopter Quality modification requirements. This limited full achievement of collective skills training. Achieve mission capability for assigned tasks. Substantially achieved, noting that in the case of aircraft, performance is measured against flying hours achieved using the quantitative measurement below. Embarked flights and detachments were mission capable to meet all but a limited number of assigned tasks. 16 Seahawks – 4,600 hours 16 Seahawks – 82 per cent (3,788 hours). While aircraft availability is improving slowly and the deep level maintenance backlog is declining, these factors remain, and when combined with the reduced availability of instructors resulted in a minimal decrease in the achievement of flying hours compared to 2002-03. 7 Sea Kings - 2,000 hours 7 Sea Kings – 99.6 per cent (1,992 hours). The Sea King achieved its target flying hours. 13(1) Squirrels - 4,000 hours 13 Squirrels – 95 per cent (3,816 hours). Flying hours were achieved consistently within the operating limitations of the aircraft. The limitations had a minor impact on the completion of planned training events. (2) Quantity 10 Super Seasprites – 1,000 hours 5 Super Seasprites – 62 per cent (622 hours). Commencement of flying was delayed due to the late delivery/acceptance of five aircraft. This led to fewer flying hours being achieved overall. Once flying commenced, it paralleled the intended rate. 13 Kalkaras – 39 presentations(3) 10 Kalkaras – 72 per cent (28 presentations). Provision for 39 presentations was made, but only 28 were required to support Navy and Air Force training exercises and missile testing for 2003-04. Two Kalkaras were lost in missile strikes and one in an aircraft malfunction. Notes 1. Twelve aircraft are operated, with the thirteenth aircraft being held for attrition purposes. 2. The eleventh Super Seasprite helicopter will be introduced after 2004-05. 3. Kalkara is an unmanned aerial target system used for Navy and Air Force support. Presentations refer to the number of instances during which the system is used as a target in training exercises or missile system performance testing.

Output 2.3 Capability for Patrol Boat Operations The Patrol Boat output utilised 15 Fremantle-class patrol boats in 2003-04, which provided a patrol, response and surveillance capability. The Fremantle-class patrol boats will be replaced by 12 Armidale-class patrol boats between mid-2005 and the end of 2007.

113 Chapter Two

The Fremantle-class patrol boats have exceeded their life-of-type by an average of seven years. Hull and system-related defects have resulted in a minor shortfall in the number of unit ready days and mission capable days generated by the force. This situation is not expected to improve while the class is in service. The patrol boat force made a large and effective contribution to the civil surveillance program (managed by Coastwatch) and to the protection of Australia’s sovereignty. Patrol boats also contributed to regional engagement and security through the conduct of operations, port visits and exercises with regional nations. Performance Targets Performance Achieve levels of preparedness directed by the Achieved. Target levels were met in accordance Chief of the Defence Force for military response with current preparedness directives. options with a warning time of less than 12 months. Achieve a level of training that maintains core Substantially Achieved. The patrol boat force skills and professional standards across all warfare substantially achieved a level of training that areas. maintained core skills and professional standards. Full achievement of some collective training skills

Quality and professional standards targets was limited by the operational tempo, which precluded the programming of some exercises/training serials. Achieve mission capability(1) for assigned tasks. Achieved. 97 per cent (4,367 days) for the force. Mission capability was not fully achieved due to hull and various system-related defects. 15 patrol boats – 4,871 URD 15 patrol boats – 92 per cent (4,487 URD achieved). The target was not fully achieved due to unscheduled major maintenance activity related to the age of the patrol boat force. Quantity

Note 1. See Output 2.1 for an explanation of mission capability.

Output 2.4 Capability for Submarine Operations This output provides a capability for submarine operations comprising six Collins-class submarines. The Navy ‘operationally released’ the six submarines into service in March 2004. Two of the six submarines have been enhanced with combat system augmentation and platform improvements to provide a higher level of capability; a further two have had platform improvements. A number of projects are in place to progressively enhance the combat system and weapon capability of all six submarines. A number of issues arose during the year, principally unscheduled or extended maintenance periods and materiel certification matters that affected the overall achievement of the performance targets. Performance Targets Performance Achieve levels of preparedness directed by the Substantially Achieved. Target preparedness levels Chief of the Defence Force for military response were not fully achieved due to the delayed options with a warning time of less than introduction of capability enhancements and 12 months. improvements, such as hull improvements and combat system augmentation on four submarines. Achieve a level of training that maintains core Substantially Achieved. The submarine force skills and professional standards across all substantially achieved a level of training that

Quality warfare areas. maintained and improved core skills and professional standards, particularly in anti-submarine warfare. Achieve mission capability(1) for assigned tasks. Achieved. 97 per cent (782 days) for the force. Mission capability was not fully achieved due to various system defects.

114 Outcome Two: Navy Capabilities

6 submarines - 945 URD(2) 6 submarines – 85 per cent (799 URD achieved). The underachievement was due to certification extension delays with HMAS Waller, delays in completing HMAS Farncomb’s full-cycle docking and an emergency docking for HMAS Rankin to replace Quantity the submarine’s propeller. Notes 1. See Output 2.1 for an explanation of mission capability. 2. HMAS Collins remained in a full-cycle docking throughout 2003-04.

Output 2.5 Capability for Afloat Support This output provides a capability for afloat support comprising of an oil tanker and a replenishment ship. Performance targets for unit ready days were met, although these targets had been amended in the Portfolio Additional Estimates Statements 2003-04 to reflect the reduced performance of the oil tanker, HMAS Westralia, due to significant engine and drive-train defects during the period. The Navy substantially achieved its preparedness requirements for short-notice contingencies while HMAS Westralia was unavailable by carefully scheduling the Navy’s other afloat support ship, HMAS Success. Performance Targets Performance Achieve levels of preparedness directed by the Substantially Achieved. Levels were met in Chief of the Defence Force for military response accordance with current preparedness directives, options with a warning time of less than with the exception of a brief period when both the oil 12 months. tanker and replenishment ship had major defects that restricted their ability to undertake support operations. Achieve a level of training that maintains core Achieved. Levels were met in accordance with skills and professional standards across all current preparedness directives. warfare areas. (1) Quality Achieve mission capability for assigned tasks. Substantially Achieved. 86 per cent (274 days) for the force. Mission capability was not fully achieved due to minor ship defects. Class achievements: Oil tanker – due to deep level maintenance, the tanker was not tasked throughout 2003-04. Replenishment ship – 86 per cent (274 days). 1 oil tanker - 0 URD 1 oil tanker – 0 URD. 1 replenishment ship - 303 URD 1 replenishment ship – 105 per cent (319 URD achieved). The small overachievement was due to minor changes in the ship’s major maintenance Quantity availability. Note 1. See Output 2.1 for an explanation of mission capability.

Output 2.6 Capability for Mine Warfare This output provides a mine warfare capability comprising six Huon-class coastal mine hunters, two auxiliary minesweepers and two clearance diving teams. The Huon-class coastal mine hunters provided a mine countermeasures capability and also contributed to maritime surveillance and patrol operations. The Defence Capability Review identified two mine hunters to be placed in extended readiness in January and April 2006. The two auxiliary minesweepers provided essential support and mine sweeping training capability. The two Navy clearance diving teams supported the full spectrum of mine warfare missions and also provided capability for explosive ordnance and improvised explosive device disposal.

115 Chapter Two

Performance Targets Performance Achieve levels of preparedness directed by the Achieved. Levels were met in accordance with Chief of the Defence Force for military response current preparedness directives. options with a warning time of less than 12 months. Achieve a level of training that maintains core Achieved. Levels were met in accordance with skills and professional standards across all warfare current preparedness directives. areas. Achieve mission capability(1) for assigned tasks. Substantially Achieved. 90 per cent (2,672 days) for the force. Mission capability was not fully

Quality achieved due to various system-related defects that prevented some units from conducting their assigned tasks. Class achievements: Coastal mine hunters – 82 per cent (1,369 days). Auxiliary minesweepers – 100 per cent (571 days). Clearance diving teams – 100 per cent (732 days). 6 coastal mine hunters – 1,721 URD 6 coastal mine hunters – 97 per cent (1,669 URD achieved). The underachievement was due to the late completion of scheduled major maintenance (refit) of HMAS Hawkesbury. 2 auxiliary minesweepers - 732 URD 2 auxiliary minesweepers – 78 per cent (571 URD achieved). The underachievement was due to a defect in MSA Wallaroo’s hull plating that required Quantity the ship to dock to effect repairs. 2 clearance diving teams - 732 URD 2 clearance diving teams – 100 per cent (732 URD achieved). Note 1. See Output 2.1 for an explanation of mission capability.

Output 2.7 Capability for Amphibious Lift The output provides a capability for amphibious lift, comprising two amphibious landing ships, HMA Ships Manoora and Kanimbla, a heavy landing ship HMAS Tobruk and six heavy landing craft. The amphibious ships have been committed to operations, including Operations Anode and Bel Isi II (ceased 26 August 2003). The ships have participated in a wide range of training, which has improved levels of proficiency in both core mariner skills and amphibious capability, including the Navy’s ability to support Army in the establishment of forward operating bases. Amphibious ships have also supported special forces exercises in developing a counter-terrorism capability in the maritime environment. Performance Targets Performance Achieve levels of preparedness directed by the Achieved. Levels were met in accordance with Chief of the Defence Force for military response current preparedness directives. options with a warning time of less than 12 months. Achieve a level of training that maintains core Substantially Achieved. An increase in skills and professional standards across all warfare amphibious training opportunities contributed to areas. the substantial reconstitution of the ADF amphibious capability. Achieve mission capability(1) for assigned tasks. . 96 per cent (2,756 days) for the force. Quality Achieved Mission capability was not fully achieved due to various system-related defects. Class achievements: Heavy landing ship – 98 per cent (329 days). Amphibious landing ships – 89 per cent (462 days). Heavy landing craft – 97 per cent (1,965 days).

116 Outcome Two: Navy Capabilities

1 heavy landing ship - 294 URD 1 heavy landing ship – 114 per cent (336 URD achieved). The overachievement was due to the rescheduling of a major maintenance activity. 2 amphibious landing ships - 483 URD 2 amphibious landing ships – 107 per cent (518 URD achieved). The overachievement was due to a delay in commencement of HMAS Manoora’s major maintenance (refit) availability.

Quantity 6 heavy landing craft – 2,070 URD 6 landing craft heavy – 98 per cent (2,029 URD achieved). The minor underachievement was due to unforeseen delays in the completion of major maintenance periods. Note 1. See Output 2.1 for an explanation of mission capability.

Output 2.8 Capability for Hydrographic and Oceanographic Operations This output provides a capability for hydrographic and oceanographic operations comprising two Leeuwin-class hydrographic ships and their embarked survey motor boats, four Paluma-class survey motor launches, a laser airborne depth sounder aircraft and the hydrographic office deployable survey unit, all supported by the Australian Hydrographic Office in Wollongong, New South Wales. Oceanographic operations are conducted by mobile teams, the Operational Meteorological and Oceanographic Centre, Australian Oceanographic Data Centre, the Fleet Weather and Oceanographic Centre in Sydney, and the Naval Air Station Weather and Oceanographic Centre in Nowra, New South Wales. All elements provided outcomes to the Navy and national and international authorities, with a primary Defence focus on military geospatial information and rapid environmental assessment initiatives. National tasking supported navigation safety, infrastructure development, preservation of the marine environment and obligations to manage hydrographic and oceanographic data. The two hydrographic ships and their embarked survey motor boats have yet to be formally accepted. Delays in acceptance are due to problems with the ships’ survey systems, their sea-keeping characteristics and integrated logistic support issues. A rectification schedule has been developed, with formal acceptance anticipated in early 2006. The survey motor launches remained operational in their primary role throughout the year. The survey system of the launches will be upgraded progressively from 2004-05 to address deficiencies in meeting international and Defence feature detection requirements. A prototype survey motor boat is being trialed as part of the development of a replacement vessel. Performance Targets Performance Achieve levels of preparedness directed by the Substantially Achieved. Levels of preparedness Chief of the Defence Force for military response were substantially achieved. The limited options with a warning time of less than availability of survey motor launch watchkeepers, 12 months. logistic funding shortfalls and limitation of the remote deployment of the laser airborne depth sounder aircraft precluded the achievement of all preparedness requirements.

Quality Achieve a level of training that maintains core Achieved. Core skills were maintained in all units. skills and professional standards to conduct survey Hydrographic ship crews reconstituted tasking, produce navigational information and hydrographic surveying skills during the year. provision of oceanographic and meteorological support.

117 Chapter Two

Achieve mission capability (1) for assigned tasks. Substantially Achieved. 94 per cent (1,906 days) for the ships and launches. Class achievements: Hydrographic ships – 85 per cent (503 days). The underachievement was due to defects. Survey motor launches – 98 per cent (1,403 days). The underachievement was due to water purification defects on board HMAS Benalla and generator defects on board HMAS Mermaid. Achieve HydrOcscheme 2003-06 data and surveying Substantially Achieved. 92 per cent. Units tasking requirements to meet national recorded 1,491 Survey/Sortie Days Achieved hydrographic surveying and charting obligations.(2) (SDA) from 1,620 Survey/Sortie Days Planned (SDP) (3). Specific achievements were as follows: Hydrographic ships – 80 per cent (400 SDA from 497 SDP). The underachievement was due to

Quality ongoing diesel generator and hydrographic survey system defects. Survey motor launches – 94 per cent (645 SDA from 684 SDP). The underachievement was due to minor defects. Laser airborne depth sounder aircraft – 94 per cent (255 SDA from 270 SDP). The underachievement was due to a tropical cyclone in a planned sortie area and minor defects. Hydrographic office deployable survey unit – 113 per cent (191 SDA from 169 SDP). The overachievement was due to the unscheduled participation in Operation Anode. 2 hydrographic ships – 629 URD days 2 hydrographic ships – 94 per cent (592 URD achieved). The underachievement was due to extended maintenance periods to rectify engine and hydrographic survey system defects. 4 survey motor launches – 1,459 URD 4 survey motor launches – 98 per cent (1,432 URD achieved). The underachievement was due to extended maintenance for suspected asbestos and an unscheduled ‘slipping’ of HMAS Benalla. 1 laser airborne depth sounder aircraft 1 laser airborne depth sounder aircraft – 100 per - 990 flying hours for surveying; cent (990 hours) for surveying; 100 per cent (38 - 38 hours for ferrying activity hours) for ferrying. 1 Hydrographic office deployable survey unit 1 hydrographic office deployable survey - availability 365 days; and unit – 365 days availability (100 per cent) and - planned deployments 169 days. 191 deployment days (113 per cent). Program changes precluded a planned deployment to Antarctica, but substitute deployments and Quantity participation in Operation Anode resulted in the overachievement. Chart Production: 26 new charts/editions were produced and - New charts/editions – 50; published (52 per cent) with another 7 released in July 2004. The target was not achieved due to delays associated with introducing a new digital hydrographic database and compiling the navigation marks database into a new format. - New charts/diagrams for 11 new charts/diagrams were produced use by the Navy – 15; and (73 per cent). All Defence requests, including those for Coastwatch, were met. The number of requests received were less than previous years, hence the apparent underachievement.

118 Outcome Two: Navy Capabilities

Electronic navigational chart cells(4) – 30. 16 electronic navigational chart cells were produced (53 per cent), with another 14 readied for release in late 2004. Final editing was delayed due to system training requirements for the new digital hydrographic database. Commercial release of all 30 chart cells is

Quantity dependent upon final development and testing of an encryption coding system to meet applicable international standards. Notes 1. See Output 2.1 for an explanation of mission capability. 2. This performance target was previous titled ‘Achieved endorsed data collection and production targets’ in the 2002-03 Defence Annual Report. The Hydrographic and Oceanographic Scheme, also referred to as HydrOcscheme 2003-06, is the national hydrographic surveying and charting program. 3. Survey/Sortie Days Planned (SDP) comprises all days in a specific, survey deployment in accordance with the HydrOcscheme 2003-06. 4. The electronic navigational chart cells were erroneously reported as the ‘electronic nautical chart cells’ in the Portfolio Budget Statements 2003-04 (p 69).

119 Chapter Two

Price to Government Outcome Two – Navy Capability for the Defence of Australia and its Table 2.14 Interests Budget Revised Projected Actual Variation(5) Variation Estimate Additional Result(2) Result(3) Estimate(1)

2003-04 2003-04 2003-04 2003-04 2003-04 2003-04 $’000 $’000 $’000 $’000 $’000 % Operating Expenses Employees – Military 1,238,483 1,228,910 1,291,845 1,274,253 -17,592 -1.4 Employees – Civilian 325,435 327,632 321,247 335,940 14,693 4.6 Sub-Total Employees 1,563,918 1,556,542 1,613,092 1,610,192 -2,899 -0.2 Suppliers expense 1,203,374 1,341,060 1,358,265 1,312,843 -45,422 -3.3 Inventory consumption 239,729 189,542 181,672 170,104 -11,568 -6.4 Sub-Total Suppliers 1,443,103 1,530,602 1,539,936 1,482,947 -56,990 -3.7 Grants 295 259 407 1,627 1,220 299.8 Depreciation and amortisation 1,059,648 942,313 1,074,739 953,422 -121,317 -11.3 Value of assets sold - - 81,713 23,367 -58,345 -71.4 Write-down of assets 144,028 137,487 133,373 410,289 276,916 207.6 Borrowing costs 7,020 7,266 5,432 7,766 2,334 43.0 Other expenses -382 219 - 18,770 18,770 - Total Operating Expenses from Ordinary Activities 4,217,630 4,174,687 4,448,691 4,508,380 59,690 1.3 Revenues Sale of goods and services -53,488 -38,902 -32,728 -47,315 -14,586 44.6 Revenue from sale of assets - - -81,713 -34,490 47,223 -57.8 Assets now recognised -84,578 -102,743 -104,357 -207,868 -103,511 99.2 Other revenues (4) 8,125 -22,505 -18,655 -41,259 -22,604 121.2 Total Own Source Revenues -129,941 -164,149 -237,453 -330,931 -93,479 39.4 Price to Government for Outcome Two 4,087,689 4,010,538 4,211,238 4,177,449 -33,789 -0.8 Notes 1. The Revised Additional Estimate figures have been adjusted since the Portfolio Additional Estimates Statements 2003-04 (p.32) to reflect an improved costing methodology. 2. The Projected Result is consistent with the Portfolio Budget Statements 2004-05. 3. The Actual Price to Government for Outcome Two, shown in this table ($4,177.449m), relates to Departmental expenses and revenues. The Actual Price to Government for Outcome Two does not include $0.627m of administered revenues. This amount relates to interest received from the foreign military sales account. 4. The Actual Result amount for Other revenues includes interest and dividends, net foreign exchange gains/losses and resources received free of charge. 5. The variation figures are the difference between the Actual Result and the Projected Result. Explanation of Significant Variations The overall price of Outcome Two was $33.8m lower than the 2003-04 projected result representing a decrease of 0.8 per cent. The major variations were due to: • a net decrease in military employees expenses (-$17.6m) due to: Salary and allowances - increased salaries and allowance payments due to the higher than projected average funded strength (+$1.0m);

- an overestimate of long service and annual leave to be accrued in 2003-04 (-$3.5m);

- an overstatement of the military employees salaries estimates in 2003-04 (-$3.5m);

120 Outcome Two: Navy Capabilities

- decreased take-up rate and overstatement of the estimate for the Home Purchase Assistance Scheme (-$2.7m);

- an overstatement of salary advances (-$2.3m);

Superannuation - the decision not to proceed with the proposed transfer of the liability for the Defence Force Retirement and Death Benefits Scheme 3 per cent productivity benefit from administered to departmental accounts (-$51.3m);

- an overstatement of military superannuation estimates in 2003-04 (-$1.5m);

- increased superannuation payments due to higher than planned average funded strength (+$0.2m);

Leave liability - an overestimate of the impact of the Workplace Remuneration Arrangement on leave liability and the implementation of a new methodology for calculating attrition rates on annual and long service leave provisions (-$0.5m);

Housing - an increase in housing expenses including buy-out of old on-base housing annuities and increased take-up rate of members without dependents using rental assistance rather than living-in accommodation (+$2.5m);

Compensation - an adjustment arising from an actuary review of compensation expense which projected higher longer-term incapacity payments (+5 per cent), higher medical payments (+25 per cent) and higher establishment costs for claims (+$21.5m);

- a decrease in the number and value of claims for lump sum compensation for permanent impairment (-$2.1m);

Health - increased health costs relating to medical and professional fees (+$4.2m);

Fringe benefits tax - an underestimate of fringe benefits tax payable for rental allowance for members without dependants (+$6.7m);

Reserves - increased activity by Reserve officers and Reserve instructors of cadets and a higher than projected use of Reserve days by non-Service Groups (+$1.0m); and

Cost Attribution - progressive refinement of Defence’s cost attribution rules to reflect changes in workforce distributions and expenditure patterns and other variations (+$12.7m).

• a net increase in civilian employees expenses (+$14.7m) due to:

121 Chapter Two

Salary and allowances - a recognition of Defence Integrated Distribution System redundancy costs in 2003-04, rather than in 2004-05 as originally planned (+$5.7m);

- lower full-time equivalent-average personnel than projected in 2003-04 (-$0.7m);

- an overstatement of civilian employee salaries in 2003-04 (-$5.2m);

Superannuation - payment to the University of New South Wales for Australian Defence Force Academy staff superannuation liabilities from supplier expenses rather than civilian employee expenses (-$7.4m);

- an underestimate of the impact of the changing profile of members in the Commonwealth Superannuation Scheme and Public Sector Superannuation schemes (+$3.2m);

Leave Liability - an increase in the leave liability costs resulting from the new Defence Employee Certified Agreement (+$7.5m);

- an increase in the leave liability expense resulting from the Commonwealth Superannuation Scheme and Public Sector Superannuation schemes rate increases on leave liabilities (+$2.0m);

- a recalculation of accrued leave balances arising from actuarial reviews and errors in certain aspects of the estimates (+$2.0m);

Other - a variation in health costs reflecting more emphasis by Defence on the health and wellbeing of its civilian workforce and other minor variations (+$0.4m); and

Cost Attribution - progressive refinements of Defence’s cost attribution rules to reflect changes in workforce distributions and expenditure patterns and other variations (+$7.2m).

• a net decrease in supplier expenses (-$45.4m) due to: - the redirection to inventory purchases as Defence progressively reduces backlogs in this area (-$26.7m);

- payment to the University of New South Wales for Australian Defence Force Academy staff superannuation liabilities (+$5.7m);

- the rephasing of some information systems and business improvement projects to 2004-05 to reflect changed schedules for these projects (-$3.5m);

- changes in accounting treatment of revenue collected under garrison support contracts, which is no longer offset against expenses (+$1.8m);

- lower level of expenses incurred on Defence’s recruitment contract due to improvement in separation rates (-$2.7m); and

122 Outcome Two: Navy Capabilities

- progressive refinement of Defence’s cost attribution rules to reflect changes in workforce distributions and expenditure patterns and other variations (-$20.0m).

• a net decrease in inventory consumption (-$11.6m) due to: - an overestimate of inventory consumption (-$18.1m);

- the flow through of improvements in the pricing of explosive ordinance (-$8.5m); and

- progressive refinement of Defence’s cost attribution rules to reflect changes in workforce distributions and expenditure patterns (+$15.0m).

• a net increase in grants (+$1.2m) due to the reclassification of research agreements between the Defence Science and Technology Organisation and universities, the Point Nepean community grant, the Mornington Peninsula land grant and refinement to cost attribution rules (+$1.2m). • a net decrease in depreciation and amortisation (-$121.3m) due to: - a revaluation of buildings and infrastructure (+$14.9m);

- a reclassification of some operating leases into finance leases (+$5.4m);

- the non-requirement to proceed with the anticipated adjustment in specialist military equipment relating to the migration of assets from Defence's legacy financial system (DEFMIS) to ROMAN (-$187.6m);

- a review of the useful life of repairable items for a number of platforms, including patrol boats (+$19.8m);

- an understatement of the depreciation estimate (+$15.7m);

- net movements from asset revaluations, assets under construction roll-out, assets first recognised and property sale delays (+$35.8m);

- greater than anticipated adjustment in other property, plant and equipment required to correct an error in the migration of assets from Defence’s legacy financial system (DEFMIS) to ROMAN (-$14.7m); and

- progressive refinement of Defence’s cost attribution rules to reflect changes in workforce distributions and expenditure patterns and other variations (-$10.6m).

• a net decrease on value of assets sold (-$58.3m) due to: - delays in the property sales program due to Government decisions, the need to refer works at Randwick, New South Wales, to the Public Works Committee, and variations in project scheduling for various reasons including the lead time required to consider local and State government priority (-$31.5m);

- the value of assets sold for which Defence owes an annuity to Defence Housing Authority (+$10.4m);

- an overestimation of the expected proceeds for other property, plant and equipment (-$6.3m); and

123 Chapter Two

- progressive refinement of Defence’s cost attribution rules to reflect changes in workforce distributions and expenditure patterns and other variations (-$30.9m).

• a net increase in write-down of assets (+$276.9m) due to: - a large scale review of Defence's inventory holdings by the Defence Materiel Organisation which led to inventory being recognised as obsolete. (+$35.2m);

- an adjustment to account for the change from $1,000 to $2,000 in the asset recognition threshold for administrative assets, and the removal of grouping of these assets (+$12.0m);

- the transfer of assets, including George's Heights and Chowder Bay to the Sydney Harbour Foreshore Trust (+$21.4m);

- the flow through of improvements in the pricing of explosive ordnance (+$26.3m);

- disposal of a range of minor naval assets (+$14.0m);

- the write-down of specialist military equipment, including assets under construction through project-initiated reviews SEA 1114 – Submarines and JP 2070 – Lightweight Torpedoes (+$88.3m);

- the reclassification of certain fixed assets in Standard Defence Supply System from fixed assets to inventory (+$27.9m);

- an increase in inventory disposals (+$10.0m); and

- progressive refinement of Defence’s cost attribution rules to reflect changes in workforce distributions and expenditure patterns (+$41.8m).

• a net increase in borrowing costs (+$2.3m) due to: - the reclassification of some operating leases into finance leases (+$0.7m); and

- progressive refinement of Defence’s cost attribution rules to reflect changes in workforce distributions and expenditure patterns and other variations (+$1.6m).

• a net increase in other expenses (+$18.8m) due to: - an increase in provision for Defence's share of the Commonwealth's common law liability for asbestos-related diseases (+$15.0m);

- the resolution of past errors in accounting for the transfer of expense and revenue items between Defence and special public monies accounts. Items transferred after 30 June 2003 have been accounted for correctly (+$1.0m); and

- corrections arising from the reconciliation of Defence Housing Authority annuity balances (+$2.8m).

• a net increase in sale of goods and services (-$14.6m) due to: - increased fuel sales to foreign governments (-$0.5m);

- the sale of equipment to other government agencies (-$1.3m);

- an increase in the sale of hydrographic charts and maps (-$0.7m); and

124 Outcome Two: Navy Capabilities

- progressive refinement of Defence’s cost attribution rules to reflect changes in workforce distributions and expenditure patterns and other variations (-$12.1m).

• a net decrease in revenue from sale of assets (+$47.2m) due to: - the delay in the property sales program due to Government decisions, the need to refer works at Randwick, New South Wales, to the Public Works Committee, and variations in project scheduling for various reasons including the lead time required to consider local and State government priority (+$26.8m);

- an overestimation of the expected proceeds for other property, plant and equipment (+$6.3m);

- revenue received from the sale of housing for which Defence owes an annuity to Defence Housing Authority (-$10.4m); and

- progressive refinement of Defence’s cost attribution rules to reflect changes in workforce distributions and expenditure patterns and other variations (+$24.5m).

• a net increase in assets now recognised (-$103.5m) due to: - assets identified following site audits and other remediation activities (-$16.4m);

- the recognition for the first time of maritime ranges assets (-$40.0m);

- the reconciliation of the ROMAN fixed asset register to the Standard Defence Supply System – Defence’s inventory management system – following the introduction of Standard Defence Supply System version 4 (-$56.6m);

- the reclassification of certain assets in the Standard Defence Supply System from fixed assets to inventory (-$27.9m); and

- progressive refinement of Defence’s cost attribution rules to reflect changes in workforce distributions and expenditure patterns (+$37.4m).

• a net increase in other revenues (-$22.6m) due to: - the changes in accounting treatment of revenue collected under garrison support contracts, which is no longer offset against expenses (-$1.8m);

- the net variations due to the timing difference between invoices for transactions in foreign currencies entering the system and being paid (-$3.9m);

- Australian National Audit Office audit services received free of charge (-$0.7m); and

- progressive refinement of Defence’s cost attribution rules to reflect changes in workforce distributions and expenditure patterns and other variations (-$16.2m).

125 Chapter Two

Price Summary of Outputs for Outcome Two – Navy Capability for the Table 2.15 Defence of Australia and its Interests Budget Revised Projected Actual Variation(4) Variation Estimate Additional Result(2) Result(3) Estimate(1)

2003-04 2003-04 2003-04 2003-04 2003-04 2003-04 $’000 $’000 $’000 $’000 $’000 % Output 2.1 – Capability for Major Surface Combatant Operations 1,487,315 1,281,098 1,362,904 1,367,879 4,975 0.4 Output 2.2 – Capability for Naval Aviation Operations 472,472 470,321 485,629 520,025 34,396 7.1 Output 2.3 – Capability for Patrol Boat Operations 260,599 272,227 275,055 264,710 -10,345 -3.8 Output 2.4 – Capability for Submarine Operations 773,777 835,668 878,370 844,600 -33,771 -3.8 Output 2.5 – Capability for Afloat Support 215,090 194,898 218,217 197,335 -20,881 -9.6 Output 2.6 – Capability for Mine Warfare 333,790 377,190 391,274 385,542 -5,733 -1.5 Output 2.7 – Capability for Amphibious Lift 366,429 362,950 366,381 372,376 5,995 1.6 Output 2.8 – Capability for Hydrographic and Oceanographic Operations 178,219 216,187 233,407 224,982 -8,425 -3.6 Price to Government for Outcome Two 4,087,689 4,010,538 4,211,238 4,177,449 -33,789 -0.8 Notes 1. The Revised Additional Estimate figures have been adjusted since the Portfolio Additional Estimates Statements 2003-04 (p.35) to reflect an improved costing methodology. 2. The Projected Result is consistent with the Portfolio Budget Statements 2004-05. 3. The Actual Price to Government for Outcome Two, shown in this table ($4,177.449m), relates to Departmental expenses and revenues. The Actual Price to Government for Outcome Two does not include $0.627m of administered revenues. This amount relates to interest received from the foreign military sales account. 4. The variation figures are the difference between the Actual Result and the Projected Result.

126 Outcome Three: Army Capabilities The Army contributed to the achievement of the Government’s defence objectives by providing capabilities centred around special forces; light, mechanised and motorised infantry; army aviation; ground-based air defence; combat and logistic support; and units for regional surveillance and protective operations. The Army’s capabilities contributed to the broader ADF capability, within a primarily maritime strategy, to defend Australian territory from any credible attack, to enhance the security of our immediate neighbourhood, and to contribute to international coalition forces. The Army also provided forces for peacetime national tasks, including forces with a capacity to enhance the national domestic security response to terrorist chemical, biological, radiological or explosive incidents. Performance Summary

Support to Operations During 2003-04, there was a gradual reduction in the level of operational activity for the Army. The most significant operations during this period were those in Iraq and the Army’s support to the intervention in the Solomon Islands. Army force elements and individuals were also deployed on operations in Afghanistan, East Timor, the Middle East, Africa, Europe and on operations conducted in, or mounted from, mainland Australia. The Army’s operations in Iraq followed the success of the Special Forces Task Group during Operation Falconer, with the deployment of a combined arms force to Baghdad to protect Australian operations in the most demanding of security environments. The Baghdad Security Detachment has been drawn from the 2nd, 3rd and 5th/7th Battalions of the Royal Australian Regiment, the 2nd Cavalry Regiment, and the 1st Military Police Battalion. The Army has also been training elements of the new Iraqi Army after being involved from the outset with the Coalition Military Assistance Training Team. In the Solomon Islands, the Army provided highly successful security and logistic support to the whole-of-government stabilisation operation. These forces were drawn from the 3rd Brigade, predominantly from the 2nd Battalion and later replaced by the 3rd Battalion. The Army’s commitment to the Solomon Islands has been reduced to coincide with the stabilisation of the security situation in the country. These forces were to support the participating police law-enforcement effort and, if necessary, deal with a breakdown in the security situation. The Army also maintained a significant presence in East Timor in support of the UN, primarily to enhance the security and stability of the country. This commitment included the deployments of two battalion groups based on the 1st and 6th Battalions of the Royal Australian Regiment, each undertaking a six-month operational tour. In Australia, the Army maintained high readiness, counter-terrorist response forces drawn from the Tactical Assault Group (West), Tactical Assault Group (East) and the Incident Response Regiment. The Army’s Special Operations Command has undergone enhancements, including the remediation of capabilities from operations in Afghanistan and Iraq, continued refinement of Headquarters Special Operations Command and ongoing development of the Tactical Assault Group (East) and the Incident Response Regiment.

127 Chapter Two

The Army continued to contribute to border protection operations by providing transit security elements in support of the apprehension of illegal boat arrivals, and by regional force surveillance units patrolling the north of Australia.

Meeting Preparedness Requirements The Army’s primary performance measure is to ensure that preparedness requirements are being met. The Army provided ready forces, as directed by the Government and the Chief of the Defence Force Preparedness Directive, including five infantry battalion groups and a commando unit, all at 90 days readiness or less. The Army also maintained six High Readiness Reserve response forces to enhance the Army’s domestic security response capability and raised a seventh High Readiness Reserve response force. The Army continues to find it difficult to meet some preparedness requirements due to shortages of some types of ammunition and specialist personnel. These issues will continue to be addressed in 2004-05 and in future years. The Army is reviewing its Reserve elements to ensure that the readiness levels of the Reserve are appropriate and sustainable. This review is still under way and an implementation strategy will be developed in 2004-05 for implementation in 2005-06. The Army continues to improve its ability to support joint operations and to enhance its capability through greater lethality and better protection of forces.

Developing the Army’s Core Capabilities The Army continued to maximise its ability to sustain and rotate deployed forces through: • deployable medical facility enhancements scheduled for delivery from early 2005 (which had been delayed due to some technical accreditation issues that are now resolved); • bulk liquid distribution capabilities for delivery from 2005 and an enhanced water purification capability for delivery from 2006; and • the Theatre Joint Distribution System Project, which will deliver from 2007 after reprogramming in the Defence Capability Review 2003. The Army continued to develop its combat weight through developments in mobility, firepower and protection of existing force elements including: • continuing development of the Tactical Assault Group (East) and the Incident Response Regiment, which form part of the ADF’s anti-terrorist capability; • armed reconnaissance helicopters, planned to commence delivery in December 2004; • Bushmaster infantry mobility vehicles for delivery from 2005; • development of an enhanced and rapidly emplaced bridging capability for delivery in 2005; • additional javelin direct fire guided weapons for the remainder of the land forces for delivery from 2006; and • the upgraded M113 armoured personnel carrier fleet, planned for delivery from 2006.

128 Outcome Three: Army Capabilities

The Army continued to provide support and command, control, communications and intelligence through the delivery of: • the establishment of Special Operations Command; • delivery of a core high-frequency communications capability from 2004 after some delays due to technical integration issues; and • support for the provision of a tactical uninhabited aerial vehicle system for land forces from 2008.

Assistance to the Civil Community The Army has supported the Australian community by continuing to participate in the Aboriginal and Torres Strait Islander Commission/Army Community Assistance Program. The program deployed Army construction engineers, health and logistic elements to the remote Aboriginal community of Palm Island in North-East Queensland in 2003-04. Over a period of almost five months, Army engineers repaired community infrastructure including housing, sewerage, roads and waste facilities. The Army has also provided a wide range of support to emergency and community projects through the Defence Aid to the Civil Community provisions. These tasks included helicopter lift support and Army band concerts.

Mitigation of Key Risks In the Portfolio Budget Statements 2003-04, the Army identified two key risks to fully meeting its preparedness responsibilities – personnel and logistics support

Personnel In 2003-04, the Regular Army strength increased by 166 personnel to 25,455. To meet current preparedness requirements and future capability commitments detailed in the Defence White Paper 2000, the Army’s funded strength is projected to be 26,443 by 2009-10. The Army remains on track to achieve this. In 2003-04, the Active Reserve strength decreased by 290 to 16,882. There was some improvement in recruiting from that achieved in the previous year, with a small increase in the separation rate. This has increased pressure on key personnel areas such as medical professionals, linguists and technical trades. In 2003-04, the Army’s recruiting performance was 84 per cent of target, compared to the previous year’s performance of 79 per cent. The average recruiting performance for the past four years has been 86 per cent. The Army’s separation rate increased to 10.9 per cent, compared to 9.9 per cent for the previous year, but is still better than the Army’s historical separation rate of 12 per cent. Lower recruiting achievement and higher separation rates place greater risk on the Army achieving future strength targets.

Logistics Support Logistic deficiencies have affected all of the Army’s outputs, and relate to shortages in equipment, fleet finance, and shortages of qualified logistic personnel in selected mechanical and supply support trades. The Army has established new base support structures and provided dedicated staffing within Army Headquarters to improve communication and the delivery of garrison services. Logistics support to bases including

129 Chapter Two access control, transport, stores management, catering and cleaning services are undergoing review. The Army and the Corporate Services and Infrastructure Group are developing a national garrison support standard for the Army. The relative age of the Army estate and the increasing cost of repairs will place added pressure on facility operating costs. The Corporate Services and Infrastructure Group is addressing issues relating to infrastructure upgrades and redevelopment through living in accommodation, force disposition and national training area reviews. Supplementary funding has improved critical materiel deficiencies in the general service vehicle and night-fighting equipment fleets, particularly in support of mechanised and light infantry operations. In 2003-04, the Army put programs in place to refurbish special forces and aviation equipment returning from operations. The Army's core logistic management system, the Standard Defence Supply System, was upgraded in July 2003 and supported by a training program. The logistics challenges that the Army has experienced are being addressed through increases in ammunition holdings, enhanced maintenance programs for key Army fleets and the replacement of a range of equipment. This includes $111m over four years to address maintenance deficiencies in the Army’s field vehicle and trailer fleet which is required before project Land 121 delivers a new fleet of vehicles after 2008-09. It also includes increases in reserve stock holdings of ammunition through the Joint Ammunition Project. Capability Performance Information

Output 3.1 Capability for Special Forces Operations The special forces operations capability contributes to the strategic tasks of defending Australia, securing our immediate neighbourhood, supporting wider interests and supporting peacetime national tasks. They achieve this by providing forces to conduct non-combatant evacuation and special recovery operations, counter-terrorism and consequence management operations and to support conventional land operations. This capability exploits deception and surprise and employs techniques that are discreet, non-escalatory, and avoid collateral damage, particularly in support of Government domestic security operations. The special forces operations capability is maintained at a high degree of readiness. Performance Targets Performance Achieve capabilities and levels of preparedness Achieved. The special forces operations capability directed by the Chief of the Defence Force for was able to meet all preparedness requirements for military response options with a warning time of military response options. There are two Tactical less than 12 months, including the provision of a Assault Groups for domestic counter-terrorist battalion-sized group within 90 days readiness. operations. These units are the Tactical Assault Group (East) from the 4th Battalion (Commando), Royal Australian Regiment, and Tactical Assault Group (West) from the Special Air Services Regiment. The Special Operations capability Quality achieved the levels of preparedness directed for the high readiness response force drawn from the 1st Commando Regiment. Achieve a level of training that maintains core Achieved. All training requirements were met. skills and professional standards across all warfare areas.

130 Outcome Three: Army Capabilities

Special Operations Command, comprising: This target was achieved. The special forces - a command headquarters; operations capability had the personnel and - a Special Air Service Regiment; equipment holdings to complete the likely tasks - a regular commando regiment; required of it. - a Reserve commando regiment; and Quantity - an Incident Response Regiment.

Output 3.2 Capability for Mechanised Operations The mechanised operations capability contributes to the strategic tasks of supporting wider interests, defending Australia, securing our immediate neighbourhood and supporting peacetime national tasks. The capability for mechanised operations is achieved by providing light mechanised and light armoured forces to enhance combat power and weight for more demanding contingencies using surprise, offensive action and concentration of force in order to disrupt or destroy enemy forces’ plans, cohesion and morale. It achieves this through engaging the enemy in close combat enabled by force protection and integral firepower. The mechanised operations capability provides forces at high to medium readiness. These forces can be deployed in combined arms teams from company to battalion size. These combined arms teams are drawn from armoured units, mechanised infantry, medium artillery, combat engineers, army aviation and combat support units. This capability is derived mainly from the 1st Brigade which is based in Darwin, Northern Territory. Performance Targets Performance Achieve levels of preparedness directed by the Partially Achieved. The mechanised operations Chief of the Defence Force for military response capability was unable to support all allocated options with a warning time of less than preparedness requirements for military response 12 months, including the provision of a battalion- options in this reporting period. Deficiencies in sized group within 90 days readiness. equipment, in some types of ammunition and in personnel numbers in key trades affected preparedness levels for some response options. A reduced, yet credible level of capability was available for all of the military response options. Equipment deficiencies and personnel shortages continue to be addressed, including the acquisition of upgraded ASLAVs, a new main battle tank, an Quality upgrade of the M113 and personnel retention and remediation initiatives. Ammunition deficiencies are being resolved. Achieve a level of training that maintains core Partially Achieved. A number of training skills and professional standards across all warfare activities had to be reduced in scope due to areas. operational commitments. Personnel shortages in a number of key trades and shortages of some types of ammunition continue to affect the achievement of some core skills. 1st Brigade, comprising: This target was substantially achieved. The - a brigade headquarters; mechanised operations capability continued to - a tank regiment; have deficiencies in personnel and equipment - a cavalry regiment; holdings that affected its capacity to complete all - a medium artillery regiment; the likely tasks required of it. - a combat engineer regiment;

Quantity - a combat support regiment; - a mechanised infantry battalion; and - a combat service support battalion.

131 Chapter Two

Output 3.3 Capability for Light Infantry Operations The light infantry operations capability contributes to the strategic tasks of securing our immediate neighbourhood and defending Australia. The capability for light infantry operations is achieved by providing light, air-mobile forces available for immediate deployment and is supported by specialist components drawn from aviation, fire support and logistic units. It uses strategic, operational and tactical mobility to exploit its flexibility, adaptability and utility across the spectrum of conflict. The capability achieves this through surprise, rapid action and the ability to seize and hold ground. The light infantry operations capability provides forces at high readiness. These forces can be deployed in combined arms teams from company to battalion size. These combined arms teams are drawn from an armoured sub-unit, light infantry units, light artillery, combat engineers and combat support units and can also be supported by armoured and aviation units from other Army, Navy, and Air Force outputs. This capability is based on the 3rd Brigade in Townsville, Queensland. Performance Targets Performance Achieve levels of preparedness directed by the Achieved. The light infantry capability met the Chief of the Defence Force for military response levels of preparedness for military response options with a warning time of less than options. It provided force elements in support of 12 months, including the provision of a battalion- the Baghdad Security Detachment and operations sized group within 90 days readiness. in the Solomon Islands. The capability also provided personnel, as the transit security element, to border protection operations in the apprehension of illegal immigrants. Quality Achieve a level of training that maintains core Substantially Achieved. Most training skills and professional standards across all warfare requirements were met. Some airborne and areas. amphibious training was restricted due to reduced availability of joint assets as a result of operational commitments in Iraq and the Solomon Islands. 3rd Brigade, comprising: This target was achieved. Personnel and - a brigade headquarters; equipment availability for units in this output were - an armoured personnel carrier squadron; sufficient to meet preparedness levels. - a field artillery regiment; - a combat engineer regiment; - a command support regiment; Quantity - three infantry battalions; and - a combat service support battalion.

Output 3.4 Capability for Army Aviation Operations The Army aviation operations capability contributes to the strategic tasks of defending Australia, securing our immediate neighbourhood, supporting wider interests and supporting peacetime national tasks. The capability for Army aviation operations is achieved by providing aircraft and personnel at high readiness levels for tactical troop lift, counter-terrorist support, command and liaison and reconnaissance operations. The capability is drawn from aviation units based in the north of Australia. The capability is based on two aviation regiments consisting mainly of Kiowa, Iroquois, Black Hawk and Chinook helicopters, and fixed-wing King Air and Twin Otter aircraft. The Kiowa helicopters will be replaced progressively by two squadrons of armed reconnaissance helicopters from December 2004. Iroquois helicopters are planned to be replaced with additional troop-lift helicopters in 2007. In November 2004, the capability is to be restructured into two aviation regiments and two independent aviation squadrons.

132 Outcome Three: Army Capabilities

Performance Targets Performance Achieve levels of preparedness directed by the Achieved. The Army aviation operations Chief of the Defence Force for military response capability met all levels of preparedness for options with a warning time of less than military response options. In June 2004, the Black 12 months. Hawk detachment returned to Australia from East Timor. Until this point, Army Aviation had elements on operations continuously since the deployment of Iroquois to Bougainville in 1998. The capability also provided significant staff effort to the armed reconnaissance helicopter and Project Air 9000 Troop Lift Helicopter considerations. Achieve a level of training that maintains core Substantially Achieved. The commitment of skills and professional standards across all warfare Black Hawk helicopters to operations in East Quality areas. Timor affected the achievement of all training requirements. In particular, training activities for light infantry operations were not fully supported. The introduction of a major upgrade to the maintenance management system resulted in an extensive reduced activity period. The recent return of all elements from overseas deployments will mean an increase in training support to other units, including the 3rd Brigade. 36 S-70A9 Black Hawk – 8,200 flying hours Black Hawks – 6,864 hours achieved (84 per cent). The impact of the maintenance system upgrade on the Black Hawk fleet was significant due to the aircraft’s complexity. A modification program to rectify cracking is also affecting aircraft availability, but availability is improving. 42 B-206 Kiowa – 12,970 flying hours Kiowa – 11,425 hours achieved (88 per cent). This underachievement is a result of reduced activity periods to enable personnel to take outstanding leave following an extended period of involvement in operations. 6 CH-47D Chinook – 1,170 flying hours Chinook – 876 hours achieved (75 per cent). The underachievement reflects the requirement to rebuild engines as a result of the sand erosion incurred during operations in the Middle East in 2003, as well as a period of reduced activity following these operations.

Quantity 25 UH-1H Iroquois – 4,640 flying hours Iroquois – 4,058 hours achieved (87 per cent). The major factors contributing to this underachievement were the shortage of pilots due to the requirement to sustain the Black Hawk capability in East Timor, support to special operations, and a reduced activity period following operations in the Solomon Islands. 3 B-200 King Air – 2,000 flying hours King Air – 2,034 hours achieved (102 per cent). The overachievement was partly to offset the underachievement of the Twin Otter aircraft. 2 DHC-6 Twin Otter – 1,200 flying hours Twin Otter – 1,064 hours achieved (89 per cent). The result reflected fluctuating aircraft availability due to the age of the fleet. The fleet is being withdrawn from service from December 2004.

133 Chapter Two

Output 3.5 Capability for Ground-Based Air Defence The ground-based air defence capability contributes to the strategic tasks of supporting wider interests, defending Australia, securing our immediate neighbourhood and supporting peacetime national tasks. This is achieved by providing a capability that is versatile and able to defend airspace in conjunction with other land and joint elements. The ground-based air defence capability provides air defence weapon systems at high to medium readiness, that can be deployed on land or on board ship, to protect high-value targets from air attack. The capability can also be deployed as part of a combined arms team. This capability is derived from the 16th Air Defence Regiment based in Adelaide, South Australia, which maintains a ground-based air defence system consisting of RBS-70 shoulder-launched missile systems and Rapier missile systems. Performance Targets Performance Achieve levels of preparedness directed by the Substantially Achieved. The ground-based air Chief of the Defence Force for military response defence capability met most levels of preparedness as options with a warning time of less than directed in the military response options. Personnel 12 months. and ammunition deficiencies affected levels of preparedness and sustainment for all military response options. Ammunition deficiencies are being resolved through a long-term contract with the missile producer and will see delivery of the new missiles from 2005-06. Due to the long procurement

Quality times, remediation of this deficiency will take several years. Personnel shortages, particularly for tradesmen and air defence gunners, are being rectified through recruiting programs. Achieve a level of training that maintains core Substantially Achieved. Most training activities skills and professional standards across all were achieved. warfare areas. 16th Air Defence Regiment This target was partially achieved. While the ground-based air defence capability had insufficient personnel and ammunition stocks to fully achieve all capability requirements, a reduced but credible

Quantity capability was provided.

Output 3.6 Capability for Combat Support Operations The combat support operations capability contributes to supporting combat forces in the range of strategic environments in which they may be deployed, including supporting wider interests, defending Australia, securing our immediate neighbourhood and supporting peacetime national tasks. The capability for combat support operations is designed to enhance the conduct of operations through effective communications, surveillance and specialist support (in particular construction engineering, topographical support, intelligence, and electronic warfare operations). The combat support operations capability provides forces at high to medium readiness. Small elements of the capability are held at high readiness to support the high readiness units in other outputs. This capability is drawn from combat support units based throughout Australia.

134 Outcome Three: Army Capabilities

Performance Targets Performance Achieve levels of preparedness directed by the Substantially Achieved. The capability met most Chief of the Defence Force for military response preparedness tasks as directed in the military options with a warning time of less than response options. Equipment deficiencies and 12 months. personnel shortfalls in key trades affected some preparedness tasks. The personnel shortfalls are being progressively addressed through the critical trades remediation plan. Equipment deficiencies will be resolved through new acquisition projects and some limited redistribution of assets. The capability provided significant support to forces deployed on operations throughout the year in all

Quality theatres. A construction squadron provided significant support to the Aboriginal and Torres Strait Islander Commission/Army Community Assistance Program through the construction of facilities for the indigenous community on Palm Island. Achieve a level of training that maintains core Substantially Achieved. Operational deployments skills and professional standards across all and shortfalls in personnel in critical trades affected warfare areas. the achievement of some training requirements. Combat support units include: This target was substantially achieved. The combat - a construction regiment comprising two support operations capability had sufficient personnel engineer construction squadrons and a and equipment to provide a reduced, yet credible, construction engineer works section; capability. - a topographical survey squadron; - a surveillance and target acquisition battery; - a signals regiment; Quantity - an intelligence battalion; - a military police battalion; and - a combat training centre (live).

Output 3.7 Capability for Regional Surveillance The regional surveillance capability contributes to the strategic task of defending Australia and supporting peacetime national tasks by providing forces to patrol the north of Australia in support of the national surveillance effort. The capability is maintained through the employment of predominantly Reserve personnel drawn from the local communities and the indigenous population throughout the north of Australia, from the Pilbara to Cape York. The capability for regional surveillance is drawn from three regional force surveillance units: Norforce, the Pilbara Regiment and the 51st Far North Queensland Regiment. Performance Targets Performance Achieve levels of preparedness directed by the Achieved. All levels of preparedness for military Chief of the Defence Force for military response response options were achieved. The three options with a warning time of less than regional force surveillance units provided support 12 months. to border protection operations in support of Operation Cranberry.

Quality Achieve a level of training that maintains core Achieved. All training activities were achieved. skills and professional standards across all warfare areas. Three regional force surveillance units. This target was achieved. The regional surveillance operations capability had the personnel and equipment holdings necessary to complete the tasks required of it. Quantity

135 Chapter Two

Output 3.8 Capability for Operational Logistic Support to Land Forces The operational logistic support to land forces capability contributes to the strategic tasks of being prepared to defend Australia, contribute to the security of our immediate neighbourhood, support our wider interests and peacetime national tasks. It provides supply, transport, repair and health functions in support of combat operations. The operational logistic support to land forces capability provides forces at high to medium readiness. Small elements of the capability are held at high readiness to support the high readiness units in other outputs. The capability is grouped in the Logistic Support Force which is a brigade-sized organisation comprising regular and Reserve units located throughout Australia. Performance Targets Performance Achieve levels of preparedness directed by the Substantially Achieved. The capability provided Chief of the Defence Force for military response significant support to forces deployed on options with a warning time of less than 12 months operations throughout the reporting period in all theatres. As a consequence, the capability will require some remediation from operations in 2004-05. Logistic support achieved most preparedness tasks as directed in the military response options. Personnel shortfalls in critical trades, commitment of personnel on operations Quality and limited reserve stocks affected the achievement of some of the preparedness tasks. Achieve a level of training that maintains core Substantially Achieved. Operational deployments skills and professional standards across all warfare and personnel deficiencies in a number of key areas. trades affected the achievement of all training requirements. Logistic Support Force and its integral logistic This target was substantially achieved. The logistic support units including: support capability had insufficient personnel and - two force headquarters; equipment to achieve all of the tasks required of it. - two signals squadrons; A reduced yet credible level of capability was - a petroleum company; maintained. - a recovery company; - three force support battalions; Quantity - a deployed forces support unit; - three health support battalions; and - a psychology unit.

Output 3.9 Capability for Motorised Infantry Operations The motorised infantry operations capability contributes to the strategic tasks of being prepared to defend Australia and secure our immediate neighbourhood. The capability complements the 1st and 3rd Brigades by providing a range of highly mobile forces to conduct land manoeuvre operations utilising surprise, offensive action and concentration of force to disrupt or destroy enemy forces’ plans, cohesion and morale. The capability provides forces at high to medium readiness. These forces can be deployed in combined arms teams from company to battalion size. Combined arms teams are drawn from an armoured unit, motorised infantry units, artillery, combat engineers and combat support units and can be supported by armoured and aviation units from other outputs. The capability is based on the 7th Brigade, an integrated formation of full and part-time personnel, based in Brisbane, Queensland.

136 Outcome Three: Army Capabilities

Performance Targets Performance Achieve levels of preparedness directed by the Partially Achieved. The motorised infantry Chief of the Defence Force for military response operations capability provided elements of the 6th options with a warning time of less than Battalion to support operations in East Timor. 12 months, including the provision of a battalion- The remainder of the capability was not capable of sized group within 90 days readiness. achieving all military response options due to equipment deficiencies and personnel shortfalls in key trades and sustainability issues. Personnel shortfalls are being addressed through recruiting and retention programs. Equipment deficiencies will be progressively addressed through

Quality redistribution and acquisition of new equipment, including upgraded ASLAVs and Bushranger vehicles. Achieve a level of training that maintains core Partially Achieved. Most training activities were skills and professional standards across all warfare successfully conducted. Some collective training areas. activities were reduced in scope due to operational commitments, deficiencies in equipment, personnel and some types of ammunition. 7th Brigade, comprising: For regular units, this target was substantially - a brigade headquarters; achieved. Regular units achieved the required - a cavalry regiment; staffing levels, and provided a credible level of - a field artillery regiment; preparedness. - a combat engineer regiment; For Reserve units, this target was partially - a command support regiment; achieved. Reserve units achieved lower than Quantity - three Reserve / integrated infantry battalions; and expected recruiting targets, which affected staffing - a combat service support battalion. levels for the capability.

137 Chapter Two

Output 3.10 Capability for Protective Operations The protective operations capability contributes to the strategic tasks of being prepared to defend Australia and to support peacetime national tasks. While retaining long-term utility for defence of Australia tasks, the protective operations capability also provided reinforcements for deployed regular units and a mobilisation base for subsequent rotations in the event of protracted operations. Elements of this capability are also trained to assist in domestic security incidents. The protective operations capability provides forces at high to low readiness. The capability is grouped in 4th, 5th, 8th, 9th, 11th and 13th Brigades, which are predominantly Reserve formations based across Australia. Performance Targets Performance Achieve levels of preparedness directed by the Partially Achieved. The protective operations Chief of the Defence Force for military response capability achieved the levels of preparedness options with a warning time of less than directed for the five High Readiness Reserve 12 months. response forces drawn from 4th, 5th, 8th, 9th, and 13th Brigades (11th Brigade is, but is not required to be, at high readiness). The remainder of the capability was unable to achieve most preparedness tasks as directed in the military response options due to deficiencies in equipment and personnel shortages in key trades. Personnel shortages are being addressed through recruiting and retention

Quality programs. Initiatives such as the Ready Response Force have focused specialist elements within these brigades towards meeting a shorter readiness notice. Achieve a level of training that maintains core Partially Achieved. Most training activities were skills and professional standards across all warfare successfully conducted. Some collective training areas. activities were reduced in scope due to deficiencies in equipment, personnel and some types of ammunition. The 4th, 5th, 8th, 9th, 11th and 13th Brigades, each This target was partially achieved. The quantity comprising: for the High Readiness Reserve response forces - a headquarters; was achieved during 2003-04. While there were - 2 or 3 infantry battalions; personnel shortfalls in the remainder of the - a cavalry unit; and capability personnel from the capability still

Quantity - combat and logistic support units. provided a reinforcement and rotation base within the combat force component of the Army.

138 Outcome Three: Army Capabilities

Price to Government Outcome Three – Army Capability for the Defence of Australia and its Table 2.16 Interests Budget Revised Projected Actual Variation(5) Variation Estimate Additional Result(2) Result(3) Estimate(1)

2003-04 2003-04 2003-04 2003-04 2003-04 2003-04 $’000 $’000 $’000 $’000 $’000 % Operating Expenses Employees – Military 2,474,189 2,439,569 2,660,053 2,495,214 -164,840 -6.2 Employees – Civilian 417,449 402,467 396,605 400,981 4,376 1.1 Sub-Total Employees 2,891,638 2,842,036 3,056,659 2,896,195 -160,464 -5.2 Suppliers expenses 1,135,299 1,218,353 1,272,740 1,296,372 23,632 1.9 Inventory consumption 335,613 322,076 366,271 274,619 -91,653 -25.0 Sub-Total Suppliers 1,470,911 1,540,429 1,639,011 1,570,990 -68,021 -4.2 Grants 718 547 890 2,912 2,022 227.2 Depreciation and amortisation 608,881 577,038 659,580 576,366 -83,214 -12.6 Value of assets sold - - 130,121 80,915 -49,206 -37.8 Write-down of assets 85,890 72,114 74,496 224,535 150,039 201.4 Borrowing costs 15,979 13,603 17,716 15,354 -2,362 -13.3 Other expenses 919 -408 - 29,347 29,347 - Total Operating Expenses from Ordinary Activities 5,074,937 5,045,358 5,578,473 5,396,614 -181,859 -3.3 Revenues Sale of goods and services -66,168 -50,729 -86,739 -81,963 4,775 -5.5 Revenue from sale of assets - - -130,121 -95,983 34,139 -26.2 Assets now recognised -78,964 -50,997 -46,055 -104,560 -58,504 127.0 Other revenues (4) -84,785 -38,384 -36,031 -27,685 8,346 -23.2 Total Own Source Revenues -229,918 -140,110 -298,946 -310,190 -11,244 3.8 Price to Government for Outcome Three 4,845,019 4,905,248 5,279,527 5,086,424 -193,103 -3.7 Notes 1. The Revised Additional Estimate figures have been adjusted since the Portfolio Additional Estimates Statements 2003-04 (p.38) to reflect an improved costing methodology. 2. The Projected Result is consistent with the Portfolio Budget Statements 2004-05. 3. The Actual Price to Government for Outcome Three, shown in this table ($5,086.424m), relates to Departmental expenses and revenues. The Actual Price to Government for Outcome Three does not include $0.127m of administered revenues. This amount relates to interest received from the foreign military sales account. 4. The Actual Result amount for Other revenues includes interest and dividends, net foreign exchange gains/losses and resources received free of charge. 5. The variation figures are the difference between the Actual Result and the Projected Result.

Explanation of Significant Variations The overall price of Outcome Three was $193.1m lower than the 2003-04 projected result, representing a decrease of 3.7 per cent. The reduction was largely technical in nature, relating to accounting variations and refinements to cost attribution rules, including the correction of anomalies contained in the projected result. The major variations were due to: • a net decrease in military employees expenses (-$164.8 m) due to: Salary and allowances - reduced salaries and allowance payments due to the lower (-177) than planned average funded strength (-$14.2m);

- an overestimate of long service and annual leave to be paid in 2003-04 (-$6.9m);

139 Chapter Two

- an overstatement of the military employees salaries estimates in 2003-04 (-$6.9m);

- a decreased take-up rate and overstatement of the estimate for the home purchase assistance scheme (-$5.2m);

- a review of employee allowance entitlements recognising overpayment of Army military allowances (-$9.7m);

- an overstatement of salary advances (-$4.6m);

Superannuation - the decision not to proceed with the proposed transfer of the liability for the Defence Force Retirement and Death Benefit Scheme 3 per cent productivity benefit from the administered to departmental accounts (-$100.5m);

- the reduced superannuation payment due to lower than planned average funded strength (-$2.8m);

- the overstatement of military superannuation estimates in 2003-04 (-$3.0m);

Leave liability - an overestimate of the impact of the workplace remuneration arrangement on leave liability and the implementation of a new methodology for calculating attrition rates on annual and long service leave provisions (-$1.0m);

Housing - an increase in housing expenses including buy-out of old on-base housing annuities and increased take-up rate of members without dependants using rental assistance rather than living-in accommodation (+$4.8m);

Compensation - an adjustment arising from an actuary review of compensation expense which projected higher longer term incapacity payments (+5 per cent), higher medical payments (+25 per cent) and a higher establishment cost for claims (+$83.1m);

- a decrease in the number and value of claims for lump sum compensation for permanent impairment (-$4.0m);

Health - increased health costs relating to medical and professional fees (+$8.3m);

Fringe benefits tax - an underestimate of fringe benefits tax payable for rental allowance for members without dependants (+$13.1m);

Reserves - increased activity by officers and instructors of cadets and a higher than projected use of Reserve days by non-Service Groups (+$2.0m);

Cost attribution - the redirection of Land Command salaries to Outcome One incorrectly attributed to Outcome Three in the projected result (-$59.4m); and

140 Outcome Three: Army Capabilities

- progressive refinement of Defence's cost attribution rules to reflect changes in workforce distributions and expenditure patterns and other variations (-$57.9m).

• a net increase in civilian employee expenses (+$4.4m) due to: Salary and allowances - the recognition of Defence Integrated Distribution System redundancy costs in 2003-04, rather than 2004-05 as originally planned (+$6.8m);

- lower full-time equivalent-average personnel than projected in 2003-04 (-$0.8m);

- an overstatement of civilian employee salaries in 2003-04 (-$6.2m);

Superannuation - payment to the University of New South Wales for Australian Defence Force Academy staff superannuation liabilities from supplier expenses rather than civilian employee expenses (-$8.9m);

- an underestimate of the impact of the changing profile of members in the Commonwealth Superannuation Scheme and the Public Sector Superannuation Scheme (+$3.8m);

Leave liability - increase in the future leave liability costs resulting from the new Defence Employees Certified Agreement (+$8.9m);

- an increase in future leave liability costs resulting from Commonwealth Superannuation Scheme and the Public Sector Superannuation rate increases on leave liabilities (+$2.4m);

- the recalculation of accrued leave balances arising from actuarial reviews and errors in certain aspects of the estimates (+$2.4m);

Other - a variation in health costs reflecting more emphasis by Defence on the health and well being of its civilian workforce and other minor variations (+$0.4m);

Cost attribution - progressive refinement of Defence’s cost attribution rules to reflect changes in workforce distribution and expenditure patterns and other variations (-$4.4m);

• a net increase in supplier expenses (+$23.6m) due to: - payment to the University of New South Wales for Australian Defence Force Academy staff superannuation liabilities (-$5.7m);

- lower levels of expenses incurred on Defence’s recruitment contract due to improvement in separation rates (-$5.1m);

- the rephasing of some information systems and business improvement projects to 2004-05 to reflect changed schedules for these projects (-$3.4m);

- changes in accounting treatment of revenue collected under garrison support contracts, which is no longer offset against expenses (+$1.2m);

141 Chapter Two

- the redirection to inventory purchases as Defence progressively reduces backlogs in this area (-$26.4m);

- progressive refinement of Defence’s cost attribution rules to reflect changes in workforce distribution and expenditure patterns and other variations (+$51.6m).

• a net decrease in inventory consumption (-$91.7m) due to: - the flow through of improvements in the pricing of explosive ordnance (-$17.1m);

- an overstatement of inventory consumption estimate (-$36.5m); and

- progressive refinement of Defence’s cost attribution rules to reflect changes in workforce distribution and expenditure patterns and other variations (-$38.1m).

• a net increase in grants of (+$2.0m) due to the reclassification of research agreements between the Defence Science and Technology Organisation and universities, the Point Nepean community grant, the Mornington Peninsula land grant and refinement to cost attribution rules (+$2.0m). • a net decrease in depreciation and amortisation expenses (-$83.2m) due to: - the non-requirement to proceed with the anticipated adjustment in specialist military equipment relating to the migration of assets from Defence's legacy financial system (DEFMIS) to ROMAN ($-113.3m);

- the revaluation of buildings and infrastructure (+$26.8m);

- the reclassification of some operating leases to finance leases (+$10.3m);

- a review of the useful life on the repairable items on a number of platforms including the Leopard tanks (+$11.9m);

- greater than anticipated adjustment in other property, plant and equipment required to correct an error in the migration of assets from Defence’s legacy financial system (DEFMIS) to ROMAN (-$8.9m);

- an understatement of the depreciation estimate (+$9.5m);

- net movements from asset revaluations, assets under construction roll-out, assets first recognised and property sales delays (+$21.6m); and

- progressive refinement of Defence’s cost attribution rules to reflect changes in workforce distribution and expenditure patterns and other variations (-$41.1m).

• a net decrease in value of assets sold (-$49.2m) due to: - the delay in the property sales program due to delays in contract negotiations, signings, planning consent and revisions to Government directions (-$54.4m);

- the value of assets sold for which Defence owes an annuity to the Defence Housing Authority (+$20.0m);

- an overestimation of the expected proceeds for other property, plant and equipment (-$17.6m); and

142 Outcome Three: Army Capabilities

- progressive refinement of Defence’s cost attribution rules to reflect changes in workforce distribution and expenditure patterns and other variations (+$2.8m).

• a net increase in write-down of assets (+$150.0m) due to: - an adjustment to account for the change from $1,000 to $2,000 in the asset threshold for administrative assets and the removal of grouping of these assets (+$26.8m);

- the transfer of assets, including George’s Heights and Chowder Bay to the Sydney Harbour Foreshore Trust (+$39.7m);

- a large scale review of Defence’s inventory holdings by the Defence Materiel Organisation which led to inventory being recognised as obsolete (+$19.3m);

- the reclassification of certain fixed assets in Standard Defence Supply System as inventory (+$14.0m);

- the flow through of improvements in the pricing of explosive ordnance, including inventory consumed throughout the year and inventory still to be consumed (+$14.4m);

- asset disposals including Black Hawk helicopters and night vision goggles (+$62.1m);

- the write-down of specialist military equipment, including assets under construction through project-initiated reviews including LAND 75 – Battlefield Command System and JP 2070 – Lightweight Torpedoes (+$25.9m);

- an increase in inventory disposals (+$5.5m); and

- progressive refinement of Defence’s cost attribution rules to reflect changes in workforce distribution and expenditure patterns and other variations (-$57.7m).

• a net decrease in borrowing costs (-$2.4m) due to: - the reclassification of some operating leases into finance leases (+$1.3m); and

- progressive refinement of Defence’s cost attribution rules to reflect changes in workforce distribution and expenditure patterns and other variations (-$3.7m).

• a net increase in other expenses (+$29.3m) due to: - an increase in the provision for Defence’s share of the Commonwealth’s common law liability for asbestos-related diseases (+$23.4m);

- the resolution of past errors in accounting for the transfer of expense and revenue items between Defence and special public monies accounts. Items transferred after 30 June 2003 have been accounted for correctly (+$1.6m); and

- corrections arising from the reconciliation of Defence Housing Authority annuity balances (+$4.3m).

• a net decrease in the sale of goods and services (+$4.8m) due to: - increased fuel sales to foreign governments (-$1.0m);

143 Chapter Two

- the sale of equipment to other Government agencies (-$2.2m); and

- progressive refinement of Defence’s cost attribution rules to reflect changes in workforce distribution and expenditure patterns and other variations (+$8.0m).

• a net decrease in the revenue from the sale of assets (+$34.1m) due to: - the delay in the property sales program due to Government decisions, the need to refer works at Randwick, New South Wales, to the Public Works Committee, and variations in project scheduling for various reasons including the lead time required to consider local and State government priority sale proposals (+$46.2m);

- an overestimation of the expected proceeds for other property, plant and equipment (+$17.6m);

- the revenue received from the sale of housing for which Defence owes an annuity to Defence Housing Authority (-$20.0m); and

- progressive refinement of Defence’s cost attribution rules to reflect changes in workforce distribution and expenditure patterns and other variations (-$9.7m).

• a net increase in assets now recognised (-$58.5m) due to: - assets identified following site audits and other remediation activities ($-29.6m);

- Army historical assets being recognised for the first time by the Army History Unit (-$7.7m);

- the reconciliation of the ROMAN fixed asset register to the Standard Defence Supply System – Defence’s inventory management system – following the introduction of Standard Defence Supply System version 4 (-$28.4m);

- the reclassification of certain fixed assets in Standard Defence Supply System as inventory (-$14.0m); and

- progressive refinement of Defence’s cost attribution rules to reflect changes in workforce distribution and expenditure patterns and other variations (+$21.2m).

• a net decrease in other revenues (+$8.3m) due to: - Australian National Audit Office audit services received free of charge (-$0.5m);

- the changes in accounting treatment of revenue collected by garrison support contractors which is no longer offset against expenses (-$1.2m);

- the receipt of liquidated damages including for the armed reconnaissance helicopter project to fund a program of rectification works caused by delays in the projects (-$0.3m);

- the net variations due to the timing difference between invoices for transactions in foreign currencies entering the system and being paid (-$2.6m); and

- progressive refinement of Defence’s cost attribution rules to reflect changes in workforce distribution and expenditure patterns and other variations (+$12.9m).

144 Outcome Three: Army Capabilities

Price Summary of Outputs for Outcome Three – Army Capability for Table 2.17 the Defence of Australia and its Interests (4) Budget Revised Projected Actual Variation Variation Estimate Additional Result(2) Result(3) Estimate(1)

2003-04 2003-04 2003-04 2003-04 2003-04 2003-04 $’000 $’000 $’000 $’000 $’000 % Output 3.1 – Capability for Special Forces Operations 445,118 410,589 335,210 422,750 87,540 26.1 Output 3.2 – Capability for Mechanised Operations 800,591 845,366 866,123 846,617 -19,506 -2.3 Output 3.3 – Capability for Light Infantry Operations 1,020,185 998,065 1,034,593 899,727 -134,866 -13.0 Output 3.4 – Capability for Army Aviation Operations 449,568 528,074 592,573 592,891 318 0.1 Output 3.5 – Capability for Ground-Based Air Defence 92,956 122,880 175,658 123,050 -52,608 -29.9 Output 3.6 – Capability for Combat Support Operations 407,921 421,886 495,509 410,686 -84,823 -17.1 Output 3.7 – Capability for Regional Surveillance 86,750 94,173 150,418 127,937 -22,482 -14.9 Output 3.8 – Capability for Operational Logistic Support to Land Forces 433,401 535,232 521,802 533,714 11,912 2.3 Output 3.9 – Capability for Motorised Infantry Operations 573,759 481,871 577,318 497,451 -79,867 -13.8 Output 3.10 – Capability for Protective Operations 534,769 467,112 530,322 631,602 101,279 19.1 Price to Government for Outcome Three 4,845,019 4,905,248 5,279,527 5,086,424 -193,103 -3.7 Notes 1. The Revised Additional Estimate figures have been adjusted since the Portfolio Additional Estimates Statements 2003-04 (p.40) to reflect an improved costing methodology. 2. The Projected Result is consistent with the Portfolio Budget Statements 2004-05. 3. The Actual Price to Government for Outcome Three, shown in this table ($5,086.424m), relates to Departmental expenses and revenues. The Actual Price to Government for Outcome Three does not include $0.127m of administered revenues. This amount relates to interest received from the foreign military sales account. 4. The variation figures are the difference between the Actual Result and the Projected Result.

145 Chapter Two

Outcome Four: Air Force Capabilities The Air Force met the Government’s direction for contributions to the ADF’s capacity to defend Australia, contribute to regional security, support global interests, shape the strategic environment and protect national interests. This was done primarily through deployments to the Middle East, the Solomon Islands and East Timor and by supporting border control initiatives in the north of Australia. Air Force capabilities include the ability to conduct offensive and defensive counter-air operations, precision strike operations, support for combat operations, wide and focal area surveillance, maritime patrol and response, and tactical and strategic airlift. These were delivered in 2003-04 through the Air Combat Group, Combat Support Group, Surveillance and Control Group, Maritime Patrol Group and Air Lift Group. Performance Summary

Overview The year remained operationally demanding for the Air Force, requiring many deployments and rotations of personnel and aircraft. The air traffic control deployment to Baghdad International Airport continued throughout the year and deployed personnel have continued to demonstrate exceptional professionalism and skill. These detachments have managed 170,000 aircraft movements at Baghdad International Airport since the beginning of their deployment. The deployment of C-130 aircraft in the Middle East Area of Operations continued throughout the year and achieved very high mission success rates by carrying over 12 million pounds of cargo, some 13,500 passengers and aeromedically evacuating 960 patients from Iraq. The P­3 Orion upgraded aircraft have been ideally suited to the intelligence, surveillance and reconnaissance role in the Arabian Sea, the Persian Gulf and in Iraq. Caribou aircraft were deployed to the Solomon Islands, fulfilling the inter-island transport and medical evacuation role that was unable to be sourced from other agencies. The Combat Support Group provided specialist airbase support to deployed forces in East Timor, the Solomon Islands, Baghdad International Airport and the wider Middle East Area of Operations.

Planned Mitigation of Key Risks

Personnel Training of personnel in some high-end warfighting tasks was limited due to the high operational tempo. Participation in key exercises focused on ensuring core skills were retained. Retention of personnel remained at a high level with the separation rate at 6.6 per cent, compared with the five-year average of 11.5 per cent. A combination of both broad and targeted measures resulted in improved retention of air traffic control officers, logistics officers and aerospace engineers. Pilot manning continues to be strong with all pilot billets filled.

Regional Capability Edge The regional capability edge has been maintained through a program of upgrades to the F-111, F/A-18 Hornets and P-3 Orion aircraft.

146 Outcome Four: Air Force Capabilities

The decision to retire the F­111 aircraft around 2010 was announced during the year. To ensure the maintenance of strike capability, the Government announced that retirement of the F­111 was dependent on the successful introduction into service of airborne early warning and control and A330 tanker aircraft, completion of the F/A­18 upgrade, and the introduction of improved weapons and long-range stand-off weapons for P­3 Orion and F/A­18 Hornet aircraft.

Logistics Support The program to introduce F/A­18 simulators was approved and the contract signed. This will enable a reduction in aircraft fatigue, thereby minimising the logistic resources required and contributing to the achievement of aircraft life-of-type. System upgrades to the mobile control and reporting capability progressed satisfactorily during the year, this will result in the provision of a deployable recognised air picture later in the decade.

Forward Deployment Lessons learnt from operations in East Timor and the Middle East were integrated into Air Force doctrine to enhance support for deployed operations. Capability Performance Information

Performance Targets

Output 4.1 Capability for Air Combat Operations The Air Combat Group provides the Air Force’s air combat capability. It includes the provision of F/A­18 and F­111 aircraft, crews, weapon systems and support infrastructure at the level of capability required to provide air control, maritime and land strike, offensive air support and a limited reconnaissance capability. Hawk Lead-In fighter aircraft and PC-9 Forward Air Control aircraft also contribute to this capability. Performance Targets Performance Achieve levels of preparedness directed by the Achieved. Preparedness levels were achieved and Chief of the Defence Force for military response demonstrated through F/A-18 and F-111 options with a warning time of less than participation in exercises Crocodile 03 and Aces 12 months. North. Achieve levels of training that maintain core skills Achieved. F-111 aircraft availability issues have and professional standards across all assigned been resolved and training objectives have been warfare areas. achieved. F/A-18 aircrew have regained some skill-sets which had degraded during the previous

Quality period of high operational tempo. The Group’s training objectives have been met through participation in a number of major exercises. F/A-18 upgrade documentation will be considered Achieved. The Hornet Upgrade Project Phase by the Government for a decision on F/A-18 3.2B was approved, during the period, to upgrade airframe upgrades. the first 15 F/A­18 airframe centre barrels. Options to acquire additional explosive ordnance Achieved. Project JP 2085 Phase 1, which sought will be considered to ensure that key explosive to acquire explosive ordnance warstocks, was ordnance types are available for contingency approved during the year. operations. The F­111 wing recovery program will be Achieved. The F-111 wing recovery program is

Quality completed to address failure of an aircraft wing complete although the work aircraft wings will during ground fatigue testing. need close management and more work on an on-going basis.

147 Chapter Two

28 F-111 – 3,800 flying hours 28 F-111 (17 F-111C; 4 RF-111C; and 7 F-111G). In addition, 2 aircraft have been reallocated as breakdown spares and 5 aircraft have been quarantined in long-term storage, in line with the logistics support concept. 3,949 flying hours (104 per cent) were achieved. Improved aircraft availability permitted recovery from previous shortfalls to meet preparedness objectives. 71 F/A-18 – 12,500 flying hours 71 F/A-18 – 12,820 hours (103 per cent) were achieved. An increase in rate of effort to 12,800 hours was approved during the reporting period to permit F/A-18 aircrew to recover those particular skills which had degraded as a result of the earlier operational deployment and for additional directed

Quantity tasking. 33 Hawk – 8,000 flying hours 33 Hawk – 7,257 hours (91 per cent) were achieved. Aircraft serviceability has steadily improved throughout the year although limited aircraft availability resulting from corrosion earlier in the reporting period reduced the ability to fully achieve the planned flying hours. 4 PC-9/A(F) (forward air control role only) - 1,030 4 PC-9/A(F) - 634 hours (61 per cent) were flying hours achieved due to the inability to generate sufficient serviceable aircraft during the year. This followed a number of engineering concerns resulting in the aircraft being grounded for significant periods.

Output 4.2 Capability for Combat Support of Air Operations The capability for combat support of air operations is provided by the Combat Support Group and involves the provision of operations support necessary to support expeditionary air bases within Australia and overseas during contingencies. Performance Targets Performance Achieve levels of preparedness directed by the Achieved. Preparedness levels were achieved as Chief of the Defence Force for military response demonstrated by deployments to the Middle East options with a warning time of less than 12 and the Solomon Islands during the year. months. Achieve a level of training that maintains core Achieved. Commitments overseas placed skills and professional standards across all significant pressure on the achievement of training operations support areas. programs. Development of doctrine, concepts and procedures Quality Substantially Achieved. ADF airbase doctrine for expeditionary airfield operations will formalise has been drafted and a review of critical airbase direction for future capability. infrastructure has been undertaken. This has further identified issues in doctrine, concepts and procedures for airbase operations that are being addressed. Maintain: This target was achieved. - 2 combat support wings; - 1 expeditionary combat support wing; - 1 combat Reserve wing; - 1 air field defence wing; and Quantity - 1 health services wing.

148 Outcome Four: Air Force Capabilities

Output 4.3 Capability for Strategic Surveillance The Air Force’s capability for strategic surveillance is provided by the Surveillance and Control Group and encompasses the provision of sensors and battlespace management elements at the level of capability required to support intelligence, aerospace surveillance (wide area and focal), electronic warfare, aerospace battle management, air defence and airspace control. Performance Targets Performance Achieve levels of preparedness directed by the Achieved. Including significant deployments to Chief of the Defence Force for military response the Middle East by the Air Traffic Control options with a warning time of less than 12 element. months. Achieve a level of training that maintains core Achieved. The high operational tempo placed skills and professional standards across all assigned significant pressure in some areas of training. warfare areas. Quality The first four air defence radars should be Not Achieved. Minor project schedule delays delivered during 2003-04. meant that the first of four radars was not delivered during the year. Delivery commenced in July 2004. Maintain 10 air traffic control radars. 9 radars are operational, with 1 mobile radar currently undergoing refurbishment, which is expected to be operational by December 2004. Maintain 2 tactical air defence radars. 2 tactical air defence radars maintained. The radars are beyond their planned withdrawal date and will be replaced through project AIR 5375. Maintain the Jindalee Operational Radar Network, The Jindalee Operational Radar Network has been including over-the-horizon radar sensors in fully operational for the full year, and has

Quantity Laverton, Western Australia, and Longreach, supported ongoing research and development and Queensland, the Jindalee Radar Facility in Alice other activities. Springs, Northern Territory, and the Jindalee Network Coordination Centre at RAAF Edinburgh, South Australia.

Output 4.4 Capability for Maritime Patrol Aircraft The capability for maritime patrol aircraft is provided by the Maritime Patrol Group and involves the provision of P-3 Orion aircraft, crews and weapon systems at the level of capability required to conduct maritime surveillance and reconnaissance, maritime strike, offensive air support and search and rescue. Performance Targets Performance Achieve levels of preparedness directed by the Substantially Achieved. Most preparedness Chief of the Defence Force for military response targets were met or exceeded, as demonstrated by options with a warning time of less than 12 operational commitments to Operations Slipper, months. Catalyst and Relex II. Some high-end warfighting preparedness targets were not achieved due to the high operational tempo. Achieve a level of training that maintains core Substantially Achieved. High operational tempo Quality skills and professional standards across all assigned in the surveillance role and the transition to the warfare areas. upgraded P-3 Orion aircraft reduced the capacity to complete all training activities in the high-end warfighting roles.

149 Chapter Two

The P­3C Orion simulator will be introduced into Substantially Achieved. The upgraded simulator service. has been used successfully for conversion and continuation training during the year although some advanced training capabilities remain outstanding. Quality Accept a further 6 AP-3C Orion aircraft as P-3C Achieved. 6 upgraded P-3 Orion aircraft were Orion aircraft are modified. introduced into service. 19 P­3/AP­3C - 9,000 flying hours 19 P-3 Orion aircraft - 7702 hours (86 per cent) achieved. The shortfall was the result of high levels of preparedness being maintained, the inability to make sufficient numbers of aircraft available because of the high operational tempo, the transition to the upgraded aircraft and

Quantity limitations in available logistic funding. The disposal activities associated with the 3 TAP-3 aircraft are ongoing.

Output 4.5 Capability for Airlift The capability for airlift is provided by the Air Lift Group. The Group provides airlift aircraft, crews and weapon systems at the level of capability required to achieve air logistics support, airborne operations, aeromedical evacuation, special operations, search and survivor assistance, VIP flights, air-to-air refuelling, navigator training and surveillance operations. Performance Targets Performance Achieve levels of preparedness directed by the Substantially Achieved. Preparedness has been Chief of the Defence Force for military response maintained for all airlift elements except for the options with a warning time of less than B707 aircraft, due to aircraft availability. 12 months. Achieve a level of training that maintains core Substantially Achieved. Most training objectives skills and professional standards across all have been maintained with the exception that the assigned warfare areas. limited availability of B707 has affected some

Quality air-to-air refuelling training opportunities. 6 HS748 will be retired from service. Achieved. All HS748 navigator training aircraft were retired from service in June 2004. 7 Beechcraft Kingair 350 aircraft (B300) will be Achieved. 7 B300 aircraft were introduced into introduced into service. service, commencing in September 2003. 24 C-130 – 15,000 flying hours 24 C-130 – 13,992 hours (93 per cent) achieved due to aircraft availability limitations as a result of deployments. 4 B707 – 1,800 flying hours 4 B707 – 965 hours (54 per cent) achieved. Major maintenance requirements and the age of the aircraft have significantly limited aircraft availability. 14 DHC-4 Caribou - 5,080 flying hours 14 Caribou – 4,940 hours (97 per cent) achieved. 2 Boeing 737 BBJ VIP aircraft – 1,200 flying hours 2 Boeing 737 BBJ – 1,181 hours (98 per cent) achieved. 3 CL604 Challenger VIP aircraft – 2,400 flying 3 CL604 Challenger – 1,996 hours (83 per cent)

Quantity hours achieved. 6 HS748 Navigator Training Aircraft – 2,400 6 HS748 NTA – 2,178 hours (91 per cent) flying hours achieved. The HS748 aircraft were withdrawn from service at the end of the financial year. 7 B300 Navigator Training aircraft – 4,500 flying 7 B300 aircraft – 1,996 hours (44 per cent) hours. achieved. Introduction of the B300 aircraft was delayed due to late project approval and problems with the integration of the navigator training package.

150 Outcome Four: Air Force Capabilities

Price to Government Outcome Four – Air Force Capability for the Defence of Australia and Table 2.18 its Interests Budget Revised Projected Actual Variation(5) Variation Estimate Additional Result(2) Result(3) Estimate(1)

2003-04 2003-04 2003-04 2003-04 2003-04 2003-04 $’000 $’000 $’000 $’000 $’000 % Operating Expenses Employees - Military 1,173,467 1,224,857 1,294,035 1,307,890 13,855 1.1 Employees - Civilian 333,135 348,416 360,941 354,138 -6,803 -1.9 Sub-Total Employees 1,506,602 1,573,273 1,654,976 1,662,028 7,052 0.4 Suppliers expenses 1,176,755 1,212,666 1,333,303 1,375,481 42,178 3.2 Inventory consumption 290,134 268,548 263,246 241,476 -21,770 -8.3 Sub-Total Suppliers 1,466,889 1,481,215 1,596,549 1,616,957 20,408 1.3 Grants 541 281 434 2,233 1,799 414.7 Depreciation and amortisation 1,008,500 1,174,412 1,210,894 1,134,107 -76,787 -6.3 Value of assets sold - - 81,008 53,419 -27,589 -34.1 Write-down of assets 129,117 154,340 156,112 364,328 208,217 133.4 Borrowing costs 7,431 7,910 6,020 9,063 3,043 50.5 Other expenses -366 158 - 17,843 17,843 - Total Operating Expenses from Ordinary Activities 4,118,713 4,391,587 4,705,992 4,859,979 153,987 3.3 Revenues Sale of goods and services -58,114 -49,548 -39,094 -52,448 -13,354 34.2 Revenue from sale of assets - - -81,008 -45,653 35,355 -43.6 Assets now recognised -96,542 -113,772 -114,013 -213,498 -99,486 87.3 Other revenues (4) 39,637 -19,864 -27,085 -47,716 -20,631 76.2 Total Own Source Revenues -115,020 -183,184 -261,200 -359,315 -98,115 37.6 Price to Government for Outcome Four 4,003,694 4,208,403 4,444,792 4,500,663 55,872 1.3 Notes 1. The Revised Additional Estimate figures have been adjusted since the Portfolio Additional Estimates Statements 2003-04 (p.41) to reflect an improved costing methodology. 2. The Projected Result is consistent with the Portfolio Budget Statements 2004-05. 3. The Actual Price to Government for Outcome Four, shown in this table ($4,500.663m), relates to Departmental expenses and revenues. The Actual Price to Government for Outcome Four does not include $1.322m of administered revenues. This amount relates to interest received from the foreign military sales account. 4. The Actual Result amount for Other revenues includes interest and dividends, net foreign exchange gains/losses and resources received free of charge. 5. The variation figures are the difference between the Actual Result and the Projected Result.

Explanation of Significant Variations The overall price of Outcome Four was $55.9m higher than the 2003-04 projected result, representing an increase of 1.3 per cent. The major variations were due to: • a net increase in military employee expenses (+$13.9m) due to: Salary and allowances - reduced salaries and allowance payments due to the lower (-26) than planned average funded strength (-$2.1m);

- an overestimate of long service and annual leave to be paid in 2003-04 (-$3.6m);

- an overstatement of the military employees salaries estimates in 2003-04 (-$3.6m);

151 Chapter Two

- decreased take-up rate and overstatement of the estimate for the Home Purchase Assistance Scheme (-$2.7m);

- an overstatement of salary advances (-$2.4m);

Superannuation - the decision not to proceed with the proposed transfer of the liability for the Defence Force Retirement and Death Benefits Scheme 3 per cent productivity benefit from the administered to departmental accounts (-$52.7m);

- an overstatement of military superannuation estimates in 2003-04 (-$1.6m);

- reduced superannuation payments due to the lower than planned average funded strength (-$0.4m);

Leave liability - an overestimate of the impact of the Workplace Remuneration Arrangement on leave liability and the implementation of a new methodology for calculating attrition rates on annual and long service leave provisions (-$0.5m);

Housing - an increase in housing expenses including buy-out of old on-base housing annuities and increased take-up rate of members without dependents using rental assistance rather than living-in accommodation (+$2.5m);

Compensation - an adjustment arising from an actuary review of compensation expense which projected higher longer term incapacity payments (+5 per cent), higher medical payments (+25 per cent) and a higher establishment costs for claims (+$16.3m);

- a decrease in the number and value of claims for lump sum compensation for permanent impairment (-$2.1m);

Health - increased health costs relating to medical and professional fees (+$4.3m);

Fringe benefits tax - an underestimate of fringe benefits tax payable for rental allowance for members without dependants (+$6.8m);

Reserves - increased activity by officers and instructors of cadets and a higher than projected use of Reserve days by non-Service Groups (+$1.0m); and

Cost attribution - progressive refinement of Defence's cost attribution rules to reflect changes in workforce distributions and expenditure patterns, and other variations (+$54.7m).

• a net decrease in civilian employee expenses (-$6.8m) due to: Salary and allowances

152 Outcome Four: Air Force Capabilities

- recognition of Defence Integrated Distribution System redundancy costs in 2003-04, rather than in 2004-05 as originally planned (+$6.0m);

- lower full-time equivalent-average personnel than projected in 2003-04 (-$0.7m);

- an overstatement of civilian employee estimates in 2003-04 (-$5.5m);

Superannuation - payment to the University of New South Wales for Australian Defence Force Academy staff superannuation liabilities from supplier expenses rather than civilian employee expenses (-$7.8m);

- an underestimate of the impact of the changing profile of members in the Commonwealth Superannuation Scheme and Public Sector Superannuation schemes (+$3.3m);

Leave liabilities - an increase in the future leave liability costs resulting from the new Defence Employee Certified Agreement (+$7.9m);

- an increase in the future leave liability costs resulting from the Commonwealth Superannuation Scheme/Public Sector Superannuation rate increases on leave liabilities (+$2.1m);

- recalculation of accrued leave balances arising from actuarial reviews and errors in certain aspects of the estimates (+$2.1m);

Other - a variation in health costs reflecting more emphasis by Defence on the health and wellbeing of its civilian workforce (+$0.4m); and

Cost attribution - progressive refinement of Defence's cost attribution rules to reflect changes in workforce distributions and expenditure patterns and other minor variations (-$14.6m).

• a net increase in supplier expenses (+$42.2m) due to: - payment to the University of New South Wales for Australian Defence Force Academy staff superannuation liabilities (+$6.0m);

- changes in accounting treatment of revenue collected under garrison support contracts, which is no longer offset against expenses (+$2.0m);

- lower levels of expenses incurred on Defence’s recruitment contract due to improvement in separation rates (-$2.9m);

- rephasing of some information systems and business improvement projects to 2004-05 to reflect changed schedules for these projects (-$3.6m);

- the redirection to inventory purchases as Defence progressively reduces backlogs in this area (-$28.0m);

153 Chapter Two

- the redirection of major capital project costs related to Outcome Four for the Joint Strike Fighter, incorrectly attributed to Outcome One in the projected result (+$54.8m); and

- progressive refinement of Defence's cost attribution rules to reflect changes in workforce distributions and expenditure patterns and other variations (+$13.9m).

• a net decrease in inventory consumption (-$21.8m) due to: - the flow through of improvements in the pricing of explosive ordnance (-$12.3m);

- an overstatement of inventory consumption estimate (-$26.3m); and

- progressive refinement of Defence's cost attribution rules to reflect changes in workforce distributions and expenditure patterns, and other variations (+$16.8m).

• a net increase in grants due to a reclassification of research agreements between the Defence Science and Technology Organisation and universities, the Point Nepean community grant, the Mornington Peninsula land grant and refinement to cost attribution rules (+$1.8m). • a net decrease in depreciation and amortisation expenses (-$76.8m) due to: - a revaluation of buildings and infrastructure (+$21.9m);

- a review of the useful life on the repairable items on a number of platforms, including the F-111C aircraft (+$23.5m);

- an understatement of the depreciation estimate (+$18.6m);

- the reclassification of some operating leases into finance leases (+$6.0m);

- greater than anticipated adjustment in other property, plant and equipment required to correct an error in the migration of assets from Defence’s legacy financial system (DEFMIS) to ROMAN (-$17.4m);

- the non-requirement to proceed with the anticipated adjustment in specialist military equipment relating to the migration of assets from Defence's legacy financial system (DEFMIS) to ROMAN (-$222.8m);

- net movements from asset revaluations, assets under construction roll-out, assets first recognised and property sale delays (+$42.5m); and

- progressive refinement of Defence's cost attribution rules to reflect changes in workforce distributions and expenditure patterns and other variations (+$50.9m).

• a net decrease in value of assets sold (-$27.6m) due to: - the value of assets sold for which Defence owes an annuity to Defence Housing Authority (+$11.2m);

- lower than anticipated receipts from a program of sales of F/A-18 Hornet aircraft radar equipment to the United States Navy (-$13.0m);

- an overestimation of the expected proceeds for other property, plant and equipment (-$8.4m);

154 Outcome Four: Air Force Capabilities

- delay in the property sales program due to Government decisions, the need to refer works at Randwick, New South Wales, to the Public Works Committee, and variations in project scheduling for various reasons including the lead time required to consider local and State Government priority (-$45.0m); and

- progressive refinement of Defence's cost attribution rules to reflect changes in workforce distributions and expenditure patterns and other variations (+$27.6m).

• a net increase in the write-down of assets (+$208.2m) due to: - asset disposals including F/A-18 Hornet aircraft radars, Black Hawk helicopters and night vision goggles (+$60.0m);

- the write-down of specialist military equipment, including assets under construction through project-initiated reviews including JP 2030 – Air Command Support System and JP 2070 – Lightweight Torpedoes (+$42.0m);

- a large scale review of Defence's inventory holdings by the Defence Materiel Organisation (+$31.3m);

- the transfer of assets, including George's Heights and Chowder Bay to the Sydney Harbour Foreshore Trust (+$32.1m);

- the reclassification of certain fixed assets in Standard Defence Supply System as inventory (+$28.7m);

- the flow through of improvements in the pricing of explosive ordnance, including inventory consumed throughout the year and inventory still to be consumed (+$23.4m);

- an adjustment to account for the change from $1,000 to $2,000 in the asset threshold for administrative assets, and the removal of grouping of these assets (+$18.9m);

- an increase in inventory disposals (+$8.8m); and

- progressive refinement of Defence's cost attribution rules to reflect changes in workforce distributions and expenditure patterns and other variations (-$37.0m).

• a net decrease in borrowing costs (+$3.0m) due to: - the reclassification of some operating leases into finance leases (+$0.8m); and

- progressive refinement of Defence's cost attribution rules to reflect changes in workforce distributions and expenditure patterns and other variations (+$2.2m).

• a net increase in other expenses (+$17.8m) due to: - an increase in the provision for Defence's share of the Commonwealth's common law liability for asbestos-related diseases (+$14.2m);

- corrections arisng from the reconciliation of Defence Housing Authority annuity balances (+$2.6m); and

155 Chapter Two

- the resolution of past errors in accounting for the transfer of expense and revenue items between Defence and special public monies accounts. Items transferred after 30 June 2003 have been accounted for correctly (+$1.0m).

• a net increase in the sale of goods and services (-$13.4m) due to: - increased fuel sales to foreign governments (-$0.6m);

- the sale of equipment to other government agencies (-$1.4m); and

- progressive refinement of Defence's cost attribution rules to reflect changes in workforce distributions and expenditure patterns and other variations (-$11.4m).

• a net decrease in the revenue from sale of assets (+$35.4m) due to: - the delay in the property sales program due to Government decisions, the need to refer works at Randwick, New South Wales, to the Public Works Committee, and variations in project scheduling for various reasons including the lead time required to consider local and State government priority sale proposals (+38.2m);

- an overestimation of the expected proceeds for other property, plant and equipment (+$8.4m);

- lower than anticipated receipts from a program of sales of F/A-18 Hornet aircraft radar equipment to the United States Navy (+$13.0m);

- the revenue received from the sale of housing for which Defence owes an annuity to Defence Housing Authority (-$11.2m); and

- progressive refinement of Defence's cost attribution rules to reflect changes in workforce distributions and expenditure patterns and other variations (-$13.0m).

