Defence savings, but at what cost?

Arare political event occurred last week – a minister saying that reforms were going well, and a senior official saying publicly that the same reforms were proving so damaging to the organisation that the next phase of the process should be halted.

First, the good news about what’s happening in defence.

A cost savings drive was announced in 2010, in the last Defence White Paper.

It was to be achieved through a process of ‘‘ civilianisation’’, whereby those functions within the uniformed staff (outside the combat zone) that could be done by the private sector, would be contracted out to them.

The Minister of Defence is reportedly on the way to achieving savings of $142 million this year, and on target for the overall savings of $355 million expected by 2014-15.

Then last week, came the bad news. Rear Admiral Jack Steer, who is the vice-chief of the defence force, appeared before a select committee and described how his staff were suffering from ‘‘change fatigue’’ after about 300 redundancies among uniformed staff, with one- third of them then rehired in civilian roles.

‘‘It was damaging,’’ Rear Admiral Steer explained, ‘‘because our people felt we let them down, that we weren’t looking after them, that we broke the social contract.’’

The current attrition rate in the defence force is running above average at 19 per cent – 685 roles were vacated between August 2011 and January 2012 – and morale among staff is at its lowest ever recorded level.

Certainly, from a cost accountant’s point of view, the reform process has been going swimmingly.

Yet in time, ‘‘ civilianisation’’ may be seen as a textbook base of short-term savings over the longterm health of the organisation.

It’s almost a mantra that business can’t be done in a climate where the rules keep on changing, and where chief executives lack a firm foundation on which to base their decisions.

Somehow, this wisdom is rarely extended to the work force.

Being treated as disposable is rarely a good motivator for productivity – and even less so, one would have thought, in a hierarchical organisation based on trust and respect for those in command. For now, ‘‘ no final decisions’’ have been made about whether the defence reforms will continue, according to Defence Minister Jonathan Coleman.

While conceding attrition rates have been high, Coleman reportedly said: ‘‘Overall, I think it’s gone pretty well.’’

Whether the cost of training new recruits to replace the experience being lost will eat up the apparent savings is still in ques- tion.

In the White Paper that launched this exercise, the potential problems were flagged, but not explored.

At paragraph 6.49 for example, the White Paper warned about the need to retain enough in-house expertise to avoid defence being exposed to price-gouging by contractors.

From the Auckland ports to the defence force, the alleged virtues of outsourcing are now in question.

Rear Admiral Steer gave the select committee examples of staff pocketing $ 50,000 redundancy payments and being immediately re-hired to do the same job.

Until bureaucrats – and their masters in central and local government – realise the work force is not just disposable cost units, such ‘‘ traumatic’’ episodes will keep occurring.