Scoop Election 08: edited by Gordon Campbell

On where government could be saving millions

April 17th, 2012

NH90 helicopter in flight.
Image: RNZAF

Ever since the last White Paper in 2010, Defence has been putting its staff through the wringer in a cost reduction exercise so demoralising that aspects of the plan now seem to be in jeopardy.

A major part of this plan has involved taking some of the work currently done by specialised staff, and contracting it out to the private sector, with obvious repercussions for anyone thinking of joining the military for a career. Just as at MFAT, the reform process has done damage to the morale of all concerned, to no perceivable operational advantage. Meanwhile, Defence continues to waste tens and hundreds of millions by the way it goes about procuring its equipment. Just as it always has done.

The latest example surfaced on the weekend, with the announced delays in commissioning the Air Force’s new fleet of eight functioning NH-90 helicopters (and one extra for spare parts) that were ordered by then Defence Minister Phil Goff in 2006 as replacements for our Vietnam war vintage fleet of Iroquois helicopters. The new helicopters cost $700 million, or nearly five times the price of the extended parental leave provisions vetoed last week by Finance Minister Bill English. Some of the problems with these new choppers have – allegedly – been due to them being the first of their type, when ordered.

Eight new $700 million airforce helicopters have a serious flaw that even when fixed will prevent use in snowy conditions. The Royal New Zealand Air Force is the first military force to use the high technology NH-90s, winning criticism from Auditor-General Lyn Provost who says this country should not be buying “first of type” equipment… The report also reveals that the P3 Orion $373-million upgrade project has hit problems again with the air force purchasing an “as is” used flight deck simulator that is not compatible with the new planes…

There are deployment problems and performance problems with the new choppers. Defence’s C-130 Hercules cargo planes for instance, are not currently able to transport the NH-90s, as originally planned. Defence is reportedly “looking at other transport options”.

These include the helicopters flying themselves all the way across the Pacific if they can be refuelled, or going aboard the navy multi role ship HMNZS Canterbury – but only in certain safe sea state conditions. The only aircraft available that can fly them anywhere are the ex-Soviet Union Antonov-124 transporter.

Other risks are present, including the NH 90 being “prone to damage” from debris drawn into the engines… To mitigate this risk, NH Industries is to supply screens that can be fitted to the engines.”

One lesson to be drawn from this debacle? Defence should consider buying more of its equipment “off the shelf” Provost suggested. Rather than, presumably, spending hundreds of millions of dollars on brand new, untested and/or specially designed variants.

Provost said that previously the military projects with the least delay were those that were bought off the shelf. “In my view, in addition to more focus on off-the-shelf items, more consideration must be given to the risks involved in buying aircraft that are ‘first of type’,” she said.”Aircraft with proven capabilities may be better value for money and may be more quickly introduced into service.”

[Auditor General's comments from the Ministry of Defence's 2011 Major Projects Report]

Sirius, All Over Again

Very sensible of the Auditor-General. But that’s just not how Defence does its shopping. For those with long memories, the NH-90s saga sounds exactly like the notorious Project Sirius debacle in 2000. On that occasion, the upgrade of our tiny fleet of six P-3 reconnaissance and rescue aircraft ballooned out spectacularly from the $200 million first estimated in the 1996/97 Project Definition Study. Ultimately, the two contenders who finally met the specs (Boeing and Raytheon) tendered for its actual cost – which landed in the $650-700 million price range, or more than treble the original cost! Once it got over its consternation, Defence hastily tried to pare back the price to a more politically defensible $445 million, by hacking off some of the bells and whistles.

Essentially, Defence had poured five years work into designing an entirely new system for our little set of six aircraft, and had sent staff around the world trying to find someone who could build this Frankenstein system made up of all of its favourite bits of P-3 gear – only to discover that it couldn’t afford it. And yet… from the outset, the US defence contractor Lockheed Martin had offered an ‘off the shelf” P-3 upgrade for only $US100 million, already tested and in use with some of our allies. This bid had been rejected by Defence in the first round. As Jay Jones, Lockheed’s vice-president of business development told me by email at the time (see Listener. May 20, 2000) his firm had concluded that:

… “ the amount of new development work and inherent degree of risk required to produce an RFT-compliant solution would drive the project price significantly beyond the budget constraints present within the Ministry of Defence. Consequently, we offered an alternative solution, tailored round our lesson-learned expertise, intended to provide significant cost savings and risk reduction advantages, while still satisfying the intent of the program… Our solution provided for fly-away cost of less than $US100 million plus training and integrated logistic support… of another $15-20 million. The Air Force immediately disqualified our proposal, despite the significant operational utility and savings our scheme would provide.

What Defence wanted was a unique product. “The end result has unique software operations and interfaces,” Jones said, “and it’s the only one like it in the world.” (For the same article I also interviewed other Lockheed senior staff in detail to clarify the capacity and inter-operability of the cheaper, rejected proposal.) Clearly, this is not ancient history. Not when a whole 12 years down the track, Defence is still needing to be lectured by the Auditor-General about the virtues of buying tried and tested equipment, off the shelf. Evidently in 2006, with the NH90s, Defence went for the gold-plated option. (And, it seems, when it did try to buy “off the shelf” for its latest $345 million P-3 Orion upgrade it got the basic compatibilities wrong.)