• a net increase in the allocation for assets now recognised (-$99.5m) as a due to: - the reclassification of a prior year adjustment to 'other revenue' in respect of Air 5400 (air-to-air missiles for the F/A-18 Hornet aircraft) (+$49.0m);

- assets identified following site audits and other remediation activities (-$25.5m);

- the reclassification of certain fixed assets in the Standard Defence Supply System as inventory (-$28.7m);

- the reconciliation of the ROMAN fixed asset register to the Standard Defence Supply System – Defence’s inventory management system – following the introduction of the Standard Defence Supply System version 4 (-$58.1m); and

- progressive refinement of Defence's cost attribution rules to reflect changes in workforce distributions and expenditure patterns and other variations (-$36.2m).

• a net increase in other revenue (-$20.6m) due to: - Australian National Audit Office audit services received free of charge (-$0.8m);

- changes in accounting treatment of revenue collected under garrison support contracts, which is no longer offset against expenses (-$2.0m);

156 Outcome Four: Air Force Capabilities

- the receipt of liquidated damages including for the F/A-18 Hornet aircraft upgrade and lead-in-fighter projects to fund a program of rectification works caused by delays in the projects (-$6.8m);

- net variations due to the timing difference between invoices for transactions in foreign currencies entering the system and being paid (-$4.5m);

- the reclassification of a prior year adjustment to 'other revenue' in respect of Air 5400 (air-to-air missiles for the F/A-18 Hornet aircraft) (-$49.0m); and

- progressive refinement of Defence's cost attribution rules to reflect changes in workforce distributions and expenditure patterns and other variations (+$42.5m). Price Summary of Outputs for Outcome Four – Air Force Capability for Table 2.19 the Defence of Australia and its Interests Budget Revised Projected Actual Variation(4) Variation Estimate Additional Result(2) Result (3) Estimate(1)

2003-04 2003-04 2003-04 2003-04 2003-04 2003-04 $’000 $’000 $’000 $’000 $’000 % Output 4.1 – Capability for Air Combat Operations 1,779,583 1,744,459 1,888,748 1,803,730 -85,018 -4.5 Output 4.2 – Capability for Combat Support of Air Operations 423,662 591,943 571,189 632,241 61,052 10.7 Output 4.3 – Capability for Strategic Surveillance 369,154 474,539 516,409 591,951 75,542 14.6 Output 4.4 – Capability for Maritime Patrol Aircraft 535,451 559,605 535,276 641,287 106,011 19.8 Output 4.5 – Capability for Airlift 895,843 837,858 933,170 831,454 -101,716 -10.9 Price to Government for Outcome Four 4,003,694 4,208,403 4,444,792 4,500,663 55,872 1.3 Notes 1. The Revised Additional Estimate figures have been adjusted since the Portfolio Additional Estimates Statements 2003-04 (p.43) to reflect an improved costing methodology. 2. The Projected Result is consistent with the Portfolio Budget Statements 2004-05. 3. The Actual Price to Government for Outcome Four, as shown in this table ($4,500.663m), relates to Departmental expenses and revenues. The Actual Price to Government for Outcome Four does not include $1.322m of administered revenues. This amount relates to interest received from the foreign military sales account. 4. The variation figures are the difference between the Actual Result and the Projected Result.

157 Chapter Two

Outcome Five: Strategic Policy The Strategy Group provided timely and responsive strategic policy advice to enable the Government to make sound judgements on, and develop appropriate responses to, changes in Australia’s strategic circumstances and specific security issues. This advice contributed to the achievement of Australia’s strategic objectives of fostering the security of our immediate neighbourhood, promoting stability and cooperation in South-East Asia, supporting stability in the wider Asia Pacific region, and supporting global security. The Strategy Group also provided strategic policy guidance to other areas of Defence on force structure, capability development, preparedness of ADF elements, international relationship management and operational matters. The Group also managed the Defence Cooperation Program. Performance Summary The Strategy Group provided coordinated Defence advice to the Government on key strategic issues facing Australia. This included advice on current deployments, the war against terrorism, international responses to the proliferation of weapons of mass destruction, efforts to improve regional security, and enhancing stability in the region. It also included military strategic advice on rebalancing Defence capabilities to better reflect changes in the strategic environment, and absorbing the lessons learned from Australia’s involvement in recent operations. The Strategy Group led the development of the Defence Capability Review in late 2003. The Strategy Group managed and strengthened bilateral defence relationships to support the Government’s security objectives. During the reporting period, the Group: • provided advice on enhancing our alliance with the United States, including such policy initiatives as cooperation on ballistic missile defence, the Joint Combined Training Centre, cooperation with the United States in regional international engagement, and various intelligence, surveillance and reconnaissance activities; • provided policy advice on Australia’s continuing involvement in Iraq, contribution to building new Iraqi security institutions, and creating a new bilateral defence relationship with the government of Iraq; • coordinated Defence involvement in the international Proliferation Security Initiative, which now has the support of over 60 nations, and contributed advice on Defence’s roles and capabilities to whole-of-government reviews of Australia’s domestic security; • coordinated advice on changes to Defence’s involvement in regional peacekeeping operations in East Timor and the Solomon Islands; and • provided advice to the Minister for Defence and senior Defence officials to support their involvement in bilateral and multilateral visits and activities. Australia’s strong defence relationships in the Asia Pacific region were sustained by broad-based programs of dialogue, training and joint projects. An important initiative was the Defence-hosted Regional Special Forces’ Counter-Terrorism Conference, held in June 2004, to establish links and share information about national counter-terrorism response mechanisms and capabilities. In addition, Defence continued to provide substantial support to the Pacific patrol boat program, the Papua New Guinea Defence Force reform program and a wide range of defence cooperation activities with other

158 Outcome Five: Strategic Policy nations. The Group coordinated Defence engagement with major powers such as China, Russia, Japan and India, and with traditional friends such as New Zealand. The Government created the Australian Strategic Policy Institute Limited (ASPI) in July 2001 to function as a strategic policy research centre, independent of the Government, providing policy-related research and analysis to better inform the Government’s decisions and public understanding of strategic and Defence issues. Under the Commonwealth-ASPI funding agreement managed by Strategy Group, ASPI drew $2.26m in 2003-04 and will draw $2.261 million in 2004-05. For those funds, ASPI commits to a core research program and public engagement plan of benefit to Defence and the Australian strategic studies debate that includes the publication of a specified number of studies and reports on key issues relevant to Australian strategic and defence priorities, and to a program of seminars, workshops and Government-Academic (1.5 track) strategic dialogues. Capability Performance Information

Performance Targets Capability for Strategic and International Policy, Activities and Output 5.1 Engagement This output provides strategic and international policy advice to the Government to enable it to make sound judgements on, and develop appropriate responses to, changes in Australia’s strategic circumstances, and on specific security issues as they arise. It also applies strategic policy guidance to assist the development of recommendations to the Government on international engagement activities and initiatives. Performance Targets Performance The Government is provided with comprehensive Substantially Achieved. Defence provided and timely strategic policy advice on current and comprehensive and timely strategic policy advice to emerging international defence issues. the Government that contributed to the achievement of Australia’s strategic objectives. This included policy advice in support of a range of ministerial visits to foreign countries. Defence also provided advice on: - issues associated with the effort to stabilise and rebuild Iraq; - advancing Australia's alliance objectives with the United States in areas such as missile defence and interoperability; - the UN peacekeeping operation in East Timor; - the Regional Assistance Mission to the Solomon Islands; - the Enhanced Cooperation Program with Papua New Guinea (including further support to the Papua New Guinea Government’s defence reform program); - defence relations with the wider Asian region; and - the development of defence cooperation with other nations. Issues related to the handling of detainees in Iraq by a Coalition force exposed some shortcomings in information flows within Defence and between Defence and ministers (see the Year in Review by the Secretary and the Chief of the Defence Force in Chapter One).

159 Chapter Two

Defence’s international engagement activities Achieved. Defence undertook a comprehensive continue to support Australia’s efforts to promote range of international engagement activities to regional and global security. support Australia’s efforts to promote regional and global security. This included strategic-level dialogue between senior Australian and foreign defence officials, consultation and cooperation on areas of mutual interest, conduct of training and training-related projects and exercises conducted under the Defence Cooperation Program. Defence supported multilateral security initiatives, such as the Proliferation Security Initiative, and hosted an important regional counter-terrorism conference. Defence’s overseas representatives contribute to the Achieved. Defence’s overseas representatives effective management of Australia’s defence interests successfully contributed to the effective management in the context of overall bilateral relationships. of Australia’s defence interests, achieved largely through their advice on, and personal contributions to, developing and strengthening bilateral relationships with allies and neighbours. Their activities were guided by Defence’s objectives for international engagement with particular countries, as well as directives to Defence Attachés, that were consistent with Australia’s defence interests. Effectively manage the Defence Cooperation Achieved. Defence successfully manages the Program to achieve the aims of the program. Defence Cooperation Program to achieve a number of significant outcomes. The program involves a range of activities aimed at strengthening defence relationships in accordance with the international engagement objectives articulated in the Defence International Engagement Plan. Activities include the provision of training, technical advice, infrastructure development and logistics support to a range of regional nations. Specific details can be found in the Defence Cooperation section later in this outcome.

Output 5.2 Capability for Military Strategy and Strategic Operations This output provides strategic policy guidance to assist the development of recommendations to the Government on force structure, capability development, preparedness of ADF elements and operational matters as they arise. It also includes advice to the Government on the command of ADF operations. Performance Targets Performance Defence is able to provide regular advice to the Achieved. Defence monitors the strategic Government on military options and preparedness environment continually and produces a classified that reflect the changing strategic environment. document called the Quarterly Strategic Review. Defence also assesses the ability of the ADF to provide military response options at designated levels of readiness, and reports this monthly in the Defence Performance Summary to the Defence Committee, including recommended changes to preparedness levels, contingency planning and remediation of capability deficiencies. Defence provided timely and responsive strategic policy advice on developments in the strategic environment that could affect employment of the ADF.

160 Outcome Five: Strategic Policy

This advice included revised military strategic priorities to support the Defence Capability Review, commencement of the development of Defence planning guidance to meet the requirements of the Defence Procurement Review, the drafting of a Defence space policy, evaluation of Defence and whole-of-government business continuity plans, and the ongoing development of future warfighting concepts. The review of Defence capability priorities takes into Achieved. The Defence Capability Review was account Australia’s changing strategic environment completed and a revised public version of the and the Government’s expectations of Defence. Defence Capability Plan was released in February 2004. The review recognised the new challenges faced from the threat of terrorism, the proliferation of weapons of mass destruction and the risk of failed states within our region. The review resulted in Government decisions to rebalance the Defence Capability Plan and ensure that Defence was positioned to achieve the objectives of the Defence White Paper 2000. The Defence Procurement Review, completed in September 2003, recommended a number of changes designed to ensure capabilities met strategic objectives. The Government’s response included the creation of the Capability Development Group, and changes in the Defence Materiel Organisation (as discussed in Chapter Three - Capability Development Group and Chapter Six - Materiel Reform). The Government is provided with comprehensive Achieved. Defence provided the Government with and timely strategic advice on current and emerging comprehensive and timely strategic advice on current operational issues. and emerging operational issues. This included advice on issues associated with operations in Iraq (Operation Catalyst), Australia’s support to the Solomon Islands (Operation Anode), Australia’s continued assistance to UN peacekeeping in East Timor (Operation Spire), Defence support for the Rugby World Cup (Operation Scrummage) and planning for Defence support to the Melbourne Commonwealth Games in 2006 (Operation Acolyte). In addition, Defence provided advice on issues associated with other military operations that supported Australia’s foreign policy objectives and national sovereignty interests. ADF joint and combined operations are effectively Achieved. A number of ADF joint and combined managed at the strategic level. military operations in support of Government policy were effectively managed at the strategic level. These included Operation Catalyst (Australia’s contribution to the rehabilitation and reconstruction of Iraq), Operations Citadel and Spire (Australia’s contribution to United Nations Mission of Support in East Timor and Operation Anode (Australia’s contribution to the Regional Assistance Mission to the Solomon Islands). Other military operations that supported Australia's foreign policy objectives and national sovereignty interests were sustained. This included Operation Slipper (support to the war against terrorism in the Middle East Area of Operations) and Operation Relex II (the deterrence of unauthorised arrivals entering northern Australia by sea), and Operation Scrummage (security for the Rugby World Cup).

161 Chapter Two

Price to Government Outcome Five – Strategic Policy for the Defence of Australia and its Table 2.20 Interests Budget Revised Projected Actual Variation(4) Variation Estimate Additional Result(2) Result Estimate(1)

2003-04 2003-04 2003-04 2003-04 2003-04 2003-04 $’000 $’000 $’000 $’000 $’000 % Operating Expenses Employees - Military 63,686 67,576 66,931 45,787 -21,143 -31.6 Employees - Civilian 39,005 37,912 38,856 37,764 -1,093 -2.8 Sub-Total Employees 102,691 105,488 105,787 83,551 -22,236 -21.0 Suppliers expenses 111,861 103,924 115,911 114,630 -1,281 -1.1 Inventory consumption 408 - - 668 668 - Sub-Total Suppliers 112,269 103,924 115,912 115,299 -613 -0.5 Grants 89 8 24 38 14 58.3 Depreciation and amortisation 9,583 5,254 5,180 4,325 -855 -16.5 Value of assets sold - - 582 579 -3 -0.5 Write-down of assets 106 1,435 1,479 12,998 11,519 778.9 Borrowing costs 207 313 258 275 17 6.7 Other expenses -21 10 - 973 973 - Total Operating Expenses from Ordinary Activities 224,925 216,433 229,221 218,037 -11,184 -4.9 Revenues Sale of goods and services -9,900 -11,618 -6,324 -8,649 -2,325 36.8 Revenue from sale of assets - - -582 -962 -380 65.3 Assets now recognised -119 -1,133 -1,378 -1,575 -197 14.3 Other revenues (3) -1,477 -1,150 -794 -1,067 -273 34.3 Total Own Source Revenues -11,495 -13,901 -9,078 -12,253 -3,175 35.0 Price to Government for Outcome Five 213,429 202,532 220,143 205,784 -14,359 -6.5 Notes 1. The Revised Additional Estimate figures have been adjusted since the Portfolio Additional Estimates Statements 2003-04 (p.45) to reflect an improved costing methodology. 2. The Projected Result is consistent with the Portfolio Budget Statements 2004-05. 3. The Actual Result amount for Other revenues includes interest and dividends, net foreign exchange gains/losses and resources received free of charge. 4. The variation figures are the difference between the Actual Result and the Projected Result. Explanation of Significant Variations The overall price of Outcome Five was $14.4m lower than the 2003-04 projected result, representing a decrease of 6.5 per cent. The major variations were due to: • a net decrease in military employee expenses (-$21.1m) due to: Salary and allowances - an overestimate of long service and annual leave to be paid in 2003-04 (-$0.1m);

- an overstatement of the military employees salaries estimates in 2003-04 (-$0.1m);

- decreased take-up rate and overstatement of the estimate for the Home Purchase Assistance Scheme (-$0.1m);

- an overstatement of salary advances (-$0.1m);

162 Outcome Five: Strategic Policy

Superannuation - the decision not to proceed with the proposed transfer of the liability for the Defence Force Retirement and Death Benefits Scheme 3 per cent productivity benefit from the administered to departmental accounts (-$1.8m);

- an overstatement of military superannuation estimates in 2003-04 (-$0.1m);

Housing - an increase in housing expenses including buy out of old, on-base housing annuities and increased take-up rate by members without dependents using rental assistance rather than living-in accommodation (+$0.1m);

Compensation - a decrease in the number and value of claims for lump sum compensation for permanent impairment (-$0.1m);

Health - increased health costs relating to medical and professional fees (+$0.2m);

Fringe benefits tax - an underestimate of fringe benefits tax payable for rental allowance for members without dependants (+$0.2m);

Cost attribution - progressive refinement of Defence's cost attribution rules to reflect changes in workforce distributions and expenditure patterns and other variations (-$19.2m);

• a net decrease in civilian employee expenses (-$1.1m) due to: Salary and allowances - the recognition of Defence Integrated Distribution System redundancy costs in 2003-04, rather than in 2004-05 as originally planned (+$0.6m);

- lower full-time equivalent-average personnel than projected in 2003-04 (-$0.1m);

- an overstatement of the civilian employee salaries in 2003-04 (-$0.6m);

Superannuation - payment to the University of New South Wales for Australian Defence Force Academy staff superannuation liabilities from supplier expenses rather than civilian employee expenses (-$0.8m);

- an underestimate of the impact of the changing profile of members in the Commonwealth Superannuation Scheme and Public Sector Superannuation schemes (+$0.4m);

Leave liability - an increase in the future leave liability costs resulting from the new Defence Employee Certified Agreement (+$0.8m);

163 Chapter Two

- an increase in the future leave liability costs resulting from the Commonwealth Superannuation Scheme/Public Sector Superannuation rate increases on leave liabilities (+$0.2m);

- a recalculation of accrued leave balances arising from actuarial reviews and errors in certain aspects of the estimates (+$0.2m); and

Cost attribution - progressive refinement of Defence's cost attribution rules to reflect changes in workforce distributions and expenditure patterns and other variations (-$1.8m).

• a net decrease in supplier expenses (-$1.3m) due to: - payment to the University of New South Wales for Australian Defence Force Academy staff superannuation liabilities (+$0.5m);

- lower levels of expenses incurred on Defence’s recruitment contract due to improvement in separation rates (-$0.1m);

- the rephasing of some information systems and business improvement projects to 2004-05 to reflect changed schedules for these projects (-$0.3m);

- the redirection to inventory purchases as Defence progressively reduces backlogs in this area (-$2.3m); and

- progressive refinement of Defence's cost attribution rules to reflect changes in workforce distributions and expenditure patterns and other variations (+$0.9m).

• a net increase in inventory consumption (+$0.7m) due to the progressive refinement of Defence's cost attribution rules to reflect changes in workforce distributions and expenditure patterns and other variations. • a net decrease in depreciation and amortisation expenses (-$0.9m) due to: - net movements from asset revaluations, assets under construction roll-out, assets first recognised and property sale delays (+$0.2m);

- a revaluation of buildings and infrastructure (+$0.5m);

- a review of the useful life on the repairable items on a number of platforms (+$0.1m);

- the reclassification of some operating leases into finance leases (+$0.2m);

- an understatement of the depreciation estimate (+$0.1m);

- the non-requirement to proceed with the anticipated adjustment in specialist military equipment relating to the migration of assets from Defence's legacy financial system (DEFMIS) to ROMAN (-$1.1m);

- greater than anticipated adjustment in other property, plant and equipment required to correct an error in the migration of assets from Defence’s legacy financial system (DEFMIS) to ROMAN (-$0.1m); and

- progressive refinement of Defence's cost attribution rules to reflect changes in workforce distributions and expenditure patterns and other variations (-$0.8m).

164 Outcome Five: Strategic Policy

• a net increase in write-down of assets expense (+$11.5m) due to: - asset disposals including F/A-18 Hornet aircraft radars, Black Hawk helicopters and night vision goggles (+$2.2m);

- the write-down of specialist military equipment assets (+$1.5m);

- a large-scale review of Defence's inventory holdings by Defence Materiel Organisation which led to inventory being recognised as obsolete (+$1.1m);

- the transfer of assets, including George's Heights and Chowder Bay to the Sydney Harbour Foreshore Trust (+$0.8m);

- the flow through of improvements in the pricing of explosive ordnance, including inventory consumed throughout the year and inventory still to be consumed (+$0.8m);

- an adjustment to account for the change from $1,000 to $2,000 in the asset threshold for administrative assets, and the removal of grouping of these assets (+$0.5m);

- an increase in inventory disposals (+$0.3m);

- the reclassification of certain fixed assets in Standard Defence Supply System as inventory (+$0.2m); and

- progressive refinement of Defence's cost attribution rules to reflect changes in workforce distributions and expenditure patterns and other variations (+$4.1m).

• a net increase in other expenses (+$1.0m) due to: - an increase in provision for Defence's share of the Commonwealth's common law liability for asbestos-related diseases (+$0.8m);

- corrections arising from the reconciliation of Defence Housing Authority annuity balances (+$0.1m); and

- the resolution of past errors in accounting for the transfer of expense and revenue items between departmental and special public monies accounts (items transferred after 30 June 2003 have been accounted for correctly) (+$0.1m).

• a net increase in revenue from sales of goods and services (-$2.3m) due to: - increased fuel sales to foreign governments (-$0.1);

- the sale of equipment to other government agencies (-$0.2m); and

- progressive refinement of Defence's cost attribution rules to reflect changes in workforce distributions and expenditure patterns and other variations (-$2.0m).

• a net increase in revenue from sale of assets (-$0.4m) due to: - the delay in the Property Sales Program due to Government decisions, the need to refer works at Randwick, New South Wales, to the Public Works Committee, and variations in project scheduling for various reasons including the lead time required to consider local and state government priority sale proposals (+$0.6m);

165 Chapter Two

- an overestimation of the expected proceeds for other property, plant and equipment (+$0.2m);

- revenue received from the sale of housing for which Defence owes an annuity to Defence Housing Authority (-$0.3m); and

- progressive refinement of Defence's cost attribution rules to reflect changes in workforce distributions and expenditure patterns and other variations (-$0.9m).

• a net increase in revenue from assets now recognised (-$0.2m) due to: - assets identified following site audits and other remediation activities (-$0.6m);

- the reclassification of certain fixed assets in Standard Defence Supply System as inventory (-$0.2m);

- the reconciliation of the ROMAN fixed asset register to the Standard Defence Supply System – Defence’s inventory management system – following the introduction of Standard Defence Supply System version 4 (-$0.5m); and

- progressive refinement of Defence's cost attribution rules to reflect changes in workforce distributions and expenditure patterns and other variations (+$1.1m).

• a net increase in other revenue (-$0.3m) due to: - net variations due to the timing difference between invoices for transactions in foreign currencies entering the system and being paid (-$0.1m); and

- progressive refinement of Defence's cost attribution rules to reflect changes in workforce distributions and expenditure patterns and other variations (-$0.2m). Price Summary of Outputs for Outcome Five – Strategic Policy for the Table 2.21 Defence of Australia and its Interests Budget Revised Projected Actual Variation(3) Variation Estimate Additional Result(2) Result Estimate (1)

2003-04 2003-04 2003-04 2003-04 2003-04 2003-04 $’000 $’000 $’000 $’000 $’000 % Output 5.1 – Capability for Strategic and International Policy, Activities and Engagement 170,465 172,658 173,382 176,172 2,790 1.6 Output 5.2 – Capability for Military Strategy and Strategic Operations 42,964 29,874 46,761 29,612 -17,149 -36.7 Price to Government for Outcome Five 213,429 202,532 220,143 205,784 -14,359 -6.5 Notes 1. The Revised Additional Estimate figures have been adjusted since the Portfolio Additional Estimates Statements 2003-04 (p.46) to reflect an improved costing methodology. 2. The Projected Result is consistent with the Portfolio Budget Statements 2004-05. 3. The variation figures are the difference between the Actual Result and the Projected Result.

166 Defence Cooperation The aims and objectives of the Defence Cooperation Program are to support the Government’s strategic objectives by: • contributing to the maintenance of regional security; • working with allies, regional partners and others to shape the global and regional environment in a way favourable to Australia and the ADF; • consolidating acceptance of Australia as an obvious and legitimate participant in deliberations on issues that affect regional security; and • encouraging and assisting with the development of the defence self-reliance of regional countries. These activities encompass assistance to regional security forces in the areas of strategic planning, command and control, infrastructure, communications and logistics support. The Defence Cooperation Program also supports the conduct of combined exercises to improve the ability of regional countries to contribute to regional security. Expenditure for the Defence Cooperation Program in 2003-04 was $70.6m. The table below summarises the achievement of the Defence Cooperation Program by region. More details on the cooperation program in the South Pacific and South-East Asian regions can be found later in this section. Table 2.22 Defence Cooperation Summary(1) 2001-02 2002-03 2003-04 2003-04 2003-04 2004-05 Actual Actual Budget Revised Actual Budget Estimate Estimate Estimate $’000 $’000 $’000 $’000 $’000 $’000 Papua New Guinea 27,710 9,434 9,083 9,083 14,508 22,688 South Pacific Region 17,480 22,478 24,699 24,699 25,028 25,503 South-East Asia 29,668 25,831 28,042 28,042 26,417 26,558 Other regional activities 889 1,521 1,699 1,699 738 1,343 Defence International Training Centre(2) 3,819 3,384 4,208 4,208 3,873 4,208 Total 79,568 62,648 67,731 67,731 70,564 80,300 Notes 1. Figures may not add due to rounding. 2. The Defence International Training Centre enhances the training provided in Australia to South-East Asian and South Pacific defence forces and other selected personnel overseas. Funding was transferred to Air Force for the management of the centre from 2003-04. Papua New Guinea

Performance Summary The Australian Government continued to provide substantial assistance during the year to the Papua New Guinea Government’s defence reform program. The aim of the program is to achieve stability in the defence force by making it smaller, more affordable and better managed. In 2003, the Australian Government agreed to provide a second and final tranche of financial support to the redundancy program of up to a further $20m. A framework for the administration of this support was agreed with Papua New Guinea, and the first increment of funds was released, accounting for the increase in actual spending over estimates. Completion of the redundancy program will reduce the force to the target

167 Chapter Two of no more than 2,000 personnel. Australia is working closely with Papua New Guinea as it develops plans for the next stage of the Papua New Guinea Defence Force reform program. The Defence Cooperation Program with Papua New Guinea focused on training, technical advice, infrastructure development and logistics support. Training and technical advice concentrated on the maritime and land elements of the Papua New Guinea Defence Force. A program of armoury construction was completed and refurbishment of ammunition magazines commenced. Together with awareness training, this infrastructure resulted in significant improvement in the standard for Papua New Guinea Defence Force small arms security. A number of bilateral exercises were conducted, including a second combined engineering activity, Exercise Puk Puk. The Defence Cooperation Program also provided support to Papua New Guinea Defence Force contributions to the Regional Assistance Mission to the Solomon Islands. South Pacific Region

Performance Summary The Defence Cooperation Program in the South Pacific region grew in 2003-04 by $2.5m. This was mainly the result of a full year of re-engagement with Fiji and increasing personnel costs. Increased ADF operational commitments limited the impact of Australia’s bilateral relationships in the region, including the ongoing inability to conduct Air Force maritime surveillance flights over the Pacific. The defence relationship with Fiji has now returned to a level similar to that before the imposition of sanctions by the Australian Government in the wake of the 2000 coup attempt. Australia continued to focus on enhancing the professional ethos of the Republic of Fiji Military Forces and encouraging the development of healthy civil-military relations. A significant phase in Australia’s support to the Tonga Defence Services drew to a close with the completion of infrastructure support projects in Nuku’alofa and at the Tallai Barracks. The emphasis of the Defence Cooperation Program has begun to shift towards training in communications and other specialist areas. Relationships with Samoa, Kiribati, Tuvalu, the Republic of Palau, the Republic of the Marshall Islands, the Federated States of Micronesia and the Cook Islands continued to focus on support to maritime surveillance capabilities. Australia has provided Pacific patrol boats to these countries (the Federated States of Micronesia has three) and continues to provide logistics, fuel, maintenance and training. An ADF advisory team in each of these countries assists the development of sustainable national maritime surveillance capabilities. Australia continued to promote greater multilateral cooperation in maritime surveillance through support to multilateral exercises and the development of further multilateral maritime surveillance agreements. Such measures optimise the employment of scarce maritime surveillance assets.

168 Outcome Five: Defence Cooperation

Table 2.23 South Pacific Region Summary(1) 2001-02 2002-03 2003-04 2003-04 2003-04 2004-05 Actual Actual Budget Revised Actual Budget Estimate Estimate Estimate $’000 $’000 $’000 $’000 $’000 $’000 Vanuatu 1,785 1,900 1,638 1,638 1,562 1,603 Solomon Islands 685 537 606 606 334 498 Tonga 1,470 2,407 2,435 2,435 1,902 1,149 Western Samoa 519 528 656 656 585 1,703 Cook Islands 307 316 403 403 325 346 Fiji 1,291 2,662 3,164 3,164 3,848 3,503 Republic of the Marshall Islands 639 952 1,020 1,020 1,160 882 Federates States of Micronesia 847 848 1,026 1,026 1019 1,137 Tuvalu 542 415 694 694 624 767 Kiribati 653 916 961 961 850 914 Palau 450 647 856 856 791 991 Multilateral General Assistance(2) 8,291 10,350 11,240 11,240 12,027 12,010 Total 17,480 22,478 24,699 24,699 25,028 25,503 Notes 1. Figures may not add due to rounding. 2. Funding relates mainly to support to the Pacific patrol boat program. Vanuatu In Vanuatu, the Defence Cooperation Program centred on the provision of training, advisers and support to communications and the maritime wing of the national police. The focus of training and support from advisers was to improve the basic skills of the mobile force and enhance management. Communications support enhanced the capacity of the Vanuatu Police to coordinate operations in outer islands. Some savings in estimated expenditure were realised from structural adjustments to training and changes in ADF adviser arrangements.

The Solomon Islands Defence cooperation with the Solomon Islands focused on returning a Royal Solomon Islands Police patrol boat to operational order and restoring the advisers necessary to support it.

Tonga Defence cooperation with Tonga focused on training and exercises, infrastructure development and support to Tonga’s three Pacific patrol boats. Training and exercises concentrated on developing communications and engineering capabilities. The completion of a new headquarters building for the Tonga Defence Services marked the end of a major phase of infrastructure development. Projected expenditure was not realised as a result of savings from infrastructure projects and a reduction in the Tongan capacity to participate in training due to operational commitments.

169 Chapter Two

Western Samoa Defence cooperation with Samoa focused on support to the maritime wing of the national police through the Pacific patrol boat program. Lower than expected expenditure was largely the result of reduced patrol boat activity following a fire on board Nafanua.

Cook Islands Defence cooperation with the Cook Islands focused on support to the maritime wing of the national police through the Pacific patrol boat program.

Fiji Defence cooperation with Fiji focused on training, the provision of advisers and support to infrastructure development. The increased expenditure in 2003-04 reflected the first full year of the resumption of the defence relationship. Training centred on the professional development of officers and senior soldiers, while advisers concentrated on basic skills within units. The joint construction by Fiji and Australian Army engineers of a new armoury at Queen Elizabeth Barracks will improve small arms security, and resulted in considerable skills transfer. In addition, Australia provided support to a review of Fiji’s national security and defence arrangements, which will inform the Government of Fiji’s consideration of its future requirements. Australia also maintained its support to Fiji’s three Pacific patrol boats.

Republic of the Marshall Islands Defence cooperation with the Republic of the Marshall Islands focused on support to the Island’s sea patrolling through the Pacific patrol boat program.

Federated States of Micronesia Defence cooperation with the Federated States of Micronesia focused on support to the maritime wing of the national police through the Pacific patrol boat program. Slightly higher than estimated expenditure in 2003-04 was due to increases in ADF adviser costs.

Tuvalu Defence cooperation with Tuvalu focused on support to the maritime wing of the national police through the Pacific patrol boat program. The increase in expenditure from the last reporting period was due to the restoration of the full complement of ADF advisers.

Kiribati Defence cooperation with Kiribati focused on support to the maritime wing of the national police through the Pacific patrol boat program. A modest level of English language training was introduced to facilitate better performance on technical maritime courses.

Palau Defence cooperation with Palau focused on support to marine law enforcement by the Palau Government, through the Pacific patrol boat program.

170 Outcome Five: Defence Cooperation

Multilateral General Assistance Key activities in 2003-04 were the commencement of the Pacific patrol boat life extension program and support to multilateral exercises. The life extension program will double the life of Pacific-class patrol boats from 15 to 30 years and included the refurbishment of Tarangau from Papua New Guinea. The majority of the increase in expenditure in 2003-04 was due to the finalisation of contractual arrangements for the life extension program and the refit of Tukoro from Vanuatu. Australia’s support to Exercises Big Eye and Kuru Kuru promoted practical multilateral cooperation in maritime surveillance. Australia also supported the development of further multilateral maritime surveillance treaties, modeled on the subsidiary agreement to the Niue Treaty, between the Federated States of Micronesia, Palau, and the Republic of the Marshall Islands. When mature, these arrangements will significantly enhance regional maritime security. In addition, Australia conducted a regional peacekeeping seminar, which increased awareness of peacekeeping issues and explored options for improving regional cooperation.

Pacific Patrol Boat Project Table 2.24 Pacific Patrol Boats by Country Country Boats Cook Islands 1 Fiji 3 Federated States of Micronesia 3 Kiribati 1 Marshall Islands 1 Palau 1 Papua New Guinea 4 Tonga 3 Tuvalu 1 Samoa 1 Solomon Islands 2 Vanuatu 1 Total 22 South-East Asia

Performance Summary The Defence Cooperation Program in the South-East Asia region grew in 2003-04 by nearly $0.6m. This increase reflected the restoration of the cooperation activities that had been reduced in 2002-03 by unexpected international events such as the Severe Acute Respiratory Syndrome crisis and the high ADF operational tempo. Defence cooperation in South-East Asia continued to have a strong focus on counter-terrorism. A Regional Special Forces’ Counter-Terrorism Conference was held in Australia in June 2004, bringing together senior special forces and counter-terrorism experts from 14 countries to establish links and share information about national counter-terrorism response mechanisms and capabilities. Defence cooperation with East Timor continued to support the development of an affordable, sustainable and modestly capable East Timor Defence Force through infrastructure development, language and leadership training.

171 Chapter Two

Positive progress was achieved in the Australia - Indonesian defence relationship, particularly in the areas of senior-level dialogue and visits. Service Chiefs’ visits, interaction between the Commander Northern Command and his Indonesian military counterparts and the conduct of both Army and Navy staff talks all contributed to the bilateral relationship. Defence relationships with Singapore, the Philippines, Thailand and Malaysia remained strong and were sustained by broad-based programs of dialogue, training and joint projects in the fields of logistics, defence science and materiel. Developments in exercise programs for Five Power Defence Arrangements, endorsed by Ministers in June 2004, will see Australia continue to work closely with Malaysia and Singapore in developing a response to asymmetric threats, including from international terrorism. Defence relationships with Thailand, the Philippines and Singapore were strengthened by the contribution these countries made to coalition operations in the war against terrorism and the exchange of lessons learned from these deployments. Defence’s engagement with Vietnam included visits to Australia by the Vietnamese Minister for Defence and the Chief of General Staff. Cooperation on counter-terrorism, as agreed by the Vietnamese and Australian Ministers for Defence, commenced with an inaugural visit to Australia by a Vietnamese special forces delegation, and a joint anti-malaria project was expanded to include research on dengue fever. Defence relationships with Cambodia and Laos continued to develop at an appropriate level, focused on English language training and officer education. Cooperation with Brunei included several high-level visits and a fee-for-service aircraft airworthiness survey. Further work to promote strategic policy development was undertaken with Cambodia and Brunei. Defence participation at regular multilateral Association of South-East Asian Nations Regional Forum meetings and active involvement in confidence-building activities, including the Shangri-la Dialogue of Defence Ministers and senior officials, complemented defence bilateral cooperation in the region. Table 2.25 South-East Asia Summary(1) 2001-02 2002-03 2003-04 2003-04 2003-04 2004-05 Actual Actual Budget Revised Actual Budget Estimate Estimate Estimate $’000 $’000 $’000 $’000 $’000 $’000 Singapore 441 254 428 428 231 292 Philippines 3,175 3,047 3,424 3,424 2,879 2,531 Thailand 4,528 3,478 3,796 3,796 3,560 3,018 Malaysia 4,380 4,483 4,881 4,881 4,678 4,342 Indonesia 5,131 4,583 5,329 5,329 5,048 4,671 East Timor 8,715 7,504 6,864 6,864 7,076 9,397 Vietnam 2,233 1,421 2,161 2,161 1,898 1,365 Cambodia and Laos 970 1,017 1,059 1,059 1,000 897 Brunei 95 44 100 100 49 45 Total 29,668 25,831 28,042 28,042 26,417 26,558 Note 1. Figures may not add due to rounding. Singapore Interaction with the Singapore Armed Forces continued at all levels across a broad range of areas, including high-level policy dialogue, combined exercises, personnel exchanges and training. The Singapore Defence Minister met with the Minister Assisting the Minister for Defence during a visit to Queensland in November 2003 to witness the annual

172 Outcome Five: Defence Cooperation unilateral Singapore Armed Forces Exercise Wallaby at Shoalwater Bay Training Area, Queensland. Defence Ministers met in June 2004 in Singapore at the International Institute for Strategic Studies Shangri-La Dialogue, followed by the Five Power Defence Arrangements Ministers’ informal meeting, also in Singapore. Singaporean detachments continued to utilise RAAF Pearce, Western Australia, and the Army Aviation Centre in Oakey, Queensland, for fixed wing and helicopter flight training. Singaporean personnel attend a wide variety of ADF training courses and Defence cooperation activities. In late 2003, Singapore and Australia conducted a number of mutually beneficial exchanges to share Australia’s lessons learned from operations in Iraq and the Singapore Armed Force’s lessons from dealing with the Severe Acute Respiratory Syndrome crisis. Defence science collaboration with Singapore continues to grow, recognising Singapore’s advanced capabilities in a number of areas where Australia also has a specific interest.

Philippines Australia and the Philippines held a successful Joint Defence Cooperation Committee Meeting in Canberra in February 2004. Defence cooperation continued to focus on education and training, and options for further cooperation on maritime surveillance are being explored. Australian support for the Armed Forces of the Philippines’ reform program continued, especially in the areas of logistics management, equipment acquisition processes, personnel planning and military superannuation. Discussions on counter-terrorist issues were conducted, including participation by the Philippines in the inaugural Regional Special Forces Counter-Terrorist Conference held in Australia in June 2004. Exercise Dawn Caracha, an annual bilateral special forces counter-terrorism training exercise, was successfully conducted in mid-2003.

Thailand The tempo of defence engagement remained high. Two special forces exercises and a special recovery exercise were conducted under the Memorandum of Understanding on Combating International Terrorism. Strategic dialogue was enhanced by a number of senior visitors from Thailand, including the Supreme Commander of the Royal Thai Armed Forces, and the Chief and Deputy Chief of Joint Staff. Australia also hosted a study visit by the Thai Senate Standing Committee on Military Affairs’ Subcommittee on Restructuring the Ministry of Defence in support of the Thai defence reform process. Australian training of Thai military personnel remained a significant part of the relationship, with Australian mobile training teams being utilised to deliver training programs and seminars in Thailand as well as a significant program of training in Australia. A number of joint projects were progressed in the areas of science and technology, logistics and materiel, including a review of safety procedures of Thai military explosives factories, aircraft usage monitoring and an aircraft structural integrity project. Low English language proficiency within the Thai Armed Forces remains an obstacle to achieving higher take-up rates for Australian training and joint initiatives. The establishment of a computer-assisted language learning facility was agreed to address this problem.

Malaysia The strong defence relationship between Australia and Malaysia is sustained by a wide and varied program of cooperative activities under the auspices of the Malaysia-Australia Joint Defence Program. Activities included a resumption of the major combined land exercise

173 Chapter Two activity, Exercise Southern Tiger, in March 2004. Professional contact between the two armed forces continued to be facilitated by the presence of an Army rifle company, a small Air Force detachment at Royal Malaysian Air Force Butterworth, Malaysia and multilateral exercises conducted under the auspices of the Five Power Defence Arrangements. The Malaysia-Australian Joint Defence Program also facilitates mutually beneficial professional military education opportunities and exchange postings, which have broadened into new areas such as aerospace engineering and materials science. Regular contact at high levels, including between the respective Secretaries of Defence, also points to the continued health of the relationship.

Indonesia The bilateral defence relationship progressed well during the reporting period at a pace comfortable to both Governments, with the focus remaining on cooperation in areas of shared strategic interest. Senior-level dialogue included counterpart visits by Service Chiefs. The Indonesian Chief of Army visited Australia in December 2003, our Chief of Navy visited Indonesia in February 2004 and the Indonesian Chief of Air Force visited Australia in May 2004. Dialogue was further enhanced through the resumption of both Army and Navy single Service staff talks in early 2004 and continuing dialogue between the Commander Northern Command and his three TNI counterpart commanders. Other senior-level dialogue over the period focused on regional security, defence systems and policy. Defence provided information analysis training to Indonesian officers under the Memorandum of Understanding on Combating International Terrorism, and Indonesian military (TNI) officers attended the Regional Special Forces Counter-Terrorism Conference held in Australia in June 2004. Further interaction over the period occurred through visits and conference attendances in the areas of mine countermeasure cooperation, peacekeeping, army aviation, air safety and military law. Training provided to TNI remained focused on non-combat-related activities, including postgraduate study and English language training. Limited combat-related training resumed in early 2004. Ongoing junior and senior staff college exchanges enhanced educational interaction between our militaries.

East Timor The Defence Cooperation which commenced in February 2001 continued to contribute to the development of an affordable, sustainable and modestly capable East Timor Defence Force throughout 2003-04. Progress has been made in advancing leadership and professional military skills, and policy and budget development within the Defence Secretariat. There has also been significant infrastructure development. An English language training facility was constructed and successfully completed on time and under budget at the Metinaro Training Base in East Timor. The English language training program in East Timor has moved into this facility and is successfully training Timorese Defence Force personnel. During 2003-04, four Timorese Defence Force graduates of the English language training program in East Timor continued their English training at the Defence International Training Centre in Australia. On completion, several went on to successfully complete the Methodology in English Language Training Course, which is required for them to become English instructors. The second and third iterations of the Platoon Commanders’ Course, a tailored ten-week leadership/officer training course, was successfully completed in East Timor. Graduates

174 Outcome Five: Defence Cooperation from these courses were identified for further leadership development within the Timorese Defence Force. In addition, a number of Timorese Defence Force members have successfully completed training at the Royal Military College and the Australian Defence College. Construction of the Australian advisers’ residential compound project commenced after delays in finalising a suitable site and in negotiating leasing arrangements. When complete, this project will provide a number of family residences, with support and recreational facilities, in a secure environment and permit Defence Cooperation Program advisers to be more effective through longer-term postings. A project to develop a radio communications network, which will link the Dili headquarters with other bases and units in the field, was progressed.

Vietnam Australia's Defence cooperation relationship with Vietnam gained momentum with inaugural visits to Australia by Vietnam’s Minister for Defence and the Chief of General Staff. The defence relationship continued to expand through the development of strategic dialogue, an intelligence exchange and the commencement of counter-terrorism cooperation. A Vietnamese special forces delegation conducted an inaugural study visit to Australia in April 2004. High-level visits, ships visits, training and projects, including the expansion of the anti-malaria project to include research into dengue fever, formed the basis of the relationship.

Cambodia and Laos Australia's bilateral relationships with Cambodia and Laos continued to develop satisfactorily. During 2003-04, officers from Cambodia and Laos attended Australian Defence College English language training, and Defence and emergency management training. Modest support was provided to the Cambodian Command and Staff College, assistance with the implementation of Cambodian White Paper initiatives and new cooperation in the area of counter-terrorism commenced.

Brunei The modest, but very positive, defence relationship with Brunei continued to develop through the conduct of mutually beneficial activities, exercises and training. Highlights of the past year included mutual cooperation in rotary flying standardisation, air safety, logistics and defence materiel. Australia provided technical assistance with the development of a new Brunei Defence White Paper, which was released in July 2004. Exercise Night Leopard, a bilateral special forces war roles training exercise, was successfully conducted in late 2003. In addition, Brunei participated in the inaugural Regional Special Forces Counter-Terrorism Conference held in Australia in June 2004. Other Regional Activities

Performance Summary This budget funded a range of activities, including conferences and seminars, single-Service and combined training, multilateral activities, and Defence cooperation activities with India, Pakistan and Bangladesh. The defence relationships with India and Pakistan, which were suspended in May 1998 following these countries’ nuclear tests, have now resumed

175 Chapter Two and have regained their previous momentum, but with a greater emphasis on activities that will improve the level of strategic dialogue with both countries.

Multilateral Major activities undertaken during the year were the Pacific-area senior officer logistics seminar, the maritime air surveillance course, the Defence management seminar, Five Power Defence Arrangements meetings, study visits, support for multilateral training activities and health costs. Australia continues to benefit from the opportunity to exercise with fellow member nations under the auspices of the Five Power Defence Arrangements. In June 2004, Five Power Defence Arrangements Ministers agreed to expand the focus of the group to incorporate contemporary asymmetric threats to regional security, including the threat of international terrorism.

India Defence cooperation with India included staff college exchanges and senior visits to and from India. The second Defence Joint Working Group meeting with India, held in March 2004, was a significant event in consolidating strategic dialogue with a major regional power.

Pakistan The focus of Defence cooperation activities with Pakistan were staff college exchanges and training activities, with Pakistan participating in emergency management and defence management seminars held in Australia.

Bangladesh The relationship with Bangladesh has continued at a satisfactory, albeit modest, level. Although Bangladesh did not send any representatives to any Australian-run courses during the reporting period, it committed to send participants to the Emergency Management Seminar and International Peace Operations Seminar to be held in Australia during 2004-05.

176 Outcome Six: Intelligence The Intelligence and Security Group provides intelligence collection and analysis to support the planning and conduct of ADF operations, defence policy making and planning, capability development and wider Government decision making. It also provides, on a whole-of-government basis, a range of information security capabilities and services. Performance Summary The Group produced a range of quality intelligence products to support ADF operations, to assist decision makers and advisers, and to provide integrated support for the development of ADF capabilities, while maintaining a high state of readiness. Intelligence operations and capabilities provided real-time and near real-time intelligence analysis and products on a continuous basis, with services and products tailored to specific customer requirements. Further progress was made in meeting the requirements of the ADF for timely intelligence support to deployed forces, and in developing new techniques and systems to comprehend and counter the terrorist threat. The efforts against terrorism led to closer cooperation with the United States and other key intelligence partners. The Group continued to work with capability planners to develop a program of substantial and sustained investment in enhanced intelligence capabilities, including: • the ability to comprehensively monitor and report on several crises concurrently and to provide effective operational support to deployed forces; • improved signals intelligence and imagery collection capabilities; • improved intelligence processing and dissemination systems; and • enhanced levels of cooperation with allies with a greater focus on counter-terrorism issues. Enhanced intelligence capabilities, outlined in the Portfolio Budget Statements 2003-04, have all progressed and are meeting the Government’s and Defence’s increased intelligence requirements. The quality of Defence’s intelligence collection and assessment products were tested by a number of inquiries during the year. The Senate Standing Committee on Foreign Affairs, Defence and Trade examined the circumstances surrounding the Bali bombing of 12 September 2002. In its report, the committee noted that while there was a ‘failure of intelligence’ in relation to Bali, this was not the result of some culpable lapse by Australian Government agencies or individual officials. The Committee stated that it was in no doubt that there was no specific actionable intelligence related to the bombing. The Parliamentary Joint Committee on the Australian Security Intelligence Organisation, Australian Secret Intelligence Service and Defence Signals Directorate inquired into intelligence on Iraq’s weapons of mass destruction and recommended that there should be an independent assessment of the performance of the intelligence agencies, conducted by an experienced former intelligence expert with full access to all the material. This resulted in the commissioning by the Prime Minister of Mr Philip Flood to conduct an inquiry into Australian intelligence agencies. Mr Flood’s recommendations will have significant implications for Defence in 2004-05, particularly in agreeing to a strategy to address the shortfall of ADF personnel in the Defence intelligence agencies.

177 Chapter Two

The Intelligence Group continues to face a number of key risks such as significant security failure, erosion of capability, and catastrophic system failure. During the year, considerable work was undertaken to implement strategies to mitigate these risks, with particular effort being applied to business continuity planning and to further improve Defence intelligence agency security. In the current security environment, the effective integration of risk management principles into daily business has become critically important to providing timely and comprehensive support to deployed forces and to ensuring that systems are reliable. Much of the work in this area continues to be related to sustaining our core capabilities. While the continued recruitment and development of quality staff remains one of the most effective risk mitigation strategies, there is a growing market for intelligence analysts and Defence must compete with other agencies to attract the right people. Nevertheless, the Defence intelligence agencies have been able to attract and retain civilian personnel within the increasingly mobile Australian intelligence community’s workforce. Of more concern is the declining numbers of ADF personnel within the Defence intelligence agencies, which is discussed in more detail below. Capability Performance Information

Output 6.1 Intelligence

Performance Targets Performance Provide quality intelligence products and services. Substantially Achieved. A wide range of intelligence products and services were provided to customers in Defence and other departments and agencies. These included intelligence assessments and reports, signals analysis, imagery analysis and geospatial products and reports, and communications and information security services. The Group was active in broadening the customer base for intelligence, and the electronic distribution of its products was widened to better suit the needs of its customers. The Group continued to provide a high-level of support to the Australian Government’s response to the challenges presented by regional terrorist organisations. Improved understanding of regional terrorist organisations has led to some significant success in stemming the threats to Australian and

Quality allied interests posed by these terrorist groups. The Group consistently received positive feedback on accuracy, timeliness and relevance of its products. The Defence Imagery and Geospatial Organisation’s capacity to support domestic counter-terrorism forces, law enforcement agencies and emergency response activity is being enhanced as part of the Government’s critical infrastructure protection initiative. While the threats posed to Australia’s national interests by regional terrorist groups were a particular focus, the Group also continued to support the Government’s many other high- priority intelligence requirements.

178 Outcome Six: Intelligence

Ensure effective and sustainable intelligence Substantially Achieved. Good intelligence support support for the planning and conduct of ADF was provided for ADF operations conducted during operations and for decision makers. the year. Nevertheless, the high tempo of ADF operations and subsequent requirement for intelligence support constrained the level of effort available for supporting ADF contingency planning. Significant cooperation with close intelligence allies is essential for support to most current and contingent ADF operations. Maintain and develop first rate defence Substantially Achieved. The Defence intelligence intelligence and geospatial information program continued to satisfy the bulk of higher capabilities. priority intelligence requirements. Some current shortcomings will be remedied in 2004-05 as a number of major capital equipment projects come to maturity. In line with these capability enhancements, so too has the workforce expanded. Russell Offices Building R4 has been refitted to accommodate the increased capabilities of the Defence Imagery and Geospatial Organisation as it continues to grow and invest in new technologies. The Defence Imagery and Geospatial Organisation’s capabilities in Bendigo will be enhanced over the next three years following a comprehensive review of the work being undertaken at the Fortuna complex. Maintain the knowledge edge by exploiting new Partially Achieved. The Group has continued to technology. develop and acquire new technologies in order to maintain the knowledge edge. Continued technological advances in a range of areas, including signals intelligence, imagery intelligence and geospatial services, and processing and dissemination, have increased the Group’s ability to Quality support intelligence customers. Strengthen the intelligence contribution to the Substantially Achieved. The strength of the United States alliance, and to relationships with intelligence relationship with the United States is one other intelligence partners. of the cornerstones of the overall Australian/United States alliance. The Group continued to explore new ways of contributing to this and other traditional relationships, and to develop new relationships, particularly in pursuit of terrorist targets. This was achieved during the year through collaboration and burden sharing in the introduction of new capabilities, as well as through the exchange of intelligence product, high-level liaison, good working relationships and improved communications and connectivity. Improve investment and capability planning, Partially Achieved. The Group continued its accountability and resource and security contribution to Defence planning and reporting management. processes, including the balanced scorecard, charter letters, the Defence Management and Finance Plan, and monthly reporting to the Defence Committee. The lack of central direction in the management of the Group’s investment and capability planning and resource management was identified in Mr Flood’s report, and steps are being taken to strengthen these areas. Improved management of the security function has been achieved through the adoption of measures recommended by the Inspector-General of Intelligence and Security including, for the first time, commonality in access control measures.

179 Chapter Two

Ensure processes and systems are effective and Partially Achieved. The Group recognises that the continuously improving. development and modernisation of the information technology and information management environments is essential for ensuring the continued delivery of intelligence and capability outputs into the future. A new Directorate of Business Information Management has been established within the Defence Intelligence Organisation to examine and improve business processes, and plans are being developed to reinvigorate collection management. Develop motivated, adaptable and skilled teams Substantially Achieved. Notwithstanding the issues of highly competent professionals. created by the mobility of intelligence analysts between agencies, the Defence agencies continued to Quality develop as centres of excellence and to invest in measures to raise, train and sustain skilled teams of highly competent analysts. Both the Defence Signals Directorate and the Defence Imagery and Geospatial Organisation ran dedicated graduate recruitment programs in 2003-04 to attract and train technologists and intelligence analysts. This year, in response to operational requirements and increases in the intelligence capability investment program, more than 60 graduates were recruited and trained.

180 Outcome Six: Intelligence

Price to Government Table 2.26 Outcome Six – Intelligence for the Defence of Australia and its Interests Budget Revised Projected Actual Variation(5) Variation Estimate Additional Result(2) Result(3) Estimate(1)

2003-04 2003-04 2003-04 2003-04 2003-04 2003-04 $’000 $’000 $’000 $’000 $’000 % Operating Expenses Employees - Military 52,609 59,392 60,294 58,175 -2,119 -3.5 Employees - Civilian 137,583 140,683 139,125 152,894 13,769 9.9 Sub-Total Employees 190,192 200,075 199,419 211,069 11,650 5.8 Suppliers expenses 138,446 157,388 159,266 154,350 -4,916 -3.1 Inventory consumption 593 1 1 - -1 - Sub-Ttal Suppliers 139,038 157,389 159,268 154,350 -4,918 -3.1 Grants 143 10 30 122 92 306.7 Depreciation and amortisation 82,425 59,839 61,007 69,894 8,887 14.6 Value of assets sold - - 2,635 1,664 -971 -36.8 Write-down of assets 836 1,380 1,320 33,464 32,145 2,435.1 Borrowing costs 349 966 377 360 -17 -4.5 Other expenses -15 9 - 2,769 2,769 - Total Operating Expenses from Ordinary Activities 412,969 419,669 424,055 473,693 49,637 11.7 Revenues Sale of goods and services -6,694 -6,740 -3,232 -2,821 411 -12.7 Revenue from sale of assets - - -2,635 -2,497 138 -5.2 Assets now recognised -1,673 -910 -3,493 -5,958 -2,465 70.6 Other revenues (4) -1,516 -3,179 -1,587 -4,957 -3,370 212.4 Total Own Source Revenues -9,884 -10,829 -10,946 -16,232 -5,286 48.3 Price to Government for Outcome Six 403,085 408,839 413,109 457,460 44,351 10.7 Notes 1. The Revised Additional Estimate figures have been adjusted since the Portfolio Additional Estimates Statements 2003-04 (p.47) to reflect an improved costing methodology. 2. The Projected Result is consistent with the Portfolio Budget Statements 2004-05. 3. The Actual Price to Government for Outcome Six, shown in this table ($457.460m), relates to Departmental expenses and revenues. The Actual Price to Government for Outcome Six does not include $0.146m of administered revenues. This amount relates to interest received from the foreign military sales account. 4. The Actual Result amount for Other revenues includes interest and dividends, net foreign exchange gains/losses and resources received free of charge. 5. The variation figures are the difference between the Actual Result and the Projected Result.

Explanation of Significant Variations The overall price of Outcome Six was $44.4m greater than the 2003-04 projected result, representing an increase of 10.7 percent. The major variations were due to: • a net decrease in military employee expenses (-$2.1m) due to: Salary and allowances - an overestimate of long service and annual leave to be paid in 2003-04 (-$0.2m);

- an overstatement of the military employees salaries estimates in 2003-04 (-$0.2m);

- decreased take-up rate and overstatement of the estimate for the Home Purchase Assistance Scheme (-$0.1m);

181 Chapter Two

- an overstatement of salary advances (-$0.1m);

Superannuation - the decision not to proceed with the proposed transfer of the liability for the Defence Force Retirement and Death Benefits Scheme 3 per cent productivity benefit from the administered to departmental accounts (-$2.3m);

- an overstatement of military superannuation estimates in 2003-04 (-$0.1m);

Housing - an increase in housing expenses including buy-out of old, on-base housing annuities and increased take-up rate by members without dependents using rental assistance rather than living-in accommodation (+$0.1m);

Compensation - a decrease in the number and value of claims for lump sum compensation for permanent impairment (-$0.1m);

Health - increased health costs relating to medical and professional fees (+$0.2m);

Fringe benefits tax - an underestimate of fringe benefits tax payable for rental allowance for members without dependants (+$0.3m); and

Cost attribution - progressive refinement of Defence's cost attribution rules to reflect changes in workforce distributions and expenditure patterns and other variations (+$0.4m).

• a net increase in civilian employee expenses (+$13.8m) due to: Salary and allowances - the recognition of Defence Integrated Distribution System redundancy costs in 2003-04, rather than in 2004-05 as originally planned (+$2.6m);

- lower full-time equivalent-average personnel than projected in 2003-04 (-$0.3m);

- an overstatement of the civilian employee salaries in 2003-04 (-$2.4m);

Superannuation - payment to the University of New South Wales for Australian Defence Force Academy staff superannuation liabilities from supplier expenses rather than civilian employee expenses (-$3.4m);

- an underestimate of the impact of the changing profile of members in the Commonwealth Superannuation Scheme and Public Sector Superannuation schemes (+$1.4m);

Leave liability - an increase in the future leave liability costs resulting from the new Defence Employee Certified Agreement (+$3.4m);

182 Outcome Six: Intelligence

- an increase in the future leave liability costs resulting from the Commonwealth Superannuation Scheme/Public Sector Superannuation rate increases on leave liabilities (+$0.9m);

- a recalculation of accrued leave balances arising from actuarial reviews and errors in certain aspects of the estimates (+$0.9m);

Health - a variation in health costs reflecting more emphasis by Defence on the health and wellbeing of its civilian workforce (+$0.2m);

Other - greater than planned per capita personnel costs (+$7.8m) offset in supplier expenses; and

Cost attribution - progressive refinement of Defence's cost attribution rules to reflect changes in workforce distributions and expenditure patterns and other variations (+$2.7m).

• a net decrease in supplier expenses (-$4.9m) due to: - payment to the University of New South Wales for Australian Defence Force Academy staff superannuation liabilities (+$0.6m);

- changes in accounting treatment of revenue collected under garrison support contracts, which is no longer offset against expenses (+$0.2m);

- the reduced level of expense by the Intelligence and Security Group to offset higher civilian employee expenses (-$7.8m);

- lower levels of expenses incurred on Defence’s recruitment contract due to improvement in separation rates (-$0.1m);

- the rephasing of some information systems and business improvement projects to 2004-05 to reflect changed schedules for these projects (-$0.4m);

- the redirection to inventory purchases as Defence progressively reduces backlogs in this area (-$2.9m); and

- progressive refinement of Defence's cost attribution rules to reflect changes in workforce distributions and expenditure patterns and other variations (+$5.5m).

• a net increase in grants expense (+$0.1m) due to reclassification of research agreements between the Defence Science and Technology Organisation and universities, the Point Nepean community grant, the Mornington Peninsula land grant and refinement to cost attribution rules (+$0.1m). • a net increase in depreciation and amortisation expenses (+$8.9m) due to: - net movements from asset revaluations, assets under construction roll-out, assets first recognised and property sale delays (+$1.8m);

- a revaluation of buildings and infrastructure (+$0.9m);

183 Chapter Two

- a review of the useful life on the repairable items on a number of platforms (+$1.0m);

- an understatement of the depreciation estimate (+$0.8m);

- greater than anticipated adjustment in other property, plant and equipment required to correct an error in the migration of assets from Defence’s legacy financial system (DEFMIS) to ROMAN (-$0.7m);

- the reclassification of some operating leases into finance leases (+$0.7m);

- the non-requirement to proceed with the anticipated adjustment in specialist military equipment relating to the migration of assets from Defence's legacy financial system (DEFMIS) to ROMAN (-$9.4m); and

- progressive refinement of Defence's cost attribution rules to reflect changes in workforce distributions and expenditure patterns and other variations (+$13.8m).

• a net decrease in the value of assets sold expense (-$1.0m) due to: - the value of assets sold for which Defence owes an annuity to Defence Housing Authority (+$0.3m);

- an overestimation of the expected proceeds for other property, plant and equipment (-$0.4m);

- the delay in the property sales program due to Government decisions, the need to refer works at Randwick, New South Wales, to the Public Works Committee, and variations in project scheduling for various reasons including the lead time required to consider local and State Government priority (-$2.6m); and

- progressive refinement of Defence's cost attribution rules to reflect changes in workforce distributions and expenditure patterns and other variations (+$1.7m).

• a net increase in the write-down of assets expense (+$32.1m) due to: - asset disposals including F/A-18 Hornet aircraft radars, Black Hawk helicopters and night vision goggles (+$5.9m);

- the write-down of specialist military equipment assets (+$3.9m);

- a large scale review of Defence's inventory holdings by the Defence Materiel Organisation which led to inventory being recognised as obsolete (+$2.9m);

- the transfer of assets, including George's Heights and Chowder Bay to the Sydney Harbour Foreshore Trust (+$1.3m);

- the flow through of improvements in the pricing of explosive ordnance, including inventory consumed throughout the year and inventory still to be consumed (+$2.1m);

- an adjustment to account for the change from $1,000 to $2,000 in the asset threshold for administrative assets, and the removal of grouping of these assets (+$1.0m);

184 Outcome Six: Intelligence

- the reclassification of certain fixed assets in Standard Defence Supply System as inventory (+$0.8m);

- an increase in inventory disposals (+$0.8m); and

- progressive refinement of Defence's cost attribution rules to reflect changes in workforce distributions and expenditure patterns and other variations (+$13.4m).

• a net increase in other expenses (+$2.8m) due to: - an increase in provision for Defence's share of the Commonwealth's common law liability for asbestos-related diseases (+$2.2m);

- corrections arising from the reconciliation of Defence Housing Authority annuity balances (+$0.4m); and

- the resolution of past errors in accounting for the transfer of expense and revenue items between departmental and special public monies accounts (items transferred after 30 June 2003 have been accounted for correctly) (+$0.2m).

• a net decrease in revenue from sales of goods and services (+$0.4m) due to: - the sale of equipment to other government agencies (-$0.1m); and

- progressive refinement of Defence's cost attribution rules to reflect changes in workforce distributions and expenditure patterns and other variations (+$0.5m).

• a net decrease in revenue from sale of assets (+$0.1m) due to: - the delay in the Property Sales Program due to Government decisions, the need to refer works at Randwick, New South Wales, to the Public Works Committee, and variations in project scheduling for various reasons including the lead time required to consider local and state government priority sale proposals (+$2.2m);

- an overestimation of the expected proceeds for other property, plant and equipment (+$0.4m);

- the revenue received from the sale of housing for which Defence owes an annuity to Defence Housing Authority (-$0.3m); and

- progressive refinement of Defence's cost attribution rules to reflect changes in workforce distributions and expenditure patterns and other variations (-$2.2m).

• a net increase in revenue from assets now recognised (-$2.5m) due to: - assets identified following site audits and other remediation activities (-$1.0m);

- the reclassification of certain fixed assets in Standard Defence Supply System as inventory (-$0.8m);

- the reconciliation of the ROMAN fixed asset register to the Standard Defence Supply System – Defence’s inventory management system – following the introduction of Standard Defence Supply System version 4 (-$1.6m); and

- progressive refinement of Defence's cost attribution rules to reflect changes in workforce distributions and expenditure patterns and other variations (+$0.9m).

185 Chapter Two

• a net increase in other revenue (-$3.4m) due to: - Australian National Audit Office audit services received free of charge (-$0.1m);

- changes in accounting treatment of revenue collected under garrison support contracts, which is no longer offset against expenses (-$0.2m);

- net variations due to the timing difference between invoices for transactions in foreign currencies entering the system and being paid (-$0.5m); and

- progressive refinement of Defence's cost attribution rules to reflect changes in workforce distributions and expenditure patterns and other variations (-$2.6m). Price Summary of Output for Outcome Six – Intelligence for the Defence Table 2.27 of Australia and its Interests Budget Revised Projected Actual Variation(4) Variation Estimate Additional Result(2) Result (3) Estimate(1)

2003-04 2003-04 2003-04 2003-04 2003-04 2003-04 $’000 $’000 $’000 $’000 $’000 % Output 6.1 - Intelligence 403,085 408,839 413,109 457,460 44,351 10.7 Price to Government for Outcome Six 403,085 408,839 413,109 457,460 44,351 10.7 Notes 1. The Revised Additional Estimate figures have been adjusted since the Portfolio Additional Estimates Statements 2003-04 to reflect an improved costing methodology. 2. The Projected Result is consistent with the Portfolio Budget Statements 2004-05. 3. The Actual Price to Government for Outcome Six, shown in this table ($457.460m), relates to Departmental expenses and revenues. The Actual Price to Government for Outcome Six does not include $0.146m of administered revenues. This amount relates to interest received from the foreign military sales account. 4. The variation figures are the difference between the Actual Result and the Projected Result.

186 Outcome Seven: Superannuation and Housing Support Services for Current and Retired Defence Personnel

Output 7.1 – Superannuation and Housing Support Services for Current and Retired Defence Personnel Outcome Seven covers administered activities that Defence performs on behalf of the Government. This outcome contributed to the provision of superannuation and housing support services to current and retired Defence personnel. Defence also administered reimbursements from the UN for costs associated with East Timor and returned the receipts to the Government. Details on the performance of these administered activities are outlined below. Performance Summary

Administered Revenue Revenues administered on behalf of the Government represent dividends from the Defence Housing Authority; non-taxation revenue, which includes contributions for military superannuation; and reimbursement from the UN for costs associated with East Timor. These revenues are returned to the Government once collected. The total revenues administered increased by 5 per cent from the 2003-04 projected result to $855.8m in 2003- 04.

Superannuation for Current and Retired Defence Personnel This includes all superannuation services provided for current and retired Defence personnel under the Defence Force Retirement and Death Benefits Scheme and the Military Superannuation and Benefits Scheme. The total expenses increased by 12 per cent from the 2003-04 projected result to $2,296.5m in 2003-04.

Housing Assistance for Current and Retired Defence Personnel In 2003-04, Defence and the Defence Housing Authority completed the fourth year of an agreement for the delivery of housing services to ADF members. The agreement can be extended until 2010, subject to the Authority meeting agreed key performance indicators in 2006 and 2008. The overall aim of the Defence Housing Authority is to provide a single point for housing and relocation services to ADF members and their families. This includes housing assistance provided for current and retired Defence personnel under the Defence Home Owner Scheme. This scheme provides a subsidy on the interest payable on a home loan for members of the ADF and is covered by the Defence Force (Home Loans Assistance) Act 1990. The housing subsidies provided to ADF members and their families in 2003-04 was approximately $8.2m.

187 Chapter Two

Price to Government Outcome Seven – Superannuation and Housing Support Services for Table 2.28 Current and Retired Defence Personnel Budget Revised Projected Actual Variation(3) Variation Estimate Additional Result(2) Result Estimate(1)

2003-04 2003-04 2003-04 2003-04 2003-04 2003-04 $’000 $’000 $’000 $’000 $’000 % Administered Expenses Housing subsidies 5,700 7,400 7,500 8,202 702 9.4 Retention benefits 30,600 21,200 29,400 27,297 -2,103 -7.2 Military superannuation benefits 2,200,000 2,200,000 1,980,000 2,261,210 281,210 14.2 Other expenses 181 - - - - - Total Administered Expenses 2,236,481 2,228,600 2,016,900 2,296,708 279,808 13.9 Administered Revenues Foreign Government and the UN reimbursements for East Timor -23,000 -23,000 -23,000 - 23,000 - Housing dividends -205,400 -204,100 -229,364 -230,698 -1,334 0.6 Military superannuation contributions -607,683 -557,683 -557,683 -607,885 -47,202 8.5 Other revenues - - - -3,929 -3,929 - Total Administered Revenues -836,083 -784,783 -810,047 -839,512 -29,465 3.6 Price to Government for Outcome Seven 1,400,398 1,443,817 1,206,853 1,457,196 250,343 20.7 Notes 1. The Revised Additional Estimate figures have been adjusted since the Portfolio Additional Estimates Statements 2003-04 to reflect an improved costing methodology. 2. The Projected Result is consistent with the Portfolio Budget Statements 2004-05. 3. The variation figures are the difference between the Actual Result and the Projected Result.

Explanation of Significant Variation - Expenses Expenses administered on behalf of the Government increased by $279.8m to $2.3 billion, an increase of 13.9 per cent from the 2003-04 projected result. The major variation is due to an increase of $281m for military superannuation benefits as a result of pay rise effects.

Explanation of Significant Variation - Revenue Revenue administered on behalf of the Government increased by $29.5m to $839.5m, representing an increase of 3.6 per cent from the 2003-04 projected result. The major variation is due to an increase in superannuation contributions of $47.2m as a result of pay rise effects. In addition, actual UN reimbursements for East Timor totalling $20.2m are part of Outcome One.

188 Intentionally left blank

189 Photo opposite: an Armidale-class patrol boat under construction at the Austal shipyard in Henderson, Western Australia. CHAPTERTHREE

As at 30 June 2004, the Defence Group Materiel Organisation was managing Contributions 248 major capital projects As at 30 June 2004, the Corporate This chapter describes the Services and Infrastructure Group was contribution of the Defence managing 24 major and 82 medium Groups that: capital facilities projects

• provide the equipment, Defence manages approximately infrastructure and other support 3 million hectares of land and that help to deliver the Defence 60 major ADF bases outputs; and Defence has over 100 properties on the • advise and support the Commonwealth Heritage List and many Government and Defence others with heritage significance to ensure the efficient and effective operation of Defence The Defence Science and Technology and the development of future Organisation is Australia’s second capabilities. largest government scientific research organisation

Capability Development Group’s dedicated test and evaluation directorate undertakes trials and concept demonstrations. Seven major defence trials were completed during 2003-04 including the detonation of five tonnes of explosive to determine the effect on exposed structures Chapter Three

Vice Chief of the Defence Force Group In March 2004, the Vice Chief of the Defence Force Group was restructured and the Vice Chief of the Defence Force was assigned the additional responsibility of Chief of Joint Operations, with command over the newly formed Joint Operations Command. Capability Systems Division, which was formerly a part of the Group, was transferred to the Capability Development Group in February 2004 as part of the restructure. The achievements of Capability Systems Division are reported under the Capability Development Group’s contribution later in this chapter. The role of the Vice Chief of the Defence Force is to act as the Chief of the Defence Force in his absence, and to act as Deputy Commander supporting the Chief of the Defence Force in his command of the ADF. The role of Chief of Joint Operations is the delivery of Defence Outcome One – ‘Command of Operations in Defence of Australia and Its Interests’ (see Chapter Two – Outcome One for further details). This section outlines the owner-support functions of the Vice Chief of the Defence Force Group comprising Strategic Operations1, ADF Reserve and Cadet policy and the ADF Parliamentary Program. Strategic Operations As part of the Joint Operations Group, Strategic Operations Division coordinates and provides military advice relating to operations at the strategic level and supports the Chief of the Defence Force (through the Chief of Joint Operations) in his planning and command of ADF operations. The Division’s primary functions are maintaining strategic situational awareness by: • liaising with interdepartmental and international organisations; • monitoring operations in its 24-hour command and control centre; • leading military planning for operations at the strategic level by coordinating input from senior Defence decision makers, other Defence groups and government departments; and • providing accurate and timely advice to the Government, Minister, Chief of the Defence Force, Chief of Joint Operations, other senior Defence decision makers, and other government departments. The division formulated policy relating to operations, developed and issued Chief of the Defence Force orders, and monitored the accomplishment of those orders. The major military operation during 2003-04 was Operation Catalyst, Australia’s contribution to the rehabilitation of Iraq. The division was also involved in the planning, monitoring and reporting on Operations Anode, Citadel, Slipper, Relex II, Mistral, Cranberry and Acolyte (see Chapter Two – Outcome One for further details on these operations).

1 Strategic Operations Division was transferred to Joint Operations Command (Defence Outcome One) on 16 March 2004.

192 Vice Chief of the Defence Force Group

Reserve Policy The Defence White Paper 2000 stated that the Government would show the way as a major employer of Reservists by providing leave policies and employment practices that support the release of Reservists for peacetime training and deployment. Consistent with this commitment, agreements are now in place to provide Reservists with access to leave for training and deployment: • The Public Sector Leave Policy for Defence Reservists, released in December 2003, requires Australian Government departments and agencies to include supportive policies for the provision of leave for Reservists in certified agreements. • The Private Sector Leave Guidelines for Defence Reservists, released in March 2004, provide non-government employers with guidance on supportive leave arrangements and encourages them to support their employees in undertaking Reserve service. In addition, revised arrangements for the ADF Reserves Employer Support Payment Scheme, authorised under Defence Determination 2002 (Employer Support Payments), became operative on 1 July 2003. These revisions included: • extending eligibility for employer support payments to include all Australian Government departments; and • authorising the Chief of the Defence Force to approve additional payments when necessary to provide a required Defence Force capability; - under this authority, the Chief of the Defence Force has approved higher levels of employer support payments to employers (or self-employed individuals) of specified Reserve medical, dental, nursing or allied health officers deployed on, or directly supporting, specified operational deployments.

These revised arrangements have enhanced the operation and effectiveness of the Employer Support Payment Scheme. Through their training, Reservists gain capability and experience which can be used in their civilian workplaces. Reserve training is, in many respects, akin to management and personnel development training and is provided at no cost to the civilian employer. Whenever possible, Reserve training is accredited with registered training organisations under the Australian Quality Training Framework. Following Government direction, the civil accreditation of Reserve training has been accelerated with the result that Defence now has an extensive range of qualifications for which Reservists can seek civil accreditation. Australian Defence Force Cadets The Australian Defence Force Cadets comprises the Australian Navy Cadets, the Australian Army Cadets and the Australian Air Force Cadets. The Cadet organisations are community-based and supported by their parent Services and the Directorate of Defence Force Cadets. This partnership, between the community and Defence, provides opportunities for young people to develop in an adventurous, military-like setting. Some 24,500 young Australians participate as Navy, Army or Air Force Cadets, in over 480 Cadet units throughout Australia and are supervised by over 2,500 adult volunteers. Former Cadets continue to make up a significant proportion of recruits into the ADF and

193 Chapter Three studies show that former Cadets are more likely to remain in the Services for a longer period of time. The Services allocate over $30m annually to Cadets and the Government has committed additional funding of $6m per annum through the Cadet Enhancement Program. This program provides funding for a range of initiatives designed to improve the quality of the Cadet experience. The achievements of the Cadet Enhancement Program in 2003-04 are reported separately in Chapter Five – Performance against People Matter Priorities for 2003-04. ADF Parliamentary Program The ADF Parliamentary Program aims to provide parliamentarians with a rewarding, memorable and educational experience with the ADF and so enable them to contribute to debate on defence and national security issues in an informed and constructive manner. The 2004 program offered a number of options comprising 21 different attachments for the consideration of parliamentarians. This year’s attachments included Exercise RIMPAC (an international naval exercise), an attachment to 4 RAR (Commando) and a week with an F/A-18 squadron. A total of 17 parliamentarians participated in the various options during the 2004 program. In June 2004, the program also conducted the first mature ADF exchange program with six ADF personnel attached to either a senator or member’s office at Parliament House. Since its inception, 40 parliamentarians have participated in various opportunities offered by the program.

194 Defence Science and Technology Organisation The Defence Science and Technology Organisation has focused on implementing the directions outlined in the Defence White Paper 2000 and Defence Update 2003 by seeking to make best use of technology and expanding the skills required to exploit technology to benefit Australia’s defence. This included major contributions to Defence outcomes and the Government’s national research priorities such as safeguarding Australia and frontier technologies for building and transforming Australian industries. The organisation also contributed significantly to Government reviews: mapping Australia’s science and innovation activities, a review of closer collaboration between universities and major publicly-funded research agencies2, the work of the National Research Infrastructure Taskforce3 and the evaluation of knowledge and innovation reforms4. These contributions are outlined below. Results for 2003-04

Outcome One – Command of Operations The research conducted and support given to Command of Operations included: Command of Operations Research – improving the effective application of information technologies in a collocated headquarters, and technical support to enhancing a continuous situational awareness capability for command decision making. The organisation also conducted research into developing advanced modelling and simulation tools for operations planning, enhancing information fusion capabilities for headquarters’ environments, and enhancing existing systems that support the command and control of coalition operations. Defence Force Military Operations and Exercises – deploying personnel to provide on-site technical advice and support to both Operation Anode and Operation Catalyst. Additionally, the organisation provided technical support to develop security architectures to protect Defence information environment connections to both allied and coalition networks. Contribution to National Support Tasks – providing support and technical advice to other government organisations. This included technical support to Customs in developing a facial recognition system for access control, collaborative research with the CSIRO to enhance proposed protection measures for national critical infrastructure, and command and control analysis support for national counter-terrorism exercises for the Attorney-General’s Department.

2 The review was coordinated by the Department of Education, Science and Training. Additional information is available at: http://www.dest.gov.au/collaboration/default.htm. 3 The taskforce was coordinated by the Department of Education, Science and Training. Additional information is available at: http://www.dest.gov.au/highered/ri_taskforce/default.htm. 4 The evaluation was coordinated by the Department of Education, Science and Training. Additional information is available at: http://www.dest.gov.au/highered/ki_reforms/default.htm.

195 Chapter Three

Outcome Two – Navy Capabilities The maritime science and technology research program included research in the following areas: Capability for Major Surface Combatants – providing support to concept of operations development for capability assessment, maximising the potential capability improvements gained from implementing network-centric warfare technologies, and enhancing existing above and below-water sensors and systems. Capability for Naval Aviation Operations – providing technical advice on life-management issues associated with the Sea King, Seahawk and Super Seasprite helicopters and component systems, and on missile system tactical capabilities and limitations. Capability for Patrol Boats – providing advice on optimum crewing strategies and other human-factor issues, and supporting the specification and procurement of sensors for the replacement patrol boats. Capability for Submarine Operations – providing advice on the replacement combat system, issues relating to the structural integrity of the hull and on propulsion systems. Support was provided to maximise the availability and effectiveness of the current submarine fleet including: technical advice relating to acoustic signature control, battery performance and propeller life management. The organisation also provided support in relation to the procurement, testing and deployment of torpedoes. Capability for Mine Warfare – supporting the mine hunter coastal platform through advice on signature reduction for reduced vulnerability and for improved structural reliability in the event of damage. Capability for Amphibious Lift and Afloat Support – providing advice on the procurement of future amphibious systems.

Outcome Three – Army Capabilities The land science and technology research program included research in the following areas: Capability for Special Forces Operations – enhancing existing communication and information systems, providing technical advice on large-strike and unconventional capabilities, and improving mobility, insertion and extraction techniques. Capability for Mechanised Operations – providing science and technology support to the acquisition and introduction into service of the main battle tank replacement. Technical advice and support was also provided in enhancing the communications and navigation systems of armoured fighting vehicles, identifying the required battlefield effects of future combat vehicle weapon systems, and providing through-life support for existing vehicle fleets. Capability for Light Infantry Operations – supporting development of the urban operations capability, improving collective training evaluation, and providing technical support to improving soldier performance as part of the soldier combat system project. Capability for Army Aviation Operations – providing science and technology support to the acquisition and introduction into service of the armed reconnaissance helicopter and

196 Defence Science and Technology Organisation troop-lift helicopter. Technical advice and support was also provided on enhancing collision avoidance systems, improving night flying performance and optimising the performance of aircrew equipment. Capability for Regional Surveillance – research into determining the capabilities and technologies required in future networked battlefield surveillance systems. Technical advice and support was also provided to enhance existing active and passive sensor systems and systems architecture. Capability for Protective Operations – enhancing current biomedical threat assessment and diagnostic techniques, improving protective personal equipment and ensembles, and developing a chemical decontamination and collective protection program.

Outcome Four – Air Force Capabilities The air science and technology research program included research in the following areas: Capability for Air Combat – providing support to the current F/A-18 and F-111 fleets to improve operational effectiveness and survivability including operational advice prior to deployment in the Middle East, reducing the cost of Defence ownership through investigation and advice on structural integrity management issues, as well as providing technical support on the evaluation and acquisition of future air combat capabilities. Capability for Strategic Surveillance – providing technical advice on enhancing secure datalinks and communications systems, improving airborne surveillance systems’ interactions with the national surveillance network, and research into improving the Australian air defence system. The organisation also conducted research into force development and simulation using the virtual air environment, and provided significant technical support for the evaluation and acquisition of the airborne early warning and control aircraft. Capability for Maritime Patrol Aircraft – undertaking capability analysis for the replacement of the maritime patrol and response capability, providing technical advice on extending the life of the current airframe and engine systems, and technical advice and support for current radar and multi-static sonar systems, as well as providing advice on operational tactics development. Capability for Airlift– providing acquisition support for replacing the air refuelling capability, research into optimising aircrew workloads, and technical advice and through-life support provided for the C-130 and Caribou fleets. The organisation also developed an innovative and cost-effective solution to correct propeller balance in the C-130J, and provided vital technical support to optimise the survivability of the C-130H/J on deployment.

Outcome Five – Strategy The research conducted and support given to Strategy Group included: Military Strategy and Strategic Operations – providing technical recommendations to senior managers on how best to improve strategic Defence capabilities. Technical advice was provided to improve Defence capability in the following areas: strategic interoperability, current and future force structures, capability option analysis, whole-of-force readiness and whole-of-force sustainability, the ADF lift capability, maritime patrol and maritime response, ground-based air defence, ADF helicopter platform rationalisation and the ADF air-to-air refuelling capability.

197 Chapter Three

Strategic and International Policy, Activities and Engagement – maintaining effective science and technology relationships with other countries. The most important element was ongoing participation in The Technical Cooperation Program with the United States, the United Kingdom, Canada and New Zealand; a significant additional activity was hosting the rotating annual meeting of program principals in October 2003. The Defence Science and Technology Organisation also continued separate bilateral science and technology arrangements with nations including the United States, the United Kingdom, Canada, New Zealand, France, the Netherlands, Singapore, Thailand, Malaysia and Indonesia. In addition, the organisation provided technical advice and support on UN disarmament and arms control initiatives and contributed to the science and technology research annex of the United States-Australia agreement on missile defence.

Outcome Six – Intelligence Research conducted and support given included evaluating the effectiveness of selected systems, applications and tools for use in the Defence intelligence system; providing technical advice on developments in science and technology that have the potential to threaten the security of Australia; and providing technical assistance to develop solutions to identified intelligence problems. Making the Best Use of Science and Technology and Australian Industry The Defence Science and Technology Organisation began implementing a new planning framework that centres around three core planning processes: strategic, technology capability and program planning. The new framework introduces a new science and technology capability plan to allow the organisation to better adapt its science and technology capabilities and workforce to future requirements. It will support the alignment of the organisation’s future science and technology capabilities with known client needs, while taking into account trends in defence technologies. The organisation also commenced implementing change strategies and organisational improvement recommended by the Defence Procurement Review. Achievements in this area included: • developing policy on, and a structure for, conducting technical risk assessments on all projects being presented to the Government for first and second pass approval (for more detail on the ‘two pass’ implementation process, refer to Chapter One – New Capability Development and Acquisition Process section); • establishing a dedicated cell to support Defence’s new Capability Development Group; and • developing an agreement with the Defence Materiel Organisation for the provision of science and technology support during its transition to the prescribed agency model in 2005-06. The organisation was well represented in the science, engineering and technology unit established in the Department of the Prime Minister and Cabinet to develop a coherent, focused research program in support of Australia’s counter-terrorism efforts.

198 Defence Science and Technology Organisation

Under the direction of the Minister, an external consultant, Mr Robert Trenberth5, reviewed the organisation’s external engagement and contribution to Australia’s wealth. The organisation received favourable comment from the review and has embraced the review’s recommendations for further improvement by developing plans to: • improve technology access for industry, especially for small to medium enterprises; • deliver more strategic external engagements; • expand the existing capability and technology demonstrator program; and • enhance existing commercialisation mechanisms for technology transfer to industry. Network Security Support to Network Centric Warfare A secure information infrastructure that protects the confidentiality, integrity and availability of information is pivotal to conducting network-centric warfare. To this end, significant research effort was applied during the year to maintaining and enhancing the security of the Defence information infrastructure, with special emphasis placed on work to develop and improve large-scale mobile secure networking. Continued close collaboration with United States’ Government agencies, in particular the Defense Advanced Research Projects Agency, ensured the installation and initial testing of an Australian prototype network intrusion-detection system. Other important research activities included providing technical advice and support to position Defence to utilise the next generation internet protocol, IPv6, in order to maintain and improve Australia's secure interoperability with its allies, especially the United States. Backing Australia’s Ability and National Research Priorities The organisation supported the Government’s 2001 innovation statement Backing Australia’s Ability by contributing to national research priorities in a number of areas, including: • improving support for transformational defence technologies by conducting research programs in counter-terrorism, network-centric warfare, battlespace automation, joint experimentation, and reducing the costs of ownership; and better support to enhancing Defence capability through developing frontier technologies for building and transforming Australian industries and by adopting initiatives to address smart materials; and • entering into an umbrella collaborative research agreement with National Information and Communications Technology Australia Limited to conduct joint research in information and communications technology.

Industry Involvement The organisation’s contribution to national wealth creation was confirmed by Mr Trenberth’s review. Commitment to this objective was evidenced by continued strengthening of links with industry, other government research organisations, cooperative research centres and universities.

5 Mr Trenberth’s work is reported under ‘DomainOne’ consultancy in Table 7.21 of the External Consultants section of the Appendices to this report.

199 Chapter Three

In July 2003, the organisation joined the existing ‘Coastal Zone, Estuary and Waterway Management’, as well as the new ‘Integrated Engineering Asset Management’ and ‘Advanced Composite Structures’ cooperative research centres, bringing the total number of cooperative research centres to ten with which the organisation collaborated on various research activities during 2003-04. Further licences to transfer dual-use defence technologies to industry were also approved. These included a licence agreement with Pacific Marine Batteries to commercialise the Defence Science and Technology Organisation’s specific gravity sensor technology, and an intellectual property licence with Anatomical Surrogate Technologies to allow the company to develop and market the organisation’s frangible surrogate limb technology. Research agreements and centres of expertise with universities were further developed and expanded. These included: • an additional memorandum of understanding between the organisation and other parties on the Australian Hypersonics Initiative; • establishing two centres of expertise and two corresponding university chair positions, in photonics and microwave radar respectively, at the University of Adelaide; and • a new collaborative agreement with the Royal Melbourne Institute of Technology to develop and commercialise photonics optical modulator technology. The organisation’s support to Australian industry also included undertaking research and development under its outsourcing program, a number of new collaborative research programs with industry and universities, and also three new industry alliance agreements with Tenix Defence, Saab Systems Pty Ltd and the University of Adelaide. People Matter The organisation consolidated its existing people initiatives and extensively re-evaluated its leadership and learning programs during 2003-04. Workshops were designed and facilitated to develop the skills and knowledge of managers within a principles-based environment, and an award framework was developed to help recognise the significant contributions of the organisation’s staff. The organisation’s Continuing Education Initiative was enhanced through additional courses and program development. Staff participation in postgraduate science and technology studies under this initiative increased significantly during the year.

200 Intelligence and Security Group The intelligence function of the Intelligence and Security Group is reported in Chapter Two – Outcome Six. The achievements of the security function of the Group are detailed below. Defence Security Authority The Defence Security Authority’s role is to coordinate security across Defence. Under the leadership of Deputy Secretary Intelligence and Security, the Authority works with ADF commanders, Defence executives and Defence industry to protect Defence’s people, information and assets. The Authority is responsible for: • development of security policy; • provision of specialist security services, such as vetting and threat assessment; • delivery of security training and awareness across Defence; • management of security performance assessment; • undertaking serious and complex security investigations; and • security advice to Defence industry. Results for 2003-04 The Defence Security Authority works with the Service Chiefs and Group Heads on the five strategic themes that guide its performance: • help Defence to secure its capability; • fulfil stewardship expectations; • integrate security into Defence capability; • strive for business excellence; and • build an effective and adaptive security authority. The strategic themes were reviewed and updated in November 2003 and remain consistent with previous themes. Achievement against these themes is outlined below.

Help Defence Secure its Capability During 2003-2004, the Defence Security Authority reviewed the currency and application of protective security policy and re-drafted the Defence Security Manual. The manual is designed to reflect the most recent draft of the Commonwealth Protective Security Manual and world best-practice. In addition, the Authority worked with the Defence Intelligence Organisation and the Services to revise counter-intelligence policy to better integrate this activity across Defence. This has led to an improvement in Defence’s ability to conduct counter-intelligence in a coalition environment. Defence has significantly reduced the backlog of personnel security vetting requests. There are now minimal delays in processing clearances and significant business improvements have been achieved. Electronic vetting packs were introduced during 2003-04 and are being progressively implemented. The Authority has re-validated all overdue Top Secret

201 Chapter Three and Secret clearances and, where necessary, work has commenced on the re-evaluation of these clearances. The security performance assessment program continues to provide assurance to Defence senior leadership on the Defence Security Authority and the whole-of-Defence security performance through self-assessment, evaluations of Defence sites and targeted site reviews. The first review was conducted in December 2003, and lessons learnt from the program are being integrated into Defence policy and security awareness campaigns. Defence continues, through the Safebase security alert system, to implement coordinated, incremental protective security measures, in response to the assessed level of threat to personnel and assets within Australia. Under this system, various Defence facilities received security upgrades during 2003-04 including the installation of surveillance cameras, upgraded alarm systems and improved security of base perimeters. Ongoing funding provides personnel to control access to, patrols of, and conduct mail examination at, Defence facilities. Security at Defence establishments is regularly reviewed and Defence works closely with a number of Government agencies to determine the appropriate level of alert.

Fulfil Stewardship Expectations The Defence Security Authority maintains a strong commitment to ensuring accurate and transparent performance reporting and regularly provides reports on its protective security status to the Defence Committee and Commonwealth forums. The Defence Security and Counter Intelligence Committee, chaired by Deputy Secretary Intelligence and Security, provides oversight and coordination of Defence’s security and counter-intelligence activities.

Integrate Security into Defence Capability The Defence Security Authority conducts security training and awareness primarily for Defence civilians and ADF personnel in joint units. The Authority has trained 932 Unit/Facility Security Officers during 2003-04 and provided 212 security awareness presentations for 8,514 personnel. Security-specific questions in the 2003 annual Defence attitude survey indicated an improvement in individuals’ perception of their supervisor’s security awareness and reflected the investment Defence has made in security awareness activities. The Defence Security Authority has continued to expand the variety of methods used to improve security awareness. During the past year, the Authority introduced a quarterly security newsletter, issue-specific brochures and orientation packs for personnel receiving a security clearance. The Authority has placed emphasis on drawing from lessons learnt from security incidents to develop these products.

Strive for Business Excellence The Defence Security Authority continues to work with the Navy, Army and Air Force to ensure that Defence security issues and policy are addressed in line with Service-specific requirements and are consistent with Commonwealth security policy. Personnel security requirements within Defence have been critically examined to determine the extent to which recruitment and vetting processes are aligned with, and supportive of, each other.

202 Intelligence and Security Group

Build an Effective and Adaptive Security Authority The Defence Security Authority’s national recruitment campaign in 2001 provided a strong foundation for the development of a stable and flexible workforce of generalists and security specialists, from both the public and private sector. The Authority has built upon this foundation and, with the re-integration of the positive vetting area into the Authority, has consolidated a professional and dedicated workforce to provide high quality security services to Defence. A substantial part of that workforce has been focused on, and reduced, the personnel security clearance backlog.

203 Chapter Three

Capability Development Group The Capability Development Group was established on 16 February 2004 as a result of key recommendations of the Defence Procurement Review 2003 (also known as ‘the Kinnaird Review’). The Chief of the Capability Development Group was appointed on 22 December 2003, and is responsible and accountable for assessing and defining new capabilities that the ADF should have now and in the future. The Group is responsible for taking capability proposals through initial Government consideration, and financial endorsement, to final approval by Government. In June 2004, the Chief of the Capability Development Group endorsed a series of ‘implementation tasks’, both short-term and strategic, to establish the Group, and ensure the successful carriage and execution of the applicable Kinnaird Review recommendations. The Group was formed by an amalgamation of previously dispersed Defence capability elements: Capability Systems Division, Capability Investment and Resources Division, Capability and Plans Branch, the Australian Defence Simulation Office, the Directorate of Trials and the Office of Interoperability. The Group works closely with a wide range of stakeholders, both internal and external to Defence, and is developing a close partnership with the Defence Materiel Organisation to ensure the effective implementation of the Kinnaird recommendations and efficient and timely delivery of capability to Defence. Results for 2003-04 The following section outlines the Group’s roles and its achievements during its first few months of operation.

Capability Systems The Capability Systems Division resided within the Vice Chief of the Defence Force Group in the earlier part of 2003-04, but moved to Capability Development Group in February 2004. Notable projects progressed for Government approval included: • acquisition of five air-to-air refuelling aircraft (Project AIR 5402 – ADF Air Refuelling Capability); • acquisition of an additional two airborne early warning and control aircraft (Project AIR 5077 – Airborne Early Warning and Control – Project Wedgetail); • a range of upgrades and refurbishment programs for F/A-18 aircraft (Project AIR 5376 Various Phases – Hornet Upgrade); • acquisition of a main battle tank for land operations (Project LAND 907 – Main Battle Tank Replacement); • acquisition of additional explosive ordnance warstocks (Project JP 2085 Phase 1B - Explosive Ordnance Warstocks); • acquisition of improved anti-ship missile defences for Anzac-class frigates (Project SEA 1448 Phase 2A – ANZAC ASMD Upgrade); and

204 Capability Development Group

• acquisition of an auxiliary oiler to replace HMAS Westralia (Project SEA 1654 Phase 2A – Maritime Operational Support Capability – Westralia Replacement). Other initiatives undertaken in support of capability development included: • heading the development of the latest version of the Defence Capability Plan, under the auspices of the Defence Capability Review 2003. This included a review of all cost estimates associated with unapproved major capital projects and the development of new capability proposals to respond to the war against terrorism and to satisfy other identified capability gaps; • development of departmental processes and procedures associated with the recommendations of the Defence Procurement (Kinnaird) Review 2003. A new version of the Capability Systems Lifecycle Management Manual will reflect those changes and is due for completion by February 2005; and • development and implementation of the ADF Requirements Development Information System. This is an information/knowledge management system being established within Capability Systems Division that will manage all information, regardless of type or form, for all Defence projects and capabilities. The system will reach maturity in late 2005.

Capability Investment and Resources The Capability, Investment and Resources Division provides independent analysis and review of capability issues including the overall balance of investment in capability (current and future), the future structure of the ADF, major investment proposals and priorities. It is also responsible for the development of the forward program of new major capital investment, and the coordination of capability information for the annual Defence Plan and the associated Defence Management and Finance Plan. The division is responsible for implementing the arrangements for the ‘two pass’ approval process between Defence and other government departments, to codify the arrangements with the Government and to provide an earlier, more comprehensive consideration of capability options, their costs, risks and likely schedule. For more detail on the ‘two pass’ implementation process, refer to Chapter One – New Capability Development and Acquisition Process section. The division will implement a more rigorous project-costing methodology which aims to ensure that more accurate project and whole-of-life costs are analysed in support of decisions taken at first and second pass.

Capability and Plans The Capability and Plans Branch was created by integrating elements from Strategy Group (Preparedness and Capability Guidance) and Continuous Improvement Division (Output Evaluation). The branch provides guidance on the preparedness of the force-in-being and the strategy against which the future force structure for the ADF is developed. Capability and Plans staff contribute to Defence planning guidance, which will provide the following annual advice to the Government.

205 Chapter Three

Directorate of Trials The Directorate of Trials manages Defence equipment trials and concept demonstrations that cross Service, Defence and international boundaries. The directorate was previously located in the Defence Science and Technology Organisation. The directorate is engaging with other Capability Development Group staff to conduct trials to support pre-first and second pass decisions. Examples are the ‘Ground-Based Air Defence System transmission of the Recognised Air Picture Trial’, and the ‘High Frequency Surface Wave Radar Operational Trial’ which will be completed over the coming two-year period.

Australian Defence Simulation Office The Australian Defence Simulation Office, previously part of the Office of the Chief Information Officer, formally joined the Capability Development Group on 1 July 2004. The office is responsible for policy direction, collaboration and coordination of simulation activities across Defence. It has prime responsibility for developing and overseeing the implementation of Defence simulation policy and the Defence Simulation Plan. The office promotes the development of approaches to gaining and sustaining knowledge, via simulation, for Defence to make the best use of this technology to enhance capabilities, save resources and reduce risk.

Office of Interoperability The Secretary and the Chief of the Defence Force established the Office of Interoperability on 1 July 2004. The office consists of a small team that addresses issues of interoperability with the United States Armed Forces and other potential coalition partners. The Director-General Interoperability is responsible to the Chief of Capability Development Group and is responsive to the Chief of Joint Operations, for interoperability issues with an operations perspective, and to the Strategy Group for policy issues that might affect Australian and coalition allies. Future Directions The Capability Development Group’s future focus is on setting the future capability agenda for Defence. This will be achieved through annual decision making advice to the Government and delivering against the milestones of the Defence Capability Plan. The Group will continue to refine the business and governance processes implemented in 2003-04 and build on relationships with defence industry.

