Defence: Operating Costs

Senator Bourne asked the Minister for Defence, upon notice, on 12 February 2002:

1. What is the daily at-sea operating cost inclusive of spares, POL contractor and in-house maintenance and crew costs of: (a) an FFG frigate; (b) an ANZAC frigate; (c) a Collins class submarine; (d) the former fast catamaran, Jervis Bay, while in service; (e) a Fremantle class patrol boat; and (f) by class, each other ship type in service with the Royal Australian Navy of displacement not less than 500 tons.
2. What are the hourly operating costs, inclusive of spares, POL contractor and in-house maintenance and crew costs, by each type of aircraft in service with the Royal Australian Air Force.

Senator Hill - The answer to the honourable senator's question is as follows:

Past practice in answering questions of this nature has been for Defence to provide the daily, or hourly, full-cost recovery rate for ADF assets.

The full-cost recovery rate methodology is used to calculate the recovery or waiver costs of using a particular asset, usually when Defence is asked to perform a non-Defence activity. A comprehensive set of cost factors, including management overheads, capital costs and depreciation, salaries and accrued superannuation, is used to calculate the recovery rate. In other words, the rate includes all the embedded costs that Defence would be paying whether or not the assets had been deployed on operations.

The underlying assumption in recent questions and debate, that the full cost recovery rate can be extrapolated to estimate the costs of operations is, quite simply, misleading.

The true cost to the taxpayer of undertaking additional operations is the net additional cost. The net additional cost of a particular asset in an operation, in terms of extra fuel, rations and allowances, would depend on the particular operation. It also would take account of the offsets within its overall budget Defence would make in absorbing some of that cost; for example, cancelling or postponing exercises or seeking additional efficiencies to help offset the additional costs.

The net additional cost approach outlined above is consistent with the approach taken by successive Governments in providing supplementation to the Defence budget for operations – for example, the Gulf War and peacekeeping operations in Somalia and Rwanda. It is the method that this Government intends to continue to use for its own costings and to employ when answering questions about the costs of operations for purposes of more accurate debate.

close