Defence gear routinely costs amounts so huge they dwarf the cost of the social programmes that the government is currently baulking at. There’s a lesson here, but its one the Defence chiefs seem incapable of taking on board. Before it starts to dabble with casualisation and other ways of screwing over its uniformed staff, maybe Defence should put more time into learning the basics of (a) figuring out what it really needs (b) and buying what works at (c) a price the country can afford.

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    1. 5 Responses to “On where government could be saving millions”

    2. By Beatnink on Apr 17, 2012 | Reply

      Great post, Gordon. Why aren’t Defence procurements put to the test like for any other government agency where cost goes over a certain high point? Surely someone in an audit / governance role would have quickly asked the sensible question about why NZ needs state of the art + untried technology? Disappointing to say the least that Phil Goff presided over this crazy purchase. His resignation should be called for.

    3. By Kerry on Apr 17, 2012 | Reply

      oh very good, Gordon!

      The lobbying that Raytheon do at the Defense Industry Association conferences every year prolly had something to do with their contracts acquisition. Pretty sure this helicopter debacle will have the same provenance.

      The weapons industry conference used to be held at Te Papa Tongarewa/Museum of NZ, until the Peace Action Wellington protest in 2006 shut the venue down completely; upon finishing the Aitken St MOD H/O upgrade, it was summarily announced that all future conferences would be held inside the secure perimeter of that building.
      I’m sure the catering bill dropped dramatically!

      The campaign to get the Arms Race to leave Te Papa (known in marketing for the Museum as ‘Our Place’) ran from 2004, and was known for its colourfully costumed protesters and performances by local Wellington entertainers.

      http://www.indymedia.org.nz/article/72122/te-papa-no-arms-race-our-place

    4. By Shaun on Apr 17, 2012 | Reply

      A military version of Incis – good reporting. I support our military capability but not at any cost. This is shocking procurement and risk management. In years of working on both public and private sector projects I have yet to see a project where extensive customization was really justified. In all cases it comes down to shabby work in defining user needs.

    5. By Brett Parker on Apr 18, 2012 | Reply

      Fair points regading the cost of defence equipment, but hardly a situation peculiar to NZ – as a glance at stories of Australian defence spending proves. Interestingly, the $1 billion fiasco of the Australian Navy’s Seasprite helicopters is a complete contrast to the successful use and on-budget purchase of the very same helicopter type by the RNZAF/NZ Navy.
      The article rather ignores the fact that the NH-90 is already in service with Australia, Germany, Norway and the Netherlands, and the fact that the new A-109 training helicopter has successfuly been put into service by the RNZAF, as noted by the Auditor-General.
      Moreover, the NH-90 as a ‘medium’ helicopter is too large to fit within the RNZAF’s C-130s. This is hardly surprising – no other medium helicopter type designed since the 1970s can fit in the (1960s designed) C-130. Larger helicopters can carry more people and equipment, and a lot further and faster, than can the old UH-1 Iroquois. This is the point of buying a larger type. Moreover, the new A-109 light helicopters can be dissembled to fit within a C-130, if needed.

    6. By Robert Miles on Apr 19, 2012 | Reply

      The original five Orion P-3s were purchased in 1965 and 1966 after a debate whether 3 Orions or the 5 Orions should be purchased on as suggested by the United States. A cabinet split occurred over the issue, even intensive lobbying and Lockheed even ran a full page advertisement for the Orions in the Wellington daily newspapers. Obviously the Orions were obtained for strategic deterrence to discourage say Soviet cruise missile submarines coming into the region to attack the major Australian cities, bases and US intallations in Australia in the period between 1967-74 before the Soviet Union had fully developed the capability from its Central Asian republics. According to the Air Forces histories it was to counter Chinese submarines but they have only emerged as any sort of regional threat over the last five or six years. A question needs to be asked of the Minister of Defence in our out of parliament , to elaborate on the claims made by former Auckland University Politics and Strategic expert Paul Buchanan about patrols by Chinese Kilo class and possible nuclear hunter killers in the region and whether they occur South of Fiji and how frequently. Buchanan’s assertions seem supported by recent RNZN personel that they often tracked Kilo’s.
      In terms of the Orion sirius modernisation the differences in cost relate largely as to whether their anti submarine capability, MAD, sonar buoy listening processing ability, sea scanning radars needed to be updated and to what degree and the modernisations so far seem to have been confined to general surface and land surveillance radar updates , wing replacement and fitting of US data procesing and Satellite communication systems- but fairly obviously an off the shelf $100 million update would not give much ability to handle modern Chinese or Russian, which will inevitably be attacking from far outside the range of frigates sonars being targeted by satellites, surveillance aircraft, ESM detections or even friendly trawlers or mother ships-such vessels often being an intergrated part of the Chinese and Russian naval systems.
      The really interesting botched acquisitions seem to me to be issues of
      (1) The failure to simply buy new 5 new current model Hercules 130s rather than going ahead with the botched modernisation. A smaller LAV order or small orders of other men wheeled Pgnazur transports would easily have convered the cost.
      (2) Why on earth a smaller order of say 15 Aermacchi 339Ds was not made in 1989 to cover the expense of fitting a reliable,modern life turbine to power them.

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