206 Corporate Services and Infrastructure Group With representatives at every Defence site around the country, the Corporate Services and Infrastructure Group provides essential services and support to more than 90,000 personnel. The overriding objectives of the Group are to be an accountable and responsive organisation to the Government and Parliament, to our customers, to our industry partners and to the communities in which the Defence estate is located. The Group consists of four divisions that are responsible for the delivery of corporate support (including maintenance and garrison support to over 60 major Defence bases); information infrastructure; the acquisition, development and disposal of Defence property; and Defence’s legal services. Results for 2003-04

Capital Facilities The Corporate Services and Infrastructure Group develops facilities to support major capital equipment projects forecast in the Defence Capability Plan, sustain current capability requirements, to support other government initiatives and to meet legislative obligations. During 2003-04, a total of $306m was spent on delivering major and medium capital facilities projects. The Government endorsed the infrastructure asset development process during 2003-04, which links directly to the ‘two pass’ Defence Capability Plan approval process. The linkage between the two processes ensures that the facilities implications and costs are identified when Government is considering a major capital equipment project. During the reporting period, the group delivered three major capital facilities projects (over $6m) and 13 medium capital facilities projects (between $250,000 and $6m). The major projects were the Defence Intelligence Training Centre in Queensland, RAAF Darwin Development of Operational Facilities in the Northern Territory, and the Canberra Multi-User Depot at HMAS Harman in the Australian Capital Territory. More details on the major and medium facilities projects approved by Government in 2003-04 can be found in Chapter Four (Capital Budget).

Capability Upgrades for Training Areas The Standard Training Area Range Safety Net project will deliver comprehensive safety communications to the 24 major land training areas. Commencing in 2002, the safety net system was commissioned on a total of 14 training areas this year, with the remainder to be commissioned by the end of 2004-05. The system contributed to the success of Exercise Crocodile 03 in Shoalwater Bay in Queensland during August-September 2003. The final marksmanship training range was commissioned at the Army Recruit Training Centre at Kapooka, New South Wales, on 25 September 2003. This was the 11th range to be upgraded, providing the ADF with a capability offering the world’s best practice in marksmanship training. The procurement of 600 portable infantry target systems enhanced the capacity for realistic training, with delivery commencing in March and concluding in July 2004. Target systems for armoured vehicles were also upgraded at Puckapunyal, Victoria, in May and at Mount Bundey, Northern Territory, in July 2004.

207 Chapter Three

The continued development of the national training area safety and management information system also enhanced Defence’s capacity for safe and sustainable management of its training area resource. This project will be completed during 2004-05 and will assist in the safe operation and sustainable use of these training areas.

Operational Support The Group provided administrative, garrison and information support services to ADF units and commands involved in the mounting and drawdown phases of ADF operations in the Solomon Islands. Training range, environment and garrison support services were provided by the Group to the Australia-United States bilateral Exercise Crocodile 03. Support was also provided to the ADF’s involvement in the Rugby World Cup 2003, and to ADF units involved in ongoing peacetime national tasks. Further details on these exercises can be found in Chapter Two – Outcome One.

Legal Services During 2003-04, significant progress was made to improve the independence and transparency of the military justice system. This was achieved through the appointment in January 2004 of the Chief Judge Advocate (a military judge) as a statutory appointment, independent of the ADF chain of command, and the appointment of an interim Director of Military Prosecutions. Similar to a civil Director of Public Prosecutions, the Director of Military Prosecutions determines whether to prosecute offences under the Defence Force Discipline Act 1982. Once the necessary legislation is passed, the director will become a statutory appointment independent of the ADF chain of command. Operational legal issues, in the international arena particularly, have rarely been more complex over the past 12 months. During 2003-04, approximately 20 ADF legal officers from the Navy, Army and Air Force were deployed in support of Operations Catalyst (Iraq), Anode (the Solomon Islands) and Citadel (East Timor). These deployed legal officers, together with their Australian-based counterparts, provided advice to commanders on a range of complex legal issues at the strategic, operational and tactical level of operations. The legal officers were instrumental in ensuring that Australia and the ADF complied with our domestic and international legal obligations. In Iraq, some were also embedded in other commands of the Coalition Provisional Authority.

Environmental and Heritage Management A highlight for Defence’s environmental and heritage management has been improved levels of awareness over the last few years to ensure that environmental and heritage considerations are integrated into Defence’s business processes. During 2003-04, Defence’s achievements included a risk assessment of Defence activities conducted in the marine environment; a study to identify contaminants of concern, their use by Defence, and their impacts; and the establishment of the new Environment and Heritage Panel. Further information on Defence’s performance on environment and heritage issues can be found in the Ecologically Sustainable Development and Environmental Performance section of the Appendices.

208 Office of the Chief Information Officer In the Defence White Paper 2000, the Government directed that Defence ensure a focus and priority on information capabilities to position the ADF to harness advances in information technology. To meet the Government’s requirements, the Chief Information Officer was appointed as the coordinating capability manager for the Defence information environment encompassing Defence’s information management and operational systems and supporting information infrastructure, and the relevant planning, policy and governance functions. The role of the Chief Information Officer has evolved during 2003-04, with additional responsibilities allocated as a result of reviews of the organisational, governance and funding arrangements of the Defence information environment. Recent improvements to the information environment concentrated on refining its framework and articulating the manner in which it supports the achievement of Defence outcomes. Results for 2003-04 During 2003-04, Defence reaffirmed its approach to developing an overall framework for its communications and computing systems that also encompassed the information architecture outlined in the Network Centric Warfare Roadmap. The outcomes of this work were: • a vision of the 2010 architecture, including descriptions of the future target states for information capability that were developed as part of the Network Centric Warfare Roadmap; • validation of the Defence Architecture Framework which provides the common methodology for the consistent description of enterprise processes and Defence capability; and • validation of the work undertaken on enterprise processes, which is the highest level description of processes within Defence. Defence continues to experience many issues arising from both legacy systems and process issues, and the effectiveness of current systems and processes to deal with reporting requirements. Defence commissioned three studies looking separately into the organisational, governance and funding arrangements for the Defence information environment. The study into organisational arrangements noted that there were issues concerning non-operational enterprise systems and their development in isolation from each other and from the infrastructure on which they are hosted. Defence will implement the recommendations of all three studies, enhancing the responsibilities of the Chief Information Officer to encompass all aspects of the Defence information environment. This will include strategy and planning through to development, implementation, support, operations and disposal to meet enterprise, Group, and Service requirements. Progress against the initiatives forecast in the Portfolio Budget Statements 2003-04 and the Portfolio Additional Estimates Statements 2003-04 is discussed below. These paragraphs include progress made by the Chief Finance Officer Group, Defence Personnel Executive and the Defence Materiel Organisation in information environment areas pertaining to their responsibilities.

209 Chapter Three

Enhance the Defence Information Environment’s Contribution to Defence Capabilities Improvements have been made to Defence’s preparedness management system to assist in a better understanding and management of the linkages between preparedness levels and costs. The work on the decision support systems project should enable Defence to more accurately cost force element groups and this has facilitated a more comprehensive understanding of the through-life costs. Considerable concept definition work has been carried out to identify how Defence information management can support a networked ADF. These concepts will enhance our warfighting capability by promoting the sharing and use of information to achieve situational awareness, improved performance and decision making and the coordination of desired effects. A strategic intent for the Defence information environment has been developed and will provide a basis for future planning. It articulates the requirements of the future information environment and how performance may be measured. It also foreshadows improvements to overcome current deficiencies and considers the implications for the Defence Management and Finance Plan. The Corporate Information Facility, a component of the Defence Decision Support Project, has been developed and is being progressively populated. This tool will enhance Defence’s strategic decision making by providing a central point of access to trusted and authoritative information.

Develop Funding Methodologies for Joint Information Capabilities Reforms to the ADF command and control structures, and the implementation of the Defence Procurement Review, have established a framework to enable seamless planning and conduct of joint operations in a networked environment. The process now involves robust up-front study, planning, formulation and evaluation of options early in the development cycle to ensure information capabilities are better integrated before they reach the acquisition stage.

Optimise Acquisition and Through-Life Management of Information Capabilities The Defence Information Environment Plan 2003-04 coordinates information and initiatives on activities across the Defence information environment. Initiative monitoring will become increasingly robust as Defence has now developed an holistic view of information environment-related expenditure. Establishing this baseline has given visibility to the real cost of information capabilities. The findings of this review will be further examined in 2004-05, in conjunction with the results of the aforementioned studies on organisational and governance arrangements.

Embrace a National Approach to Information Management During 2003-04, Defence actively participated in the whole-of-government information management strategies and initiatives on spectrum management, information standards and identity management. Additionally, work commenced on information interoperability at the whole-of-government level.

210 Office of the Chief Information Officer

Increase the Competence and Sustainability of the Defence Information Environment Workforce The initial focus has been developing generic job categories and skill sets for professional staff operating the Defence information environment, users of information management terminology and principles, and personnel working with information environment governance, architecture and standards. Defence has also developed a short enterprise architecture course for personnel, with further specialist training at the post-graduate level to be made available through the University of New South Wales at the Australian Defence Force Academy.

Improve Information Assurance The Defence information environment framework helps Defence coordinate its approach to information management and the linkage with the information technology infrastructure. It defines how information is created, manipulated, disseminated and protected across Defence. Further clarity is expected as we expand the framework by defining its relation to Defence’s business processes and the systems that support them.

Optimise the Integration of Information from Enterprise Resource Systems A post-implementation review of the 28 July 2003 Standard Defence Supply System upgrade was conducted in February 2004. As a result of this review, a program of activities was initiated under the banner of the Standard Defence Supply System ‘Get Well’ program. This program aims by December 2004 to develop and implement continued improvement in the integrity of the operation of the Standard Defence Supply System. This will raise the integrity of the Standard Defence Supply System data applied to Defence’s financial statements. Good progress is being made in eliminating software defects and improving system performance across the Defence restricted network. During 2003-04, high-level enterprise architectural descriptions were completed in order to support development of the Personnel Enterprise Resource Program Systems. A finance enterprise architecture and a financial systems strategy were completed. The strategy provides high-level direction for the upgrade of the enterprise financial system, as well as a framework that will direct and guide improvements in Defence’s financial systems. While the Defence Materiel Organisation is undertaking work to further develop their enterprise architecture, and is also developing an architecturally-based strategy for future information systems, some concern remains regarding the deficiencies in the records associated with Defence’s main systems. Remediation of these deficiencies will take several years.

211 Chapter Three

Defence Materiel Organisation

Introduction The Defence Materiel Organisation supports the ADF by acquiring and sustaining leading-edge military equipment. It is staffed by 4,400 Australian Public Service personnel and approximately 1,700 ADF members. These numbers reflect the transfer of the Joint Logistic Command from the Defence Materiel Organisation into the Joint Operations Command with effect from 1 May 2004. The move resulted in a net reduction of 1300 staff from within the Defence Materiel Organisation. The Defence Materiel Organisation has staff located in over 50 locations across Australia, with its headquarters in Canberra. The geographic spread allows staff in the organisation’s core functions of acquisition and sustainment to be collocated with their ADF operational customers and to promote closer partnerships with industry. There are 11 divisions in the organisation. The majority of these divisions are responsible for acquisition, contributing to capability development and whole-of-life support including product disposal. System Program Offices in these divisions are the focal point for procurement, delivery and in-service support for major capital equipment. Three corporate divisions are responsible for standardising business processes, contracting services, information technology, strategic communication, corporate governance, human relations, financial services and strengthening relationships with industry. The Defence Materiel Organisation contributes to Defence’s outcomes by equipping and sustaining the ADF. The organisation was responsible for the management of 248 major capital equipment projects as at 30 June 2004, with a total approved budget of approximately $52 billion. The organisation manages approximately $3.4 billion per annum to sustain ADF equipment and deliver the organisation’s responsibilities. More detail on the top 20 major capital equipment projects for 2003-04 can be found in Chapter Four (Capital Budget). Results for 2003-04

Defence Materiel Organisation Business Model The business model is the basis for establishing the organisation as a prescribed agency from 1 July 2005, under the Financial Management and Accountability Act 1997. The model is currently being implemented. The outcomes and outputs delivered by the organisation have been finalised.

Agency Agreements Considerable work has been undertaken to establish the agency agreement framework associated with the business model. Templates for acquisition agreements covering capital projects and sustainment agreements covering sustainment products have been developed. Under the framework, some 300 project agreements and 100 sustainment product agreements will detail the organisation’s undertakings to its ‘customers’, in terms of deliverables, schedule, standard and price, and will be progressively completed during 2004-05.

212 Defence Materiel Organisation

Overarching Business Management System A corporate-level quality and environmental management system was established, which is the main source for policies, procedures, tools, templates and reference pages on the Defence Materiel Organisation’s business activities. This system collocates up-to-date, internationally recognised processes and practices for easy reference.

Project Reporting Tool An interim project reporting tool was implemented that focuses on providing an overview of a project’s financial performance in a succinct way. The long-term solution will be an improved project schedule and status reporting project management tool, which will provide a uniform approach to progressively standardise project management across all capital projects.

Defence Procurement Advisory Board The board, which consists of public and private sector representatives, had their inaugural meeting in March 2004, and has continued to meet on a monthly basis. The board provides advice and support to the Chief Executive Officer of the Defence Materiel Organisation, and reports to the Government on the implementation of all Defence Procurement Review recommendations.

Delivery of a Commercial Tanker In January 2004, Maritime Division contracted several Australian companies, with expertise in the shipping industry, to assist the Commonwealth in identifying ships suitable for purchase and modification for operation as a naval oiler. MT Delos, a commercial double hull environmentally-sustainable tanker, was delivered on 17 June 2004 and will be modified for naval purposes by 2006-07. The acquisition demonstrates the organisation’s ability to apply innovative procurement processes in response to operational requirements.

Delivery of Land Capabilities During the period, initial testing of the M113 upgraded demonstration vehicles and Bushmaster infantry mobile vehicles was conducted, and the delivery of the Phase 3 Australian light armoured vehicles. Land Systems Division continued its support to ADF operations in the Middle East, the Solomon Islands and East Timor.

Electronic and Weapons Capabilities

ADF operations were supported by the effective deployment and maintenance of communications, command support, electronic warfare systems and explosive ordnance. The Electronic and Weapon Systems Division successfully delivered a new hydrographic database system for the Navy, and air traffic control systems and C-130 aircraft global positioning systems were upgraded for the Air Force. Successful trials of an indigenous phased array radar system were also conducted.

213 Chapter Three

Contracts Achievements in this area include the release of new templates and procurement manuals, a new intellectual property policy, and an interim Defence contracts register. The organisation is conducting further investigations into alternative contracting methodologies and, following a review of the current project alliancing contracts, has removed the ‘trial’ status from project alliancing. Purchasing

Contract Reporting Defence reports on contracts in three complementary locations: • in accordance with Australian Government requirements, eligible Defence contracts valued at $2,000 or more (including orders placed against standing offers, standing offers that have an expected value of $2,000 or more and amendments to contracts that are valued at $2,000 or more) are published on the Commonwealth (Purchasing and Disposals) Gazette; • in response to the Senate Order on Departmental and Agency Contracts (last amended 6 December 2003), Defence makes available on its internet website (under the Industry, Business and Contracting link http://www.defence.gov.au/dmo/id/cic_contracts/cic_contracts.cfm) a list of contracts valued at $100,000 or over that meet certain criteria; and • the ‘Buying Australia Home Page’ (http://www.defence.gov.au/dmo/buying/) provides a searchable database that enables users to access details on certain contracts entered into by the Defence Materiel Organisation. The database is focused primarily on issues associated with Australian and New Zealand content.

Small to Medium Sized Enterprises Defence requires all purchasing areas to adopt processes intended to maximise the opportunity for small to medium enterprises, (enterprises employing less than the full-time equivalent of 200 persons). In particular, Defence will: • regularly open restricted supplies to public tender, thus ensuring supplier lists are current and comprehensive; • for larger purchases, identify opportunities for small to medium enterprises when developing industry requirements; • ensure procurement methods do not discriminate against small to medium enterprises; and • where appropriate, establish one-stop shops so that small to medium enterprises can learn more about Defence needs and register their interest. The Department of Finance and Administration identifies gazetted procurements that are contracted to small to medium-sized enterprises annually. The whole-of-government estimate for 2002-03 is 27.1 per cent by value. It is not expected that the agency breakdown for 2002-03 will be available before early 2005.

214 Defence Materiel Organisation

Australian Industry Involvement The Australian Industry Involvement Program is the major program through which Defence leverages its procurement activity to foster critical Australian industry capabilities and ensure that industry delivers more cost effective Defence capability. To achieve these twin industry goals, sector strategic plans and derivatives have been developed. These plans are aimed at identifying, obtaining and sustaining strategic Australian industry capabilities required to support the ADF now and into the future.

215 Chapter Three

Public Affairs Branch Overview The role of Defence public affairs is to explain the Government’s defence policy and promote and defend Defence’s reputation. The organisation supports all areas in Defence and provides public affairs services for military operations and support activities. The increasing emphasis placed on issues management and public affairs support to military operations continued throughout 2003-04, with support given to operations in Iraq, the Solomon Islands and East Timor in a period of high operational tempo. Public affairs services were provided concurrently to the individual Services and Groups. Non-operational support included public affairs advice, media liaison, image and vision management and the publication of the Navy, Army and Air Force newspapers and the Defence Information Bulletin. From July 2003 to February 2004, the Public Affairs and Corporate Communication Division was a separate division, led by the Head Public Affairs and Corporate Communication. In February 2004, the division was amalgamated with the ministerial support, Defence governance and renewal elements of the Defence Improvement Division to form the Ministerial Services and Public Affairs Division within Strategy Group. The division was a central advisory, communication and coordination area designed to improve the level of support to the Ministers, the Parliamentary Secretary and the senior Defence executives.6 Results for 2003-04 During 2003-04, Public Affairs: • fully integrated public affairs into the military command chain and operational planning and established the deployable military public affairs capability, which gave Defence effective tactical public affairs support during a period of high operational tempo. Since being raised in 2002, the 1st Joint Public Affairs Unit has conducted over 75 significant deployments; • provided a comprehensive media liaison function, fielding 5,392 media inquiries and issuing 1,401 media releases and alerts. The online media room was commissioned early in 2004 with a wide range of material, including up to date imagery, media releases and fact sheets available for immediate downloading by the media and researchers; • responded to 3,353 public inquiries; • completed the Defence 2020 Education Resource Program. The program was developed in association with teachers and utilised Defence case studies to give students a better understanding of the broader functions of Defence and defence-related issues. Copies were distributed to 3,100 secondary schools during June-July 2003. The program was awarded ‘Best Secondary Educational Resource’ by the Australian Teachers of Media at its 2004 annual conference;

6 See the Organisational Changes section of Chapter One for further changes to the organisation from 26 July 2004.

216 Public Affairs

• received 74 requests to make Defence establishments, resources and equipment available for the production of television programs, including documentaries, motion pictures and books. Of these, 19 requests were completed, a further 26 requests were in progress, 15 were declined and 14 failed to eventuate; • provided display materials to 35 public information displays, career expos and media launches; • supported more than 650 events including official farewell and welcome home events for ADF contingents deployed overseas and publication launches on military operations; • coordinated the ‘messages to the troops’ facility which received 7,608 messages from the public for deployed ADF personnel; • received 25 million unique visits over the year on the redesigned Defence internet defence.gov.au domain, which is an increase of more than 31 per cent from 2002-03; • distributed some 162 hours of vision of Defence activities in response to television and production house requests. Defence produced 62 video news releases to support of public affairs activities; and • produced 69 issues of Navy, Army and Air Force newspapers, with a total print run per edition of 62,000 copies. This service kept sailors, soldiers, airmen and women abreast of changes to policy and conditions of service. An ongoing program of staff development and adoption of new technologies is improving the content, layout and design of the newspapers.

Providing tactical public affairs support to the ADF: members of a 1st Joint Public Affairs Unit deployable field team interview Australian special forces soldiers in Afghanistan in 2002.

217 Photos opposite: Top: a M1A1 Abrams main battle tank. Middle: first flight of the Air Force’s Wedgetail Airborne Early Warning and Control aircraft on 24 May 2004. Bottom: the double-hulled oil tanker MT Delos that will be modified to replace HMAS Westralia. CHAPTERFOUR

The Government approved 26 major Capital Budget equipment acquisition projects including the M1A1 Abrams main A large proportion of Defence’s battle tank, two additional airborne budget is tied up in purchasing and early warning and control aircraft and maintaining specialist equipment and an oil tanker to replace HMAS Westralia facilities. This chapter explains where that money was spent during 2003-04. The two additional Airborne Early Warning and Control aircraft will bring the total purchase to six aircraft. They will extend the ADF’s range for detection of hostile strike forces and control of allied aircraft

The facilities at RAAF Williamtown, near Newcastle, New South Wales, are being redeveloped to support the introduction of these aircraft. As part of that construction, the squadron’s new headquarters facility was completed this year Chapter Four

Overview

Overview of the Capital Investment Program The Capital Investment Program is comprised of: • the Unapproved Major Capital Equipment Program (Defence Capability Plan) - managed by the Chief of the Capability Development Group; • the Approved Major Capital Equipment Program - managed by the Chief Executive Officer of Defence Materiel Organisation; • the Capital Facilities Program, - managed by Deputy Secretary Corporate Services; • other Capital Purchases - several Groups are accountable for its management; and • Capital Receipts - several Groups are accountable for its management.

Reprogramming of the Capital Investment Program In the context of the 2004-05 Budget, the Government agreed to reprogram an amount of $2,226m ($2,547m in outturn prices) to the period 2008-09 to 2013-14. Details were shown on p.77 of the Portfolio Budget Statements 2004-05. The reprogramming included funds not able to be spent in 2002-03 ($200m) and 2003-04 ($500m), changes to the Defence Capability Plan and the revised rate of expenditure considered appropriate to deliver these projects. The amount of $500m in respect of 2003-04 was later reduced to $330m to manage the cash flow requirements in 2003-04 of acquiring an additional two airborne early warning and control aircraft.

Capital/Operating Adjustment In accordance with Australian Accounting Standards, Defence is required to classify certain investment costs such as research and development, project studies, design work, specialist and professional advice and project office overheads as operating expenses rather than through the capital appropriation. In the post-Defence Procurement Review environment, more work is being undertaken prior to first pass approval and between first and second pass to define the options, costs, schedule and risks of project proposals. A higher proportion of costs for this work is now classified as operating expenses such as project definition costs and project development funds. The same trend applies to the Capital Facilities Program, and offsetting adjustments between the capital and operating appropriations have been agreed by the Government to reflect this requirement. The mix of funding will continue to change, reflecting project throughput and the individual circumstances for each project.

220 Overview

Overview of Financial Performance in 2003-04 Capital investment expenses in 2003-04 totalled $3,751.2m or $343.8m greater than the projected result as summarised in Table 4.1 below. Explanations for the variations in each category follow. Table 4.1 Defence Financial Performance for the Capital Program 2003-04 Group/Item Description 2003-04 Budget Revised Projected Actual Variance Estimate Estimate Result Result

$m $m $m $m $m Unapproved Major Capital Equipment 358.3 195.5 9.6 - -9.6

Approved Major Capital Equipment - Capital Component 2,851.2 2,179.8 2,140.7 2,372.4 231.7 - Operating Component 213.8 210.6 318.4 373.3 54.9 Total Approved Major Capital Equipment 3,065.0 2,390.4 2,459.1 2,745.7 286.6

Major Capital Facilities - Capital Component 375.6 406.9 411.0 367.5 -43.5 - Operating Component - - 10.0 18.4 8.4 Total Major Capital Facilities 375.6 406.9 421.0 385.9 -35.1 Other Capital Purchases (various Group Heads) 430.4 554.5 517.7 619.6 101.9

Portfolio Held Funds 51.0 490.5 - - - Total Capital Investment Program 4,280.3 4,037.8 3,407.4 3,751.2 343.8 Less Capital Receipts 106.5 106.5 106.5 101.9 -4.6 Net Capital Program 4,173.8 3,931.3 3,300.9 3,649.3 348.4

221 Chapter Four

Defence Capability Plan (-$9.6m) The Defence Capability Plan is a detailed, costed plan for Australia’s military capabilities over a ten–year period, with broad guidance on major investments over the following ten years. The plan is reviewed regularly to take account of changing strategic circumstances, new technologies and changed priorities. This plan was reviewed, and a revised Defence Capability Plan was announced in February 2004. The plan sets out the planned investment in new equipment under five capabilities goals – land forces, air combat, maritime forces, strike and information capability. Between the period when the Defence White Paper 2000 was announced in December 2000 and 30 June 2004, the Government had approved around 120 major projects or phases of projects with an approximate cost of $18.4 billion. The Government will be presented with further projects for approval in 2004-05. An amount of $9.6m remained unexpensed in 2003-04 due to timing issues associated with the approval of some projects. This funding was used to contribute to higher than forecast expenses in the approved major capital equipment program.

222 Approved Major Capital Equipment Program (+$286.6m) The Defence Materiel Organisation manages the approved major capital investment program. Following project approval, new projects are transferred from the Defence Capability Plan to the Defence Materiel Organisation for their acquisition phase. The approved major capital equipment program is comprised of those projects that generally cost in excess of $20m and which, following approval, are transferred from the Defence Capability Plan to the Defence Materiel Organisation for their acquisition phase. Until 2003-04, projects costing $20m or more required approval by the Government. Following implementation of the new ‘two pass’ approval process as part of the implementation of the Defence Procurement Review, the Government approval threshold has been increased to $50m. Projects costing between $8m and $50m (formerly $8m to $20m) are now approved jointly by the Ministers for Defence, and Finance and Administration. Projects costing less than $20m are generally categorised as minor capital projects and are part of the other capital purchases category, although individual project phases within the Defence Capability Plan, such as studies, can cost less than $20m. For more detail on the ‘two pass’ implementation process, refer to Chapter One - New Capability Development and Acquisition Process. After allowing for the $500m which was reprogrammed in the 2004-05 Budget, and the subsequent decision to bring $170m of this amount forward to 2003-04 to enable the payment of the deposit for the two additional early warning and control aircraft, total expenses in the approved capital program in 2003-04 were $286.6m higher than forecast. The reasons for the other increases include the HMAS Westralia replacement ($54m), the initial deposit on the Main Battle Tank Replacement project ($5m), and an earlier than anticipated payment for the Joint Strike Fighter ($28m). Table 4.2 and accompanying descriptions provide details of the approved project cost, cumulative expenditure to 30 June 2004 and actual expenditure for 2003-04, of the top 20 (by 2003-04 expenditure) major capital equipment projects for Defence.

Table 4.2 Top 20 Projects by Actual 2003-04 Expenditure Approved Cumulative 2003-04 2003-04 2003-04 Project Expenditure(2) Budget Revised Actual Cost(1) Estimate(3) Estimate(4)

$m $m $m $m $m Aerospace Airborne Early Warning and Control 3,426 1,554 516 359 528 Armed Reconnaissance Helicopter 1,894 425 526 400 285 F/A-18 Hornet Upgrade 1,516 614 125 70 81 Anzac Ship Helicopter 998 889 60 41 39 P-3C Update Implementation 902 793 59 47 36 Maritime Anzac Ship Project(5) 5,352 4,882 226 220 220 FFG Upgrade Implementation 1,442 911 120 109 102 Collins Combat System 433 81 85 54 54 Maritime Operations Support Capability 141 54 n/a(6) 47 54 Collins-class Reliability and Sustainability Improvements 359 114 50 37 39 Evolved SeaSparrow Missile 270 174 88 39 34

223 Chapter Four

Underwater and Surface Warfighting Upgrade Program 154 90 40 28 31 Mine Hunter Coastal Acquisition 1,257 1,115 45 27 30 Land Australian Light Armoured Vehicles 666 472 171 151 155 Upgrade of M113 Armoured Vehicles 566 137 26 26 30 New Air Combat Capability Joint Strike Fighter 205 66 36 29 56 Electronic and Weapon Systems Explosive Ordnance Reserve Stocks 193 51 n/a(7) 50 51 Lightweight Torpedo Replacement(8) 307 84 55 53 43 Jindalee Operational Radar Network 1,238 1,095 45 37 40 Air-to-Surface Stand-off Weapon Capability 438 329 68 30 29 Notes 1. December 2004 prices. 2. Expenditure to 30 June 2004. 3. December 2002 prices. 4. January 2004 prices. 5. Project approval, expenditure and estimate figures are the net cost of the 10-ship program after deducting New Zealand revenue. 6. Project not approved at time of Budget Estimates. 7. Project not approved at time of Budget Estimates. 8. This project was previously reported in the portfolio additional estimates statement under Maritime projects. Top 20 projects by 2003-04 Expenditure

Airborne Early Warning and Control Achieved

Prime contractor: The Boeing Company (United States) This project will provide Defence with an airborne early warning and control capability, with the provision of six aircraft and associated supplies and support. The contract was signed with The Boeing Company in December 2000 for four aircraft, with an option for an additional two aircraft. The option for an additional two aircraft was agreed in June 2004. Modification of the last four aircraft will take place in South-East Queensland. The project remains on schedule and on budget, with a planned in-service date of 2007. The first Boeing 737 commenced modification activity in January 2003 and the second in May 2003. The first aircraft flew in May 2004 and commenced certification testing. The second aircraft is undergoing modification and will begin mission system testing in early 2005. The critical design reviews for the mission support segments and mission simulators were completed successfully in late 2003 and Build 5 of the mission computing software entered testing in April 2004. Construction of the squadron headquarters building commenced in May 2003 and was completed in February 2004. The 2003-04 actual spend exceeded the 2003-04 revised estimate due primarily to a payment required on contractual acceptance of the option to procure an additional two aircraft. This project contributes to Air Force capability.

224 Approved Major Capital Equipment Program

Armed Reconnaissance Helicopter Substantially Achieved

Prime contractor: Australian Aerospace The new armed reconnaissance helicopter is the most advanced helicopter of its type in the world and will be a huge boost to the Army's capability. The helicopter is a very sophisticated weapons platform and will be used in operations as part of a combined arms team. This project will provide Defence with 22 Tiger armed reconnaissance helicopters, a training system including simulation devices for aircrew and maintenance personnel, a software support facility and a ground mission management system. The first two interim configuration helicopters are planned to enter service in Australia from December 2004. The project remains on schedule to achieve the in-service date. Of the four helicopters to be produced in France, the first helicopter is undertaking pre-certification flight testing, the second is in ground test phase, with the remainder on schedule to meet their delivery dates. Production in Australia is also on schedule, with four airframes now under assembly in Brisbane, Queensland. Initial operational capability is expected to be achieved on schedule by June 2007. Full operational capability is expected to be achieved by December 2008. Actual expenditure was lower than the 2003-04 revised estimate, due to the delayed delivery of contract milestones primarily associated with aircrew training devices, ground mission equipment and through-life support measures. This project contributes to Army capability.

F/A-18 Hornet Upgrade Substantially Achieved

Prime contractor: The Boeing Company (United States) This project will upgrade the F/A-18 fleet to incorporate enhancements that will allow the aircraft to perform its air defence tasks more effectively. The fleet was provided with new radars and upgraded mission software in August 2003 under Phase 2.1. Phase 2.2 is an avionics upgrade that will increase the situational awareness of the pilot in the air combat role. It involves integration of colour cockpit displays, a digital moving map capability, a Link 16 data link, a helmet mounted cueing system and a new countermeasures dispensing set. Two prototype aircraft were inducted for modification work in June 2004 and Phase 2.2 upgrades remain on schedule with completion due by December 2007. A contract for the provision of the Hornet aircrew training system was signed in May 2004. Phase 2.3 is the upgrade of the electronic warfare self-protection suite, including a new radar warning receiver, electronic jammer and additional expendables capacity for the countermeasures dispensing system. Options assessments for this phase were progressed on schedule.

225 Chapter Four

The financial outcome was less than the 2003-04 Budget estimate, but higher than the revised estimate. The variations were due to rescheduling of foreign military sales payments and delays in awarding the colour cockpit displays program. This project contributes to Air Force capability.

Anzac Ship Helicopter Substantially Achieved

Prime contractor: Kaman Aerospace International Corporation This project will acquire 11 maritime combat helicopters for the Anzac-class frigates, providing an enhanced capability for surface surveillance, anti-ship warfare and contact investigation. The acquisition includes a full mission flight simulator and software support centre. Ten of the 11 Super Seasprite maritime combat helicopters are now in Australia, with one helicopter remaining in the United States for ongoing flight tests. Five helicopters have been provisionally accepted. Provisional acceptance of the helicopters with a basic suite of software has allowed the commencement of flight trials and initial squadron training in preparation for the final release of software, which will enable full combat capability after 2004-05. Full mission software ground integration testing is now well advanced and is expected to be ready for flight tests in the first half of 2005. Full Mission Flight Simulator and Software Support Centre is planned for acceptance in late 2004-05. The project achieved its 2003-04 revised estimate. This project contributes to Navy capability.

P-3C Update Implementation Substantially Achieved

Prime contractor: L-3 Communications Integrated Systems This project will provide the Air Force with an improved information gathering capability through the updating of the P-3C avionics system and associated suite of support facilities. The P-3C Avionics Update project will ensure the effectiveness of the P-3C Orion fleet until the planned withdrawal date of 2015. Under this project, the radar, acoustic system, data management system, navigation and communications equipment are being replaced with integrated systems. The project has remained on schedule with 14 (of a total of 18) updated AP-3C aircraft now accepted. The remaining four production aircraft are scheduled for progressive delivery by December 2004. The deployable mission replay analysis module and the systems engineering laboratory have been accepted. A number of long lead time spares purchases are yet to be delivered. The project did not achieve its 2003-04 revised estimate due to delays in anticipated down payments for spare parts ordered from manufacturers and contractor delays in delivering radar spare parts. This project contributes to Air Force capability.

226 Approved Major Capital Equipment Program

Anzac Ship Project Achieved

Prime contractor: Tenix Defence This project involves delivery of 10 ships, associated shore facilities and logistic support. Two of the 10 ships (02 and 04) were built for the Royal New Zealand Navy. The primary roles of the Anzac-class ships are surveillance and patrol, naval gunfire support for our forces, protection of shipping, disaster relief and search and rescue. Eight ships have been delivered and are in service with the Royal Australian Navy and the Royal New Zealand Navy. Delivery of Ship 08 (Ballarat) occurred in April 2004 ahead of schedule at the request of Tenix Defence and with Government approval. Plans for the other ships remain on schedule with Ship 09 (Toowoomba) and Ship 10 (Perth) planned for delivery in the third quarter of 2005 and the second quarter of 2006 respectively. Expenditure for 2003-04 was in line with the revised estimate. This project contributes to Navy capability.

FFG Upgrade Implementation Substantially Achieved

Prime contractor: ADI This project seeks to regain a comparative regional capability for Adelaide-class guided missile frigates (FFGs) and ensure that they remain effective and supportable to the end of their life. The FFG upgrade will improve the anti-ship missile defence and air surveillance capabilities of the ships. An overall schedule delay of up to 24 months has been mutually agreed between the Commonwealth and the prime contractor, ADI. A contract change was signed in April 2004 for a revised schedule that includes incentives for delivery in a range of not more than 18-24 months later than the original contracted delivery date. ADI commenced the installation/production phase of the upgrade at its Garden Island facility with the Commonwealth handover of the lead ship (HMAS Sydney) in September 2003. Contractor delivery of the lead ship is now rescheduled for the third quarter of 2005, which is still within the contracted date. The upgrade is scheduled to conclude with the delivery of the upgraded HMAS Darwin by 2008. As a result of the Defence Capability Plan decision to remove the two oldest guided missile frigates from service from 2006 when the last of the new Anzac-class frigates is delivered, these two ships will no longer be considered for upgrade under this project. The cost impact of this decision is still to be finalised. Savings will be realised from annual operating costs for spare parts, fuel, maintenance and other running costs, whilst other cost savings will be made under the current prime contract. The contract savings will need to be negotiated with the prime contractor, given it is a fixed price arrangement. The expenditure for 2003-04 was overestimated. This project contributes to Navy capability.

227 Chapter Four

Collins-Class Submarines Replacement Combat System Partially Achieved

Prime contactors: Foreign military sales with the United States Government, as well as Raytheon Australia, Thales, Sonartech Atlas and the Australian Submarine Corporation. This project is to provide a replacement combat system for the Collins-class submarines. This will contribute to the development of the submarines’ full capability, in conjunction with other phases of the project that implement a program of modifications and enhancements to the submarine platform. Acquisition of initial sets of the United States Navy tactical command and control system is progressing satisfactorily under a foreign military sales case. A Memorandum of Understanding will be signed with the United States Navy during 2004-05 to transition the acquisition to an Armaments Cooperative Project that also establishes a joint development process for the system. All four major Australian-based supply contracts are now in place and progressing satisfactorily. Installation contracts with the Australian Submarine Corporation will be placed progressively to align with submarine docking availabilities. The supply contracts were established later than planned and this has resulted in delayed expenditure against the budget estimate for 2003-04, but was in line with the revised estimate. Installation of the first replacement combat system is planned for 2006, with all submarines planned to be upgraded by the end of 2010. This project contributes to Navy capability.

Maritime Operations Support Capability Achieved

Prime contractor: Design and modification contract not yet let This project will replace HMAS Westralia with a commercial double-hull auxiliary oiler, which will be modified in Australia by 2006-07. The ship will be modified so that it has the latest technology and equipment capable of refuelling a range of Navy vessels, including the Anzac and Adelaide-class frigates and the new air warfare destroyers that will enter into service from 2013. Teekay Shipping (Australia) Pty Ltd was contracted in January 2004 to assist Defence in identifying a ship suitable for purchase and modification for operation as a naval oiler. Australian Marine Technologies Pty Ltd was also contracted in January 2004 to assist in the assessment of the suitability of double-hull product tankers identified by Teekay Shipping for modification to meet the Navy’s replenishment requirements. During May–June 2004, Defence purchased a commercial double-hulled, environmentally sustainable oil tanker, built in the Republic of Korea by Hyundai Mipo Dockyard Company. Australia took delivery of the ship on 17 June 2004. A competitive contract will be let for the design and modification of the ship.

228 Approved Major Capital Equipment Program

In order to maximise the ability to support the modified ship, the modifications, including design, integrated logistic support data development, and production, are planned to be conducted in Australia starting in 2004-05. This project contributes to Navy capability.

Collins-Class Submarine Sustainability and Reliability Improvements Partially Achieved

Prime contractor: Australian Submarine Corporation The project consists of a large number of individual platform improvements to the Collins-class submarines. A number of individual modifications are being conducted in HMA Ships Collins and Farncomb during their current full-cycle dockings. Contracts have been placed for design of the first two new major issues to be addressed; the Special Forces modifications and the sewerage system automation. First implementation of the special forces modifications is planned for HMAS Collins in early 2005. Planned expenditure for the year was not fully achieved because of competing priorities relating to other Defence work being carried out by the Australian Submarine Corporation. However, expenditure was in line with the revised estimate. This project contributes to Navy capability.

Evolved SeaSparrow Missile Achieved

Prime contractor: NATO SeaSparrow Consortium The Evolved SeaSparrow Missile has been selected as an element of the anti-ship missile defence system for the Anzac-class frigates and Adelaide-class guided missile frigates (FFGs) under their upgrade program. This project will continue to incorporate the Evolved SeaSparrow Missile capability into Navy service. Progressive missile deliveries commenced in 2003, and will continue throughout 2004 and subsequent years. Anzac-class ships Warramunga, Stuart, Ballarat and Parramatta have been fitted with the Evolved SeaSparrow missile system. The remaining two Anzac ships under construction are being modified to fire Evolved SeaSparrow missiles and HMA Ships Anzac and Arunta (the first two Australian Anzac ships) will be upgraded during future maintenance periods. Successful operational test firings were conducted in September 2003. Expenditure for 2003-04 was less than the revised estimate due to favourable exchange rates. This project contributes to Navy capability.

229 Chapter Four

Underwater and Surface Warfighting Upgrade Program Achieved

Alliance agreement: Anzac Ship Alliance between the Commonwealth, Tenix Defence and Saab Systems. This project will enhance the Anzac-class ships’ surface and sub-surface warfare capabilities. This phase of the project has been split into three sub-phases. Sub-phase 3A is the Harpoon anti-ship missile launch system. Harpoon is the standard ADF anti-ship missile launched by other Navy and Air Force platforms. The Harpoon’s launch capability is being acquired through the Anzac Ship Alliance between the Commonwealth, Tenix Defence and Saab Systems. Equipment delivery commenced in mid-2003 and installation of the capability in the first Anzac ship is progressing to schedule and will be completed in late 2004. Missiles will be acquired under a separate project. Sub-phase 3B, the Sea Defender torpedo self-defence system, was dropped from the Defence Capability Plan in November 2003, so that higher priority Defence requirements could proceed. Sub-phase 3C is the Petrel mine and obstacle avoidance sonar, which was approved in the 2003-04 Budget. This capability is being acquired through the Anzac Ship Alliance and is progressing to schedule. Installation is planned to commence in late 2004 and delivery of the capability in the first Anzac ship is expected in mid-2005. The Petrel system is also being fitted to the Adelaide-class frigates under the guided missile frigate upgrade project. Expenditure for 2003-04 was in line with the revised estimate. This project contributes to Navy capability.

Mine Hunter Coastal Acquisition Achieved

Prime contractor: ADI This project provides for the delivery of six coastal mine hunter vessels and associated supplies, including combat system and platform system trainers at HMAS Waterhen in Sydney. All six ships, HMA Ships Huon, Hawkesbury, Norman, Gascoyne, Diamantina and Yarra, have been delivered to the Navy and were accepted into Naval service in November 2003. Expenditure for 2003-04 exceeded the revised estimate due to improved progress on finalisation of prime contract issues. This project contributes to Navy capability.

230 Approved Major Capital Equipment Program

Australian Light Armoured Vehicles Achieved

Prime contractor: General Dynamics Land Systems (Canada) This project is for the acquisition of wheeled light armoured vehicles that provide the basis of the Army’s armoured reconnaissance and surveillance capability. Phase 3 of the project includes the acquisition of an additional 144 new vehicles and the standardisation of the Phase 2 fleet both by completing Phase 2 elements (surveillance suite, gunnery trainer and commander’s weapon station) and by improving it to Phase 3 standard. Also included in Phase 3 is the rapid acquisition of spall liners, a device that increases the survivability for the crew and passengers, and remote weapons systems for vehicles deployed in Operation Catalyst. The expanded fleet will enable the equipping of a second Land Command unit, 2/14 Light Horse Regiment (Brisbane, Queensland) with these vehicles in addition to the 2 Cavalry Regiment (Darwin, Northern Territory). Phase 3 is proceeding on schedule. As at 30 June 2004, 140 vehicles had been delivered to the Australian Government. The project’s actual expenditure was slightly ahead of target due to improved delivery schedules for vehicles and spare parts. This project contributes to Army capability.

Upgrade of M113 Armoured Vehicles Achieved

Prime contractor: Tenix Defence This project is upgrading 350 of the Army’s fleet of M113 armoured vehicles, which provide mobility and fire support to the Army’s mechanised infantry forces, to improve protection, firepower, mobility and habitability. A contract for the upgrade was signed in July 2002 with Australian company Tenix Defence. The project remains largely on schedule and within budget. Stage one of the contract, for the construction and initial testing of two demonstration vehicles, was successfully completed on time in December 2003. Work is progressing on the construction of the initial production vehicles and continued vehicle testing, with full production planned to commence in 2005 for introduction of the first Company group of vehicles in-service in late 2006. Actual expenditure for 2003-04 slightly exceeded forecast expenditure with the earlier delivery of some major components for the initial production vehicles. This project contributes to Army capability.

231 Chapter Four

Joint Strike Fighter Achieved

Memorandum of Understanding: United States Government This project aims to introduce a new air combat capability with the air dominance and strike functions currently provided by the F/A-18 and F-111 aircraft fleets. In October 2002, Australia formally joined the system development and demonstration phase of the Joint Strike Fighter program, with the expectation that the F-35 Joint Strike Fighter will meet Australia’s future air combat and strike requirements. This represents a new approach to international participation in combat aircraft programs by involving Defence and industry in the design and development phase. A procurement decision is expected in 2006. Actual expenditure exceeded the revised estimate as a result of system development and demonstration payments being brought forward into 2003-04. This project contributes to Air Force capability.

Explosive Ordnance Reserve Stocks Substantially Achieved

Prime contractors: SAAB Bofors, ADI and Pains Wessex This project involves the progressive acquisition of a range of explosive ordnance items to increase Defence’s reserve stock holdings. This phase of the project is funded at $195m, spread over five years from 2003-04 until 2007-08. Expenditure in 2003-04 was used to procure RBS70 missiles from SAAB Bofors Sweden, small arms ammunition and general purpose bombs from ADI, flares and distress signals from Pains Wessex, as well as a number of other minor items from a range of suppliers. The balance of Phase 1B will procure some 120 different items of explosive ordnance covering tank and anti-armour ammunition, medium and field artillery ammunition, mortar ammunition, demolition stores, pyrotechnics, naval shells and additional bombs. Actual expenditure was in accordance with the revised estimate. This project contributes to Navy, Army and Air Force capabilities.

Lightweight Torpedo Replacement Partially Achieved

Alliance agreement: EuroTorp and Thales This phase of the project will acquire the MU90 lightweight torpedo from EuroTorp as a replacement for the aging MK 46 Model 1 and Model 5 shallow water torpedoes. The weapon is to be integrated into the Anzac and Adelaide-class frigates, the Seahawk and Seasprite helicopters and the maritime patrol aircraft.

232 Approved Major Capital Equipment Program

The first ship to acquire the ability to fire MU90 torpedoes was HMAS Parramatta as part of its build program. Installation into the other frigates will be complete by December 2007, depending on the ship maintenance schedule and the fleet activity schedule, which have already impacted on installations. The schedules for integration into the helicopters and maritime patrol aircraft have yet to be determined. The initial batch of MU90 torpedoes for test and evaluation is scheduled for delivery in July 2005. Expenditure was below the revised estimate due primarily to delays in the installation schedule. This project contributes to Navy and Air Force capabilities.

Jindalee Operational Radar Network Achieved

Prime contractor: RLM Systems The Jindalee Operational Radar Network consists of the radar network coordination centre at RAAF Edinburgh near Adelaide and two over-the-horizon radars: one near Longreach in Queensland, the other outside Laverton in Western Australia. These radars allow coverage of the sea and air approaches to Australia in an arc from Cairns in Queensland around to Geraldton in Western Australia at ranges of 800 to 3,000 km, and are now key contributors to the ADF’s capability for wide area surveillance. The radar network is in full operational service with the ADF and the project has moved into the relatively low risk maintenance and support phase. Actual expenditure for 2003-04 slightly exceeded the revised estimate due to better than expected performance by the contractor. This project contributes to Air Force capability.

Air-to-Surface Stand-off Weapon Capability Substantially Achieved

Prime contractor: Precision Guided Systems United States, through foreign military sales with the United States Government. The project will acquire and bring into service the AGM-142E missile for use on F-111C aircraft. This will provide the ADF with the ability to strike non-hardened and semi-hardened unitary targets while improving the stand-off range for the aircraft, thereby contributing to its survivability. Aircraft integration is being undertaken by Boeing Australia Ltd at RAAF Amberley, Queensland. The integration activities, after delays in 2003, have been renegotiated on a fixed price basis and are proceeding on time against the revised schedule. Formal ground testing was successfully completed in March 2004. Modifications to the F-111 simulator are now under contract and progressing. Deliveries of missiles into Australia are continuing. Actual expenditure was in accordance with the revised estimate. This project contributes to Air Force capability.

233 Chapter Four

Remaining Top 20 Projects by Total Approved Project Cost Fourteen of the top 20 projects by total approved project cost are also in the top 20 projects by actual 2003-04 expenditure. As such, those 14 projects have been reported in Table 4.2 and detailed on the ensuing pages. The table below provides details of the remaining six projects in the top 20 by total approved project cost, not already reported at Table 4.2.

Table 4.3 Remaining Top 20 Projects by Total Approved Project Cost

Approved Cumulative 2003-04 2003-04 2003-04 Project Expenditure(2) Budget Revised Actual Cost(1) Estimate(3) Estimate(4)

$m $m $m $m $m Aerospace ADF Air Refuelling Capability 1,771 1 3 3 1 Strategic Airlift Capability 1,041(5) 969 13 9 6 Lead-in Fighter Capability 1,020 938 24 20 12 Maritime New Submarine 5,119 5,060 23 19 21 Armidale-class Patrol Boat 455 23 30 12 19 Electronic and Weapon Systems High Frequency Modernisation 595 275 14 10 5 Notes 1. December 2004 prices. 2. Cumulative expenditure to 30 June 2004. 3. December 2002 prices. 4. January 2004 prices. 5. The reduction in the approved project cost was as a result of a real cost decrease of $49m approved by Government in January 2004. ADF Air Refuelling Capability Substantially Achieved

Preferred tenderer: European Aeronautic Defence and Space Company with Qantas Defence Services This project will provide five new generation tanker aircraft and through-life support services including engineering, maintenance, spares, technical data, software and training support for the new fleet. The evaluation of tenders and selection of the preferred tenderer occurred on schedule. The Military Transport Aircraft Division of the European Aeronautic Defence and Space Company, teamed with Qantas Defence Services, has been announced as the preferred tenderer for the supply and through-life support of five Airbus A330 multi-role tanker transport aircraft. The project office has successfully undertaken tender development activities with the preferred tenderer, European Aeronautic Defence and Space Company and Qantas Defence Services, as a risk mitigation strategy ahead of formal contract negotiations, which commenced in early August 2004. The awarding of the acquisition and through-life support contracts is planned for later in 2004. The lower than expected expenditure in 2003-04 was due primarily to some project administrative costs not occurring as originally planned. This project contributes to Air Force capability.

234 Approved Major Capital Equipment Program

Strategic Airlift Capability Substantially Achieved

Prime contractor: Lockheed Martin Twelve C-130J-30 Hercules aircraft were delivered in 1999-2000 to replace the C-130E aircraft. The fleet is now fully integrated into the Air Lift Group. A role expansion program has certified the aircraft for the roles of air logistics support, paratroop drop, search and survivor assistance, Papua New Guinea operations and restricted medical evacuation. Interim in-service support contracts are in place, but are progressively being replaced by long-term in-service support contracts developed during 2003-04. These contracts will deliver training, engineering support, propulsion system repair and overhaul and aircraft deeper maintenance for the C-130J-30 fleet and are all expected to be in place in 2005. The purchase of spares necessary to support the fleet was largely completed in 2003-04. Defence and the United Kingdom’s Ministry of Defence, are continuing a long-term venture involving full-scale fatigue testing of the C-130J wing assembly and a modified C-130K fuselage. The lower than expected expenditure in 2003-04 was due primarily to the decision to suspend the purchase of mobile engine test stands as they may now be provided under a proposed Propulsion Systems Support Contract. This project contributes to Air Force capability.

Lead-in Fighter Capability Partially Achieved

Prime contractor: BAE Systems This project involves the acquisition of 33 Hawk 127 aircraft to perform lead-in fighter and ADF support roles. Aircraft delivery was completed in October 2001. The full contracted capability for radar simulation and radar emulation functions that are required for the ADF support role has been delayed due to difficulties with the proposed design solutions. The initial radar emulation capability is expected to be achieved in the third quarter of 2005. The initial radar simulation capability is also planned for 2005. Planned expenditure in 2003-04 was only partially achieved, primarily due to delays with the design solution for the radar emulation pods. This project contributes to Air Force capability.

New Submarine Achieved

Prime contractor: Australian Submarine Corporation The new Collins-class submarines provide a conventional submarine capability with long endurance and stealth capability. All six submarines have been delivered. Chief of Navy approved ‘operational release’ of the class in February 2004, which acknowledges the

235 Chapter Four submarine’s ability to achieve defined operational outcomes laid down in Defence’s preparedness documentation. Intellectual property issues with the submarine designer, Kockums, have been resolved, as have outstanding claims between Defence, the Australian Submarine Corporation and Kockums. Expenditure for 2003-04 was in line with the revised estimate. The project contributes to Navy capability.

Armidale-class Patrol Boat Achieved

Prime contractor: Defence Maritime Services (ships being built by Austal Ships) This project will deliver 12 Armidale-class patrol boats to replace the ageing Fremantle-class patrol boats. The patrol boats will make a critical contribution to coastal surveillance and enforcement capability. The preferred contractor was announced in August 2003, and the contract was signed on 17 December 2003. The contractor will also provide through-life support for the Austal-designed-and-built boats under the single contract. This will link the acquisition and support to provide required levels of availability for a minimum 15-year operating term. In total, the new vessels will provide a capability for the Navy to achieve up to 3,000 available days per year for Coastwatch and ADF support operations, plus a surge capacity of up to 600 additional available days per year. The new boat will be larger than the Fremantle-class and will be capable of operating in higher sea states. The project is currently running on schedule and on budget. Following preliminary and detailed design reviews, cutting of aluminium commenced in May 2004 and fabrication of the first hull is assessed as being on target for a January 2005 launch and a May 2005 delivery. Annual expenditure exceeded the revised estimate due to early achievement of a contracted milestone. This project contributes to Navy capability.

High Frequency Modernisation Not Achieved

Prime contractor: Boeing Australia Ltd The High Frequency Modernisation project will replace Navy high frequency radio stations in Canberra, Darwin, Exmouth, Sydney, Cairns and Perth, and Air Force high frequency radio stations in Sydney, Townsville, Darwin and Perth. The new network will provide enhanced high frequency radio communications capabilities and compatible high frequency radio equipment in selected ADF mobile platforms. The project will deliver the new capability in two stages. The first stage will replace the existing facilities. The second stage will build on the first stage and provide increased levels of automation, improved capability, enhanced security and survivability, and reduced reliance on operating staff, and incorporate the new equipment into mobile platforms.

236 Approved Major Capital Equipment Program

Completion of integration, system-testing and acceptance of the first stage system, originally scheduled for the second half of 2002 and then rescheduled for late 2003-04, was not achieved due to continuing delays by Boeing Australia in software development and integration. Delivery is now scheduled to occur in the third quarter of 2004, with contract acceptance to follow two months after delivery. The transition of the Navy and the Air Force’s radio network operational capability and staff to the new integrated system is now scheduled for the fourth quarter of 2004. The second stage will be introduced progressively between 2005 and 2008 with installation into mobile platforms potentially extending to 2010. Because of the delays, the contract baseline was renegotiated in early 2004 to provide more achievable targets. As part of the negotiations for the revised contract baseline, the contractor provided compensation to Defence. The contract delays are reflected in the lower than expected expenditure in 2003-04. The total approved project expenditure increases by $10m due to variations in price indices and exchange rates. This project contributes to Command of Operations capability. Former Top 20 Projects The table below provides details on projects that were reported as top 20 projects in the Portfolio Budget Statements 2003-04 on the basis of budget estimates, but do not rank in the top 20 on the basis of the revised estimates. Table 4.4 Former Top 20 Projects Approved Cumulative 2003-04 2003-04 2003-04 Project Expenditure(2) Budget Revised Actual Cost(1) Estimate(3) Estimate(4)

$m $m $m $m $m Maritime Replacement Heavyweight Torpedo System 405 72 34 17 17 Electronic and Weapon Systems Air-to-Air Weapons Capability 311 235 31 27 14 Milsatcom – Military Satellite Payload 347 338 12 14 9 Air-to-Air Weapons Follow-on Buy 176 117 32 8 6 Notes 1. December 2004 prices. 2. Cumulative expenditure to 30 June 2004. 3. December 2002 prices. 4. January 2004 prices. Replacement Heavyweight Torpedo System Achieved

Prime contractor: United States Navy The new heavyweight torpedo is being developed jointly with the United States Navy under a cooperative armaments project. Initial stocks of weapons will be delivered in late 2005 to support the integration of the replacement combat system into the Collins-class submarines. An initial shipment of spare parts, support, and test equipment has arrived in Australia to support the introduction of the new heavyweight torpedo in-service date of 2007. The

237 Chapter Four upgrade of the Torpedo Maintenance Facility in Western Australia has commenced and is scheduled for completion in March 2005. A portable shallow water tracking range will be developed to support the new heavyweight torpedo test and evaluation program. Operational testing of the new torpedo will be conducted jointly with the United States Navy in Australian waters in 2005. Expenditure for 2003-04 was in line with the revised estimate. This project contributes to Navy capability.

Air-to-Air Weapons Capability Substantially Achieved

Prime contractors: Raytheon, through foreign military sales with the United States Government, and MBDA UK Ltd. This project seeks to maintain a credible air-to-air weapons capability for F/A-18 aircraft through the acquisition and integration of new beyond-visual-range and within-visual-range missiles. The majority of within-visual-range missiles have been received and introduced into operational service on the F/A-18 aircraft. A decision was made this year to invest in an Australian deeper maintenance and software support capability for the within-visual-range missile. Expenditure was below the revised estimate due to delays in signing the in-service support contract. This project contributes to Air Force capability.

Milsatcom - Military Satellite Payload Achieved

Prime contractor: SingTel Optus Pty Ltd (formerly Cable and Wireless Optus Satellites Pty Ltd) This project provides Defence with a communications satellite capability across Australia and throughout the Asia Pacific region in the X, Ka and UHF communications frequency bands. The satellite was launched successfully in June 2003 and operational control of the Defence payload was transferred to Defence in July 2003, following completion of satellite in-orbit testing. The C1 satellite also provides Sing Tel Optus with commercial telecommunications services over Australia, New Zealand and parts of Asia. Arrangements have been established for the joint operation and management of the shared satellite asset. The project was completed $28m under budget. This project contributes to Command of Operations capability.

238 Approved Major Capital Equipment Program

Air-to-Air Weapons Follow-on Buy Substantially Achieved

Prime contractors: Raytheon, through foreign military sales with the United States Government, and MBDA UK Ltd. This project will complete the air-to-air weapons capability for the F/A-18 aircraft through the acquisition of new beyond-visual-range missiles and within-visual-range missiles and associated aircraft launchers. All beyond-visual-range missiles (the advanced medium-range air-to-air missiles) have now been delivered. The introduction into service of the new version of the missile encountered test data transmission problems, which delayed final testing until April 2004. The new variant missile will enter operational service by December 2004. Only five within-visual-range missiles (the advanced short-range air-to-air missiles) out of the total inventory remain to be delivered. These deliveries are expected by December 2004. Actual expenditure was lower than expected due to the delays. This project contributes to Air Force capability.

239 Chapter Four

Capital Facilities Projects (-$35.1m) Defence has implemented a new infrastructure asset development process. The process involves a strategic screen and two stages of approval based on a strategic business case and a detailed business case. The strategic screen tests proposals for alignment with broader Government and Defence planning priorities and requires the preparation of a corporate services infrastructure requirement. The strategic business case is developed from that requirement at a cost certainty of +30 per cent and approved at the first stage. Further development of the proposal leads to the detailed business case at a cost certainty of +10 per cent and approval at the second stage. Capital facilities projects are categorised by thresholds. Major capital facilities projects have a cost of $6m or greater and are subject to Government approval and review by the Joint Standing Committee on Public Works. Medium capital facilities projects have a cost of between $250,000 and $6m. Medium capital facilities projects between $5m and $6m are subject to Government approval but are not reviewed by the Joint Standing Committee on Public Works. Projects under $5m are approved by departmental delegates. Details of these projects are provided in this chapter. The capital facilities program is designed to give priority to projects that support the Defence Capability Plan, sustain current capability requirements, support other Government initiatives, meet legislative obligations and assist initiatives that support Defence people. A significant proportion of the program funding is directed towards the provision of basic engineering and infrastructure services, either in support of new projects or upgrades or existing facilities. Total expenses on Defence’s major capital facilities program in 2003-04 were $35.1m below the projected result of $421.1m. This was primarily due to delays in major and medium projects and in project approvals. The underspend was partially offset by the purchase of additional information technology assets ($17.9m) in order to partially reduce a backlog in the information technology replacement program. Expenditure on the operating component of Defence’s major capital facilities program was $8.4 m above the projected result of $10m, primarily due to the additional costs resulting from implementing the ‘two pass’ approval process. Approved Major Capital Facilities Projects Over the 2003-04 financial year, the Government approved nine major facilities projects. Six of these projects were referred to the Joint Standing Committee on Public Works for consideration and a further three were granted an exemption from a public hearing. Four of the six projects referred to the Committee have been approved, with public hearings held for a fifth project and pending for the sixth. During the same period, 19 medium projects received either departmental or Ministerial approval to proceed. In the 2003-04 financial year, three major capital facilities projects and 13 medium capital facilities projects were completed. The following tables provide details of estimated and actual expenditure on works during 2003-04 and the status of projects foreshadowed for approval in 2003-04 by state, federal electorate and location.

240 Capital Facilities Projects

Table 4.5 and accompanying descriptions provide details on progress and expenditure during 2003-04 on major capital facilities projects, which are those projects which cost over $6m. Approved Major Capital Facilities Projects by State Table 4.5 and Federal Electorate Total Cumulative 2003-04 2003-04 2003-04 Estimated Expenditure(1) Budget Revised Actual Expenditure Estimate Estimate Expenditure

$’000 $’000 $’000 $’000 $’000 New South Wales Eden-Monaro Eden Naval Ammunitioning Facility 43,300 43,298 9,600 18,500 12,210 Gilmore Nowra – HMAS Albatross Base Redevelopment 110,000 100,918 5,400 2,500 868 Hughes Holsworthy Special Forces Training Facilities(2) 79,600 623 - - 623 Kingsford Smith Randwick Disposal and Rationalisation – Interim Works(3) 8,750 2,952 - - 2,952 Macquarie Richmond – RAAF Richmond Reinvestment(4) 35,000 685 - 5,000 685 Parramatta Ermington Pre-Disposal Site Works 33,106 7,188 9,800 7,000 1,802 Paterson Williamtown – RAAF Williamtown Redevelopment Stage 1 and Airborne Early Warning and Control Works(5) 129,200 18,333 19,000 14,000 14,945 Total New South Wales 438,956 173,997 43,800 47,000 34,085 Victoria Melbourne Ports Fishermans Bend Relocation of DSTO Platforms Sciences Laboratory 61,200 49,027 26,500 25,000 18,030 Total Victoria 61,200 49,027 26,500 25,000 18,030 Queensland Forde Canungra Defence Intelligence Training Centre 17,400 16,381 6,500 7,500 7,564 Groom Oakey Oakey Base Redevelopment 76,200 69,789 40,000 40,000 45,289 Herbert Townsville – Lavarack Barracks Redevelopment Stage 2 151,587 149,941 1,200 - 1,407 Redevelopment Stage 3 170,649 114,111 57,000 57,000 59,672 RAAF Townsville Redevelopment Stage 2 72,546 71,205 37,500 33,000 32,345 Total Queensland 488,382 421,427 142,200 137,500 146,277

241 Chapter Four

South Australia Bonython Edinburgh – RAAF Edinburgh Redevelopment Stage 1 41,491 37,873 3,500 12,400 10,433 DSTO Edinburgh Extension to Joint Electronic Warfare Building(6) 19,890 - - - - Total South Australia 61,381 37,873 3,500 12,400 10,433 Western Australia Brand Garden Island – HMAS Stirling Base Development Stage 2D 39,741 31,768 2,000 500 178 Total Western Australia 39,741 31,768 2,000 500 178 Northern Territory Lingiari Timber Creek Bradshaw Field Training Area Infrastructure 64,783 13,264 15,000 4,000 448 Katherine – RAAF Tindal Security Fence(7) 9,250 331 - 3,000 331 Solomon Darwin 1st Aviation Regiment Relocation(8) 75,000 6,240 - 6,000 6,240 RAAF Darwin Base Redevelopment 11,670 9,338 4,000 4,400 2,403 Development of Operational Facilities 61,900 61,425 1,000 1,700 2,034 Total Northern Territory 222,603 90,598 20,000 19,100 11,456 Australian Capital Territory Fraser Canberra HMAS Harman Defence Network Operations Centre 19,600 18,880 4,600 2,300 2,406 Canberra Multi-User Depot 13,500 11,792 - 12,500 11,756 Russell Offices Intelligence Facilities(9) 14,900 10,400 14,900 11,700 10,400 Total Australian Capital Territory 48,000 41,072 19,500 26,500 24,562 TOTAL 1,360,263 845,762 257,500 268,000 245,021 Notes 1. Cumulative Expenditure to 30 June 2004. 2. Approved by the Government on 27 May 2004. 3. Approved by the Joint Standing Committee on Public Works on 2 June 2004. 4. Approved by the Joint Standing Committee on Public Works on 15 October 2003. 5. Total estimated expenditure reduced to reflect turnkey project for airborne early warning and control support centre being delivered by Boeing at $19.8m. These funds are held in the major capital equipment program. Total estimated cost is adjusted accordingly. 6. Approved by the Government on 10 June 2004. 7. Approved by the Joint Standing Committee on Public Works on 8 September 2003. 8. Approved by the Joint Standing Committee on Public Works on 21 August 2003. 9. Approved by the Government on 6 November 2003. New South Wales

Eden – Naval Ammunitioning Facility Achieved This project provided a naval ammunitioning facility to replace both the former facility at Newington on the Sydney Olympics site and the Point Wilson interim facility. Construction of the wharf and the ammunition storage depot commenced in March 2002 and March 2003 respectively and was completed in October 2003 and March 2004 respectively.

242 Capital Facilities Projects

This project contributes to Navy capability.

Nowra – HMAS Albatross – Base Redevelopment Partially Achieved This project replaces existing facilities and services that are beyond economical repair and includes the redevelopment of the operational and administration support facilities. Major work elements that have been completed include aircraft support, storage and maintenance facilities, the air traffic control tower, explosive ordnance facilities, training facilities and aircraft pavements. During 2003-04, design of the flight deck procedural trainer has progressed, some elements of engineering services have been delivered and demolition works have been completed. Outstanding elements, such as engineering services and the flight deck procedural training facilities, are now due for completion by late 2005 given delays associated with National Code of Practice issues. This project contributes to Navy capability.

Holsworthy – Special Forces Training Facilities Achieved This project forms part of the project previously referred to as the Holsworthy Redevelopment and Special Forces Infrastructure project. That project is now to be delivered in two separate packages – the approved Holsworthy Special Forces Training Facilities and the unapproved Holsworthy Special Operations Working Accommodation and Base Redevelopment Stage 1. The training facilities project provides specialised ranges and training facilities to support Special Forces units based at Holsworthy. The Federal Executive Council provided exemption from consideration of the project by the Joint Standing Committee on Public Works on 27 May 2004. Design work was completed in August 2004, with construction expected to commence in November 2004 and completion expected by October 2006. This project contributes to Army and joint capabilities.

Randwick – Disposal and Rationalisation – Interim Works Achieved This project, which is related to the Defence property disposal program, will allow the disposal of surplus land at Randwick and associated redevelopment of the portion of the barracks to be retained. To date, there has been progressive remediation of the surplus land, together with infrastructure works, to allow its release. Construction of the interim works commenced in June 2004 and completion of the works is expected in September 2005. This project contributes to Army capability.

243 Chapter Four

Richmond – RAAF Richmond – Reinvestment Partially Achieved This project involves a limited capital reinvestment to address pressing infrastructure deficiencies. The building works associated with the reinvestment project will support the current operations of the Air Lift Group as well as providing an upgrade of the base engineering infrastructure. The project received Parliamentary approval in October 2003. National Code of Practice issues raised throughout the tendering process caused a delay in the commencement of construction activities. Construction commenced in June 2004 and will be completed by the end of 2005. This project contributes to Air Force capability.

Ermington – Pre-Disposal Site Works Partially Achieved This project involves preparing the Ermington site for disposal. It includes two elements: progressive site filling and stabilisation of the soil, and the installation of infrastructure services. This will enable the site to be sold progressively over the coming years. The off-site works commenced in December 2003 with the on-site works commencing in February 2004. The sale of Stage 1 was achieved on schedule in June 2004. Stage 2 is planned to be sold by June 2005. Planning of the site is proceeding in close consultation with the Ermington Residents’ Committee. This project contributes to Command of Operations.

Williamtown – RAAF Williamtown – Redevelopment Stage 1 and Airborne Early Warning and Control Works Achieved This project provides a range of new and redeveloped facilities and infrastructure necessary for the introduction into service of the airborne early warning and control capability at RAAF Williamtown. Construction of the No. 2 Squadron Headquarters facility and initial infrastructure was completed in March 2004. The managing contractor for the remaining works has been appointed and the planning phase is complete, with construction expected to commence in late November 2004. Total estimated expenditure for this project has been reduced from $149m to $129.9m to reflect the turnkey project for airborne early warning and control support centre being delivered by Boeing at $19.8m with funds held in the major capital equipment program. The total estimated facilities cost has been adjusted accordingly. This project contributes to Air Force capability.

244 Capital Facilities Projects

Victoria

Fishermans Bend – Relocation of Defence Science and Technology Organisation’s Platforms Sciences Laboratory Partially Achieved This project will relocate Defence Science and Technology Organisation functions from Maribyrnong to Fishermans Bend and includes the integration of common functions and the construction of enhanced research and laboratory facilities. Construction commenced in mid-2002. The Chemical, Biological, Radiological and Nuclear Defence Centre was completed in July 2004, along with the bulk of the Maritime Platforms Division laboratory, excluding fit-out. This project contributes to Navy, Army and Air Force capabilities. Queensland

Canungra – Defence Intelligence Training Centre Achieved This project collocated the dispersed and inadequately accommodated headquarters, administrative and instructional elements into a modern, purpose-built and secure facility. The project also included field training facilities. This project was completed in December 2003 and contributes to Navy, Army, Air Force and Intelligence capabilities.

Oakey – Oakey Base Redevelopment Achieved This project has redeveloped the Oakey base for optimal support of Army rotary-wing flying training, including the armed reconnaissance helicopter. Construction is largely complete, with the exception of the armed reconnaissance helicopter simulator facility, which is due for completion in February 2005. This project contributes to Army capability.

Townsville – Lavarack Barracks – Redevelopment Stage 2 Achieved This project was completed in July 2004. The redevelopment provided new industrial facilities, 1,004 units for single soldier accommodation and three combined messes. These facilities and infrastructure will ensure the long-term viability of Lavarack Barracks as the major base of the ADF Rapid Deployment Force. This project contributes to Army capability.

245 Chapter Four

Townsville – Lavarack Barracks – Redevelopment Stage 3 Achieved This project provides new working facilities for Army units at Lavarack Barracks to replace existing facilities. Construction commenced on new facilities for 2nd Battalion Royal Australian Regiment in August 2002 and was completed in September 2003. Similar construction on new facilities for 1st Battalion commenced in January 2003 and was substantially completed in June 2004. The remaining elements of the project are expected to be complete by late 2005. This project contributes to Army capability.

Townsville – RAAF Townsville – Redevelopment Stage 2 Achieved This project provides a range of new domestic facilities and working accommodation to replace existing facilities. Major elements completed in 2003-04 include transit accommodation, main base entrance, physical fitness facilities, combined mess, central emergency power station, and air movements facilities. The remaining minor elements were completed in August 2004. This project contributes to Air Force capability. South Australia

Edinburgh – RAAF Edinburgh – Redevelopment Stage 1 Substantially Achieved This project provides enhanced administrative, workshop and warehousing facilities, an upgrade of engineering services and an aircraft shelter. Provision of the Joint Logistics Unit (South) warehouse is included in the scope of works. Construction is now substantially complete, with the main works completed by mid-2003 and the warehouse completed in November 2003. The remaining minor works are due for completion in October 2004. This project contributes to Command of Operations.

Edinburgh – DSTO Edinburgh – Extension to Joint Electronic Warfare Building Achieved This project will provide facilities to support the collocation of electronic warfare activities, and additional space for the software support facilities for a number of different ADF platforms that are, or will shortly be, fitted with electronic warfare equipment. It is expected that construction will commence in January 2005, with a target completion date of January 2006. This project contributes to joint capability.

246 Capital Facilities Projects

Western Australia

Garden Island – HMAS Stirling – Base Development Stage 2D Partially Achieved The project has provided new and upgraded facilities for helicopter support, fuel storage, training accommodation, torpedo maintenance and electrical power house supply. Works are complete with the exception of a static frequency converter, which provides direct current power to ships. Technical difficulties have prolonged delivery and an assessment is currently being undertaken to determine how these can be overcome. Provided that an appropriate strategy can be initiated, the works will be completed in late 2006. This project contributes to Navy capability. Northern Territory

Timber Creek – Bradshaw Field Training Area Infrastructure Partially Achieved This project provides engineering services and infrastructure to allow the use of Bradshaw as a field training area for 1st Brigade. Following the completion of the negotiation of the Indigenous Land Use Agreement, the initial civil works contract was let in June 2004. The construction is expected to be completed by October 2005. This project contributes to Army capability.

Katherine – RAAF Tindal – Security Fence Partially Achieved This project will provide a perimeter security fence for the base designed to detect and delay intruder access. Approval from the Joint Standing Committee on Public Works has been granted and the project was approved by Parliament on 8 September 2003. The civil construction component will be completed by December 2004. Completion of the technology component has been delayed by six months and is scheduled for completion by mid-2005. This project contributes to Air Force capability.

Darwin – 1st Aviation Regiment Relocation Achieved This project provides new facilities for 1st Aviation Regiment at Robertson Barracks in Darwin and includes purpose-built working, training and domestic accommodation facilities. Approval was granted by Parliament on 21 August 2003. Construction has commenced and will be completed by the end of 2005. This project contributes to Army capability.

247 Chapter Four

Darwin – RAAF Darwin – Base Redevelopment Substantially Achieved This project provides enhanced support facilities at RAAF Darwin, including an air movements facility, Air Force police and ground defence facilities. The majority of the facilities have been completed and are in use. The base medical facilities were substantially complete in June 2004 and the upgrade of the firefighting water supply is scheduled for completion by early 2005. This project contributes to Air Force capability.

Darwin – RAAF Darwin – Development of Operational Facilities Achieved This project provides enhanced operational works at RAAF Darwin, including aircraft loading aprons, a fuel farm, a workshop and a base command post. All of the facilities have now been completed and are in use. This project contributes to Air Force capability. Australian Capital Territory

Canberra – HMAS Harman – Defence Network Operations Centre Achieved This project has provided basic facilities at HMAS Harman to allow later installation of a range of communications facilities to support the increased population at the base. The building was substantially completed in July 2003. Associated roadworks were postponed until construction of the multi-user depot was completed. The roadworks are planned to commence in October 2004 and will be completed in December 2004. This project contributes to Command of Operations.

Canberra – HMAS Harman – Canberra Multi-User Depot Achieved This project provided a multi-user depot at HMAS Harman that enabled Navy, Army and Air Force operational units, Reserves and Cadets units to be collocated. The requirement resulted from the sale of RAAF Fairbairn, the proposed sale of the Army depot in Canberra and cost savings arising from the collocation of these units into one facility. The project was completed in July 2004. This project contributes to joint capability.

248 Capital Facilities Projects

Canberra – Russell Offices – Intelligence Facilities Achieved This project has provided increased working accommodation for Defence Imagery and Geospatial Organisation staff through the refurbishment of Russell Building R4. Construction commenced in January 2004 and was completed in September 2004. This project contributes to Intelligence capability. Status of Major Capital Facilities Projects Foreshadowed for Joint Standing Committee on Public Works Consideration in 2003-04 Defence foreshadowed a number of major capital facilities projects (those expected to cost over $6m) for consideration by the Joint Standing Committee on Public Works in 2003-04. The following table provides details of the progress of the proposed projects. Table 4.6 Status of Major Capital Facilities Projects Program of Major Works (by state, federal electorate and locality) Status New South Wales Eden-Monaro Headquarters Joint Operations Command (formerly Headquarters Australian Theatre Project) Public hearing held 18 June 2004 Hughes Holsworthy – Special Forces Training Facilities PWC exemption granted 27 May 2004 Holsworthy – Special Operations Working Accommodation and Base Redevelopment Stage 1 Planned for referral in 2004-05 Kingsford Smith Randwick – Disposal and Rationalisation Project – Interim Works (previously referred to as Redevelopment and Disposal of Surplus Land) Project approved by PWC 2 June 2004 Macquarie RAAF Richmond - Reinvestment Project approved by PWC 15 October 2003 Victoria McEwen Puckapunyal – ADI Limited Explosive Ordnance Storage Project cancelled Queensland Blair 9 Force Support Battalion and 21 Construction Squadron relocation to Amberley Planned for referral in 2004-05 RAAF Amberley – Infrastructure Upgrade Planned for referral in 2004-05 Forde Canungra Redevelopment Planned for referral in 2004-05 South Australia Bonython Edinburgh – RAAF Edinburgh – Extension to Electronic Warfare Building PWC exemption granted 10 June 2004 Port Wakefield – Ammunition Facility Project referred 24 June 2004 Northern Territory Lingiari Katherine – RAAF Tindal – Security Fence Project approved by PWC 8 September 2003 Solomon Darwin – 1st Aviation Relocation Project approved by PWC 20 August 2003

249 Chapter Four

Australian Capital Territory Fraser Canberra – Intelligence Facilities – Russell Offices PWC exemption granted 6 November 2003 Approved Medium Capital Facilities Projects The following table provides details of expenditure in 2003-04 for medium capital facilities projects. Medium facilities projects are those expected to cost between $250,000 and $6m. Table 4.7 Approved Medium Capital Facilities by State and Federal Electorate Total Cumulative 2003-04 2003-04 2003-04 Estimated Expenditure(1) Budget Revised Actual Expenditure Estimate Estimate Expenditure

$’000 $’000 $’000 $’000 $’000 New South Wales Macquarie Richmond – RAAF Richmond Fuel Arm Upgrade 3,010 295 2,900 1,900 267 Upgrade Liquid Oxygen Compound(2) 590 - - 590 - Paterson Williamtown – RAAF Williamtown Child Care Facility 2,200 328 2,069 500 283 Advanced Short-Range Air-to-Air Missile / Captive Air Test Module Facility(3) 1,000 20 - 300 20 Fuel Farm Rectification 584 584 - 538 584 Air Weapons Range Security Works 710 56 - 710 56 Hughes Holsworthy Camp Sapper Environmental Works(4) 909 - - 909 - Building 106 Refurbishment(3) 1,765 1,765 - 1,750 1,765 Sydney Garden Island Building 77 Replacement 1,200 1,028 - 1,200 1,028 Redevelop Gangway(4) 909 - - 909 - Replace West Dock Fender System(2) 1,363 - - 1,363 - Effluent Recovery System(3) 3,511 3,511 - 3,500 3,511 Total New South Wales 17,751 7,587 4,696 14,169 7,514 Victoria Ballarat Ballarat Construction of Army Multi-User Depot 5,830 4,485 1,135 1,500 1,476 Corio Geelong Construction of Army Multi-User Depot 4,000 172 3,263 20 13 Flinders HMAS Cerberus Weapons Training Simulation System 1,400 37 - - 37

250 Capital Facilities Projects

Gippsland East Sale East Sale Child Care 1,800 204 1,508 20 18 RAAF East Sale Airfield Lighting(3) 574 574 - 502 574 Indi Bandiana Refurbish Building 304 909 440 - 909 440 Simulated Training Facility 909 300 - 909 300 Lalor Laverton Defence International Training Centre 2,440 86 2,040 20 21 RAAF Band Training and Rehearsal Facility 4,100 37 3,900 30 37 McEwen Puckapunyal Child Care Centre 2,700 223 1,575 200 223 Regional Training and Simulation Centre 2,200 186 2,000 - - Mission Essential Training Facility for Australian Light Armoured Vehicle, Phase 3 3,319 55 - 200 55 Total Victoria 30,181 6,799 15,421 4,310 3,194 Queensland Blair Amberley – RAAF Amberley Fire and Security School Working Dog Accommodation 3,085 2,988 450 1,780 1,740 Emergency Generator(4) 595 - - 595 - Kennedy Cowley Beach Training Area Refurbishment 1,100 694 - 580 694 Forde Canungra Water Project 5,500 3,642 600 3,300 1,450 Training Area Structural Works(4) 900 - - 900 - Herbert Townsville Special Operations Forward Mounting Facility 1,400 - - - - Lavarack Barracks Tactical Training 4,900 4,865 1,500 350 454 Combat Training Centre (Live) 5,800 5,521 4,900 4,000 4,116 Helicopter Underwater Escape Training Facility 2,500 15 - - 15 Regional Training Centre North Queensland Flexible Learning Facilities 3,850 161 - - 161 Combat Training Centre – Live Simulation, Range Instrumentation and Information System Maintenance and Storage Facility 2,800 - - - - Frontline Redevelopment of Western Mess 341 - - - - Mount Stuart - - - - - Training Area Grenade Range 400 - - - - Total Queensland 33,171 17,886 7,450 11,505 8,630

251 Chapter Four

South Australia Bonython Edinburgh Systems Simulation Centre Extension 2,500 2,116 1,100 850 653 Uninterrupted Power Supply to Electronic Warfare Building 1,400 991 120 300 282 Aerial Test Field Relocation 1,874 1,825 50 50 1 Relocation of DMO Over the Horizon Radar Systems Program Office 5,039 4,433 4,160 4,160 3,645 Corporate Services and Infrastructure Centre 2,850 2,469 2,732 1,820 1,963 Aircraft Signature Turntable 1,132 27 - 150 27 RAAF Edinburgh Airfield Defence 3,635 3,520 100 90 110 Defence Science and Technology Organisation (DSTO) Hybrid Torpedo Simulator Facility 1,716 1,572 694 450 519 Virtual Ship Facility 903 846 360 240 266 Refurbish DSTO Land Operations Division Facilities 5,600 4,831 25 100 159 Surveillance Analysis Centre(2) 1,310 1,088 950 1,190 996 Refurbish Laboratories 180 and 23 2,190 1031 - 790 1,031 Wakefield Port Wakefield Ammunition Breakdown Facility(5) 4,500 300 4,300 300 229 Total South Australia 34,649 25,049 14,591 10,490 9,881 Western Australia Brand Garden Island – HMAS Stirling Periscope Workshop Facility 3,521 3,457 2,000 3,000 3,261 Armoury, Magazine and Gunners Store 1,050 1,017 20 30 33 Wharf Services Upgrade 5,850 2,399 5,000 3,000 1,616 DSTO Submarine and Surface Combatants Science and Technology Facility Extension 2,895 2,365 2,400 2,400 2,308 Training Unit Anzac Ship Support Centre 5,330 1,934 - 2,000 1,934 Guided Weapons Maintenance Facility 3,512 - - 1,000 - Joint Ammunition Logistic Organisation West Office Accommodation (formerly Torpedo/Underwater Teams Facility) 1,500 - - - - Weapons Training Simulation System 1,400 37 - - 37 Low Level Bridge Corrosion(4) 545 - - 545 - Curtin Swanbourne Extension to Headquarters Building, Campbell Barracks (formerly 4 Sig Troop Facilities) 3,610 239 3,100 2,000 117 Forrest Leeuwin Barracks Install Residual Current Devices(4) 660 - - 500 -

252 Capital Facilities Projects

Pearce RAAF Pearce Install Supervisory Cables 3,841 3,841 - 1,800 2,441 Total Western Australia 33,714 15,289 12,520 16,275 11,747 Northern Territory Lingiari Bathurst Island Radar Facilities 4,486 14 2,000 - 12 Katherine – RAAF Tindal New 400m Range 4,380 4,062 3,000 3,000 2,923 Vehicle Shelters 1,430 465 1,000 800 465 Living-in Accommodation 5,800 5,703 3,200 3,200 3,236 Solomon Darwin Married Quarters Electrical Upgrade 4,850 246 2,000 250 72 Aircraft Hydrant Refuelling 5,600 5,597 100 100 107 1st Brigade Military Operations in Urban Terrain 4,835 - - 1,000 - 1st Brigade Small Teams Skill Training Facility 850 250 - - 250 Vehicle Shelters 2,475 850 - 800 850 RAAF Darwin Joint Logistics Unit North Armouries 1,700 632 - 1,700 632 Special Operations Forward Mounting Facility 2,500 - - - - Robertson Barracks Tactical Training and Simulation Site 5,500 5,180 4,400 4,400 4,579 Security Upgrade 1,900 1,245 - 1,850 1,245 Deployed Forces Support Unit Accommodation(4) 1,750 - - 1,750 - Total Northern Territory 48,056 24,244 15,700 18,850 14,371 Australian Capital Territory Fraser Jervis Bay Remediation of Mary Creek 1,100 157 10 10 30 HMAS Creswell Waterfront Facility for 4RAR 2,410 35 1,300 - 10 Canberra Deakin Offices Refurbishment(3) 3,278 3,278 - 2,190 3,278 Russell Offices Passive Defence Works 3,600 2,067 - 3,600 2,067 Canberra Area Medical Unit Refurbishment 727 775 - 727 775 Total Australian Capital Territory 11,115 6,312 1,310 6,527 6,160 Other – Medium Works Air Traffic Control Systems – Various Locations 3,258 2,936 250 - 43 Total Other 3,258 2,936 250 - 43 Total Medium Facilities Projects 211,895 106,102 72,211 82,126 61,540 Notes 1. Cumulative Expenditure to 30 June 2004. 2. Project deferred. 3. Increase in outturn cost. 4. Project cancelled. 5. Project scope increased. Now part of foreshadowed major project.

253 Chapter Four

Status of Medium Capital Projects for Departmental Approval in 2003-04

Table 4.8 Status of Proposed Medium Capital Facilities Projects

Program of Works (by state, federal electorate and locality) Status New South Wales Lindsay Werrington (formerly Penrith) – Construction of Army multi-user depot Deferred North Sydney Waverton – HMAS Waterhen – Relocation of DMO mine warfare and clearance diving system program office Deferred to 2004-05 Victoria Flinders HMAS Cerberus – weapons training simulation system Approved November 2003 Jagaga Watsonia – regional training centre facilities Deferred – now subsumed into a major project Queensland Herbert Townsville – Lavarack Barracks – helicopter underwater escape training facility Approved January 2004 Townsville – Lavarack Barracks – regional training centre North Queensland facilities Approved January 2004 Townsville – special operations forward mounting facility Approved April 2004 Townsville – combat training centre (live) storage and maintenance facility Approved February 2004 Mount Stuart – Mount Stuart Training Area Grenade Range Deferred to 2004-05 Townsville – field training area air weapons range (formerly Halifax Bay range relocation) Deferred to 2004-05 Western Australia Brand Garden Island – HMAS Stirling – Joint Ammunition Logistics Organisation West office accommodation (formerly torpedo/underwater Target Teams Facility) Deferred to 2004-05 HMAS Stirling – weapons training simulation system Approved November 2003 Northern Territory Lingiari Delamere – tactical air defence radar site (formerly Katherine – Delamere radar facilities) Deferred Solomon Darwin – Tactical Air Defence Vehicle Shelters Deferred to 2004-05 Darwin – Special Operations Forward Mounting Facility Deferred Darwin – 1st Brigade Small Teams Skills Training Facility Approved May 2004 Australian Capital Territory Canberra Canberra – Majura services development Deferred to 2004-05 Canberra – Federation Guard facilities Deferred Canberra – Services study relocation Deferred to 2004-05 Other RAAF Butterworth – building upgrades Deferred – now subsumed into a major project

254 Other Capital Purchases (+$101.9m) Other capital purchases comprise minor capital equipment projects, purchase of repairable items and other plant and equipment exceeding the capitalisation threshold of $10,000 ($50,000 for grouped assets), other property, plant and equipment, software and intangibles. Repairable items are items such as engines, gearboxes and components of platforms. These items are acquired to sustain a pool of spares for use while worn and broken items are repaired, maintained or replaced. Minor capital projects cover new equipment, modifications to existing equipment or enhancement to new equipment that are generally valued between $250,000 and $20m. Minor projects costing between $8m and $20m are approved jointly by the Ministers for Defence, and Finance and Administration. The Minister for Defence approves projects costing between $5m and $8m. The Service Chiefs and Group Heads, or their nominated delegates approve projects costing below $5m. Other capital equipment also includes purchases of information technology and administrative assets costing more than $2,000 and other property, plant and equipment assets costing more than $10,000, and software and intangibles. Total expenses on other capital purchases in 2003-04 were $101.9m higher than the projected result of $517.7m. The additional expenses included: - the purchase of repairable items aimed at clearing backlogs in this area (+$23.7m);

- the purchase of information technology assets, which was offset by the Major Capital Facilities Program (+$17.9m);

- additional purchases of other property, plant and equipment assets by the Corporate Services and Infrastructure Group (+$5.7m);

- the Government-agreed settlement in relation to the intellectual property for the Collins-class submarine (+$25.0m);

- the enhancement of Defence’s human resource software package, PMKeyS, including associated software licensing (+$5.0m);

- a change in accounting procedures for equipment purchases by the Defence Science and Technology Organisation (+$8.6m); and

- an underestimate of other plant and equipment purchases in the original budget, together with a range of other offsetting adjustments (+$16m).

255 Chapter Four

Capital Receipts (-$4.6m) The capital receipts program comprises proceeds from property sales which are returned to the Government in the form of equity, and proceeds from the sale of housing annuities by the Defence Housing Authority, sale of specialist military equipment and commercial vehicles, and other plant and equipment items which are retained by Defence. Net capital receipts for 2003-04 totalled $101.9m or $4.6m less than the projected result. Details are shown in Table 4.9 with an explanation of the variations for each category shown below. Table 4.9 Defence Capital Receipts 2003-04

2003-04 Budget Revised Projected Actual Variance Estimate Estimate Result Result

Capital Receipts $m $m $m $m $m Proceeds from the Sale of Land and Buildings 199.9 199.9 199.9 82.4 -117.5 Less: Capital withdrawal (DoFA requirements) -199.9 -199.9 -199.9 -82.4 117.5 Proceeds retained by Defence - - - - - Revenue from sale of housing - - - 44.0 44.0 Proceeds from sale of Specialist Military Equipment 23.5 23.5 25.3 12.2 -13.1 Proceeds from sales of other property, plant and other equipment 83.0 83.0 81.2 45.7 -35.5 Net Capital Receipts 106.5 106.5 106.5 101.9 -4.6 Property Sales (-$117.5m) In 2003-04, Defence sold property worth $82.4m, which was $117.5m below the projected result of $199.9m. This was primarily due to Government decisions, the need to refer works at Randwick to the Public Works Committee, and variations in project scheduling for various reasons including the lead time required to consider local and state government priority sale proposals. As agreed, all funds from the Defence Property Sales Program were returned to the Department of Finance and Administration as a capital withdrawal.

Sale of Defence Housing and Annuity (+$44m) Defence received $44m from the sale of housing annuities by the Defence Housing Authority in 2003-04.

Sale of Specialist Military Equipment (-$13.1m) Defence realised $12.2m from the sale of specialist military equipment, $13.1m less than the projected result. This was due to foreign exchange movements and an overestimate of the original estimate.

256 Capital Receipts

Sale of Other Property, Plant and Equipment (-$35.5m) Receipts from the sale of other property, plant and equipment totalled $45.7m in 2003-04, which was $35.5m less than the projected result. This was due to an overestimate of the original budget

257 Photo opposite: the Secretary, Mr Richard Smith, with Defence staff at the Russell Offices, Canberra. CHAPTERFIVE

ADF permanent force enlistments People increased by 254 on 2002-03 figures

In this chapter you will find The Defence APS workforce decreased information about the Defence by 82 workforce including personnel numbers, people priorities and A new Defence Employees Certified initiatives, occupational health and Agreement and ADF Workplace safety, and ADF recruitment results. Remuneration Arrangement were implemented

A whole-of-Defence occupational health and safety plan was completed

A trial ADF spouse employment assistance program was launched in October 2003 to assist the partners of newly posted ADF personnel to find employment in the new locality

The Military Rehabilitation and Compensation Act 2004 was passed by Parliament during 2004. The resulting Military Rehabilitation and Compensation Scheme, which provides rehabilitation and compensation coverage under one scheme for all forms of ADF service, began on 1 July 2004 Chapter Five

Workforce Overview The workforce overview is in two parts. The first part contains information on average strength during 2003-04, while the second part includes information on the actual number of people employed by Defence as at 30 June 2004. The average funded strength figures are used by Defence for budget and management purposes and provide a measure of Defence’s performance against its budget and personnel estimates over the financial year.

Staffing by Average Strength This section provides information on average staffing levels for the year and compares numbers of personnel with our estimates for the financial year. The following tables assess performance against budget and revised staffing level estimates for 2003-04. The permanent force average strength was 52,034 including 793 Reservists undertaking full-time service. These Reservists were employed primarily within the other ranks. The decrease of 191 from the projected result is primarily a result of permanent members progressively substituting for Reservists undertaking full-time service at a slower than anticipated rate in the Army. This process continues to move the ADF towards the additional 3,555 average funded strength provided under the Government’s commitment to an Army with six full-time battalions and an enhanced combat support group in the Air Force. Table 5.1 ADF Permanent Force Average Funded Strength(1) 2003-04 2003-04 2003-04 2002-03 Budget Revised Projected 2003-04 Actual Estimate Estimate Result Actual Variation(2) Personnel numbers – average strength % Navy 12,847 13,000 13,121 13,121 13,133 12 0.1 Army 25,587 25,941 25,731 25,623 25,446 -177 -0.7 Air Force 13,646 13,400 13,460 13,481 13,455 -26 -0.2 Total permanent forces 52,080 52,341 52,312 52,225 52,034 -191 -0.4 Notes 1. Staffing numbers for Permanent Forces are based on average funded strengths and include Reservists undertaking full-time service. The average funded strength of Reservists undertaking full-time service was 793, comprising Navy 352, Army 328 and Air Force 113. 2. 2003-04 actual compared to the projected result. The figures below show the number of Reservists who rendered paid service during the financial year. In 2003-04, 20,488 Reservists undertook paid service, 376 less than the projected result of 20,864, but 868 more than in 2002-03. This figure excludes the average number of Reserves on full-time service in the permanent force during 2003-04. Table 5.2 ADF Reserve Funded Strength(1) 2003-04 2003-04 2003-04 2002-03 Budget Revised Projected 2003-04 Actual Estimate Estimate Result Actual Variation(2) Personnel numbers – paid strength % Navy 1,404 2,087 1,850 1,850 1,881 31 1.7 Army 16,211 16,700 16,700 16,982 16,445 -537 -3.2 Air Force 2,005 1,658 2,160 2,032 2,162 130 6.4 Total Reserve forces 19,620 20,445 20,710 20,864 20,488 -376 -1.8 Notes 1. During the financial year, an average of 793 Reservists undertook full-time service in the permanent force and are included in the permanent force staff table. 2. 2003-04 actual compared to the projected result.

260 Workforce Overview

The Australian Public Service (APS) full-time equivalent average strength for 2003-04 was 18,303, a decrease of 53 from the projected result of 18,356. The decrease is a result of the planned reduction in APS numbers over a three-year period in response to a significant APS workforce growth during 2002-03, and as a contribution towards Defence’s program of administrative savings. The overall reductions were partially offset by increases, since the Portfolio Budget Statements 2003-04, mainly in intelligence capability, project acquisition, air traffic control and the Budget Estimates Framework Review. The outcome also reflected delays in reductions of civilian personnel expected in the rationalisation of the Defence Integrated Distribution System. Table 5.3 APS Average Funded Strength(1) 2003-04 2003-04 2003-04 2002-03 Budget Revised Projected 2003-04 Actual Estimate Estimate Result Actual Variation(2) Defence Groups % Navy 741 749 750 727 727 - - Army 674 674 681 631 626 -5 -0.8 Air Force 785 842 870 852 842 -10 -1.2 Defence Materiel Organisation 5,957 5,175 5,900 5,997 5,942 -55 -0.9 Corporate Services and Infrastructure Group 4,459 4,305 4,383 4,419 4,441 22 0.5 Defence Personnel Executive 1,215 1,104 1,115 1,064 1,063 -1 -0.1 Defence Science and Technology Organisation 2,294 2,267 2,287 2,247 2,241 -6 -0.3 Other Groups 2,260 2,261 2,403 2,419 2,421 2 0.1 Total APS 18,385 17,377 18,389 18,356 18,303 -53 -0.3 Notes 1. Staffing numbers for APS are based on average full-time equivalent. 2. 2003-04 actual compared to the projected result. Professional Service Providers In addition to military and civilian employees, Defence engages as part of its total workforce Professional Service Providers, who are individuals with specialist skills contracted to fill an APS line position usually because of Defence’s inability to recruit or retain civilian staff with these skills. Professional Service Providers are not Defence employees but are employed under contractual arrangements. In 2003-04, Defence spent $201m on Professional Service Providers, which is expensed in the financial statements comprising health expenses ($68.2m) and supply of goods and services ($132.8m). At the commencement of 2003-04 Defence employed the full-time equivalent of 2,311 Professional Service Providers. In response to a growth in both the civilian and Professional Service Provider workforces, Defence instituted a savings program over a three-year period as a contribution towards Defence’s Program of Administrative Savings. At the same time, Defence introduced a total workforce concept, which allowed Group Heads to substitute more costly Professional Service Providers with civilian positions, in order to grow Defence’s skills base and obtain more cost effective outcomes. As part of this concept, approval has been given for Group Heads to increase the civilian workforce by 360 positions, offset by a reduction of 360 Professional Service Provider positions, as detailed in Table 5.4. Taking into account these substitutions, a reduction in health service providers (-200) and a small number of additions in relation to Government agreed budget measures (22 in

261 Chapter Five

2004-05 reducing to 2 in 2006-07), Defence’s Professional Service Provider workforce will reduce by 626 by 2006-07.

Table 5.4 Current Approved Professional Service Provider Strength

Year 2003-04 2004-05 2005-06 2006-07 2007-08 Original Savings Targets 2,311 2,277 2,243 2,243 2,243 Additional Professional Service Providers from Government budget measures -22622 Reduction of Health Service Professional Service Providers -200 -200 -200 -200 -200 Substitution with civilian staff -95 -359 -360 -360 -360 Current Approved Professional Service Provider Strength 2,016 1,740 1,689 1,685 1,685 Reduction from 2002-03 baseline -295 -571 -622 -626 -626 Achievement of Civilian Savings Chart 5.1 shows that since the peak in civilian numbers at pay 18 in 2002-03, actual numbers have decreased by 594 from 18,845 to 18,251. Further ongoing savings will be achieved in 2004-05, especially as Defence Integrated Distribution System staff transition out of the organisation. When the 95 Professional Service Provider substitutions approved in 2003-04 are taken into account, the underlying actual reduction total of 689, with further savings expected in 2004-05 and 2005-06. Movements in Actual Civilian Personnel Numbers from Pay 1 Chart 5.1 2002-03 to Pay 26 2003-04

Actual Strength

19000

18800

18600

18400

18200

18000

17800

17600

17400

17200

17000

1 4 7 6 9 2 2 5 8 1 4 3 6 10 13 1 1 2 25 1 1 17 20 2 2 Pay Period

Actual Strength

262 Workforce Overview

Table 5.5 Breakdown of Average Funded Strengths by Service and Rank 2002-03 2003-04 2003-04 2003-04 2003-04 Actual Budget Revised Projected Actual Estimate Estimate Result Navy Star-ranked officers 35 35 35 36 34 Senior officers 432 430 420 439 434 Junior officers 2,380 2,378 2,372 2,362 2,446 Other ranks 10,000 10,157 10,294 10,284 10,219 Sub-total permanent Navy 12,847 13,000 13,121 13,121 13,133 Reserves 1,404 2,087 1,850 1,850 1,881 Sub-total Navy 14,251 15,087 14,971 14,971 15,014 Army Star-ranked officers 50 56 56 49 49 Senior officers 558 557 557 588 576 Junior officers 4,458 4,669 4,637 4,499 4,524 Other ranks 20,521 20,659 20,481 20,487 20,297 Sub-total permanent Army 25,587 25,941 25,731 25,623 25,446 Reserves 16,211 16,700 16,700 16,982 16,445 Sub-total Army 41,798 42,641 42,431 42,605 41,891 Air Force Star-ranked officers 35 37 37 37 36 Senior officers 517 500 514 521 518 Junior officers 3,489 3,411 3,557 3,551 3,550 Other ranks 9,605 9,452 9,352 9,372 9,351 Sub-total permanent Air Force 13,646 13,400 13,460 13,481 13,455 Reserves(1) 2,005 1,658 2,160 2,032 2,162 Sub-total Air Force 15,651 15,058 15,620 15,513 15,617 APS Senior executives 110 117 117 115 102 Senior executive relief staff(3)(5) 20 9 9 - 21 Senior officers(2) 3,539 3,120 3,562 3860 3,649 Senior officer relief staff(3)(5) 295 276 288 - 240 Others 14,421 13,855 14,413 14,381 14,291 Sub-total APS 18,385 17,377 18,389 18,356 18,303 Professional Service Providers(4)(6) - 2,311 2,000 2,000 1,878 Total Workforce 90,085 92,474 93,411 93,445 92,703 Notes 1. The 2003-04 Reserve strength represents Reservists who undertook paid service. 2. Senior Officers comprise substantive Executive Levels 1 and 2. 3. Relief staff represent the full-time average of personnel acting within a higher classification for short duration pending permanent filling action or while the incumbents are taking leave, acting in higher positions or are on secondment to other agencies. 4. Professional Service Providers are individuals under contract filling line positions. 5. No split between substantive and relief staff was available for the projected result. 6. Professional Service Provider numbers were not tracked until 2003-04.

263 Chapter Five

Employee Expenses Table 5.6 Explanation of Variations in Employee Expenses 2003-04 2003-04 2003-04 2003-04 Variation Variation Budget Revised Projected Actual Estimate(1) Estimate Result Result $m $m $m $m $m % Salary and Allowances 3,451.5 3,413.0 3,416.8 3,143.7 -273.1 -8.0 Superannuation 658.0 658.0 901.9 671.5 -229.6 -25.5 Leave Liability 94.8 94.8 244.3 242.1 -2.2 -0.9 Housing 381.9 378.8 375.1 385.7 10.6 2.8 Compensation 134.2 144.3 143.2 451.9 308.7 215.6 Health 129.5 137.3 132.0 150.1 18.1 13.7 FBT 267.2 267.2 268.4 297.0 28.6 10.7 Sub Total Permanent ADF 5,117.1 5,093.3 5,481.7 5,342.0 -138.9 -2.5 Navy Reserves 12.8 12.0 13.5 13.3 -0.2 -1.5 Army Reserves 89.0 88.8 87.8 89.6 1.8 2.1 Air Force Reserves 14.7 17.0 15.8 18.5 2.7 17.1 Sub Total Reserves 116.5 117.8 117.1 121.4 4.3 3.7 Salary and Allowances 1,092.7 1,085.1 998.4 997.4 -1.0 -0.1 Superannuation 192.3 191.0 200.7 183.4 -17.3 -8.6 Leave Liability 38.2 38.0 114.8 161.4 46.6 40.6 Other Expenses 18.4 19.6 19.6 21.1 1.5 7.7 Sub Total APS 1,341.6 1,333.6 1,333.5 1,363.2 29.7 2.2 Total Employees 6,575.3 6,544.7 6,932.3 6,826.6 -105.7 0.0 Note 1. The Budget Estimate above is the Adjusted Budget Estimate as published in the Portfolio Additional Estimates Statements 2003-04. This reflects the true budget estimate of ADF employees in 2003-04, as it does not include the $64.4m estimate of the reimbursement of the 2002-03 employee expenses for Operations Bastille and Falconer. The actual result for employee expenses in 2003-04 totalled $6,826.6m, representing a decrease of $105.7m from the 2003-04 projected result of $6,932.3m which was within 1.5 per cent of the estimate. The variation comprises permanent military employees (-$139.7m), Reserve employees ($4.3m) and civilian employees ($29.7m).

Permanent Military Employees (-$138.9m)

• This decrease of $138.9m was due to: - the decision not to proceed with the proposed transfer of the liability for the Defence Force Retirement and Death Benefits scheme 3 per cent productivity benefit from the administered to departmental accounts (-$220.0m);

- overstatement of the military employees salaries and superannuation payments in 2003-04 (-$21.6m);

- reduced salaries and allowance and superannuation payments due to the lower than planned average funded strength of 191 comprising Navy (12), Army (-177) and Air Force (-26) (-$18.4m);

- an overestimate of long service and annual leave to be paid in 2003-04 (-$17.3m);

- decreased take-up rate and overstatement of the estimate for the Home Purchase Assistance Scheme (-$11.4m);

- an overstatement of the estimate for salary advances (-$10.0m);

264 Workforce Overview

- a review of employee allowance entitlements recognising overpayment of Army military allowances (-$9.7m);

- an adjustment for an actuary review of compensation expense which projected higher longer term incapacity payments (+5 per cent), higher medical payments (+25 per cent) and higher establishment costs for claims (+$121.0m);

- decrease in the number and value of claims for lump sum compensation for permanent impairment (-$8.8m);

- increase in housing expenses including buy-out of old base housing annuities and increased take-up rate of members without dependents using rental assistance rather than living-in accommodation (+$10.6m);

- increased health costs principally relating to medical and professional fees (+$18.1m); and

- an understatement of fringe benefits tax payable for rental allowance for members without dependants (+$28.6m).

Reserves Employees (+$4.3m) ADF Reserves expenses totalled $121.4m, representing an increase of $4.3m from the 2003-04 projected result of $117.1m. This was primarily due to increased activity by officers and instructors of cadets (+$1.0m) and a higher than projected use of Reserve days by non-Service groups (+$3.4m).

Civilian Employees (+$29.7m)

• Civilian employee expenses totalled $1,363.2m, representing an increase of $29.7m on the projected result of $1,333.5m. The increase was mainly due to: - the recognition of Defence Integrated Distribution System redundancy costs in 2003-04, rather than in 2004-05 as originally planned (+$23.0m);

- the increase in the future leave liability costs resulting from both the 2004-06 Defence Employees Certified Agreement (+$30.4m) and associated superannuation rate increases (+$8.2m);

- an underestimate of the impact of the changing profile of members in the Commonwealth Superannuation and Public Sector Superannuation schemes (+$12.8m);

- the recalculation of accrual leave balances arising from actuarial reviews and errors in certain aspects of the estimates (+$8.0m). There was no cash impact in 2003-04;

- the payment of superannuation liabilities to the University of New South Wales at the Australian Defence Force Academy at a lower level than estimated and from supplier expenses rather than from civilian employees (-$30.1m). In the event, an interim payment of $20.0m was made pending finalisation of the final amount in 2004-05;

265 Chapter Five

- reduction due to lower numbers (53 less full-time equivalent average) than planned in 2003-04 (-$2.8m); and

- an overstatement of the civilian employee salaries in 2003-04 and other minor variations (-$19.7m).

Costs of the Reserve The Joint Standing Committee for Foreign Affairs, Defence and Trade, in its review of the Defence Annual Report 2001-02, recommended that greater visibility be provided of the personnel costs of the Reserves. Salaries and allowances costs for the Reserve are shown in Table 5.5 and Table 5.7 provides details of the costs in supplier expenses relating to the Reserves Enhancement Initiatives. Table 5.7 Reserves Enhancement Initiatives 2003-04 2003-04 2003-04 2003-04 Variation Budget Revised Projected Actual Estimate Estimate Result Result $m $m $m $m $m % Reserve Enhancement 19.5 17.5 14.4 14.5 0.1 0.7 The Reserves Enhancement Initiative provided funds to make employer support payments, which help compensate employers who release employees for Reserve service.

Actual Staffing as at 30 June 2004 This section outlines the changes in the workforce that occurred during 2003-04, and provides personnel information at, or up to, 30 June 2004. It includes numbers of personnel, employment categories and locations, gender information, and details of recruiting and separation during the year. At 30 June 2004, Defence had 71,273 permanent employees comprising 52,245 permanent ADF members and 19,028 APS personnel. The ADF Reserve Force comprised 22,154 employees. The total ADF workforce included 15,737 Navy permanent and Reserve members, 42,337 Army permanent and Reserve members and 16,325 Air Force permanent and Reserve members. The charts below show the percentage of personnel by type of service (ADF, APS, Reserves) and then by the Service to which they belong.

Chart 5.2 Defence Workforce Staffing as at 30 June 2004

Workforce Estimate by Type Workforce Estimate by Service 17%

24%

56% 20%

46%

20% 17% Permanent Reserve Civilian Navy Army Air Force APS

266 Workforce Overview

At 30 June 2004, there were 19,030 APS personnel. This number includes all APS personnel Defence has recorded as employees and includes full-time, part-time, ongoing and non-ongoing, and paid and unpaid employees. This was 60 less personnel than the same time last year and is an overall decrease of approximately 0.3 per cent. This reflects the planned reduction in APS numbers in response to significant APS workforce growth during 2001 and 2002. The reductions were partially offset by civilianisation of Service positions in non-operational functions, an increase in personnel for the war against terrorism, support of increased operational commitments and delays in market-testing elements of the workforce. More women worked in Defence this year with 12 more than the 30 June 2003 level, an increase of just under 0.2 per cent. The decrease in male participation was 72 below the 30 June 2003 level or slightly under 0.6 per cent. Professional Service Providers are persons contracted for specialist tasks for finite periods. Examples include health professionals and para-professionals, project managers and information technology engineers. The cost of Professional Service Providers is predominantly recorded as supplier expenses. In accordance with the Defence Workforce Plan 2004-14, Professional Service Providers are managed as part of the total Defence workforce using the full-time equivalent average as a measure. The employment of around 1,900 Professional Service Providers is not included in Chart 5.1 above. Defence Personnel Comparison as at 30 June 2003(1) and 30 June Table 5.8 2004 Navy Army Air Force APS Total 2002-03 Permanent 12,864 25,289 13,638 - 51,791 Public Service - - - 19,088 19,088 Total 12,864 25,289 13,638 19,088 70,879 2003-04 Separations(2) Permanent 1,329 2,811 998 - 5,138 Public Service ---1,9501,950 Sub-total 1,329 2,811 998 1,950 7,088 2003-04 Additions(3) Permanent 1,670 2,977 945 - 5,592 Public Service ---1,8901,890 Sub-total 1,670 2,977 945 1,890 7,482 2003-04 Permanent 13,205 25,455 13,585 - 52,245 Public Service - - - 19,028 19,028 Total 13,205 25,455 13,585 19,028 71,273 Variation 341 166 -53 -60 394 Notes 1. 30 June 2003 figures are sourced from the Defence Annual Report 2002-03. 2. Separations include all personnel who have left the Defence workforce through voluntary and involuntary redundancy, age or voluntary retirement, or transfer to other agencies. 3. Additions include all personnel who have joined the Defence workforce through direct recruitment action, including transfers from other agencies and non-ongoing personnel.

267 Chapter Five

The Defence Workforce by Gender and Employment Category ADF Permanent and Reserve Forces, and APS Personnel, by Gender Table 5.9 and Employment Category(1) (2) As at 30 June 2003 As at 30 June 2004 Men % Women % Men % Women % Navy Trained Force Officers 1,682 13.1 331 2.6 1,683 12.7 334 2.5 Other ranks 7,385 57.4 1,417 11.0 7,542 57.1 1,475 11.2 Training Force Officers 551 4.3 182 1.4 597 4.5 194 1.5 Other ranks 1,084 8.4 232 1.8 1,082 8.2 298 2.3 Total 10,702 83.2 2,162 16.8 10,904 82.6 2,301 17.4 Army Trained Force Officers 3,824 15.1 611 2.4 3,925 15.4 639 2.5 Other ranks 17,530 69.3 1,740 6.9 17,214 67.6 1,732 6.8 Training Force Officers 554 2.2 110 0.4 569 2.2 105 0.4 Other ranks 844 3.3 76 0.3 1,138 4.5 133 0.5 Total 22,752 90.0 2,537 10.0 22,846 89.8 2,609 10.2 Air Force Trained Force Officers 2,949 21.6 504 3.7 2,965 21.8 509 3.7 Other ranks 7,505 55.0 1,298 9.5 7,517 55.3 1,279 9.4 Training Force Officers 546 4.0 127 0.9 527 3.9 137 1.0 Other ranks 608 4.5 101 0.7 539 4.0 112 0.8 Total 11,608 85.1 2,030 14.9 11,548 85.0 2,037 15.0 ADF Permanent Trained Force Officers 8,455 16.3 1,446 2.8 8,573 16.4 1,482 2.8 Other ranks 32,420 62.6 4,455 8.6 32,273 61.8 4,486 8.6 Training Force Officers 1,651 3.2 419 0.8 1,693 3.2 436 0.8 Other ranks 2,536 4.9 409 0.8 2,759 5.3 543 1.0 Total 45,062 87.0 6,729 13.0 45,298 86.7 6,947 13.3 Reserves(3) Navy 1,294 6.0 322 1.5 2,032 9.2 500 2.3 Army 14,457 67.0 2,715 12.6 14,304 64.6 2,578 11.6 Air Force 2,273 10.5 527 2.4 2,212 10.0 528 2.4 Total 18,024 83.5 3,564 16.5 18,548 83.7 3,606 16.3 APS Total 12,448 65.2 6,640 34.8 12,376 65.0 6,652 35.0 Notes 1. Figures in the table are actual staff numbers as at 30 June 2003 and 30 June 2004. 2. Percentage figures are calculated against the individual Service totals. The Service totals for 2003-04 can be found in Table 5.13. 3. Figures are Reserves with training obligations.

268 Workforce Overview

Table 5.10 APS Personnel by Gender and Category as at 30 June 2004(1)(2)(3) Category Gender Full-time Part-time Total Ongoing employees Male 11,982 52 12,034 Female 6,032 233 6,265 Non-ongoing employees Male 330 12 342 Female 364 23 387 Total Male 12,312 64 12,376 Female 6,396 256 6,652 Total APS personnel 18,708 320 19,028 Notes 1. Figures in this table show actual staff numbers. 2. Figures exclude locally engaged civilians overseas. 3. Figures include paid and unpaid staff. Defence Senior Management

Table 5.11 Star–ranked Officers as at 30 June 2004

Total star rank(1) 2003-04 promotions(2) 2003-04 separations(3) Men Women Total Men Women Total Men Women Total Four Star Navy ------Army 1-1------Three Star Navy 2 - 2 ------Army 2 - 2 1 - 1 - - - Air Force 1 - 1 ------Two Star Navy 7 - 7 2 - 2 2 - 2 Army 9 - 9 1 - 1 - - - Air Force 7 1 8 1 1 2 1 - 1 One Star Navy 28 - 28 6 - 6 3 - 3 Army 34 - 34 5 - 5 9 - 9 Air Force 27 - 27 5 - 5 3 - 3 Total 118 1 119 21 1 22 18 0 18 Notes 1. Officers on acting or higher duties are not included. 2. Promotions include those officers promoted between levels. 3. Separations include only those officers who have separated from Defence.

269 Chapter Five

Table 5.12 APS Senior Executive Service staff as at 30 June 2004(1)(2)

Total SES 2003-04 Engagements(3) 2003-04 Separations(4) Men Women Total Men Women Total Men Women Total Senior Executive Band 1 47 21 68 8 7 15 9 3 12 Senior Executive Band 2(5) 143172-2617 Senior Executive Band 3 6-61-11-1 Chief of Division Grade 2 12 - 12 1 - 1 1 - 1 Chief of Division Grade 3 3 - 3 1 - 1 1 - 1 Senior Executive Relief Staff 12 2 14 ------Total 94 26 120 13 7 20 18 4 22 Notes 1. Figures in this table show actual staff numbers at their substantive level and officers on higher duties pending permanent filling action. 2. Gains and losses do not reflect movement of officers between levels in each of the Senior Executive Service and Chief of Division streams. 3. Engagement figures include new engagements, promotions and transfers from other agencies for ongoing employees only. 4. Separation figures include resignations and redundancies, and promotions and transfers to other departments for ongoing employees only. 5. Senior Executive Band 2 includes Medical Officer Grade 6. Distribution of Defence Personnel Distribution of Defence Personnel by Employment Location as at 30 June Table 5.13 2004(1) NSW VIC QLD SA WA TAS NT ACT(2) O/S(3) Total Permanent Forces(4)(5) Navy(6) 5,483 2,117 801 75 2,645 19 533 1,374 158 13,205 Army 5,414 3,303 9,479 645 863 116 3,403 1,960 272 25,455 Air Force 4,900 1,134 2,433 1,879 398 10 1,084 1,486 261 13,585 Sub Total 15,797 6,554 12,713 2,599 3,906 145 5,020 4,820 691 52,245 Reserve Forces(5)(7)(8) Navy 807 276 331 98 328 108 34 546 4 2,532 Army 4,707 2,837 4,192 1,280 1,822 661 664 681 38 16,882 Air Force 596 375 764 297 192 59 71 382 4 2,740 Sub Total 6,110 3,488 5,287 1,675 2,342 828 769 1,609 46 22,154 Total 21,907 10,042 18,000 4,274 6,248 973 5,789 6,429 737 74,399 APS(9) 3,757 3,990 1,587 1,951 623 97 390 6,516 117 19,028 Grand Total 25,664 14,032 19,587 6,225 6,871 1,070 6,179 12,945 854 93,427 Notes 1. Figures in this table show actual staff numbers as at 30 June 2004 and are not average funded strengths. 2. ACT includes personnel located at Jervis Bay. 3. Permanent Forces and Reserves overseas represent personnel posted for long-term duty and deployments. 4. Permanent Forces figures include paid and unpaid members. 5. Personnel are shown in the location from which they are administered. 6. Personnel serving in ships are included against the state or territory in which the ship is home-ported. 7. Reserve forces figures include Reserves on continuous full-time service. 8. Figures are Reserves with training obligations. 9. APS figures include full-time, part-time, ongoing, non-ongoing, paid and unpaid employees.

270 Workforce Overview

Distribution of APS Personnel by Employment Location as at 30 June Table 5.14 2004(1) NSW VIC QLD SA WA TAS NT ACT O/S(2) Total Secretary ------1-1 Senior Executive Service(3)(4) -5 19- - -883106 Temporarily Vacant(5) ---1---13-14 SES Relief Staffing(6) ---0---5-5 Executive Levels(7) 325 692 77 687 65 6 21 1,909 81 3,863 Executive Relief Staffing(8) 32 36 15 14 5 - 1 157 - 260 Other APS Levels(9) 3,400 3,255 1,494 1,238 553 91 368 4,347 33 14,779 Total 3,757 3,988 1,587 1,949 623 97 390 6,520 117 19,028 Notes 1. Figures in the table show actual staff numbers as at 30 June 2004 and include personnel who are on some form of unpaid leave. 2. Overseas figures represent personnel posted for long and short-term duty as at 30 June 2004. 3. Senior Executive Service includes Under Secretary, Chief Executive Officer Defence Materiel Organisation, Deputy Secretary, First Assistant Secretary, Assistant Secretary, Chief of Division and Medical Officer 6 classifications. 4. Figures reflect 106 officers at their substantive level. 5. Figures reflect SES positions pending permanent filling action. 6. SES relief staffing indicates non-SES officers who are temporarily acting in SES positions. These officers are on higher duties while the incumbents are taking leave, acting in higher positions or on secondment to other agencies. 7. Executive levels include levels 1 and 2 and Senior Principal Research Scientists and Medical Officer Grade 4. 8. Executive relief staffing indicates APS levels temporarily acting in executive level positions pending permanent filling action or while incumbents are taking leave, acting in higher positions or on secondment to other agencies. 9. APS levels include Australian Public Service levels 1 to 6, information technology, professional, technical, and trade/physical officers. ADF Enlistments and Recruiting The ADF enlisted 5,592 permanent members, 4,695 men and 897 women, for the 12 months up to 30 June 2004, as shown in Table 5.15. This was 254 more than in 2002-03. Continuing improvement in numbers in the Reserve component of the ADF is evident with an increase of 566, from 21,588 during 2002-03 to 22,154 during 2003-04. Reserve enlistments reduced to 2,494 in 2003-04 compared to the 3,065 recruited in 2002-03. The 571 fewer enlistments in 2003-04 was offset by improved retention, producing the overall increase in the Reserves. The overall recruiting achievement against targets for the permanent and Reserve forces for 2003-04 was 86 per cent, which was 2 per cent higher than in 2002-03.

271 Chapter Five

Table 5.15 Permanent Force Enlistments 2002-03 and 2003-04(1)(2)(3) Navy Army Air Force(4) ADF Men Women Men Women Men Women Men Women 2002-03 Trained Force Officers 14 2 167 28 - - 181 30 Other ranks 65 10 256 58 - - 321 68 Training Force Officers 134 43 287 51 247 65 668 159 Other ranks 1,093 312 1,590 160 609 147 3,292 619 Total 1,306 367 2,300 297 856 212 4,462 876 2003-04 Trained Force Officers 58 5 182 38 29 5 269 48 Other ranks 49 6 154 31 75 22 278 59 Training Force Officers 164 59 250 51 164 44 578 154 Other ranks 1,044 285 2,050 221 476 130 3,570 636 Total 1,315 355 2,636 341 744 201 4,695 897 Notes 1. Figures in this table show actual staff. 2. Enlistments exclude Reserves commencing periods of full-time duty. 3. Figures include inter and intra-Service transfers processed by the Services and, therefore, do not correlate with the recruiting activity shown in Table 5.16. 4. All Air Force recruits are enlisted into the training force.

Table 5.16 ADF Permanent Force Recruiting Activity 2002-03 and 2003-04 Navy Army Air Force ADF 2002-03 Total inquiries(1) 14,780 41,952 28,414 85,312 Formal applications 4,560 7,185 5,897 17,642 Applicants enlisted 1,556 1,842 924 4,322 Target 1,842 2,342 980 5,164 Percentage achieved 84 79 94 84 2003-04 (2) Total inquiries 9,575 29,043 20,342 83,968 Formal applications 4,160 7,689 4,108 15,957 Applicants enlisted(3) 1,515 2,418 814 4,747 Target 1,760 2,862 908 5,530 Percentage achieved 86 84 90 86 Notes 1. This figure includes 166 full-time tri-Service inquiries that relate to inquirers who were undecided on which Service they wished to pursue full-time. 2. Of this figure, 25,008 general inquiries, for permanent and Reserve service in the ADF, were received via a tri-Service Internet portal that was introduced in 2003-04. 3. These figures only include ab initio enlistees and, therefore, do not correlate with the enlistments shown in Table 5.15.

272 Workforce Overview

Permanent Force Recruiting Target versus Achievement for 2002-03 Chart 5.3 and 2003-04

3,500

3,000

2,500

2,000

1,500

1,000

500

- Navy Army Air Force

02-03 Target 02-03 Enlisted 03-04 Target 03-04 Enlisted

Table 5.17 Reserve Force Recruiting Activity for 2002-03 and 2003-04 Navy Army Air Force ADF 2002-03 Total inquiries(1) 898 24,946 2,876 28,727 Formal applications 157 7,622 577 8,356 Applicants enlisted 54 2,889 122 3,065 Target 160 3,129 316 3,605 Percentage achieved 34 92 39 85 2003-04 Total inquiries(2) 1,115 19,510 3,320 23,945 Formal applications 90 6,222 1,546 7,858 Applicants enlisted 31 2,317 146 2,494 Target 73 2,759 283 3,115 Percentage achieved 42 84 52 80 Notes 1. This figure includes an additional seven part-time tri-Service inquiries that relate to inquirers who were undecided on which Service they wished to join. 2. There were an additional 25,008 general inquiries, for permanent and Reserve service in the ADF, via a tri-Service Internet portal that was introduced in 2003-04.

Reserve Force Recruiting Target versus Achievement for 2002-03 and Chart 5.4 2003-04

5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 - Navy Army Air Force

02-03 Target 02-03 Enlisted 03-04 Target 03-04 Enlisted

273 Chapter Five

Separations In 2003-04, separation rates for the permanent force were: • Navy - 10 per cent; • Army - 11 per cent; • Air Force - 7 per cent; and • ADF - 10 per cent. The total number of ADF separations increased slightly from 2002-03, due largely to increased separations by Army other ranks and Air Force officer cadets. Separation rates remain below the ten-year average separation rate for each Service and the ADF as a whole. Table 5.18 ADF Permanent Force Separations 2002-03 and 2003-04(1)(2) Age Cadets and Voluntary Involuntary(3) Retirement Trainees Total 2002-03 Navy Officers 176 17 5 41 239 Other ranks 778 157 - 317 1,252 Army Officers 323 35 12 98 468 Other ranks 1,190 428 9 412 2,039 Air Force Officers 209 10 1 35 255 Other ranks 652 71 20 111 854 Officers 708 62 18 174 962 Total ADF Other ranks 2,620 656 29 840 4,145 2003-04 Navy Officers 154 17 1 49 221 Other ranks 715 146 - 247 1,108 Army Officers 302 32 4 101 439 Other ranks 1,310 654 6 402 2,372 Air Force Officers 200 11 1 69 281 Other ranks 515 67 25 110 717 Officers 656 60 6 219 941 Total ADF Other ranks 2,540 867 31 759 4,197 Notes 1. Figures in this table show actual staff. 2. Non-effective personnel (personnel on maternity leave and leave without pay) and Reserves completing periods of full-time duty are not included. 3. ‘Involuntary’ primarily comprises members who were medically unfit or unsuitable for further training.

Table 5.19 APS Separations 2002-03 and 2003-04 Resignation/ Voluntary Involuntary Retirement Transfers(1) Total 2002-03 SES --9110 Senior Officers 32 10 172 26 240 Other Staff 69 91 1,894 115 2,169 Total APS 101 101 2,075 142 2,419 2003-04 SES 817622 Senior Officers 34 13 183 51 281 Other Staff 91 110 1,314 132 1647 Total APS 133 124 1,504 189 1,950 Note 1. Transfers to other agencies.

274 Performance against People Matter Priorities for 2003-04 This section reports on performance against the priorities included in the People Matter sections of the Portfolio Budget Statements 2003-04 and in the Portfolio Additional Estimates Statements 2003-04. The people goal is to ensure that Defence has the right ADF and civilian personnel with the right skills and experience to provide the capabilities we need to undertake complex military operations.

Implement Agreed Recommendations from the Strategic Workforce Planning Review

Achieved Implementation started in mid-2003 and will continue in 2004-05. Key results so far include new processes to address workforce shortfalls in critical employment categories and to ensure better workforce planning for major acquisition projects in the Defence Capability Plan.

Implement Initiatives to Improve Retention of Military Personnel

Substantially Achieved The continuing focus on retention issues resulted in maintenance of the overall separation rate of 10 per cent from a high of approximately 14 per cent in 2000-01.

Implement Strategies to Target Shortages in the ADF Workforce

Achieved In early 2004, the ADF tertiary recruitment campaign targeted university students for direct entry, graduate and undergraduate entry. A technical trades campaign in mid-2004 resulted in a significant number of inquiries and applicants. Following a successful trial, the project to centralise Australian Defence Force Academy officer selection boards to improve officer recruitment was fully implemented. Recruitment and retention strategies have contributed to an increased enlistment and retention of women in the ADF.

Continuing Improvements to ADF Health:

Continue to Implement the Defence Injury Prevention Program

Achieved From 2000 to 2003, the program was successfully implemented at a number of pilot sites, covering 15 per cent of the full-time ADF population. In February 2004, the program was implemented in the 3rd Brigade (Townsville, Queensland) and will be implemented in the 1st Brigade (Darwin, Northern Territory) in September 2004. Planning is under way with individual Service representatives for implementation at other Army locations and at Navy sites. To date, results have indicated 20-70 per cent reductions in the reported overall rates of injury per 1,000 troops within two years of program implementation.

275 Chapter Five

Implement HealthKEYS

Partially achieved

Implementation of HealthKEYS began in October 2003 at three ADF bases and the program is progressing as planned. Full implementation is expected in 2005. HealthKEYS is the injury surveillance provider for the Defence Injury Prevention Program and captures accident and injury data.

Implement Initiatives from the ADF Mental Health Strategy

Partially Achieved Initiatives successfully implemented include: • a major mental health literacy campaign including the development of a mental health website; • the establishment of a network of ADF regional mental health teams; • the development of a tri-Service framework for the mental health management of ADF members; and • the piloting of the ADF ‘Coming Home Readjustment Program’ as an early intervention for post-operational adjustment problems.

Implement the ADF Alcohol and Other Drugs Management Program

Partially Achieved The ADF Alcohol and Other Drugs Service is an initiative of the ADF Mental Health Strategy. Milestones achieved include: • establishment of strategic working relationships with key Australian agencies in the alcohol and drug area, and other military forces; • training over 400 ADF health and allied health professionals to equip them to conduct frontline interventions in line with contemporary ‘best practice methods’; • producing and distributing fact sheets, establishing a website and working in partnership with the Department of Veterans’ Affairs on the ‘Changing the Mix’ self-help correspondence program, for people wishing to reduce alcohol consumption; • organising alcohol and drug-related health promotional activities linked to the National Alcohol Campaign; and • reviewing the Royal Australian Navy Alcohol and Drug Program and the Alcohol Rehabilitation and Education Program with the aim of improving services, in particular the coordination of service delivery.

276 Performance against People Matter Priorities for 2003-04

Develop a Suicide Prevention Training Program

Partially Achieved The ADF suicide prevention training program is an initiative of the ADF Mental Health Strategy. Major milestones achieved in 2004 include: • testing a confidential ‘all hours support line’ for ADF members; • signing a contract with Living Works (Lifeline Australia) to provide the ADF with training in the areas of suicide awareness, suicide first aid interventions and increasing clinical skill levels for mental health professionals; - 48 mental health providers and professionals have completed a train-the-trainer course for suicide first aid interventions and are now running courses throughout Australia, with another 24 trainers to be trained in August 2004; and

• developing a website for the program.

Address the Career Structure and Salary Levels of Health Professionals

Partially Achieved The Defence Force Remuneration Tribunal approved the introduction of a competency-based career and salary structure for ADF medical officers in July 2003. During August 2003 to May 2004, 116 ADF medical officers and 206 Reserve Force medical officers (approximately 30 per cent of the total number of Reserve medical officers) had their competency levels assessed by the Medical Officer Professional Career Development Committee. The new structure has an inherent training liability and work is being undertaken to clearly delineate financial and administrative responsibilities and procedures to ensure that the required military, military medical and postgraduate medical training is undertaken by medical officers to meet the agreed level of medical capability. Where possible, this will be standardised across the three Services.

Finalise the Study of Health Outcomes of Aircraft Maintenance Personnel

Partially Achieved The study is being undertaken by researchers at the University of Newcastle under a contract administered by the Department of Veterans’ Affairs, on behalf of Defence. The first results of the study were issued in June 2004. The final volumes of the General Health and Medical Study, which are key components, will be completed in September 2004. Following review and acceptance by the independent Scientific Advisory Committee, the Department of Veterans’ Affairs and Defence, it is anticipated that the final report will be provided to the Chief of Air Force in October 2004.

277 Chapter Five

Develop a Civilian Certified Agreement to replace the Defence Employees Certified Agreement 2002-03

Achieved The Defence Employees Certified Agreement 2004-06 was finalised prior to the expiry of the 2002-03 agreement and commenced on 1 January 2004. The agreement provides for a 10 per cent increase in pay over the period. The agreement builds on the principles-based employment framework introduced in the previous certified agreement, with particular focus on: • improving the linkages between individual performance and organisational outcomes; • strategies to attract and retain employees in identified critical employment categories; • work-life balance initiatives, including encouraging employees to take credited leave; and • support for ongoing reform, particularly in relation to travel and administrative support. Where appropriate, the Defence Employees Certified Agreement 2004-06 and the ADF Workplace Remuneration Arrangement 2004-06 were developed simultaneously, in order to achieve productivity savings across Defence. Travel reform, both arrangements and allowances, and remote locality entitlements were particularly suited to this unified approach.

Develop a Replacement Workplace Remuneration Arrangement for the ADF

Achieved The Defence Force Remuneration Tribunal set in place a new workplace remuneration arrangement for the ADF in March 2004. The new arrangement is effective from May 2004 to November 2006 and will provide for a 10 per cent increase in pay during this period.

Review of Australian Defence Force Remuneration

Achieved In 2001, the Review of Australian Defence Force Remuneration 2001 (the Nunn Review) was undertaken. The review resulted in a report, Review of Australian Defence Force Remuneration 2001, for consideration by the Minister for Defence and the Minister for Finance and Administration. Following a period of further consultation within Defence, the Government considered the Defence response to the report in March 2004. Recommendations in the response were accepted, including that essential pay reform continue to be progressed through the Defence Remuneration Reform Project. The intended outcomes of the project are broadly consistent with the major recommendations in the Nunn Review, regarding the reform of allowances in the nature of pay and the introduction of more flexible pay structures for ADF members.

278 Performance against People Matter Priorities for 2003-04

Develop a Phased Approach to Remuneration Reform in the ADF

Partially achieved Remuneration reform is being progressed in three phases: • Phase 1, the identification of the components of complex environmental allowances was completed in February 2003; • Phase 2 arrangements completed to superannuate the qualification and skill elements of specified allowances; and • Phase 3, the development of a flexible pay structure for officers in association with the Defence Force Remuneration Tribunal and the Department of Employment and Workplace Relations.

Develop a Whole-of-Defence Strategic Occupational Health and Safety Plan

Achieved The Defence Occupational Health and Safety Strategic Plan was completed in February 2004 and funds were allocated for its implementation over the next ten years. The plan, which is now being implemented, sets out Defence’s occupational health and safety policy and establishes priority areas for action. Defence occupational health and safety is discussed in detail later in this chapter.

Develop an Occupational Health and Safety Management System

Partially achieved Development of the Occupational Health and Safety Management System is guided by the Strategic Occupational Health and Safety Management Plan. The system will improve Defence’s ability to systematically manage occupational health and safety. The Behavioural Baseline Research Project, which is the first step in the development of the system, is well advanced. Analysis of the project results will provide Defence with a picture of influences on occupational health and safety behaviour and where intervention will have the most impact.

Introduce the New Military Rehabilitation and Compensation Scheme

Achieved The Military Rehabilitation and Compensation Act 2004 was passed by Parliament and received Royal Assent in April 2004. The Military Rehabilitation and Compensation Scheme, administered by the Department of Veterans’ Affairs, provides rehabilitation and compensation coverage under one scheme for all forms of ADF service from 1 July 2004.

279 Chapter Five

Promote Family Friendly Policies:

Implement Policies to Generate Awareness of Work-Life Balance

Achieved Following the Government’s consideration of the recommendations of the Nunn Review, provision was made in March 2004 for ADF members to choose to take maternity leave at rates of 24 weeks on half pay, 12 weeks on full pay, or a mixture of both. Measures have been put in place to ensure that ADF members use their annual leave each year so they can spend time with family and friends away from the workplace. The Defence Employees Certified Agreement 2004-06 continues to provide family friendly policies for APS employees, including: • access to flexible working hours; • access to part-time and home-based work; • flexible leave provisions, including parental leave; • stronger encouragement for employees to utilise their annual leave each year; • assistance with costs for dependant care where job demands impose additional dependant-care costs; • access to the use of childcare provided by Defence, where places are not taken by the ADF; and • the continued availability of the employee assistance program where employees, and in some instances their immediate families, can access counselling services.

Introduce a Trial ADF Spouse Employment Assistance Program

Achieved The ‘Services Workforce Access Program for Partners’ trial was launched in October 2003 and includes five initiatives: • workforce access through a national recruitment agency; • assistance through local transition to work providers; • funding of childcare costs; • funding of up to $1,000 per partner for training; and • very remote locality internet access. Services Workforce Access Program for Partners initiatives were accessed on 522 occasions and feedback about the program has been positive. An evaluation of the program will be presented to the Defence People Committee in April 2005.

Access of Families to the Defence Library Service via the Internet

Achieved The Defence library website was launched in September 2003 and provides 24-hour access for Defence employees and their families from work, home and overseas. The website

280 Performance against People Matter Priorities for 2003-04 connects the Defence community with information addressing work, study and special interest needs, access to information of interest to Defence families and support for education studies by family members. Since its launch, 1,371 Defence families have accessed the website.

Implement Recommendations from Research on the Impact of Mobility of the ADF on Education Outcomes of Children

Partially Achieved Following completion of the report Changing Schools: Its Impact on Student Learning, Defence and the Department of Education, Science and Training agreed in 2002 to jointly commission two further studies on student mobility: one to consider approaches to improve the transfer of student information between schools and the other to identify best practice approaches to supporting students who change schools. The studies were completed in 2004.

Establish more Childcare Centres in Areas of High Need within Australia

Partially Achieved A five-year childcare expansion initiative was developed in 2001-02 to increase the number of childcare centres and places in areas where the local communities are unable to support Defence childcare needs. Plans were developed in 2002-03 for new centres in East Sale, Williamtown, Puckapunyal and Holsworthy. Construction is planned to commence in 2004-05.

The Community Centre Program

Achieved A new community centre at the Royal Military College of Australia, Duntroon, was opened in November 2003. The centre provides improved facilities to help families of Defence personnel access services such as childcare, adult education and information about postings, health, housing and employment.

Initiatives to Improve Accommodation for ADF Members

Partially achieved A review of housing standards for ADF members with dependants was undertaken in February 2004 and recommendations regarding the new standards will be made to the Government later in 2004. The Single Living Environment and Accommodation Precinct project has been initiated to deliver quality accommodation on bases. Funding of $113.1m for the next four years has been provided for this project. The Rental Allowance Scheme is being extended with additional funding of $243.3m, thus enabling 10,600 ADF members without dependants to live off-base by 2006.

Implement the Defence e-Learning Strategy

Substantially Achieved The Defence e-learning strategy is a Defence White Paper 2000 undertaking that will deliver common standards for a whole-of-Defence e-learning system. Since 1 March 2004, all Defence employees have been able to access the Defence Online Management and

281 Chapter Five

Information Network, which now offers over 40 courses. New courses will be added in 2005.

Implement the Defence Business Skilling Review

Partially Achieved The Defence Business Skilling Review developed options for a whole-of-Defence business skilling system. Defence has subsequently established a detailed governance and accountability structure for education and training in business skills. Work in progress includes: • definition of specific skill requirements; • improvements to systems for tracking training activity and expenditure; and • improvements to training support and delivery capabilities.

Improved Web-based Communication of Pay and Conditions Information

Partially Achieved The pay and conditions website addresses both military and APS personnel information needs. The website was officially launched in July 2004 and has been positively received. Work continues to maintain the accuracy and relevance of information included on the website.

Implement Improved Management Reporting using Web Technology and Data Warehouse Software

Partially Achieved Successful trial of web-based reporting through PMKeyS Self Service across a limited user base has been completed. The next phase will expand the trial to meet all reporting requirements.

Implement Improved Employee Self-service and Workflow for Selected Processes in the Human Resource and Payroll System, PMKeyS

Substantially Achieved PMKeyS Self Service, a real time self-service facility, was implemented during the year, allowing Defence employees to view and modify a limited selection of their personnel data and perform a limited range of personnel transactions. In May 2004, the roll-out of the PMKeyS Self Service workflow for civilian annual leave applications was also successfully activated, allowing for electronic approval by managers. Full implementation for civilian personnel will be completed for all Groups except the Services and Defence Signals Directorate by the end of September 2004, with the Services included by October 2004. Defence Signals Directorate inclusion is planned for the end of 2004, subject to Defence Restricted Network access and the resolution of security issues. In addition, access to Air Force self-service career management tools, has been implemented. ADF payslips, available electronically via self-service, have been developed and successfully tested, with ADF-wide implementation to commence in July 2004.

282 Performance against People Matter Priorities for 2003-04

Further Enhance the Australian Defence Force Cadets

Substantially achieved During 2003-04, the Cadet Enhancement program: • improved the standard of accommodation facilities for over 120 Cadet units and relocated several Cadet units from sub-standard accommodation to new premises; • continued support of the Cadet Initiated Activities Program, which encourages Cadets themselves to initiate activities designed to develop their leadership and team building skills: - successful initiatives included sailing camps, confidence courses and the procurement of training equipment such as flight simulation software, Global Positioning System equipment and kayaks;

• continued the delivery of CadetNet, the Cadets information technology system, which provides hardware, a website, email and bulletin board facilities to all Cadet units; • furthered the Occupational Health and Safety project through the: - release of a tri-Service policy manual;

- revision and initial delivery of a Cadet wide safety awareness package;

- establishment of a safety website on CadetNet; and

- appointment of Regional Occupational Health and Safety Advisers in each region for each Cadet organisation;

• launch of an ADF Cadets Behaviour Policy, supported by Australia-wide delivery of awareness sessions and information packs; • completed a trial on Indigenous participation in Cadets and gained Government endorsement to establish the Indigenous Participation Program, to remove the barriers to Indigenous involvement in Cadets; • commenced work to conduct a Cadet study to better understand the attitudes and behaviours of Cadets and Cadet staff. This will assist decision making, policy development and program delivery of Cadet initiatives; and • the uniform project was completed in 2002-03, with $3.303m of Cadet Enhancement Program funding spent on uniforms, boots and accoutrements.

283 Chapter Five

Continued Commitment to High Priority People Initiatives The 2003-04 Budget continued the Government’s White Paper commitment to allocate $100m per year for high priority personnel initiatives totalling $500m over five years. Spending on these initiatives continues and is subject to management and regular reporting. Details are shown in Table 5.20 below. Table 5.20 High Priority People Initiatives 2001-02 2002-03 2003-04 2004-05 Total Approved Program Result Result Result Allocations $’000 $’000 $’000 $’000 $’000 Family Support Fund(1) 100 - - - 100 Child Care Centres 1,025 808 1,252 12,405 15,490 Spouse Induction Program 169 49 - - 218 Spouse Professional Fees and Courses 14 50 67 99 230 Emergency Childcare 7 5 5 17 34 Human Resource Career Streaming 76 135 - - 211 ADF alcohol management program 48 313 554 797 1,712 ADF mental health strategy 309 159 406 232 1,106 Defence school transition aides - 1,388 1,562 1,659 4,609 e-learning - 2,610 3,171 2,668 8,449 OHS management system - 348 870 - 1,218 Defence injury prevention program - 14 182 744 940 Reserves enhancement 12,313 13,674 14,483 17,000 57,470 Cadets enhancement 3,030 7,676 6,182 7,150 24,038 ADF rental allowance for members without dependents 25,511 49,655 62,545 79,926 217,637 Improvements to living-in accommodation - 39,167 3,821 833 43,821 Darwin air conditioning - 603 2,664 1,304 4,571 Duntroon community centre - 660 - - 660 Defence library service portal - 275 298 30 603 Services workforce access program for partners - - 778 2,999 3,777 Centre for Military and Veterans’ Health - - 900 - 900 Employee assistance program - - - 900 900 HR decision support program - - 547 2,242 2,789 Suicide intervention training - - 327 448 775 Total 42,602 117,589 100,614 131,453 392,258 TOTAL ALLOCATION 100,000 100,000 100,000 100,000 400,000 VARIATION 57,398 17,589 614 31,453 3,122 Note 1. The Family Support Fund was allocated $100,000 in 2001-02 as a regenerating fund.

284 Non-Operational Training

Corporate Leadership Initiatives Achievements in 2003-04 included the commencement of the revised format for the Capstone Program (targeted at ADF star-ranked officers and APS Senior Executive Service officers) and continued refinement of the selection process for participants for study at the Centre for Defence and Strategic Studies. The Defence 360-degree reporting tool for the Senior Leadership Group was reviewed and now includes a measurement of emotional intelligence. Graduate Development Programs The selection and assessment process for entry into the Defence Graduate Development Program was reviewed, to further align it with the Defence Leadership Model and APS Senior Executive Leadership Capability Framework. The Graduate program has been enhanced with the inclusion of the Infrastructure stream, which was previously managed by the Corporate Services and Infrastructure Group, and the Information stream, which began in 2004. As indicated in the table below, the Defence graduate intake continues to target specific skill sets needed to build Defence capability. Table 5.21 Graduate Intake Figures Graduate Program 1999-2000 2000-01 2001-02 2002-03 2003-04 Generalists 56 45 50 48 37 People Stream --883 Business Stream -510810 Infrastructure Stream(1) --662 Information Stream ----6 Defence Materiel Graduate Scheme 80 29 43 46 30 Defence Science and Technology Scheme(2) 24 10 51 36 - Defence Signals Directorate Scheme 37 36 31 54 29 Total 197 125 199 206 117(3) Notes 1. The Infrastructure stream was previously managed by the Corporate Services and Infrastructure Group. 2. The Defence Science and Technology Organisation did not recruit to its graduate program in 2003-04, but will recruit in 2004-05. 3. The decrease in overall graduate intake in 2003-04 was a result of increased graduate retention rates. Vocational Education and Training Vocational training provides Defence employees with the skills and knowledge they need to undertake their jobs and to pursue their careers in Defence. As at 30 June 2004, the four Defence registered training organisations issued 199 national qualifications ranging from Certificate II to Advanced Diplomas, from 19 training packages, and a further 349 nationally recognised ‘accredited course’ qualifications. Training packages included aeroskills, aviation, civil construction and public safety while the accredited course qualifications included hydrographic surveying, linguistics and personnel administration. ADF training needs were met by the Navy, Army and Air Force registered training organisations, while the Defence Learning Services Network addressed the needs of APS employees.

285 Chapter Five

Defence Business Training Centre The Defence Business Training Centre operates within the Defence Learning Services Network as a registered training organisation and provides nationally accredited training and assessment services to Defence. Current training programs include finance and human resource information systems, procurement, administration, management and human resources. The table below classifies non-operational training provided to Defence staff, according to total student days and numbers of students. Table 5.22 Non-Operational Training Total Student Number of Type of training Days Students ANZ School of Government 630 7 Australian Defence College 380,550 2,335 Capstone Program 360 36 Defence Business Training Centre Accrual Accounting 600 60 BORIS(1) 524 340 Diploma in Government Financial Management 1,159 59 Graduate Certificate in Professional Management (Finance) 1,431 121 PMKeyS(2) User Training 850 586 Project Management and Procurement Training 9,828 4,766 Public Sector Training Package + Desktop Application Training + Regional Education, Training and Development Units 21,791 17,693 ROMAN(3) and Financial Management Training 7,537 5,250 ROMAN e-learning 445 2,088 Defence Materiel Organisation Contract Management Training 1,449 366 Logistics Training 1,699 424 Project Management Training 162 69 Other Training Defence Orientation Centre 255 470 Defence Records Management 291 1,954 Defence Science and Technology Organisation 2,830 925 Defence Security Authority 456 89 Harvard Program 90 3 Joint Ammunition Logistics Organisation 1,097 717 Public Sector Management Program 70 56 Results Through People 1,728 576 Studybank -1,200 Total 435,832 40,190 Notes 1. Budget and Output Reporting Information System. 2. Personnel Management Key Solution. 3. Resource and Output Management and Accounting Network.

286 Workplace Equity and Diversity

Overview Defence has been recognised for its efforts as it continues to implement the Defence Workplace Equity and Diversity Plan 2003-2005. In November 2003, Defence was presented with the runner-up award in the open category of the Australian Public Service Diversity Awards for its program ‘Creating a Bully-free Workplace’. Activities organised to celebrate the diversity of the Defence workforce were well attended. During National Aboriginal and Islander Day Observance Committee Week, Defence conducted a memorial service in commemoration of Australia’s indigenous Servicemen and women. The International Day of People with a DisAbility was celebrated in December 2003. In March 2004, Harmony Day and International Women’s Day were celebrated. Diversity Although Defence is not representative of Australia’s multicultural society with only around 5 per cent of ADF members and 14 per cent of Defence APS employees identifying themselves as being from a non-English speaking background, Defence values the principle of inclusiveness and views a multicultural workforce as unifying. The diversity profile displayed in the table below has been obtained through voluntary disclosure by personnel on joining Defence. The profile includes non-English speaking background (NESB), Aboriginal and Torres Strait Islander (ATSI) and people with a disability (PWD). Table 5.23 Diversity of all Defence Personnel as at 30 June 2003 and 30 June 2004(1) Male % Female % NESB %(2) ATSI % PWD %(3) 2002-03 2003-04 2002-03 2003-04 2002-03 2003-04 2002-03 2003-04 2002-03 2003-04 Navy 83.2 82.6 16.8 17.4 1.5 2.3 0.10 0.2 - - Army 89.8 89.7 10.2 10.3 4.6 5.2 0.27 0.3 - - Air Force 85.2 85.0 14.8 15.0 5.2 5.6 0.16 0.2 - - APS 65.1 65.0 34.9 35.0 14.0 14.0 0.52 0.5 2.5 2.3 Notes 1. Figures for the Navy, the Army and the Air Force include full-time personnel and Reservists on continuous full-time service. 2. A non-English speaking background includes any person who indicated that either one or both parents was from a non-English speaking background or spoke English and another language at home. 3. People with a disability include people with an identified physical or mental disability (including chronic ailments or conditions such as diabetes). The Defence Equity Organisation developed the Defence Guide to Managing Diversity in the Workplace during 2003-04. It encourages commanders and managers to enhance productive diversity in Defence. The Equity Adviser Network grew during 2003-04, with 1,135 new Equity Advisers trained to provide advice and assistance to Defence personnel. The Defence equity advice lines received 1,046 calls and continued to provide information and options to personnel involved in incidents of unacceptable behaviour.

287 Chapter Five

Indigenous Australians The mentoring and peer-support program piloted last year was successful in achieving retention and development outcomes for Defence’s indigenous APS employees. A contract to continue with this program for a further 12 months has been signed. The program incorporates indigenous cultural awareness training and targets mentors, supervisors and work colleagues of indigenous Defence APS employees. Defence continued its participation in the National Indigenous Cadetship Project during 2003-04. One cadet graduated and is now working with the Corporate Services and Infrastructure Group. Eight cadets are currently participating in the Project. Representatives from Australian Defence Force Recruiting and the Defence Equity Organisation participated in the Wunyunga Careers and Cultural Festival conducted by the Gladstone Indigenous Vocation and Enterprise Network. Defence took this opportunity to promote employment within Defence to approximately 200 indigenous high school students. Women Work continued throughout 2003-04 on the Gender Diversity Strategy. The strategy focuses on recruitment, retention and encouraging re-entry of women to the Defence workforce by: • actively targeting women in recruiting campaigns; • ensuring that ongoing development and learning opportunities exist for women; and • developing a re-entry program for personnel on long-term absences from the workplace. The ADF Physical Employment Standards project commenced in September 2003. The project aims to develop physical employment standards for the Army's combat arms employment categories and the Air Force's Airfield Defence Guards. The outcomes of this study will inform decisions on employment category selection, training and injury prevention and will help manage occupational health and safety. They will also enable further consideration of the roles in which women in the ADF are able to serve. Commonwealth Disability Strategy With the cessation of the Defence Disability Action Plan 1999-2003 on 30 April 2003, Defence's responsibilities under the Commonwealth Disability Strategy have been included in the Defence Workplace Equity and Diversity Plan 2003-2005. Defence’s continued implementation of the strategy during 2003-04 included the requirement to provide recruitment and selection information in an accessible format to potential job applicants, and the improvement of Defence online and computer services to make them more accessible to people with a disability. People with a Disability Following a series of workshops aimed at reinvigorating the Defence Disability Strategy, the Defence Equity Organisation is developing a number of short and medium-term initiatives to be implemented during 2004-2005. Defence continued to participate in the Technical Equipment for Disabled Commonwealth Employees Program and spent approximately $11,000 to assist Defence APS employees with a disability.

288 Workplace Equity and Diversity

Managing Unacceptable Behaviour Two new policies on unacceptable behaviour were released in February 2004: • Defence Instruction (General) Personnel 35-3 Managing and Reporting of Unacceptable Behaviour; and • Defence Instruction (General) Personnel 35-4 Managing and Reporting of Sexual Offences. Streamlined policy instructions provide clear guidance as well as details of support options available to all parties involved in an incident. An Australia-wide education program was undertaken between March and June 2004 to ensure that Defence commanders and managers were aware of the new policies and their management obligations. The policies were supported by the publication and distribution of a booklet, the Sexual Offence Management Guide, and two brochures: How to Make a Complaint of Unacceptable Behaviour and Managing a Complaint of Unacceptable Behaviour. Defence has reinforced its principle of all personnel having a fundamental right to work in an environment free from unacceptable behaviour by implementing policies and programs to educate and support Defence staff. Complaints of unacceptable behaviour are reported to the Defence Equity Organisation, which manages a database of reported complaints. The reporting of complaints of unacceptable behaviour has steadily increased over the last four years. This increase may be due to the emphasis placed upon creating a bully-free workplace, to organisational factors such as an increase in knowledge of unacceptable behaviour, to lower tolerance of what behaviour is unacceptable, and to greater confidence in management in dealing with these issues. Chart 5.5 indicates the number of complaints of unacceptable behaviour per head of the Defence population for 2003-04. The figures are derived from a straight percentage calculation using the number of personnel in each Service and the number of complaints reported for each Service. Percentage of Reported Unacceptable Behaviour Incidents by Service Chart 5.5 for 2003-04(1)(2)

Population Complaints

45000 40000 35000 30000 25000 20000 15000 10000 5000 1.5% 0.44% 0.5% 0.45% 0 Navy Army Air Force APS

Notes 1. Navy, Army and Air Force populations include the numbers of permanent force personnel and Reserve personnel on continuous full-time service. 2. The table does not show comparative figures from 2002-03 because policy released in 2004 introduced new categories for the measurement of unacceptable behaviour.

289 Chapter Five

Chart 5.6 shows the total number of unacceptable behaviour complaints reported over the last four years. Defence divides unacceptable behaviour into seven categories – sexual offences, sexual harassment, general harassment, discrimination, abuse of power, bullying and inappropriate workplace relationships. Comparison of Reported Unacceptable Behaviour Incidents 2003- Chart 5.6 04(1)

Navy Army Air Force APS

250

200

150

100

50

0 2000-01 (274) 2001-02 (331) 2002-03 (451) 2003-04 (586)

Note 1. Navy, Army and Air Force populations include the numbers of permanent force personnel and Reserve personnel on continuous full-time service. Education and Training The focus of the mandatory annual equity and diversity training was on unacceptable behaviour, primarily in terms of bringing it to the attention of authorised personnel and managing the process. During 2003-04, some 82 per cent of Defence personnel and Defence-contracted staff members undertook the training. A new equity and diversity workshop for commanders, managers and supervisors was delivered to Defence personnel in supervisory positions to remind them of their roles and responsibilities. The new equity adviser workshop was launched following its redesign to provide competency-based training for personnel who volunteer to become equity advisers. The cultural awareness training fund continued during 2003-04, with approval granted to four units to undertake cultural awareness training at a total cost of approximately $31,200. The fund is used to target cultural awareness training for operations and for units needing to build an understanding of their local environment.

290 Occupational Health and Safety Defence has continued to focus on the occupational health and safety of its people, our primary capability. Defence is serious about eliminating preventable injuries and work-related illness. It is achieving this through the systematic management of risks, measurable improvement of occupational health and safety performance and appropriate resourcing. In support of these aims, the Defence Occupational Health and Safety Committee and the Occupational Health, Safety and Compensation Branch focused their attention, during 2003-04, on two key initiatives: • the completion of the Defence Occupational Health and Safety Strategic Plan; and • the introduction of the new Military Rehabilitation and Compensation Scheme. Key initiatives

Complete the Defence Occupational Health and Safety Strategic Plan

Achieved In April 2004, the Defence Committee endorsed the Defence Occupational Health and Safety Strategic Plan and agreed to fund its implementation over the next ten years. The plan sets out Defence’s occupational health and safety policy and establishes priority areas for action and was informed by a wide range of: internal factors, such as the Defence-wide implications of the F-111 Deseal/Reseal Board of Inquiry, and external factors such as the National Occupational Health and Safety Strategy 2002-2012. One of the corporate-level priorities is the development of an occupational health and safety management system (discussed later in this section). Another corporate-level priority is the Hazardous Substances Management Program. This program is well progressed and policy, guidance material, audit tool and audit guidance material have been developed. The Services and Groups are aligning their occupational health and safety management with the Defence Occupational Health and Safety Strategic Plan. • The Navy has been reinvigorating and improving its established safety management system and will launch the new Safety Management System – Navy in September 2004. • The Army has undertaken to improve its occupational health and safety management system in accordance with recommendations of the F-111 Deseal/Reseal Board of Inquiry. The approved system is aligned to both the National Occupational Health and Safety Strategy 2002-2012 and the Defence Occupational Health and Safety Strategic Plan. The Chief of Army Advisory Committee will consider this system in December 2004 for incremental delivery from 2005. In addition, the Army Health Implementation Team was formed in December 2003 to facilitate the reduction in preventable injury and enhance the health management of injured soldiers.

291 Chapter Five

• The Air Force launched its new occupational health and safety management system in early 2004 in response to the outcomes of the F-111 Deseal/Reseal Board of Inquiry. • The Corporate Services and Infrastructure Group has formed a safety review team to design and implement a new occupational health and safety management system which meets legislative requirements, aligns with the Defence Occupational Health and Safety Strategic Plan and ensures the safe and healthy delivery of services and products to customers. • The Defence Materiel Organisation’s newly formed Safety Council is paying particular attention to Priority 7 of the Defence Occupational Health Safety Strategic Plan which focuses on ‘improving the identification, elimination and management of hazards at the design and planning stages.’ It has also taken steps to implement a program of proactive workplace audits that started in August 2004. • The Defence Science and Technology Organisation is continuing to focus on Priority 1 ‘reduction of high risks’, Priority 6 ‘improve staff ability to manage hazards’ and Priority 7 ‘improved management of hazards at the design stage’ of the Defence Occupational Health and Safety Strategic Plan by: - incorporating safety risk management into the research program;

- developing a hazard identification, risk control and assessment tool; and

- introducing a training program specifically designed for research managers.

Introduce New Military Compensation Scheme

Achieved The Military Rehabilitation and Compensation Act 2004 came into effect on 1 July 2004. The Military Rehabilitation and Compensation Scheme, administered by the Department of Veterans’ Affairs and guided by this legislation, shifts the emphasis towards rehabilitation while providing compensation coverage for ADF members under one scheme for all forms of ADF service from 1 July 2004. ADF members will remain covered under the Safety Rehabilitation and Compensation Act 1988 and the Veterans’ Entitlements Act 1986 for service prior to 1 July 2004. These Acts are also administered for ADF members by the Department of Veterans’ Affairs.

Develop the Occupational Health and Safety Management System

Partially achieved The F-111 Deseal/Reseal Board of Inquiry recognised the need to improve Defence’s approach to occupational health through the development of a Defence occupational health and safety management system, integrated across all Groups and Services. System development is occurring in parallel with the implementation of high-priority system elements, through a structured program of projects, which will take several years. Design of the system will be informed through a behavioural baseline research project, which has surveyed over 12,000 personnel across Defence. Analysis of the results will provide Defence with a better understanding of the drivers of occupational health and safety behaviour and a basis for interventions that will have the greatest impact on health and safety.

292 Occupational Health and Safety

The Defence civilian injury prevention and management framework is another high-priority system element. The framework identifies and implements ways in which the incidence of workers’ compensation claims, time off work and the workers’ compensation premium can be reduced. It also works to improve accountability and responsibility for injury prevention and management.

Notification and Reporting of Incidents In 2003-04, 9,254 incident reports were received. Advice to Comcare is based on four categories of incidents: dangerous occurrences, incidents resulting in incapacity, in serious personal injury, and in death. Data on incidents over a three-year period is provided in Table 5.24. Table 5.24 Incident Reporting Reports 2001-02 2002-03 2003-04 Defence Safety Management Agency Incident reports(1) 11,948 11,568 9,254 Comcare Death(2) 523 Serious personal injury(3) 967 648 549 Incidents resulting in incapacity(4) 508 453 657 Dangerous occurrences(5) 3,221 3,028 1,923 Notes 1. An incident report is a record of an event that causes, or has the potential to cause, injury or illness to Defence employees or other people, as the result of a Defence undertaking. These data are not static but change over time. This occurs because incident reports are submitted after the finalisation of Defence Annual Report figures. 2. Comcare reportable deaths. 3. Serious personal injury is defined as an injury or disease in a person caused by work-related employment for which the person needs to be given emergency treatment by a registered medical practitioner, treated in hospital as a casualty, without being admitted to hospital, or admitted to hospital. 4. Incapacity is being unable to perform Defence work for 30 or more days or shifts. 5. A dangerous occurrence is a near miss event that could have, but did not, result in incapacity, serious personal injury, or fatality. Investigations by Comcare Comcare undertakes four categories of investigation into Defence occupational health and safety matters: • planned investigations; • targeted investigations (regarding specific occupational health and safety concerns); • reactive investigations (in response to an accident or incident); and • whole-of-agency investigations (as part of Comcare’s three year rolling plan). Comcare investigations undertaken for each of these categories over a three-year period are outlined in Table 5.25. Table 5.25 Investigations by Comcare Reports 2001-02 2002-03 2003-04 Planned investigations 3-6 Targeted investigations -105 Reactive investigations 26 25 33 Whole-of-agency investigations 2-2 Total 31 35 46

293 Chapter Five

Notices issued to Defence by Comcare Investigators Comcare investigators are able to issue notices as follows: • an ‘Improvement Notice’ based on an incident/occurrence that contravenes the Occupational Health and Safety (Commonwealth Employment) Act 1991 or Regulations; • a ‘Prohibition Notice’ to remove an immediate threat to the health or safety of personnel; and • a ‘Do Not Disturb’ Notice; for a specified period of time to remove a threat to the health or safety of personnel. Data on Comcare notices issued to Defence over a three-year period are summarised in Table 5.26. Table 5.26 Comcare Notices

Reports 2001-02 2002-03 2003-04 Improvement Notices 455 Prohibition Notices 123 ‘Do Not Disturb’ Notices -36 Total 5 10 14 Compensation and Rehabilitation

Civilian Data on the compensation claims received from Defence employees in 2002-03 and 2003-04 is shown in Table 5.27. Compensation Claims Received from Defence Employees in Table 5.27 2002-03 and 2003-04 Injuries that occurred during: 2002-03 2003-04 Travel to or from work 84 66 Authorised sport 25 41 Normal recess 710 Work 304 292 Total 420 409 Military Military compensation and rehabilitation is addressed by two schemes, both of which are administered by the Department of Veterans’ Affairs on behalf of Defence. The Military Compensation Scheme applies to all serving and former ADF members who died or were injured as a result of military service prior to 1 July 2004. The following arrangements apply to this scheme: • the Safety, Rehabilitation and Compensation Act 1988, as amended by the Military Compensation Act 1994; • Chapter 10, Part 5 of the Defence Determination 2003/21 under the Defence Act 1903; and • the Veterans’ Entitlements Act 1986, as amended by the Military Compensation Act 1994. Benefits comprise compensation and rehabilitation services and transition management services, to assist ADF members who are being discharged on medical grounds to make a

294 Occupational Health and Safety successful transition to civilian life. Performance is reported annually by the Department of Veterans’ Affairs. The new Military Rehabilitation and Compensation Scheme applies to all ADF members who die or are injured as a result of military service after 1 July 2004. The scheme is administered under the provisions of the Military Rehabilitation and Compensation Act 2004, which has a strong focus on rehabilitation and combines the benefits of the arrangements cited above.

295 Chapter Five

Annual Report on the Administration and Operation of the Defence Force (Home Loans Assistance) Act 1990

Legislation The Defence HomeOwner Scheme is underpinned by the Defence Force (Home Loans Assistance) Act 1990. Section 39 of the Act requires that an annual report be prepared for the Minister on the administration and operation of the Act. The annual report is set out below. Description The Defence HomeOwner Scheme is an Australian Government initiative that provides a subsidy on the interest payable on a home loan for members of the ADF. The scheme is open to permanent Defence Force members who enlisted on or after 15 May 1985 and to those permanent Defence Force members who elected to revoke their entitlement under the Defence Service Homes Scheme in favour of a Defence HomeOwner entitlement. Reserve and Emergency force personnel who provide part-time efficient service are also eligible for assistance. The Defence Housing Authority administers the scheme for Defence. The benefits are provided under an agreement between the National Australia Bank and the Commonwealth. Under the scheme, the Commonwealth assesses eligibility and entitlement and pays monthly interest subsidies on loans provided by the National Australia Bank. Interest subsidy is paid on loans between $10,000 and $80,000. Spouses who are both members of the ADF can apply for a combined subsidised loan of up to $160,000. The subsidy amount is calculated at 40 per cent of the average monthly interest to be paid over the life of a 25-year loan. Providing a person has a period of entitlement, the subsidised loans can be used from one home to another during service as often as is required and once within two years of the date of separation from the ADF. Subsidy Entitlement The subsidy entitlement period is calculated on the number of completed years of effective full-time service after completion of a five-year qualifying period. The qualifying period for active Reservists is eight continuous years of efficient service. For members with operational or warlike service, the five-year qualifying period is waived and the maximum period of the subsidy may be extended from 20 to 25 years. Special considerations are made for re-joining members, widows and widowers, eligible persons and members discharged as a result of a compensatable disability. Objectives The objectives of the Defence HomeOwner Scheme are to attract and retain ADF personnel, to encourage home ownership during service as a cost-effective alternative to

296 Administration and Operation of the Defence Force (Home Loans Assistance) Act 1990 rental assistance and to assist in the reintegration of ADF personnel into the community on return to civilian life. Home Ownership During Service The objectives of the Defence HomeOwner Scheme are achieved by providing a subsidised home loan for a period which is directly related to the member's length of service with the permanent or Reserve forces, bringing home ownership within the reach of more members and providing a subsidised loan once within two years of separation from the ADF. During 2003-04, there were 2,095 applications for entitlement certificates and 1,428 applications for loan subsidies processed. The total number of approved loans as at 30 June 2004 was 6,481. Since 2000, the take-up rate has improved and is almost double that of 1998-99. Much of this appears to be a direct result of the significant rise in eligibility numbers from personnel serving in warlike areas and the fact that interest rates remain low. Subject to meeting eligibility requirements, members of the ADF can access the Government’s First Home Buyer’s Scheme. This, combined with the Defence HomeOwner Scheme and Defence’s Home Purchase Assistance Scheme, has made buying a house an attractive option. Assist in the Reintegration of ADF Personnel into the Community on Return to Civilian Life Of new subsidy applications, 35 per cent were from members either discharging or transferring to the Reserves. This is the same percentage as last year, indicating that the growing trend may have levelled out. Performance Evaluation of the Administration of the Scheme Defence is satisfied with the administration of the scheme by the Defence Housing Authority. During the reporting period, there were no appeals lodged with the Administrative Appeals Tribunal against decisions made by the delegate. The National Australia Bank has met its obligations to the Government under the Defence Force (Home Loans Assistance) Act 1990 and has provided effective support to the scheme. The National Australia Bank and the Defence Housing Authority continue in their efforts to streamline the administration process of obtaining the subsidy. Table 5.28 Applications for Payment of Subsidy by Type of Assistance(1) Activity 1999-2000 2000-01 2001-02 2002-03 2003-04 Buy a home 709 1,332 1,042 953 845 Re-finance a loan 322 350 321 356 365 Enlarge a home 1181145 Build a home 150 139 220 186 160 Renovate a home 30 34 54 45 53 Note 1. The figures are taken from the subsidy applications.

297 Chapter Five

Table 5.29 Comparison of Activities Activity 1999-2000 2000-01 2001-02 2002-03 2003-04 Applications for entitlement certificate received 2,122 2,959 2,451 2,271 2,095 Entitlement certificate issued(1) 2,006 2,829 2,342 2,186 2,032 Applications for entitlement certificate declined/withdrawn 116 130 109 85 63 Applications for payments of subsidy received 1,222 1,863 1,648 1,544 1,428 Applications for payments of subsidy approved 1,194 1,845 1,634 1,520 1,398 Applications for subsidy declined/withdrawn 318142430 Amount of Commonwealth subsidy paid $4.405m $6.614m $6.453m $7.442m $8.269m Number of subsidy payees as at 30 June 3,970 5,051 5,816 6,195 6,481 Note 1. Entitlement certificates are valid for 12 months. Operational Costs Defence paid an annual management fee of $501,215 (including GST) in 2003-04 to the Defence Housing Authority. The authority was also paid a fee for each application for entitlement certificates lodged. These fees totalled $161,545.45 (including GST).

298 Administration and Operation of the Defence Force (Home Loans Assistance) Act 1990

Intentionally left blank

299 Photo opposite: publicity poster for the Chief Finance Officer Group’s ‘Business Rules’ initiative. The initiative is designed to provide a uniform understanding of the business rules that apply to everyday financial, contracting and budgeting tasks and procedures. The business rules complement the relevant government or departmental policies and legislation. CHAPTERSIX

The Government’s Defence Management Procurement Review recommended that the Defence Materiel Organisation Reforms and become a prescribed agency for financial management purposes while Efficiencies still remaining part of the Defence Portfolio. This will be implemented During 2003-04, Defence on 1 July 2005 implemented a number of new processes to improve the way we do Another recommendation of the business and continued to develop procurement review was the formation those efficiencies already in place. of the Capability Development Group to provide more robust capability In this chapter we report on our proposals for consideration by the progress. Government

A new portfolio-wide budgeting system was implemented in Defence

Defence achieved annual recurring administrative savings of over $60 million against a target of $50 million

A new travel management system was introduced, which is estimated to provide savings of up to $21 million per year Chapter Six

Progress on Financial Management Reform Defence recognises that it must constantly seek to achieve best practice to ensure it is recognised by the Government and stakeholders as a respected financial manager. Defence is committed to addressing deficiencies and pursuing new opportunities in a more structured and coordinated way by implementing continuous improvement through financial transformation. Financial transformation will not only remediate business process deficiencies, but embed and sustain systemic reform to support more effective planning, management and reporting of Defence finances. Notable achievements in 2003-04 included: • the full implementation of the Government’s budget estimates framework for Defence budgeting and reporting requirements; • the full implementation of a portfolio-wide budgeting system to meet reporting for internal or external use at the outcome, output and Group level; • development, approval and release of a ten-year view of the Defence budget to Group Heads before the start of the 2004-05 financial year; • the conduct of a rolling program of budget reviews, aimed at improving the overall quality and accuracy of Defence estimates and to eliminate large-scale unforecast variations; • development and implementation of a force element and product cost capability complemented by improvements to the outcomes/outputs reporting framework; • adaptation of the Defence business model to position Defence for the prescription of the Defence Materiel Organisation. A separate company code has been established to allow for separate reporting of all Defence Materiel Organisation financial transactions; • substantial progress in reviewing and updating the Chief Executive Instructions and the Defence Accounting Manual. Solid progress was also made in improving the Defence delegations system and implementing a Regulation 10 reporting regime; • improvements to the financial statements process and establishment of a Financial Statements Project Board; • development of a financial systems strategy to progress the Resource and Output Management Accounting Network upgrade initiative and to provide a road map for ongoing improvements to Defence financial systems; and • undertaking improvements in data quality, particularly debtor and cash management. Further improvements to the budgetary process will focus on achieving a best practice budgeting system consistent with the Australian National Audit Office’s guidelines.

302 Progress on Financial Management Reform

Work to establish the Defence Materiel Organisation as a prescribed agency by 1 July 2005 provided a stimulus to accelerate change in financial management. A preliminary due diligence was completed to ensure all statutory requirements are met after the Defence Materiel Organisation separates from Defence. To complement this work, a new financial controls framework is to be implemented and remediation plans have been prepared to address major audit concerns. Work is also under way to introduce the new internal financial reporting framework. Defence has worked to resolve a number of outstanding Australian National Audit Office findings. Under the direction of a newly formed project management board, an initiative titled Project Resolve has addressed audit issues and key aspects for the production of the 2003-04 financial statements. Defence acknowledges that more work remains to be done to address all outstanding issues. A project to improve confidence in the accuracy of ADF leave records, has centred on the handling of leave applications by members and supervisors, systems changes to the Personnel Management Key Solution, remediation of records containing errors, and the introduction of Employee Self Service. Work has been undertaken on Defence’s key information systems platforms (the Resource and Output Management Accounting Network, the Personnel Management Key Solution and the Standard Defence Supply System) to advance interoperability, increase data quality, and enhance business processes. Defence has also completed a series of targeted programs that have upgraded existing enterprise resource platforms to better support Defence decision makers, as well as aiming to better meet the requirements of Government and other external stakeholders. Defence is now realising gains in areas such as data integrity, business efficiencies, and reporting accuracy. This work will continue in 2004-05. Defence has also committed significant effort to improving the fundamentals supporting financial management such as data accuracy and business processes. In recognition of the central importance of data integrity, Defence continued a number of projects that examined and addressed shortcomings in information technology and business processes. The central role of training as the foundation for systemic change has also been recognised. A business skilling project was started in 2003-04 to identify Defence financial management proficiencies, leading to the development and presentation of targeted skills training across Defence.

303 Chapter Six

Defence Materiel Reform The Defence Materiel Organisation supports the ADF by acquiring and sustaining leading edge military equipment. The Senate Foreign Affairs, Defence and Trade References Committee tabled its report from the inquiry into materiel acquisition and management in Defence in March 2003. The Committee acknowledged the positive progress that had been made in the Defence Materiel Organisation reform program. The Government decided to implement a range of reforms to improve capability development and acquisition in Defence by further improvement of the capability definition process, providing the organisation with greater independence to better manage and deliver projects, and by progressing towards a more business-like approach in the organisation. These themes are consistent with the findings of the Senate Inquiry. After the Government broadly accepted the findings of the Defence Procurement Review, the organisation’s priorities were recast to reflect six key themes for materiel reform. Further detail on the themes is provided below. Defence Procurement Review In September 2003, the Government announced that, as part of the ongoing reform of Defence procurement, it had agreed to broadly accept the recommendations of the Defence Procurement Review, led by Mr Malcolm Kinnaird. The review recommended the establishment of a new head of capability development at a senior level, strengthening the ‘two pass’ system for new acquisitions, establishing a high-level advisory board, considering the remuneration and tenure of project managers, and establishing the Defence Materiel Organisation as a prescribed agency. For more detail on the ‘two pass’ implementation process, refer to Chapter One – New Capability Development and Acquisition Process section. Key to this reform was the appointment of a new Chief Executive Officer to the Defence Materiel Organisation to lead this reform program. Dr Stephen Gumley took up this appointment in February 2004. The organisation is being assisted in its reform program by the Defence Procurement Advisory Board, established as a key recommendation of the Kinnaird review. The board comprises senior executives drawn from the public and private sectors, who bring with them a wealth of experience and knowledge. Chaired by Mr David Mortimer, the Board also includes Mr Malcolm Kinnaird, Dr John White and Mr Kevin McCann as the private sector members. General Peter Cosgrove (Chief of the Defence Force), Mr Richard Smith (Secretary of the Department of Defence), Dr Ian Watt (Secretary of the Department of Finance and Administration) and Dr Ken Henry (Secretary to the Treasury) are the public sector members of the board. The Board held its inaugural meeting in March 2004 and is now meeting monthly. In June 2004, the Chief Executive Officer announced a reorganisation, consistent with adopting a more business-like approach as recommended by the Defence procurement review. The changes consolidated corporate planning and support in the organisation’s headquarters, with the creation of new positions of Deputy Chief Executive Officer, Chief Operating Officer, General Counsel, New Ships – Amphibious and New Ships – Air Warfare Destroyer Divisions and a Director-General for Land Vehicle Systems.

304 Defence Materiel Reform

Increased Professionalism In line with its aspiration to be the premier engineering and project management organisation in Australia, the Defence Materiel Organisation initiated a series of professional development and certification programs to improve recruitment, staff development and retention. The goal is to get the right people in the right positions at the right time. A professional certification framework for all program managers is being developed. The framework will be fully developed and implemented by the end of 2006. In April 2004, a professional development program for engineers was implemented, and targets have been set for enrolment within the Engineers Australia professional development program. In March 2004, a survey of the qualifications of the organisation’s workforce was undertaken, and targets have been established to improve the level of professional qualifications in other employment categories across the organisation. The Project Manager’s Development Program, a 12-month masters-level program run in conjunction with the University of South Australia, is in its sixth year with 15 staff participating in the current program. The program has seen 69 graduates awarded a Masters in Project Management over the past five years. The Quantum Program, a leadership development program for Executive Levels 1 and 2 and military equivalents in the Defence Materiel Organisation, continues into its third year with more than 164 staff participating in the program. A new policy for the engagement of military personnel in the organisation was developed and will be implemented in 2004-05. This policy seeks to ensure that military staff have the necessary qualifications and tenure to meet the organisation’s needs, while also meeting the ADF’s needs for the development of its military personnel. Standard Processes, Based on Business-Like Best Practice The Australian Defence contracting suite of tendering and contracting templates continued to mature, having adopted a more commercially-focused business philosophy. The organisation investigated further alternative contracting methodologies and, following a review of existing trial project alliancing contracts, removed the ‘trial’ status from that approach. New principles underpinning the organisation’s approach to contracting are being established. The basic philosophy of this approach is that industry has a right to a reasonable profit and some certainty of work, while Defence has a right to expect industry to deliver products on time, on budget and to the required capability. The Defence Materiel Organisation’s performance in delivering major investment projects within budget and to the specified performance level has been steadily improving. A key goal of the organisation’s Chief Executive Officer is to improve schedule performance, and this must include improved performance from industry. Underpinning this must be the development of a skilled workforce, in Defence and in industry, which can effectively deliver not only the current workload, but also the growth projected by the Government in the Defence Capability Plan. As part of this reform program, ten materiel governance boards have been established to provide independent oversight and assurance of Defence’s materiel projects. These boards review the technical, financial, contractual, risk and schedule performance of capital projects. The scope of the involvement of these governance boards in project assurance

305 Chapter Six was extended under the recent Kinnaird review to also consider the sustainment of ADF capability. The boards meet monthly and report regularly to the Chief Executive Officer. During 2003-04, a new management information and reporting system, called the improve project scheduling and status reporting system, was introduced and has become the cornerstone of the standardised project reporting process. The organisation is also implementing a standardised project management methodology and tool-set across all projects. This process is supported by a corporate-level quality and environmental management system, which is being developed within the organisation to provide people with current information on policies, processes and practices. A Project Risk Management Manual was released in June 2004 to provide direction on how risk is to be managed across the Defence capability life-cycle’s ‘needs’, ‘requirements’, and ‘acquisition’ phases. Improve Relationships With Industry In accordance with the Government’s broad industry policy framework, Defence has developed a range of industry and procurement policies to support the delivery of ADF capability requirements and to facilitate greater alignment and partnership between Defence and industry. In February 2004, the Minister for Defence released the public version of the 2004-14 Defence Capability Plan. The plan provides industry with greater certainty about Defence’s investment planning and had become Defence’s key mechanism for informing industry of its major capital equipment investment intentions. Following their endorsement by Government in June 2004, Defence is preparing an implementation schedule for the Electronic Systems and Aerospace Sector Plans, which will also include elements of the Naval Shipbuilding and Repair Sector Plan and, when completed, the Land and Weapons Sector Plans. The seventh and eighth rounds of Company ScoreCards and the first formal round of 360-degree view ScoreCards were conducted in 2003-04. These ScoreCards enable the Defence Materiel Organisation and industry to discuss schedule, budget and project management performance in a constructive way. Benchmark Against Both Public and Private Sector Organisations In 2004, the Defence Materiel Organisation initiated work to set productivity objectives consistent with industry benchmarks against both public and private sectors that also recognised the overheads associated with being a government agency. These benchmarks will be further developed in 2004-05 to gauge the organisation’s project and platform management performance as well as its overheads. Reprioritising Activity The Defence Materiel Organisation is clarifying its roles and responsibilities within Defence as a whole in order to reduce areas of overlap and free up resources to concentrate on high priority tasks. Outsourcing of some activities will provide an opportunity for the organisation to reprioritise its activity. A major outsourcing contract for integrated storage and distribution was signed in December 2003 with Tenix Toll Defence Ltd. Contract

306 Defence Materiel Reform implementation commenced in March 2004 and is expected to be completed by December 2004. Leading Reform in Defence The Defence Materiel Organisation has been at the forefront of Defence reform over recent years and, through its ongoing change program to achieve a more business-like focus, will continue to lead reform in Defence. In a number of areas, the success of reform in the Defence Materiel Organisation could create valuable precedents for change elsewhere in Defence.

307 Chapter Six

Corporate Services and Infrastructure Reforms The Corporate Services and Infrastructure Group supports the working and living environments of Defence personnel. Results for 2003-04 Throughout 2003-04, the Corporate Services and Infrastructure Group continued to improve the quality of Defence’s infrastructure and the services provided to its customers. It also continued to support Defence’s reform agenda by focusing on delivering strategic objectives that provide assurance to its owner, customers and stakeholders. The strategic objectives for 2003-04 were to ensure that: • customers were confident about the Group’s products, service, performance and cost; • customers understood what the Group provided and could easily access its services; • the Group was recognised as a high-performing organisation that delivered best value-for-money and achieved planned performance; and • the Group delivered sound stewardship of its resources in order to contribute to the sustainable delivery of Defence outcomes. Results of the reform initiatives during 2003-04 are detailed below.

Management of Defence Infrastructure Infrastructure Division, within Corporate Services and Infrastructure Group, developed a new infrastructure asset development process which has been endorsed by the Government. The new process provides improved risk management measures and ensures the development of more robust cost estimates prior to bringing infrastructure proposals forward for departmental and Government approval. This model has also been adapted for facilities operations and leasing proposals. The asset development model process is linked to broader Defence capability strategic planning by regular reports on the status of the overall infrastructure program to the Defence Capability Committee. The development and implementation of the infrastructure asset development model has also enhanced the capital facilities planning process by addressing ‘whole-of-life’ costs, including operating costs and ecologically sustainable development aspects. A new suite of construction contracts has also been developed and implemented. These contracts address whole-of-life aspects of design, construction and the ongoing operation and maintenance of facilities and infrastructure.

Business Improvement The Group focused on the implementation of a range of improvement activities designed to increase customer satisfaction and improve value for money in the provision of corporate services to Defence.

308 Corporate Services and Infrastructure Reforms

These improvement activities include: • a new travel management system for business travel, including a new Defence travel card that will simplify travel arrangements, ensure prompt payments to suppliers and provide estimated savings of up to $21m per annum; • centralising arrangements for the payment of accounts through the purchase of data imaging and optical character recognition technology, which reduces the number of staff required to process these payments; and • feasibility studies into management arrangements for ADF relocations, office requisites, administrative vehicles, hospitality and catering, logistics, occupational health and safety and corporate governance. These reviews will be completed in 2004-05. The Group also implemented a new acquisition strategy for the provision of garrison support and facilities maintenance at Defence bases. The new contracts will have a strong emphasis on the provision of services by local industry providers. The first of the new contracts was signed for South Queensland in June 2004 and redirects an estimated $17m per annum back into local businesses in South Queensland.

Information Systems Defence’s information and communication technology capabilities have been restructured. By improving reliability, encouraging innovation and emphasising sound business principles, the Group has been able to meet current customer requirements while improving the effectiveness, and reducing the cost, of information and communication services. A tender was released in November 2003 for the operation of a significant portion of Defence’s information technology capability. This market-testing activity will ensure that Defence is obtaining value-for-money services. The selected service provider will be expected to assume responsibility for the designated portion of Defence’s information technology capability during 2004-05. As part of the upgrading of Defence computer systems throughout 2002-03 and 2003-04, over 40,000 redundant desktop computers were donated to the Australian Government’s Computer Technologies for Schools Project. Defence also donated 80 surplus computers to the University of East Timor.

Industry Engagement A large proportion of the products and services for which the Corporate Services and Infrastructure Group is responsible are delivered by industry, with $1.98 billion under contract in 2003-04. These contracts include the delivery of products and services in the areas shown in Table 6.1.

309 Chapter Six

Expenditure on Corporate Services and Infrastructure Table 6.1 Group-managed Contracts Budget Revised Value Estimate Estimate Service $m $m $m Infrastructure investment (1) 376 382 364 Information technology and telecommunication services and products 352 320 347 Garrison support 335 345 346 Housing services 311 315 311 Facilities operations 233 278 260 Travel services 166 166 151 Property services 129 116 109 Utilities 95 93 93 Total 1,997 2,015 1,981 Note 1. Infrastructure investment contains the cost of training range upgrades, although it was reported separately in the 2003-04 budget and additional estimates statements.

310 Commercial Support Program The Commercial Support Program is Defence’s primary mechanism for undertaking competitive tendering and contracting. The program, which began in 1991, aims to ensure that support services are provided to Defence in the most cost-effective manner. Services are contracted out when it is operationally feasible, a viable market exists and industry can demonstrate better value for money. The Defence Employees Certified Agreement 2004-2006 facilitates the application of the Commercial Support Program in Defence. The agreement covers all market testing and any other competitive tendering or equivalent processes that may result in the contracting out of a Defence civilian activity. The Defence Integrated Distribution System market-testing activity was finalised during 2003-04 with the signing of a contract between Defence and TenixToll Defence Logistics on 18 December 2003. Requests for tender closed on 30 March 2004 for the Information Technology Infrastructure Support Services – Central Office market-testing activity. Evaluations are proceeding and an announcement is expected during 2004-05. Table 6.2 Commercial Support Program Progress Summary as at 30 June 2004 CSP evaluation decisions made 121 Commercial contracts 80 (66%) In-house options 32 (27%) Status-quo retained 9(7%) Number of positions tested (1) 15,935 Indicative total value of commercial contracts and in-house options (1) (2) $5,935.4m Notes 1. Values and positions tested are based on information provided at the time of decision announcement. 2. Indicative total value of contracts covers the full term of the contracts.

Table 6.3 Activities in Progress or Under Consideration

Activity Name Status Information technology infrastructure support services Request for tenders closed 30 March 2004. The evaluation is proceeding. ADF rotary wing flying training – Army Project scope under assessment. Routine pathology services Appropriate service delivery method to be determined. Regional information communication technology Scope being finalised. market testing Personnel Services Being rationalised and restructured under the Business Improvement Project. Navy technical training services Project scope is under assessment and business case is being finalised.

311 Chapter Six

Table 6.4 Activities Not Proceeding Under the Commercial Support Program

Activity Name Reason ADF rotary wing flying training – Navy This activity has evolved into the Maritime Interim Rotary Training and Support System project. An operating lease is being sought to maintain relevant capabilities until definitive replacements are provided under later phases. ADF Health Services – All regions The preferred contractor for Victoria withdrew from negotiations. The Australian Capital Territory and southern New South Wales tender evaluation did not recommend a single tenderer. The lack of success with these two activities has led to alternative options being considered for all regional ADF Health Services activities. Future projects are likely to focus on specific bases and/or specialised health services. Adelaide-class guided missile frigates and Aggregation of existing contracts. Anzac-class ships

312 Commercial Support Program

Intentionally blank

313 Chapter Six

Intentionally blank

314 APPENDICES

2003-04 Financial Statements

Purchaser-Provider Arrangements

Internal Audit and Risk Management Arrangements

External Scrutiny

Legal Expenses

Inspector-General of the ADF

Responsiveness to the Ministers and the Parliamentary Secretary

The Defence Service Charter

Ecologically Sustainable Development and Environmental Performance

Asset Management

Discretionary Grants

ADF Units and Establishments

Consultancies

Advertising and Market Research

Contracts Exempt from Publication

Freedom of Information Auditor-General for Australia

Australian National Audit Office

INDEPENDENT AUDIT REPORT

To the Minister for Defence

Matters relating to the Electronic Presentation of the Audited Financial Statements

This audit report relates to the financial statements published in both the annual report and on the website of the Department of Defence for the year ended 30 June 2004. The Department’s Chief Executive is responsible for the integrity of both the annual report and its web site.

The audit report refers only to the financial statements, schedules and notes named below. It does not provide an opinion on any other information which may have been hyperlinked to/from the audited financial statements.

If users of this report are concerned with the inherent risks arising from electronic data communications they are advised to refer to the hard copy of the audited financial statements in the Department’s annual report.

Scope

The Financial Statements and Chief Executive’s responsibility

The Financial Statements comprise:

· Statement by the Chief Executive and Chief Finance Officer; · Statements of Financial Performance, Financial Position and Cash Flows; · Schedules of Commitments and Contingencies; · Schedule of Administered Items; and · Notes to and forming part of the Financial Statements of the Department of Defence for the year ended 30 June 2004.

The Department of Defence’s Chief Executive is responsible for the preparation and true and fair presentation of the financial statements in accordance with the Finance Minister’s Orders. This includes responsibility for the maintenance of adequate accounting records and internal controls that are designed to prevent and detect fraud and error, and for the accounting policies and accounting estimates inherent in the financial statements.

GPO Box 707 CANBERRA ACT 2601 Centenary House 19 National Circuit BARTON ACT Phone (02) 6203 7500 Fax (02) 6273 5355 Email [email protected] Audit approach

I have conducted an independent audit of the financial statements in order to express an opinion on them to you. My audit has been conducted in accordance with the Australian National Audit Office Auditing Standards, which incorporate the Australian Auditing and Assurance Standards, in order to provide reasonable assurance as to whether the financial statements are free of material misstatement. The nature of an audit is influenced by factors such as the use of professional judgement, selective testing, the inherent limitations of internal control, and the availability of persuasive, rather than conclusive, evidence. Therefore, an audit cannot guarantee that all material misstatements have been detected.

While the effectiveness of management’s internal controls over financial reporting was considered when determining the nature and extent of audit procedures, the audit was not designed to provide assurance on the internal controls.

I have performed procedures to assess whether, in all material respects, the financial statements present fairly, in accordance with the Finance Minister’s Orders made under the Financial Management and Accountability Act 1997, Accounting Standards and other mandatory financial reporting requirements in Australia, a view which is consistent with my understanding of the Department of Defence’s financial position, and of its performance as represented by the Statements of Financial Performance and Cash Flows.

The audit opinion is formed on the basis of these procedures, which included: · examining, on a test basis, information to provide evidence supporting the amounts and disclosures in the financial statements; and · assessing the appropriateness of the accounting policies and disclosures used, and the reasonableness of significant accounting estimates made by the Chief Executive.

Independence

In conducting the audit, I have followed the independence requirements of the Australian National Audit Office, which incorporate Australian professional ethical pronouncements.

Comment on the Statement by the Chief Executive and Chief Finance Officer

The Statement by the Chief Executive and Chief Finance Officer states that, due to uncertainty with a number of material account balances, they cannot conclude that the Statements of Financial Position, Financial Performance, and Cash Flows give a true and fair view of the matters required by the Finance Minister’s Orders made under the Financial Management and Accountability Act 1997.

They attest, however, that the balances relating to Cash, Receivables, Revenues from Government, Specialist Military Equipment (exclusive of repairable items), and quantities of Explosive Ordnance, are fairly stated.

Based on my procedures in relation to Cash, Receivables, Revenues from Government, Specialist Military Equipment (exclusive of Repairable Items), and quantities of Explosive Ordnance, as part of the audit of the financial statements as a whole, and without derogation to my opinion given below, nothing has come to my attention that the Statement by the Chief Executive and Chief Finance Officer, in relation to those balances, is not materially correct. Qualification

Assets

Inventories

Inventories, as reported in the Statement of Financial Position, includes General Stores inventory and Explosive Ordnance inventory.

Owing to the inadequacies in the Department’s General Stores inventory management practices, I have been unable to validate $2.026 billion (2002-03 - $610 million) of the Department of Defence’s reported Inventory balance totalling $4.465 billion (2002-03 - $3.832 billion) (net of obsolescence provision). This is as a result of the material weaknesses in the internal controls over the stocktaking and accurate recording of the physical inventory quantities, and a lack of evidentiary documentation and systems controls to confirm and safeguard the accuracy of pricing data.

In addition, owing to the inadequacies in the Department’s Explosive Ordnance inventory management practices, I have been unable to validate a further $845 million (2002-03 - $1.2 billion) of the reported balance of Defence Inventory (net of obsolescence provision). This is as a result of a lack of evidentiary documentation to support the prices used to value that portion of the recorded balance.

Repairable Items – as a component of Specialist Military Equipment

Owing to the inadequacies in the Department’s Repairable Items asset management practices, I have been unable to validate the $2.857 billion reported written-down value of Repairable Items (2002-03 - $550 million), which is reported within Specialist Military Equipment. This is as a result of the material weaknesses in the internal controls over the stocktaking, accurate recording and reporting of the physical asset quantities, and adequate system controls to safeguard the accuracy of data.

Land and Buildings and Infrastructure, Plant and Equipment

Owing to the inadequacies in the Department’s Land and Buildings and Infrastructure, Plant and Equipment management practices, I have been unable to validate the written-down value of $1.394 billion of the balances totalling $15.163 billion. This is the consequence of certain assets being excluded from revaluation processes due to either management determined asset revaluation thresholds, or excluding certain assets under finance lease arrangements, as well as other deficiencies in the recording and reporting of the effect of revaluations on the written-down value of revalued assets.

Liabilities

Military Leave Provision

Owing to the inadequacies in the Department’s Military employee personnel recording systems and practices, primarily relating to the lack of integrity associated with the capture and recording of data within those systems and the appropriate maintenance of primary evidentiary documentation, I have been unable to validate the amount of $1.228 billion (2002-03 - $732 million) for the Australian Defence Force employee leave provision. As a consequence of the inadequacies in the Military Leave Provision referred to above, and as a result of other issues noted within the Civilian leave recording practices, I have also been unable to validate the amounts reported within the Executive Remuneration Note.

Statement of Financial Position

The scope limitations noted above, which affect five material line items on the Statement of Financial Position (i.e., Inventories; Specialist Military Equipment; Land and Buildings; Infrastructure, Plant and Equipment; and Employees Provisions), have a material impact in quantitative terms, affecting 14% of Total Assets and 22% of Total Liabilities. In addition, six notes to the Statement of Financial Position are also affected by the scope limitations. These notes, which provide a more detailed breakdown of the Statement of Financial Position items are, Note 8A – Land and Buildings, Note 8B – Specialist Military Equipment, Note 8C – Infrastructure, Plant and Equipment, Note 8G – Inventories, Note 10A – Employee Provisions and Note 12 – Equity.

Additionally, in qualitative terms, the primary causes of the uncertainties noted above originate from significant weaknesses within the internal control environment and systems and the evidentiary support for the transactions and balances of the Department.

Accordingly, the quantitative factors, individually and as a whole, together with the qualitative factors, have resulted in uncertainty that is pervasive to the Statement of Financial Position.

Statement of Financial Performance

The scope limitations noted above have a material impact in quantitative terms which affect total Expenses from Ordinary Activities, and the Net Surplus / (Deficit) From Ordinary Activities, and translate to uncertainty for amounts within the following line items reported on the face of the Statement of Financial Performance:

· Assets Now Recognised Revenue; · Other Revenue; · Employee Expenses; · Suppliers Expenses; · Depreciation and Amortisation Expense; and · Write Down of Assets Expense.

In addition, seven notes to the Statement of Financial Performance are also affected by the uncertainties, namely, Note 4F – Assets Now Recognised, Note 4G – Other Revenue, Note 5A – Employee Expenses, Note 5B – Supplier Expenses, Note 5D – Depreciation and Amortisation and Note 5E – Write-down of assets, and Note 31 – Reporting of Outcomes.

Accordingly, the quantitative and qualitative internal controls factors noted above as a whole, and the significance of the potential effect of any financial adjustments required had the limitations of scope not existed, including the resultant effect on the reported Net Deficit of $532 million, and the uncertainty in estimating the potential effect (volatility) of those adjustments, results in uncertainty that is pervasive to the Statement of Financial Performance. Summary

The internal control environment, which is designed to prevent and detect errors in accounting and financial reporting, contains significant deficiencies due to weaknesses in the internal controls pertaining to financial management and systems, inadequate accounting records and poor inventory and asset recording. The control breakdowns have resulted in material uncertainties, in quantitative terms, surrounding material balances.

Given the effects on the Statement of Financial Position, the Statement of Financial Performance (including the potential volatility of the reported Net Deficit), the notes to the financial statements (including the Executive Remuneration note), together with the qualitative internal control factors, there is, in my view, a pervasive impact on the financial statements taken as a whole.

Qualified Audit Opinion

In my opinion, because of the existence and pervasiveness of the limitations of scope, outlined above in the qualifications paragraphs, and the effect of any adjustments required had the limitations not existed, I am unable to, and do not express an opinion, as to whether the Financial Statements:

(i) have been prepared in accordance with Finance Minister’s Orders made under the Financial Management and Accountability Act 1997; and

(ii) give a true and fair view, in accordance with applicable Accounting Standards and other mandatory financial reporting requirements in Australia and the Finance Minister’s Orders, of the financial position of the Department of Defence as at 30 June 2004, and its financial performance and cash flows for the year then ended.

Other Statutory Matters

In addition to the accounts and records scope limitations noted above, which give rise to my inability to form an opinion on whether the financial statements were prepared in accordance with the Finance Minister’s Orders made under the Financial Management and Accountability Act 1997, the Department of Defence has breached section 48 of the Financial Management and Accountability Act 1997 also with respect to the administration of its special account Services for Other Government and Non-Agency Bodies.

Oliver Winder Acting Auditor-General

Canberra 17 November 2004 2003-04 Financial Statements

321 Appendices

2003-04 Financial Statements

Department of Defence STATEMENT OF FINANCIAL PERFORMANCE for the year ended 30 June 2004 2004 2003 Notes $'000 $'000

Revenues from ordinary activities Revenues from Government 4A 14,639,217 18,232,438 Goods and services 4B 252,883 230,545 Interest 4C 143 19,332 Revenue from sale of assets 4D 185,159 685,537 Net foreign exchange gains 4E 16,552 17,101 Assets now recognised 4F 579,828 866,295 Other revenues 4G 156,211 118,390 Revenues from ordinary activities 15,829,993 20,169,638

Expenses from ordinary activities (excluding borrowing costs expense) Employees 5A 6,827,421 6,194,572 Suppliers 5B 5,302,089 5,350,985 Grants 5C 7,183 1,433 Depreciation and amortisation 5D 2,799,405 2,863,416 Value of assets sold 4D 163,575 640,548 Write-down of assets 5E 1,152,818 586,475 Other expenses 5F 75,158 345,596 Expenses from ordinary activities (excluding borrowing cost expense) 16,327,649 15,983,025

Borrowing costs expense 6 34,148 26,755

Net surplus / (deficit) from ordinary activities (531,804) 4,159,858

Net credit to asset revaluation reserve 12 989,789 1,002,430 Decrease in accumulated results on application of revised accounting standard AASB 1028 Employee Entitlements - (31,230) Total revenues, expenses and valuation adjustments recognised directly in equity 989,789 971,199

Total changes in equity other than those resulting from transactions with the Australian Government as owner 457,985 5,131,057

The above statement should be read in conjunction with the accompanying notes.

322 2003-04 Financial Statements

Department of Defence STATEMENT OF FINANCIAL POSITION as at 30 June 2004 2004 2003 Notes $’000 $’000 ASSETS Financial assets Cash 7A 237,809 99,557 Receivables 7B 777,044 1,152,542 Total financial assets 1,014,853 1,252,099

Non-financial assets Land and buildings 8A 10,059,528 9,282,868 Specialist military equipment 8B 30,640,503 31,383,274 Infrastructure, plant and equipment 8C 5,102,998 4,748,730 Intangibles 8D 299,103 173,709 Heritage and cultural 8E 26,010 19,047 Inventories 8G 4,464,895 3,832,343 Other non-financial assets 8H 689,681 718,549 Total non-financial assets 51,282,718 50,158,519

TOTAL ASSETS 52,297,571 51,410,618

LIABILITIES Interest bearing liabilities Leases 9A 367,943 343,738 Total interest bearing liabilities 367,943 343,738

Provisions Employees 10A 3,907,316 3,317,712 Other provisions 10B 403,700 343,600 Total provisions 4,311,016 3,661,312

Payables Suppliers 11A 1,017,313 1,200,066 Other payables 11B 4,023 30,130 Total payables 1,021,336 1,230,196

TOTAL LIABILITIES 5,700,295 5,235,244

NET ASSETS 46,597,276 46,175,374

The above statement should be read in conjunction with the accompanying notes.

323 Appendices

Department of Defence STATEMENT OF FINANCIAL POSITION (Continued) as at 30 June 2004 2004 2003 Notes $’000 $’000 EQUITY Contributed equity 12 1,774,924 1,811,008 Reserves 12 8,209,463 7,219,674 Retained surpluses 12 36,612,889 37,144,692

TOTAL EQUITY 12 46,597,276 46,175,374

Current assets 1,980,192 2,181,448 Non-current assets 50,317,379 49,229,170 Current liabilities 2,322,821 2,401,847 Non-current liabilities 3,377,474 2,833,397

The above statement should be read in conjunction with the accompanying notes.

324 2003-04 Financial Statements

Department of Defence STATEMENT OF CASH FLOWS for the year ended 30 June 2004 2004 2003 Notes $’000 $’000 OPERATING ACTIVITIES Cash received Goods and services 274,338 320,705 Appropriations 14,570,357 18,230,325 Interest 143 21,453 Net GST received from Australian Taxation Office 710,088 669,935 Other cash received 157,944 162,559 Cash transferred from Official Public Account 398,341 - Foreign Military Sales Deposit* 59,719 - Total cash received 16,170,930 19,404,977

Cash used Employees (6,237,818) (5,866,959) Suppliers (5,382,001) (5,465,545) Grants (7,183) (1,433) Other (41,165) (2,000) Cash transferred to Official Public Account - (870,201) Total cash used (11,668,167) (12,206,138)

Net cash from / (used by) operating activities 13 4,502,763 7,198,840

INVESTING ACTIVITIES Cash received Proceeds from sales of land and buildings 131,217 578,009 Proceeds from sales of specialist military equipment 12,249 29,690 Proceeds from sales of plant and equipment 40,900 47,318 Total cash received 184,366 655,017

Cash used Purchase of land and buildings (292,607) (283,254) Purchase of specialist military equipment (2,454,482) (2,719,134) Purchase of plant and equipment (330,366) (412,005) Purchase of software and intangibles (97,550) (34,064) Purchase of inventory (1,202,210) (738,520) Borrowing costs (34,148) (26,755) Total cash used (4,411,363) (4,213,732)

Net cash (used by) investing activities (4,226,997) (3,558,715)

* The Foreign Military Sales Deposit was reclassified as cash in the reporting period (refer Note 1.3) The above statement should be read in conjunction with the accompanying notes.

325 Appendices

Department of Defence STATEMENT OF CASH FLOWS (Continued) for the year ended 30 June 2004 2004 2003 Notes $’000 $’000

FINANCING ACTIVITIES Cash received Appropriations – contributed equity 706,334 995,201 Total cash received 706,334 995,201

Cash used Repayment of debt (117,983) (9,959) Capital Use Charge paid - (4,918,116) Return of contributed equity (742,418) (474,264) Total cash used (860,401) (5,402,339)

Net cash (used by) financing activities (154,067) (4,407,138)

Net increase/(decrease) in cash held 121,699 (767,013) Cash at the beginning of the reporting period 99,557 835,153 Effect of exchange rate movements on cash at the beginning of the reporting period 16,553 31,416 Cash at the end of the reporting period 7A & 13 237,809 99,557

The above statement should be read in conjunction with the accompanying notes.

326 2003-04 Financial Statements

Department of Defence SCHEDULE OF COMMITMENTS as at 30 June 2004 2004 2003 $’000 $’000 BY TYPE Capital commitments Land and buildings 1 163,970 312,735 Specialist military equipment 2 6,113,265 7,622,803 Other capital commitments 3 945,249 1,110,504 Total capital commitments 7,222,484 9,046,042

Other commitments Operating leases 4 3,017,048 734,420 Other non-capital commitments 5 6,031,321 4,282,935 Research and development 6 57,120 - Total other commitments 9,105,489 5,017,355

Commitments receivable 7 (955,653) (1,125,589)

Net commitments 15,372,320 12,937,808

BY MATURITY Capital commitments One year or less 2,867,640 3,675,546 From one to five years 4,028,051 4,703,185 Over five years 326,793 772,924 Total capital commitments by maturity 7,222,484 9,151,655

Other non-capital commitments One year or less 2,736,169 1,899,720 From one to five years 2,338,421 1,689,589 Over five years 956,731 646,795 Total non-capital commitments by maturity 6,031,321 4,236,104

Operating lease commitments One year or less 407,958 168,198 From one to five years 1,946,804 232,836 Over five years 662,286 274,604 Total operating lease commitments by maturity 3,017,048 675,638

327 Appendices

Department of Defence SCHEDULE OF COMMITMENTS (Continued) as at 30 June 2004 2004 2003 $’000 $’000 Research and development One year or less - - From one to five years 57,120 - Over five years - - Total research and development commitments by maturity 57,120 -

Commitments receivable (955,653) (1,125,589)

Net commitments by maturity 15,372,320 12,937,808

NB: Commitments are GST inclusive where relevant.

1. Outstanding contractual payments for buildings under construction. 2. Outstanding contractual payments for specialist military equipment under construction. 3. Other capital commitments include outstanding contractual payments for plant and equipment and Garrison Support contracts. 4. Operating leases included are effectively non-cancellable and are described in the table below. 5. Outstanding commitments on supplier type expenditure including general goods and services, communications, domestic and overseas travel and removal costs. 6. Outstanding commitments on research and development projects including Through Life Support Agreements. 7. Commitments receivable represents the GST receivable on the gross commitments payable and property revenue leases. The above schedule should be read in conjunction with the accompanying notes.

Nature of Leases General description of leasing arrangement Property leases Defence leases both residential and commercial properties in Australia and overseas in support of Australian Defence Organisation (ADO) activities . Lease payments are subject to the terms and conditions of the lease. Generally leases are subject to market reviews/reviews in accordance with agreed indexation or combination of both. The terms of these leases range between 1 year and 99 years. Aircraft leases Defence leases aircraft in support of scientific and military operations and in support of parliamentary services. Lease terms range between 6 and 30 years. Motor vehicle leases Leases for the provision of motor vehicles to Senior Executive Officers and for other general service. No contingent rentals exist. There are no renewal or purchase options available to Defence. Equipment leases Defence has leases for items of equipment including computer hardware, photocopiers, communications equipment, internet services and gym equipment. Generally lease terms are 1 to 5 years. Property revenue leases Defence receives revenue from the lease of property and office space. Office space is generally let to contractors in support of the Commercial Support Program, or similar outsourcing proposals of major weapons platforms as well as tenants providing a service for Defence employees (eg. canteen, banking and travel), to other government agencies or to local civic authorities. The terms of these leases range between 1 year and 40 years.

The above schedule should be read in conjunction with the accompanying notes.

328 2003-04 Financial Statements

Department of Defence SCHEDULE OF CONTINGENCIES as at 30 June 2004 2004 2003 $’000 $’000 QUANTIFIABLE CONTINGENCIES

Contingent liabilities Claims for damages/costs 180,250 132,943 Total contingent liabilities 180,250 132,943

Contingent assets Claims for damages/costs 54,348 68,394 Total contingent assets 54,348 68,394

Net contingent liabilities 125,902 64,549 Details of each class of contingent liabilities and assets, including those not included above because they cannot be quantified or considered remote, are disclosed in Note 14: Contingent Liabilities and Assets. The above schedule should be read in conjunction with the accompanying notes.

329 Appendices

Department of Defence SCHEDULE OF ADMINISTERED ITEMS for the year ended 30 June 2004 2004 2003 Notes $’000 $’000 Revenues Administered on Behalf of Government for the year ended 30 June 2004

Non-taxation (Revenue from Government) Goods and services 19 20,174 59,285 Interest 19 2,273 1,114 Dividends 19 230,698 373,525 Net foreign exchange gains 19 162 - Other sources of non-taxation revenues 19 608,814 608,767 Total Revenues Administered on Behalf of Government 862,121 1,042,691

Expenses Administered on Behalf of Government for the year ended 30 June 2004 Personal benefits 20 2,288,506 2,498,659 Subsidies 20 8,202 7,394 Net foreign exchange losses 20 - 2,045 Write-down and impairment of assets 20 22,792 84,239 Other expenses administered on behalf of government 20 - 2,320 Total Expenses Administered on Behalf of Government 2,319,500 2,594,657

The above schedule should be read in conjunction with the accompanying notes.

330 2003-04 Financial Statements

Department of Defence SCHEDULE OF ADMINISTERED ITEMS (Continued) for the year ended 30 June 2004 2004 2003 Notes $’000 $’000 Assets Administered on Behalf of Government as at 30 June 2004

Financial assets Cash 21 - 80,226 Receivables * 21 23,896 50,946 Investments 21 1,258,883 1,258,883 Total financial assets 1,282,779 1,390,055

Other non-financial assets 21 85,044 74,018 Total non-financial assets 85,044 74,018

Total Assets Administered on Behalf of Government 1,367,823 1,464,073

Liabilities Administered on Behalf of Government as at 30 June 2004

Provisions Employees 22 29,064,000 28,100,000 Total Liabilities Administered on Behalf of Government 29,064,000 28,100,000

Net Liabilities Administered on Behalf of Government 23 (27,696,177) (26,635,927)

Current assets 108,940 154,636 Non-current assets 1,258,883 1,309,437 Current liabilities 1,357,000 1,374,000 Non-current liabilities 27,707,000 26,726,000 * All receivables are current The above schedule should be read in conjunction with the accompanying notes.

331 Appendices

Department of Defence SCHEDULE OF ADMINISTERED ITEMS (Continued) for the year ended 30 June 2004 2004 2003 $’000 $’000 Administered Cash Flows for the year ended 30 June 2004

Operating Activities Cash received Interest 2,273 1,114 Dividends 230,698 373,525 Cash from Official Public Account for : - Special Appropriations 1,343,734 1,362,296 - Other Appropriations - 30,692 Superannuation contributions 608,693 551,835 Transfer of funded portion from MSBS 25,387 28,373 Rendering of services (United Nations) 24,553 102,192 Total cash received 2,235,338 2,450,027

Cash used Employees (1,335,532) (1,348,723) Subsidies paid (8,202) (7,394) Cash to the Official Public Account (971,992) (1,012,783) Other – Transfers to Departmental Accounts - (1,022) Total cash used (2,315,726) (2,369,922)

Net cash (used by) / from operating activities (80,388) 80,105

Net increase / (decrease) in cash held (80,388) 80,105 Cash at the beginning of the reporting period 80,226 121 Effect of exchange rate movements on cash at beginning of reporting period 162 - Cash at the end of the reporting period - 80,226

The above schedule should be read in conjunction with the accompanying notes.

332 2003-04 Financial Statements

Department of Defence SCHEDULE OF ADMINISTERED ITEMS (Continued) for the year ended 30 June 2004 2004 2003 $’000 $’000 Administered Commitments as at 30 June 2004

BY TYPE Capital commitments - -

Other commitments ADFA long service leave - 6,978

Net administered commitments - 6,978

BY MATURITY

All net commitments One year or less - 6,978 From one to five years - - Over five years - - Net administered commitments - 6,978

Note: All 2003-2004 commitments are GST inclusive where relevant.

Administered Contingencies as at 30 June 2004 There were no quantifiable Administered contingencies as at 30 June 2004 (2003: nil)

The above schedule should be read in conjunction with the accompanying notes.

333 Appendices

Department of Defence Notes to and Forming Part of the Financial Statements for the year ended 30 June 2004 Notes

1 Summary of Significant Accounting Policies 2 Adoption of AASB Equivalents to International Financial Reporting Standards from 2005-2006 3 Events Occurring after Reporting Date 4 Operating Revenues 5 Operating Expenses 6 Borrowing Costs Expense 7 Financial Assets 8 Non-Financial Assets 9 Interest Bearing Liabilities 10 Provisions 11 Payables 12 Equity 13 Cash Flow Reconciliation 14 Contingent Liabilities and Assets 15 Executive Remuneration 16 Remuneration of Auditors 17 Average Staffing Levels 18 Financial Instruments 19 Revenues Administered on Behalf of Government 20 Expenses Administered on Behalf of Government 21 Assets Administered on Behalf of Government 22 Liabilities Administered on Behalf of Government 23 Administered Reconciliation Table 24 Administered Contingent Liabilities and Assets 25 Administered Investments 26 Administered Financial Instruments 27 Appropriations 28 Special Accounts 29 Assets Held in Trust 30 Specific Payment Disclosures 31 Reporting of Outcomes

334 2003-04 Financial Statements

Department of Defence Notes to and Forming Part of the Financial Statements for the year ended 30 June 2004 Note 1: Summary of Significant Accounting Policies 1.1 Objective of Defence The objective of Defence is: The defence of Australia and its national interests. Defence is structured to meet seven outcomes: • Outcome 1 – Command of Operations in Defence of Australia and its Interests; • Outcome 2 – Navy Capability for the Defence of Australia and its Interests; • Outcome 3 – Army Capability for the Defence of Australia and its Interests; • Outcome 4 - Air Force Capability for the Defence of Australia and its Interests; • Outcome 5 - Strategic Policy for the Defence of Australia and its Interests; • Outcome 6 – Intelligence for the Defence of Australia and its Interests; and • Outcome 7 – Superannuation and Housing Support Services for Current and Retired Defence Personnel. Defence activities contributing towards these outcomes are classified as either departmental or administered. Departmental activities involve the use of assets, liabilities, revenues and expenses controlled or incurred by Defence in its own right. Administered activities involve the management or oversight by Defence on behalf of the Government of items controlled or incurred by the Government. Defence’s seven outcomes are spread across thirty outputs. The first six outcomes have twenty-nine departmental outputs and the seventh outcome has one administered output. Please refer to (Note 31) Reporting of Outcomes for further details.

1.2 Basis of Accounting The financial statements are required by section 49 of the Financial Management and Accountability Act 1997 and are a general purpose financial report. The statements have been prepared in accordance with:

• Finance Minister’s Orders (or FMOs, being the Financial Management and Accountability (Financial Statements for reporting periods ending on or after 30 June 2004) Orders); • Australian Accounting Standards (AAS) and Accounting Interpretations issued by the Australian Accounting Standards Board (AASB); and • Consensus Views of the Urgent Issues Group (UIG). The Statements of Financial Performance and Financial Position have been prepared on an accrual basis and are in accordance with the historic cost convention, except for certain assets which, as noted, are at valuation. Except where stated, no allowance is made for the effect of changing prices on the results or the financial position. Assets and liabilities are recognised in the Statement of Financial Position when, and only when, it is probable that the future economic benefits will flow and the amounts of the assets or liabilities can be reliably measured. However, assets and liabilities arising under agreements equally proportionately unperformed are not recognised unless required by an Accounting Standard. Liabilities and assets, which are unrecognised, are reported in the Schedule of Commitments and the Schedule of Contingencies (other than Unquantifiable Contingencies and Remote Contingencies, which are reported at Note 14).

Revenues and expenses are recognised in the Statement of Financial Performance when, and only when, the flow or consumption or loss of economic benefits has occurred and can be reliably measured. The continued existence of Defence’s in its present form, and with its present activities, is dependent on Government policy and on continuing appropriations by Parliament for Defence’s activities. UIG Abstract 55 ‘Accounting for Road Earthworks’ was issued in May 2004 and requires road earthwork assets that have limited useful lives to be depreciated based on best estimates of those useful lives. Due to its late release,

335 Appendices

Department of Defence Notes to and Forming Part of the Financial Statements for the year ended 30 June 2004 Defence was unable to specifically include the review of road earthwork assets in the Australian Valuation Office review for the year ending 30 June 2004. The review of road earthwork assets will be a priority during the Australian Valuation Office revaluation cycle for the year ending 30 June 2005. Preliminary estimates indicate that up to 1,161 assets (gross value of $2.398m) could be affected by the application of UIG Abstract 55. Flat sites tend to be chosen for constructing runways and taxiways, minimising the earthworks required. Roads, however, tend to require more earthwork construction due to undulations. Of the 1,161 potentially affected assets, 178 are related to airfields and aircraft parking (total value of $1.228m), with the remainder comprising roads, footpaths, driveways, parking areas and parade grounds. Administered revenues, expenses, assets, liabilities and cash flows reported in the Schedule of Administered Items and related notes are accounted for on the same basis and using the same policies as for departmental items, except as otherwise stated in Note 1.22.

1.3 Changes in Accounting Policy The accounting policies used in the preparation of these financial statements are consistent with those used in 2002-03, except in respect of: • The threshold for grouping assets (Note 1.15); • 2002-03, the Finance Minister’s Orders introduced an impairment test for non-current assets which were carried at cost and were not subject to AAS10 Recoverable Amount of Non-Current Assets. In 2003-04, the impairment provisions have been extended to cover non-current assets carried at deprival value; • From 2003-04 Foreign Military Sales (FMS) base level funding is classified as a cash balance. It was previously classified as a receivable; and • Future commitments (Note 1.12)

1.4 Revenue Revenues from Government Departmental outputs appropriation for the year (less any savings or reductions) are recognised as revenue, except for certain amounts which relate to activities that are reciprocal in nature, in which case revenue is recognised only when it has been earned. Savings are amounts offered up in the Portfolio Additional Estimates Statements. Reductions are amounts by which appropriations have been reduced by the Finance Minister under Appropriation Act No 3 of 2003-04. From 2002-03, Defence elected to operate on a just-in-time drawdown basis that has resulted in undrawn appropriations as at 30 June 2004 being reflected as a receivable. This receivable is available for drawdown to meet future obligations. Appropriations receivable are recognised at their nominal amounts. Resources Received Free of Charge Services received free of charge are recognised as revenue when, and only when, a fair value can be reliably determined and the services would have been purchased if they had not been donated. Use of those resources is recognised as an expense. Contributions of assets at no cost of acquisition or for nominal consideration are recognised at their fair value when the asset qualifies for recognition (with the exception of Specialist Military Equipment, refer to Note 1.15), unless received from another government agency as a consequence of a restructuring of administrative arrangements (refer to Note 1.14).

Other Revenue Revenue from the sale of goods and services is recognised upon delivery of the goods and services to customers. Under the transactional banking arrangements adopted 1 July 1999, Defence manages its own cash bank accounts in line with the Department of Finance and Administration’s just-in-time drawdown arrangements (refer to Note 1.10). Interest revenue is recognised on a time proportional basis that takes into account the effective yield on the relevant asset. The Agency Banking Incentive Scheme ceased during 2002-03 and consequently interest was only accrued and paid on Defence’s main trading accounts for part of the comparative financial year.

336 2003-04 Financial Statements

Department of Defence Notes to and Forming Part of the Financial Statements for the year ended 30 June 2004 Dividend revenue is recognised when the right to receive a dividend has been established. Revenue from disposal of non-current assets is recognised when control of the asset has passed to the buyer. Revenue from the delivery of goods and the rendering of services is recognised by reference to the stage of completion of contracts or other agreements to provide goods or services. The stage of completion is determined according to the proportion that costs incurred to date bear to the estimated total costs of the transaction. Receivables for goods and services are recognised at the nominal amounts due less any provision for bad and doubtful debts. Collectability is reviewed at balance date. Provisions are made when collectability of the debt is judged less rather than more likely. Foreign exchange gains and losses are recognised as the difference between the exchange rate on the day the revenue was recognised and the day the cash is received (or 30 June where the revenue is yet to be received). Revenue is recognised when revaluation decrements previously expensed for a class of assets are reversed as part of the revaluation process within the same class of assets. Any increments greater than previous decrements within the same class are reflected in the Asset Revaluation Reserve.

1.5 Transactions with the Government as Owner Equity Injections

The FMO’s require that amounts of appropriations designated as ‘equity injections’ (less any savings offered up in the Portfolio Additional Estimate Statements) are recognised directly in contributed equity as at 1 July or later date of effect of the appropriation. Other Distributions to Owners Distributions to owners is debited to contributed equity, unless in the nature of a dividend. In 2003-04, by agreement with the Department of Finance and Administration, Defence returned surplus funding of $742m (2002-03: $474m) to the Official Public Account.

1.6 Employee Benefits Defence’s workforce comprises two employment components: Australian Public Service (APS, i.e. civilians) and Australian Defence Force (ADF, i.e. military) personnel. Employee benefits for each workforce component are based on the relevant employment agreements and legislation. Liabilities for services rendered by employees are recognised at the reporting date to the extent that they have not been settled. Liabilities for wages and salaries (including non-monetary benefits), annual leave and sick leave are measured at their nominal amounts. Other employee benefits expected to be settled within 12 months of the reporting date are also measured at their nominal amounts. The nominal amount is calculated with regard to the rates expected to be paid on settlement of the liability.

All other employee benefit liabilities are measured as the present value of the estimated future cash outflows to be made in respect of services provided by employees up to the reporting date. Leave The liability for employee benefits includes provision for annual leave and long service leave. No provision has been made for sick leave as all sick leave is non-vesting and the average sick leave taken in future years by employees of Defence is estimated to be less than the annual entitlement for sick leave. The leave liabilities are calculated on the basis of employees’ remuneration, including Defence’s employer superannuation contribution rates to the extent that the leave is likely to be taken during service rather than paid out on termination. The liability for annual leave for APS employees reflects the value of total annual leave entitlements of all such employees at 30 June 2004 and is recognised at the nominal amount. All annual leave for APS employees is reported as current.

337 Appendices

Department of Defence Notes to and Forming Part of the Financial Statements for the year ended 30 June 2004 The liability in respect of annual leave for ADF personnel reflects an estimate of the total value of annual leave entitlements as at 30 June 2004. The liability is recognised as the best estimate of the nominal amount. All annual leave for ADF employees is reported as current. The liability for long service leave has been determined by reference to the work of the Australian Government Actuary. The estimate of the present value of the liability takes into account attrition rates and pay increases through promotion and inflation. The determination of the current component is based on actual leave taken in the 2003-04 financial year. The non-current portion of the liability for long service leave is recognised and measured at the present value of the estimated future cash flows to be made in respect of employees at 30 June 2004. Separation and Redundancy The provisions for redundancy for both APS and ADF personnel arise from obligations flowing from redundancy programs and ongoing market testing of various Defence activities under the Commercial Support Program, where a formal plan exists, there is a valid expectation by employees that the plan will be carried out, and a reliable estimate of the amount of the payments can be determined. The calculation does not include savings from normal attrition where employees are not replaced. Superannuation Permanently appointed APS employees and Defence contribute to the Commonwealth Superannuation Scheme (CSS) or the Public Sector Superannuation Scheme (PSS). These schemes are defined benefit superannuation plans for APS employees. No liability is shown for APS superannuation in the Statement of Financial Position as the employer superannuation contributions by Defence fully extinguish its obligation. The accruing liability, is assumed by the Commonwealth, and is reported by the Department of Finance and Administration, with the administration being conducted by ComSuper. The Statement of Financial Position shows accrued employer superannuation contributions for APS and ADF employees owing by Defence at the year-end representing outstanding contributions for the final pay period for the year. For APS employees, the applicable employer contribution rate from actuarial review for 2003-04 was 25.1% for CSS members and 13.1% for PSS members (2003: 19.9% and 11.9% respectively). For APS employees who are not members of the CSS or PSS, Defence makes an employer superannuation contribution to their nominated fund. The Defence Force Retirement and Death Benefits Scheme (DFRDB) and the Military Superannuation Benefits Scheme (MSBS) are defined benefit superannuation plans for ADF members. ADF employer superannuation contributions, pension payments, DFRDB member contributions and the provision for unfunded superannuation are reflected in the Schedule of Administered Items. For ADF members the applicable employer contribution rate calculated by the Australian Government Actuary for 2003-04 was 33.9% for the DFRDB and 23.2% for members of the MSBS (2003: 33% and 22.3% respectively). Superannuation on-costs have been added to the provisions for annual leave and long-service leave in respect of both APS and ADF employees. Military Workers’ Compensation Defence manages the costs of claims arising under the compensation scheme for military employees. The scheme is administered under a Service Agreement by the Department of Veterans’ Affairs. The estimate of the outstanding claims liability of the Military Compensation Scheme is prepared by the Australian Government Actuary. The estimate relates to claims arising from incidents occurring on or before 30 June 2004 (whether reported or not). The assessment uses statistical information relating to scheme experience over previous years, current claim costs and reporting patterns adjustments for future claims escalation and imputed investment returns. The total liability of $1,909m (2003: $1,595m) reported in the Employee Provisions of these financial statements comprises a Central Estimate of $1,752m (2003: $1,463m) for claim payments and, in accordance with AAS 26 Financial Reporting of General Insurance Activities, an amount of $157m (2003: $132m) for future costs expected to be incurred in processing these claims. A Central Estimate of the liability is intended to be unbiased in either direction. However, the underlying claims process cannot be projected with certainty. Therefore, it is almost inevitable that the true liability, which can only be known with precision in hindsight, will be different from the Central Estimate. Very broadly, a Central

338 2003-04 Financial Statements

Department of Defence Notes to and Forming Part of the Financial Statements for the year ended 30 June 2004 Estimate is intended to be equally likely to be higher or lower than the true liability. In a commercial environment it is common practice to include a Prudential Margin or risk margin to cover the uncertainties inherent in Central Estimates. If a Prudential Margin were to be applied the Australian Government Actuary has advised that an allowance in the order of 20% (2003: 20%) of the Central Estimate (some $350m (2003: $300m)) would be reasonable. However, since the liability is secured by an underlying government guarantee, Defence regards it as appropriate to recognise a best estimate of the liability rather than a conservative estimate. The continued use of the Central Estimate approach will be kept under regular review by Defence, through monitoring emerging costs in consultation with the Australian Government Actuary and Department of Veterans’ Affairs, and monitoring developments to the relevant Accounting Standards. Changes to Military Compensation Arrangements The Military Rehabilitation and Compensation Act 2004 and the Military Rehabilitation and Compensation (Consequential and Transitional Provisions) Act 2004 create a new military rehabilitation and compensation scheme. The new scheme is a combination of the provisions of the Safety, Rehabilitation and Compensation Act 1988 (SRCA) and the Veterans’ Entitlement Act 1986 (VEA), which will over time, be replaced entirely by the new scheme. The new Military Rehabilitation and Compensation Scheme applies to all ADF personnel in service from 27 April 2004. Veterans who are no longer in the ADF will not be affected by the new legislation and will continue to be covered under VEA or the SRCA. Serving members and their dependants receiving benefits through the VEA or SRCA will continue to be covered by those schemes for injury, disease or death before the commencement day of the new Act. Compensation for injury, disease or death related to service after the commencement day of the new Act will be provided solely under the new Act. Employee Workplace Agreements As a result of workplace agreements in place for Defence employees, a number of pay increases for both APS and ADF personnel are due to be paid in ensuing years. The current military agreement, replacing an agreement that expired in May 2004, expires on 3 November 2006. The pay rises are 2.5% from 6 May 2004, 4% from 4 November 2004, 2% from 2 June 2005 and 1.5% from 9 March 2006. The APS Certified Agreement expires on 31 December 2006. The previous Certified Agreement expired May 2003 and APS staff received no increments until commencement of the new Certified Agreement. The pay rises are 2% from 1 January 2004, 4% from 4 November 2004, 2% from 2 June 2005 and 2% from 12 January 2006. Remuneration for executives (being members of the Senior Executive Service or equivalent) is subject to individual agreements.

1.7 Asbestos Related Disease Exposure Following on from an initial study commissioned the previous year, the Department of Finance and Administration commissioned Trowbridge Deloitte to perform an actuarial study on the nature and extent of the Australian Government’s liability for Asbestos-Related Diseases (ARD’s). The actuarial assessment of the Australian Government’s Asbestos-Related Disease Exposure was finalised in July 2004. It involved collecting extensive data on individual Australian Government claims, modelling the various sources of claims and conducting interviews with various Australian Government agencies involved in managing the claims. Based on the calculations provided in the final report, as at 30 June 2004, Defence’s share of the common law liability is estimated to be $403.7m (2003: $344m). This is disclosed at Note 10B and the associated expense is disclosed in Note 5F. The provision is based on the best estimate of Defence’s potential exposure at 30 June 2004, consistent with the requirement of AASB 1044, Provisions, Contingent Assets and Contingent Liabilities. In making the assessment, the actuary has applied independent expertise and has used existing Defence claims data, as well as data relating to similar claims elsewhere. The estimate represents the present value of future compensation payments on both future reported claims and currently open claims, including defendant legal costs and claims handling costs.

339 Appendices

Department of Defence Notes to and Forming Part of the Financial Statements for the year ended 30 June 2004 1.8 Leases A distinction is made between finance leases which effectively transfer from the lessor to the lessee substantially all the risks and benefits incidental to ownership of leased non-current assets and operating leases under which the lessor effectively retains substantially all such risks and benefits. Where a non-current asset is acquired by means of a finance lease, the asset is capitalised at the present value of minimum lease payments at the inception of the lease and a liability recognised for the same amount. Finance lease liabilities are shown at Note 9A. Leased assets are amortised over the period of the lease. Lease payments are allocated between the principal component and interest expense. The discount rate used is the interest rate implicit in the lease. Operating lease payments are expensed on a basis which is representative of the pattern of benefits derived from the leased assets. Defence entered into a number of new operating leases during the year, including one sale and leaseback arrangement. No new finance leases were commenced. Lease incentives taking the form of ‘free’ leasehold improvements and rent-free periods are recognised as liabilities. These liabilities are reduced by allocating lease payments between rental expense and reduction of the liability.

1.9 Borrowing Costs All borrowing costs are expensed as incurred as Defence does not borrow funds to acquire assets.

1.10 Cash Cash means notes and coins held, as well as any deposits held at call with a bank or financial institution. Cash is recognised at the nominal amount. Changed cash management procedures during 2002-03 required Defence to adopt a just-in-time drawdown approach to appropriations. Defence has no term deposits as at 30 June 2004. Undrawn appropriation is represented by a receivable from the Commonwealth.

1.11 Bad and Doubtful Debts A provision is maintained for debts outstanding for over 90 days. The provision is based on an analysis of the expected realisation of outstanding debts and write-off experience from prior years. Bad debts are written-off as they are identified. No provision is made for Australian Government or Foreign Government debtors as they are deemed to be collectable.

1.12 Commitments Schedule of Commitments Commitments are agreements equally proportionally unperformed from expenditure contracted as at 30 June 2004. Once a contract has been awarded, the transaction is disclosed in the relevant type and phase in the Schedule of Commitments. Future Commitments In previous years Defence provided separate, voluntary disclosure regarding future commitments. Future Commitments relate to projects that have been approved, but for which contracts have not yet been awarded. The information provided in this separate note duplicated information provided by Defence in its Portfolio Budget Statement, which is the primary source of information about future resourcing planned for Defence. On investigation, it was assessed that there was no systematic method of further refining the information prepared for budgeting to increase the reliability of the budget estimates and Defence has decided to cease publication of this information within this document.

340 2003-04 Financial Statements

Department of Defence Notes to and Forming Part of the Financial Statements for the year ended 30 June 2004 1.13 Financial Instruments Accounting policies for Departmental and Administered financial instruments are detailed in Note 18 and Note 26 respectively.

1.14 Acquisition of Assets Assets are recorded at cost of acquisition except as stated below. The cost of acquisition includes the fair value of assets transferred in exchange and liabilities undertaken. With the exception of specialist military equipment, assets acquired at no cost, or for nominal consideration, are initially recognised as assets and revenues at their fair value as at the date of acquisition, unless acquired as a consequence of restructuring of administrative arrangements. In the latter case, assets are initially recognised as contributions by owners at the amounts at which they were recognised in the transferor agency’s accounts immediately prior to the restructuring.

1.15 Property, Plant and Equipment including Land, Buildings and Infrastructure Asset Recognition Threshold Purchases of property, plant and equipment are recognised initially at cost in the Statement of Financial Position where they meet the capitalisation threshold. Individual items will be capitalised where the individual value is equal to or exceeds $10,000. Grouped assets will be capitalised for items of homogenous nature within a single class where the individual item values equal or exceed $2,000 (2003: $1,000) and the class group value equals or exceeds $50,000 (2003: $50,000). The financial effect of this change in accounting policy resulted in a write-down of assets of $48.3m (2003: nil) Componentisation Major assets are considered for componentisation where it is considered likely that components will have useful lives that differ significantly from the other parts of the asset. The useful life of components may be determined with reference to the individual asset items, or, where managed on a life cycle basis, over the life of the related military capability. The depreciation of each component is calculated on a straight-line basis over the useful life assigned to that component. Revaluations Basis In accordance with Schedule 1 of the Financial Management and Accountability (Financial Statements 2003-2004) Orders and AASB 1041 Revaluation of Non-Current Assets, all non-current assets are being progressively re-valued to the fair value basis over a 3 year cycle from 1 July 2002, with the exception of specialist military equipment and Intangibles. The following table summarises the re-valuation adjustment by asset class:

Asset Class FY 2004 Increments FY 2003 Increments Contra Account Land 431,983,487 (increment) 487,302,177 (increment) Revaluation Reserve Buildings 314,179,012 (increment) 289,302,113 (increment) Revaluation Reserve Infrastructure, Plant 243,628,013 (increment) 225,826,497 (increment) Revaluation Reserve and Equipment Subtotal 989,790,512 1,002,430,787 Heritage and Cultural * 1,033,500 (decrement) N/A Revaluation Expense

Total 990,824,012 1,002,430,787 * This class underwent a net decrement during the year without having had a pre-existing Revaluation Reserve. Consequently revaluation postings were expensed.

341 Appendices

Department of Defence Notes to and Forming Part of the Financial Statements for the year ended 30 June 2004 Fair and deprival values for each class of asset are determined as shown below:

Asset Class Fair value measured at: Deprival Value measured at: Land Market selling price Market selling price Market selling price or Buildings (owned) Depreciated replacement cost Depreciated replacement cost Buildings (held under finance Net present value of lease lease) payments N/A Infrastructure, Plant & Equipment Market selling price Depreciated replacement cost

Plant & equipment (held under Net present value of lease finance lease) payments N/A Heritage & Cultural Market selling price Depreciated replacement cost Frequency Property, plant and equipment, except for work in progress (WIP) and specialist military equipment with values greater than Defence’s external revaluation thresholds ($250,000 for infrastructure, land and building and $100,000 for other plant and equipment), are each externally revalued progressively in successive three-year cycles in geographic rotation. All current progressive revaluation cycles commenced on 1 July 2002 and will conclude by 30 June 2005. The FMO’s require that all non-SME, property plant and equipment assets be measured at fair value from 30 June 2005 onwards. Assets within each class acquired after the valuation of the asset type in the current revaluation cycle are reported at cost for the duration of the cycle unless significant changes in the value of the asset have occurred, in which case the asset will be subject to revaluation or indexation. Work in progress (WIP) are not revalued but are accounted for at cost and are separately identified as ‘under construction’ in Note 8. In addition to reviewing expenditures from the point of rollout into service, WIP expenditures are now also considered on a whole-of- life basis. Defence has implemented its progressive revaluations as follows: Land, Buildings and Infrastructure The selection of assets to be revalued in a particular reporting period is made according to revaluation plans that are based on location and whether they have been identified for disposal. Independent valuers revalue land, buildings and infrastructure assets. The Australian Valuation Office undertook revaluations of land, buildings and infrastructure in 2002-03 and 2003-04. Specialist Military Equipment Specialist military equipment is no longer required to be revalued and is maintained at deemed or actual cost.. This is in accordance with Financial Management and Accountability (Financial Statements 2003-2004) Orders. Conduct All external valuations are conducted by an independent qualified valuer. Depreciation and Amortisation Depreciable property, plant and equipment assets are written-off to their estimated residual values over their estimated useful lives to Defence using, in all cases, the straight-line method of depreciation from the time they are first held ready for use. Leasehold improvements are amortised on a straight-line basis over the lesser of the estimated useful life of the improvements and the unexpired period of the lease. Depreciation and amortisation rates (useful lives) and methods are reviewed at each reporting date and necessary adjustments are recognised in the current, or current and future reporting periods, as appropriate. Residual values are re-estimated for a change in prices only when assets are revalued. The FMO’s require that all property, plant and equipment assets be measured at up to date fair values from 30 June 2005 onwards.

342 2003-04 Financial Statements

Department of Defence Notes to and Forming Part of the Financial Statements for the year ended 30 June 2004

Depreciation and amortisation rates applying to each class of depreciable asset are based on the following useful lives:

2004 2003 Buildings 1 to 100 years 5 to 100 years Infrastructure 1 to 100 years 5 to 100 years Specialist military equipment 2 to 54 years 2 to 54 years Other plant and equipment 2 to 30 years 2 to 30 years Heritage and cultural 1 to 100 years 0 to 100 years Equipment under finance lease Lease term Lease term

The aggregate amount of depreciation and amortisation allocated for each class of asset during the reporting period is disclosed in Note 5D. Restoration Costs Decontamination costs associated with properties listed for disposal are taken into account in the valuation of the property. This valuation adjustment is determined on the basis of remediation surveys and technical assessments. The cost of decontamination work carried out is then capitalised. Typically adjustment to valuations is made for properties that have not been listed for disposal. Asset Disposals The net gain / (loss) on disposal of property, plant and equipment is determined as the difference between the carrying amount of the asset at the time of disposal and the proceeds of disposal. New disclosure requirements from 2002-03 require the proceeds from asset sales to be separately disclosed from the net book value of assets sold. Therefore, the gross position is disclosed in the Statement of Financial Performance whilst the net gain / (loss) is disclosed at Note 4D.

1.16 Intangibles Defence’s intangibles primarily comprise of computer software and internally-developed software for internal use. Acquired intellectual property may form part of the acquisition of particular tangible assets and in such cases is reflected in the value reported for property, plant and equipment in the Statement of Financial Position. Defence carries intangible assets at deemed or actual cost. However, Schedule 1 of the FMO’s now requires such assets, if carried on a cost basis, to be assessed for indications of impairment. The carrying amount of impaired assets must be written-down to the higher of its net market selling price or depreciated replacement cost. All intangible assets were assessed for impairment as at 30 June 2004 and none were found to be impaired at this time. Intangibles are amortised on a straight-line basis over their anticipated useful life. Defence’s intangible assets are a subset of Other plant and equipment.

1.17 Heritage and Cultural Assets Defence is the custodian of items, including artefacts and memorabilia that are or may be of national historical or cultural significance. While many of these items represent military achievements, others are associated with developments in science and exploration, or with significant personal achievements. Items such as land and buildings may be of historical or cultural significance. Where Defence has established ownership and the value of items, these are recognised in the accounts as heritage and cultural assets. Defence is currently undertaking a review and cataloguing of the extensive collection of potential heritage and cultural items. This process will identify items of national heritage or cultural significance, establish ownership of

343 Appendices

Department of Defence Notes to and Forming Part of the Financial Statements for the year ended 30 June 2004 items, allocate values where able to be ascertained and determine procedures for the future use and preservation of such items. Depreciation of heritage and cultural assets has not been considered material to date, and has not been recorded. Commencing 2004-05, Defence will formally identify and value all heritage and cultural assets, estimate their useful life and consequently record their depreciation. During 2003-04, Defence did not expend funds to acquire nor receive proceeds for disposal of any heritage or cultural items not recognised in the accounts.

1.18 Inventory Defence does not ordinarily hold inventory for sale. Sales recorded represent disposal of inventory, surplus to requirements, and minor fuel sales. Inventory is valued at weighted average cost unless no longer required in which case it is valued at net realisable value. Costs incurred in bringing each item of inventory (primarily explosive ordnance and general stores) to its present location and condition, that are capable of being allocated on a reasonable basis, are assigned on a weighted average cost basis. Current contractual arrangements for acquiring explosive ordnance include an annual fixed payment for maintenance of manufacturing capacity in Australia. This fixed payment ($72.719m in 2003-04 and $72.708m in 2002-03) is capitalised as a prepayment and amortised over the period to which it applies. The fixed payment is not allocated across the units purchased during the period as there is no reliable basis on which to allocate the amount. Price remediation exercises were undertaken in 2003-04 to correct legacy and in year price corrections. Price increments and decrements resulted across a number of explosive ordnance and general stores items, as per Notes 4F and 5E.

1.19 Foreign Currency Transactions denominated in a foreign currency are converted at the exchange rate on the date of payment. Foreign currency receivables and payables are transferred at the exchange rate current as at the balance date. Associated gains and losses are not material.

1.20 Taxation Defence’s activities are exempt from all forms of taxation except fringe benefits tax and the goods and services tax (GST). Defence is able to claim input credits for goods and services tax incorporated within the costs of assets and supplies purchased by Defence. Revenues, expenses and assets are recognised net of GST: • except where the amount of GST incurred is not recoverable from the Australian Taxation Office (in these circumstances GST is recognised as part of the cost of acquisition of the asset or part of the item of expense); and • except for receivables and payables (which are shown inclusive of GST in the Statement of Financial Position).

1.21 Insurance Defence has insured for key insurable risks through the Government’s insurable risk managed fund, called ‘Comcover’. Workers compensation for civilians is insured through the Government’s Comcare Australia. Defence meets the benefit costs for military compensation on an emerging cost basis.

344 2003-04 Financial Statements

Department of Defence Notes to and Forming Part of the Financial Statements for the year ended 30 June 2004 1.22 Reporting of Administered Activities Administered revenues, expenses, assets, liabilities and cash flows are disclosed in the Schedule of Administered Items and related Notes. Except where otherwise stated below, administered items are accounted for on the same basis and using the same policies as for departmental items, including the application of Accounting Standards, Accounting Interpretations and Urgent Issues Group Consensus Views (UIG). Administered Cash Transfers to and from Official Public Account Revenue collected by Defence, for use by the Government rather than Defence, is Administered Revenue. Collections are transferred to the Official Public Account (OPA) maintained by the Department of Finance and Administration. Conversely, cash is drawn down from the OPA to make payments under Parliamentary appropriation on behalf of Government. These transfers to and from the OPA are reported as adjustments to the administered cash held by Defence on behalf of the Government and reported as such in the Statement of CashFlows in the Schedule of Administered Items and in the Administered Reconciliation Table in Note 23. Thus the Schedule of Administered Items largely reflects the Government’s transactions, through Defence, with parties outside the Government. Revenue All administered revenues are revenues relating to the core operating activities performed by Defence on behalf of the Commonwealth. Administered revenues comprise military superannuation contributions, payments received from the United Nations and foreign governments, bank interest, foreign exchange gains and dividends paid by the Defence Housing Authority. Expenses All administered expenses are expenses relating to the core operating activities performed by Defence on behalf of the Commonwealth. Administered expenses comprise unfunded military superannuation benefits, ADF housing subsidies and ADF retention benefits. Administered Investments Administered investments in controlled entities are not consolidated because their consolidation is relevant only at the Whole of Government level. Administered investments, other than those required to be equity accounted, are to be recognised on the cost basis, adjusted for any subsequent capital injections or withdrawals and for any impairment losses. The Commonwealth’s capital investment in the Defence Housing Authority is outlined at Note 25. Military Retention Benefits Certain categories of ADF personnel who are members of the Military Superannuation Benefits Scheme (MSBS) and have had 15 years of service receive retention benefits as an incentive for continued service. Retention benefit payments are initially recorded as prepayments and written down over the period of service. Military Superannuation The Defence Force Retirement and Death Benefits Scheme (DFRDB) and the Military Superannuation Benefits Scheme (MSBS) are defined benefit superannuation plans for ADF members. ADF employer superannuation contribution revenue, pension and lump sum payments, the provision for unfunded DFRDB and MSBS superannuation and DFRDB member contribution revenue are reflected in the Schedule of Administered Items. The DFRDB is a fully unfunded scheme but the MSBS is a partly funded scheme. MSBS member contributions are paid into the MSBS Fund that is controlled by the MSBS Board and are therefore not reflected in the Schedule of Administered Items. The Commonwealth, on behalf of the MSBS Fund, makes funded benefit payments to members of the scheme and the Commonwealth is reimbursed by the Fund for these payments. The Australian Government Actuary (AGA) estimates the unfunded provisions and expected future cash flows as at 30 June each year. These estimates are reflected in the Schedule of Administered Items. The AGA completes a full review of the unfunded liabilities (a Long Term Cost Report) every three years. The most recent long term cost report was completed as at 30 June 2002. A review of costs based on this report was conducted by the AGA in 2004 and the military superannuation provision has been adjusted upward by $964m for 30 June 2004 ($1.2b for 30 June 2003). The total unfunded liability for the DFRDB scheme as at 30 June 2004 was $21.8b (2003: $21.6b) and the unfunded liability for the MSBS scheme was $7.2b as at 30 June 2004 (2003: $6.5b).

345 Appendices

Department of Defence Notes to and Forming Part of the Financial Statements for the year ended 30 June 2004 The University of NSW had employees engaged or former employees who have been engaged at the Australian Defence Force Academy. On 11 December 2003 the Commonwealth signed an agreement with the University to provide funding for costs incurred for the delivery of military education and training services at the Academy. In accordance with the agreement an actuary reviewed the leave and superannuation entitlements. An amount of $6.978m was paid in settlement of the leave liability. An amount of $20m was paid as interim payment for the superannuation liability. The final adjustment amount is being negotiated.

1.23 Comparative Figures 2002-03 figures in the Statement of Financial Performance, Statement of Financial Position and Statement of Cashflows are comparable with those reported for 2003-04. Due to a range of management initiatives, the classifications of a number of items in the notes have changed between the 2003 and 2004 reporting years. Although it is theoretically possible to reclassify these items, it would require significant resources due to the size and complexity of Defence. It is not practical for Defence to attempt to quantify the impact of these classification differences, as many were managed and prompted by operational imperatives. An example of the impact of one of these changes illustrates the nature of these classification refinements: in 2002-03: Note 4B, storage charges were classified as freight and storage expenses. Following a review of these costs in 2003-04 it was determined that they would be more appropriately classified as removal costs expense. The effect on the aggregates Total supply of goods and services, and Total suppliers expenses is nil, however, as shown by the table below, the effect is shown in the individual balances as a decrease in freight and storage, offset by an increase in removal costs. Note 5B is the 2003-04 equivalent of Note 4B in 2002-03. Note 4B: 2003-04 2002-03 Annual Annual Difference Report Report 2004 2003 $’000 $’000 $’000 Suppliers Expenses Supply of Goods and Services Freight and Storage 42,659 45,023 (2,364) Removal Costs 151,189 148,826 2,364

1.24 Rounding Amounts reported in the financial statements have been rounded to the nearest $1,000 except in relation to the following: • Act of Grace Payments, Defective Administration Scheme and Waivers; • Remuneration of Executives; • Remuneration of Auditors; • Appropriation note disclosures; • Assets held in Trust; and • Special Public Money. Sub-totals and totals reported in the financial statements are the sum of unrounded amounts, which are then rounded to the nearest $1,000 themselves. All individual figures in the financial statements have been verified and the net surplus/(deficit) from ordinary activities as shown in the Statement of Financial Performance and net assets as shown in the Statement of Financial Position have been rounded correctly. In some cases variances of $1,000 or $2,000 may be present due to the application of rounding conventions.

346 2003-04 Financial Statements

Department of Defence Notes to and Forming Part of the Financial Statements for the year ended 30 June 2004 Note 2: Adoption of AASB Equivalents to International Financial Reporting Standards from 2005-06 The Australian Accounting Standards Board (AASB) has issued replacement Australian Accounting Standards to apply from 2005-06. The new standards are the Australian equivalents to International Financial Reporting Standards (AEIFRSs) issued by the International Accounting Standards Board. Early adoption of the new standards is not permitted. The existing Australian Standards are to be withdrawn with effect from 2005-06, but continue to apply until the end of the 2004-05 financial year. However, existing standards that have no AEIFRS equivalent will continue to apply, including AAS 29 Financial Reporting by Government Departments. The purpose of issuing AEIFRS is to enable Australian entities reporting under the Corporations Act 2001 to be able to more readily access overseas capital markets through preparation of their financial reports in accordance with internationally accepted accounting standards. This will facilitate consistent presentation and enable comparable interpretation of financial reports issued by entities internationally. It is expected that the Finance Minister will continue to require compliance with the Australian Standards issued by the AASB including AEIFRSs, in his Orders for the Preparation of Agency Financial Statements for 2005-06 and beyond. The AEIFRS contain certain additional provisions that will apply to not-for-profit entities, including Australian Government agencies. Some of these provisions differ from the International Financial Reporting Standards (IFRS) guidance and therefore Defence will only be able to assert compliance with the AEIFRS. Accounting Standard AASB 1047 Disclosing the Impacts of Adopting Australian Equivalents to IFRSs requires that the financial statements for 2003-04 disclose: • An explanation of how the transition to the Australian Equivalents is being managed; and • A narrative explanation of the key differences in accounting policies arising from the transition. The purpose of this Note is to make these disclosures. Management of the transition to Australian Equivalents to IFRSs In preparation for implementation of the Australian equivalents, Defence has undertaken the following : • The Chief Finance Officer is responsible for overseeing implementation of AEIFRS; • A high-level scoping study was commissioned in late 2003 which considered the potential impacts of AEIFRS on the Department of Defence. The suggested approach resulting from this study was used as a reference point in the development of the project plan for the ‘Implementation of AASB IFRS Compliant Standards and Revision of Accounting Policy Manual (DRB 48)’; • The primary players in the transition process are the Directorate of Accounting Policy in the Chief Finance Officer Group, and the Project Team and Steering Committee, comprising stakeholders from the principal Defence groups. Support is obtained from the Financial Statements Project Board and the Defence Audit Committee at appropriate stages throughout the transition; • The project plan divides the implementation of the AEIFRS into subject areas and prioritises them according to the degree of risk to Defence’s financial reporting; • Each topic is considered in turn and the following steps undertaken; - Comparison of existing AASB standards and the Australian Equivalents to IFRSs and identification of all major policy differences therein; - Assessment of the impact of the changes on Defence’s financial statements; - Identification of systems and procedural changes necessary to be able to report under the Australian equivalents, including those changes necessary to enable capture of data under both sets of accounting standards for 2004-05; and - Change management, including the testing and implementation of required changes. • The project plan also addresses the risks to successful achievement of the above objectives and includes remediation strategies to ensure successful implementation of the new accounting standards; • Defence’s timeframes for the reporting requirements throughout the transition to Australian equivalents are:

347 Appendices

Department of Defence Notes to and Forming Part of the Financial Statements for the year ended 30 June 2004 - Preparation of a transitional balance sheet as at 1 July 2004, under AEIFRS, after finalisation of its 2003-04 financial statement;. - Preparation of a balance sheet under AEIFRS at the same time the 30 June 2005 statements are prepared under existing Australian Accounting Standards; and - Meeting reporting deadlines set by the Department of Finance and Administration for preparation of the 2005-06 financial statements fully compliant with the AEIFRS. • To date, the major accounting and disclosure differences between the existing Australian Accounting Standards and AEIFRS have been identified. The required system and operational process changes to support the transition have also been identified; and • Consultants have been engaged where necessary to assist in the transition process. Major changes in accounting policy Changes in accounting policies under AEIFRS are applied retrospectively, i.e. as if the new policy had always applied. This rule means that a balance sheet prepared under the AEIFRS must be prepared as at 1 July 2004, except as permitted in specific circumstances under AASB 1 First-time Adoption of Australian Equivalents to International Financial Reporting Standards. This will ensure comparatives reported in the 2005-06 financial statements are also prepared in compliance with the AEIFRS. Changes to major accounting policies occasioned by the transition to AEIFRS are discussed in the following paragraphs. Property, plant and equipment Finance Briefs indicate that property, plant and equipment assets, except specialist military equipment, will be measured at fair value from 30 June 2005. This differs from the accounting policies currently in place for these assets, which up to and including 2003-04, have been revalued progressively over a 3 year cycle and include assets at cost (for purchases since the commencement of a cycle) and at deprival value (which differ from their fair value to the extent that they have been measured at depreciated replacement cost when a relevant market selling price was available). It is important to note that the transitional provisions in AASB 1 will mean that the values at which assets are carried as at 30 June 2004 under existing standards will remain in the transitional balance sheet as at 1 July 2004. The AEIFRS also clarify that management must regularly and systematically review residual values, useful life, and the value of assets held at fair value. Defence is putting in place management procedures to facilitate this occurring. Provisions for make good AEIFRS require known provisions for make good or disposal (eg at the end of an asset’s life) to be capitalised from the assets acquisition (or the point at which Defence is first able to reliably estimate these costs). Defence is also putting in place management procedures to ensure this information is available for AEIFRS based reports covering periods commencing 1 July 2004. These provisions then form part of the depreciable amount of the asset and are allocated over its useful life. Intangible assets Defence currently recognises internally-developed software assets at cost. The carrying amounts of these assets include amounts that were originally measured at deprival valuation and subsequently deemed to be cost under transitional provisions available under AAS 38 Revaluation of Non-current Assets in 2000-01 and AASB 1041 of the same title in 2001-02. The Australian equivalent standard on intangible assets does not permit intangible assets to be measured at valuation unless there is an active market for the asset. Defence’s internally-developed software is specific to the needs of Defence and is not traded. Accordingly, Defence will write back any valuation component of the carrying amount of these assets on adoption of the Australian Equivalent standards.

348 2003-04 Financial Statements

Department of Defence Notes to and Forming Part of the Financial Statements for the year ended 30 June 2004 Impairment of non-current assets Currently, where there is evidence that a non-current asset may be impaired, the recoverable amount of the asset is assessed. The asset is then written-down to the lower of the carrying amount and the recoverable amount. Where the asset would be replaced, the recoverable amount is the higher of the depreciated replacement cost and the net selling price, and where the asset would not be replaced the recoverable amount is the net selling price. Under the AEIFRS, all non-current assets will be subject to assessment for impairment Measurement of the value of impairment is undertaken for all assets with potential indications of impairment, intangible assets not yet available for use and assets that have been assessed as having an indefinite useful life. The asset is then written- down to the lower of the carrying amount, net selling price less costs to sell or value in use, where ‘value in use’ is normally depreciated replacement cost. Assets ‘held for disposal’ AEIFRS requires Defence to separately identify assets that are ‘held for disposal’. To be included in this category assets must meet specific criteria set out in the standards. However, once an item has been identified as ‘held for disposal’ it will no longer be depreciated. Defence has implemented both management processes and system changes to permit this to occur. Inventory The new Australian equivalent standard will require inventory held for distribution (eg for no consideration or at a nominal amount) to be carried at the lower of cost and current replacement cost. The carrying value of Defence’s inventory will be affected by this change. Defence is still evaluating the most appropriate way to implement this requirement. Borrowing costs AEIFRS require non-current provisions to be discounted to net present value on recognition. The annual adjustment of these provisions that relates to discounting will be recognised as a borrowing expense. Receivables In some cases long term receivables can also be measured at their present value where there is an effective interest rate embedded in the contract. Where this has occurred, AEIFRS would require the receipts to be allocated between the principal of the receivable and interest revenue. Changes to financial statement disclosures The new Australian equivalent standards clarify the definitions of a range of items in the financial statements and also require increased disclosure in relation to some items (eg defined benefit superannuation plans). A specific example of such a change is the classification of prepayments (eg as a non-monetary item), which then changes the measurement method of any prepayments made in foreign currency.

Note 3: Events Occurring after Reporting Date

There are no significant events occurring after the reporting date

349 Appendices

Department of Defence Notes to and Forming Part of the Financial Statements for the year ended 30 June 2004 2004 2003 $’000 $’000 Note 4: Operating Revenues

Note 4A: Revenues from Government Appropriation for outputs 14,636,157 18,230,325 Resources received free of charge 3,060 2,113 Total revenues from Government 14,639,217 18,232,438

Note 4B: Goods and Services

Goods 59,180 51,661 Services 193,703 178,884 Total sales of goods and services 252,883 230,545

Provision of goods to: Related entities 24 12 External entities 59,156 51,649 Total sales of goods 59,180 51,661

Rendering of services to: Related entities 3,701 4,186 External entities 190,002 174,698 Total rendering of services 193,703 178,884

Goods and services are represented by: Sale of surplus inventory 2,767 3,540 Fuel sales to foreign governments 47,267 40,441 Other goods 9,145 7,680 Housing rentals 99,659 95,584 Operational exercises, training and facilities 6,059 9,708 Rations and quarters 37,345 37,112 Rental of Defence property (non housing) 10,422 4,389 Revenue from foreign governments 18,581 24,872 Revenues from other Australian Government Agencies 15,922 5,631 Other services 5,716 1,588 252,883 230,545

Note 4C: Interest Revenue Other interest 143 19,332 Total interest revenue 143 19,332

Note 4D: Net Gains from Sale of Assets

Land and buildings: Proceeds from disposal 132,080 608,529 Net book value of assets disposed (101,498) (537,083) Net gain / (loss) from disposal of land and buildings 30,582 71,446

350 2003-04 Financial Statements

Department of Defence Notes to and Forming Part of the Financial Statements for the year ended 30 June 2004 2004 2003 $’000 $’000 Specialist military equipment: Proceeds from disposal 12,249 29,690 Net book value of assets disposed (20,791) (56,678) Net gain / (loss) from disposal of specialist military equipment (8,542) (26,988)

Other infrastructure, plant and equipment: Proceeds from disposal 40,830 47,318 Net book value of assets disposed (41,286) (46,787) Net gain / (loss) from disposal of other infrastructure, plant and equipment (456) 531

Total proceeds from disposals 185,159 685,537 Net book value of assets disposed (163,575) (640,548) Total net gain from disposal of assets 21,584 44,989

Note 4E: Net Foreign Exchange Gains

Foreign exchange gains Non-speculative 55,506 47,586

Less Foreign exchange losses Non-speculative (38,954) (30,485) Total net foreign exchange gains 16,552 17,101

351 Appendices

Department of Defence Notes to and Forming Part of the Financial Statements for the year ended 30 June 2004 2004 2003 $’000 $’000 Note 4F: Assets Now Recognised

Property, Plant and Equipment Specialist military equipment 348,860 586,049 Land and buildings 30,408 9,059 Other infrastructure, plant and equipment 72,354 67,389 Software and intangibles 9,373 756 Heritage and cultural 7,702 - Total property, plant and equipment 468,697 663,253

Inventory* 111,131 203,042 Total inventory 111,131 203,042

Total assets now recognised 579,828 866,295

* Inventory now recognised includes a net price increment of $6,161,032 for explosive ordnance (EO). This is as a result of an extensive price remediation exercise carried out in 2003-04 to correct legacy pricing issues associated with EO. This exercise resulted in both price increments and decrements across a number of EO inventory items. The net figure is as a result of the following: Gross price increments $51,580,494 Gross price decrements $45,419,462 Net impact $ 6,161,032

Refer to Note 8G for further information on residual EO pricing issues.

352 2003-04 Financial Statements

Department of Defence Notes to and Forming Part of the Financial Statements for the year ended 30 June 2004 2004 2003 $’000 $’000 Note 4G: Other Revenues

Sale of materials and services 6,908 6,610 Foreign military sales refunds 8,312 11,886 Excise refunds 39,937 42,575 Settlement of damages 9,902 18,086 Other minor revenues 8,443 31 Travel and utility rebates 20,817 - Miscellaneous revenue 13,298 39,202 Prior year adjustment* 48,594 - Total other revenues 156,211 118,390

* Reinstatement of work in progress incorrectly written off in a prior year.

Note 5: Operating Expenses

Note 5A: Employee Expenses

Australian Public Service (APS) employee expenses Wages and salary 951,341 898,573 Superannuation 183,352 152,454 Leave and other entitlements 161,378 132,959 Separation and redundancies 23,024 6,046 FBT 7,806 6,482 Other employee expenses 2,307 2,603 Other allowances 23,023 22,295 Health expenses 1,688 1,451 Total APS employee benefit expenses 1,353,919 1,222,862 Workers compensation premiums 9,286 12,890 Total APS employee expenses 1,363,205 1,235,752

Australian Defence Force (ADF) employee expenses Wages and salary 2,695,787 2,539,053 Superannuation 672,315 615,968 Leave and other entitlements 242,090 90,471 Separation and redundancies 1,989 5,826 Overseas allowances 162,215 183,529 Other allowances 288,119 257,601 FBT 297,015 268,541 Health 150,082 130,551 Housing 385,665 361,262 Other employee expenses 116,992 115,692 Total ADF employee benefit expenses 5,012,269 4,568,493 Military compensation scheme 451,947 390,327 Total ADF employee expenses 5,464,216 4,958,820

Total employee expenses 6,827,421 6,194,572

353 Appendices

Department of Defence Notes to and Forming Part of the Financial Statements for the year ended 30 June 2004

2004 2003 $’000 $’000 Note 5B: Suppliers Expense

Suppliers expenses is represented by: Supply of goods and services General goods and services 1,057,279 1,100,717 Communications and information technology 317,437 244,340 Inventory supplies (non capital) 109,574 301,885 Domestic travel 123,349 126,846 Training 239,084 174,939 Removal costs 166,897 151,189 Utilities 97,265 96,497 Overseas travel 63,059 63,887 Advertising 28,347 28,943 Freight and storage 38,439 42,659 Security services 25,425 19,404 Total supply of goods and services * 2,266,155 2,351,307

Inventory consumption Inventory consumption 730,149 772,794 Total inventory consumption 730,149 772,794

Property, plant and equipment related items Repair and overhaul 1,319,562 1,225,780 Facilities operations (non utilities) 283,582 313,603 Asset purchases not capitalised under asset policy thresholds 225,150 217,313 Operating lease rentals 286,350 331,540 Property disposals related costs 22,374 41,428 Total property, plant and equipment related items 2,137,018 2,129,664

Other suppliers expenses Research and development 147,074 93,702 Assistance to states/territories (non grants) 21,693 3,518 Total other suppliers expenses 168,767 97,220

Total suppliers expenses 5,302,089 5,350,985

Suppliers Expense Goods from related entities 7,099 10,138 Goods from external entities 1,098,808 1,316,086 Services from related entities 411,980 339,763 Services from external entities 3,784,202 3,684,998 Total supplier expenses 5,302,089 5,350,985

* In 2004 consultants and professional services costs of $204,850,000 have been classified against the expense categories reflecting the nature of the service provided (2003: $261,075,000).

354 2003-04 Financial Statements

Department of Defence Notes to and Forming Part of the Financial Statements for the year ended 30 June 2004 2004 2003 $’000 $’000 Note 5C: Grants

Local government 1,000 - Private sector non-profit entities 6,183 1,433 Total grants 7,183 1,433

Grants are represented by: Defence family support program 1,058 1,143 Research and other grants 6,125 290 7,183 1,433

Note 5D Depreciation and Amortisation

Depreciation Specialist military equipment 2,271,180 2,190,785 Buildings* 109,352 288,597 Buildings under finance lease 25,570 25,071 Total Buildings 134,922 313,668

Other infrastructure, plant and equipment* 342,207 336,957 Total depreciation 2,748,309 2,841,410

Amortisation Software 22,964 14,456 Assets under finance lease 56 55 Software under finance lease 22,372 - Intangibles 5,704 7,495 Total amortisation 51,096 22,006

Total depreciation and amortisation 2,799,405 2,863,416

The aggregate amounts of depreciation or amortisation expensed during the reporting period for each class of depreciable asset are as follows: Buildings 109,352 288,597 Specialist military equipment 2,271,180 2,190,785 Other infrastructure, plant and equipment 342,207 336,957 Assets under finance lease 47,998 25,126 Software 22,964 14,456 Intangibles – internally developed software 5,704 7,495 Total depreciation and amortisation 2,799,405 2,863,416

No depreciation or amortisation was allocated to the carrying amounts of other assets.

* Buildings and other infrastructure, plant and equipment depreciation include net decrement corrections of $209.8m and $86.7m respectively. This is resulting from a review of reported accumulated depreciation within Defence’s fixed asset register. The review concluded that depreciation errors had occurred within the financial systems previously employed by Defence and were reported within previous financial statements. The adjustments correct such errors.

355 Appendices

Department of Defence Notes to and Forming Part of the Financial Statements for the year ended 30 June 2004 2004 2003 $’000 $’000 The net figure is as a result of the following: Buildings Gross annual depreciation $ 319,152 Adjustment to accumulated depreciation $(209,800) Net annual depreciation $ 109,352

Other infrastructure, plant and equipment Gross annual depreciation $ 428,907 Adjustment to accumulated depreciation $( 86,700) Net annual depreciation $ 342,207

Note 5E: Write-Down of Assets

Financial assets Cash 3 - Bad and doubtful debts expense 950 23,599 Total financial assets 953 23,599

Non-financial assets Specialist military equipment Fixed assets 505,607 81,298 Major project activities expensed 174,571 27,053 Total specialist military equipment 680,178 108,351

Other property, plant and equipment Land and buildings 124,530 8,011 Other infrastructure, plant and equipment 88,623 169,143 Software and intangibles 221 184 Major OP&E project activities expensed 51,122 23,501 Write-down – software AUC previously capitalised 4,865 - Major intangibles project activities expensed - 3,518 Total other property, plant and equipment 269,361 204,357

Inventory Write-down of inventories* 89,918 196,541 Net inventory obsolescence write-down / (write-back) 111,374 53,627 Total Inventory 201,292 250,168

Heritage and Cultural Revaluation expense heritage and cultural 1,034 - Total heritage and cultural 1,034 -

Total write-down of assets 1,152,818 586,475

* Inventory write-down includes a net price adjustment of $837,387 for general stores inventory. This is as a result of price remediation exercise carried out on legacy pricing issues and work performed on in-year price corrections. The net figure is as a result of the following: Gross price increments $66,557,537 Gross price decrements $65,720,150 Net impact $ 837,387

Refer to Note 8G for further information on residual general stores inventory pricing issues.

356 2003-04 Financial Statements

Department of Defence Notes to and Forming Part of the Financial Statements for the year ended 30 June 2004 2004 2003 $’000 $’000 Note 5F: Other Expenses

Act of Grace payment Section 33 66 - Defective Administration Scheme payments 359 288 Other expenses 14,633 1,708 Asbestos related disease exposure 60,100 343,600 Total other expenses 75,158 345,596

Note 6: Borrowing Costs Expense Leases 34,060 26,509 Other borrowing costs 88 246 Total borrowing costs expense 34,148 26,755

Note 7: Financial Assets

Note 7A: Cash Cash on hand 1,848 3,364 Cash at bank – at call 235,961 96,194 Total Cash 237,809 99,557

Cash is recognised as a current asset.

357 Appendices

Department of Defence Notes to and Forming Part of the Financial Statements for the year ended 30 June 2004

2004 2003 $’000 $’000

Note7B: Receivables

Goods and services 69,854 77,321 Less Provision for doubtful debts (2,151) (3,716) 67,703 73,606 GST receivable from the Australian Taxation Office 139,066 114,667 Appropriation receivable : - additional outputs 65,800 - - undrawn 471,860 870,201 Advances and loans - 59,719 Other receivables 32,615 34,349 Total receivables (net) 777,044 1,152,542

Appropriation receivable for additional outputs are accrued revenues for services provided in the current year under a purchasing agreement with the Government. Funding for these services will be provided by appropriations in 2004-05. Appropriations receivable undrawn are appropriations controlled by the Agency but held in the Official Public Account under the Government’s just-in-time drawdown arrangements. Other receivables includes $9.7m receivable from ADF personnel due to overpayment of allowances. The identification of the overpayment was a result of Trade Pays Review.

Receivables are represented by: Current 772,004 1,094,064 Non-current 5,040 58,478 777,044 1,152,542

Receivables (gross) are aged as follows: Not overdue 726,828 1,109,079 Overdue by: Less than 30 days 21,450 11,215 30 to 60 days 1,950 9,840 60 to 90 days 1,359 646 More than 90 days 27,608 25,477 Total receivables (gross) 779,195 1,156,257

The provision for doubtful debts is aged as follows: Not overdue - - Overdue by: Less than 30 days - - 30 to 60 days - - 60 to 90 days - - More than 90 days 2,151 3,716 Total provision for doubtful debts 2,151 3,716

358 2003-04 Financial Statements

Department of Defence Notes to and Forming Part of the Financial Statements for the year ended 30 June 2004 2004 2003 $’000 $’000

Note 7C: Capital Use Charge Provision Capital Use Charge - -

Balance owing 1 July - 137,978 Capital Use Charge - (5,056,094) Capital Use Charge Paid - (4,918,116) Balance 30 June receivable / (payable) - -

Note 8: Non-Financial Assets

Note 8A: Land and Buildings*

Freehold land at cost 2,622 4,240 at 2000-02 valuation (deprival) 979,163 1,622,598 at 2003-05 valuation (fair value) 1,811,655 888,922 2,793,440 2,515,760 Less provision for land decontamination (65,932) (68,369) 2,727,508 2,447,391 Work in progress – at cost 7,629 6,804 Total freehold land 2,735,137 2,454,195

Buildings on freehold land at cost 279,049 310,823 Accumulated depreciation (12,609) (19,014) 266,440 291,809

Work in progress – at cost 660,396 549,766

at 2000-02 valuation (deprival) 2,334,611 5,862,580 Accumulated depreciation (740,707) (1,910,292) 1,593,904 3,952,288

at 2003-05 valuation (fair value) 6,591,491 2,452,871 Accumulated depreciation (2,069,269) (721,574) 4,522,222 1,731,297

Buildings held under finance lease 366,155 372,939 Accumulated depreciation (84,726) (69,429) 281,429 303,510

Total buildings on freehold land 7,324,391 6,828,670

Total Land and Buildings (non-current) 10,059,528 9,282,868

*There is uncertainty relating to the value of land and buildings and infrastructure, plant and equipment. This uncertainty is the consequence of items not being subject to an independent review, due to the application of predetermined asset revaluation thresholds (as set out in the summary of significant accounting policies Note 1.15), finance lease assets not being revalued, and other asset valuation matters. The book value at issue is $1.394b. Refer also to Note 8C.

359 Appendices

Department of Defence Notes to and Forming Part of the Financial Statements for the year ended 30 June 2004

2004 2003 $’000 $’000

Note 8B: Specialist Military Equipment

Specialist Military Equipment at cost 46,506,199 45,313,506 Accumulated depreciation (22,966,740) (21,339,856) 23,539,459 23,973,650 Work in progress – at cost 7,101,044 7,409,624 Total Specialist Military Equipment (non-current) 30,640,503 31,383,274

As a result of a number of asset management deficiencies which were identified during the stock taking processes, there is uncertainty as to the quantities of repairable items reported. The net book value (after provision for depreciation) of the repairable items subject to uncertainty is $2,857m. As a result of the uncertainty of repairable items there is uncertainty in the order of $2,857m for Specialist Military Equipment. Significant remediation programs have been implemented to address the issues of uncertain quantities.

Note 8C: Infrastructure, Plant and Equipment*

Plant and Equipment at cost 2,000,145 1,404,426 Accumulated depreciation (1,036,986) (699,432) 963,159 704,994 at 2000-02 valuation (deprival) 1,529,116 3,795,075 Accumulated depreciation (525,765) (1,368,186) 1,003,351 2,426,889 at 2003-05 valuation (fair value) 3,985,271 1,749,557 Accumulated depreciation (1,235,728) (472,111) 2,749,543 1,277,447 Plant held under finance lease 974 974 Accumulated depreciation (952) (896) 22 78

Work in progress 386,923 339,322

Total Infrastructure, Plant and Equipment (non-current) 5,102,998 4,748,730

All revaluations are independent and are conducted in accordance with the revaluation policy stated at Note 1.15. In 2003-04, the revaluations were conducted by an independent valuer, the Australian Valuation Office (AVO).

360 2003-04 Financial Statements

Department of Defence Notes to and Forming Part of the Financial Statements for the year ended 30 June 2004 2004 2003 $’000 $’000

Revaluation increments of $431,983,487 for Land (2003: increment $487,302,177), $314,179,012 for Buildings (2003: increment $289,302,113), $243,628,013 for Infrastructure, Plant and Equipment (2003: increment $225,826,497), $1,033,500 decrement for Heritage and Cultural ** (2003: nil) were made to the asset revaluation reserve.

*There is uncertainty relating to the value of land and buildings and infrastructure, plant and equipment. This uncertainty is the consequence of items not being subject to an independent review, due to the application of predetermined asset revaluation thresholds (as set out in the summary of significant accounting policies Note 1.15), finance lease assets not being revalued, and other asset valuation matters. The book value at issue is $1.394b. Refer also to Note 8A.

** This class underwent a net decrement during the year without having had a pre-existing Revaluation Reserve. Consequently revaluation postings were expensed.

Note 8D: Intangibles

Computer Software 175,769 112,049 Accumulated amortisation (78,694) (52,868) 97,075 59,181

Computer software work in progress 49,543 37,484 Other Intangibles 141,623 129,632 Accumulated amortisation (56,585) (53,985) 85,038 75,647 Other intangibles work in progress 15,249 1,397 Computer software held under finance lease 74,569 - Accumulated amortisation (22,371) - 52,198 1,397

Total Intangibles 299,103 173,709

361 Appendices

Department of Defence Notes to and Forming Part of the Financial Statements for the year ended 30 June 2004 2004 2003 $’000 $’000

Note 8E: Heritage and cultural assets

at cost - 9,028 Accumulated depreciation - - - 9,028 at 2001-02 valuation (deprival value) 10,019 10,019 Accumulated depreciation - - 10,019 10,019 at 2003-05 valuation (fair value) 15,991 - Accumulated depreciation - - 15,991 -

Total Heritage and Cultural Assets (non-current) 26,010 19,047

362 2003-04 Financial Statements

Department of Defence Notes to and Forming Part of the Financial Statements for the year ended 30 June 2004 - (1,000) 142,188 989,790 468,697 (162,576) (950,572) (460,436) 3,293,828 $’000 Total a bookvalue a 26,707,642 28,831,132 74,959,274 72,315,269 46,128,142 (2,799,405) - - - - (34) 2,613 77,044 45,607,627 131,029 100,286 156,871 $’000 Other Intangibles - - - - 6,760 52,868 53,985 $’000 Software Computer - - - - - 101,065 56,585 - 56,605 40,945 - (22,964) (5,704) - 295 66,803 (14,579) 7,702 and infrastructure, other plant equipment and with $’000 Heritage and Cultural Assets ---- 5 25 30 35) 658 d and buildings, and d 72,354 306,970 (41,286) (139,746) (1,034) (5,052) 7,289,355 19,047 149,533 5,102,998 26,010 198,816 7,902,429 26,010 299,881 ent and Intangibles 4,748,730 19,047 96,665 $’000 leased) Equipment (owned and Infrastructure, Other Plant and - 105,920 - 243,628 $’000 (SME) Military Specialist Equipment - (461,094) $’000 Buildings ngibles ablewith a book items value of $2,857m lan and )-- - 2,720,308 21,339,856- 2,540,6 36,268 - (134,922) (2,271,180)- (364,6 - 2,907,311 22,966,740 2,799,4 0 0 294 32,008 (255,225) 170,40 0 , 2,762 289,708 2,596,838 1,867 28,541 348,860 1 ( 431,983 314,179 (81,315) (43,215) (680,178) (73,650) (26,848) (20,791) Land $’000 2,454,195 9,548,980 52,723,130 2,735,137 10,231,7022,735,137 53,607,244 7,324,391 30,640,503 2,454,195 6,828,672 31,383,274 balance of repair ing and Closing Balances of Property, Plant and Equipm Item (1)

363 of $1,394m. Uncertaintyin to theexists recorded relation Assets recognised for the first time Other adjustments

As at1 July 2003 Gross book value Accumulated depreciation/amortisation Net book value Additions: by purchase by finance lease Net revaluation increment/(decrement) Reclassifications Depreciation/Amortisation expense Recoverable amount write- downs Other movements: Disposals: From disposal of entities or operations (including restructuring) Other disposals 2004 As at 30 June Gross book value Accumulated depreciation/amortisation Net book value Note 8F: Analysis of Property, Plant, Equipment and Inta Table A: Reconciliation of the Open 1. Appendices

Department of Defence Notes to and Forming Part of the Financial Statements for the year ended 30 June 2004 ,953,794 ,119,110 $’000 Total 47,284,264 49,105,408 (22,165,154) (24,151,615) $’000 Other Intangibles 175,769 141,623 (52,868) (53,985) (78,694) (56,585) $’000 Software Computer - 97,075 85,038 24 - - - 9,028 112,049 129,632 9,028 59,181 75,648 25 $’000 Heritage and Cultural Assets ) 45 26 32) 704,995 963,159 $’000 Other Plant and Equipment Infrastructure, $’000 (SME) Military Specialist Equipment (continued) $’000 Buildings - (12,609) (22,966,740)- (1,036,986 (19,014) (21,339,856) (699,4 ngibles 2,622 279,049 46,506,1994,240 2,000,1 310,823 45,313,506 1,404,4 2,622 266,440 23,539,459 4,240 291,810 23,973,650 Land $’000

364 Property, Plant, Equipment and Equipment Plant, Property, at Cost Intangibles 2004 As at 30 June Gross value Accumulated depreciation/amortisation Net book value 2003 As at 30 June Gross value Accumulated depreciation/amortisation Net book value Note 8F: Analysis of Property, Property, Plant, Equipment of and Inta Analysis 8F: Note Table B: Assets at Cost 2003-04 Financial Statements

Department of Defence Notes to and Forming Part of the Financial Statements for the year ended 30 June 2004 (2,437) $’000 Total - (3,304,996) - (1,193,685) - - (64,922) 26,010 9,044,509 10,019 3,905,247 10,019 5,101,369 26,010 12,414,427 (1,010) (65,932) 3,575,408 4,842,890 $’000 Total $’000 11,280,254 (1,266,472) (3,278,478) Heritage and Cultural Assets - - - - 71 75 43 89 7,935,843 $’000 $’000 Other Other Plant and Plant and Equipment Equipment Infrastructure, Infrastructure, - - - - ) $’000 $’000 Buildings Buildings continued - (2,069,269) (1,235,728) - (721,574) (472,111) - (740,707)- (525,765) (1,910,292) (1,368,186) ngibles ( (2,437) (1,010) 888,922 2,452,871 1,749,557 979,163 2,334,611 1,529,116 (64,922) (65,932) 886,485 1,731,298 1,277,446 978,153 1,593,905 1,003,351 1,811,655 6,591,491 3,985,2 1,622,598 5,862,580 3,795,0 Land Land 1,746,733 4,522,222 2,749,5 1,556,666 3,952,288 2,426,8 $’000 $’000 Valuation Valuation Property, Plant, Equipment and Intangibles at and Intangibles Equipment Plant, Property, at and Intangibles Equipment Plant, Property, As at 30 June 2004 As at 30 June Gross value Accumulated depreciation/amortisation Provision for land decontamination Net book value 2003 As at 30 June Gross value Accumulated depreciation/amortisation Provision for land decontamination Net book value 2004 As at 30 June Gross value Accumulated depreciation/amortisation Provision for land decontamination Net book value 2003 As at 30 June Gross value Accumulated depreciation/amortisation Provision for land decontamination Net book value Note 8F: Analysis of Property, Plant, Equipment and Inta Table C-1: Assets at Fair Value Table C-2: Assets at Deprival Value 365 Appendices

Department of Defence Notes to and Forming Part of the Financial Statements for the year ended 30 June 2004 $’000 Total 8,220,784 1,397 8,344,397 $’000 Other Intangibles $’000 Software Computer 441,698 373,913 (70,325) (108,049) $’000 Total 386,923 49,543339,322 37,484 15,249 $’000 Other Plant and Equipment - 303,589 - - Infrastructure, $’000 Software Computer $’000 Military Specialist Equipment 22 52,19978 333,649 974 74,569 974 (896) (952) (22,371) $’000 Other Plant and continued) Equipment $’000 Infrastructure, Buildings ngibles ( 7,628 660,3966,804 7,101,044 549,766 7,409,624 366,155 372,939 (84,726) (69,429) 281,428 303,511 $’000 Land $’000 Buildings Finance Leases Under Construction Under Property, Plant and Equipment Held Held Under Equipment and Plant Property, Property, Plant, Equipment and and Intangibles Equipment Plant, Property, As at 30 June 2004 As at 30 June Gross value Accumulated depreciation/amortisation Net book value 2003 As at 30 June Gross value Accumulated depreciation/amortisation Net book value 2004 As at 30 June Gross value 2003 As at 30 June Gross value 366 Note 8F: Analysis of Property, Plant, Equipment and Inta Table D: Assets Held Under Finance Leases Table E: Work in Progress 2003-04 Financial Statements

Department of Defence Notes to and Forming Part of the Financial Statements for the year ended 30 June 2004 2004 2003 $’000 $’000 Note 8G: Inventories

Inventories not held for sale 5,071,045 4,339,612 Less provision for obsolescence (606,150) (507,269) Total inventories 4,464,895 3,832,343

Inventories is represented by: Current 613,454 567,317 Non-Current 4,457,591 3,772,295 Total gross inventories 5,071,045 4,339,612 Less provision for obsolescence (606,150) (507,269) Total inventories 4,464,895 3,832,343

As disclosed in accounting policy Note 1.18, inventory is valued at weighted average cost. Defence has inventory on hand acquired over the past few decades. As in prior years: • invoices and related purchasing documentation are not available to confirm the accuracy of the cost price data for some general stores and explosive ordnance purchases acquired prior to 1996; and • pricing details were generally not separately identified for explosive ordnance inventory acquired as part of work in progress contracts. In addition, in year price corrections were made due to the existence of zero and suspect pricing. For these reasons, uncertainty exists in the pricing of inventory. This uncertainty will reduce with scheduled remediation activity. Furthermore, it has become apparent that there are a number of inventory management deficiencies which were identified during the stocktaking processes which have resulted in uncertainty with the quantities of general stores initially recorded in Defence's logistics systems. There is no uncertainty with the quantities of explosive ordnance recorded in Defence's financial systems. The net book value (after provision for obsolescence) of the general stores inventory subject to price and quantities uncertainty is $2,026m. The book value of explosive ordnance subject to pricing uncertainty is in the order of $845m. Significant remediation programs have been implemented to address the issues of uncertain quantities.

Note 8H: Other Non -Financial Assets

Capital prepayments 554,319 419,939 Non-capital prepayments 135,362 298,609 Total other non-financial assets 689,681 718,549

Other non-financial assets are represented by: Current 326,803 405,178 Non-current 362,878 313,371 Total 689,681 718,549

367 Appendices

Department of Defence Notes to and Forming Part of the Financial Statements for the year ended 30 June 2004 2004 2003 $’000 $’000 Note 9: Interest Bearing Liabilities

Note 9A: Leases

Finance lease commitments Payable: Within one year 45,220 35,487 In one to five years 160,754 141,690 In more than five years 406,760 425,202 Minimum lease payments 612,734 602,379 Deduct: future finance charges (244,791) (258,641) Net lease liability 367,943 343,738

Lease liability is represented by: Current 19,430 9,774 Non-current 348,513 333,964 Net lease liability 367,943 343,738

The finance leases are non-cancellable and for fixed terms averaging 14 years (2003: 15 years) with a maximum of 19 years (2003: 12 years). The interest rates implicit in the leases average 7.16% (2003: 7.53%). The lease assets secure the lease liabilities. Defence guarantees the residual values of all assets leased. There are no contingent rentals.

Note 10: Provisions

Note 10A: Employee Provisions

Australian Public Service (APS) employee provisions Salaries and wages 43,870 34,550 Leave 464,618 403,274 Superannuation 6,962 4,776 Separations and redundancies 15,753 1,617 Other provisions 7,112 4,960 Aggregate APS employee entitlement liability 538,315 449,177

Australian Defence Force (ADF) employee provisions Salaries and wages 130,447 111,284 Leave* 1,228,247 1,072,386 Superannuation 31,476 19,306 Separations and redundancies 3,528 4,515 Other provisions 66,059 65,680 Aggregate ADF employee entitlement liability 1,459,757 1,273,172 Military compensation 1,909,244 1,595,362

Aggregate employee benefit liability and related on-costs 3,907,316 3,317,712

Employee provisions are represented by: Current 1,284,687 1,168,407 Non-current 2,622,629 2,149,305 Total Employee provisions 3,907,316 3,317,712

368 2003-04 Financial Statements

Department of Defence Notes to and Forming Part of the Financial Statements for the year ended 30 June 2004 * A systematic sampling review of military employee leave entitlements undertaken by Defence in 2002-03 found errors existed in relation to military leave balances. In addition, supporting documentation could not be located to support some leave transactions and balances. These errors and potential errors which are outside acceptable parameters, represented uncertainty in military annual leave and long service leave balances. The book value of the leave balances subject to this uncertainty is $1,228m. During 2003-04 Defence has commenced a remediation program and a substantial number of the errors have been addressed. However, the program has highlighted other system and process deficiencies, which have not yet been fully addressed. As stated in last years financial statements (Note 9A refers), the success of the remediation program will be measured and verified in 2004-05. The pension scheme disclosures below are for note purposes only and are not recognised in the financial statements.

2004 2003 Australian High Commission Britain – London Pension Scheme (LPS) $ $ Accrued benefits 4,900,262 5,895,231 Less: Net market value of plan assets 4,522,310 4,837,397 Net assets (377,952) (1,057,834)

Vested benefits 4,376,988 5,405,813

The accrued and vested benefits disclosed above are based on triennial actuarial valuations of the London Pension Scheme. The most recent actuarial valuation was conducted on 1 July 2003. The actuary conducted an additional exercise to provide figures for 30 June 2004 (2003: 30 June 2003) based on 1 July 2003 actuarial valuation. The figures for net market value of the plan assets have been obtained from the scheme’s 30 June 2004 (2003: 30 June 2002) financial report. The figures disclosed above relate only to locally engaged staff attributable to Defence and represent approximately 22% of the total value of the fund. In previous years, the fund was disclosed in part by Department of Immigration, Multicultural and Indigenous Affairs with the balance disclosed by Department of Foreign Affairs and Trade.

2004 2003 Australian High Commission India – New Delhi Pension Scheme $ $ (NDPS) Accrued benefits 2,519 1,728 Less: Net market value of plan assets 1,153 554 Net assets (1,366) (1,174)

Vested benefits 2,519 1,728

This is the first year that the New Delhi Pension Scheme has been disclosed in Defence’s notes to the financial statements. The accrued and vested benefits disclosed above are based on annual actuarial valuations. The most recent actuarial valuation was conducted on 1 April 2004 as at 31 March 2004 (2003: 31 March 2003). The figures for net market value of the plan assets have been obtained from the scheme’s 31 March 2004 (2003: 31 March 2003) financial report. The figures disclosed above relate only to locally engaged staff attributable to Defence and represent approximately 1% of the total value of the fund.

2004 2003 Aggregates of the LPS and NDPS $ $ Accrued benefits 4,902,781 5,896,959 Less: Net market value of plan assets 4,523,463 4,837,951 Net assets (379,318) (1,059,008)

Vested benefits 4,379,507 5,407,541

369 Appendices

Department of Defence Notes to and Forming Part of the Financial Statements for the year ended 30 June 2004 2004 2003 $’000 $’000

Note 10B: Other Provisions

Provision for Asbestos Related Disease Exposure 403,700 343,600 Total other provisions 403,700 343,600

Note 11: Payables

Note 11A: Suppliers Payable

Non-capital trade creditors 856,882 830,767 Capital trade creditors 156,968 363,996 Other suppliers 3,463 5,303 Total supplier payables 1,017,313 1,200,066

Supplier payables are represented by: Current 1,017,313 1,196,242 Non-current - 3,824 Total supplier payables 1,017,313 1,200,066

Note 11B: Other Payables

Other payables 4,023 30,130 Total other payables 4,023 30,130

Other payables are represented by: Current 1,392 27,425 Non-current 2,631 2,704 Total other payables 4,023 30,130

370 2003-04 Financial Statements

Department of Defence Notes to and Forming Part of the Financial Statements for the year ended 30 June 2004 - 995,201 (31,230) 2003 $’000 (484,239) 4,159,857 1,002,430 45,589,446 46,175,373 46,175,373 (5,056,094) - - - Total Equity Total 989,789 706,334 (531,804) (742,418) 2004 $’000 46,175,375 46,597,276 46,597,276 - - - - - 995,201 2003 $’000 (484,239) 1,300,047 1,811,008 1,811,008 - - - - - 706,334 (742,418) 2004 $’000 1,811,008 1,774,924 1,774,924 ------6,217,243 7,219,673 7,219,673 1,002,430 2003 $’000 ------luation Reservesluation Equity/Capital Contributed 989,789 2004 $’000 7,219,674 8,209,463 8,209,463 - - - - (31,230) 2003 $’000 4,159,857 38,072,156 37,144,692 37,144,692 (5,056,094) ------2004 $’000 Accumulated ResultsAccumulated Reva Asset (531,804) 37,144,693 36,612,889 36,612,889 h Item

: Outside equity interests 371 Opening balance as at 1 as at 2003 July balance Opening Net surplus/(deficit) Net revaluation increment/(decrement) Changes in accounting policies Transactions withowner: Distributions to owners: -Returns on Capital -Capital Use Charge Returns of Capital Returns of Contributed Equity by owners: Contributions Appropriations (equity injections) June 30 2004 as at balance Closing Less Total equity attributable to the Commonwealt Note 12: Analysis of Equity Analysis 12: Note Appendices

Department of Defence Notes to and Forming Part of the Financial Statements for the year ended 30 June 2004 2004 2003 $’000 $’000

Note 13: Cash Flow Reconciliation

Reconciliation of cash per Statement of Financial Position to Statement of Cash Flows Cash at year end per Statement of Cash Flows 237,809 99,557 Statement of Financial Position items comprising above cash: “Financial Assets – Cash” 237,809 99,557

Reconciliation of net surplus to net cash from operating activities: Net surplus / (deficit) (531,804) 4,159,857 Depreciation and amortisation 2,799,405 2,863,416 Net (gain) / loss on foreign exchange (16,552) (17,101) Recognition of assets previously expensed (579,828) (866,295) Change in accounting policy - (31,230) Write off of cash (3) - Borrowing cost expense 34,148 26,755 Reallocation of inventory purchases 1,202,210 846,384 (Increase) / decrease in net receivables 374,547 (809,903) (Increase) / decrease in net inventory (721,713) (258,680) (Increase) / decrease in prepayments 163,246 (144,652) Increase / (decrease) in other payables - 2,827 Increase / (decrease) in other provisions 33,993 343,596 Net (gain) / loss on sale of assets (21,584) (44,989) Write-down of assets 1,152,818 586,475 Increase / (decrease) in employee provisions 589,605 363,108 Increase / (decrease) in supplier payables 24,275 179,273 Net cash from operating activities 4,502,763 7,198,840

372 2003-04 Financial Statements

Department of Defence Notes to and Forming Part of the Financial Statements for the year ended 30 June 2004

Note 14: Contingent Liabilities and Assets Quantifiable Contingencies The Schedule of Contingencies reports contingent liabilities in respect of claims for damages/costs of $180.2m (2003: $132.9m). The amount represents an estimate of the Department’s liability based on precedent cases. The Department is defending the claims. The schedule also reports contingent assets in respect of claims for damages/costs of $54.3m (2003: $68.4m). The Department is expecting to succeed in claims against suppliers, although the cases are continuing. The estimate is based on precedent in such cases. Unquantifiable Contingencies 200 claims for damages have been made by former members of the crew (of approximately 974) of the former HMAS Melbourne arising out of the HMAS Voyager/HMAS Melbourne collision of 10 February 1964. Further claims for damages will probably continue to be made by other former members of the crew of HMAS Melbourne. It is not clear how many more claims will be made. To date 80 claims have been settled. A number of supplementary claims for damage by dependents of deceased former members of the HMAS Voyager have been foreshadowed in respect of the HMAS Voyager/HMAS Melbourne collision of 10 February 1964, but are not currently the subject of any legal proceedings. These prospective claimants were compensated under earlier settlement arrangements. It remains unclear how many further dependency claims may be made in the future. The additional but currently unidentified dependency claims are unquantifiable at this time. One claim for damages has been made by a former member of the crew (complement of approximately 1,300) of HMAS Melbourne arising out of the HMAS Melbourne/USS Frank E Evans collision of 3 June 1969. It remains unclear to what extent further claims might be made in respect of that collision. The RAAF Board of Inquiry, covering the desealing and resealing of the fuel tanks of F-111 at Amberley, has identified health issues that may be the subject of future claims. To complement the inquiry, a comprehensive health study is currently being undertaken by the Department of Veterans’ Affairs. Twenty two common law damages claims have been made to date. Completion of this study in 2003 may result in further claims for damages. The report will not be released until some time in October/November 2004. Defence also faces claims from civilian employees of contractors engaged in one program. On 5 May 1998 four crew members aboard HMAS Westralia died due to an on board fire. The coronial inquest into the incident was completed on 19 December 2003. The Commonwealth has initiated proceedings in the Federal Court of Australia against ADI Ltd, Parker Enzed Technologies Ltd, Jetrock Pty Ltd (in liquidation) and Todd Hydrolics Pty Ltd for damages relating to the fire. The matter is proceeding to trial with a hearing expected in mid-2005. There is an emerging pattern of claims of compensation from property owners resulting from operational activities at ordnance depots as well as firing range activities by the RAAF. Defence redundancy obligations arise from known redundancy programs and ongoing market testing of various Defence activities. Provisions have been made for those redundancies already planned. Other redundancies are generally contingent upon the results of market testing and/or group restructures and cannot be quantified until a decision to outsource or downsize has been made and the number and levels of positions are identified. Remote Contingencies Defence carries an extensive range of guarantees, indemnities and undertakings, normally of a short- term nature, relating to business, training activities and other arrangements involving contracts, agreements and other Defence activities. Indemnities issued cover potential losses or damages for which the Commonwealth would be liable.

373 Appendices

Department of Defence Notes to and Forming Part of the Financial Statements for the year ended 30 June 2004 Contingencies relating to such guarantees, indemnities and undertakings issued by Defence are considered too remote to be included in the Schedule of Contingencies. Of these, there are 58 instances in the Defence Central Indemnity Register (2003: 32) that are either unquantifiable or uncapped, and 64 (2003: 47) of quantifiable contingencies to the value of $2,287m (2003: $1,124m). There are many indemnities that are incorporated into major acquisition contracts. These uncapped indemnities, while remote, are potentially large but unquantifiable. In addition, as at 30 June 2004, there were 83 cases (2003: 97) of remote or unquantifiable contingent losses arising from outstanding claims against Defence and 11 cases (2003: 8) of remote or unquantifiable contingent assets. Of these, 8 (2003: 16) are considered remote, with assessed liability of $3.1m (2003: $2.6m) and 1 (2003: 4) is considered remote with an assessed gain of $0.035m (2003: $98.8m). Defence is subject to claims by ADI Ltd for indemnity for uninsurable losses relating to the fire on HMAS Westralia. The Commonwealth’s sale of its shares in ADI Ltd is the subject of a claim for damages by the purchasers.

374 2003-04 Financial Statements

Department of Defence Notes to and Forming Part of the Financial Statements for the year ended 30 June 2004 Note 15: Executive Remuneration The number of executives who received or were due to receive total remuneration of $100,000 or more: Remuneration Band 2004 2003 Number of Executives Number of Executives $100,000 to $109,999 6 9 $110,000 to $119,999 6 12 $120,000 to $129,999 6 13 $130,000 to $139,999 4 13 $140,000 to $149,999 9 26 $150,000 to $159,999 16 24 $160,000 to $169,999 22 20 $170,000 to $179,999 22 18 $180,000 to $189,999 17 19 $190,000 to $199,999 14 14 $200,000 to $209,999 23 13 $210,000 to $219,999 23 8 $220,000 to $229,999 9 13 $230,000 to $239,999 11 5 $240,000 to $249,999 4 6 $250,000 to $259,999 12 5 $260,000 to $269,999 4 2 $270,000 to $279,999 3 - $280,000 to $289,999 3 4 $290,000 to $299,999 1 - $300,000 to $309,999 - 1 $310,000 to $319,999 1 2 $320,000 to $329,999 2 1 $330,000 to $339,999 3 - $340,000 to $349,999 2 - $360,000 to $369,999 - 2 $370,000 to $379,999 1 1 $380,000 to $389,999 - 1 $390,000 to $399,999 - 1 $400,000 to $409,999 1 1 $420,000 to $429,999 1 - $440,000 to $449,999 1 - Total number of executives 227 234 $ $ The aggregate amount of total remuneration of executives shown above. 45,336,650 42,446,104

The aggregate amount of separation and redundancy/termination benefit payments during the year to executives shown above. 1,546,789 4,276,431

The Executive Remuneration Note includes remuneration details for Defence senior executives comprising the Secretary of Defence, the Chief of the Defence force (CDF), the Chief Executive of the Defence Materiel Organisation, APS SES and ADF Star Ranked Officers. In addition Chief of Division Grades 1 and 2, Medical Officer Grade 6 and Chaplains all of whom are part of the Defence Senior Leadership Group are included in the Note. Executives who act in substantive SES or star ranked positions are included in the Note if their remuneration received while acting in that position exceeds $100,000 during the financial year.

Remuneration includes calculations based on salary and allowances, performance pay, accrued superannuation, redundancy payments, accrued leave, car parking, motor vehicle costs and fringe benefits tax. In addition, for Australian Defence Force (ADF) members, it includes the value of health and housing subsidy and a number of other miscellaneous allowances (including field allowances, career transition training, separation and retention allowances). Significant allowances include housing (totalling $1,699,701) and medical costs (totalling $114,409).

Executives who were employed overseas for a period exceeding six months are not included in the Note. In addition, reimbursement of out-of–pocket expenses incurred by executives are not included.

375 Appendices

Department of Defence Notes to and Forming Part of the Financial Statements for the year ended 30 June 2004 As a result of a review of military leave and civilian executive leave entitlements it is possible that some of the leave entitlements used in the compilation of remuneration for executives in the above Note may be in error. The impact of any potential error could result in movement between the salary bands.

The Executive Remuneration Note was qualified in the 2002-03 Financial Statements and it has not been possible to restate the 2002-03 information. The reader should note that it cannot be directly compared to 2003-04 data in terms of numbers of staff by band.

2004 2003 Note 16: Remuneration of Auditors $ $

Financial Statement audit services are provided free of charge to the department. The fair value of the services provided was: 2,929,242 1,950,000

No other services were provided by the Auditor-General.

Note 17: Average Staffing Levels

The average staffing levels for the Agency during the year were: 90,825 90,085

376 2003-04 Financial Statements

Department of Defence Notes to and Forming Part of the Financial Statements for the year ended 30 June 2004

Departmental – Other Disclosures Note 18: Departmental Financial Instruments (a): Terms, conditions and accounting policies

Defence’s accounting policies, including the terms and conditions of each class of departmental financial asset, financial liability and equity instrument, both recognised and unrecognised as at 30 June 2004, are as follows: Financial Instrument Notes Accounting Policies and Methods Nature of Underlying Instrument (including recognition criteria and (including significant terms and measurement basis) conditions affecting the amount, timing and certainty of cash flows) FINANCIAL Financial assets are recognised when Refer to details below. ASSETS control over future economic benefits is established and the amount of the benefit can be reliably measured. Cash 7A Cash includes cash on hand and at Under just-in-time appropriation bank, measured in nominal dollars. drawdown arrangements, effective At 30 June 2004, it includes Foreign January 2003, cash is drawn as Military Sales Base Level Funding. required. Any residual funds in Cash held in foreign currencies is Departmental bank accounts do not converted to AUD at the applicable earn interest. The Department exchange rate applying at 30 June ceased to invest domestic funds in 2004. January 2003. Receivables for Goods 7B Receivables are carried at nominal Receivables are with entities and Services and amounts less a provision for doubtful predominantly external to the Other Receivables debts. The provision is based on an Commonwealth. Credit terms are 30 analysis of the expected realisation of days (2003: 30 days). outstanding debts and write-off experience from prior years. Bad debts are written-off as they are identified. Receivables – Foreign 7B In the previous year the balance of Under the Foreign Military Sales Military Sales Base the US Federal Reserve Bank program, a prescribed amount is Level Funding account was held at nominal required to be maintained in the US amounts in USD and converted to Federal Reserve Bank account. The AUD at 30 June 2003. In 2003-04 balance at 30 June 2003 was Foreign Military Sales Base Level $US 40m or $A 59.719m. In Funding has been classified as cash. financial year 2004 Foreign Military Sales Base Level Funding was reclassified as cash. Appropriations 7B These receivables are recognised at Amounts appropriated by the Receivable their nominal amounts. Parliament in the current or previous years which are available to be drawn down by Defence. Also includes amounts to be appropriated by the Parliament in a future year for services provided in previous years under a purchasing, workload or similar agreement. FINANCIAL Financial liabilities are recognised Refer to details below. LIABILITIES when a present obligation to another party is entered into and the amount of the liability can be reliably measured. Finance Lease 9A Liabilities are recognised at the As at 30 June 2004, Defence had Liabilities present value of the minimum lease finance leases with an average lease payments at the beginning of the term of 14 years (2003: 15 years). lease. The discount rates used are The interest implicit in the leases estimates of the interest rates implicit averaged 7.16 % for 2004

377 Appendices

Department of Defence Notes to and Forming Part of the Financial Statements for the year ended 30 June 2004 in the leases. (2003: 7.527 %). Suppliers and Other 11A & Creditors and accruals are recognised All creditors are entities that are not Payables 11B at their nominal value, being the part of the Commonwealth legal amounts at which the liabilities will entity. Settlement is usually made be settled. Liabilities are recognised within 30 days (2003: 30 days). to the extent that the goods or services have been received (and irrespective of having been invoiced). Unrecognised Financial Liabilities Indemnities / 14 All indemnities/guarantees are Indemnities issued cover potential Guarantees considered remote and are reported losses for which Defence may in a separate note to the financial otherwise be liable at law although statements unless they have been the initial loss would accrue to the specifically identified otherwise. other party, or potential losses or damages for which Defence would not be liable without the indemnity.

378 2003-04 Financial Statements

Department of Defence Notes to and Forming Part of the Financial Statements for the year ended 30 June 2004 % n/a n/a n/a n/a n/a 2003 0.547% % Rate Average Weighted 2004 n/a n/a n/a n/a n/a n/a Effective Interest Effective 3,364 2003 $’000 96,193 59,719 77,321 870,201 149,016 51,410,618 1,255,814 - Total 1,848 2004 $’000 69,854 235,961 537,660 171,681 52,297,571 1,017,005 - 3,364 2003 $’000 77,321 870,201 149,016 (19,779) 1,080,123 est Bearing - 1,848 2004 $’000 69,854 235,961 537,660 171,681 1,017,005 ------d as cash. 2003 $’000 ------2004 $’000 ------2003 $’000 ------2004 $’000 ------rest rate of financial assets and liabilities are as follows: 2003 $’000 nte Fixed Interest Rate Maturing In Non-Inter ------January 2003. January 1 year or less or year 1 years 5 1 to years 5 > 2004 $’000 (continued) - - - - ge in 2003-04, inge Level Base FMS treate Funding is now ic Account entity. through the Administered 2003 $’000 59,719 115,972 175,691 ------Rate 2004 $’000 Floating Interest 7B 7B 7B 7A Notes 1 and 2 3 In accordance an accounting with policy chan The Department ceased to invest domestic funds in funds domestic invest to ceased Department The Interest earned is returned to the Official returnedInterest Publ earned is to the Financial Instrument 379

Financial Assets hand on Cash at bank Cash Receivables for services goods and 7A (gross) FMS base-level funding Appropriations receivable Other receivablesTotal Total Assets 7B 3. 2. Note 18:Departmental Instruments Financial Defence’s exposure to interest rate risks and the effective i Notes 1. Note 18B: Interest Rate Risk Appendices

Department of Defence Notes to and Forming Part of the Financial Statements for the year ended 30 June 2004 % n/a n/a n/a 7.53% 2003 % Rate n/a n/a n/a Interest Average Effective Weighted 2004 7.16% 2003 $’000 30,130 343,738 5,235,244 1,123,699 1,573,934 1,200,066 Total 2004 $’000 4,023 367,943 981,389 5,700,295 2,136,074 1,353,355 - 2003 $’000 30,130 1,123,699 1,230,196 1,200,066 - 2004 $’000 4,023 985,412 981,389 Non-Interest Bearing 2,136,074 - - - 2003 $’000 287,265 287,265 - - - 2004 $’000 266,302 266,302 - - - 2003 $’000 46,699 46,699 - - - 2004 $’000 82,211 82,211 - - - 2003 Fixed Interest Rate Maturing In $’000 9,774 9,774 - - - 2004 $’000 1 year or less or year 1 years 5 1 to years 5 > 19,430 19,430 (continued) - - - - - 2003 $’000 - - - - - Floating 2004 $’000 Interest Rate Interest (continued) 11A

380 Financial Instrument Notes Financial Liabilities Financial Finance leasesSuppliers Other payables 9A Total Total Liabilities 11B Unrecognised Indemnity Note 18: Instruments Financial Departmental (b): Interest Rate Risk 2003-04 Financial Statements

Department of Defence Notes to and Forming Part of the Financial Statements for the year ended 30 June 2004 Note 18: Departmental Financial Instruments (continued) (c): Net Fair Values of Financial Assets and Liabilities The net fair values of cash and non-interest bearing monetary financial assets approximate their carrying amounts. The net fair value of the finance leases are based on discounted cashflows using current interest rates for liabilities with similar risk profiles. The net fair values of trade creditors are approximated by their carrying amounts. The net fair value of indemnity given is taken to be nil as the likelihood of any part of it being called upon is regarded as remote.

(d) Credit Risk Exposure Defence’s maximum exposure to credit risk at reporting date in relation to each class of recognised financial assets is the carrying amount of those assets as indicated in the Statement of Financial Position. Defence has no significant exposures to any concentrations of credit risk.

All figures for credit risk referred to do not take into account the value of any collateral or other security. (e) Foreign Exchange Risk Foreign currency transactions are recorded at the rate of exchange at the date of the transaction. Foreign currency receivables, payables and provisions are translated at exchange rates current at the balance date. Exchange gains and losses are brought to account in determining the operating result for the year. These exchange gains and losses are not speculative and no hedging is undertaken. Defence is exposed to foreign currency exchange rate risk through primary financial assets and liabilities. The following table summarises by currency, in Australian dollars, the foreign exchange risk in respect of recognised financial assets and financial liabilities. United New Euro English Canadian Other Total States Zealand Pounds Dollars Dollars Dollars $’000 $’000 $’000 $’000 $’000 $’000 $’000

Financial Assets Cash 9,326----(1,949)**7,377 Receivables 933 - 2 97 - - 1,032 10,259 - 2 97 - (1,949)** 8,409

Financial Liabilities Suppliers* 73,024 842 2,799 10,174 3,219 9,683 99,741 * Represents amounts payable to suppliers in foreign currencies. ** The negative balance represents a timing difference between payments drawn and reimbursements made; and the bank account was not overdrawn at any time. Departmental currency risk is minimised through budget supplementation for any adverse movements in exchange rates on financial assets and financial liabilities held in foreign currencies.

381 Appendices

Department of Defence Notes to and Forming Part of the Financial Statements for the year ended 30 June 2004

2004 2003 $’000 $’000 Note 19: Revenues Administered on Behalf of Government

Non-taxation revenues

Goods and services Rendering of services – external entities (United Nations) 20,174 59,285 Total Goods and Services 20,174 59,285

Interest Deposits 2,273 1,114 Total Interest 2,273 1,114

Dividends Australian Government entities 230,698 373,525 Total Dividends 230,698 373,525

Net foreign exchange gains Non-speculative 162 - Total Net Foreign Exchange Gains 162 -

Other revenues Military Superannuation 604,885 551,849 Other revenue – superannuation contributions 3,929 - Assets now recognised – retention benefits - 56,918 Total Other Revenues 608,814 608,767

Total Non-taxation Revenues Administered on Behalf of Government 862,121 1,042,691

Note 20: Expenses Administered on Behalf of Government

Subsidies Payable to related entities – Defence Home Owner Subsidy 8,202 7,394 Total Subsidies 8,202 7,394

Employees Wages and Salaries 27,296 21,162 Superannuation 2,261,210 2,477,497 Total Employees 2,288,506 2,498,659

Net foreign exchange losses Non-speculative - 2,045 Total foreign exchange losses - 2,045

Write-down and impairment of assets United Nations 22,792 78,855 Intercompany receivable - 5,384 Total Write-down and Impairment of Assets 22,792 84,239

Other Expenses - 2,320 Total Other Expenses - 2,320

Total Expenses Administered on Behalf of Government 2,319,500 2,594,657

382 2003-04 Financial Statements

Department of Defence Notes to and Forming Part of the Financial Statements for the year ended 30 June 2004

2004 2003 $’000 $’000 Note 21: Assets Administered on Behalf of Government

Financial Assets

Cash Administered Bank Account - 80,226 Total cash - 80,226

Receivables Goods and services 22,835 50,006 Accrued superannuation 1,061 940 Total receivables (net) 23,896 50,946

Receivables (gross) are aged as follows: Not overdue 23,896 50,946 Overdue by: Less than 30 days - - 30 to 60 days - - 60 to 90 days - - More than 90 days - - Total receivables (gross) 23,896 50,946

Investments Commonwealth authorities – Defence Housing Authority 1,258,883 1,258,883 Total investments 1,258,883 1,258,883

Other non-financial assets Prepayments paid – retention benefits 85,044 74,018 Total non-financial assets 85,044 74,018

Total Assets Administered on Behalf of Government 1,367,823 1,464,073

383 Appendices

Department of Defence Notes to and Forming Part of the Financial Statements for the year ended 30 June 2004

2004 2003 $’000 $’000 Note 22: Liabilities Administered on Behalf of Government Provisions Employee Superannuation – DFRDB 21,846,000 21,600,000 Employee Superannuation – MSBS 7,218,000 6,500,000 Total provisions 29,064,000 28,100,000

Total Liabilities Administered on Behalf of Government 29,064,000 28,100,000

Liabilities are represented by: Current 1,357,000 1,374,000 Non-current 27,707,000 26,726,000 29,064,000 28,100,000

Note 23: Administered Reconciliation Table

Opening administered assets less administered liabilities as at 1 July (26,635,927) (25,379,757) Plus: Administered Revenues 861,960 1,042,691 Less: Administered Expenses (2,319,500) (2,592,611) Administered transfers to/from Government:: Appropriation transfers from Official Public Account 1,369,120 1,392,988 Transfers to Official Public Account (971,992) (1,012,783) Transfer of land and buildings to Sydney Harbour Federation Trust - (84,409) Currency translation gain/(loss) 162 (2,045) Administered assets less administered liabilities as at 30 June (27,696,177) (26,635,927)

Note 24: Administered Contingent Liabilities and Assets as at 30 June 2004 There are no contingent liabilities or assets held in Administered.

Note 25: Administered Investments as at 30 June 2004 The Commonwealth holds a 100% interest in the Defence Housing Authority which is incorporated in Australia.

The principal activity of Defence Housing Authority is: To provide total housing services that meet Defence operational and client needs.

384 2003-04 Financial Statements

Department of Defence Notes to and Forming Part of the Financial Statements for the year ended 30 June 2004 ash l l to the t terms and t terms h account is bearing. non-interest bilities, both recognised and s and lia Nature of Underlying Instrument (including significan (including Instrument of Underlying Nature of c certainty and timing amount, the affecting conditions flows) below. details to Refer balance of The the administered cas Receivables are with entities predominantly externa Commonwealth. Credit terms are 30 days (2003: 30 days). Dividends are received from the Defence Housing Authority. ars. Cash held in foreign ivables based on analysis nt capitalinjections or sed when over future control minal amountsminal less a provision ms andms conditions of each class of administered financial asset Accounting Policies and Methods (including Methods and Policies Accounting measurement basis) and criteria recognition recogni assets are Financial benefitseconomicis established and the amount of the benefit canbe reliably measured. Cash includes reserved money held in the Official Public doll innominal Account, measured currenciesat the exchangeis converted to AUD rates at 30applying June 2004. no at carried are Receivables doubtfulfor debts. The provision is a percentage of outstanding non-Government rece debts and write-off outstanding of the recoverability of as are written-off debts Bad years. prior from experience identified. are they on the cost recognised investmentsAdministered are basis, adjusted for any subseque withdrawals and for any impairment losses. 21 21 21 Notes

385 Terms, Conditions and Accounting Policies

Note 26: Instruments Financial Administered (a) The Department’s accounting policies, including the ter unrecognised as at 30 June 2004, are as follows: Financial Instrument Financial Assets Cash Receivables Investments Appendices

Department of Defence Notes to and Forming Part of the Financial Statements for the year ended 30 June 2004 a a a n/ n/ n/ 2003 $’000 n/a n/a n/a Average Effective Weighted 2004 Interest Rate Interest $’000 2003 $’000 80,226 50,006 1,258,883 1,389,115 1,464,073 - Total 2004 $’000 22,835 1,258,883 1,281,718 1,367,823 2003 $’000 80,226 50,006 1,258,883 1,389,115 - 2004 $’000 22,835 Non Interest-Bearing 1,258,883 1,281,718 - - - - 2003 $’000 - - - - 2004 $’000 > Than 5 Years 5 > Than - - - - 2003 $’000 - - - - 1 to 5 Years 5 1 to 2004 $’000 - - - - Fixed Interest Rate Interest Fixed financial assets approximate their carrying amounts. 2003 iabilities $’000 - - - - 2004 $’000 1 Year or Less or 1 Year - - - - 2003 $’000 - - - - Floating continued) 2004 Interest Rate Interest $’000 21 21 21 Notes

386 Net fair values of Administered financial assets and l Administered Interest Rate Risk

Financial Instrument (c) The net fair values of cash and non-interest bearing monetary (b) Financial Assets at bank Cash Receivables Investments Total financial assets Total Assets Note 26: Financial Instruments ( Financial Instruments Note 26: 2003-04 Financial Statements

Department of Defence Notes to and Forming Part of the Financial Statements for the year ended 30 June 2004

Note 27: Appropriations

As per Note 1, Defence is structured to meet seven outcomes: Outcome 1: Command of Operations in Defence of Australia and its Interests Outcome 2: Navy Capability for the Defence of Australia and its Interests Outcome 3: Army Capability for the Defence of Australia and its Interest Outcome 4: Air Force Capability for the Defence of Australia and its Interests Outcome 5: Strategic Policy for the Defence of Australia and its Interests Outcome 6: Intelligence for the Defence of Australia and its Interests Outcome 7: Superannuation and Housing Support Services for Current and Retired Defence Personnel

Accordingly for tables A to C below, all items are attributable to seven outcomes.

Note 27A: Cash Basis Acquittal of Appropriations from Acts 1 and 3

Administered Departmental Total Particulars Expenses Outputs $ $ $ Year ended 30 June 2004 Balance carried from previous year - 1,031,813,400 1,031,813,400 Add: estimated administered appropriation lapsed 2002- 031 181,000 - 181,000 Appropriation for the reporting period – Act 1 181,000 14,398,319,000 14,398,500,000 Appropriation for the reporting period – Act 3 - 181,238,000 181,238,000 Adjustments by the Finance Minister - 56,600,000 56,600,000 GST credits (FMA s30A) - 836,741,029 836,741,029 Annotations to ‘net appropriations’ (FMA s31) - 616,839,497 616,839,497 Adjustment to prior year reclassification - 59,719,200 59,719,200 Appropriation lapsed or reduced1 (181,000) - (181,000) Available for payments 181,000 17,181,270,126 17,181,451,126 Payments made - (16,343,746,505) (16,343,746,505) Balance carried forward to next year 181,000 837,523,621 837,704,621 Represented by: Cash - 237,809,425 237,809,425 Add: Appropriations not drawn from the OPA 181,000 - 181,000 Add: Appropriations receivable - 537,659,541 537,659,541 Add: Receivables – Net GST receivable from ATO - 139,065,783 139,065,783 Add: Net GST on Customer Receivables and Supplier Payables - (77,011,128) (77,011,128) Total 181,000 837,523,621 837,704,621 Reconciliation for Appropriation Acts (Nos. 1 & 3) Paid to the entity from the OPA - 14,579,557,000 14,579,557,000 Add: Finance Minister reduction of Appropriations in current year - 9,200,000 9,200,000 Less: Finance Minister increase of Appropriations in current year - (65,800,000) (65,800,000) Not drawn from the OPA 181,000 56,600,000 56,781,000 Total Appropriation Acts 181,000 14,579,557,000 14,579,738,000

1. The Finance Minister may determine amounts of administered appropriations to be lapsed, having regard to expenses incurred. In prior years, Defence has estimated the amount of current year appropriations to be lapsed based on expenses incurred. From 2003-04, the Finance Minister’s Orders require the reporting of amounts actually lapsed during the financial year. No determination to lapse administered appropriations for 2003-04 had been made by the time of completion of the 2003-04 financial statements.

387 Appendices

Department of Defence Notes to and Forming Part of the Financial Statements for the year ended 30 June 2004

Particulars Administered Departmental Total Expenses Outputs $ $ $ Year ended 30 June 2003 Balance carried forward from previous year - 795,108,000 795,108,000 Total annual appropriation 181,000 18,343,416,000 18,343,597,000 Adjustments and annotations to appropriations - (113,091,000) (113,091,000) GST credits (FMA s30A) - 869,958,782 869,958,782 Annotations to ‘net appropriations’ (FMA s31) - 1,153,188,334 1,153,188,334 Estimated Administered appropriation to be lapsed (181,000) - (181,000) Available for payment - 21,048,580,116 21,048,580,116 Payments made during the year - (20,016,766,716)(20,016,766,716) Balance carried forward to next financial year - 1,031,813,400 1,031,813,400 Represented by: Cash - 99,557,152 99,557,152 Add: Appropriations receivable - 870,201,000 870,201,000 Add: Receivables – Net GST receivable from ATO - 114,667,409 114,667,409 Less: Net GST on Customer Receivables and Supplier Payables - (52,612,161) (52,612,161) Total - 1,031,813,400 1,031,813,400

388 2003-04 Financial Statements

Department of Defence Notes to and Forming Part of the Financial Statements for the year ended 30 June 2004 ------$ Total (617,634,000) 1,020,524,000 1,020,524,000 - 402,890,000 - - - - 402,890,000 ------$ Liabilities Assets and Administered ------$ outputs Previous years’ ------Non-Operating $ Loans - $ Equity 402,890,000 (617,634,000) 1,020,524,000 ------402,890,000 ---- - 1,020,524,000 ------$ Expenses Acts 2 and 4 Administered SPPs and and Other SPPs (continued)

Particulars

389 Year ended 30 June 2004 30 ended Year Balance carried from previous year Appropriation for the reporting period - Act 2 Appropriation for the reporting period - Act 4 Amounts from Advance to the Finance Minister Refunds credited (FMA s30) GST credits (FMA s30A) Administered appropriationlapsed Available for payments Payments made Appropriations credited to special accounts year financial to next forward carried Balance by: Represented Cash Savings offered up Appropriations receivable Total Note 27: Appropriations Note 27B: Cash Basis Acquittal of Appropriations from Appendices

Department of Defence Notes to and Forming Part of the Financial Statements for the year ended 30 June 2004 - $ Total 995,201,000 (220,000,000) (995,201,000) 1,215,201,000 ------$ Liabilities Assets and Administered - - - - $ outputs Previous years’ - - - - Non-Operating $ Loans $ Equity ------1,215,201,000 - (220,000,000) - 995,201,000 (995,201,000) $ Expenses Administered SPPs and Other SPPs Particulars

390 Year ended 30 June 2003 30 ended Year Balance carried from previous year Total annualappropriation Adjustments and annotations to appropriations Available for payments Paymentsyear made duringthe Balance carried forward to next financial year 2003-04 Financial Statements

Department of Defence Notes to and Forming Part of the Financial Statements for the year ended 30 June 2004 5,700,000 36,871,155 (7,394,123) (76,003,155) (186,032,896) 1,336,300,000 $ (1,086,686,546) (1,356,116,720) 2003 * See Footnote * See Footnote * See Footnote - Outcome 1 5,700,000 (8,201,508) (74,073,257) $ (151,166,351) 2,236,300,000 2004 (1,098,502,645) (1,331,943,761) ** See Footnote ** See Footnote ** See Footnote allocated between DFRDB and MSBS. cannot be allocated between DFRDB and MSBS. (including purpose) onnel who enlisted before 1 October 1972 onnel who enlisted before 1 October 1991 onnel who enlisted before 1 October 1991 nlimited Amount) on 30 June 2003 to meet liabilitieson incurred under eld in Defence’s administered bank account. appropriation 600,000 (2003: $1,330,600,000) 600,000 (2002: $1,300,000,000) cannot be nnel on the interest payable on a home loan ) Continued d Death Benefits Act 1973 nnuation scheme and benefits for ADF pers nnuation scheme and benefits for ADF pers nnuation scheme and benefits for ADF pers and Benefits Act 1991 Particulars of legislation providing providing legislation of Particulars * The 2003 budget estimates of $1,330, ** The 2004 budget estimates of $2,230, 391 these Acts had not been disbursed at the date and was h Defence Forces Retirement Benefits Act 1948 Purpose: To provide supera Budget estimate Payments made an Retirement Defence Force Purpose: To provide supera Budget estimate Payments made Military Superannuation Purpose: To provide supera Budget estimate Payments made Defence Force (Home Loans Assistance) Act 1990 ADF perso subsidy a to To provide Purpose: Budget estimate Payments made Totals for Unlimited special appropriations Budget estimate Payments made An amount of $36,871,155 drawn-down from the OPA Note 27: Appropriations ( Appropriations Note 27: Table 27C: Cash Basis Acquittal of Special Appropriations (U Appendices

Department of Defence Notes to and Forming Part of the Financial Statements for the year ended 30 June 2004 ------135,197,716 135,197,716 135,197,716 135,197,716 135,197,716 $ 2003 ------Outcome 1 135,197,716 135,197,716 135,197,716 135,197,716 135,197,716 $ 2004 expenditure to East Timor in uding purpose) ns (Limited Amount) urposes ted Revenue Fund for certain Particulars of Legislation providing appropriation (incl

392 Note 27D: Cash Basis Acquittal of Special Appropriatio Appropriation (East Timor) Act 1999-2000 Purpose: An Act to appropriate money out of the Consolida Balance carried from previous year Appropriation for reporting period and annotations to appropriations Adjustments Transfers to/from agencies (FMA s32) Administered appropriationlapsed Available for payments Paymentsyear made duringthe Appropriations credited to Special Accounts year financial to next forward carried Balance by: Represented Cash Savings offered up Total respect of the year ending on 30 June 2000, and for related p related 30 June 2000, and for ending on year the of respect 2003-04 Financial Statements

Department of Defence Notes to and Forming Part of the Financial Statements for the year ended 30 June 2004

Note 28: Special Accounts 2004 2003 $ $ Services for Other Governments and Non-Agency Bodies*

Legal Authority: Financial Management and Accountability Act 1997 s20 and s21 Purpose: Payment for all costs in connection with services performed on behalf of other Governments and Non-Agency Bodies. Monies advanced to Defence by Comcare for the purpose of distributing compensation payments made in accordance with the Safety Rehabilitation and Compensation Act 1998.

This account is non-interest bearing. Balance carried forward from previous year 72,068,264 70,325,572 Opening Balance Adjustments (3,967,436) (1,266,885) Costs recovered 108,672,138 88,175,365 GST Credits (FMA s30A) 5,099,171 5,177,558 Available for payment 181,872,137 162,411,610 Payments made to suppliers (87,944,653) (90,343,346) Balance carried forward to next year 93,927,484 72,068,264 Represented by: Cash – on call held in the OPA 93,927,484 72,068,264 Total 93,927,484 72,068,264 Aggregate of Special Account Balance and Related Investments 93,927,484 72,068,264

*This account was disclosed in prior years under two separate headings as follows: - Defence – Services for Other Government and Non-Agency Bodies - Comcare Trust Account

2004 2003 $ $ Defence – Endowments

Legal Authority: Financial Management and Accountability Act 1997 s20 Purpose: For application in accordance with the conditions of each endowment.

This account is interest bearing in regard to cash held by the entity. Balance carried forward from previous year 263,908 565,838 Opening Balance Adjustments (7,494) (294,506) Costs recovered 35,295 9,844 GST Credits (FMA s30A) 5,053 4,432 Available for payment 296,762 285,608 Payments made to suppliers (30,909) (21,700) Balance carried forward to next year 265,853 263,908 Represented by: Cash – held by the entity 232,245 223,988 Cash – on call held in the OPA 33,608 39,920 Total 265,853 263,908 Aggregate of Special Account Balance and Related Investments 265,853 263,908

393 Appendices

Department of Defence Notes to and Forming Part of the Financial Statements for the year ended 30 June 2004

2004 2003 $ $ Fedorczenko Legacy Fund

Legal Authority: Financial Management and Accountability Act 1997 s20 Purpose: Residue of the estate of the late Petro Fedorczenko which is to be used for the defence of Australia.

This account is interest bearing in regard to cash held by the entity. Balance carried forward from previous year 148,410 152,451 Costs recovered 6,570 3,231 GST Credits (FMA s30A) - 3,028 Available for payment 154,980 158,710 Payments made to suppliers (4,200) (10,300) Balance carried forward to next year 150,780 148,410 Represented by: Cash – held by the entity 138,386 136,016 Cash – on call held in the OPA 12,394 12,394 Total 150,780 148,410 Aggregate of Special Account Balance and Related Investments 150,780 148,410

2004 2003 $ $ Other Trust Monies

Legal Authority: Financial Management and Accountability Act 1997 s20 Purpose: For expenditure of monies temporarily held in trust or otherwise for the benefit of a person other than the Commonwealth.

This account is non-interest bearing. Balance carried forward from previous year 10,885,311 10,554,869 Opening Balance Adjustments (860,417) - Costs recovered 1,055,031 987,490 GST Credits (FMA s30A) 423,465 124,458 Available for payment 11,503,390 11,666,817 Payments made to suppliers (2,147,411) (781,506) Balance carried forward to next year 9,355,979 10,885,311 Represented by: Cash – on call held in the OPA 9,355,979 10,885,311 Total 9,355,979 10,885,311 Aggregate of Special Account Balance and Related Investments 9,355,979 10,885,311

394 2003-04 Financial Statements

Department of Defence Notes to and Forming Part of the Financial Statements for the year ended 30 June 2004 Note 28: Special Accounts 2004 2003 $ $ Young Endeavour Youth Scheme Operating Fund

Legal Authority: Financial Management and Accountability Act 1997 s20 Purpose: For the receipt and payment of money in connection with the operations and activities of the STS Young Endeavour, as specified by the Young Endeavour Youth Program Board of Management or by the Commonwealth.

This account is interest bearing in regard to cash held by the entity Balance carried forward from previous year 2,035,363 1,503,529 Opening Balance Adjustments 5,584 - Costs recovered 714,167 378,740 GST Credits (FMA s30A) 57,541 270,004 Available for payment 2,812,655 2,152,273 Payments made to suppliers (1,934,408) (116,910) Balance carried forward to next year 878,247 2,035,363 Represented by: Cash – held by the entity 38,679 5,960 Cash – on call held in the OPA 839,568 2,029,403 Total 878,247 2,035,363 Aggregate of Special Account Balance and Related Investments 878,247 2,035,363

Note 29: Assets Held in Trust 2004 2003 $$

Defence Endowments

Legal Authority: Financial Management and Accountability Act 1997 s20 Purpose: For application in accordance with the conditions of each endowment.

Balance carried forward from previous year 223,988 227,316 Receipts during the year 26,356 9,706 Available for payment 250,344 237,022 Payments made (18,099) (13,034) Balance carried forward to next year held by the entity 232,245 223,988

Fedorczenko Legacy Fund

Legal Authority: Financial Management and Accountability Act 1997 s20 Purpose: Residue of the estate of the late Petro Fedorczenko which is to be used for the defence of Australia.

Balance carried forward from previous year 136,016 140,057 Receipts during the year 6,570 6,259 Available for payments 142,586 146,316 Payments made (4,200) (10,300) Balance carried forward to next year held by the entity 138,386 136,016

395 Appendices

Department of Defence Notes to and Forming Part of the Financial Statements for the year ended 30 June 2004 2004 2003 Young Endeavour Youth Scheme Public Fund $ $

Legal Authority: Financial Management and Accountability Act 1997 s20 Purpose To create a capital fund for the purpose of furthering youth development initiatives, to make specific capital acquisitions and to support the Young Endeavour Youth Scheme through sail training for young Australians. The Fund is listed as a deductible gift recipient.

Balance carried forward from previous year 5,960 11,414 Receipts during the year 48,272 5,776 Available for payments 54,232 17,190 Payments made (15,553) (11,230) Balance carried forward to next year held by the entity 38,679 5,960

Note 30: Specific Payment Disclosures

Administered No ‘Act of Grace’ payments were made during the reporting period (2003: No payments made) nil nil

No ‘Act of Grace’ payments were outstanding at the end of the reporting period (2003: No payments outstanding) nil nil

No waiver of amounts owing to the Commonwealth was made pursuant to sub section 34(1) of the Financial Management and Accountability Act 1997 (2003: No payments made). nil nil

No ex-gratia payments were made during the reporting period (2003: No payments made). nil nil

Departmental One ‘Act of Grace’ payment was made during the reporting period pursuant to authorisation given under s33(1) of the Financial Management and Accountability Act 1997 (2003: No payments made). 5,871 nil

One ‘Act of Grace’ payment was outstanding at the end of the reporting period pursuant to authorisation given under s33(1) of the Financial Management and Accountability Act 1997 (2003: No payments outstanding). 60,000 nil

Four ‘waivers’ of amounts owing to the Commonwealth were made during 2004 reporting period pursuant to subsection 34(1) of the Financial Management and Accountability Act 1997 (2003: nil). 1,501,074 nil

No ex-gratia payments were made during the reporting period (2003: No payments were made). nil nil

Twenty one payments were made under ‘Defective Administration Scheme’ during the 2004 reporting period (2003: 36). 359,010 287,983

One payment was made under s73 of the Public Service Act 1999 during the reporting period (2003: nil). 7,472 nil

396 2003-04 Financial Statements

Department of Defence Notes to and Forming Part of the Financial Statements for the year ended 30 June 2004 Note 31: Reporting of Outcomes

As per Financial Statement Note 1, Defence is structured to meet seven outcomes: Outcome 1: Command of Operations in Defence of Australia and its Interests Outcome 2: Navy Capability for the Defence of Australia and its Interests Outcome 3: Army Capability for the Defence of Australia and its Interests Outcome 4: Air Force Capability for the Defence of Australia and its Interests Outcome 5: Strategic Policy for the Defence of Australia and its Interests Outcome 6: Intelligence for the Defence of Australia and its Interests Outcome 7: Superannuation and Housing Support Services for Current and Retired Defence Personnel

Note 31A: Net Cost of Outcome Delivery

Outcome 1 Outcome 2 Outcome 3 Outcome 4 Outcome 5 Outcome 6 Outcome 7 Total Outcomes 2004 2003 2004 2003 2004 2003 2004 2003 2004 2003 2004 2003 2004 2003 2004 2003 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Expenses Administered expenses 22,792,553 86,284,450 ------2,296,707,977 2,508,373,025 2,319,500,530 2,594,657,475 Departmental expenses 905,094,621 1,042,349,994 4,508,380,294 4,091,212,069 5,396,614,279 5,683,220,614 4,859,978,505 4,669,711,153 218,036,851 190,691,894 473,692,285 332,594,256 - - 16,361,796,835 16,009,779,980 Total expenses 927,887,174 1,128,634,444 4,508,380,294 4,091,212,069 5,396,614,279 5,683,220,614 4,859,978,505 4,669,711,153 218,036,851 190,691,894 473,692,285 332,594,256 2,296,707,977 2,508,373,025 18,681,297,364 18,604,437,456 Costs recovered from provision of goods and services to the non-government sector Departmental1 - 325,319 2,605,317 3,808,934 - 1,109,770 153,214 6,589,796 2,278,391 3,278,312 - - - - 5,036,922 15,112,131 Total costs recovered - 325,319 2,605,317 3,808,934 - 1,109,770 153,214 6,589,796 2,278,391 3,278,312 - - - - 5,036,922 15,112,131 Other external revenues Administered Interest 50,919 51,897 627,166 351,363 126,615 137,427 1,322,072 569,977 - - 146,392 3,007 - - 2,273,164 1,113,672 Dividends from Defence Housing Authority ------230,698,000 373,525,000 230,698,000 373,525,000 Military superannuation contributions ------604,885,338 - 604,885,338 - Payments by foreign governments and UN 20,174,043 ------20,174,043 - Net foreign exchange gain 162,159 ------162,159 - Other sources of non taxation revenues - 59,285,179 ------3,928,715 608,767,025 3,928,715 668,052,204 Total Administered 20,387,121 59,337,076 627,166 351,363 126,615 137,427 1,322,072 569,977 - - 146,392 3,007 839,512,053 982,292,025 862,121,419 1,042,690,876 Departmental Goods and Services Revenue1 59,687,555 49,459,704 44,709,398 28,462,447 81,963,482 93,606,345 52,294,316 37,526,633 6,370,426 3,012,545 2,820,741 3,365,085 - - 247,845,918 215,432,758 Interest 86,564 709,098 10,116 5,283,003 27,939 7,603,866 18,309 5,163,889 104 175,479 (355) 396,224 - - 142,677 19,331,560 Revenue from sale of assets 5,574,054 22,096,658 34,490,103 165,334,097 95,982,670 310,774,822 45,652,836 179,239,910 962,047 2,266,674 2,497,286 5,825,318 - - 185,158,996 685,537,478 Net foreign exchange gain 348,595 772,584 4,516,920 5,361,911 925,006 2,127,889 9,709,258 8,841,794 (22,793) (49,041) 1,075,031 45,845 - - 16,552,017 17,100,983 Assets now recognised 46,369,215 45,140,612 207,867,834 284,976,517 104,559,675 264,138,394 213,498,462 265,926,719 1,575,499 1,933,437 5,957,516 4,179,365 - - 579,828,201 866,295,042 Other revenues 52,635,175 54,733,090 35,998,527 29,813,813 25,603,552 22,492,435 37,242,918 8,299,665 979,368 1,251,467 3,750,974 1,799,530 - - 156,210,514 118,390,000 Total Departmental 164,701,159 172,911,745 327,592,898 519,231,788 309,062,324 700,743,751 358,416,099 504,998,610 9,864,651 8,590,561 16,101,193 15,611,367 - - 1,185,738,324 1,922,087,821 Total other external revenues 185,088,280 232,248,822 328,220,064 519,583,151 309,188,939 700,881,178 359,738,171 505,568,587 9,864,651 8,590,561 16,247,585 15,614,373 839,512,053 982,292,025 2,047,859,743 2,964,778,697 Net cost/(contribution) of outcome 742,798,894 896,060,304 4,177,554,913 3,567,819,984 5,087,425,340 4,981,229,666 4,500,087,120 4,157,552,769 205,893,809 178,823,022 457,444,700 316,979,883 1,457,195,924 1,526,081,000 16,628,400,699 15,624,546,628 Note: 1. In accordance with Finance Minister's Orders 2003-04, Defence disclosed above "cost recoveries" as required under Finance Circular No 2002/02 'Cost Recovery by Government Agencies '. The specific elements that constitute the cost recoveries are; the sale of Navy Hydrographic and Aerial Survey maps and charts, and the provision of specific training provided by the Defence College to foreign forces. The disclosed costs recoveries are in accordance with the 'Commonwealth Cost Recovery Guidelines for Information Agencies' and therefore exclude intra and inter governmental services. The disclosed cost recoveries shown are Departmental in nature and are included as part of the Sale of Goods and Services total in the Statement of Financial Performance.

Outcome 1 Outcome 2 Outcome 3 Outcome 4 Outcome 5 Outcome 6 Outcome 7 Total Outcomes 2004 2003 2004 2003 2004 2003 2004 2003 2004 2003 2004 2003 2004 2003 2004 2003 $ $$$$$$$$$$$$$$ $ Intra-entity transactions with related parties: Auditor-General 202,996 194,610 701,846 521,820 1,079,719 576,030 713,856 560,040 105,160 42,315 125,664 55,185 - - 2,929,242 1,950,000 National Archives of Australia 9,083 10,057 31,405 41,938 48,313 55,576 31,942 49,262 4,705 2,132 5,623 3,776 - - 131,072 162,741 Total related party transactions 212,080 204,667 733,251 563,758 1,128,032 631,606 745,799 609,302 109,865 44,447 131,287 58,961 - - 3,060,314 2,112,741

397 Appendices

Department of Defence Notes to and Forming Part of the Financial Statements for the year ended 30 June 2004 Note 31: Reporting of Outcomes Note 31B: Major Classes of Departmental Revenues and Expenses by Output

OUTCOME 1 Output 1.1 Output 1.2 Output 1.3 Total Outcome 1 DEFENCE OPERATIONS 2004 2003 2004 2003 2004 2003 2004 2003 $ $ $ $ $ $ $ $ Departmental expenses Employees 204,967,091 184,368,135 146,929,391 186,127,990 12,489,829 7,811,188 364,386,311 378,307,312 Suppliers 160,620,528 159,384,525 190,573,359 355,344,485 10,351,910 5,640,082 361,545,797 520,369,092 Grants 237,985 57,011 10,599 7,586 2,251 2,403 250,834 67,000 Depreciation and amortisation 55,741,371 59,551,149 5,231,266 6,313,773 316,780 386,605 61,289,418 66,251,527 Value of assets sold 3,420,906 14,535,638 163,828 3,441,663 45,905 297,379 3,630,638 18,274,680 Write down of assets 80,655,603 18,572,856 25,816,566 17,698,346 731,112 431,336 107,203,281 36,702,538 Other 2,944,992 10,187,507 2,309,382 10,472,154 203,132 458,708 5,457,506 21,118,370 Borrowing costs expense 1,145,759 1,116,835 127,438 104,728 57,639 37,913 1,330,836 1,259,475 Total departmental expenses 509,734,236 447,773,656 371,161,828 579,510,724 24,198,557 15,065,614 905,094,621 1,042,349,994 Funded by: Revenues from Government 427,308,926 405,053,960 399,925,807 278,350,151 13,268,792 16,565,010 840,503,525 699,969,121 Sales of goods and services1 9,417,742 6,561,245 49,958,622 42,942,493 311,192 281,285 59,687,555 49,785,023 Interest 2,359 503,966 84,118 193,403 87 11,730 86,564 709,098 Revenue from sale of assets 4,957,386 17,624,972 525,298 4,108,121 91,370 363,565 5,574,054 22,096,658 Net foreign exchange gains 70,081 725,497 278,516 47,100 (2) (13) 348,595 772,584 Assets now recognised 7,285,176 14,493,930 38,909,231 30,440,769 174,807 205,912 46,369,215 45,140,612 Other 8,507,408 8,911,467 41,093,810 43,993,109 3,033,957 1,828,513 52,635,175 54,733,090 Total departmental revenues 457,549,079 453,875,038 530,775,401 400,075,146 16,880,204 19,256,002 1,005,204,684 873,206,186 Notes: 1. In accordance with Finance Minister's Orders 2003-04, Defence disclosed above "cost recoveries" as required under Finance Circular No 2002/02 'Cost Recovery by Government Agencies'. The specific elements that constitute the cost recoveries are; the sale of Navy Hydrographic and Aerial Survey maps and charts, and the provision of specific training provided by the Defence College to foreign forces. The disclosed costs recoveries are in accordance with the 'Commonwealth Cost Recovery Guidelines for Information Agencies' and therefore exclude intra and inter governmental services. The disclosed cost recoveries shown are Departmental in nature and are included as part of the Sale of Goods and Services total in the Statement of Financial Performance.

OUTCOME 2 Output 2.1 Output 2.2 Output 2.3 Output 2.4 Output 2.5 Output 2.6 Output 2.7 Output 2.8 Total Outcome 2 NAVY CAPABILITY 2004 2003 2004 2003 2004 2003 2004 2003 2004 2003 2004 2003 2004 2003 2004 2003 2004 2003 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Departmental expenses Employees 534,194,438 488,318,722 214,324,684 171,382,663 141,470,144 116,488,456 163,654,250 145,973,385 98,167,048 82,201,446 162,264,658 121,160,744 180,740,894 157,283,584 115,376,062 82,812,255 1,610,192,178 1,365,621,254 Suppliers 450,809,723 487,217,936 192,045,661 185,162,881 104,118,229 111,695,525 312,789,705 227,482,909 65,212,192 83,075,530 139,275,124 100,406,216 132,596,629 156,631,502 86,099,310 53,660,292 1,482,946,573 1,405,332,791 Grants 552,123 126,871 256,343 27,654 140,096 26,827 168,387 21,455 105,472 22,300 113,408 24,615 219,705 47,210 71,020 15,366 1,626,554 312,298 Depreciation and amortisation 344,986,709 295,064,918 81,788,563 68,987,178 15,043,079 24,701,269 303,903,071 272,250,570 37,250,691 37,069,968 88,400,083 96,791,055 60,587,954 71,463,248 21,462,305 22,437,556 953,422,455 888,765,761 Value of assets sold 7,985,193 49,346,005 3,614,224 13,335,078 2,058,600 11,089,884 2,317,811 13,731,203 1,517,867 11,780,500 1,710,492 9,683,909 3,145,121 24,355,319 1,018,116 5,012,665 23,367,424 138,334,563 Write down of assets 118,855,623 100,300,778 52,612,582 10,820,015 19,463,975 13,600,407 117,110,125 27,006,726 16,560,616 12,611,851 42,276,250 15,849,173 28,235,995 25,623,597 15,174,326 6,925,344 410,289,492 212,737,891 Other 7,215,231 27,172,648 2,244,819 9,425,375 1,321,539 6,482,407 1,467,172 7,868,067 1,331,805 4,551,745 1,640,379 6,710,270 2,542,992 8,762,158 1,005,784 4,605,739 18,769,721 75,578,409 Borrowing costs expense 3,005,394 1,920,664 1,094,720 433,844 662,806 348,299 445,439 272,494 469,793 282,744 726,825 503,640 1,010,324 588,202 350,596 179,214 7,765,897 4,529,102 Total departmental expenses 1,467,604,434 1,449,468,541 547,981,596 459,574,688 284,278,468 284,433,074 901,855,960 694,606,810 220,615,484 231,596,083 436,407,219 351,129,623 409,079,614 444,754,820 240,557,519 175,648,431 4,508,380,294 4,091,212,069 Funded by: Revenues from Government 1,263,737,697 2,472,973,326 457,352,063 647,577,943 279,629,905 287,629,383 852,476,873 899,337,564 211,543,649 243,214,724 385,260,633 580,310,672 345,765,294 422,151,556 245,667,899 187,597,200 4,041,434,013 5,740,792,369 Sales of goods and services1 18,169,861 12,272,358 5,741,036 3,208,330 3,755,504 2,297,863 2,660,888 2,251,041 2,748,864 2,028,763 4,128,517 2,903,147 5,465,751 3,866,982 4,644,294 3,442,898 47,314,715 32,271,380 Interest 4,688 2,068,413 1,709 656,349 1,106 322,426 (812) 732,732 484 376,923 810 356,788 1,897 610,143 234 159,229 10,116 5,283,003 Revenue from sale of assets 12,237,422 58,897,983 5,130,788 16,605,080 2,825,506 12,840,544 3,884,678 17,672,407 2,169,534 13,995,058 2,580,797 11,379,589 4,251,768 28,104,890 1,409,610 5,838,546 34,490,103 165,334,097 Net foreign exchange gains 1,889,643 3,427,818 687,783 685,886 165,255 24,081 1,081,858 1,177,962 674,464 (94) 3,303 46,508 6,333 (176) 8,281 (75) 4,516,920 5,361,911 Assets now recognised 47,299,959 57,129,442 13,233,547 56,610,703 11,338,934 16,980,707 44,456,375 26,927,090 16,183,588 28,270,630 41,933,589 42,443,122 24,702,665 41,967,862 8,719,177 14,646,962 207,867,834 284,976,517 Other 19,850,546 11,274,540 3,078,573 3,801,023 1,425,842 1,525,575 5,102,084 5,269,871 1,465,431 1,991,672 2,137,348 2,634,421 2,198,726 2,533,461 739,977 783,249 35,998,527 29,813,813 Total departmental revenues 1,363,189,816 2,618,043,879 485,225,499 729,145,314 299,142,052 321,620,580 909,661,944 953,368,665 234,786,014 289,877,676 436,044,997 640,074,247 382,392,434 499,234,719 261,189,472 212,468,010 4,371,632,228 6,263,833,091 Notes: 1. In accordance with Finance Minister's Orders 2003-04, Defence disclosed above "cost recoveries" as required under Finance Circular No 2002/02 'Cost Recovery by Government Agencies'. The specific elements that constitute the cost recoveries are; the sale of Navy Hydrographic and Aerial Survey maps and charts, and the provision of specific training provided by the Defence College to foreign forces. The disclosed costs recoveries are in accordance with the 'Commonwealth Cost Recovery Guidelines for Information Agencies' and therefore exclude intra and inter governmental services. The disclosed cost recoveries shown are Departmental in nature and are included as part of the Sale of Goods and Services total in the Statement of Financial Performance.

OUTCOME 3 Output 3.1 Output 3.2 Output 3.3 Output 3.4 Output 3.5 Output 3.6 Output 3.7 Output 3.8 Output 3.9 Output 3.10 Total Outcome 3 ARMY CAPABILITY 2004 2003 2004 2003 2004 2003 2004 2003 2004 2003 2004 2003 2004 2003 2004 2003 2004 2003 2004 2003 2004 2003 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Departmental expenses Employees 276,728,776 226,227,835 476,032,750 454,476,116 567,409,666 590,654,776 263,112,799 213,710,554 63,715,510 67,982,167 216,552,822 213,152,028 61,716,585 76,479,580 327,607,360 283,112,886 296,370,364 300,362,558 346,948,297 329,665,028 2,896,194,929 2,755,823,526 Suppliers 118,755,320 109,996,127 241,237,808 259,361,113 266,339,927 289,438,475 196,569,216 209,321,121 39,241,591 42,979,464 126,908,209 141,184,655 47,190,968 42,151,780 155,583,163 135,078,350 153,241,955 209,874,121 225,922,232 252,864,995 1,570,990,389 1,692,250,202 Grants 233,781 61,415 470,512 71,808 409,301 75,260 251,966 59,025 91,184 53,475 283,941 61,022 117,113 54,263 313,049 59,596 287,895 69,316 453,674 74,773 2,912,416 639,952 Depreciation and amortisation 29,142,087 34,060,592 120,869,502 89,358,734 69,505,897 72,330,558 97,159,635 85,388,833 18,333,009 9,643,454 57,671,829 61,360,166 19,167,718 10,916,767 49,511,623 37,741,427 51,781,237 46,250,190 63,223,868 86,579,827 576,366,405 533,630,547 Value of assets sold 6,302,450 19,954,332 11,534,945 47,436,441 11,906,026 44,542,876 7,039,722 22,553,314 1,869,082 4,094,722 7,787,913 25,701,775 2,211,137 5,303,919 10,146,050 18,765,343 8,943,332 34,038,225 13,174,019 50,652,395 80,914,676 273,043,342 Write down of assets 10,750,032 16,231,078 50,207,721 48,818,988 31,981,701 46,568,206 62,635,983 14,206,317 7,356,734 5,308,384 26,193,158 34,201,105 2,700,118 4,280,321 16,161,558 19,208,890 9,043,860 28,468,723 7,504,143 40,309,313 224,535,008 257,601,324 Other 2,862,750 13,020,020 5,254,281 25,448,456 6,569,974 32,995,168 2,751,919 11,834,255 711,823 3,791,215 2,390,833 11,927,403 399,590 4,296,143 3,415,454 15,838,763 2,845,727 16,857,006 2,144,448 18,689,554 29,346,799 154,697,982 Borrowing costs expense 1,252,491 988,436 2,655,449 1,849,261 3,270,112 2,331,981 1,073,922 605,670 383,673 188,196 1,604,675 1,106,355 269,908 625,692 1,946,501 1,456,413 1,406,643 1,934,106 1,490,283 4,447,629 15,353,657 15,533,738 Total departmental expenses 446,027,687 420,539,834 908,262,968 926,820,917 957,392,604 1,078,937,299 630,595,162 557,679,089 131,702,606 134,041,078 439,393,380 488,694,510 133,773,137 144,108,463 564,684,758 511,261,667 523,921,013 637,854,245 660,860,964 783,283,512 5,396,614,279 5,683,220,614 Funded by: Revenues from Government 308,940,187 487,940,962 800,590,549 958,276,089 971,197,750 1,123,908,911 542,731,558 537,809,668 176,858,865 114,426,232 470,658,977 401,581,161 148,116,012 120,489,180 491,399,222 471,062,569 541,612,931 694,797,291 458,295,883 658,313,348 4,910,401,933 5,568,605,410 Sales of goods and services1 6,884,698 6,292,499 14,883,160 11,914,472 18,604,947 15,220,750 6,289,376 4,616,130 2,338,247 1,560,869 8,821,292 7,217,271 1,183,056 3,610,196 10,107,750 9,031,791 7,369,968 11,585,855 5,480,988 23,666,282 81,963,482 94,716,114 Interest 2,442 491,590 5,683 967,222 5,829 1,240,279 2,268 517,119 992 155,752 3,377 677,173 528 276,431 3,656 757,396 2,370 926,954 794 1,593,950 27,939 7,603,866 Revenue from sale of assets 7,484,201 22,783,208 14,470,910 54,051,194 14,727,934 51,011,220 8,915,929 23,976,467 2,320,558 4,767,591 9,214,235 29,394,562 2,513,017 6,134,345 11,751,771 21,852,624 10,236,517 38,925,687 14,347,598 57,877,923 95,982,670 310,774,822 Net foreign exchange gains (482) 103,300 (880) 1,577,058 (1,179) 116,601 929,438 35,921 (112) 106,918 (346) 6,409 (57) 74,111 (564) 13,360 (499) 60,021 (313) 34,190 925,006 2,127,889 Assets now recognised 6,555,511 15,834,996 26,469,905 54,464,950 19,264,877 37,477,327 16,266,749 24,560,144 3,211,720 5,383,704 8,253,105 55,244,067 1,871,880 3,275,587 6,751,435 19,677,846 7,049,827 13,672,391 8,864,666 34,547,381 104,559,675 264,138,394 Other 2,256,949 1,737,089 5,617,216 4,412,954 4,837,694 4,590,812 5,211,669 (419,366) 751,658 903,869 2,311,064 2,634,306 239,613 669,652 2,239,385 2,573,455 1,705,713 2,756,195 432,591 2,633,470 25,603,552 22,492,435 Total departmental revenues 332,123,506 535,183,643 862,036,543 1,085,663,940 1,028,637,852 1,233,565,900 580,346,987 591,096,084 185,481,928 127,304,936 499,261,704 496,754,949 153,924,049 134,529,501 522,252,655 524,969,039 567,976,827 762,724,393 487,422,207 778,666,544 5,219,464,257 6,270,458,931 Notes: 1. In accordance with Finance Minister's Orders 2003-04, Defence disclosed above "cost recoveries" as required under Finance Circular No 2002/02 'Cost Recovery by Government Agencies'. The specific elements that constitute the cost recoveries are; the sale of Navy Hydrographic and Aerial Survey maps and charts, and the provision of specific training provided by the Defence College to foreign forces. The disclosed costs recoveries are in accordance with the 'Commonwealth Cost Recovery Guidelines for Information Agencies' and therefore exclude intra and inter governmental services. The disclosed cost recoveries shown are Departmental in nature and are included as part of the Sale of Goods and Services total in the Statement of Financial Performance.

398 2003-04 Financial Statements

Department of Defence Notes to and Forming Part of the Financial Statements for the year ended 30 June 2004 Note 31: Reporting of Outcomes Note 31B: Major Classes of Departmental Revenues and Expenses by Output

OUTCOME 4 Output 4.1 Output 4.2 Output 4.3 Output 4.4 Output 4.5 Total Outcome 4 AIR FORCE CAPABILITY 2004 2003 2004 2003 2004 2003 2004 2003 2004 2003 2004 2003 $ $ $ $ $ $ $ $ $ $ $ $ Departmental expenses Employees 464,473,559 501,245,967 362,214,393 286,408,136 279,142,857 199,885,310 249,756,899 160,553,117 306,440,600 299,066,247 1,662,028,308 1,447,158,777 Suppliers 604,363,799 698,724,815 228,818,070 101,725,070 206,518,169 99,527,594 202,626,720 192,323,516 374,630,278 442,996,037 1,616,957,036 1,535,297,033 Grants 450,435 85,606 757,325 48,734 188,699 85,084 314,730 27,812 521,749 94,057 2,232,938 341,292 Depreciation and amortisation 682,284,616 685,723,299 44,046,333 23,138,511 113,004,369 78,019,118 158,580,623 385,990,720 136,191,248 158,000,176 1,134,107,189 1,330,871,823 Value of assets sold 27,627,296 115,599,507 10,718,564 17,019,481 2,852,935 12,306,603 4,501,324 18,709,725 7,719,096 39,389,038 53,419,215 203,024,354 Write down of assets 189,965,941 48,383,363 20,059,959 7,436,088 41,628,578 (1,480,835) 54,134,357 9,980,063 58,539,447 3,626,027 364,328,282 67,944,705 Other 5,900,781 27,644,405 3,547,787 16,098,772 2,829,595 11,132,652 2,142,185 8,799,765 3,422,613 16,474,150 17,842,961 80,149,744 Borrowing costs expense 2,088,123 1,462,524 2,602,301 1,399,930 1,320,849 655,760 1,261,431 458,737 1,789,872 946,473 9,062,576 4,923,424 Total departmental expenses 1,977,154,550 2,078,869,486 672,764,732 453,274,721 647,486,051 400,131,286 673,318,269 776,843,455 889,254,903 960,592,205 4,859,978,505 4,669,711,153 Funded by: Revenues from Government 1,890,967,345 2,785,463,322 458,302,814 394,126,898 474,669,106 485,491,614 499,137,657 790,259,169 901,278,228 1,209,203,241 4,224,355,149 5,664,544,244 Sales of goods and services1 13,378,911 14,998,692 11,787,423 9,034,715 10,879,398 5,079,139 6,587,719 5,153,088 9,814,079 9,850,796 52,447,530 44,116,430 Interest 1,896 2,095,549 8,118 609,215 2,389 697,762 2,630 577,326 3,276 1,184,038 18,309 5,163,889 Revenue from sale of assets 10,726,918 76,136,661 13,447,533 19,502,929 5,590,278 14,641,210 6,150,391 22,154,488 9,737,716 46,804,622 45,652,836 179,239,910 Net foreign exchange gains 2,233,686 3,090,661 6,606 3,226 6,893,536 4,998,634 432,032 601,152 143,398 148,122 9,709,258 8,841,794 Assets now recognised 124,784,609 153,854,467 12,829,174 2,714,689 23,939,343 42,639,808 15,967,172 24,582,456 35,978,164 42,135,298 213,498,462 265,926,719 Other 22,094,555 -9,340,855 2,272,761 1,253,654 8,100,477 6,162,231 2,792,548 3,458,682 1,982,577 6,765,954 37,242,918 8,299,665 Total departmental revenues 2,064,187,920 3,026,298,497 498,654,429 427,245,325 530,074,527 559,710,397 531,070,149 846,786,361 958,937,438 1,316,092,071 4,582,924,462 6,176,132,650 Note: 1. In accordance with Finance Minister's Orders 2003-04, Defence disclosed above "cost recoveries" as required under Finance Circular No 2002/02 'Cost Recovery by Government Agencies'. The specific elements that constitute the cost recoveries are; the sale of Navy Hydrographic and Aerial Survey maps and charts, and the provision of specific training provided by the Defence College to foreign forces. The disclosed costs recoveries are in accordance with the 'Commonwealth Cost Recovery Guidelines for Information Agencies' and therefore exclude intra and inter governmental services. The disclosed cost recoveries shown are Departmental in nature and are included as part of the Sale of Goods and Services total in the Statement of Financial Performance.

OUTCOME 5 Output 5.1 Output 5.2 Total Outcome 5

STRATEGIC POLICY 2004 2003 2004 2003 2004 2003 $ $ $ $ $ $ Departmental expenses Employees 64,815,476 70,094,286 18,735,299 10,468,965 83,550,775 80,563,252 Suppliers 105,266,719 85,977,901 10,031,932 10,623,165 115,298,651 96,601,065 Grants 36,054 49,100 1,642 4,017 37,696 53,117 Depreciation and amortisation 3,463,713 3,258,826 861,492 460,698 4,325,205 3,719,524 Value of assets sold 548,255 1,792,429 30,979 230,951 579,234 2,023,381 Write down of assets 12,951,050 2,552,697 46,856 319,880 12,997,906 2,872,576 Other 722,444 3,040,863 250,108 1,604,040 972,552 4,644,903 Borrowing costs expense 247,418 52,053 27,414 162,023 274,832 214,076 Total departmental expenses 188,051,129 166,818,155 29,985,722 23,873,739 218,036,851 190,691,894 Funded by: Revenues from Government 173,526,109 170,837,396 44,065,450 41,999,125 217,591,559 212,836,520 Sales of goods and services1 8,504,446 5,252,516 144,371 1,038,341 8,648,817 6,290,857 Interest 204 151,884 (100) 23,595 104 175,479 Revenue from sale of assets 909,733 1,948,871 52,314 317,803 962,047 2,266,674 Net foreign exchange gains (22,791) (48,904) (2) (137) (22,793) (49,041) Assets now recognised 1,509,647 1,768,959 65,852 164,477 1,575,499 1,933,437 Other 875,385 1,201,756 103,983 49,711 979,368 1,251,467 Total departmental revenues 185,302,733 181,112,479 44,431,868 43,592,914 229,734,601 224,705,393 Note: 1. In accordance with Finance Minister's Orders 2003-04, Defence disclosed above "cost recoveries" as required under Finance Circular No 2002/02 'Cost Recovery by Government Agencies'. The specific elements that constitute the cost recoveries are; the sale of Navy Hydrographic and Aerial Survey maps and charts, and the provision of specific training provided by the Defence College to foreign forces. The disclosed costs recoveries are in accordance with the 'Commonwealth Cost Recovery Guidelines for Information Agencies' and therefore exclude intra and inter governmental services. The disclosed cost recoveries shown are Departmental in nature and are included as part of the Sale of Goods and Services total in the Statement of Financial Performance.

OUTCOME 6 Output 6.1 Total Outcome 6

INTELLIGENCE 2004 2003 2004 2003 $ $ $ $ Departmental expenses Employees 211,068,860 167,097,838 211,068,860 167,097,838 Suppliers 154,350,000 101,134,618 154,350,000 101,134,618 Grants 122,452 18,969 122,452 18,969 Depreciation and amortisation 69,893,848 40,176,551 69,893,848 40,176,551 Value of assets sold 1,664,307 5,848,571 1,664,307 5,848,571 Write down of assets 33,464,374 8,615,716 33,464,374 8,615,716 Other 2,768,538 9,406,600 2,768,538 9,406,600 Borrowing costs expense 359,906 295,394 359,906 295,394 Total departmental expenses 473,692,285 332,594,256 473,692,285 332,594,256 Funded by: Revenues from Government 404,931,135 345,690,077 404,931,135 345,690,077 Sales of goods and services1 2,820,741 3,365,085 2,820,741 3,365,085 Interest (355) 396,224 (355) 396,224 Revenue from sale of assets 2,497,286 5,825,318 2,497,286 5,825,318 Net foreign exchange gains 1,075,031 45,845 1,075,031 45,845 Assets now recognised 5,957,516 4,179,365 5,957,516 4,179,365 Other 3,750,974 1,799,530 3,750,974 1,799,530 Total departmental revenues 421,032,328 361,301,443 421,032,328 361,301,443 Note: 1. In accordance with Finance Minister's Orders 2003-04, Defence disclosed above "cost recoveries" as required under Finance Circular No 2002/02 'Cost Recovery by Government Agencies'. The specific elements that constitute the cost recoveries are; the sale of Navy Hydrographic and Aerial Survey maps and charts, and the provision of specific training provided by the Defence College to foreign forces. The disclosed costs recoveries are in accordance with the 'Commonwealth Cost Recovery Guidelines for Information Agencies' and therefore exclude intra and inter governmental services. The disclosed cost recoveries shown are Departmental in nature and are included as part of the Sale of Goods and Services total in the Statement of Financial Performance.

399 Appendices

Department of Defence Notes to and Forming Part of the Financial Statements for the year ended 30 June 2004 Note 31: Reporting of Outcomes Note 31B: Major Classes of Departmental Revenues and Expenses by Output

TOTAL DEFENCE OUTCOME 1 OUTCOME 2 OUTCOME 3 OUTCOME 4 OUTCOME 5 OUTCOME 6 TOTAL DEFENCE

DEPARTMENTAL OUTCOMES 2004 2003 2004 2003 2004 2003 2004 2003 2004 2003 2004 2003 2004 2003 $ $ $ $ $ $ $ $ $ $ $ $ ($) ($) Departmental expenses Employees 364,386,311 378,307,312 1,610,192,178 1,365,621,254 2,896,194,929 2,755,823,526 1,662,028,308 1,447,158,777 83,550,775 80,563,252 211,068,860 167,097,838 6,827,421,361 6,194,571,959 Suppliers 361,545,797 520,369,092 1,482,946,573 1,405,332,791 1,570,990,389 1,692,250,202 1,616,957,036 1,535,297,033 115,298,651 96,601,065 154,350,000 101,134,618 5,302,088,446 5,350,984,801 Grants 250,834 67,000 1,626,554 312,298 2,912,416 639,952 2,232,938 341,292 37,696 53,117 122,452 18,969 7,182,890 1,432,629 Depreciation and amortisation 61,289,418 66,251,527 953,422,455 888,765,761 576,366,405 533,630,547 1,134,107,189 1,330,871,823 4,325,205 3,719,524 69,893,848 40,176,551 2,799,404,520 2,863,415,735 Value of assets sold 3,630,638 18,274,680 23,367,424 138,334,563 80,914,676 273,043,342 53,419,215 203,024,354 579,234 2,023,381 1,664,307 5,848,571 163,575,494 640,548,890 Write down of assets 107,203,281 36,702,538 410,289,492 212,737,891 224,535,008 257,601,324 364,328,282 67,944,705 12,997,906 2,872,576 33,464,374 8,615,716 1,152,818,343 586,474,750 Other 5,457,506 21,118,370 18,769,721 75,578,409 29,346,799 154,697,982 17,842,961 80,149,744 972,552 4,644,903 2,768,538 9,406,600 75,158,077 345,596,008 Borrowing costs expense 1,330,836 1,259,475 7,765,897 4,529,102 15,353,657 15,533,738 9,062,576 4,923,424 274,832 214,076 359,906 295,394 34,147,704 26,755,208 Total departmental expenses 905,094,621 1,042,349,994 4,508,380,294 4,091,212,069 5,396,614,279 5,683,220,614 4,859,978,505 4,669,711,153 218,036,851 190,691,894 473,692,285 332,594,256 16,361,796,835 16,009,779,980 Funded by: Revenues from Government 840,503,525 699,969,121 4,041,434,013 5,740,792,369 4,910,401,933 5,568,605,410 4,224,355,149 5,664,544,244 217,591,559 212,836,520 404,931,135 345,690,077 14,639,217,314 18,232,437,741 Sales of goods and services1 59,687,555 49,785,023 47,314,715 32,271,380 81,963,482 94,716,114 52,447,530 44,116,430 8,648,817 6,290,857 2,820,741 3,365,085 252,882,840 230,544,889 Interest 86,564 709,098 10,116 5,283,003 27,939 7,603,866 18,309 5,163,889 104 175,479 (355) 396,224 142,677 19,331,560 Revenue from sale of assets 5,574,054 22,096,658 34,490,103 165,334,097 95,982,670 310,774,822 45,652,836 179,239,910 962,047 2,266,674 2,497,286 5,825,318 185,158,996 685,537,478 Net foreign exchange gains 348,595 772,584 4,516,920 5,361,911 925,006 2,127,889 9,709,258 8,841,794 (22,793) (49,041) 1,075,031 45,845 16,552,017 17,100,983 Assets now recognised 46,369,215 45,140,612 207,867,834 284,976,517 104,559,675 264,138,394 213,498,462 265,926,719 1,575,499 1,933,437 5,957,516 4,179,365 579,828,201 866,295,042 Other 52,635,175 54,733,090 35,998,527 29,813,813 25,603,552 22,492,435 37,242,918 8,299,665 979,368 1,251,467 3,750,974 1,799,530 156,210,514 118,390,000 Total departmental revenues 1,005,204,684 873,206,186 4,371,632,228 6,263,833,091 5,219,464,257 6,270,458,931 4,582,924,462 6,176,132,650 229,734,601 224,705,393 421,032,328 361,301,443 15,829,992,560 20,169,637,693 Note: 1. In accordance with Finance Minister's Orders 2003-04, Defence disclosed above "cost recoveries" as required under Finance Circular No 2002/02 'Cost Recovery by Government Agencies'. The specific elements that constitute the cost recoveries are; the sale of Navy Hydrographic and Aerial Survey maps and charts, and the provision of specific training provided by the Defence College to foreign forces. The disclosed costs recoveries are in accordance with the 'Commonwealth Cost Recovery Guidelines for Information Agencies' and therefore exclude intra and inter governmental services. The disclosed cost recoveries shown are Departmental in nature and are included as part of the Sale of Goods and Services total in the Statement of Financial Performance.

The financial impacts of the basis changes between the Budgeted PAES and these Financial statements, across each outcome are as follows: Variation Impacts Outcome 1 Outcome 2 Outcome 3 Outcome 4 Outcome 5 Outcome 6 Total 2004 2004 2004 2004 2004 2004 2004 $$$$$$$ Departmental expenses Actual Actual Actual Actual Actual Actual Actual Employees (92,989,531) (36,220,004) 13,961,093 (58,605,187) (15,502,399) (10,515,263) (199,871,291) Suppliers 103,623,470 44,522,267 (32,314,538) (139,249,974) (34,308,853) 2,565,412 (55,162,215) Grants (172,612) (1,140,675) (1,973,524) (1,627,656) (32,896) (93,994) (5,041,357) Depreciation and amortisation 11,927,617 19,380,951 21,955,818 107,407,369 (4,052,838) (7,386,945) 149,231,970 Value of assets sold 5,816,401 57,525,757 50,149,656 27,049,903 (553,892) 5,866,786 145,854,609 Net foreign exchange losses - - - - (22,793) - (22,793) Write down of assets (90,575,654) (253,658,070) (130,743,685) (202,047,001) (13,014,734) (30,483,091) (720,522,235) Other (5,194,740) (17,500,899) (28,109,553) (16,587,393) (901,645) (2,459,221) (70,753,450) Borrowing costs expense (124,085) (500,377) (1,751,126) (1,153,037) (274,832) 606,122 (3,197,335) Total departmental expenses (67,689,134) (187,591,050) (108,825,860) (284,812,977) (68,664,882) (41,900,193) (759,484,097) Funded by: Revenues from Government (8,692,531) (12,827,851) (26,074,264) (15,967,843) (218,188,605) 8,879,436 (272,871,657) Sales of goods and services 25,865,129 (8,393,024) (31,196,094) (2,877,613) (2,972,732) 3,920,007 (15,654,327) Interest (86,564) (10,116) (27,938) (18,309) (104) 355 (142,676) Revenue from sale of assets 3,740,020 45,629,314 33,587,124 33,976,366 (962,048) 5,009,122 120,979,898 Net foreign exchange gains (348,595) (4,516,921) (925,006) (9,709,258) (22,793) (1,075,031) (16,597,604) Assets now recognised (40,582,944) (120,079,693) (64,002,003) (116,521,758) (1,506,671) (6,355,659) (349,048,728) Other (47,188,813) 2,384,133 23,858,930 426,079 (935,929) 816,855 (20,638,745) Total departmental revenues (67,294,298) (97,814,158) (64,779,251) (110,692,337) (224,588,882) 11,195,085 (553,973,839) Notes: In accordance with 2003-04 Finance Minister's Orders, Defence discloses that basis changes have occurred between printing of the Budget PAES to these Financial Statements. The main reasons for the basis changes are as follows: 1. New distributions methodologies were introduced since the time of PAES preparation, for items not previously budgeted. 2. Internal reallocation of functions. 3. Updating of underlying data such as Defence's property register and Workforce plans. 4. The Department of Defence uses several different methods of attributing shared items. These methods are based upon the type of 'general business activity' undertaken by the respective Group. This distribution approach incorporates the use of staff numbers, task lists (specifically Defence Science & Technology Organisation), operational support and asset utilisation.

Note 31: Reporting of Outcomes Note 31C: Major Classes of Administered Revenues and Expenses by Outcome Outcome 1 Outcome 2 Outcome 3 Outcome 4 Outcome 6 Outcome 7 Total Outcomes 2004 2003 2004 2003 2004 2003 2004 2003 2004 2003 2004 2003 2004 2003 $ $ $ $ $ $ $ $ $ $ $ $ $ $ Administered Revenues Interest 50,919 51,897 627,166 351,363 126,615 137,427 1,322,072 569,977 146,392 3,007 - - 2,273,164 1,113,672 Dividends from Defence Housing Authority ------230,698,000 373,525,000 230,698,000 373,525,000 Military superannuation contributions ------604,885,338 - 604,885,338 - Payments by foreign governments and UN 20,174,043 ------20,174,043 - Net foreign exchange gain 162,159 ------162,159 - Other sources of non taxation revenues - 59,285,179 ------3,928,715 608,767,025 3,928,715 668,052,204 Total administered revenues 20,387,121 59,337,076 627,166 351,363 126,615 137,427 1,322,072 569,977 146,392 3,007 839,512,053 982,292,025 862,121,419 1,042,690,876 Administered Expenses Military Superannuation Benefits ------2,261,209,931 2,498,659,021 2,261,209,931 2,498,659,021 Retention Benefits ------27,296,538 - 27,296,538 - Housing Subsidies ------8,201,508 7,394,123 8,201,508 7,394,123 Net foreign exchange loss - 2,045,315 ------2,045,315 Write-down of assets - 84,239,135 ------84,239,135 Suppliers1 22,792,553 ------22,792,553 - Other ------2,319,881 - 2,319,881 Total administered expenses 22,792,553 86,284,450 ------2,296,707,977 2,508,373,025 2,319,500,530 2,594,657,475 Note: 1. The Suppliers amount relates to United Nations accual expenses as at 30 June 2004.

400 Purchaser-Provider Arrangements

Defence Housing Authority Defence and the Defence Housing Authority have two formal agreements: the Services Agreement for Housing and Related Requirements (the Services Agreement) and the Relocation Services Agreement. The agreements formalise the relationship between Defence (as purchaser) and the Defence Housing Authority (as provider) of housing and related services. The Services Agreement extends to 2010 and the Relocation Services Agreement allows for performance reviews to be conducted in 2006, 2008 and 2010. Defence, through the Corporate Services and Infrastructure Group’s Business Improvement Project, is implementing a revised contract management framework to meet the recommendations made in the June 2003 Australian National Audit Office report on Defence Housing and Relocation Services (Audit Report No. 51). The revised framework aims to put the relationship between Defence and the Defence Housing Authority on a more business-like footing. A report on Defence’s implementation of the Australian National Audit Office recommendations will be provided to the Joint Standing Committee on Public Accounts during 2004-05. Department of Foreign Affairs and Trade Defence maintains a service level agreement with the Department of Foreign Affairs and Trade (DFAT) for the provision of management services at DFAT-managed overseas posts. The agreement is intended to promote efficient and effective Australian Government business overseas by avoiding unnecessary duplication of common services at overseas posts. For these services an agreed fee is charged. The services provided for Defence under the agreement include personnel, residential and office accommodation, security, financial advice and transactional processing, information technology infrastructure support, and telecommunications and secure network services for Australian-based and program support staff engaged at overseas posts. The cost of the agreement was $3.3m in 2003-04, an increase of $0.8m from 2002-03. A new agreement is being negotiated for 2004-05. Defence also maintains a memorandum of understanding with DFAT on the provision of information and communication technology services to Defence personnel at DFAT-managed overseas posts. For these services an agreed fee is charged. The services provided to Defence under the memorandum of understanding are: • local area networked desktop office products at the classified and unclassified levels, facilitating emails and cablegrams being communicated to the appropriate Defence networks; and • telephone exchange services, including the provision of a telephone handset. The information and communications technology infrastructure providing these services is maintained and supported by DFAT.

401 Appendices

The services are provided in 31 countries to approximately 150 Defence personnel and locally engaged staff in overseas posts. The cost to Defence under the two-year agreement was in the order of $1m in 2003-04.

402 Internal Audit and Risk Management Arrangements

Internal Audit Management Audit Branch, within the Inspector-General’s Group, provided an internal audit capability in accordance with an annual audit work program approved by the Defence Audit Committee. The Branch undertook a number of investigative tasks requested by Ministers and senior Defence officials, or as a result of suspect transactions identified through computer-aided audit techniques and other fraud intelligence activities. This work provided managers across Defence with assurance, assisted them in performance improvement, and advised on the efficiency, effectiveness and legality of Defence’s resource management and corporate governance. A risk-based (likelihood/consequences) approach was used to allocate internal audit resources to where they would be of most assistance. This mainly involved consideration of business and resource management risks over the medium-term (three years). This medium-term analysis took account of Defence enterprise-level risks, Joint Committee of Public Accounts and Audit, Australian National Audit Office and Management Audit Branch reports, the views of Group Heads and the requirements of the Defence Audit Committee, which included the follow-up of implementation of all high-level audit recommendations. Within the medium-term framework, the annual audit work program was developed to take account of emerging risks, changed risk impacts and priorities. Throughout the year, Management Audit Branch reported against the program, and the implementation status of high-level recommendations, to the Defence Audit Committee. Ethics Awareness and Fraud Control Defence has a well-developed program of ethics and fraud awareness. In 2003-04, over 200 ethics and fraud awareness presentations were given to approximately 10,000 Defence personnel across Australia.

Ethics Awareness The program also included the provision of material such as videos, newsletters and a dedicated intranet site for information and advice. During 2003-04, the Chief of the Defence Force launched a new video, Defence Values – The Siege of Tobruk. The video was produced to illustrate how Defence’s enduring values of professionalism, loyalty, integrity, courage, innovation and teamwork – integral to the overall success at Tobruk – are still critical to the success of Defence today. The video has won two international awards; a second place Silver Screen award, a third place for creative excellence at the 2004 United States International Film and Video Festival and one national award in 2003 for best documentary in its class, by the Australian Video Producers Association.

Fraud Control During 2003-04, in line with the Commonwealth fraud control guidelines, Defence developed a new fraud control plan, Defence Fraud Control Plan (No 5). There were 454 fraud investigations registered within Defence during 2003-04 and 475 investigations were completed (a number of those completed being registered in the

403 Appendices previous year). Approximately one quarter of completed investigations resulted in criminal, disciplinary or administrative action. Of these, approximately half related to action under the Defence Force Discipline Act 1982. The determined fraud loss for completed cases in 2003-04 was some $1.2m and, during the year, monies awarded and recovered amounted to around $0.125m. Over the last nine fiscal years, detected fraud has averaged an estimated $1.8m per year, within a range of $1.1m to $3.1m per annum. Portfolio Evaluations

Portfolio Evaluation Strategy The Defence Portfolio Evaluation Strategy is promulgated as a Defence Instruction (General). In accordance with that strategy, the Defence Committee authorised a schedule of portfolio evaluations covering 2003-04 and 2004-05. In calendar year 2003, the principal evaluation topics were: • Defence leave policy and administration; • adventurous training in the ADF; and • corporate governance of the Defence information environment (Phase 2). The principal evaluation topics for calendar year 2004, in order of priority, are: • preparation of ADF officers for joint appointments; • implementation of the Defence customer – supplier model; and • Defence civilian performance agreements. The foreshadowed topic, ‘Defence Strategic Workforce Planning Outcomes’, was dropped from the 2004-05 schedule because of the work done by the Strategic Workforce Planning Review. The Defence Committee deferred the topic ‘The Effectiveness of the Risk Management Framework’ from the 2004-05 schedule because of a review of risk. Topics foreshadowed for calendar year 2005 in the Portfolio Budget Statements 2004-05, in order of priority, are: • the technical regulatory system; • the effectiveness of personnel policy development and delivery; and • the injury prevention program.

Schedule of Portfolio-level Evaluations for 2003-04 The following evaluation activities were completed in 2003-04: Corporate Governance of the Defence Information Environment. This evaluation, to examine the use of information and governance arrangements in the Defence information environment, was provided to the Secretary and the Chief of the Defence Force in June 2004 and found: • the Defence information environment governance arrangements only partly address good governance characteristics, and improvements are needed; and

404 Internal Audit and Risk Management Arrangements

• enterprise process ownership and accountability in the Defence information environment is sound, but implementation could be improved. The Defence Leave Policy and Administration. This evaluation, completed in March 2004, found that: • the strength of Defence’s leave policy is its flexibility and coverage, but there are policy weaknesses that contribute to Defence’s high leave liability; • there are several shortcomings in leave administration that contribute to poor data quality, including disagreement about common processes and arrangements for administering leave; and • Defence’s accrued leave liability is high, but is affordable. Adventurous Training in the ADF. The evaluation was forwarded to the Secretary and the Chief of the Defence Force in July 2004. The report found that: • adventurous training is an important training tool for the preparation of individuals and teams for operations and, ultimately, combat; • governance of adventurous training needs to be improved across the ADF; and • risk management of adventurous training activities is generally sound. Enterprise Risk Management In October 2003, the Defence Committee agreed to replace the then current enterprise risks with key risk areas that are central to Defence’s ability to defend Australia and to manage and conduct business. This follows the review of the enterprise risk management framework foreshadowed in the Defence Annual Report 2002-03. In March 2004, Defence undertook a risk assessment using the key risk area concept. Based on this assessment, Defence has since devised treatments to mitigate risks that were judged to be unacceptable. Progress reports on the treatment of risks will be made periodically to the Defence Committee. The Defence Risk Management Plan is being revised in the light of experience gained during the above activities.

405 Appendices

External Scrutiny

Parliamentary Committees Defence interacted with a number of parliamentary committees throughout 2003-04. This segment reports on the status of inquiries or other action by parliamentary committees in relation to Defence. The information below is correct as at 30 June 2004. Information on the parliamentary reports, inquiries and hearings detailed below can be accessed through the Australian Parliament House website at: http://www.aph.gov.au.

Joint Statutory Committees

Public Accounts and Audit

Report No. 396, September 2003 – Review of Auditor-General’s Reports, 2002-2003, First, Second and Third Quarters This report considered Australian National Audit Office Report No. 3, 2002-03: Facilities Management on HMAS Cerberus. Defence responses to two of the report’s recommendations were lodged with the committee on 26 February 2004. Report No. 398, March 2004 – Review of Auditor-General’s Reports, 2002-2003, Fourth Quarter This report considered Australian National Audit Office Report No. 51, 2002-03: Defence Housing and Relocation Services. Defence witnesses attended a public hearing on 15 September 2003. Responses to two recommendations relating to Defence are due to be completed by September 2004. Report No. 399, March 2004 – Management and Integrity of Electronic Information in the Commonwealth Defence officers provided a briefing to the committee on 30 July 2003. Defence witnesses attended a hearing related to the theft of Custom’s computers on 17 October 2003. Defence lodged a submission to the committee on 20 October 2003. Report No. 400, June 2004 – Review of Aviation Security in Australia Defence lodged a submission with the committee on 30 July 2003. Defence witnesses attended a public hearing on 4 September 2003. Defence lodged further submissions with the committee on 4 March and 18 June 2004.

406 External Scrutiny

Public Works Report No. 6/2003, August 2003 – Provision of Facilities for Collocation and Re-equipping of the 1st Aviation Regiment at Robertson Barracks, Darwin, Northern Territory This project was considered by the committee at a public hearing on 8 July 2003 and approved by Parliament on 20 August 2003. Construction commenced in May 2004 and completion is expected by the end of 2005. Report No. 7/2003, August 2003 – Perimeter Security Fence, RAAF Base Tindal, Katherine, Northern Territory This project was considered by the committee at a public hearing on 9 July 2003 and approved by Parliament on 8 September 2003. Construction commenced in July 2004 and completion is expected by mid-2005. Report No. 11/2003, October 2003 – RAAF Base Richmond Reinvestment Project, Richmond, New South Wales This project was considered by the committee at a public hearing on 12 September 2003 and approved by Parliament on 15 October 2003. Construction commenced in June 2004 and completion is expected by the end of 2005. Report No. 1/2004, May 2004 – Site Remediation and Construction of Infrastructure for the Defence Site at Randwick, New South Wales This project was considered by the committee at a public hearing on 12 March 2004 and approved by Parliament on 2 June 2004. Initial construction work commenced in April 2004 and completion is expected by the end of 2005.

Joint Standing Committees

Foreign Affairs, Defence and Trade Visit to Australian Forces Deployed to the International Coalition Against Terrorism The Government response was tabled on 9 October 2003. Inquiry into Australia’s Maritime Strategy The report was tabled on 21 June 2004. A Government response addressing four recommendations made by the committee is currently being prepared. Review of Australia’s Relations with Indonesia The report was tabled on 21 June 2004. Defence provided input to the Government response which is being coordinated by the Department of Foreign Affairs and Trade. Inquiry into Australia’s Defence Relations with the United States A Defence submission was lodged with the committee on 17 February 2004. Defence witnesses attended a public hearing on 26 March 2004. Following a request from the committee, a copy of the Statements of Principles for Enhanced Cooperation in Matters of Defence Equipment and Industry was provided on 2 April 2004. Committee members visited the Pine Gap facility on 21 July 2004.

407 Appendices

Report of the 2003 New Zealand Parliamentary Committee Exchange 6-11 April 2003 Defence provided input to the Government response that was tabled on 16 October 2003. Review of the Defence Annual Report 2001-02 The Government response was tabled on 11 March 2004. Review of the Defence Annual Report 2002-03 Defence witnesses appeared at a public hearing on 15 December 2003. Responses to 17 questions arising from the hearing were lodged with the committee on 23 February 2004. Defence witnesses attended a further hearing relating to aspects of F-111 retirement on 4 June 2004. Responses to four questions arising from the hearing were lodged with the committee in August 2004. A further Defence submission was lodged with the committee on 16 June 2004.

Visits by and Private Briefings to the Defence Sub-Committee The sub-committee visited RAAF Williamtown, Darwin establishments, East Timor and RAAF Tindal in July 2003. Defence Service Chiefs provided private briefings on 7 and 14 October, 25 November and 2 December 2003. On 9 March 2004, as a result of the inquiry into the Defence Annual Report 2001-02, a Defence officer provided a private briefing to the committee on the Army Sustainment Model. The Chief of the Air Force provided a private briefing to the committee in relation to the Joint Strike Fighter program on 23 March 2004. A submission was also provided to the committee at the Review of the Defence Annual Report 2002-03 hearing on 4 June 2004. The Defence sub-committee members attended the General Conference of the Council for Security Cooperation in the Asia Pacific held in Jakarta in December 2003.

Senate Standing Committees

Finance and Public Administration References Committee Inquiry into the Administrative Review Within the Area of Veteran and Military Compensation and Income Support Defence declined to provide a submission to the inquiry. The Minister for Defence wrote to the committee on 18 September 2003 advising that the Department of Veterans’ Affairs submission, lodged on 4 September 2003, was fully supported by Defence. A Defence witness appeared at the public hearing on Friday 26 September 2003.

408 External Scrutiny

Foreign Affairs, Defence and Trade Legislation Committee 2003-04 Budget Estimates Hearing 4-5 June 2003 Responses to 58 questions taken on notice at the hearing were lodged with the committee on 30 July 2003. A copy of the trilateral agreement on the treatment of prisoners of war in Iraq was provided on 5 November 2003. 2003-04 Budget Supplementary Hearing on 5 November 2003 Responses to 40 questions arising from the hearing were lodged with the committee in February 2004. 2003-04 Additional Estimates Hearing on 18 February 2004 Responses to 57 questions arising from the hearing were lodged with the committee on 16 April 2004. 2004-05 Budget Estimates Hearing on 31 May – 1 June and 17 June 2004 Hearings Responses to 35 questions arising from the 31 May and 1 June hearings were lodged with the committee on 16 June 2004. Responses to a further 17 questions arising from the 17 June hearing had not been lodged as at 30 June 2004. Inquiry into the Military Rehabilitation and Compensation Bill 2003 and the Military Rehabilitation and Compensation (Consequential and Transitional Provisions) Bill 2003 Defence witnesses attended a hearing on 25 February 2004. Defence lodged a submission on 22 March 2004.

Scrutiny of Bills Defence provided input to the Department of Veterans’ Affairs response (tabled on 24 March 2004) to the committee in regard to the Foreign Affairs, Defence and Trade Legislation Committee’s Inquiry into the Military Rehabilitation and Compensation Bill 2003 and the Military Rehabilitation and Compensation (Consequential and Transitional Provisions) Bill 2003.

Foreign Affairs, Defence and Trade References Committee Inquiry into Materiel Acquisition and Management in the Department of Defence The Government response was tabled on 9 October 2003. Security Threats to Australians in South-East Asia Defence witnesses appeared at a hearing on 20 June 2003. Responses to three questions taken on notice at the hearing were lodged with the committee on 25 July 2003. Defence witnesses appeared at a hearing on 28 November 2003. Mr Richard Smith, the Secretary of Defence, also appeared at this hearing in a personal capacity as former Ambassador to Indonesia. Defence witnesses attended a further hearing on 28 May 2004. Responses to 27 questions arising from that hearing were lodged with the committee on 15 July 2004. Inquiry into the Current Health Preparation Arrangements for the Deployment of Australian Defence Forces Overseas Defence lodged a submission on 14 January 2004. Responses to 14 questions arising from a hearing on 26 February 2004 were lodged with the committee on 31 May 2004.

409 Appendices

Inquiry into the Effectiveness of Australia’s Military Justice System A Defence submission was lodged on 23 February 2003. The Chief of the Defence Force and the Service Chiefs attended a hearing on 1 March 2004. Responses to ten questions arising from the hearing were lodged on 29 April 2004. Defence witnesses attended a further hearing on 21 June 2004. Responses to four questions arising from the hearing were lodged with the committee on 30 July 2004.

Legal and Constitutional References Committee Inquiry into Australian Expatriates Defence lodged a submission with the committee on 27 February 2004.

Regulations and Ordinances Committee Defence Determination 2003/9, Section 58 of the Defence Act 1903 – Education Assistance Defence lodged a submission with the committee on 11 July 2003. Defence (Inquiry) Amendment Regulations 2003 (No. 1), Statutory Rules 2003 No. 311 Defence lodged a submission with the committee on 8 March 2004. Amendments to the Defence (Inquiry) Regulations 1985 A Defence response was lodged with the committee on 8 March 2004. Explosives Areas Regulations 2003 A Defence response was lodged with the committee on 26 March 2004.

House Standing Committees

Aboriginal and Torres Strait Islander Affairs Committee Inquiry into Capacity Building in Indigenous Communities Defence witnesses attended a public hearing on 10 September 2003.

Transport and Regional Services Committee Inquiry into the Privatisation of Regional and Infrastructure and Government Business Enterprises Defence lodged a submission with the committee on 1 December 2003.

House Select Committee

Inquiry into the Recent Australian Bushfires Defence lodged a submission with the committee on 6 June 2003. A Defence witness appeared at a public hearing on 15 July 2003. A response to the one question arising from the hearing was lodged with the committee on 15 August 2003.

410 External Scrutiny

Parliamentary Joint Committee on ASIO, ASIS and DSD Inquiry into Intelligence on Iraq’s Weapons of Mass Destruction Defence witnesses attended hearings on 24 September and 16 October 2003. Defence officers from the Iraq Survey Group provided a briefing to the committee on 16 October 2003. The report was tabled on 1 March 2004. Private Review of Agency Security Arrangements Defence provided a response to the committee on 12 August 2003. The report was tabled on 13 October 2003. Review of the Administration and Expenditure of ASIO, ASIS and DSD A statement of the Defence Signals Directorate’s financial information for 2002-03 was provided to the committee on 9 March 2004. A Defence witness attended a hearing on 6 May 2004. Responses to five questions arising from the hearing and a further submission were lodged with the committee on 8 June 2004. Inquiry into the Intelligence Services Amendment Bill 2003 A Defence officer attended a private hearing on 27 October 2003 at the committee’s request. Auditor-General’s Reports Six Auditor-General’s reports relating specifically to Defence were tabled during the year. The key findings and recommendations of each report were referred to relevant areas within Defence for implementation. Australian National Audit Office reports and general information on the audit office’s operations, including its audit timetable, can be accessed through the Australian National Audit Office’s website at: http://www.anao.gov.au. Audit Report No. 10, 27 October 2003 – Australian Defence Force Recruiting Contract As part of its 2001 inquiry into the recruitment and retention of ADF personnel, the Senate Foreign Affairs, Defence and Trade References Committee reviewed Defence’s contract with Manpower Services (Australia) Pty Ltd for trialing the outsourcing of recruiting services to the ADF. In its subsequent report, the committee commented that the original contractual arrangements deserved further scrutiny by the Australian National Audit Office. In examining the management of the contract, the Australian National Audit Office looked at the evaluations conducted at the end of each contractual phase, roles and responsibilities associated with ADF recruiting, and Defence's monitoring of contractual performance and management of risks associated with ADF recruiting. The Australian National Audit Office made two recommendations to which Defence agreed. Audit Report No. 32, 2 March 2004 – Wedgetail Airborne Early Warning and Control Aircraft: Project Management The audit reviewed the Defence Materiel Organisation's management of the $3.43 billion Wedgetail Airborne Early Warning and Control project. At the time of the audit, the Airborne Early Warning and Control systems were still in their early development phase and, by November 2003, Defence had spent $1.107 billion on the project.

411 Appendices

The Australian National Audit Office made six recommendations to which Defence agreed. Audit Report No. 43, 23 April 2004 – Defence Force Preparedness Management Systems The objective of the audit was to provide assurance to Parliament about the adequacy of Defence preparedness management systems and to identify possible areas for improvement. The audit focused on the systems and processes that Defence uses to manage preparedness. The Australian National Audit Office did not review the preparedness levels of specific capabilities, nor did it cover capital acquisition processes. The audit included coverage of preparedness systems architecture; control and direction of preparedness; coordination among contributors to preparedness; and performance management and preparedness. The Australian National Audit Office made seven recommendations to which Defence agreed. Audit Report No. 45, 29 April 2004 – Army Individual Readiness Notice Follow-up Audit The objective of the follow-up audit was to assess the Army’s progress in implementing the Australian National Audit Office’s audit recommendations and to examine and assess any developments in relation to the Army Individual Readiness Notice since the 1999-2000 audit report, and the 2001 Joint Committee of Public Accounts and Audit report. The Army updated the Army Individual Readiness Notice policy in 2001 and 2004. The Australian National Audit Office made one recommendation to which Defence agreed. Audit Report No. 47, 25 May 2004 – Developing Air Force’s Combat Aircrew The audit objectives were to provide assurance to Parliament on the adequacy of the measures and plans instituted by Defence to ensure that the combat aircrew workforce met military preparedness requirements in the future and to identify possible areas for improvement. The Australian National Audit Office made three recommendations to which Defence agreed. Audit Report No. 59, 30 June 2004 – Defence’s Project Bushranger: Acquisition of Infantry Mobility Vehicles This was not an audit of contractor performance, but of the formation and contract management of the acquisition project by Defence. The objective of this audit was to provide an independent assurance on the effectiveness of Defence’s management of the acquisition of armoured infantry mobility vehicles for the ADF. The audit sought to identify the initial capability requirements; analyse the tendering and evaluation process; and examine the management of the project by Defence. The Australian National Audit Office made seven recommendations to which Defence agreed.

Cross-Portfolio Reports Defence also participated in, or contributed to, the following cross-portfolio Auditor-General’s reports.

412 External Scrutiny

Audit Report No. 2 Audit Activity Report: January to June 2003 13 August 2003 Audit Report No. 5 The Senate Order for Departmental and Agency Contracts 11 September 2003 (Autumn 2003) Audit Report No. 22 Audits of the Financial Statements of Australian 9 January 2004 Government Entities for the period ended 30 June 2003 Audit Report No. 25 Audits of the Financial Statements of Australian 5 February 2004 Government Agencies Audit Report No. 28 Audit Activity Report: July to December 2003 12 February 2004 Audit Report No. 31 The Senate Order for Departmental and Agency Contracts 26 February 2004 (Financial Year 2002-2003 Compliance) Audit Report No. 58 Control Structures as part of the Audit of Financial 30 June 2004 Statements of Major Australian Government Entities for the Year Ending 30 June 2004 Defence Force Ombudsman There were no formal reports to the Chief of the Defence Force pursuant to Section 15 of the Ombudsman Act 1976, nor were any reports raised under sections 16, 17, or 19 of the Act relating to the operations of the ADF during the period under report. Decisions of Courts and Tribunals During 2003-04, there were no decisions of a court or tribunal in relation to matters handled by the Defence Legal Service that resulted in a significant change to the law. Common law actions for damages for personal injury against the Commonwealth by former crew members of HMAS Melbourne, alleged to have arisen from its collision in 1964 with HMAS Voyager, continue in the Supreme Courts of New South Wales and Victoria. Common law claims are also being defended in the Supreme Court of Queensland in which plaintiffs allege injury caused by their participation in various deseal and reseal programs conducted on F-111 aircraft. On 19 December 2003, the State Coroner of Western Australia handed down his findings in the inquest into the death on 5 May 1998 of four crew members of HMAS Westralia after an onboard fire. In his findings, the State Coroner concurred with the earlier findings of the Navy Board of Inquiry that each of the deceased had died as the result of being asphyxiated in a fire caused by the failure of an incorrectly-fitted engine fuel system supply line. The confidential mediation of the claim in the Federal Court of Australia by the Commonwealth against ADI Limited, Parker Enzed Technologies Limited, Jetrock Pty Ltd (in liquidation) and Todd Hydraulics Pty Ltd, for damages relating to the 1998 fire onboard HMAS Westralia, has been terminated and the matter is now proceeding to trial. A hearing in early 2005 is expected to be ordered by the Court.

413 Appendices

Legal Expenses In July 2004, a new Defence Legal Division was created within the Corporate Services and Infrastructure Group. The new division incorporates the existing Defence Legal Service, and will progressively assume responsibility for other functions including the management of new Defence legal panels and alternative dispute resolution. Defence Legal provides a wide range of legal services for Defence, reflecting the diverse activities of the organisation. Lawyers in the division provide legal and legal policy advice generally concerning operations law, development of legislative proposals, participation in the development of a range of Defence policies, advising in relation to Defence-sponsored international agreements and arrangements, military justice, freedom of information and historical records access matters, litigation and administrative law. The following information relates to Defence’s legal expenditure during 2003-04. Defence’s legal expenditure is expressed in terms of internal and external legal expenses. Internal expenses include salaries for military and civilian staff, divisional costs, and military justice reimbursements. External expenses are professional fees, disbursements and other legal expenses. Estimated Expenditure on Internal and External Legal Table 7.1 Services in 2002-03 and 2003-04 2002-03 2003-04 Type of legal expenditure ($m) ($m) Internal 22.5 22.3 External 38.8 38.7 Total 61.3 61

The results in Table 7.1 indicate that the expenditure on internal and external expenses has remained steady between 2002-03 and 2003-04.

Table 7.2 Estimated Cost Breakdown of Internal Legal Expenses 2003-04 Items ($m) Salaries for military lawyers 10.3 Salaries for civilian staff 6.6 ADF legal Reserve officers 2.8 Operating costs of the Division 2.3 Military justice reimbursements .4 Total(1) 22.3 Note 1. Figures may not add due to rounding.

Table 7.3 Estimated Cost Breakdown of External Legal Expenses 2003-04 Items ($m) Professional fees – Defence legal panel 22 Professional fees – Attorney General’s 1.6 Disbursements 5 Legal expenses – other 10.1 Total 38.7

414 Legal Expenses

Initiatives A number of initiatives are being implemented to improve the management and accountability of expenditure on external legal services by Defence. These include: • the re-tender of Defence’s legal panel arrangements; • standardising the reporting of expenditure to assist in its tracking; and • improving the means of accessing external legal services by introducing area coordinators and the proposed establishment of a database of external legal opinions. The changes are intended to enhance the usefulness of legal advice while ensuring that appropriate quality control and accountability have been applied. One of the initiatives, the re-tendering of the Defence legal panel, aims to improve the management and control of external legal services to maximise value for money. The role of the legal service panel is to provide a complete range of legal services not available from within Defence. The current arrangements of four primary panellists and three Reserve panellists will expire in 2004-05, and the introduction of new panel arrangements will see the creation of up to 16 panels reflecting areas of expertise such as environmental law, litigation and commercial law. During 2003-04, a two-stage procurement process began to identify replacement panels members, and suitably qualified organisations and individuals were asked to respond by July 2004. The replacement panel is expected to be in place by July 2005. In changing the current panel arrangements, Defence will introduce a new service delivery model that will significantly increase the opportunity for legal firms to access Defence’s business, provide manageable administration arrangements, and improve the overall management and value for money that Defence can achieve for its services. In addition, a number of recommendations from an internal review of the Defence Legal Service, conducted in 2002-03, have been accepted and are being implemented. These include communications strategies and structural reorganisation.

415 Appendices

Overview of the Inspector-General of the Australian Defence Force The office of the Inspector-General of the ADF was established following a recommendation from the Report of an Inquiry into Military Justice in the Australian Defence Force conducted by Mr James Burchett QC in 2001. Mr Geoff Earley was appointed as the inaugural Inspector-General of the ADF with effect from 13 January 2003, by the Chief of the Defence Force. The Inspector-General of the ADF does not hold military rank although, for administrative purposes, the position is established at a Senior Executive Service Band Two-equivalent level. The Inspector-General of the ADF reports directly to the Chief of the Defence Force and is independent of the normal ADF and Public Service chain of command and line management. The role of the Inspector-General of the ADF (set out in detail in Defence Instruction General (Admin) 61-1) is essentially twofold: to provide the Chief of the Defence Force with internal audit and review of the military justice system independent of the ordinary chain of command; to provide an avenue by which failures of the system, systemic or otherwise, may be examined and remedied as necessary. The Inspector-General of the ADF is supported by nine full-time staff, supplemented by part-time Reserve officers as appropriate. Following the appointment of the Inspector-General, the infrastructure necessary to support the effective operation of the role was established, including the development of amendments to the Defence (Inquiry) Regulations, 1985. The office of the Inspector-General of the ADF was formally opened by the Chief of the Defence Force on 24 September 2003. The functions and contact details (including a toll-free 1800 number) of the Inspector-General of the ADF have been published in a variety of media targeting ADF members to improve awareness of the function. Awareness of the office was raised by the publication of articles in each of the three Service newspapers, a Defence intranet site, brochures and promotional material and presentations to stakeholder groups.

Activities The functions of the office of the Inspector-General of the ADF fall broadly into four main groupings: investigation, performance review or audit, advice and development: • Investigative functions include the investigation of matters referred by the Chief of the Defence Force, Service Chiefs or other agencies, or matters that have been received directly from individuals for whom the normal command chain processes have failed or are otherwise inappropriate. Matters may also be investigated by the Inspector-General on his own motion. • Performance review or audit functions include two aspects – the analysis of military justice source data (such as statistical records of disciplinary action, grievances, administrative inquiries) to identify trends or deficiencies at a macro-level and on-site checks of military justice arrangements at ADF units. • Advisory functions include the provision of advice on dealing with military justice issues and the maintenance of a register of persons suitable to conduct administrative inquiries.

416 Overview of the Inspector-General of the Australian Defence Force

• Development functions include the promotion of military justice values, identification of potential improvements to the system or policy, including by monitoring best practice in comparable forces, and seeking feedback data on military justice issues from users and members. From the commencement of operation in January 2003 to 30 June 2004, 101 references were received by Inspector-General of the ADF. As at 30 June 2004, 66 of these references had either been dealt with to closure by the office or referred, following assessment, to other agencies for resolution. References were received by a range of methods as shown in the following table. Table 7.4 References to the Inspector-General ADF by Method Received Method received Number of cases Percentage Email 17 16.8 Facsimile 44.0 In person 65.9 Letter 19 18.8 Phone call 31 30.7 Referral 24 23.8 Total 101 100 The outcomes of references dealt with by the Inspector-General of the ADF are described in terms of whether or not the matter disclosed a failure of military justice and, if so, whether the failure was of an individual or systemic nature. This approach was adopted as being consistent with the stated role of the position and to allow for the fact that not all references are submitted in the form of complaints capable of being ‘upheld’, or ‘not upheld’ as such. The following tables provide an analysis of references as indicated. Table 7.5 References to the Inspector-General ADF by Outcome Outcome Number of references Percentage Systemic failure of the military 98.9 justice system Individual failure of the 19 18.8 military justice system No failure of the military 39 38.6 justice system References not yet determined 34 33.7 Total 101 100

417 Appendices

Table 7.6 References to the Inspector-General ADF by Subject Matter(1) (3) Subject matter Number of occurrences Percentage Abuse of authority 27 11.5 Abuse of process 13 5.5 Avoidance of due process 17 7.2 Bastardisation 62.6 Comment on military justice system 41.7 Conflict of interest 10.4 Cover up, failure to act 25 10.6 Denial of legal rights 83.4 Denial of natural justice 25 10.6 Error in disciplinary 21 8.9 Error of law 11 4.7 Harassment 31 13.2 Unlawful, extra-judicial punishment 10.4 Victimisation, threats, intimidations 26 11.1 Other 19 8.1 Total 235(2) 100(2) Notes 1. References may include allegations with more than one subject. 2. Figures may not add up due to rounding. 3. References may include more than one originator.

Table 7.7 References to the Inspector-General ADF by Service(1) (3) (4) Service Number of references Percentage Navy 15 14.9 Navy Reserves 11.0 Army 54 53.5 Army Reserves 33.0 Air Force 26 25.7 Tri-Service 22.0 Total 101(2) 100(2) Notes 1. References may include allegations with more than one subject. 2. Figures may not add up due to rounding. 3. References may include more than one originator. 4. ‘References by Service’ relates to the Service to which the actual complaint refers to, not the Service of the complainant.

Table 7.8 References to the Inspector-General ADF by Gender of Originator(1)(3) Gender Number of references Percentage Not stated 21.8 Female 30 27.0 Male 79 71.2 Total 111(2) 100(2) Notes 1. References may include allegations with more than one subject. 2. Figures may not add up due to rounding. 3. References may include more than one originator.

Closed or Referred References Made to the Inspector-General ADF by Table 7.9 Length of Time Before Being Closed or Referred Length Number of references Percentage <1 month 19 28.9 1-6 months 31 47.0 6-12 months 15 22.7 >1 year 11.5 Total 66 100

418 Overview of the Inspector-General of the Australian Defence Force

Aside from the investigative function, other activities during the year have included: • the completion of a pilot program of performance checks of military justice arrangements at the unit-level; • the development of a prototype model to assist in the assessment of military justice effectiveness at a macro-level; • the identification of a range of policy issues to improve the military justice system; • the development of a training course for officers conducting administrative inquiries; • sponsorship of a seminar to provide line managers with skills to deal more effectively with chronic complainants; and • sponsorship of a supplement to the annual ADF Attitude Survey to seek perceptions of ADF members on various military justice issues. Such perceptions, while not necessarily reflecting the reality of a situation, assist in identifying systemic issues and areas for reform. The establishment of the office of the Inspector-General of the ADF is an important initiative in improving the effectiveness of the ADF military justice system. While the office is as yet relatively new and will require more time to achieve its full potential, initial indications have been very positive and its impact on the military justice system is becoming increasingly evident as awareness of its function grows.

419 Appendices

Responsiveness to the Ministers and the Parliamentary Secretary Improving the timeliness and quality of support provided to Ministers and the Parliamentary Secretary remained an important focus for Defence. Defence continued to conduct dedicated staff information sessions and formal monthly Ministerial writing courses to educate staff and raise awareness about accountability to Government, the processes involved, and available departmental support. Such sessions focused on building staff awareness and developing skills at the staff and management levels, the accountability of management, and the continued construction and support to a robust and responsive whole-of-Defence communication network that would support the Minister and Parliamentary Secretary. The Defence Committee continues to receive a monthly report on Defence’s performance in meeting the requirements of the Ministers and Parliamentary Secretary in terms of timeliness and quality. During 2003-04, Defence provided its Ministers and Parliamentary Secretary with 4,711 submissions, an increase of 4 per cent on 2002-03. Defence also provided the Minister and Parliamentary Secretary with 54 briefs relating to visits to various Defence facilities across Australia, 113 meeting briefs and responded to 40 speech requests. Defence received 11,547 items of correspondence during the year for the attention of the Ministers and the Parliamentary Secretary. Some 32 per cent of correspondence related to three issues: the sale of Defence-managed Commonwealth property at Point Nepean in Victoria; the sale of the former Artillery Barracks in Fremantle, Western Australia; and, to a lesser extent, the possible exposure of ADF personnel to depleted uranium in weapons. The remainder covered a wide range of issues including: • the international war against terrorism; • Defence’s property disposal program; • ADF honours and awards; and • various issues regarding Australia’s role within the coalition’s nation rebuilding effort in Iraq (see the following section on the Defence Service Charter for more information on ministerial correspondence). Defence received 267 parliamentary questions on notice, of which 107 were from the House of Representatives and 160 from the Senate. During 2003-04, 232 responses were published in Hansard – 97 for the House of Representatives and 135 for the Senate. In addition, 12 questions – two from the House of Representatives and ten from the Senate – were transferred to other portfolios.

420 The Defence Service Charter Defence’s mission is to defend Australia and its national interests. By its nature, Defence provides very few services direct to the Australian public; instead it serves all Australians through, and at the direction of, the Government of the day and the Parliament. The services that Defence does provide include assistance to the civil community (in times of natural disaster), participating in public events, conducting recruiting activities and managing recruitment offices, and responding to a range of correspondence on many Defence issues. The Defence Service Charter sets out our standards in service delivery. While the service charter is aimed at ensuring quality service to the public, we also apply the standards in our work with our colleagues and other agencies. Defence reports annually to the Minister for Defence on the extent to which it has met the performance standards relating to the charter. The following is a full account of the report provided to the Minister for 2003-04. Performance Standards Defence commits to the following standards in its service charter: • act on a request from the public in a professional and courteous manner; • provide accurate information; • respect privacy and sensitivities; • respond to phone calls, faxes or emails within two working days; and • reply to correspondence within 15 working days. Performance Monitoring Defence’s Groups have systems in place to track compliments and complaints. • Consistent with Australian Standard 4269 on Complaints Handling, Defence only reports on complaints/compliments from members of the public rather than internal complaints. Complaints are reported only if they relate to services provided (ie the process), not to decisions made. • In most cases, written complaints referred to first assistant secretary and military equivalents or above are recorded. • Where a complaint is resolved at a lower level without recourse to senior levels, no information is recorded for service charter purposes. Performance in 2003-04

Awareness of Charter The Defence Service Charter remains available electronically on the internal and external Defence web sites.

421 Appendices

Copies of the service charter are made available to the public through the Defence Community Organisation, Defence Force Recruiting offices, and civilian recruitment areas. Customer Feedback and Complaints The Defence Service Charter provides the public with information on how to make a complaint or provide feedback, together with contact details. Members of the public are encouraged to phone or write, in the first instance, to the relevant area of Defence or the supervisor of the area, and then if necessary, the Ministers or the Parliamentary Secretary, or their local Member of Parliament or Senator. There is also a dedicated email address [email protected]. In addition, members of the public can contact the Commonwealth Defence Force Ombudsman.

Table 7.10 Complaints Made to Defence 1999-2000 – 2003-04 1999-2000 2000-01 2001-02 2002-03 2003-04 Number of complaints 307 745 691 490 659

Most complaints were resolved within the stated performance standard of 15 working days. Complaints of a more complex nature were generally resolved within 28 days. Some issues, because of their ongoing nature, remained unresolved. Groups report that the most common complaints related to recruitment processes, honours and awards, and aircraft and ship noise. The most common compliments Groups received were for the overall level of Defence assistance to the civil community, especially in relation to ADF personnel attendance and displays at public events, and the professional conduct of service men and women on operations. Responsiveness to Ministerial Correspondence The volume of ministerial correspondence remained high in 2003-04. The success rate for satisfying the ten-day response requirement was not sustained. This was due mainly to the increased complexity of the requests including the decreased proportion of correspondence generated by letter writing campaigns down from 40 per cent to approximately 31 per cent of total correspondence. The complexity of responses has required increased coordination between areas of Defence to ensure that whole-of-Defence and Government responses are provided. Percentage of Department Response Times Against the Standard Table 7.11 Requirement of Ten Days 1999-2000 2000-01 2001-02 2002-03 2003-04 Number of letters received 9,421 9,657 9,580 12,820 11,547 Average per cent of responses completed on time(1) 75 86 76 82 73 Note 1. Prior to 2002-03, the requirement was 15 days. Payment of Accounts The timely payment of accounts is a customer service measure and an indicator of the efficiency of Defence’s internal business processes. Defence is aiming to achieve a level of performance whereby 95 per cent of all accounts are paid within the nominated trading term, which is generally 30 days from receipt of a correctly rendered invoice and receipt of the goods and services.

422 The Defence Service Charter

Continuing improvement of Defence’s business processes during the year has resulted in consistently better payment performance. Management emphasis on the use of purchase orders for larger payements and the Defence Purchasing Card for simple purchases has improved their levels of use throughout the year. Increased use of these methods of payment has improved transaction speed and efficiency. A new card management system was brought on-line during the year and has already made a large improvement in the efficiency of card transaction processing. As a further measure, rollout of the Defence Travel Card commenced during the year. The use of the travel card will simplify the payment of the very large numbers of smaller, travel-related accounts and allow the GST paid on them to be recovered more efficiently. In addition, implementation of imaging technology for invoice processing is scheduled for later in 2004. The adoption of this technology is expected to further improve processing efficiency and speed of account payments. It is anticipated that these and other related initiatives will continue to improve Defence’s performance in the timely payment of its accounts. The improvement achieved over the past three years is shown below.

Table 7.12 Accounts Paid by Due Date 2001-02 2002-03 2003-04 Number of accounts paid 1,122,962 1,223,773 1,216,216 Accounts paid by due date 928,843 1,026,383 1,037,245 Percentage of accounts paid by due date (%) 82.7 83.9 85.3

423 Appendices

Ecologically Sustainable Development and Environmental Performance Section 516A of the Environment Protection and Biodiversity Conservation Act 1999 requires Commonwealth organisations to include in their annual reports details on the environmental performance of the organisation and its contribution to ecologically sustainable development. During 2003-04, Defence dedicated significant resources to conserving and sustaining the environment and heritage places under its care, in accordance with the objectives and targets set out in the Defence Environmental Strategic Plan 2002-2005. Environmental expenditure of approximately $24.8m facilitated delivery of the Government’s economic and environmental agenda under the National Strategy for Ecologically Sustainable Development. This section highlights some of Defence’s environmental successes and challenges during 2003-04, as it strives to manage in an ecologically sustainable way and continues to improve its environmental performance. Further information can be found at http://www.defence.gov.au/environment. Sustainable Management of Ecosystems

Land Management Defence commenced a review of its bushfire management policy to ensure that the bushfire management plans for its training areas accord with best practice. These plans aim to improve Defence’s understanding of its training areas’ response to changing fire regimes and inform future decisions on the long-term viability of land to support Defence training. Work was also undertaken to gauge the degree of impact from feral animals, pests, weeds and overabundant native species on the sustainability of training areas. Strategies for the longer term sustainable management of these species are currently being developed. Defence established the Directorate of Sustainability Strategies in early 2004 to more clearly articulate the concept of environmental sustainability in the Defence context. The directorate’s aim is to consider the planning processes and documentation associated with major exercises and activities to ensure planners adopt sustainable outcomes and comply with Defence’s environmental obligations. To meet this goal, the directorate, in conjunction with key military stakeholders, is identifying the sustainability pressures on major Defence training areas and methods to ease these without adverse impact to the planning and conduct of major exercises and training requirements.

Interaction with Marine and Aquatic Environment Defence conducted a risk assessment of Defence activities conducted in the marine environment. In response, the Maritime Exercise Area Environmental Management Plan was developed and provides planning guides and revised procedures for managing and minimising environmental risks associated with marine activities.

424 Ecologically Sustainable Development and Environmental Performance

The Proof and Experimental Establishment at Port Wakefield, South Australia, has been nominated for inclusion on the list of Wetlands of International Importance protected under the Environment Protection and Biodiversity Conservation Act 1999. The Port Wakefield site contains intertidal wetlands and roosting sites associated with the Gulf of St Vincent that have been formally assessed as internationally significant and suitable for inclusion as a Ramsar protected site. The property is now in the final stages of the nomination and Defence considers that the continued use of the area, as a proof and experimental establishment for weapons testing, will be consistent with conservation of the Port Wakefield wetland values.

Flora and Fauna Interaction

Threatened Species Management Defence owns large tracts of land across Australia that are used for military training exercises. These properties often contain high-quality remnant vegetation that has not been significantly altered by past European land practices. This land often contains protected plant and animal species. The challenge for Defence is to strike the balance between conserving these environmental values while enabling the ADF to achieve its training outcomes. The careful stewardship of these lands by Defence, in accordance with its various environmental management guidelines, will ensure that environmental values can be supported while maintaining military capability. Defence participated in a project to conserve the Eastern Bristlebird by relocating approximately 30 birds into suitable habitat within Beecroft Weapons Range on Beecroft Peninsula, on the New South Wales coast. The aim, to establish a breeding colony of this nationally listed threatened species, is considered to have been successful at this early stage.

Overabundant Native Species Management Occasionally, the numbers of native species increase dramatically in response to favourable environmental conditions, or as a result of them concentrating in response to drought, fire or other environmental stress. Historically, Defence has managed large numbers of native species on its properties. Defence, in cooperation with an experienced wildlife ecologist, successfully introduced a non-lethal control program for the management of a ‘mega-flock’ of corellas that was having a serious impact on the operation and infrastructure of RAAF Edinburgh in South Australia. In Victoria, Defence, with the agreement of the State Government, continued to implement measures to control the kangaroo population at the Puckapunyal Military Training Area. This work is necessary to maintain a healthy kangaroo population while managing the impact of large numbers of kangaroos on the environmental and training values of the area.

425 Appendices

Natural Resource Consumption

Energy Use and Greenhouse Gas Emissions Defence continued its commitment during the year to improve energy efficiency and reduce energy wastage consistent with the Commonwealth energy policy. To achieve this, Defence conducted the following specific activities: • The construction of all new and re-furbished buildings will take into account energy efficiency measures, including augmentation using solar energy in some remote locations. • The development of a draft energy management instruction which will give effect to the draft defence energy management strategy, due to be completed by June 2005. • The incorporation of energy efficiency as a key objective in guidance and relevant contract documents for the planning, design, development and delivery of all Defence capital projects, including refurbishment. • The continuing participation as a board member of the Green Building Council, with a strong interest in energy efficiency innovations applicable to Defence. • The application of energy rating tools to new buildings including assessments of energy performance. • The provision of Defence energy consumption data to the annual whole-of- government energy report, Energy Use in the Australian Government’s Operations. Based on actual data for nine months and forecast data for the last three months of 2003-04, it is predicted that Defence’s consumption of electricity in 2003-04 (2,659,056 Gj) would increase marginally from actual consumption reported in 2002-03 (2,564,722 Gj). This increase would be due primarily to increased operational tempo and introduction of additional facilities to support capability. Despite the overall increase, Defence continues to meet the office consumption targets set under the Commonwealth energy policy and its

Greenhouse Challenge Agreement target of saving 120,000 CO2 tonnes (over the period July 1999 – June 2004). Major savings in greenhouse gas emissions were achieved through energy efficient building designs, upgrades to heating, ventilating and air conditioning systems and introduction of energy efficient equipment. The introduction of building management systems and the use of solar alternative energy assisted in achieving further savings.

Water Use and Conservation Defence sought to minimise water consumption especially in areas subject to drought conditions. Where available, recycled water was used for irrigation purposes and specific site-based water conservation initiatives were introduced following the release of the Defence Sustainable Water Management Strategy in February 2004. Defence also commenced a water conservation communication and awareness project that includes the development of posters and web pages with case study examples and water conservation checklists.

426 Ecologically Sustainable Development and Environmental Performance

Waste Generation Defence sites commenced active integration of waste management into relevant sites of the Defence environmental management systems, consistent with the draft waste minimisation and recycling strategy. Specific waste management procedures were also implemented for deployed forces in East Timor. Defence recycles paper and office consumables in most regions and achieved a saving of 1,693 kilograms of office consumable waste diverted from landfill and collected and recycled over 2,000 items, including used printer cartridges, photocopying drums and toner bottles.

Pollution Prevention Defence undertook a study to identify potential contaminants being used by Defence and to evaluate environmental aspects, pathways and impacts of these contaminants. The study findings will assist in identifying the risks of potential polluting sources at Defence sites and inform a review of current pollution abatement and waste disposal initiatives.

Soil and Water Contamination Contamination management initiatives were a key focus of Defence during the year. Initiatives included: • development and implementation of the Defence Contaminated Land Management Strategy to provide guidance on the identification and minimisation of contamination risks and the management of existing contamination, including the publication of a number of best-practice guidebooks; • the Defence Contaminated Sites Register to provide data and information to support the Defence Contaminated Land Management Strategy and assist decision makers at the regional and corporate levels; • development of a graduate certificate in contamination investigation and management, in conjunction with the University of South Australia, to assist Defence personnel in implementing best practice strategies for the management of site contamination. A total of 15 Defence personnel are currently undertaking the certificate; and • commencement of three contamination investigation flagship projects with the Centre for Environmental Risk Assessment and Remediation and the University of South Australia. The aim of the flagship program is to investigate complex contamination issues at Defence sites and to apply the lessons derived from the program to sites where similar contamination issues exist.

Waste Treatment and Disposal Following on from the position paper developed in 2002-03, Defence undertook a study into waste treatment and disposal issues associated with Defence activities. The study identified the number of sewage treatment plants across the Defence estate and evaluated the operational effectiveness of a sample of these.

427 Appendices

Recommendations on improving the operation and management of these sewage treatment plants were made to Defence managers and steps are being taken to implement improvements in performance. National Pollutant Inventory Defence has participated in the National Pollutant Inventory program for the past two reporting years. Due to the diverse and dispersed nature of Defence activities and the breadth of chemicals involved, Defence is reviewing the extent of its participation, in consultation with the Department of the Environment and Heritage. Ozone Depletion The Ozone Protection and Synthetic Greenhouse Gas Management Act 1989 controls the use of ozone depleting substances and their synthetic greenhouse gas alternatives. Additionally, it empowers the Government to develop national end-use controls on the purchase, sale, handling and disposal of both ozone depleting substances and synthetic greenhouse gases. Defence continued to manage the phase out of ozone depleting substances and synthetic greenhouse gases. Stewardship Procurement and Acquisition In 2003-04, consistent with the Commonwealth Procurement Guidelines and Best Practice Guidance, Defence updated its procurement policy manual to include references to tool kits and guidance from the draft Environmental Purchasing Guide administered by the Department of Environment and Heritage, to improve environmental purchasing. Defence continued to purchase energy efficient office equipment and appliances consistent with the Commonwealth energy policy. Defence also continued to integrate environmental considerations, such as the requirement to avoid using ozone-depleting substances, into relevant contracts for the construction and maintenance of facilities. Defence Environment and Heritage Panel From May 2003 to June 2004, the Defence Environmental Panel completed work to the value of $8.88m. Table 7.13 Defence Environmental Panel Projects May 2003 – June 2004(1) Category Number $m Statutory review 25 0.750 Environmental consultancy 70 2.100 Environmental management system 22 0.660 Assessment 20 0.600 Environmental planning 17 0.510 Monitoring 23 0.690 Audit 15 0.450 Asbestos 23 0.690 Heritage 20 0.600 Environmental works 25 0.750 Works management 22 0.660 Other 14 0.420 Total 296 8.880 Note 1. Statistics are calculated every three months.

428 Ecologically Sustainable Development and Environmental Performance

On 6 February 2004, Defence established a new Environment and Heritage Panel to replace the previous Defence Environmental Panel. The new panel recognises the increasing need by Defence to engage industry that specialises in heritage management services to address significant heritage issues in Defence. The panel will continue to provide support to Defence in areas such as management plans, contaminated site assessments and the preparation of documentation for impact assessment processes under the Environment Protection and Biodiversity Conservation Act 1999.

Infrastructure Development and Support

Ecologically Sustainable Development in Defence Infrastructure Defence completed a draft ecologically sustainable development strategy and a draft ‘green buildings’ guideline, and has commenced implementation of the interim requirements as part of the Defence infrastructure asset development and approval process. The process ensures ecologically sustainable development principles are taken into account at the earliest stages of asset development and reflected in Defence infrastructure contracts. This allows Defence to seek innovative solutions for long-term sustainable environmental, economic and social outcomes. During the year, Defence also commenced the implementation of ecologically sustainable development principles into maintenance and garrison support contracts for facilities and infrastructure to ensure contractors implement the principles as a contract deliverable.

Stakeholder Management

Administration of Legislation With the exception of the Explosives Act 1961, legislation administered by Defence generally relates to internal management and administration of Defence. Defence considers and applies ecologically sustainable development in the administration of the Explosives Act 1961 through the continued application of the Handling of Explosives Ordnance Manual. The manual includes environmental considerations in relation to the transport, disposal, use and storage of explosives by Defence.

Training and Awareness Implementation of an environmental awareness program, initiated under the Defence Environmental Education Strategy in 2001-02, continued and was included as part of widespread annual induction training. A number of specialist environmental training sessions were also carried out, including a professional development program, to support the development and implementation of the Defence environmental management system, the first of three modules in contamination management, and a series of heritage specific courses.

429 Appendices

Business Practices

Risk Management More rigorous environmental risk assessments were introduced as part of Defence's infrastructure asset development and approval process. The assessments ensure environmental risks are identified and appropriate mitigation strategies are put in place to address environmental issues during the planning, design and construction phases of infrastructure projects.

Incident Reporting Defence continued to develop and test its environmental reporting of incidents and complaints tool. The development of the tool followed recommendations in an environmental incident reporting review conducted during 2002-03. The following table summarises environmental incidents reported during 2003-04. These were addressed through the Defence environmental management system and the relevant environmental site managers.

Table 7.14 Environmental Incidents Reported in 2003-04 No. of Category Incidents Disturbance of soil through clearing and contamination or by fire, flood or explosion 5 Accidental Release, Leaks and Spills 23 Intentional Release 1 Interaction with Flora and Fauna 10 Interaction with Heritage 2 Waste 1 Total 42 Defence Environmental Management System Seven Defence sites began implementing the environmental management system, adding to the 18 sites that began implementation during 2002-03. In November 2003, the RAAF Townsville environmental management system became the first Defence site to be certified to the International Standard Organisation 14001 for environmental management systems. This achieved the Government’s requirement that at least one major site be certified by December 2003. The Puckapunyal Military Training Area environmental management system is planned for certification towards the end of 2004-05. Internal audits are conducted to ensure continued compliance with Government requirements and relevant standards. Heritage Management Defence achieved successful implementation of many aspects of the new heritage amendments to the Environmental Protection and Biodiversity Conservation Act 1999, which took effect on 1 January 2004, including development of the draft Defence heritage strategy.

430 Ecologically Sustainable Development and Environmental Performance

Significant achievements during included: • strengthened relationships with heritage authorities, notably the Department of the Environment and Heritage, and increased consideration and value of Defence heritage, particularly in the management of the Defence Estate; • completion of phase one of the ‘Opening the Doors’ program that aims to promote Defence heritage events across Australia, and to increase accessibility to unique Defence sites for all Australians to share and enjoy; • incorporation of heritage expertise as part of the Defence Environment and Heritage Panel, to support heritage management activities; • development of heritage management plans for many Defence sites including RAAF Richmond, New South Wales, RAAF Darwin, Northern Territory, Anglesea Barracks, Tasmania, Harold E Holt Naval Communication Station, Western Australia, Woomera, South Australia and HMAS Cerberus, Victoria; • approval for the development of the Naval Heritage Centre at Garden Island in Sydney; and • agreement between Defence and the Department of the Environment and Heritage to work together on the ‘Australians at War’ theme of the Distinctively Australian program launched in 2003 by the Prime Minister, which aims to define our distinct national identity as Australians.

Defence Referrals Under the Environment Protection and Biodiversity Conservation Act 1999 Under the Act, Defence is obliged to consult with the Department of Environment and Heritage to ensure that any of its activities that will have, or are likely to have, a significant impact on the environment, only proceed with the approval of the Minister for the Environment and Heritage. During 2003-04, Defence formally referred the following eight actions: Table 7.15 Defence Referrals in 2003-04 Decision/ Status of Referred Referral Title Ref No. Date Determination Action Urban and commercial new 2003/1130 25 July 2003 Non-controlled Project proceeded. development, Ermington, action Subject to Defence New South Wales environmental policy Residential subdivision works, and best practice Spurway Street, Ermington. management. Land transport, Queenscliff, 2003/1129 25 July 2003 Non-controlled Project proceeded. Victoria action Subject to Defence Remedial works to the Swan environmental policy Island Bridge. and best practice management. Department of Defence 2004/1322 5 January 2004 Invitation for public Project scope under Tourism, recreation and comment review. conservation management, Beecroft Peninsula, New South Wales Beecroft Weapons Range visitors centre.

431 Appendices

Department of Defence, 2004/1391 1 March 2004 Non-controlled Project proceeding. Holsworthy, New South Wales action Subject to Defence Holsworthy Redevelopment environmental policy project program of works. and best practice management. Department of Defence, 2004/1406 5 March 2004 Non-controlled Project proceeding. Bathurst Island, action Subject to Defence Northern Territory environmental policy Construction and operation of and best practice radar infrastructure. management. Department of Defence, Mount 2004/1458 8 April 2004 Controlled action Environmental impact Bundey, assessment required. Northern Territory Construction and operation of urban operations training facility. Department of Defence, 2004/1459 8 April 2004 Controlled action Environmental impact Darwin, assessment required. Northern Territory Operation of Tiger helicopters at Robertson Barracks. Department of Defence 2004/1589 16 June 2004 Controlled action Preliminary Townsville Field Training Area, information to be Queensland submitted. Establishment of cleared drop zone for parachute exercises. More information on Defence referrals to the Department of the Environment and Heritage can be found at: http://www.deh.gov.au/cgi-bin/epbc/epbc_ap.pl. Defence continues to use environmental clearance certificates as mechanisms to impose environmental mitigation measures where activities are unlikely to have a significant impact on the environment, but some degree of environmental management is still required. Defence environmental managers issue the certificates for a wide range of environmental activities, such as military exercises, building and range construction and fire management. In addition, obligations are written into standard operating procedures for routine activities and environmental management plans developed for training areas and bases. Administration of Commonwealth Policy on the Management of Land Affected by Unexploded Ordnance There are over 1,100 sites on the Defence register that are potentially affected by unexploded ordnance, more than 300 of which pose significant hazard levels. During the year the number of potentially affected sites known to Defence increased marginally, as unexploded ordnance was found at previously unknown sites. Of the total number of sites on the Defence register, the Commonwealth occupies or controls only approximately 10 per cent, with the balance controlled by states, territories, local authorities or private land holders. The focus of Defence’s activities is to gather and disseminate information that will assist in the safe management of land that may be affected by unexploded ordnance. Defence applies the risk assessment model to enable it, in consultation with state and territory governments, to prioritise a program for the investigation of sites potentially affected by unexploded ordnance.

432 Ecologically Sustainable Development and Environmental Performance

The development of a Defence Instruction on the Management of Land Affected by Unexploded Ordnance was completed in 2004. The revised instruction reflects changes in functional responsibilities and improved management and advice measures. In accordance with the responsibility of Defence to provide information and advice to the public, revision and re-design of the Defence unexploded ordnance website was commenced during the year. The revision will see the staged introduction of web-based mapping of ordnance-affected sites and areas. A review of a memorandum of understanding between the Department of Defence and the Queensland Environmental Protection Agency was completed. The memorandum details respective Commonwealth and State responsibilities for unexploded ordnance management. Public information campaigns warning about the dangers of unexploded ordnance continue, particularly in North Queensland. Local newspaper, radio and television carried items and warnings on unexploded ordnance during the year. The Queensland unexploded ordnance site assessment project extended into 2004, with final reports on local government areas continuing to be prepared for the Queensland Environmental Protection Agency. Some 40 local government area-based assessment reports have been prepared and will be issued in conjunction with advertising campaigns agreed between the Queensland Environmental Protection Agency and Defence. In New South Wales, Defence and the Land and Property Information Office of the Department of Lands continue to develop a new unexploded ordnance advice mechanism. Using this facility, with information provided by Defence, the New South Wales Government is now able to make available to the public, particularly those involved in conveyancing, information as to whether a property is potentially affected by unexploded ordnance and recommend measures to minimise potential hazards. The mechanism enables appropriate advice on unexploded ordnance risk to be attached to individual land titles. In Western Australia, Defence officers met with senior staff of the Department of Premier and Cabinet and the Fire and Emergency Services Authority. The meeting resolved that the extant information-sharing agreement between Defence and the Fire and Emergency Services Authority Unexploded Ordnance Service would continue. In Tasmania, Defence officers performed a preliminary assessment and provided advice to a private landowner of an ordnance-affected site that was previously unknown to the department. Defence officers and representatives of the Northern Territory Government have reached a general agreement on Commonwealth/Territory unexploded ordnance management arrangements. A periodic review of records of unexploded ordnance recoveries saw the registration of two additional ordnance-affected Northern Territory sites. In respect to Defence property, the initiative to progressively remediate ranges and training areas of unexploded ordnance and explosive ordnance waste continues to develop. In 2003-04, contracts were let at Singleton in New South Wales, Port Wakefield in South Australia, and Puckapunyal in Victoria.

433 Appendices

Asset Management Defence manages about $52 billion in assets including about $30 billion in specialist military equipment and $10 billion in land and buildings assets. Other assets under Defence’s management include infrastructure, plant and equipment (about $5 billion), inventories (about $4 billion), intangibles, and heritage and cultural assets. In 2001, the then Secretary assigned asset management and accounting responsibilities to various executives in the organisation. For example, the then Under Secretary Defence Materiel Organisation was assigned responsibility for the management and reporting of specialist military equipment assets (including Repairable Items) and inventory. The Deputy Secretary Corporate Services was assigned responsibilities for land, buildings, infrastructure, property, information technology and administration assets. These executives are responsible for valuing, stocktaking, recording and reporting these assets in accordance with the requirements of the Financial Management and Accountability Act 1997, and Finance Minister’s Orders. Defence requires that these assets be managed and recorded in accordance with the Australian National Audit Office Asset Management Handbook, published in 1998. A key objective of the framework is to assist the department in complying with Section 44 of the Financial Management and Accountability Act 1997 which specifies that the Chief Executive is responsible for promoting the efficient, effective and ethical use of resources. Since 2001 Defence has continued to develop and improve the asset management framework focusing on: • the integration of asset planning, management and disposal decisions into corporate planning processes; • ensuring that asset planning decisions are based on evaluation of alternatives, including life-cycle costs, benefits and risks of ownership; and • assigning responsibility and accountability for asset management policy development, accounting and reporting. 2003-04 Achievements The asset acquisition process, including whole-of-life costs, has been refined through a strengthening of the planning, estimation, risk assessment and approval process prior to acquisition. This will provide improved management of asset acquisition, including cost and delivery delay aspects. The Defence Capability Committee reviews, on an annual basis, the planned withdrawal dates of ADF assets and this informs the asset relifing and revaluation process. Work continues to consolidate the recording of all assets into Defence’s primary asset register, the Resource and Output Management Accounting Network, and this has led to improved accuracy of records and support of decision making especially key asset investment and divestment decisions. Land, building and infrastructure assets continue to be progressively revalued on a three-year cycle by the Australian Valuation Office. Work continued on inventory management and repairable items to address Australian National Audit Office concerns. Remediation plans have been put in place and enhancements to the Standard Defence Supply System will bring about improvements. Supply Customer Accounts that record holdings of repairable items on the Standard

434 Asset Management

Defence Supply System have been subject to review as part of a Defence Materiel Organisation strategy to verify all fixed assets recorded in that system. A significant amount of work has been undertaken and although some improvement has been made, further work is progressing and areas of uncertainty still remain. The upgrade of the supply system in July 2003 assisted in maintaining the accuracy of these holdings. Notwithstanding progress to date, more remains to be done. This is an extensive task which is likely to take some time to complete. Management of leases has been improved with the creation of a centralised lease register and a process for review of classifications and values. Leases represent forward commitments for Defence and the Commonwealth. They can act as an alternative financing vehicle for assets and may involve the sale and leaseback of an asset previously owned by Defence. In 2004-05, more focus will be applied to balance sheet reporting with increased involvement by the Defence Committee. A new financial control framework will be implemented to ensure asset accounting difficulties are addressed on a regular basis at their root cause, and remediation plans have been put in place to correct major deficiencies. This work will be complemented by the due diligence work associated with creating the Defence Materiel Organisation as a prescribed agency from 1 July 2005.

435 Appendices

Discretionary Grants

Table 7.16 Grants Awarded in 2003-04 2001-02 2002-03 2003-04 Actual Actual Actual Grant Program $’000 $’000 $’000 Army Military History Research Grants Scheme 50 50 50 Defence Family Support Funding Program 1,134 1,107 1,056 Grant to the Royal United Services Institute of Australia 75 70 75 Point Nepean Community Trust - - 5,000 Transfer of Land at Police Point to the Mornington Peninsula Shire Council - - 1,000 Total 1,259 1,227 7,181 Army Military History Research Grants Scheme This scheme supports and encourages research into the role and involvement of the Army in the development of the nation. Recipients of the grants are shown in the table below. Table 7.17 Army Military History Research Grants Scheme Expenditure Grant Grantee State Title of Research $ Dr John Moremon ACT History of the Australian Women’s Army Service 5,000 Dr Peter Stanley ACT Quinn’s Post 3,500 Mr Peter Dean NSW The Draughtsman of Victory: LTGEN Sir Frank 7,000 Berryman 1894-1981 Mrs Maria Hill NSW Australia, Greece and WW2 7,000 Dr Gregory Lockhart NSW The Minefield: Vietnam 5,500 Dr Elizabeth Harford NSW Clinical Nursing in Casualty Clearing Stations, WW1 2,500 CPL Antony Buckingham NSW For the Troops and with the Troops: History of the 500 RACMP, 1945-2000 Emeritus Professor Alan NT Conflict and Cooperation: Australian Army and the 3,500 Powell Allied Works Unit, NT Mr Peter Donovan SA History of Field Bakeries, WW1 2,600 Dr Dale Blair Vic Hindenburg Line: 29-30 September 1918 7,000 Dr Mark Johnston Vic Silent Seventh: An Illustrated History of 7 Div, 1940-46 900 Associate Professor Bob Reece WA A.A. Conlon, the BBCAU and British Borneo, ‘44-46 5,000 Defence Family Support Funding Program This program provides funds to support projects and services initiated by Defence families. It is also available to existing groups in the community composed of Defence families, or benefiting Defence families. The 2003-04 Budget estimate identified $1.17m available for the program, of which $1.1m was available for direct grants. The remaining $0.07m was targeted to family support assistance and necessary administration of the program. The 2003-04 result refers to direct expenditure on grants, which totalled $1.056m, as identified in the following table. Table 7.18 Defence Family Support Funding Program Expenditure 2003-04 Grant Organisation $(1) Australian Capital Territory Allen Main Memorial Preschool 3,350 Banksia House Interest Group 23,868

436 Discretionary Grants

Organisation Grant $ Butterworth Support Group 5,390 Canberra Service Wives Craft Group 1,559 Duntroon Community Centre 42,379 Gungahlin Defence Families Playgroup 1,720 Total Australian Capital Territory 78,266 New South Wales Anklebiters Playgroup 2,300 Anzac Village Pre School Association Incorporated 280 Coffee, Craft and Chat 980 Defence Family Social Group Incorporated 15,854 Defence Special Needs Support Group (National) 52,971 Defence Special Needs Support Group (Williamtown) 930 Family Welcome Service 4,115 Forest Hill Craft Coffee and Chat Community Group 10,520 Kapooka Community Centre Management Committee Incorporated 32,355 Kapooka Early Childhood Centre Incorporated 8,642 Kidzplay Playgroup 921 Kissing Point Cottage Incorporated 34,675 RAAF Wagga Playgroup 750 SAMSN Incorporated 15,130 Service Wives Initiating Self Help (SWISH) 5,756 Shoalhaven Defence Families Association Incorporated 33,528 Tiny Time Incorporated 3,057 Wagga Wagga Defence Newsletter 14,550 Williamtown Craft Group 2,125 Williamtown TLC Network 21,620 Total New South Wales 261,059 Northern Territory Billaroy Community Centre 32,884 Casuarina Street Primary School 500 Creative Craft Club 677 Defence Special Needs Support Group (Darwin) 940 Larrakeyah Neighbourhood House Incorporated 27,817 Network Tindal Incorporated 3,000 North Australia Area Family Support Committee 34,222 Robertson Barracks Family Centre 7,083 Top Ender Tri-Services Newsletter Incorporated 23,746 Total Northern Territory 130,869 Queensland Amberley Toy Library 1,229 Canungra Community Kindergarten 10,443 Defence Community and Recreation Centre 36,461 Defence Special Needs Support Group (Brisbane) 940 Defence Special Needs Support Group (Canungra) 360 Defence Special Needs Support Group (Darling Downs) 1,390 Defence Special Needs Support Group (Townsville) 620 Families Representative Group 27,857 Family Community Centre Incorporated 44,584 Gaythorne Community Kindy and Limited Hours Care 2,329 Katunga Playgroup 1,310 Pine Rivers Family Association Incorporated 6,317 Pine Rivers Welfare Association Incorporated 600 Playgroup Association of Queensland Incorporated 2,320 Toowoomba Defence Families Support Association Incorporated 20,441 Tri-Service Defence Families Association Incorporated 27,495 Vincent Neighbourhood House Craft Group 1,855

437 Appendices

Organisation Grant $ Total Queensland 186,551 South Australia Edinburgh Community Centre 62,690 North-East Defence Community 7,118 SA Connection 37,769 Woodside Defence Families Association 11,805 Total South Australia 119,382 Tasmania Dowsing Point Community Centre 22,233 Total Tasmania 22,233 Victoria Bandiana Neighbourhood House Incorporated 4,977 Central Gippsland Health Service 4,652 Defence Family Centre - RAAF Williams 3,504 Defence Special Needs Support Group (Albury/Wodonga) 300 Defence Special Needs Support Group (Melbourne North-East) 580 Defence Special Needs Support Group (Melbourne West) 1,019 East Sale Family Group Incorporated 4,538 East Sale Kindergarten Incorporated 611 Mactier Community Centre 9,118 Marjorie Hall Kindergarten 7,776 Necana Association Incorporated 14,755 Puckapunyal and District Neighbourhood Centre Incorporated 38,037 Puckapunyal Kindergarten Association Incorporated 15,029 Puckapunyal Playgroup Incorporated 2,650 RAAF East Sale Playgroup 1,632 RAN Family and Friends Association Incorporated 25,048 Werribee Defence Community House Incorporated 34,760 Total Victoria 168,986 Western Australia Karrakatta Community House Incorporated 51,149 Marilla House Community Centre Incorporated 31,792 Special Air Service Regiment Auxiliary Incorporated 5,530 Total Western Australia 88,471 Grand Total 1,055,817 Note 1. Amounts are exclusive of GST. Royal United Services Institute of Australia The grant provides assistance to the Royal United Services Institute of Australia in promoting the discussion of national security and defence matters, and improving public awareness and understanding of such matters through: • the Institute’s program of international seminars; • ongoing lectures in all states and territories; and • publication of a national journal, addressing strategic, defence and national security issues. The grant also provides continuing support for the Institute’s national secretariat to position the Institute to become more financially independent.

438 Discretionary Grants

Point Nepean Community Trust The Point Nepean Community Trust was established on 10 June 2004 to manage 90 hectares of Commonwealth land at Point Nepean in Victoria. The land is proposed to be integrated into the Mornington Peninsula National Park. To ensure the success of this endeavour, the Australian Government provided $5m to the Community Trust. The Community Trust Deed will ensure no commercial development of the land, preservation of all heritage buildings and the natural environment, guaranteed public access and consultation, application of state and local planning laws, and management of the land in accordance with a Draft Community Master Plan. Police Point – Point Nepean In March 2004, The Commonwealth Government transferred 17.5 hectares of land at Police Point, Portsea to the Mornington Peninsula Shire Council. The Mornington Peninsula Shire Council will establish a park on the site for use as public open space and for passive recreation.

439 Appendices

Significant Australian Defence Bases/Establishments

440 ADF Units and Establishments ADF units and establishments are shown below. The information is correct as at 30 June 2004. Table 7.19 ADF Units and Establishments Name Location Joint Units and Organisations Headquarters Joint Operations Command Sydney, NSW Australian Defence Force Warfare Centre Williamtown, NSW Headquarters Northern Command Darwin, NT Australian Defence College Canberra, ACT Australian Defence Force Academy Canberra, ACT Defence Force School of Music Macleod, Vic Defence Force School of Signals Macleod, Vic Defence Communications Station Canberra, ACT Defence National Storage and Distribution Centre Liverpool, NSW Joint Logistics Unit (North) Winnellie, NT Joint Logistics Unit (South) Edinburgh, SA Joint Logistics Unit (West) Guildford, WA Joint Logistics Unit (North Queensland) Townsville, Qld Joint Logistics Unit (South Queensland) Bulimba, Qld Joint Logistics Unit (Victoria) Bandiana, Vic Joint Proof and Experimental Unit Orchard Hills, NSW Royal Australian Navy Name Location Navy Headquarters Canberra, ACT Maritime Command Sydney, NSW Navy Systems Command Canberra, ACT Type of vessel Name Base

Surface Combatants 6 Guided missile frigates (FFG) HMAS Adelaide Garden Island, WA HMAS Canberra Garden Island, WA HMAS Darwin Garden Island, WA HMAS Melbourne Sydney, NSW HMAS Newcastle Sydney, NSW HMAS Sydney Sydney, NSW 6 Anzac-class frigates (FFH) HMAS Anzac Garden Island, WA HMAS Arunta Garden Island, WA HMAS Ballarat Sydney, NSW HMAS Parramatta Sydney, NSW HMAS Stuart Sydney, NSW HMAS Warramunga Garden Island, WA

Mine Countermeasures

6 Coastal mine hunters (MHC) HMAS Diamantina Sydney, NSW HMAS Gascoyne Sydney, NSW HMAS Hawkesbury Sydney, NSW HMAS Huon Sydney, NSW HMAS Norman Sydney, NSW HMAS Yarra Sydney, NSW 2 Clearance diving teams AUST CDT 1 Sydney, NSW AUST CDT 4 Garden Island, WA 2 Auxiliary minesweepers (MSA) HMAS Bandicoot Sydney, NSW HMAS Wallaroo Sydney, NSW

441 Appendices

Type of vessel Name Base Amphibious and Afloat Support 1 Replenishment ship (AOR) HMAS Success Sydney, NSW 1 Oil tanker (AO) HMAS Westralia Garden Island, WA 1 Heavy landing ship (LSH) HMAS Tobruk Sydney, NSW 2 Amphibious landing ships (LPA) HMAS Kanimbla Sydney, NSW HMAS Manoora Sydney, NSW 6 Heavy landing crafts (LCH) HMAS Balikpapan Darwin, NT HMAS Betano Darwin, NT HMAS Brunei Cairns, Qld HMAS Labuan Cairns, Qld HMAS Tarakan Cairns, Qld HMAS Wewak Cairns, Qld Patrol Boat 15 Fremantle-class patrol boats (FCPB) HMAS Bendigo Cairns, Qld HMAS Bunbury Darwin, NT HMAS Cessnock Darwin, NT HMAS Dubbo Darwin, NT HMAS Fremantle Darwin, NT HMAS Gawler Darwin, NT HMAS Geelong Darwin, NT HMAS Geraldton Darwin, NT HMAS Gladstone Cairns, Qld HMAS Ipswich Cairns, Qld HMAS Launceston Darwin, NT HMAS Townsville Cairns, Qld HMAS Warrnambool Darwin, NT HMAS Whyalla Cairns, Qld HMAS Wollongong Darwin, NT Submarine 6 Collins-class submarines (SSG) HMAS Collins Garden Island, WA HMAS Dechaineux Garden Island, WA HMAS Farncomb Garden Island, WA HMAS Sheean Garden Island, WA HMAS Rankin Garden Island, WA HMAS Waller Garden Island, WA

Hydrographic 2 Hydrographic ships (HS) HMAS Leeuwin Cairns, Qld HMAS Melville Cairns, Qld 4 Survey motor launches (SML) HMAS Benalla Cairns, Qld HMAS Mermaid Cairns, Qld HMAS Paluma Cairns, Qld HMAS Shepparton Cairns, Qld 1 Laser airborne depth sounder (LADS) aircraft LADS Flight Cairns, Qld

Aviation

Squadron Aircraft Base 723 SQN helicopter training squadron 13(1) AS-350BA Squirrel Nowra, NSW 805 SQN anti-surface helicopter squadron 10(2) SH-2G-A Super Seasprite Nowra, NSW 816 SQN anti-submarine helicopter squadron 16 S-70B-2 Seahawk Nowra, NSW 817 SQN maritime support helicopter squadron 7 Sea King SK50 Nowra, NSW Non-Defence Administered Activity

Type of vessel Name Base 1 Youth sail training ship STS Young Endeavour Sydney, NSW

442 ADF Units and Establishments

Description Name Location

Commissioned Establishments Headquarters / area administration HMAS Kuttabul Sydney, NSW Naval air station HMAS Albatross Nowra, NSW Ship and submarine base (Fleet Base West) HMAS Stirling Garden Island, WA Patrol boat base and marine science HMAS Cairns Cairns, Qld Patrol boat base and communications station HMAS Coonawarra Darwin, NT Mine warfare HMAS Waterhen Sydney, NSW Training establishments HMAS Cerberus Western Port, Vic HMAS Creswell Jervis Bay, ACT HMAS Penguin Middle Head, NSW HMAS Watson Watsons Bay, NSW Facility/unit Location Communications station / area administration HMAS Harman Canberra, ACT Non-Commissioned Establishments Fleet Base East Garden Island, NSW Jervis Bay Range Facility Jervis Bay, NSW Naval Ammunitioning Facility Eden, NSW Naval Communications Station Canberra, ACT Naval communications area master stations Canberra, ACT Rockingham, WA Naval communications area local stations Cairns, Qld Sydney, NSW Naval Transmitting Station Sale, Vic Naval Headquarters South Queensland Brisbane, Qld Naval Headquarters South Australia Adelaide, SA Naval Headquarters Tasmania Hobart, Tas Naval fuel installations Chowder Bay, NSW Darwin, NT Naval accommodation, Lady Gowrie House Bondi, NSW West Head Gunnery Range Flinders, Vic Australian Army Name Location Army Headquarters Canberra, ACT Formation/unit Designation Location 1 Army Headquarters AHQ Canberra, ACT 1 Aviation Support Group Workshop Avn Spt Gp Wksp Oakey, Qld 1 Land Warfare Studies Centre LWSC Duntroon, ACT 1 Army History Unit AHU Campbell, ACT 1 Army Financial Services Unit (Army Reserve) AFSU Campbell, ACT 1 Australia’s Federation Guard AFG Campbell, ACT 1 Directorate of Officer Career DOCM-A Russell, ACT Management – Army 1 Soldier Career Management Agency SCMA Queenscliff, Vic 1 Directorate of Reserve Career DRCM-A Russell, ACT Management – Army 1 Australian Army Cadets AAC Canberra, ACT

Combat Forces 1 Land Headquarters LHQ Paddington, NSW 1 Deployable Joint Force Headquarters DJFHQ Enoggera, NSW (Integrated) 1 Divisional Headquarters (Army Reserve) HQ 2 Div Randwick, NSW 9 Brigade Headquarters (6 Army Reserve, 1 HQ 1 Bde Palmerston, NT Integrated)

443 Appendices

Formation/unit Designation Location HQ 3 Bde Townsville, Qld HQ 4 Bde Macleod, Vic HQ 5 Bde Holsworthy, NSW HQ 7 Bde Enoggera, Qld HQ 8 Bde Dundas, NSW HQ 9 Bde Keswick, SA HQ 11 Bde Townsville, Qld HQ 13 Bde Karrakatta, WA 1 Special Operations Headquarters SO HQ Canberra, ACT / Garden Island, NSW 2 Commando Battalions 1 Cdo Regt Randwick, NSW 4 RAR (Cdo) Holsworthy, NSW 1 Special Air Service Regiment SASR Swanbourne, WA 1 Incident Response Regiment IRR Holsworthy, NSW 1 Special Operations Combat Service Support SO CSSC Holsworthy, NSW Company 1 Logistic Support Force Headquarters HQ LSF Randwick, NSW (Integrated) 1 Ground Liaison Group (Integrated) 1 GL GP Glenbrook, NSW 1 Combat Training Centre CTC Lavarack, Qld 1 Armoured Regiment (Integrated) 1 Armd Regt Palmerston, NT 4 Reconnaissance Regiments 2 Cav Regt Palmerston, NT (1 Army Reserve, 1 Integrated) 1/15 RNSWL (Recon) Parramatta, NSW 4/19 PWLH (Recon) Macleod, Vic 2/14 LHR (QMI)(Recon) Enoggera, Qld 1 Armoured Personnel Carrier Regiment (Army 12/16 HRL (APC) Tamworth, NSW Reserve) 1 Independent Reconnaissance Squadron A Sqn 10 LH (Recon) Karrakatta, WA (Army Reserve) 2 Independent Armoured Personnel Carrier B Sqn 3/4 Cav Regt (APC) Townsville, Qld Squadrons (1 Army Reserve) 3/9 LH (SAMR) (APC) Smithfield, SA 1 Medium Artillery Regiment 8/12 Mdm Regt Palmerston, NT 6 Field Artillery Regiments 1 Fd Regt Enoggera, Qld (4 Army Reserve, 1 Integrated) 4 Fd Regt Townsville, Qld / Holsworthy, NSW 2/10 Fd Regt East St Kilda, Vic 7 Fd Regt Pymble, NSW 23 Fd Regt Kogarah, NSW 6/13 Fd Regt Keswick, SA 1 Air Defence Regiment (Integrated) 16 AD Regt Woodside, SA 4 Independent Field Artillery Batteries 7 Fd Bty 3 Fd Regt Karrakatta, WA (3 Army Reserve) 16 Fd Bty Launceston, Tas 48 Fd Bty Keswick, SA A Fd Bty Holsworthy, NSW 1 Locating Battery (Integrated) 131 STA Bty Enoggera, Qld 6 Combat Engineer Regiments 1 CER Palmerston, NT (3 Army Reserve, 1 Integrated) 2 CER Enoggera, Qld 3 CER Townsville, Qld 4 CER Ringwood East, Vic 5 CER Penrith, NSW 8 CER Adamstown, NSW 9 Command Support Regiments 1 CSR Palmerston, NT (6 Army Reserve, 1 Integrated) 3 CSR Lavarack, Qld 4 CSR Macleod, Vic 5 CSR Liverpool, NSW 7 CSR Enoggera, Qld 8 CSR Dundas, NSW 9 CSR Keswick, SA

444 ADF Units and Establishments

Formation/unit Designation Location 11 CSR Townsville, Qld 13 CSR Karrakatta, WA 1 Headquarters Engineer Support Regiment HQ 6 ESR Enoggera, Qld 2 Construction Regiments (Army Reserve) 21 Const Regt Holsworthy, NSW 22 Const Regt Oakleigh South, Vic 3 Field Engineer Squadrons, Combat Engineer 3 Fd Sqn, 9 CER Warradale, SA Regiments (Army Reserve) 13 Fd Sqn, 13 CER Karrakatta, WA 35 Fd Sqn, 11 CER Mount Isa, Qld 2 Construction Squadrons 17 Const Sqn Holsworthy, NSW 21 Const Sqn Enoggera, Qld 1 Chief Engineer Works (Integrated) 19 CE Wks Randwick, NSW 1 Topographic Survey Squadron (Integrated) 1 Topo Svy Sqn Enoggera, Qld 1 Joint Support Unit (Integrated) 1 JSU Enoggera, Qld 2 Signal Regiments (1 Army Reserve) 7 Sig Regt Cabarlah, Qld 8 Sig Regt Randwick, NSW 3 Independent Signal Squadrons (2 Integrated) 110 Sig Sqn Paddington, NSW 130 Sig Sqn Liverpool, NSW 145 Sig Sqn Liverpool, NSW 19 Infantry Battalions 1 RAR Townsville, Qld (13 Army Reserve, 1 Integrated) 2 RAR Townsville, Qld 3 RAR Holsworthy, NSW 5/7 RAR Palmerston, NT 6 RAR Enoggera, Qld 9 RQR Enoggera, Qld 25/49 RQR Enoggera, Qld 31 RQR Townsville, Qld 42 RQR Rockhampton, Qld 1/19 RNSWR Orange, NSW 2/17 RNSWR Pymble, NSW 4/3 RNSWR Holsworthy, NSW 41 RNSWR Lismore, NSW 5/6 RVR Hawthorn, Vic 8/7 RVR Ballarat, Vic 10/27 RSAR Keswick, SA 11/28 RWAR Karrakatta, WA 16 RWAR Karrakatta, WA 12/40 RTR Glenorchy, Tas 3 Regional Force Surveillance Units Norforce Larrakeyah, NT (Army Reserve) Pilbara Regt Karratha, WA 51 FNQR Cairns, Qld 1 Aviation Brigade 16 Bde (Avn) Enoggera, Qld 2 Aviation Regiments 1 Avn Regt Oakey, Qld 5 Avn Regt Townsville, Qld 1 Intelligence Battalion 1 Int Bn Paddington, NSW 9 Combat Service Support Battalions 1 CSSB Palmerston, NT (6 Army Reserve, 1 Integrated) 3 CSSB Townsville, Qld 4 CSSB Broadmeadows, Vic 5 CSSB Banksmeadow, NSW 7 CSSB Enoggera, Qld 8 CSSB Dundas, NSW 9 CSSB Warradale, SA 11 CSSB Townsville, Qld 13 CSSB Karrakatta, WA 3 Force Support Battalions (2 Integrated) 2 FSB Glenorchy, Tas 9 FSB Randwick, NSW 10 FSB Ross Island, Qld 1 Force Support Group HQ FSG Randwick, NSW 3 Ships Army Detachment SAD HMAS Tobruk Garden Island, NSW

445 Appendices

Formation/unit Designation Location SAD HMAS Manoora Garden Island, NSW SAD HMAS Kanimbla Newcastle, NSW 3 Health Support Battalions 1 HSB Holsworthy, NSW (2 Army Reserve, 1 Integrated) 2 HSB Enoggera, Qld 3 HSB Keswick, SA 1 Petroleum Company (Army Reserve) 1 Petr Coy Oakleigh South, Vic 1 Recovery Company (Army Reserve) 3 Recov Coy Dandenong, Vic 1 Military Police Battalion (Integrated) 1 MP Bn Paddington, NSW 1 Psychology Unit 1 Psych Unit Randwick, NSW 1 Deployed Forces Support Unit (Integrated) DFSU Randwick, NSW

Individual Training Headquarters Training Command HQ TC-A Paddington, NSW Headquarters Royal Military College of Australia HQ RMC-A Duntroon, ACT Royal Military College RMC Duntroon, ACT Army Logistic Training Centre ALTC Bandiana, Vic Army Recruit Training Centre ARTC Kapooka, NSW Parachute Training School PTS Nowra, NSW Army Combined Arms Training Centre CATC Puckapunyal, Vic Special Forces Training Centre (part of Special SFTC Singleton, NSW Ops) Army Aviation Training Centre AAVNTC Oakey, Qld Defence Intelligence Training Centre DINTTC Canungra, Qld Training Technology Centre TTC Sydney, NSW Defence Police Training Centre (Integrated) DPTC Holsworthy, NSW Joint Telecommunications School (Integrated) JTS Cabarlah, Qld Land Warfare Development Centre LWDC Puckapunyal, Vic Headquarters Regional Training Centres HQ RTC Canungra, Qld 8 Regional Training Centres RTC (NSW) Moorebank, NSW (7 Army Reserve, 1 Integrated) RTC (VIC) Macleod, Vic RTC (SA) Greenacres, SA RTC (WA) East Fremantle, WA RTC (Tas) Hobart, Tas RTC (NT) Palmerston, NT RTC (SQ) Enoggera, Qld RTC (NQ) Townsville, Qld 7 Tertiary Institution Training Units QUR St Lucia, Qld (Army Reserve) SUR Darlington, NSW UNSWR Kensington, NSW MUR Carlton, Vic MON UR Mt Waverley, Vic AUR Adelaide, SA WAUR Fremantle, WA 12 Army Bands (6 Army Reserve) AAB (B) Enoggera, Qld AAB (S) Paddington, NSW AAB (N) Adamstown, NSW RACT Pipes and Drums Adamstown, NSW AAB (K) Kapooka, NSW AAB (M) Macleod, Vic AAB (A) Warradale, SA AAB (P) Karrakatta, WA AAB (T) Hobart, Tas AAPD (P) Karrakatta, WA AAB (D) Larrakeyah, NT RMC Band Duntroon, ACT

446 ADF Units and Establishments

Royal Australian Air Force

Name Location Air Force Headquarters Canberra, ACT Formation/unit Designation Location Air Force Headquarters AFHQ Canberra, ACT Directorate General of Technical Airworthiness – ADF DGTA-ADF Laverton, Vic Directorate of Air Force Safety / Directorate of DAFS / DFS-ADF Canberra, ACT Flying Safety – ADF Airworthiness Coordination and Policy ACPA-AF Canberra, ACT Agency – ADF Air Power Development Centre APDC Tuggeranong, ACT RAAF Aeronautical Information Services Agency AIS-AF Melbourne, Vic Joint Centre for Airspace Management JCAM Canberra, ACT Infrastructure Development Agency IDA Canberra, ACT Directorate of Security and Policing – Air Force DSP-AF Canberra, ACT Management Services Agency MSA Canberra, ACT

Air Command Headquarters Air Command HQAC Glenbrook, NSW Information Operations Squadron IOSQN Canberra, ACT Aerospace Operational Support Group AOSG Edinburgh, SA Headquarters Air Combat Group HQACG Williamtown, NSW Headquarters No 82 Wing HQ82 Wing Amberley, Qld 2 Strike and reconnaissance squadrons 1 Sqn Amberley, Qld 6 Sqn Amberley, Qld Forward Area Control Development Unit FACDU Williamtown, NSW Headquarters No 81 Wing HQ81 Wing Williamtown, NSW 3 Tactical fighter squadrons 3 Sqn Williamtown, NSW 75 Sqn Tindal, NT 77 Sqn Williamtown, NSW Headquarters No 78 Wing HQ78 Wing Williamtown, NSW 1 Tactical fighter operational conversion unit 2OCU Williamtown, NSW 1 Lead-in fighter training squadron 76 Sqn Williamtown, NSW No 79 Squadron 79 Sqn Pearce, WA Headquarters Surveillance and Response Group HQSRG Williamtown, NSW Support Flight ADGE + ATC Williamtown, NSW 1 Surveillance and control squadron 2 Sqn Williamtown, NSW Headquarters No 44 Wing HQ44 Wing Williamtown, NSW 11 Air traffic control flights ATC DET AMB Amberley, Qld ATC DET DAR Darwin, NT ATC DET ESL East Sale, Vic ATC DET EDN Edinburgh, SA ATC DET NOWRA Nowra, NSW ATC DET OAK Oakey, Qld ATC DET PEA Pearce, WA ATC DET RIC Richmond, NSW ATC DET TDL Tindal, NT ATC DET TVL Townsville, Qld ATC DET WLM Williamtown, NSW Headquarters No 41 Wing HQ41 Wing Williamtown, NSW 1 Radar surveillance unit 1RSU Edinburgh, SA 1 Mobile control and reporting unit 114MCRU Darwin, NT 2 Control and reporting units 2 CRU Tindal, NT 3 CRU Williamtown, NSW 1 Surveillance and control training unit SACTU Williamtown, NSW Headquarters No 92 Wing HQ92 Wing Edinburgh, SA 2 Maritime patrol squadrons 10 Sqn Edinburgh, SA 11 Sqn Edinburgh, SA 1 Operational conversion squadron 292 Sqn Edinburgh, SA

447 Appendices

Formation/unit Designation Location No 92 Wing Detachment A 92WG Det A Butterworth, Malaysia Headquarters Air Lift Group HWALG Richmond, NSW Headquarters No 84 Wing HQ84 Wing Richmond, NSW 1 Long-range transport squadron 33 Sqn Richmond, NSW 2 Special transport squadrons 34 Sqn Fairbairn, ACT 32 Sqn East Sale, Vic Headquarters No 85 Wing HQ85 Wing Richmond, NSW 1 Air movements training and development unit AMTDU Richmond, NSW No 285 Squadron 285 Sqn Richmond, NSW Headquarters No 86 Wing HQ86 Wing Richmond, NSW 2 Medium lift transportation squadrons 36 Sqn Richmond, NSW 37 Sqn Richmond, NSW No 38 Squadron 38 Sqn Amberley, Qld No 38 Squadron Detachment B 28 Sqn Det B Townsville, Qld Air Command Band Richmond, NSW Headquarters Combat Support Group HQCSG Amberley, Qld 4 Combat support units CSU AMB Amberley, Qld CSU WLM Williamtown, NSW CSU EDN Edinburgh, SA CSU RIC Richmond, NSW Headquarters No 395 Expeditionary Combat HQ395ECSW Townsville, Qld Support Wing 4 Expeditionary combat support squadrons 381ECSS Williamtown, NSW 382ECSS Amberley, Qld 383ECSS Amberley, Qld 386ECSS Richmond, NSW 1 Combat communications squadron 1 CCS Richmond, NSW 1 Combat logistics squadron 1 CLS Townsville, Qld Headquarters Air Terminal Squadron HQ1ATS Richmond, NSW 7 Air terminal squadrons 1ATSDETRIC Richmond, NSW 1ATSDETWIL Williamtown, NSW 1ATSDETAMB Amberley, Qld 1ATSDETTVL Townsville, Qld 1ATSDETDAR Darwin, NT 1ATSDETTDL Tindal, NT 1ATSDETPEA Pearce, WA Headquarters No 396 Combat Support Wing HQ396CSW Darwin, NT 3 combat support squadrons 321CSS Darwin, NT 323CSS Townsville, Qld 324CSS Butterworth, Malaysia Headquarters No 322 Combat Support Wing HQ322CSW Tindal, NT 1 Combat support squadron 322CSS Tindal, NT 3 Military airfields (bare bases) RAAF Learmonth Learmonth, WA RAAF Curtin Curtin, WA RAAF Scherger Scherger, Qld No 13 Squadron 13 Sqn Darwin, NT No 21 Squadron 21 Sqn Laverton, Vic No 22 Squadron 22 Sqn Richmond, NSW No 23 Squadron 23 Sqn Amberley, Qld No 24 Squadron 24 Sqn Edinburgh, SA No 25 Squadron 25 Sqn Pearce, WA No 26 Squadron 26 Sqn Williamtown, NSW No 27 Squadron 27 Sqn Townsville, Qld No 28 Squadron 28 Sqn Fairbairn, ACT No 29 Squadron 29 Sqn Hobart, Tas

Training Command Headquarters Training Command HQTC Laverton, Vic Air Training Wing ATW East Sale, Vic Australian Defence Force Basic Flying Training School ADFBFTS Tamworth, NSW

448 ADF Units and Establishments

Formation/unit Designation Location No 2 Flying Training School 2FTS Pearce, WA Central Flying School CFS East Sale, Vic School of Air Navigation SAN East Sale, Vic School of Air Traffic Control SATC East Sale, Vic Combat Survival Training School CSTS Townsville, Qld RAAF Institute of Aviation Medicine AVMED Edinburgh, SA Combat Support Unit CSU ESL East Sale, Vic RAAF College RAAFCOL Point Cook, Vic Officers’ Training School OTS Point Cook, Vic No 1 Recruit Training Unit 1 RTU Edinburgh, SA School of Post-Graduate Studies SPS Wagga Wagga, NSW Ground Training Wing GTW Wagga Wagga, NSW RAAF School of Technical Training RAAFSTT Wagga Wagga, NSW RAAF Security and Fire School RAAFSFS Amberley, Qld RAAF School of Management and Training RAAFMTT Wagga Wagga, Technology NSW ADF School of Languages ADFLANGS Laverton, Vic Defence International Training Centre DITC Laverton, Vic Combat Support Unit Wagga CSUWAG Wagga Wagga, NSW Health Services Training Flight Laverton, Vic Combat Support Unit Williams CSUWIL Laverton, Vic Central Band Central Band Laverton, Vic Museum RAAF Museum Point Cook, Vic Combat Support Unit Pearce CSUPEA Pearce, WA Notes 1. 12 helicopters are operated, the 13th is held for attrition purposes. 2. The 11th Super Seasprite will be introduced after 2004-05.

449 Appendices

Consultancies Consultants investigate assigned problems under limited direction or supervision and provide recommendations or options for improvement. Consultants assist Defence management in decision making, but do not implement those decisions. Defence engages consultants for one of the following reasons: • The specialised skills or service required are not available within Defence. • The specialised skills or service are not available within Defence in the time frame in which they are required. • The technology is not available within Defence. When contracting for a consultant, value for money considerations relate not only to cost, but to the experience and demonstrated capabilities of the consultant; the location of the consultant and the associated travelling costs; the capacity of the consultant’s locally-based resources to provide continuing services at levels likely to be required during the course of the engagement; and the consultant’s professional standing and reputation. The table below summarises Defence use of consultants, on a Group basis.

Table 7.20 Use of Consultants by Defence Group

Number of Consultants Expenditure 2002-03 2003-04 2002-03 2003-04

Group $ $ Headquarters Australian Theatre(1) 3 2 35,101 5,160 Navy 20 12 1,534,796 785,419 Army 10 5 252,150 186,333 Air Force 8 4 298,210 200,458 Strategic Policy 3 3 234,077 220,314 Intelligence and Security 14 14 268,022 1,283,532 Vice Chief of the Defence Force 10 7 320,329 212,647 Chief Finance Officer(2) 6 11 148,152 546,376 Defence Science and Technology Organisation 36 15 303,288 356,073 Defence Personnel Executive 42 87 5,358,567 7,695,071 Public Affairs and Corporate Communication 2 1 71,921 1,785 Defence Materiel Organisation 90 108 4,347,644 3,941,275 Corporate Services and Infrastructure(3) 38 177 1,108,667 6,184,036 Chief Information Officer (4) 2 2 419,950 454,360 Total 284(5) 448 14,770,874(5) 22,072,839 Notes 1. On 16 March 2004 the Headquarters Australian Theatre became Headquarters Joint Operations Command under the command of the Chief Joint Operations. 2. Chief Finance Officer Group includes data relating to the Secretary and the Chief of the Defence Force. 3. Corporate Services and Infrastructure Group includes data relating to the Inspector-General’s Division and Defence Improvement Division. 4. From 2003-04 data relating to the Chief Information Officer Group is reported separately from Corporate Services and Infrastructure Group. 5. These totals will vary from the 2002-03 totals published in the Defence Annual Report 2002-03 due to corrections (see Corrections to the Defence Annual Report, p. x)

450 Consultancies

Table 7.21 provides detail on all consultancy services utilised by Defence Groups during 2003-04.

Key to Particulars of Consultancy Contracts

Justification Methods of selection 1. Specialised skills or service required not available within 1. Consultancy was publicly advertised Defence 2. Specialised skills or service required not available within 2. Standing Offer time frame 3. Technology not available within Defence 3. Sole Source 4. Restricted Tender

Table 7.21 Particulars of Consultancy Contracts in 2003-04 Total Amount Paid Method of Consultant Name Purpose $ Justification Selection

Headquarters Australian Theatre ESRI Australia Provision of advice and recommendations for the upgrade of software system. 3,553 1 3 URS Australia Advice and recommendations regarding the environmental impact of conducting Exercise Crocodile 03. 1,607 1 3 Total Headquarters Australian Theatre 5,160

Navy Agileware Advice and assistance for development of Navy Hazard Log Interim Solution. 25,425 1 3 Alexander Suicide and self-harm research proposal. Lambevski 2,045 1 3 Changedrivers Pty Advice and recommendations on change Ltd management for Navy Capability Costing System. 28,608 1 3 Gashler & Associates Advice and recommendations to the Surface Combat Force Element Group Manning Project – Alternative crew structures of Surface Combatant Ships. 144,263 2 3 IISM Group Advice and recommendations on Navy ‘Serving Australia's Navy’ booklet. 6,827 1 2 Jacobs Sverdrup Advice and recommendations on current Australia Pty Ltd capability management tools. 35,000 2 3 Relegen Pty Ltd Advice and recommendations on a revised watch keeping regime in guided missile frigates (FFG). 134,809 2 3 Reputation Develop a performance research system for Measurement Royal Australian Navy reputation. 2,350 1 2 Target Towing Advice and recommendations on tender Services evaluation. 14,009 1 3 University of Advice and recommendations on the fitness Wollongong Finance program requirement for the Navy Services clearance diver career model. 56,193 1 3 Vertical Innovations Advice and recommendation on the International development of the Royal Australian Navy high ropes training regulatory system. 16,165 1 3

451 Appendices

Total Amount Paid Method of Consultant Name Purpose $ Justification Selection Zeal Consulting Pty Conduct a series of site surveys, a safety Ltd system evaluation and develop a design blue print for safety culture in the Royal Australian Navy. 319,725 1 3 Total Navy 785,419

Army Broadleaf Capital Compilation of Army Strategic Risk International Management Plan. 43,055 1 3 Merced Pathology Expert medical witness. Medical Group 6,130 1 3 Ernst & Young Military police review – special investigation. 99,074 1 3 Training Systems Training and education systems review. Services 8,718 2 3 HLA Envirosciences Assessment for environmental impacts on Pty Ltd proposed Drop Zone for High Range Training Area. 29,356 1 3 Total Army 186,333

Air Force Alexander Advice on the 10-year Australian Defence Tomlinson Force Aeronautical Information Service Strategic Plan. 105,499 1 3 Boeing Australia Ltd Advice on civilian initiatives to support the Aviation Industry Project. 71,756 1 3 Ocean Internet Advice to Defence International Training Centre on enhancements to database. 3,305 1 4 Schneider Australia Advice on the human resource strategy for Consulting Defence International Training Centre. 19,898 1 3 Total Air Force 200,458

Strategic Policy Centre for Strategic risk assessment on maritime International piracy and terrorism. Strategic Analysis 75,000 1 3 Paul Dibb & Advice on strategic policy and planning Associates Pty Ltd issues. 22,587 1 3 R.W. Lowry Pty Ltd Advice to the Fiji Defence Force. 122,727 1 3 Total Strategy 220,314

Intelligence and Security

Acumen Alliance Administrative Process Review. 10,361 1 2 Adept and Administrative Process Review. Associates Pty Ltd 13,030 1 3 Boeing Australia Study and report on Uninterrupted Power Supply. 15,522 1 3 Booz Allen & Study and production of concept paper. Hamilton (Aust) Ltd 4,760 1 2 Butlin and Lloyd Pty Staff survey and report. Ltd 66,209 1 4 CIT Solutions Pty Training needs analysis study. Ltd 82,157 1 2 Compucat Pty Ltd Project definition study. 4,480 1 2 DSTC Pty Ltd Academic research and reporting. 100,000 2 3

452 Consultancies

Total Amount Paid Method of Consultant Name Purpose $ Justification Selection

ESRI Australia Software development study. Defence Pty Ltd 230 1 3 Hewlett Packard Project definition study. 210,470 1 4 HRM Consulting Analysis and review of staffing and development requirements. 730,642 1 4 Recruitment Advice on recruitment strategy. Management Company 341 1 3 Right Management Staff survey and report. Australia 27,148 1 4 Storagetek IT storage capacity study. 18,182 1 4 Total Intelligence 1,283,532

Vice Chief of the Defence Force Black Is White Review the Cadet behaviour policy and Communications develop action plans for the Cadets communication strategy. 62,409 1 4 Charles Darwin Research, review and development of University recommendations and business processes for the Indigenous Participation Project. 9,977 1 4 Clements Research and recommendations on Recruitment Pty Ltd behaviour policy and alternative dispute resolution. 27,174 1 4 Jakeman Business Advice on training needs and development Solutions Pty Ltd of training plans and business processes. 40,900 1 4 Noetic Solutions Pty Evaluate performance of the strategic Ltd command level in the current operations. 12,000 1 4 Tactics Consulting Design and formatting of the ADF Cadet Occupational Health and Safety Manual. 3,405 1 4 Terra Firma Pty Ltd Business process analysis, design and advice on CadetNet Online Administration System. 56,782 1 4 Total Vice Chief of the Defence Force 212,647

Chief Finance Officer(1) Australian Advice on natural justice issues. Government Solicitor 11,661 1 3 Boston Consulting Advice on organisational effectiveness. Pty Ltd 106,250 1 3 Deloitte Consulting Scoping study and advice on the Resource and Output Management Accounting Network system upgrade. 51,089 2 3 Deloitte Touche Specialist financial advice on the impacts of Tohmatsu adopting international accounting standards. 79,300 1 3 Digital (Digest) Data Advice on development of a case Design Pty Ltd management system for the Inspector-General. 30,158 1 4 Freebody Cogent Pty Advice on asset purchase accounts for Ltd Defence Financial Statements. 4,793 1 3 John Donovan Independent commentary on business skilling issues in Defence. 5,000 1 4 KPMG Review Defence’s foreign exchange risk management framework. 25,331 1 3

453 Appendices

Total Amount Paid Method of Consultant Name Purpose $ Justification Selection

KPMG Scoping study for Defence 2003-04 financial statements. 40,125 1 2 KPMG Technical support, advice and assistance on taxation matters. 140,169 1 3 Telstra Corporation Advice for system security accreditation. Ltd 52,500 1 3 Total Chief Finance Officer 546,376

Defence Science and Technology Organisation

Domain One Pty Ltd Review on the relationship with industry. 88,576 1 3 DUUS Family Further examination of the Air Force Settlement (AIR 6000) and Navy (SEA 4000) studies. 2,700 1 4 F.K. Consulting Career development framework – conducting interviews and provision of advice on human resource issues. 24,450 1 4 Francis A. Wyer Review, update and advice on security standing orders at Pyrmont. 5,550 1 4 ISSA & Associates Study and develop design and Architects documentation for external shelters. 3,600 1 4 Kol Bryce and Advice on options for accommodation Associates planning at Fisherman’s Bend. 9,150 1 3 Libraries Alive! Pty Analysis of research library client needs. Ltd 5,300 1 3 Mediation and Independent investigation and report on Employment harassment issues. Relation 3,072 1 2 Mission Software Advice on the development of the Pty Ltd architectural models for Aerospace Battleship Management Task. 130,000 2 3 RLM Systems Pty Research on AIR 6000 tasks and report: Ltd ‘An investigation into Threat-based Analysis and Representations’. 13,523 1 2 Scot Allison & Advice on the development of a multi- Associates Pty Ltd division task for the automation of the Battlespace Initiative. 2,000 1 3 Scot Allison & Preparation of discussion paper: ‘Options Associates Pty Ltd for Research in Automation of the Battlespace’. 7,500 2 3 Scot Allison & Preparation of discussion paper: ‘Future of Associates Pty Ltd Information Sciences Laboratory Research Base’. 12,000 2 3 Scot Allison & Develop proposal for National Centre of Associates Pty Ltd Excellence in Electronic Systems Engineering. 12,500 2 3 Swordfish Advice and recommendations on the Computing Pty Ltd development of a task plan for the Aerospace Battle Management. 36,152 2 3 Total Defence Science and Technology Organisation 356,073

Defence Personnel Executive Aerosafe Risk Develop guidelines for the management of Management Pty Ltd safety risk in Defence. 434 1 3 Aerosafe Risk Development of the Defence safety risk Management Pty Ltd management implementation plan. 1,569 2 3

454 Consultancies

Total Amount Paid Method of Consultant Name Purpose $ Justification Selection

Australian Centre for Advice on the evaluation of the Alcohol Post-traumatic Rehabilitation Program. Mental Health 12,500 1 3 Australian Actuarial assessments of military leave, Government Actuary compensation and superannuation. 68,579 1 3 Australian Actuarial services for financial statements. Government Actuary 4,899 1 2 Australian Advice in relation to the contract between Government Defence and the University of NSW. Solicitor 6,766 1 2 Australian Advice regarding termination of the Government Australian Defence Force Academy Solicitor Council and establishment of the Australian Defence Force Academy Consultative Council. 5,041 1 2 Australian Legal advice for the Centre for Military Government Veterans’ Health. Solicitor 1,140 1 2 Australian Legal advice for the market testing of Government health services throughout Australia. Solicitor 42,652 1 2 Australian Legal advice regarding the Aerosafe Risk Government Management contract. Solicitor 12,286 1 3 BCA Training & Analysis of explosive ordnance training for Development the Defence explosive ordnance training Services Pty Ltd rationalisation project. 29,541 2 3 BCA Training & Mapping of explosive ordnance training Development pathways. Services Pty Ltd 20,700 1 3 Bruce A. Stevens Support to the preparation of a self-care manual for mental health and allied professionals. 16,000 1 3 Bruce Bacon & Analysis, modelling and advice to support Associates Strategic Workforce Planning database development. 120,220 1 3 Calm Consulting Advice on the implementation of the organisational renewal program for the Defence Community Organisation. 211,067 1 3 Ceridwen Preparation of team functionality analysis Management for the business renewal project. Consulting 2,400 2 3 Changedrivers Pty Advice on the alignment of occupational Ltd health and safety within the Occupational Health and Safety management framework. 39,784 2 2 Changedrivers Pty Advice to the Strategy Development Ltd Project on the Occupational Health and Safety Management System. 49,116 1 2 Changedrivers Pty Develop change strategies for improvement Ltd of occupational health and safety management. 754,663 1 2 Changedrivers Pty Develop components of the Defence Ltd civilian injury prevention and management framework. 5,640 1 2 Changedrivers Pty Advice to the Behavioural Baseline Study. Ltd 4,878 1 2

455 Appendices

Total Amount Paid Method of Consultant Name Purpose $ Justification Selection

Changedrivers Pty Strategic advice and facilitation of Ltd Occupational Health Safety and Compensation Branch business planning. 27,844 1 2 Changedrivers Pty Undertake phase 5 of the Behavioural Ltd Baseline Study. 297,429 1 2 Cogent Business Advice on sponsorship and exhibition Solutions Pty Ltd management services for the Asia Pacific Military Medicine Conference. 1,947 1 2 Cogent Business Assist in contract negotiations for physical Solutions Pty Ltd employment standards study. 8,745 2 3 Cogent Business Advice to the development of contractual Solutions Pty Ltd and project documentation for the All Hours Support Line. 11,710 1 2 Cogent Business Undertake the tender evaluation for the Solutions Pty Ltd Centre for Military Veterans' Health. 96,287 1 2 Cogent Business Advice on the market testing and out Solutions Pty Ltd sourcing of health services. 219,826 1 2 Cogent Business Advice to the suicide intervention program. Solutions Pty Ltd 5,193 1 2 Cogent Business Advice on health services strategic Solutions Pty Ltd planning. 4,582 1 2 Cogent Business Cost analysis of clerical and administration Solutions Pty Ltd training options. 49,218 1 2 Cogent Business Advice on the tender evaluation process for Solutions Pty Ltd the All Hours Support Line. 1,164 1 2 CSC Australia Pty Design and model the database for the Ltd Australian Defence College's travel management information system. 36,431 1 2 CSC Australia Pty Feasibility study to integrate the Australian Ltd Defence College's administrative databases. 12,190 2 2 Deloitte Touche Advice to the Defence Force Recruiting Tohmatsu Board of Management in accordance with the evaluation process of the recruiting services contract. 128,217 1 1 Deloitte Touche Creating an evaluation tool for working Tohmatsu collaboratively with the recruiting services providers. 28,920 1 1 Department of Research into transfer of the ADF Education Science & dependant’s student information and data Technology between states and territories. 151,535 1 3 Department of Study of mortality and cancer incidence. Veterans' Affairs 93,002 1 3 Department of Study the effects of the F-111 fuel tank Veterans' Affairs deseal/reseal on workers. 1,593,720 1 3 Desmond Mueller Subject matter expert advice for a speech by the Commander Australian Defence College. 682 2 3 Emitch Pty Ltd (2) Market research into the usage of Defence Force Recruiting's internet site. 49,937 1 1 Exersafe Pty Ltd Advice to the Physical Employment Standards workshop. 208 2 3 Frank J. Conroy Honorary payment as Australian Defence College Advisory Board Member. 500 1 3 Garut Pty Ltd Review of military health services. 109,090 1 3 Hart Consulting Advice on requirements for the tender of Group Pty Ltd the Services Workforce Access Program for Partners. 32,966 1 3

456 Consultancies

Total Amount Paid Method of Consultant Name Purpose $ Justification Selection

HGH Consultants Advice on drafting of the new legislation Pty Ltd for the Military Rehabilitation and Compensation Bill 2003. 39,985 1 3 Horizon Research Market research for Defence Force K&GM Pty Ltd(2) Recruiting strategies and plans 279,997 1 1 Igors & Susan K. Competency mapping of the Australian Pauza Defence Organisation's clerical and administration skill sets. 12,000 1 3 Ian Johnston & Evaluation of the centralised Australian Associates Pty Ltd Defence Force Academy selection board process as part of the revised recruitment strategy. 27,825 1 1 Ian R. Zimmer Honorary payment as Australian Defence College Advisory Board Member. 1,000 1 3 Jacobs Sverdrup Development and initial documentation of Australia Pty Ltd the Occupational Health and Safety Regulatory Framework, Phase 1. 176,080 1 2 James Elsbury Advice on the Officer appraisal research project. 1,313 1 3 Jamie Swann Advice to support a preliminary survey of the extent and nature of drug use in the Australian Defence Force. 766 1 3 John C. Grant- Advise on biomedical and chemical issues. Thompson 30,932 1 3 Keatsdale Pty Ltd Advice on market testing and outsourcing of health services throughout Australia. 72,493 1 2 Knowledge Pond Pty Advice on the higher command and staff Ltd studies project. 1,250 1 3 Loss Control Advice on the Defence Radiation Policy Management Project. Systems Pty Ltd 12,941 1 2 M&T Resources Pty Toxicology advice for the scoping study Ltd into the elimination and substitution of toxic substances. 5,340 1 2 Michael Forwood Advice on the market testing and Consulting Pty Ltd outsourcing of health services throughout Australia. 12,963 1 2 National Drug and Advice regarding the evaluation and Alcohol Research preparation of a training brief on cannabis Centre Education intervention for the Australian Defence Trust Force Alcohol and Drug Program. 2,493 1 3 Noetic Solutions Pty Advice on the Strategic Workforce Ltd Planning Guide. 10,650 1 3 Noetic Solutions Pty Research and preparation of presentation Ltd on Operations Bastille and Falconer. 3,000 1 3 Occupational Safety Review of audits conducted to assess and Inspection compliance with joint special plant licence Services Pty Ltd at Defence establishments. 17,623 2 3 Open Mind Research Advice on the development of recruiting Group (2) strategies for Defence Force Recruiting. 119,042 1 1 P.C. Gration Honorary payment as Australian Defence College Advisory Board Member. 1,000 1 3 Phillips Fox Lawyers Advice regarding the Military Rehabilitation and Compensation Bill 2003. 3,300 1 2 PSI Consulting Pty Advice on the tender evaluation for Ltd material safety data sheets. 9,114 1 4

457 Appendices

Total Amount Paid Method of Consultant Name Purpose $ Justification Selection

PSI Consulting Pty Advice on the cost variation of the contract Ltd negotiations between Defence and the University of NSW. 990 1 2 Robson Huntley & Advice to the Defence Senior Committees Associates Pty Ltd on the PMKeyS version 8 upgrade. 5,000 1 3 Robson Huntley & Advice on the PMKeyS Customer Support Associates Pty Ltd Centre and Information Systems Division relationships for PMKeyS production. 25,000 1 3 SMS Management & Develop the scoping strategy for the Technology Ltd proposed Occupational Health Safety Compensation Management Framework. 21,600 1 2 SMS Management & Scope the initial requirements for proposed Technology Ltd Occupational Health Safety Compensation Management Framework. 26,460 1 2 SMS Management & Scoping study on Defence Occupational Technology Ltd Health and Safety initiatives. 46,616 1 2 SMS Management & Scoping study into the elimination and Technology Ltd substitution of toxic substances. 24,935 1 2 SMS Management & Study the effects of the F-111 fuel tank Technology Ltd deseal/reseal on workers. 121,117 1 2 Softlaw Corporation Advice on a quality assurance system for Pty Ltd drafting the Military Rehabilitation and Compensation Bill 2003. 85,599 1 2 Telstra Corporation Review of threat and risk assessment for Ltd PMKeyS application. 23,800 1 3 Temple Consultants Advice on the preparation of a Cabinet Pty Ltd submission regarding the remuneration reform project. 1,500 1 3 Tenix Defence Pty Honorary payment as an Australian Ltd Defence College Advisory Board Member. 500 1 3 Turning Point Advice to develop the training package on Alcohol and Drug motivational interviewing techniques for Centre Inc. the Australian Defence Force Alcohol and Drug Program. 13,650 1 1 University of Conduct of physical employment study for Ballarat the ADF. 771,735 1 1 University of Develop and implement the Centre for Queensland Military Veterans' Health to strategically shape the provision of health care in the Australian Defence Force. 916,666 1 4 Walter & Turnbull Analysis of the error evaluation of the Pty Ltd overall 2002-03 military leave populations. 195,150 1 3 William J. Jackson Advice on tender responses for contract health practitioners in area health services. 5,498 1 3 Wizard Information Advice on specialist DEFCARE reports for Services Pty Ltd Defence. 16,815 1 3 Woolcott Research Market research and tracking of impact of Pty Ltd (2) Defence Force Recruiting's advertising program. 179,545 1 1 Worthington Di Discussion of market research concepts for Marzio Defence Force Recruiting advertising campaigns. 570 1 1 Total Defence Personnel Executive 7,695,071

458 Consultancies

Total Amount Paid Method of Consultant Name Purpose $ Justification Selection

Public Affairs and Corporate Communication

Leander P Hansar Provide report on vehicle incident. 1,785 1 2 Total Public Affairs and Corporate Communication 1,785

Defence Materiel Organisation ACIL Tasman Pty Independent review on Naval shipbuilding Ltd and repair. 11,339 3 3 ACIL Tasman Pty Advice on Maritime Sector Services for Ltd Industry capability. 90,901 3 3 ACIL Tasman Pty Advice on Western Australia Shiplift. Ltd 17,263 1 3 Anitcom Advice for the Mission System Segment contract design review for the Airborne Early Warning and Control Project. 1,100 1 1 Aon Risk Services Risk and insurance advice for Lightweight Australia Ltd Torpedo. 2,000 3 3 AOS Airport Advice on noise study report for Troop Lift Consulting Pty Ltd Helicopter. 60,312 3 3 APP Strategic Advice on Caribou Outsourcing Project. Partners Pty Ltd 15,000 3 3 Australian Advice on the Australian Submarine Submarine Corporation sale. Corporation 31,137 3 3 Bachart Project Review and advice on implementation and Services Pty Ltd introduction of Improve Project Scheduling 27,000 and Status Reporting. 3 3 BAE System Advice on the effectiveness of the Hornet Australia Ltd Lightening Pod software patch. 5,202 3 3 BAE System Pre-contractual risk reduction tasks for Australia Ltd Echidna Project. 123,313 3 3 BAE System Technical advice on systems engineering Australia Ltd - SA improvements. 46,615 3 3 Ball Services Review and recommend options on Solutions - ACT Submarine Branch Staffing. 23,040 1 3 Ball Services Review and recommend on the F/A-18 Solutions - NSW Hornet technical publications. 6,494 3 3 Ball Solutions Group Advice on Australian Defence Force Air - ACT Refuelling Capability for AIR 5402 Project. 11,067 1 2 Ball Solutions Group Advice on software control system - ACT modelling. 15,100 2 2 Ball Solutions Group Advice on options for the delivery of an - SA obsolescence management framework. 53,174 3 2 Ball Solutions Group Advice on the logistics supportability of - SA orphan avionics equipment and review the validity of commercialisation scoping study recommendations. 74,610 2 2 Bevington Review Phase 1 quality management Consulting Pty Ltd system data collection process and provide additional options. 99,770 3 3 Booz Allen & Advice on business process support to Air Hamilton Australia Lift System Program Office. Ltd 36,298 3 3 Booz Allen & Advice on tender evaluation support for Hamilton Australia Airborne Surveillance. Ltd 72,784 1 2

459 Appendices

Total Amount Paid Method of Consultant Name Purpose $ Justification Selection

Booz Allen Advice on the Defence Architecture Hamilton (Australia) Framework for Airborne Surveillance. Ltd - ACT 72,494 3 2 Broadleaf Capital Risk assessment of Seasprite special flying International - ACT for Anzac Ship Helicopter. 15,597 1 3 Codarra Advanced Communications System Review – 1st Systems Pty Ltd - stage. ACT 90,000 3 3 Codarra Advanced Review engineering business management Systems Pty Ltd - audit and give recommendations. ACT 25,890 2 4 Codarra Advanced Independent financial analysis for the ADF Systems Pty Ltd - Air Refuelling Capability Project. ACT 20,287 3 3 Compucraft Review and advise on business analysis Software Solutions report and standing offer database. 10,200 1 4 Cooleman Holdings Independent review of project and advice Pty Ltd supply options to the Project Governance Board. 13,634 1 3 David A. Hollway Advice on Defence Procurement Review. 956 3 3 Deloitte Touche Advice on SEA 1114 project closure Tohmatsu services. 11,996 3 3 Deloitte Touche Legal and financial advice for Maritime Tohmatsu Industry Capability. 30,000 3 3 Directions in Advice on Project Managers Development Management Program. 3,690 3 3 EFS Insurance Professional indemnity insurance advice. Agencies Pty Ltd 610 1 3 EFS Insurance Review – insurance evaluation. Agencies Pty Ltd 2,446 2 3 Electronic Warfare Advice to the web forms transition plan Associates Australia working group. Pty Ltd 195 3 2 EPR Management Advice on the Systems Engineering Services Pty Ltd Improvement Program. 66,300 2 2 Enicash Pty Ltd Independent review of ship building projects for the ship building project governance board 17,795 2 3 FrontierIT Advice on quality management systems. Recruitment Consulting Pty Ltd 30,330 3 3 Gains Resources Advice on a database for Hornet project. Asia-Pacific Pty Ltd 39,345 1 2 Gary R. Donoghue Advice on Civilian Strategic Lift. 55,756 3 3 GHD Pty Ltd - NT Review and advice on all Occupational Health and Safety risk. 48,240 3 3 Gibson Crest Pty Ltd Independent review of project and supply options to the Project Governance Board. 22,796 1 3 Gibson-Nicholson Workplace investigation for hydrographic ships. 1,380 3 3 Hanmac Pty Ltd Advice on Occupational Health and Safety. 350 3 3 ISDE Pty Ltd Advice on organisational design and information management. 51,856 2 3 Jacobs Sverdrup Advice on software activity for F-111. Australia Pty Ltd 70,353 3 2 Jacobs Sverdrup Advice on engineering management for Australia Pty Ltd P-3 Orion update. 38,352 3 2

460 Consultancies

Total Amount Paid Method of Consultant Name Purpose $ Justification Selection

Jacobs Sverdrup Advice on engineering activity for Australia Pty Ltd P-3 Orion Update. 34,847 3 2 Jacobs Sverdrup Advice on Hornet structural refurbishment. Australia Pty Ltd 8,015 3 2 Jacobs Sverdrup Advice on production engineering for Australia Pty Ltd P-3 Orion Update. 34,990 3 2 Jacobs Sverdrup Advice on project activity for P-3 Orion Australia Pty Ltd Update. 45,076 3 2 Jacobs Sverdrup Advice on radar reliability modelling for Australia Pty Ltd P-3 Orion Update. 37,970 3 2 Jacobs Sverdrup Advice on software engineering activity for Australia Pty Ltd P-3 Orion Update. 34,595 3 2 Jacobs Sverdrup Advice on strategic business for Joint Australia Pty Ltd Logistics Unit West site location. 8,378 3 2 Jacobs Sverdrup Advice on information support for Joint Australia Pty Ltd Logistics Unit West. 6,816 3 2 Jacobs Sverdrup Review and advice on the Airborne Early Australia Pty Ltd Warning and Control Integrated Logistics System and Logistics Management System Plans. 3,000 1 2 Jenkins Engineering Advice on the communications cable Defence Systems sweeps for the High Data Rate Communications Mast. 14,505 1 3 Kaz Technology Advice on work package 1 for Quality and Services Pty Ltd - Environmental Management System ACT process system phase. 637,245 3 3 Kellogg Brown & Advice on Laser Depth Sounder System Root Pty Ltd - ACT replacement. 85,000 2 2 Kellogg Brown & Advice on identification of maintenance Root Pty Ltd - SA activities, spares analysis and design report for a satellite control station. 4,800 2 2 Kellogg Brown & Technical spares assessment for B Vehicles. Root Pty Ltd - VIC 242,002 3 2 Kobold Systems Pty Advice on F-111 Digital Flight Control Ltd System Update Project. 4,000 3 3 KPMG Australia - Review of probity audit on Lightweight ACT Torpedo Replacement. 30,888 3 3 LDD Consulting Pty Advice to the e-Defence Project. Ltd - ACT 6,300 3 3 LEA Pty Ltd Analysis and make recommendations for quality audit report on ISO9000 for Prototype Engineering Centre. 2,160 1 3 LogicaCMG Pty Ltd Advice on the preparation of Contour Plots for C-Plath Direction-Finding System. 1,850 3 3 Logistic Solutions Advice on the procurement of commercial Australasia Pty Ltd safety radio communications system. 22,950 3 2 Logistic Bureau Pty Advice on Opus Astor Modelling. Ltd 17,445 3 3 Management & Risk Advice on Mine Clearance Diving Systems Systems Program Office Quality Management System. 2,250 1 3 Marc Consulting Advice to Vehicles and Land Operations Project Governance Board. 10,527 3 3 MechTest Advice on high pressure air emergency blowing system modelling for Collins Class Submarine. 51,920 1 3

461 Appendices

Total Amount Paid Method of Consultant Name Purpose $ Justification Selection

Mincom Ltd - ACT Advice to ADF Deployable Logistic System Navy Delta Workshop. 26,222 3 3 Gus Carfi Analysis and give recommendations of Psychological & workplace management within Land Rehabilitation Engineering Agency. Services 2,722 3 3 Mr Chris Hunt Independent advice on Human Resource issues Submarine Branch. 9,305 3 3 Mr Jim M. Noble Review of Logistics Information System. 23,833 3 3 Mylund Group - VIC Analysis and recommendations for Market Research Project 2003 - Questionnaire of Client Program Managers or Equivalents. 9,433 1 3 P-CON Pty Ltd Advice on fully contracted Integrated Materiel Support. 80,494 3 3 Project Outcomes Architecture design review. Pty Ltd 32,260 3 3 PS Management Advice on Project Management Consultants Methodology version 2 outcome. 10,478 3 3 PS Management Logistics advice on spares for strategic Consultants airlift capability. 108,618 2 3 PSI Consulting Pty Financial advice on verification services. Ltd 13,600 1 2 Purcell Consultants Independent review of projects and supply options to the Project Governance Board. 51,072 1 3 Qantas Airways Ltd Advice on Operational Flight Trainer for - NSW Airborne Early Warning and Control Project. 28,100 3 3 R W. Henley Independent review of project and supply options to the Project Governance Board. 15,473 1 3 Raytheon Australia Advice on the Human Factors Engineering Pty Ltd - Naval Assessment of the Functional Test Systems Capability Design for the Single Channel Radio System. 6,992 3 2 Robson Huntley & Review and recommend options on the Associates Pty Ltd Submarine Branch Staffing. 21,000 1 3 SAI Global Ltd - Advice on business development for Joint NSW Ammunition Logistics Organisation. 4,805 1 3 SAI Global Ltd - Audit advice to Joint Ammunition Logistic NSW Organisation. 2,368 1 3 SAI Global Ltd - Tactical Fighter external audit. NSW 3,090 1 3 SC and T Foggett IT advice on integration of quality Pty Ltd management. 313,636 3 3 Serco Australia Pty Advice on P-3 Orion Update. Ltd 11,584 3 3 Simtars Pty Ltd Advice on F-111 engines in- house options. 3,940 3 3 Spotless - QLD Advice on upgrade of security rating. 6,000 3 3 Advice on design and engineering Spotless - QLD relocation. 31,275 2 3 Sypaq Systems Advice on options paper and project plan for a corporate level process framework. 18,480 3 3 Tanner Janes Review and recommend changes to Management Lead-In Fighter Project Management Methodology Documents. 12,412 1 3 Telelogic Australia Advice on database training. Pty Ltd - NSW 1,601 3 3

462 Consultancies

Total Amount Paid Method of Consultant Name Purpose $ Justification Selection

Tenix Defence Pty Advice on Long Range Patrol Vehicle Ltd Phase 1A project. 60,390 3 3 Terra Firma Pty Ltd Advice on Earned Value Management for Integrated Baseline Review. 24,011 3 3 Terra Firma Pty Ltd Review of Earned Value Management System. 2,891 3 3 Terra Firma Pty Ltd Advice and support on the Integrated Project Scheduling and Status Reporting. 39,130 3 3 The Phillips Group - Strategic advice on media issues for Collins QLD Class Submarines. 14,259 3 3 Toll Transitions Advice on location for the Collins Class Submarine Project. 7,920 1 3 Work Health Safety Advice on workplace assessment. Matters Pty Ltd 655 3 3 West Pacific Pty Ltd Review and make recommendations improving Project Scheduling and Status Reporting. 8,800 1 3 West Pacific Pty Ltd Review of Service Pack for Project Scheduling and Status Reporting. 4,000 1 3 Welding Technology Specialist welding advice for Amphibious Institute of Australia Watercraft Project. 9,977 1 3 Total Defence Materiel Organisation 3,941,275

Corporate Services and Infrastructure Group(3) 2GC Ltd Analysis of 2002-03 Environmental Performance Reporting Framework mechanism. 15,000 1 3 Acumen Alliance Development of corporate governance improvements. 74,488 1 3 Adelaide Annual asbestos audit. Environmental Consulting Pty Ltd 67,464 1 4 Adrian Hughes Preliminary design consultancy services. Architect Pty Ltd 960 1 3 Aerosafe Risk Advice on risk management methodology Management for the airworthiness and airfield support study. 18,710 1 3 Airservices Australia Site selection advice for noise monitoring equipment. 4,781 1 2 Allied Technologies Audit on Leased Data Lines. Australia Pty Ltd 49,671 1 3 Anthony S Blunn Oversight and advice relating to the Defence Legislation Review Project. 86,250 1 3 AOS Airport Advice on noise monitoring issues. Consulting Pty Ltd 26,109 1 2 Australian Cultural Advice on interpretive centre options. Heritage Pty Ltd 32,210 1 3 Australian Provide legal advice. Government Solicitor 4,908 1 2 Australian Probity advice for tender evaluation. Government Solicitor 72,428 1 2 Australian Probity advice on re-tendering of the Estate Government Planning and Acquisition Panel. Solicitor 7,337 1 2

463 Appendices

Total Amount Paid Method of Consultant Name Purpose $ Justification Selection

Australian Legal Services for Garrison Support Government Contract. Solicitor 2,378 1 2 Australian Probity advice for the Amberley Stage 2 Government Redevelopment Project. Solicitor 15,289 1 2 Australian Legal assistance. Government Solicitor 171,000 1 2 Australian Valuation Analysis of market grouping and regional Office determination of market allocations. 3,000 1 2 Australian Valuation Revaluation of Defence Estate 2002-03. Office 307,964 1 4 Australian Valuation Provide support for the revaluation of a Office training depot. 1,700 1 2 Barry Webb & Provide advice and recommendations for Associates Pty Ltd the Tactical Training Simulation Site, Robertson Barracks. 7,729 1 3 Blake Dawson Provide advice on compliance issues with Waldron the National Pollutant Inventory. 41,270 1 3 Blake Dawson Provide advice and recommendations with Waldron the Puckapunyal Environmental Management System. 5,542 1 3 Blake Dawson Provision of an Independent Probity Waldron Advisory team. 17,135 1 3 Blake Dawson Legal advise for information technology Waldron policy, system and market testing process. 626,166 1 3 Bligh Vollier Nield Create a development plan for living-in- Architects accommodation in Holsworthy Barracks. 7,702 1 2 Bovis Lend Lease Design consultancy services for RAAF Pty Ltd Base Richmond Reinvestment Project. 8,405 1 3 Broadleaf Capital Risk analysis on information technology International Pty Ltd market testing. 22,613 1 4 Broadleaf Capital Development of an improved business International Pty Ltd model for the disposal of Defence property. 14,400 1 4 Carson Group Pty Advice and recommendations to the Ltd development of the Functional Design Brief. 16,625 1 2 CBDKM Pty Ltd Advice on organisational planning for the Defence Computing Bureau. 13,200 1 3 CBDKM Pty Ltd Review, comment and provide recommendations on agreed In-House Option Deliverables. 6,930 1 3 Chris Hunt Review of Australian Defence Satellite Communication Station. 23,119 1 3 Clayton UTZ Review and advise on contractual clauses Solicitors in relation to Holsworthy Special Forces Training Facilities. 334 1 3 Clayton UTZ Advice on Garrison Support Services and Solicitors Comprehensive Maintenance Services retendering. 4,920 1 3 Clayton UTZ Legal advice on variations to the Leightons Solicitors Managing Contractor Contract for Armed Reconnaissance Helicopter Simulator Facility. 11,059 1 3 Clayton UTZ Advice on legal matters. Solicitors 35,565 1 3

464 Consultancies

Total Amount Paid Method of Consultant Name Purpose $ Justification Selection

Clayton UTZ Advice on overseas living allowance. Solicitors 14,614 1 3 Cliff Green Design Advice on fire hazard reduction works for the design of the special forces training facilities at Holsworthy. 63,253 1 3 Cogent Business Advice on an acquisition strategy for the Solutions Pty Ltd provision of removal services post June 2005. 7,200 1 2 Cogent Business Advice on relocations project. Solutions Pty Ltd 6,113 2 2 Communications Advice on staff support functions. Design & Management Pty Ltd 39,690 1 2 Connell Wagner Design consultancy services for the Guided (WA) Pty Ltd Weapons In Service Support facility. 43,683 1 2 Connell Wagner Advice on upgrades design works. (WA) Pty Ltd 945 1 2 Connell Wagner Advice on sewerage/septic system for (WA) Pty Ltd health and environmental issues. 13,830 1 2 Connell Wagner Pty Advice for Estate Capability Proposal on Ltd training options for 1 and 9 Brigades and sustainable management of expanded Cultana Training Area. 23,019 1 2 Connell Wagner Pty Advice on costing options for the facility Ltd requirements of SEA 1444 at Darwin and Cairns. 117,769 1 2 Corrs Chambers Advice on the management of panel within Westgarth Industry and Acquisitions. 4,953 1 4 Craig B. Robilliard Advice on strategic development of Pty Ltd Defence Financial Management Information System. 37,168 1 3 Cultural Advice on design brief for Redevelopment Connotations Pty of Wheatley House Canungra Museum. Ltd 4,856 1 3 Dangerous Solutions Investigate and report on storage Pty Ltd requirements for explosive ordinance and dangerous goods at Holsworthy. 11,550 1 3 DLM Consulting Pty Advice on Holsworthy Base redevelopment Ltd managing contractor building compliance report. 48,200 1 3 Duncan Marshall Heritage issues study for the Force Disposition Review. 909 1 3 EDS (Australia) Pty Advice on production support Ltd arrangements for PMKeyS report. 36,351 1 2 Engage Advice on training issue for the Communication Pty Environmental Health and Risk on Ltd Presentation Skills. 7,091 1 3 Environmental Heritage survey of sites identified in the Resources environmental impact assessment and Management production of Holsworthy Environmental Protection and Biodiversity Conservation Referral. 20,634 1 2 Environmental Environmental Management System study Resources for Majura Firing Range. Management 18,947 1 2

465 Appendices

Total Amount Paid Method of Consultant Name Purpose $ Justification Selection

Environmental Undertake a heritage assessment of RAAF Resources Base Pearce. Management 33,305 1 2 Environmental Provide a study for Heritage Concept Resources RAAF Townsville. Management 8,950 1 2 Equity & Advisory Advice on planning issues for the Fort Corporate Finance Wallace Disposal project. Pty Ltd 10,706 1 3 Ernst & Young Review of the Defence Housing Forecast. 43,195 1 2 Fulton Technology Technical advice and support in Pty Ltd implementation of IT database system. 44,909 1 3 GHD Pty Ltd Advice on noise impact of operations for the flight deck procedural trainers at HMAS Albatross. 49,503 1 2 GHD Pty Ltd Comprehensive maintenance contract review. 13,038 1 2 GHD Pty Ltd Advice on cost estimates relocating RAAF and other Defence units as proposed in the Force Disposition Review. 10,000 1 2 GHD Pty Ltd Noise measurements and assessment of the buildings at Salt Ash Public School. 23,361 1 2 GHD Pty Ltd Commonwealth User Airfield safeguarding investigation on explosive ordnance operation at Airfields. 23,880 1 2 GHD Pty Ltd A study to determine geometric strength for airfield pavement upgrade at RAAF Amberley. 40,903 1 2 GHD Pty Ltd Advice on design standard for Power Stations, Substations, and Aircraft Power Supplies. 45,662 1 2 GHD Pty Ltd Conduct the Hawk Lead-in Fighter impact study at RAAF Base Williamtown and the Salt Ash Air Weapons Range. 837 1 2 GHD Pty Ltd Advice on the long term / short term impact of Defence on the surrounding community and the impact of Planning Scheme on Defence activities. 3,480 1 2 GHD Pty Ltd Design services contract - planning phase only. 41,275 1 2 GHD Pty Ltd Advice on additional interim office space for the ANZAC Strategic Project Office in Rockingham, WA. 7,039 1 2 GHD Pty Ltd Undertake review of Melbourne Defence properties to identify opportunities for rationalisation & consolidation. 7,330 1 2 GHD Pty Ltd Undertake review of Sydney Central Properties. 24,075 1 2 GHD Surveys Pty Review and recommend on the peer review Ltd of the Flora and Fauna report for Moorebank disposal site. 12,916 1 3 Gibson Nominees Advice on administration of the Pty Ltd Commonwealth Policy on the Management of Land affected by Unexploded Ordnance. 46,111 1 3 Governance Matters Performance Evaluation of Defence. Pty Ltd 7,750 1 3

466 Consultancies

Total Amount Paid Method of Consultant Name Purpose $ Justification Selection

Governance Matters Peer review-commercial vehicle services. Pty Ltd 3,116 1 3 Green & Green Advice to Information Systems Division Consultancy Capital Board. 26,500 1 3 Green Building Green Building Council environmental Council of Australia milestone advice. 52,500 1 3 Grosvenor Provide advice and recommendations to Management Garrison Support services. Consulting 19,715 1 2 Grosvenor Risk reward model review and testing for Management pricing of contracts associated with Consulting retendering of Ground Support System Communications. 11,963 1 2 Grosvenor Review existing Comprehensive Management Management Service Performance Consulting Indicators. 9,135 1 2 Grosvenor Helpdesks/call centres review. Management Consulting 13,991 1 2 Grosvenor Review and implement civilian best Management practise processes including centralisation. Consulting 39,972 1 2 Grosvenor Advice on estimate for re-tendering of Management Garrison Support Services Contract and Consulting Comprehensive Maintenance Contract for Riverina and Murray Valley region. 10,000 2 2 Hewlett Packard Technical testing services for Standard Australia Pty Ltd Operating Environment 125. 82,356 1 2 HLA Envirosciences Undertake comparative analysis 2002-03 Pty Ltd Environment Environmental Performance Reporting Framework. 25,674 1 2 HLA Envirosciences Desktop review of the environmental risk Pty Ltd prioritisation tool. 3,900 1 2 HLA Envirosciences Peer review of Defence Contamination Pty Ltd Manual. 6,038 2 2 HLA Envirosciences Advice on Defence Environmental Pty Ltd Management System documentation being placed on the Defence intranet site. 4,485 1 2 HLA Envirosciences Independent audit of the contaminated Pty Ltd waste stockpile at Lavarack Barracks Townsville. 2,850 1 2 HLA Envirosciences Prepare the submission for Environmental Pty Ltd Budget Statement and framework for future reporting. 8,640 1 2 Ian Keirnan AO Peer Review of the Defence Recycling Program. 5,044 1 3 Investa Properties Review the Southern Air Bases Study to Ltd advise recommended options for the Force Disposition Review. 51,742 1 3 IPA Personnel Pty Process mapping all military personnel Ltd administration for the development of the front-end of the business improvement process. 6,627 1 3 Jacobs Sverdrup Review of the Defence Computing Bureau. Australia Pty Ltd 21,818 1 4 John C Johnson Oversight and advice relating to the Defence Legislation Review Project. 50,000 1 3

467 Appendices

Total Amount Paid Method of Consultant Name Purpose $ Justification Selection

John Hogbin Advice on management of relationships within a key stakeholder group and on Mobile Reporting Unit issues. 26,175 1 4 John Kentish Study into logistics function and their Consulting management for the Business Improvement Project. 21,986 2 3 John S Baker Oversight and advice relating to the Defence Legislation Review Project. 127,518 1 3 Jones Lang Lasalle Update data provided in southern air bases study to inform decision making on Force Disposition Review. 46,250 1 3 KBR Pty Ltd Technical Advice on IT market testing process. 61,578 1 2 Kellogg Brown & Condition appraisal of facilities to be Root Pty Ltd utilised by the Defence Integrated Distribution System contractor and provide report and rectification plan. 25,900 1 2 Kellogg Brown & Review of Standard Training Area Range Root Pty Ltd Safety Network Safety Study. 18,000 1 2 Kenny & Good Pty Study of non-Defence site options for 1st Ltd Commando Regiment. 7,500 1 3 Kizmet Consulting Advice on the Enterprise Management Group Pty Ltd System. 10,800 1 3 Lapeyre Consulting Conduct an occupational health and safety Services Pty Ltd assessment at Williamtown. 288 1 3 Larkin Teys Oakey Museum Options Study. Consulting Pty Ltd 3,400 1 3 Lead Up Software Advice on process improvement Pty Ltd opportunities and technology improvement opportunities. 32,400 1 3 Menabilly An engineering study relating to tarmac Consulting strength and resurfacing at RAAF sites. 79,200 1 3 Meta Group High level guidance for business Australia Pty Ltd development. 1,000 1 3 Michael J Palmer Oversight and advice relating to the Defence Legislation Review Project. 15,500 1 3 Mincom Pty Ltd Advice on Inventory Management System software usage and its integration with Defence business processes in relation to the Standard Defence Supply System Upgrade to V4. 16,990 1 2 Minter Ellison Advice on Private Financing Policy tools and documents for the implementation of Private Financing procurement methodology. 111,179 1 3 Morison Consulting Review of Financial Management Model. Pty Ltd 20,601 1 3 National Project Advice on a strategic business case for 171 Consultants Pty Ltd Squadron relocation into the Sydney basin. 76,261 1 3 National Project Provide a certified assessment of Consultants Pty Ltd Sustainability Energy Development Authority rating – Headquarters Training Command, Victoria Barracks. 3,900 1 3 Noetic Solutions Pty Advice on a model for IT support and Ltd services. 146,960 1 3

468 Consultancies

Total Amount Paid Method of Consultant Name Purpose $ Justification Selection

Oxley Corporate Preparation of a high-level business case for Group the rationalisation of various Adelaide properties. 21,634 2 3 Parson Brinckerhoff Advice on Commonwealth Legislation requirement and Licence requirement. 17,500 1 3 Phillips Fox Lawyers Probity adviser to review and assist in preparation of Request for Tender documentation. 63,488 1 4 Planning Workshop Advice for Sutherland Shire draft local Australia environment plan. 1,568 1 3 Power Initiatives Preparation of a detailed business case for the Royal Australian Navy Heritage Centre. 91,522 1 2 Power Initiatives Advice on development of an ACT Office Accommodation Planning Study. 79,886 1 2 Power Initiatives Provide recommendations into the development of the Delamere Tactical Air Defence Radar System. 12,088 1 2 Pricewaterhouse Advice on the economic impact on RAAF Coopers Base Richmond on the surrounding region, and to examine strategies for attracting alternative aviation-related activities to the Base. 43,701 1 4 Procom Enhanced Advice on project management for the Services Pty Ltd Defence Contract Bureau Disaster Recovery capability expansion. 19,000 1 3 Professional Services Review and prepare a report into Intruder & Engineering Pty Detection. Ltd. 15,390 1 2 Property Concept & Advice on Key Performance Indicators for Management Pty Ltd the Defence Housing Authority Services Agreement. 16,800 1 3 Property Concept & Financial analysis and advice in relation to Management Pty Ltd Defence Housing Authority claim for Assessment of Return Shortfall. 2,494 1 3 Psychology Centre Advice on Employee Assistance Program. 1,500 1 3 QSP Asia Pacific Pty Provision of a new data feed and reports for Ltd the Card Management System in support of the Defence Travel Card. 5,372 1 3 Ray White Real Advice on engineering services for Neutral Estate Bay. 750 1 3 Robson Huntley & Advice and recommendation on the Navy Associates Pty Ltd Options Team Study. 8,000 1 3 Rosedale Business Advice on retendering of Garrison Support Solutions Contract. 2,000 1 3 Ryan-Spargo Review and provide recommendations on Consulting position profiles studies. 23,572 1 3 SAI Global Ltd Audit of the Quality Assurance Management System for delivery of clerical & administrative services. 2,010 1 3 Sinclair Knight Merz Advice on Surface Enrichment Spray Pty Ltd Treatment options for airfield runways. 161,431 1 2 Sinclair Knight Merz Scoping study into pavement reconstruction Pty Ltd at RAAF Base Townsville. 5,105 1 2 Sinclair Knight Merz Asbestos Management Strategy preparation Pty Ltd at Randwick. 3,510 1 2 Sinclair Knight Merz Review the Emergency Management Pty Ltd Systems. 20,200 1 2

469 Appendices

Total Amount Paid Method of Consultant Name Purpose $ Justification Selection

Sinclair Knight Merz Review the Environmental Plan. Pty Ltd 2,224 1 2 Sinclair Knight Merz Advice on Bathurst Island Tactical Air Pty Ltd Development Radar Site Development. 21,701 1 2 Sinclair Knight Merz Advice and recommendations into updating Pty Ltd the Edinburgh Site Plan. 19,050 1 2 SMCS Computing Advice and support with Information Pty Ltd Technology 'Solve' software. 10,491 1 4 SSL Asset Services Advice on environment management. Pty Ltd 1,046 1 2 Strategic Facility Advice and recommendations into the Air Services Pty Ltd Conditioning Report. 3,600 1 3 Strategic Facility Advice on work breakdown structure Services Pty Ltd elements for tender documentation. 23,959 1 3 T4 Protective Security advice regarding the construction Security standards of Joint Electronic Welfare Operational Support Unit building extension. 4,501 1 3 Tanner James Advice, options and recommendations in Management the implementation of Project Management Consultants Pty Ltd Tools. 414,040 1 4 Tarakan Consulting Advice on market testing. Pty Ltd 114,140 1 3 Terence Smith Advice on strategic guidance. 128,400 1 3 The Frame Group Advice and assist with a costing model for Pty Ltd the development of intranet website. 75,750 1 3 The Green & Green Advice on the implementation of a Project Group Pty Ltd Board. 28,645 1 3 The Green & Green Advice on the use of Resource and Output Group Pty Ltd Management Accounting Network Capital Projects. 30,100 1 3 United KFPW Pty Advice on the Integrated Noise Model input Ltd data and production of an initial Australian Noise Exposure Concept map and the final Australian Noise Exposure Forecast map. 3,000 1 3 University of Central Study into the socio-economic impact of Queensland Defence (including foreign forces) in the Central Qld Region. 14,000 1 3 University of South Conduct survey and assessment work on the Australia contamination at a rubbish tip. 1,100 1 3 University of Provide monitoring advice for the Wollongong Cumberland Plan Research Model. 5,000 1 3 URS Australia Pty To compile an environmental management Ltd plan, identify and mitigate environmental risks for RAAF exercises. 23,015 1 3 URS Australia Pty Advice on Defence's appeal against the Ltd application by the Shire of Mitchell to establish the tip adjacent to the Puckapunyal Military area. 63,517 2 3 URS Australia Pty Advice on the finalisation of the referral to Ltd Environment Australia for Bathurst Island Tactical Air Defence Radar site. 6,270 1 3 Walter & Turnbull Advice on Cost Modelling for in house Pty Ltd option. 79,793 1 3 Walter & Turnbull Assist and recommend with the Pty Ltd benchmarking of resource consumption analysis. 98,982 1 3

470 Consultancies

Total Amount Paid Method of Consultant Name Purpose $ Justification Selection

Walter & Turnbull Developing the costing framework for Pty Ltd regional information technology services. 30,000 1 3 WB + Property Develop a strategic business case for the Solutions delivery of a Combat Mission System Research Centre. 2,489 1 3 WB + Property Advice on strategic business cases for two Solutions capital infrastructure proposals at HMAS Cerberus. 18,623 1 3 WB + Property Providing an Environmental Management Solutions System study for Majura Firing Range. 76,374 1 3 WB + Property Review the requirement to mandate Solutions Defence facilities for submarine contractors. 1,538 1 3 WB + Property To provide specialist input for a strategic Solutions business case on Holsworthy Child Care Centre proposal. 4,450 1 3 West Australian Survey of the bat species/population at Museum Bindoon Range. 727 1 3 West Pacific Assist with implementation of the Welcome Consultancy Home Training Services. 22,000 1 3 Wilton Hanford Independent review of document Hanover Pty Ltd management. 39,091 1 3 Woodhead Heritage condition assessment of the International remount complex at Gallipoli Barracks, Enoggera. 11,313 1 2 Woods Bagot Pty Study to determine the extent of safety, Ltd environmental and security issues associated with continued Defence use of the Darwin city wharf precinct. 33,773 1 2 Total Corporate Services and Infrastructure Group 6,184,036

Chief Information Officer Gartner Australasia Market research and advice for Core Research Service and Executive Program. 122,424 1 3 Meta Group Independent market research and advice on Australia Pty Ltd information systems and information management. 331,936 1 3 Total Chief Information Officer 454,360 Notes 1. The Chief Finance Officer Group includes data relating to the Secretary and the Chief of the Defence Force. 2. These items are also reported in Table 7.24 under Advertising and Market Research. 3. Corporate Services and Infrastructure Group includes data relating to the Inspector-General’s Division and Defence Improvement Division.

471 Appendices

Advertising and Market Research Particulars of all amounts relating to advertising and market research paid by, or on behalf of, Defence during 2003-04 are shown in the tables below. Total Advertising and Market Research Expenditure by Type of Table 7.22 Agency 2001-02 2002-03 2003-04 Expenditure Expenditure Expenditure

$’000 $’000 $’000 Advertising 5,760,249 7,256,125 5,828,392 Market Research(1) 1,384,114 903,910 949,656 Polling - 56,004 - Direct Mail 1,505 4,872 - Media Advertising 32,612,533 18,190,176 12,978,452 Total 39,758,401 26,411,087 19,756,500 Note 1. Contracts with four market research organisations, totalling $363,485 were erroneously omitted from the Defence Annual Report 2001-02. Details were provided in the Defence Annual Report 2002-03, pp xiii.

Table 7.23 Total Advertising and Market Research Expenditure by Group 2001-02 2002-03 2003-04 Expenditure Expenditure Expenditure

Group $’000 $’000 $’000 Headquarters Australian Theatre(1) - 20,152 4,591 Navy 388,799 62,004 95,943 Army 194,318 168,779 181,593 Air Force 56,254 55,923 98,905 Strategy(2) 11,217 4,695 25,995 Public Affairs and Corporate Communication 1,250,959 422,999 134,097 Intelligence and Security 379,711 359,738 479,614 Vice Chief of the Defence Force 1,411,439 204,964 135,830 Chief Finance Officer 35,123 4,954 25,474 Chief Information Officer (3) - 4,985 14,627 Defence Science and Technology Organisation 893,987 287,488 224,887 Defence Personnel Executive 33,578,148 21,763,264 16,547,004 Defence Materiel Organisation 610,192 645,186 572,510 Corporate Services and Infrastructure 948,254 2,410,941 1,213,446 Inspector-General - - 1,984 Total 39,758,401 26,411,087 19,756,500 Notes 1. On 16 March 2004 the Headquarters Australian Theatre became Headquarters Joint Operations Command under the command of the Chief Joint Operations. 2. On 16 February 2004 the Public Affairs and Corporate Communication organisation became part of the Strategy Group. The marketing and advertising expenditure of the Public Affairs branch has continued to be reported separately to ensure transparency of its expenditure. 3. The Chief Information Officer Organisation was established in July 2001 but was not assigned Group status until 2002-03. No advertising expenditure was recorded for 2001-02.

472 Advertising and Market Research

Particulars of Payments by Group for Advertising and Market Table 7.24 Research 2003-04 Purpose Expenditure $’000

Headquarters Australian Theatre Media Advertising HMA Blaze 4,591 Recruitment advertising – civilian Total Headquarters Australian Theatre 4,591 Navy Advertising Tour Hosts Pty Ltd 67,615 Sea Power Tour brochures Media Advertising Robert Walker 1,564 Booth at Marine Safety Conference HMA Blaze Pty Ltd 24,647 Recruitment advertising for civilian positions and Navy Week advertising radio and paper Weekend Australian 2,117 Advertising services for civilian recruitment Total Navy 95,943

Army Advertising Singleton Ink Spot 3,371 Recruitment – printing promotional material DPS Display 2,560 Recruitment – banner production Signwave 2,163 Conference signage for Rowell Seminar Dintlawn 4,657 Promotional material Marlow Promotional Products 4,952 Promotional material Media Advertising APN Newspapers 1,635 Recruitment advertising – Army Reserve Community Television Perth 1,600 Recruitment advertising – Army Reserve Metro Cinemas 2,836 Recruitment advertising – Army Reserve Universal Productions 1,953 Recruitment advertising – Army Reserve Whitsundays Broadcasters 2,001 Recruitment advertising – Army Reserve Serco 5,511 Recruitment advertising – Army Reserve HMA Blaze 8,020 Recruitment advertising – Army Reserve Wings Journal 6,486 Recruitment advertising – military Army Newspaper 3,551 Recruitment advertising – military Defence Newspapers 36,022 Recruitment advertising – military Northern Services Courier 10,523 Recruitment advertising – military Royal Australian Infantry Magazine 1,500 Recruitment advertising – military The Age 4,631 Recruitment advertising – military Fairfax Publications 4,536 Recruitment advertising – military HMA Blaze 5,997 Recruitment advertising – civilian Cultural Facilities Corporation 1,819 Band – gold jubilee concert. Venue hire and associated marketing for Golden Jubilee of the Band of the Royal Military College. Cumberland Newspapers 2,992 Advertising – military heritage day Exhibition and Trade Fair 3,680 Recruitment drive HMA Blaze 5,714 Advertising – Open Day Canberra FM Radio 3,065 Advertising – Beat the Retreat parade HMA Blaze 15,230 Advertising for research grants and recruitment HMA Blaze 1,663 Public notice of ADF activity HMA Blaze 12,797 Tender notices Kingsbury Design 1,836 Advertising – Open Day Prime TV Southern 3,000 Advertising – Beat the Retreat parade Prime TV Southern 1,625 Advertising – Queen’s Birthday parade The Age 2,346 Advertising – classifieds The Federal Capital Press Office 3,174 Advertising – Beat the Retreat parade The Federal Capital Press Office 1,706 Advertising – Queen’s Birthday parade

473 Appendices

2003-04 Purpose Expenditure $’000 WIN Television 4,000 Advertising – Beat the Retreat parade WIN Television 2,441 Advertising – Queen’s Birthday parade Total Army 181,594 Air Force Advertising Bytes ’n Colours 1,985 Balloon display board / banners Media Advertising Canberra Times 1,993 Recruitment advertising – civilian HMA Blaze 35,854 Recruitment advertising – civilian Spherion Recruitment Solutions 1,611 Recruitment advertising – civilian Sydney Morning Herald 8,567 Recruitment advertising – civilian Copeland 1,742 Museum advertisements Destination Melbourne Inc 4,343 Museum advertisements Double T Radio 5,400 Museum advertisements Magic 693 2,850 Museum advertisements Telling Words 1,650 Museum advertisements The Geelong Independent 1,750 Museum advertisements Fairfax Community Newspapers 10,440 Museum and Twilight Spectacular advertisements 3AW Southern Cross Radio 18,900 Museum and Twilight Spectacular advertisements Rehame 1,820 Air Pageant advertisements Total Air Force 98,905 Strategy Media Advertising Canberra Times 5,571 Recruitment advertising – civilian The Australian 20,424 Recruitment advertising – civilian Sub-total Strategy 25,995 Public Affairs and Corporate Communication(1) Market Research Mediascape Analytical & Research 47,166 Media tracking and analytical services Worthington Di Marzio 38,450 Market research – community attitudes Media Advertising HMA Blaze 48,481 Media advertising – non-campaign media advertising of regional public affairs activities. Sub-total – Public Affairs and Corporate Communication 134,097 Total Strategy 160,092

Intelligence and Security Media Advertising HMA Blaze 392,109 Recruitment advertising – civilian Canberra Times 7,018 Recruitment advertising – civilian HMA Blaze 73,870 Recruitment advertising – civilian HMA Blaze 6,617 Tender notices Total Intelligence and Security 479,614

Vice Chief of the Defence Force Advertising Dan Tomkins Design 3,062 Reserve initiatives advertising Media Advertising The Australian 6,426 Recruitment advertising – civilian The Canberra Times 4,906 Recruitment advertising – civilian Australian Human Resources Institute 19,680 Reserve initiatives advertising C&G Advertising Services 1,895 Reserve initiatives advertising Community Link Media 2,500 Reserve initiatives advertising Crowther-Blayne & Associates 2,990 Reserve initiatives advertising Deadline Services 23,289 Reserve initiatives advertising

474 Advertising and Market Research

2003-04 Purpose Expenditure $’000 Flash Photobition 10,400 Reserve initiatives advertising Flight Publishing 9,615 Reserve initiatives advertising Graedi Group 2,950 Reserve initiatives advertising HMA Blaze 2,530 Reserve initiatives advertising Key Media 12,640 Reserve initiatives advertising Northern Defence Magazine 7,500 Reserve initiatives advertising Percival Publishing 18,060 Reserve initiatives advertising The Voice 1,650 Reserve initiatives advertising Victorian Automobile Chamber of 3,537 Reserve initiatives advertising Commerce Z Media 2,200 Reserve initiatives advertising Total Vice Chief of the Defence Force 135,830

Chief Finance Officer Media Advertising HMA Blaze 25,474 Recruitment advertising – civilian Total Chief Finance Officer 25,474

Chief Information Officer Media Advertising The Canberra Times 3,278 Recruitment advertising – civilian The Australian 8,581 Recruitment advertising – civilian The Weekend Australian 2,768 Recruitment advertising – civilian Total Chief Information Officer 14,627

Defence Science and Technology Organisation Media Advertising HMA Blaze 169,260 Recruitment advertising – civilian Australian Defence Business Review 8,182 Corporate promotion to external audiences Australian Defence News 2,575 Corporate promotion to external audiences Business/Higher Education Round 2,000 Corporate promotion to external audiences Table HMA Blaze 17,809 Corporate promotion to external audiences Strike Publications Group 4,814 Corporate promotion to external audiences Yaffa Publishing Group 10,480 Corporate promotion to external audiences HMA Blaze 9,767 Tender notices Total Defence Science and Technology Organisation 224,887

Defence Personnel Executive Advertising Future Train 50,000 Recruitment advertising production – military Young & Rubicam Mattingly 5,042,694 Recruitment advertising production - military The Good Guides Group Promoting ADF careers to school career 72,894 advisers Goanna Print 1,700 Promotional material for Defence assisted study scheme LAM Agency 163,043 Recruitment advertising production Showcase Productions 3,400 Promoting Defence equity advice lines The Good Guides Group 5,750 Advertising the Graduate Development Program Unimail 6,000 Advertising the Graduate Development Program Market Research Emitch (2)(3) 48,950 Market research into the usage of Defence force recruiting’s website Horizon Research (2) (3) 241,425 Market research into ADF recruitment strategies and production plans

475 Appendices

2003-04 Purpose Expenditure $’000 Horizon Research 182,563 Defence force recruiting – market research Open Mind Research Group(2) 119,043 Market research to aid development of recruitment strategies for the ADF Open Mind Research Group 92,514 Defence force recruiting – market research Woolcott Research(2) 179,545 Market research to track the impact of Defence Force Recruiting’s advertising program Media Advertising HMA Blaze 1,507,713 Recruitment advertising – military Motivational Media Assemblies 50,000 Recruitment advertising – military Unimail 5,000 Recruitment advertising – education features Universal McCann 8,453,032 Recruitment advertising – military The Canberra Times 2,912 Advertising – ADF pay rates HMA Blaze 82,084 Recruitment advertising – civilian The Canberra Times 10,435 Recruitment advertising – civilian The Australian 20,256 Recruitment advertising – civilian HMA Blaze 61,142 Recruitment advertising – Graduate Development Program The Australian 2,345 Recruitment advertising – Graduate Development program 11,493 Recruitment advertising – contract health HMA Blaze professionals HMA Blaze 74,335 Recruitment advertising – Senior Executive Navy News 1,934 Advertising ADF health promotion program HMA Blaze 3,098 Advertising ADF health promotion program Flight Publishing 1,951 Advertising ADF health promotion program Airforce News 3,868 Advertising ADF health promotion program 6,864 Promotional advertising in ADF Reserves 2004 Executive Media Yearbook HMA Blaze 1,824 Invitation to register for e-learning advertising HMA Blaze 37,197 Advertising – tender notices Total Defence Personnel Executive 16,547,004

Defence Materiel Organisation Advertising The Good Guides Group 3,900 Recruitment advertising – Graduate Development Program Media Advertising HMA Blaze 40,628 Recruitment advertising – graduate Unimail 2,500 Recruitment advertising – graduate HMA Blaze 329,576 Recruitment advertising – civilian Spherion 53,361 Recruitment advertising – civilian Canberra Times & Weekend Australian 4,620 Recruitment advertising – civilian Hawkesbury Gazette and Courier 1,590 Recruitment advertising – civilian HMA Blaze 2,735 Advertising – information briefing HMA Blaze 5,630 Advertising – request for expressions of interest from industry HMA Blaze 127,970 Tender notices Total Defence Materiel Organisation 572,510

Corporate Services and Infrastructure Advertising Adcorp Australia 132,272 Marketing sale of Defence property Allard & Shelton 16,375 Marketing sale of Defence property Knight Frank 139,886 Marketing sale of Defence property Leo Burnett Robinson 12,587 Marketing sale of Defence property Dixon’s First National Real Estate 11,845 Marketing sale of Defence property Ferry Real Estate 22,625 Marketing sale of Defence property United KFPW 26,795 Marketing sale of Defence property Ray White Real Estate 26,261 Marketing sale of Defence property

476 Advertising and Market Research

2003-04 Purpose Expenditure $’000 Media Advertising HMA Blaze 2,845 Tender notices HMA Blaze 18,962 Marketing sale of Defence property HMA Blaze 596,371 Recruitment advertising – civilian Australian Public Service Commission 206,622 Recruitment advertising – civilian Total Corporate Services and Infrastructure 1,213,446

Inspector-General Media Advertising HMA Blaze 1,984 Recruitment advertising – civilian Total Inspector-General 1,984 Notes 1. Became part of Ministerial Services and Public Affairs Division on 16 February 2004 and was renamed Public Affairs Branch. 2. These items are also reported in Table 7.21 Particulars of Consultancy Contracts in 2003-04. 3. This value differs from the figure reported in the External Consultants Table. This is due to Advertising and Market Research being reported on the basis of cash accounting rather than accrual accounting, which is used for External Consultants.

477 Appendices

Contracts Exempt from Publication in the Purchasing and Disposal Gazette Defence’s commitment to efficient and effective competition requires that procurement is visible and accessible and that there is an opportunity for suppliers to do business with Defence. Defence’s commitment to accountability requires that the Parliament and the public have the right to know the extent and type of goods and services needed to support Government programs, including the cost and who supplied it. This visibility is provided through the Commonwealth Purchasing and Disposal Gazette. Defence must report in the Gazette details of any contract or standing offer arranged with a value of $2,000 or more. In the context of gazettal requirements, ‘contract’ means any agreement for the procurement of goods and services under which Defence is obliged to make payment of public money to a supplier and includes an purchase order, oral or written contract or lease or corporate credit card transaction. ‘Contract’ also covers agency agreements, that is, agreements for the procurement of goods and services under which an agency is obliged, or may become obliged, to make a payment of public money to another agency. The Commonwealth Procurement Guidelines and Best Practice Guidance provide that if the secretary of a department or officers delegated by the secretary consider gazettal of procurement details to be exempt under the Freedom of Information Act 1982, the secretary or the relevant delegate may direct, in writing, that these details are not to be published in the Gazette. In 2003-04, Defence had a total of 158 contracts or standing offers, with a total value of $373.5m exempted from publication because publication could cause damage to the national security, defence or international relations of the Commonwealth, in accordance with Section 33(1)(a) of the Freedom on Information Act 1982. A breakdown by Group of the number of exemptions and total amounts is shown below. Number of Contract/Standing Offer Exemptions from Publication by Table 7.25 Group 2002-03 2003-04 Number of Number of Group exemptions $’000 exemptions $’000 Army 4 20 - - Air Force 2 544 9 254 Chief Finance Officer 13 240 - - Corporate Services and Infrastructure 6 1,382 1 837 Defence Materiel Organisation 325 143,416 101 342,150 Intelligence and Security Group 36 23,879 47 30,301 Total 386 169,481 158 373,542

478 Freedom of Information Section 8 of the Freedom of Information Act 1982 (the Act) requires each Australian Government agency that is subject to the Act to publish information about the way it is organised, its functions, the decision making and other powers that affect the public, arrangements for public participation in the formulation of policy by the agency or in the administration by the agency of any enactment or scheme, and the categories of documents that are held by the agency and how the public can obtain access to them. Information about the structure of Defence, the Department’s functions and those of its constituent elements can be found in Chapter One of this report. The remainder of the information that is required to be published in accordance with Section 8 of the Act is set out below. In addition to the Act, other, less formal avenues exist for gaining access to information from Defence. Examples of information available from Defence are included later in this section. Contact points for inquiries are located in all states and territories and can be found in current telephone directories under entries for the Department of Defence. The table below shows the numbers of freedom of information requests received and completed or otherwise dealt with in 2003-04. Figures for the preceding year are provided for comparison. The figures refer to requests, under Section 15 of the Act, for access to documents. Table 7.26 Requests for Access to Documents 2002-03 2003-04 Number of requests received 176(1) 208 Number of requests finalised (including withdrawn and transferred to another agency) 168 211 Number of requests withdrawn 21 22 Number of requests transferred to another agency -4 Number of requests outstanding 52 (2) 49(3) Notes 1. In addition to this figure, 44 requests were outstanding from 2001-02. 2. As at 30 June 2003. 3. As at 30 June 2004. The Department also received ten requests under Part V of the Act for amendment or annotation of records of personal information (six in the previous year). Applications for internal review numbered 11 (ten in the previous year) and five applications were made to the Administrative Appeals Tribunal for review of freedom of information decisions (three in the previous year). In addition to formal freedom of information requests, the Freedom of Information Directorate responded to 1,062 inquiries that did not fall for consideration under the Act, including requests for access to personnel records that were re-directed for administration outside the Act, in accordance with Section 15A of the Act. Section 15A provides for access to be given in such cases, outside the provisions of the Act, through established administrative channels. The second table, below, indicates the Department’s performance in meeting the 30-day statutory time limit for responding to requests for access to documents. While meeting the time limit continues to be a difficult challenge for Defence, the results for 2003-04 show an improvement over the preceding year. Part of the explanation of the difficulty in meeting the time limit is the relatively high proportion of requests involving ‘complex’, or

479 Appendices policy-related, matters. Such requests, which may involve complex issues and large numbers of documents for consideration by decision makers, represented 60 per cent of total requests. Table 7.27 Time Taken to Answer Requests for Access to Documents(1) 2002-03 2003-04 Requests answered in less than 30 days (with % of total) 51 (34.7) 78 (42.1) Requests answered in 30 to 60 days (with % of total) 47 (32.0) 47 (25.4) Requests answered in 60 to 90 days (with % of total) 23 (15.6) 25 (13.5) Requests answered in more than 90 days (with % of total) 26 (17.7) 35 (19.0) Note 1. The 30-day deadline may be extended by 30 days to allow for consultation with third parties. Further information about Defence’s dealings with freedom of information requests in 2003-04, including information about costs incurred, will be published in the freedom of information annual report that the Attorney-General is required to make to Parliament in accordance with Section 93 of the Act. Freedom of Information Procedures and Contact Points A request for access to documents under the Act must be made in writing and provide sufficient information concerning the documents to enable a responsible officer in Defence to identify them. The request has to be accompanied by a $30 application fee and should include a telephone number and a return address at which the applicant can be contacted. In some cases, a fee may not be required or may be remitted by the department. Requests may be sent by post or delivered to an officer of the department at the address of the central office (in Canberra, see below), or any regional office of the department specified in a current telephone directory. The following address is preferable: Freedom of Information Directorate Defence Legal RG Casey Building (RGC-2-058) Department of Defence CANBERRA ACT 2600 Advice about making a request under the Freedom of Information Act 1982 may be obtained by telephoning the directorate on (02) 6266 8860 or (02) 6266 8855, by facsimile on (02) 6266 8857 or by email to [email protected]. Applicants seeking access to documents may be liable to pay charges at rates prescribed by the Freedom of Information (Fees and Charges) Regulations. Authorised Freedom of Information Decision Makers The authority to disclose documents or to refuse requests for access to documents is held widely throughout Defence at Director level (Executive Level 2 and Colonel or equivalent rank) and above. Authority to make decisions of other kinds under the freedom of information legislation, for example, the power to impose charges on applicants, has also been delegated to appropriate officers. Details can be obtained from the Freedom of Information Directorate, see address and contact numbers above.

480 Freedom of Information

Decision Making and Other Powers Affecting Members of the Public It should be noted that many powers invested in the specific positions described in this section may be delegated formally to subordinate officers.

Chief of Joint Operations May make decisions relating to the planning and conduct of campaigns, operations and other activities to achieve national objectives within Australia and overseas; may make decisions regarding the planning and conduct of combined and joint training activities and major exercises at the operational and tactical levels; and oversees the provision of Defence assistance to the civil community at the operational level.

Chief of Navy, Chief of Army and Chief of Air Force May exercise powers to prescribe conditions for entry or re-entry, however described (for example, appointment, re-appointment, recruitment, enlistment, re-enlistment, engagement, re-engagement), to their respective Service; place names of officers and former officers on the retired list; grant to officers on the retired list military title or rank and authorise such persons to wear uniform and insignia; determine appointments in respect of cadets; approve the provision of Defence assistance to the civil community; authorise the use of words and letters protected under the Defence (Prohibited Words and Letters) Regulations; approve the wearing, manufacture or supply of protected Service emblems, crests and flags; determine who should be employed, reside or stay in a Service establishment; approve the possession, sale, supply and consumption of intoxicating liquor at gatherings of Service members and their guests; declare an area in or adjacent to Australia to be a firing or practice area; and grant licences to trade in an establishment of their respective Service. Maritime Commander Australia May make decisions relating to public access to naval ships and military (Navy) areas; may provide assistance to civilian authorities in disaster relief or rescue situations; may make public comment in relation to visiting naval forces or ships; convenes Navy courts martial and Defence Force Magistrate trials, which may involve the summoning of civilian witnesses; and provides Defence assistance to the civil community when not managed by the commanding officer of the area.

Commander Australian Navy Systems Command May make decisions relating to public access to naval establishments and military (Navy) areas; may provide assistance to civilian authorities in disaster relief or rescue situations; may make public comment in relation to visiting naval forces or ships; convenes Navy courts martial and Defence Force Magistrate trials, which may involve the summoning of civilian witnesses; and provides Defence assistance to the civil community when not managed by the commanding officer of the area.

Director-General Navy Personnel and Training May authorise the release of serving and former Navy members' military records.

481 Appendices

Land Commander Australia May make decisions relating to public access to military (Army) areas; select private, state or Commonwealth property for training exercises; provide Defence assistance to the civil community; may release Army personnel information; may approve local hire or lease of Army property; and may impose constraints on Army personnel which impinge on public enterprise.

Commander Training Command – Army May authorise the provision of Defence assistance to the civil community by any of the schools, colleges or training establishments within the Command; and may release information from the records of any member and ex-member who has undergone training by the Command.

Air Commander Australia May summon civilian witnesses to attend Air Force courts martial; and provide Defence assistance to the civil community. Chief Finance Officer May provide instructions to legal providers on the Defence Legal Panel on the settlement of claims against the Commonwealth; declare surplus land, buildings, or land and buildings for disposal; approve exemptions and variations to application of interest on debt repayments; determine rates and charges for all supplies and services provided by Defence; delegate authority to waive the full cost recovery for supplies and services provided by Defence; write-off public money; delegate authority to issue a drawing right to make a payment of public money for a specific purpose and/or request the debiting of an amount against a particular appropriation and delegate authority to revoke or amend a drawing right; enter into agreements with any bank for the receipt, custody, payment or transmission of public money, or for other matters relating to the conduct of the Australian Government's banking business; and open and maintain official bank accounts in accordance with agreements under Section 9 of the Financial Management and Accountability Act, 1997 and/or request a local bank to provide an encashment facility.

Director Defence Force Psychology Organisation May allow the release of information from individual psychological records.

Director-General Career Management Policy May authorise the release of serving and former members' honours and awards histories.

Director-General Defence Health Service May authorise the release of serving and former members' medical and dental records.

Director Social Work and Client Services May authorise the release of individuals' confidential counselling records to those individuals concerned.

482 Freedom of Information

Head Coordination and Public Affairs Division Has the authority to issue invitations to register interest and requests for tender; evaluate tenders; and recommend source selection in relation to contracts for the provision of public affairs services for Defence.

Chief Executive Officer Defence Materiel Organisation May determine methods of procurement and approve contracts for major capital equipment and through-life support requirements, issue invitations to register interest and requests for tender, evaluate tenders and recommend source selection.

Commander Joint Logistics May issue invitations to register interest and requests for tender and evaluate tenders and recommend source selection.

Heads of Maritime Systems, Land Systems, Aerospace Systems, Electronic Systems, Management Information Systems and Airborne Surveillance and Control Divisions May issue invitations to register interest and requests for tender; evaluate tenders; and recommend source selection for major and minor capital equipment. In specific cases, they have the authority to determine the method of procurement and approve major and minor capital equipment contracts.

Head Industry Division Accepts tenders and recommendations about quotations for the purchase of supplies and services.

Head National Operations Division May provide Defence assistance to the civil community; control public access to military areas; approve the loan, hire or purchase of defence stores and equipment and, in defined cases, determine the method of procurement; issue invitations to register interest and requests for tender; evaluate tenders and recommend or approve sourcing; approve contracts and the purchase of supplies and services; and grant remission of fees and impose charges payable under the freedom of information legislation.

Director of Classified Archival Records Review In accordance with an arrangement made between Defence and the National Archives of Australia pursuant to Section 35 of the Archives Act, 1983 the Director Classified Archival Records Review provides advice to the Director-General National Archives of Australia and the Director of the Australian War Memorial specifying which matter, if any, contained in Defence historical records is considered to be exempt under sections 33(1)(a) and (b) of the Act.

483 Appendices

Head Infrastructure Division May determine the method of procurement; issue invitations to register interest and requests for tender; evaluate tenders; recommend source selection; approve contracts for capital facilities, property transactions, and the purchase of services; and has the responsibility for environmental issues within Defence. Head Infrastructure has the delegated authority for implementation of Defence (Areas Control) Regulations which are made under the Defence Act 1903 and to give the legal basis for restrictions to be placed by Defence on the height of buildings and other structures and introduced objects, such as trees, in the vicinity of Defence airfields and related facilities.

Head Information Systems May determine the method of procurement; issue invitations to register interest and requests for tender; evaluate tenders; recommend source selection; and approve contracts.

Chief Information Officer May determine the method of procurement; issue invitations to register interest and requests for tender; evaluate tenders; recommend source selection; and approve contracts.

Head Strategic Policy Division May issue approvals for the export of certain defence equipment and goods with dual civil and military applications. Arrangements for Outside Participation

Australian Defence Human Research Ethics Committee The Committee's mission is to promote and encourage ethical health research in the military context, with responsibility for the review and monitoring of all human research in Defence. It is structured in accordance with the National Health and Medical Research Council's national statement on ethical conduct in research involving human participants and comprises, at the minimum, the following: • a chairperson; • at least one member who is a lay man and one member who is a lay woman who have no affiliation with Defence and are not currently involved in medical scientific or legal work; • at least one member with knowledge of, and current experience in, the areas of research that are regularly considered by the committee; • at least one member with knowledge of, and current experience in, the professional care, counselling or treatment of people; • at least one member who is a minister of religion or a person who performs a similar role in a community, such as an aboriginal elder; • at least one member who is a lawyer; • two health graduates from Defence (at least one being a medical graduate); and

484 Freedom of Information

• a secretary, being a staff officer nominated by the Director-General Defence Health Service.

Citizens in Support of Reserve Forces (Trust) Fund The Fund was established through a trust deed. In recent times, the work of the trust has been almost exclusively to provide financial support for the Prince of Wales Award. There are four external trustees.

Commercial Support Consultative Forum This is a forum between Defence, industry and unions for the discussion of ideas and the cooperative resolution of issues related to the broader Defence commercial support activities, including initiatives such as market testing and private financing.

Defence Families Association The Association was established in 1987 with the purpose of improving the quality of life for Service families by providing them with a forum for expressing their views, for reporting and making recommendations to the Chief of the Defence Force, and for influencing policy affecting Service families.

Defence Health Consultative Group The role of the Group is to establish, at a senior level, formal liaison between Defence and appropriate civilian authorities and to provide advice on major professional health matters of relevance to Defence. The group comprises the Surgeon-General of the ADF, the Director-General Defence Health Service and representatives from other departments and professional bodies, including the Australian Medical and Dental Associations and the Royal College of Nursing Australia.

Defence Reserves Support Council The Council aims to promote the benefits of Reserve service to the community. As well as spreading the word informally about Reserve service, it sponsors a number of specific activities to encourage business support.

Environmental Advisory Committees These Committees provide advice on environmental matters relating to Defence areas including Shoalwater Bay Training Area, Queensland; Garden Island, Western Australia; Greenbank Training Area and Wide Bay Training Area, Queensland; and Mount Bundy Training Area and Bradshaw Field Training Area, Northern Territory. The Committees consist of representatives from Defence, the local community and business organisations.

National Workplace Relations Committee The Committee, established under the Defence Employees Certified Agreement 2000-01, and reaffirmed under the Defence Employees Certified Agreement 2004-06, continues to deal with a wide range of employment matters affecting Defence civilian employees. It involves representatives of departmental employees who may be union members.

485 Appendices

Royal Australian Air Force Veterans’ Trust The Trust's purpose is to provide residences so that former members of the Royal Australian Air Force and their dependants in circumstances of need can be accommodated and supported. There are three external members of the trust with previous Air Force service or private industry experience.

Woomera Consultative Committee The Committee advises Defence on matters relating to the management of Woomera, South Australia, and includes representatives from Defence and the Woomera Board, which comprises appointed and elected residents of Woomera. Categories of Documents Maintained

Documents Available as Part of a Public Register and Subject to a Fee or Other Charge

• Oceanographic data (copies of original survey documents, and hydrographic and oceanographic data held by the Navy on computer file).

Documents Available for Purchase by the Public

• Annual flying safety calendar, aeronautical maps and charts, supplements and planning documents, and aerial photographs. • Defence cataloguing handbooks and information. • Defence Annual Report and the Defence Portfolio Budget and Additional Estimates Statements (and available in electronic form on the Defence website). • Defence Freedom of Information Manual (available through the Freedom of Information Directorate). • Draft and final environmental impact statements (held by, and available from, Corporate Services and Infrastructure Group). • Manuals that have been cleared for release, and sale, to the public. These include, for example, the Defence Commercial Support Program Manual and the Defence Freedom of Information Manual. • Journals and magazines published by Service colleges and schools. • Procurement manuals and guidelines produced by the Defence Materiel Organisation (available for purchase in hard copy or free through the Defence Materiel Organisation website at http://www.defence.gov.au/dmo). • Service newspapers (available by annual subscription). • Tide tables (Australian national tide tables and navigational charts and publications are available for purchase either through appointed chart agents or direct from the Hydrographic Office in Wollongong, New South Wales, by mail order. The address can be found at the end of this section).

486 Freedom of Information

• Documents that are available for inspection or purchase by the public in accordance with Section 9 of the Freedom of Information Act 1982, that is manuals, instructions and the like that are used by, or are available to, Defence staff for making decisions affecting the public.

Documents Free of Charge to the Public upon Request Defence holds a wide range of such material, including information on or in the nature of: • academic calendars and prospectuses for the Service colleges; • information about Military retirement and superannuation schemes; • material relating to the activities of the Defence Science and Technology Organisation, consisting of brochures and booklets, research news and industry brief newsletters, selected technical reports, technical and research press releases, videos on projects and lectures given to professional and public institutions; • flying and ground safety publications (the Air Force makes magazines on these subjects available to some professional organisations); • notices to mariners (the Navy issues such notices containing hydrographic advice to correct navigational charts and documents and detailed information of exercises and firings); • a range of booklets and brochures from the Defence Community Organisation; • recruitment pamphlets, brochures and video media, the 'career explorer' computer software program on ADF career options, and an internet home page on ADF career options; • organisational material (functional statements, organisation charts and duty statements); • procurement policy and procedural guides, contract templates and Defence industry statements; • lists of approved and unapproved capital facilities projects (the infrastructure ‘Green Book’ available at http://www.defence.gov.au/id); • general Defence material (pamphlets, brochures, and posters) which is freely available on request or available at Defence exhibitions, launches and open days, including the Australian Defence Force Journal; • transcripts of public seminars conducted by Defence; • technical material (including technical details of obsolete and selected current equipment, unclassified technical reports and Defence (Australia) Standards); • personnel documentation and records, including medical and psychological records (such records are only released to the subject of the records or to a third party authorised by the subject); • pamphlets and brochures on graduate employment programs in Defence for civilians and the civilian graduate careers page on the internet; • pamphlets, brochures, guides and application forms relating to export control and obligations imposed through export controls, including the Australian export control list – Defence and Strategic Goods List; and

487 Appendices

• manuals and guides relating to ADF pay and conditions, including the Australian Defence Force Member's Guide to ADF Pay and Conditions of Service, 2003-04 edition, and the Defence Force Pay and Conditions Manual.

Electronic Documents Defence's internet homepage can be found at http://www.defence.gov.au/. The website contains material of defence interest to the general public, including departmental media releases and speeches, statutory reports, Service-specific information including Service newspapers and export control information. Departmental press releases are available by email from the press release service by subscription. Photos of a defence nature are also freely available from the image gallery on the site. Ministerial press releases and speeches are linked to the above website.

Other Documents The department maintains records in various forms and locations relating to the functions of Defence. Records are retained for varying periods depending on their administrative and historical value and are disposed of in accordance with standards and practices approved by the National Archives of Australia. Some particular categories of documents held are: • arrangements with other Australian Government agencies and with state and territory governments and agencies; • accounting records; • Cabinet documents (including submissions, memoranda, minutes and promulgation of decisions); • Ministerial submissions and briefing papers; • committee records; • conditions of service (including documents relating to compensation other than for personal injury and financial conditions relating to overseas service); • contractual documents, requests for tender documents and industry study reports; • departmental instructions, circulars and reference books; • industrial matters (including agenda and minutes of meetings of various industrial committees and councils, occupational health and safety committees and policy on industrial practices within the department); • guidelines held in electronic form by the Directorate of Classified Archival Records Review that are used in determining which matter, if any, contained in classified Defence historical records is exempt under sections 33(1)(a) and (b) of the Archives Act 1983 from public access. New guidelines are created, or existing ones revised or abolished, progressively as the need arises; • intelligence reports; • international agreements and arrangements held in a register of agreements; • personal documentation (for example, recruitment and enlistment, selection for promotion documents and those of a medical and psychological nature);

488 Freedom of Information

• press cuttings; • documents concerning quality assurance; • technical publications (relating to maintenance of ADF materiel, and drawings, specifications and standards relating to ships, aircraft and other equipment in use); and • working papers (internal working papers are maintained throughout the organisation on a wide range of policy, technical and administrative subjects).

Facilities for Accessing Documents The following areas within Defence maintain access points at which information about their activities is available: Defence Science and Technology Organisation Director Defence Science Communications Defence Science and Technology Organisation Department of Defence CANBERRA ACT 2600 Tel: (02) 6265 7928

Coordination and Public Affairs Division Director-General Public Affairs Department of Defence CANBERRA ACT 2600 Tel: (02) 6265 2999

Defence Publishing Service ACT/Southern NSW Region Corporate Services and Infrastructure Group Department of Defence CANBERRA ACT 2600 Tel: (02) 6266 2022

Hydrographic Office Locked Bag 8801 WOLLONGONG NSW 2500 Tel: (02) 4221 8612

Documents that are available for inspection or purchase by the public in accordance with Section 9 of the Freedom of Information Act 1982 are listed in an index available through the offices of National Archives of Australia and through the Defence Freedom of Information Directorate. Arrangements to inspect listed documents, or to purchase copies, may be made by contacting the Freedom of Information Directorate in the Department of Defence, Canberra – see contact details under ‘Freedom of Information Procedures and Contact Points’, above.

489 Appendices

Glossary

Accrual accounting: the system of accounting where items are brought to account and included in the financial statements as they are earned or incurred, rather than as they are received and paid. Additional estimates: a Government process through which the expenditure and performance plans outlined in the Portfolio Budget Statements are revised. This normally occurs around the middle of the financial year. Administered appropriation: revenues, expenses, assets and liabilities administered by an agency for the Commonwealth (such as taxes, benefits payments and public debt) which are not concerned with running the agency or its commercial activities. Administered items: resources administered on behalf of the Commonwealth by Defence, including grants, subsidies and benefits. Such resources may be used by third party organisations. Agency: assets, liabilities, revenues and expenses which are controlled by Defence or a subsidiary. Includes officials allocated to the organisation. Amortisation: a term used interchangeably with depreciation, except that it applies to a non-current physical asset under finance lease, or a non-current intangible asset, over its limited useful life. Appropriation: an authorisation by Parliament to spend money from the Consolidated Revenue Fund (the principal working fund of the Commonwealth) for a particular purpose. Assets: future economic benefits controlled by Defence as a result of past transactions or other past events. Assets include property, plant and equipment under the control of the Department. Assets are initially recognised at the cost of acquisition. Non-financial, non- current assets are subject to ongoing revaluation assessment. Assets under construction: assets under construction by Defence for Defence, or for the use of another entity according to a construction contract where Defence controls the asset until completion, or assets under construction or otherwise being made ready by another entity for use by Defence. Australian Accounting Standard: Australian Accounting Standards specify techniques of accounting practice and the method of presenting financial information about a reporting entity. Average Funded Strength: a budgetary measure used to determine the resource requirement for the average number of members paid working full-time in the military workforce during a financial year. Capability: the combination of military equipment, personnel, logistics support, training, resources, etc. that provides Defence with the ability to achieve its operational aims. Capital budget: all proposed capital expenditure funded by appropriation for outcomes, by equity injections or loans and/or appropriations for administered capital, or by other sources.

490 Glossary

Chief Executive Instructions: instructions issued by the Chief Executive of Defence (the Secretary) for the administration of the department. These instructions are issued under the authority of the Financial Management and Accountability Act 1997 and carry the force of the law. Chief of the Defence Force’s Preparedness Directive: see preparedness concepts and planning. Combined exercise: an exercise or activity involving one or more Services of the ADF with the forces of other countries. Company scorecard: an approach to performance measurement that translates an organisation’s strategic objectives into a useful set of performance measurements. It supplements the traditional financial measures with information on three additional perspectives of organisational performance: customer satisfaction, internal business processes, and innovation and learning. Consultants/Consultancies: individuals or organisations contracted to provide independent advice on an agreed subject. Corporate governance: the process by which agencies are directed and controlled. It is generally understood to encompass authority, accountability, stewardship, leadership, direction and control. Customer-supplier agreement: an agreement between internal customers and suppliers for the supply of a service at an agreed quantity, standard and price. Defence Assistance to the Civil Community: a program which provides Defence resources, in exceptional circumstances, for the performance of emergency or non-emergency tasks which are the responsibility primarily of the civil community. While a high priority is given to civil emergencies and natural disasters where lives or property are at risk, other tasks include flyovers and displays at significant public events and various support tasks for local authorities and charitable organisations around Australia. Defence Employees Certified Agreement: an enterprise agreement made under the Workplace Relations Act 1996 about terms and conditions of service, including rates of pay, for Australian Public Service Defence employees. The agreement is negotiated between Defence, Australian Public Service employees and their representatives and is certified by the Australian Industrial Relations Commission. Defence Integrated Distribution System: an outsourced logistics project that provides national warehousing, distribution and selected land equipment maintenance support for Joint Logistics Command. Defence Information Environment: encompasses all of Defence’s computing and communications capabilities at all classification levels. It supports all Defence warfighting functions, including Defence’s overseas deployed elements and connection to coalition networks, as well as the day-to-day management functions of Defence. Defence Management and Finance Plan: Defence’s principal internal planning document which satisfies whole-of-government budget requirements and forms part of the Portfolio Budget Submission to the Government in February each year. Defence Plan: Defence’s principal internal planning document which satisfies whole-of-Government budget requirements. It provides a ‘whole-of-business’ focus with important links between the strategic resource and capability planning.

491 Appendices

Discretionary grants: payments where the portfolio minister and paying agency has discretion in determining whether or not a particular applicant receive funding and may or may not impose conditions in return for the grant. There is a central discretionary grants register. Distribution rules (previously referred to as attribution rules): a process using percentage attribution rules, for expense, revenue, asset and liability items in the profit centre accounting module, applied against profit centre/account code combinations. In Defence this process is used to move amounts from Group profit centres to output profit centres. The original account the amounts relate to remains unchanged. Employee: any Australian Public Service officer of Defence or serving Defence Force member who receives a salary or wage, along with other benefits, for the provision of services whether on a full-time, part-time, permanent, casual or temporary basis. Employee expenses: include, but are not limited to, benefits provided to employees in the form of salaries and wages, performance pay, senior officers’ allowances, leave, and superannuation, but does not include amounts paid or owed to employees as reimbursement of out-of-pocket expenses. Equity injection: an additional contribution, over and above the cost of outputs to the Government as customer, to Defence by the Commonwealth as owner. Equity injections form part of the Commonwealth’s investment in Defence and partly reflect the Commonwealth’s ownership interest in Defence. Expenses: consumptions or losses of future economic benefits, in the form of reductions in assets or increases in liabilities of Defence, other than those relating to distributions to the Commonwealth, that result in a decrease in equity during the reporting period. Financial Management and Accountability Act 1997: the Act establishes the regulatory framework for financial management within Defence and other public sector agencies. Five Power Defence Arrangements: agreed in 1971 and commits Australia, Malaysia, New Zealand, Singapore and the United Kingdom to consult in the event of an attack on Singapore or Malaysia. Force element: a component of a unit, a unit or an association of units having common prime objectives and activities. Force element group: a grouping of force elements with an appropriate command and control structure for a specified role or roles (eg the Navy Submarine Force). Force structure: see preparedness concepts and planning. Forward estimates: the level of proposed expenditure for future years (based on relevant demographic, economic and other future forecasting assumptions). The Government requires forward estimates for the following three financial years to be published in each annual Federal Budget paper. Garrison support services: include a range of base support services including: grounds maintenance, hospitality, training area management, base security, transport, air support and fire-fighting and rescue services. Group: a high-level organisational grouping of functions and activities used by the Defence Executive as its primary management grouping (see Chapter One - Corporate Governance for more information).

492 Glossary

Infrastructure: items owned, leased or otherwise under the control of Defence in support of activities on land and within buildings. Infrastructure includes items such as runways, roads, car parks, parade grounds, ovals, lighting, water, sewerage and other general service related items. It does not include land upon which, or within which, it is constructed or those fixed items integral to, and under, buildings. Interoperability: the ability of systems, units or forces to provide the services to, and accept services from, other systems, units or forces and to use the services so exchanged to enable them to operate effectively together. Inventory: comprises consumable stores and supplies, fuel and explosive ordnance used in the delivery of Defence services. These are items which are consumed in normal use, lose their identity during periods of use by incorporation into, or attachment upon, another assembly, as a result of wear and tear, cannot be reconditioned because their design does not make it possible or their specific values do not justify it. Joint exercise: an exercise involving two or more Services of the ADF. Joint Operations Command Operational Preparedness Requirement: sets the capability and preparedness requirements for force elements across the ADF to ensure that a coordinated response to a range of contingencies can be mounted within realistic timeframes. Liabilities: sacrifices of future economic benefits that Defence is presently obliged to make to other entities as a result of past transactions or other past events. Military capability: see preparedness concepts and planning. Military response options: a set of generic tasks that describe the range of military options the Government could consider as a basis for a response to a particular situation or contingency. Mission capability: the required level of unit readiness for tasking for which a force element is scheduled at any time through its operational cycle (includes all scheduled activities to achieve assigned Defence operations, international engagement requirements and levels of preparedness required for a military response). Network Centric Warfare: the aim of Network Centric Warfare is to improve the ability of the ADF to collaborate internally, with supporting agencies, and with coalition partners across organisational and geographic boundaries. Network Centric Warfare will allow Defence to harness recent developments in computing and communications technologies to enhance decision making and warfighting capability. Operational release: replaces ‘acceptance into naval service’, and is the milestone which represents the in-service date of a new capability at which the Chief of Navy is satisfied that the equipment is in all respects ready for operational service. Other property, plant and equipment: comprises the following sub classes; administrative assets, commercial vehicles, general military assets, heritage assets and other (includes all items not specific to one of the classes or sub-classes referred to above and can include testing equipment and non-specific non-rotable spares.) Outcome: the results that the Government seeks from Defence, and are achieved by the successful delivery of its outputs, to the standards set in the Portfolio Budget Statements (see Chapter Two - Defence Outcomes and Outputs for more information).

493 Appendices

Output: the product or service produced by Defence (see Chapter Two - Defence Outcomes and Outputs for more information). Permanent forces: the permanent Navy, the regular Army and the permanent Air Force. Platforms: refers to air, land, surface or sub-surface assets that are discrete and taskable elements within the ADF. PMKeyS (Personnel Management Key Solution): Defence’s personnel management system for the administration of ADF and civilian staff. Portfolio Additional Estimates Statements: similar to the Portfolio Budget Statements and prepared at Additional Estimates time to support an update on the Government’s original annual budget for Defence. Portfolio Budget Statements: a document presented by the Minister for Defence to Parliament to inform Senators and Members of the basis for the Defence budget appropriations in support of the provisions in Appropriation Bills 1 and 2. The statements summarise the Defence budget and provides detail of outcome performance forecasts and resources in order to justify expenditure for Defence. Preparedness concepts and planning: military capability is achieved by developing a force structure appropriately prepared for operations. Preparedness is a measure of how ready (readiness) and how sustainable (sustainability) the ADF is to undertake military operations. Preparedness is, therefore, of fundamental importance to Defence, which must be able to manage it effectively and communicate its status to the Government. Force structure: relates to the type of force required − personnel, equipment, facilities and military doctrine − to achieve the level of capability necessary to conduct operations effectively. In the medium to long term, military capability will vary due to changes in force structure generated by the capability development process. In the short term, force structure is the more constant component of military capability and the level of capability available for operations is determined by Defence’s management of preparedness of the current force. Changes to force structure usually affect the preparedness of the associated forces. For example, the introduction of a new platform, retirement of an old platform or capability enhancement will have a direct impact on the resource, training and facility requirements of the forces involved. Military capability: the two levels of military capability specified for forces within the ADF are derived from the concept of maintaining forces at an appropriate minimum level of capability in peacetime to ensure that those forces are ready to work up to an appropriate higher level of task-specific capability (operational level of capability) within a given time, in order to conduct effective operations. The maintenance of a force at a higher level of preparedness or at an operational level of capability for a prolonged period is resource intensive. Defence balances the mix of capabilities, or outputs, from within its budget to meet Government tasking priorities. Preparedness planning: the preparedness planning process begins with a strategic appreciation involving an analysis of the national security objectives which are specified in Government guidance. These objectives are considered against current strategic circumstances and defence policy. In the light of this appreciation, military strategies are developed or refined to achieve the objectives. Military strategic

494 Glossary

objectives and military response options are then derived from the military strategies and are used to provide preparedness planning guidance. Readiness: the readiness of forces to be committed to operations within a specified time, dependent on the availability and proficiency of personnel, equipment, facilities and consumables. Sustainability: the ability to provide personnel, equipment, facilities and consumables to enable a force to complete the needed period of operations. The Chief of the Defence Force’s Preparedness Directive: a principal strategic-level directive containing strategic planning guidance. It lists military response options and sets preparedness requirements. It informs all subordinate preparedness directives at the operational level, which set specified levels of preparedness and contain the capability standards against which force units measure and report. The implementation of preparedness involves the allocation of resources to the current force to ensure that preparedness objectives can be met and managed properly. The evaluation and reporting of preparedness ensure that there is regular feedback in the process and that objectives and resource allocations are refined as necessary. Professional Service Providers: individuals with specialist skills contracted to fill a line position. Purchaser-provider arrangements: are arrangements under which the outputs of one agency are purchased by another agency to contribute to outcomes. Purchaser-provider arrangements can occur between Commonwealth agencies of between Commonwealth agencies and state/territory government or private sector bodies. Qualifying assets: assets under construction. Readiness: see preparedness concepts and planning. Receivables: amounts payable to Defence, including debtors, bills of exchange and promissory notes, loans to other governments and other entities, interest accrued but not yet received, and advances to Defence employees and other entities that are to be returned or acquitted. Reconstitution: a component of the phases of operations, immediately following an operation, being a period required to revert a force element to the directed level of capability in a specific time. The preparedness cycle is not complete until reconstitution to a directed level has been achieved, including immediate maintenance, rest and recuperation, and redistribution of supplies and systems if necessary. Reserves: the Naval Reserve, the Army Reserve and the Air Force Reserve. Revenues: inflows or other enhancements, or savings in outflows, of future economic benefits in the form of increases in assets or reductions in liabilities of Defence, other than those relating to contributions by the Commonwealth, that result in an increase in equity during the reporting period. Risk management: at the highest level, it involves the identification and mitigation of those risks that have the potential to affect adversely the achievement of agreed output performance at the agreed output price.

495 Appendices

Resource and Output Management and Accounting Network (ROMAN): Defence's primary financial management system incorporating corporate budgeting, accounting and reporting. Specialist Military Equipment: items of a specific military nature and that are not available though the normal external market in their current form to other than government military purchasers. It includes the prime military equipment plus the direct support items associated with the equipment. Standard Defence Supply System (SDSS): a key information system for the financial management of inventory, general stores, repairable items and other assets associated with Defence’s logistic capability. Sustainability: see preparedness concepts and planning. Theatre: the area in which military operations/activities take place. ‘Two pass’ approval process: the process by which major capital investment proposals are developed for consideration and approval by Government (see Chapter One - New Capability Development and Acquisition Process). Unit Ready Days: the number of days that a force element is available for tasking within planned readiness requirements. Planned unit ready days are determined for each Force Element Group by aggregating total days for the unit in commission, less all days when the unit is programmed to be in major maintenance and conducting pre-workup (preparations for initial operational training). Weighted average cost: an inventory valuation method which considers the fluctuating prices and quantities of acquired goods in computing of the cost of inventory. The weighted average method takes the prices of units at the beginning inventory and the varying prices of purchases made and are weighted by the number of units to determine the weighted average cost per unit. It may be computed as the weighted average cost of all available goods present in a given period, or as a weighted moving average cost adjusted when new goods are delivered. Write-offs: the recording in the accounting records of irrecoverable or uneconomic to recover debts. Write-downs: the reduction in value of assets.

496 Acronyms and Abbreviations A AAS Australian Accounting Standards AASB Australian Accounting Standards Board ADF Australian Defence Force ADFA Australian Defence Force Academy AEIFRS Australian Equivalent to International Financial Reporting Standards AEW&C Airborne Early Warning and Control ANAO Australian National Audit Office ANZAC Australian and New Zealand Army Corps APS Australian Public Service ARDs Asbestos-related diseases ASLAV Australian Light Armoured Vehicle ATSI Aboriginal and Torres Strait Islander AUC Assets Under Construction B BORIS Budgetary and Output Reporting Information System D DEFMIS Defence Financial Management and Information System DFAT Department of Foreign Affairs and Trade DFRDB Defence Force Retirement and Death Benefits Scheme DHA Defence Housing Authority DMFP Defence Management and Finance Plan DMO Defence Materiel Organisation DSD Defence Signals Directorate DSTO Defence Science and Technology Organisation F FFG Guided Missile Frigate FMA Act Financial and Management Accountability Act 1997 FMO Finance Minister’s Orders FMS Foreign Military Sales G GST Goods and Services Tax H HMAS Her Majesty’s Australian Ship I IT Information technology

497 Appendices

J JORN Jindalee Over-the-Horizon Radar M MSBS Military Superannuation Benefits Scheme N NCW Network Centric Warfare NESB Non-English speaking background NUSHIP Ship yet to be commissioned P PAES Portfolio Additional Estimates Statements PBS Portfolio Budget Statements PMKeyS Personnel Management Key Solution PSI Proliferation Security Initiative PWC Joint Standing Committee on Public Works PWD People with a disability R RAAF Royal Australian Air Force RAR Royal Australian Regiment ROMAN Resource and Output Management Accounting Network S SDA Survey/Sortie Days Achieved SDP Survey/Sortie Days Planned SDSS Standard Defence Supply System T TNI Indonesian Armed Forces U UIG Urgent Issues Group UN United Nations URD Unit Ready Days W White Paper Defence 2000: Our Future Defence Force

498 Alphabetical Index A Committees Accountability, 29, 30, 61-66, 71, 179, 282, 293 Defence Committee, 29, 66-68, 70, 73, 160, 179, 202, 291, 308 Acronyms and Abbreviations, 497-498 Chiefs of Service Committee, 68-69 Administered Items, 59-61 Defence Capability and Investment Advertising and Market Research, Committee, 66, 69-71, 73 472-477 Defence Audit Committee, 70-71 Air Force (see Outcome Four), 146-157 Defence Capability Committee, Appropriation, 20, 37-40, 49-52, 59 72-72, 308 Army (see Outcome Three), 127-145 Defence People Committee, 66, 73, Army/Aboriginal and Torres Strait 280 Islander Commission Community Defence Information Environment Assistance Program, 88, 129, 135 Committee, 74-75 Asset Management, 434-435 Defence Occupational Health and Auditor-General’s Report, 411 Safety Committee, 66, 75, 291 Australian National Audit Office, 41, 66, Commonwealth Disability Strategy, 288 94, 125, 144, 156, 186, 302-303, 397, Compensation, 21, 28, 41, 47, 264, 265, 399, 406, 411-413, 434 279, 291, 292, 293, 294, 295, 488 C Consultancies, x, 199, 450-471 Cadets, 28, 194, 283 Contract Reporting, 214-215 Capability Development Group, 14, 19, Contracts Exempt from Publication, x 31, 61-62, 64, 68, 72, 161, 192, 198, Corporate Governance, 61-66, 305, 309, 204-207, 220 463, 491 Capability Technology Demonstrators, Corporate Services and 32, 199 Infrastructure Group Capital Budget, 62, 207, 220-222 Reform, 20, 308-310 Certified Agreement, 28, 36, 47, 265, Corrections to the Defence Annual 278, 280, 311, 481, 487 Report, x Chief Finance Officer Group, 61, 67-74, Courts and Tribunals, 413 209, 450, 453-454, 472, 475, 478, 482 D Chief Information Officer, 21, 68, 72, 206, 209-211, 450, 471, 472, 475, 484 Defence Assistance to the Civil Chief of Joint Operations (see also Vice Community, 86-88, 129 Chief of the Defence Force), 61-62, 65, Defence Capability Plan, 19, 23, 30, 67-75, 83, 85, 192, 206, 450, 472, 481 33-36, 66-67, 71, 161, 205-207, 220, Childcare, 280, 281, 284 222-223, 227, 230-240, 275, 305-306 Defence Capability Review, 23, 29, 111, Command of Operations (see Outcome 128, 158, 161, 205 One), 83-108 Defence Cooperation Program, 32, Commercial Support Program, 311-312 158-160, 167-177 Defence Employees Certified Agreement (see Certified Agreement), 32, 158-160, 157, 177

499 Appendices

Defence Force (Home Loans Assistance) Act 1990, 59, 187, 296, 297 E Defence Force Ombudsman, 413 East Timor, 15, 31, 34, 53, 56, 59-60, 84, 93, 96, 127, 133, 137, 146-147, 158-159, Defence Housing Authority (see also 161, 171-172, 174-175, 187-188, 208, Purchaser-Provider Arrangements), 37, 39, 213, 216, 309, 408, 427 40, 43, 47, 51, 52, 59, 256, 297, 298, 397 Ecologically Sustainable Development, Defence Information Environment, 424-433 74-75 Education and Training, 200, 216, 278, Defence Legal Services, 58, 207-208, 282, 286, 290 414-415 Non-operational training, 285 Defence Management and Finance Plan, 29, 30, 67, 179, 205, 210 Environment and Heritage, 424, 428-429, 431, 432 Defence Materiel Organisation, x, 14, 19, 30-31, 40, 43, 47, 61, 64-65, 68-70, 72, Equity (see Workplace Equity and Diversity) 93, 124, 143, 155, 161, 165, 184, 198, Ethics Awareness, 71, 403-404 209-215, 220, 223, 261, 271, 286, 292, External Consultants (see Consultancies) 302, 307, 434, 435, 450, 459-463, 472, 476, 478, 483 F Reform, 304-307 Five Power Defence Arrangements, 32, Defence Outcomes and Outputs, 78-79 102, 172, 173, 174, 176, 488 Financial Overview, 37-56 Defence Personnel Executive, 61-62, 68, 72-75, 209, 261, 450, 454, 472, 475-476 Financial Statements, 322-400 Defence Procurement Review, 19, 29-31, Financial Statements Project Board, 20, 40, 51-52, 62, 66, 161, 198, 204, 210, 302 213, 220, 223, 304-307 Fraud, 71, 403-404 Defence Science and Technology Freedom of Information, 479-489 Organisation, 32, 42, 61, 92, 123, 142, 154, 173, 183, 195-200, 206, 245, 252, G 255, 261, 286, 292, 450, 454, 489 Glossary, 490-496 Defence Security Authority (see also Guide to the Report, ii Intelligence), x, 201-203, 286 I Defence Signals Directorate, 177, 180, Indigenous Australians, 28, 283, 287, 282, 285 288 Defence White Paper 2000, 23-24, 28, Industry, 19, 30, 31, 32, 198-200, 201, 33-34, 86, 129, 161, 175, 193, 195, 209, 206, 207, 212, 213, 215, 232, 305, 222, 281, 284 306-309, 311 Departmental overview, 62-63 Inspector-General, 403-405 Department of Foreign Affairs and Trade Inspector-General of the ADF, 416-419 (see also Purchaser-Provider Arrangements), 51-52, 397, 398, 401-402 Intelligence, 14, 15, 19, 27, 61, 198, 201 Discretionary Grants, 436-439 Outcome Six 177-186, Diversity (see Workplace Equity and Internal Audit, 62, 70, 399, 416, 430 Diversity), J Joint Public Affairs Unit, 216, 217 Joint Strike Fighter aircraft, 27, 91, 154, 223-224, 232, 408

500 Alphabetical Index

K Senate Standing Committees, 408-410 Kinnaird Review (see also Defence Procurement Review), 14, 19, 30, 204, 205, Parliamentary Program, 192, 194 304, 306 People Disability, 287, 288, 296 L Indigenous Australians, 28, 283, Legal Expenses, 414-415 287, 288 M Women, 267, 268, 269, 270, 271, 272, 285 Major Capital Equipment Program, 24, 30, 35-36, 207, 212, 220-239 Portfolio Budget Statements, 37, 39, 44, 53, 54, 78, 79, 80, 83, 89, 95, 100, 112, Major Capital Facilities Program, 30, 119, 120, 126, 129, 139, 145, 151, 157, 207, 220, 240-254 162, 166, 177, 181, 186, 188, 209, 220, Middle East Area of Operations, 15, 83, 237, 261, 275, 404, 486, 490, 491, 493, 84, 146, 161 494 Military Workforce Remuneration Preparedness, 23, 79, 83, 85, 111, 115, Arrangement, 21, 28, 36, 59,278 128, 129, 158, 160, 210, 494-495 Ministerial Correspondence, 420, 422 Public Affairs, 216-217 N Purchaser/Provider Arrangements, 401-402 Navy (see Outcome Two), 109-126 Purchasing, 214, 428 Network Centric Warfare, 31, 199, 209, 489 R O Recruitment, 110, 178, 203, 275, 280, 287, 288, 305 Occupational Health and Safety, 28, 66, 75, 279, 283, 288, 291-295, 309 Reserves, 15, 25, 128, 129, 135, 193 Operations (see Outcome One), 83-108 Responsiveness to Ministers, 420 Organisational changes, 62 Retention, 28, 59, 110, 146, 271, 275, 288, 305 Organisational charts, 63 S P Security (see Defence Security Authority) Parliamentary Committees Senior Committees (see Committees) House Standing Committees, 406-407 Senior Executive Service Joint Standing Committee on Changes, 64 Public Works, 42, 92, 94, 123, 125, Remuneration, 65 144, 155-156, 165, 184-185, 240, Service Charter, 421-423 242-43, 247, 249-250, 256, 407 Solomon Islands, 14, 15, 16, 17-18, 31, Joint Committee of Public 54, 84, 109, 127, 146, 158, 168, 169, 208, Accounts and Audit, 397, 403, 406 213, 216 Joint Standing Committee on Special Forces, 25, 27, 127, 130-131, 175 Foreign Affairs, Defence and Trade, Standard Defence Supply System, 211, 177, 266, 304, 407-408 303, 434-435, 496 Parliamentary Joint Committee on Strategy Policy (see Outcome Five), ASIO, ASIS and DSD, 19, 177 158-176

501 Appendices

Superannuation and Housing Support Services for Current and Retired Defence Personnel (see Outcome Seven), 187-188 T Training, 25, 28, 65, 110-111, 146, 193, 201-202, 276, 277, 280, 282, 283, 285-286, 288, 290, 292, 303, 405, 424, 425, 429 ADF exercises, 98-107 Training Areas, 207-208, 211 ‘Two pass’ Implementation Process, 30, 66, 198, 205, 207, 223, 240, 304, 496 U Unacceptable behaviour, 287, 288-290 Units and Establishments, 440-449 V Vice Chief of the Defence Force (see also Chief of Joint Operations), 62, 83, 192-194, 204, 453, 474-475 W War Against Terrorism, 15, 16, 19, 31, 54, 97, 109, 158, 161, 172, 203, 267, 420 Workplace Equity and Diversity, 287-290

502