On Defence’s failed policy of “civilianisation”

One of the tried and true maxims of management is that business hates uncertainty – because, don’t you know, business can’t be done in a climate where the rules keep on changing, and where CEOs lack a firm foundation on which to base their decisions.

Somehow, this wisdom is rarely extended to the work force, who – evidently – are expected to become ever more productive in a climate of total insecurity, where the rules and their roles keep on being changed, where their jobs and career paths are constantly being restructured and where casualisation and contracting out ensures there is little capacity to make any reliable plans for the future. CEOs, it seems, require certainty – but everyone else is expected to thrive on its exact opposite.

The latest example of this crackpot ideology has been unfolding in the country’s Defence Force which have been put through a process of “civilianisation” and contracting out, ever since the last Defence White Paper targeted the need for savings of $355 million by 2014/2015. The result has now resulted in a form of mutiny by Defence chiefs, who appear to have unilaterally called a halt to the policy that has been imposed on them, and which they have had to inflict on the troops in uniform:

Military bosses are stopping more redundancies because the first stage of reforms was so damaging and traumatic that staff morale slumped to its lowest level, and the Defence Force struggled to retain its best people….But Vice Chief of the Defence Force, Rear Admiral Jack Steer, appears to have told politicians before telling Defence Minister Jonathan Coleman, who says final decisions have not been made.

Yesterday Rear Admiral Jack Steer appeared before a parliamentary select committee and bluntly described the impact of “civilianisation”, which had seen about 300 redundancies of uniformed staff and about 100 rehired in civilian roles. Rear Admiral Steer said sending 300 redundancy letters was “one of the hardest things we’ve done in a very long time”, and staff were suffering from “change fatigue”.

“It was damaging because our people felt we let them down, that we weren’t looking after them, that we broke the social contract.” The attrition rate was 19 per cent – 685 roles were vacated between August 2011 and January 2012 – and staff morale was at its lowest since the Defence Force surveys began eight years ago.

The foolhardiness of this “civilianisation” policy is probably obvious to everyone but Treasury – who appears to think that the nation’s defence forces can be hired, trained and fired with the same gay abandon as new recruits in the fast food industry. Not only do the promised savings never eventuate – or miraculously become only “aspirational” when the shortfall becomes apparent – but there is collateral damage everywhere else in the organization. Fear is not a good motivator for productivity, and a hierarchical organization based on trust and respect for those in command is particularly vulnerable when the troops are treated as entirely disposable.

As in any other organization subject to the false economies of contracting, out, the process also “hollows out” the in-house experience and expertise. It renders the organization prone to being price-gouged by the contractors – often they are the same people who have just been fired – who have every opportunity and added motivation now to charge the earth for their scarce skills. The Defence White Paper recognised this likelihood. Eighteen months ago, Scoop described the cost savings/civilianisation programme, and warned against the problems now becoming evident:

Over the next 5-10 years at least, the White Paper assumes that the extra needs of the defence forces are to be funded mainly by internal cost savings. In line with the Key government’s usual rhetoric, resources are to be shifted from to the front lines, from support staff – magically, without any loss of quality in front line performance, or in the subsequent counselling and care of deployed troops. Where possible, this will be achieved via a process of civilianization of support staff, and by contracting out – which the White Paper optimistically says (6.41) will be cheaper.

Some of the hundreds of millions of dollars in annual savings projected (8.16) by the White Paper look both arbitrary – a suspiciously neat 10% can be shaved off the $150 million cost of training, the report jauntily assumes – and overly optimistic. Especially since $84 million in ‘ quick win’ savings (see 8.10) have already been made. In a poignant paragraph, the armed forces are advised to ‘manage’ the recruitment of good prospects who are failing the literacy and numeracy tests that are currently required.

Elsewhere, the possible impact of employing civilians on military career structures and retention is barely addressed. It is simply taken on faith that military personnel will want to move in and out of military service over the course of their career. Contracting out, it concedes in an aside (6.49) will increase the possibility of price gouging by contractors. Not to worry about that, though.

Time will tell (come the Defence Review in 2015) if this privatization process has saved as much money as the White Paper proposes. Certainly, some of its recommendations will increase the paperwork – the demands for supportive documentation for every single major purchase for instance, and the addition of a specific manager to manage the interface between the Ministry and the NZDF on each purchase, do not look consistent with the drive to prune back bureaucracy.

The relevant parts of the White Paper were remarkable for bringing up the dangers of civilianisation, but then pressing on regardless. Look at paras
6.40 and 6.41 for instance.

6.40. Personnel are the core capability of the NZDF. They are also a major driver of costs. This White Paper has identified a number of initiatives which are intended to reinforce the importance of those working for the NZDF while also looking at ways to shift resources to where they are needed most.

Hey, people in uniform are important, but they cost money :

41. By one calculation, those in uniform earn additional benefits worth on average about $18,50016 per year for all ranks. As such, the principle applied by the NZDF is that any position that does not deploy, or that does not need to be filled by a military specialist, or that is not providing operational respite, should be filled by a civilian, because they are less expensive.

Oh, the humanity – but hey, getting rid of them will be cheaper ! That seems to have been the prevailing ethos. And the paragraph on price gouging (6.49) is worth reading in the light of yesterday’s revelations by Read Admiral Steer:

When outsourcing any function, it will be essential to retain enough in-house expertise to manage contracts and invigilate performance. It will also be prudent to avoid becoming so dependent on any one contractor that the NZDF is strategically exposed to either service interruption or price gouging.

The “hollowing out” of in-house expertise is also well under way. Yesterday, Read Admiral Steer revealed that during the restructure, two navy officers each pocketed $50,000 in redundancy payouts and were then rehired in the same roles, as contractors. Thus, the chickens of casualisation and contracting out are coming home to roost. Not only in the Defence Force, but on the docks in Auckland.

Until bureaucrats – and their masters in central and local government – realise that the work force cannot be treated as disposable cost units but as people with their own needs and desires for security and the capacity to plan for the future, similarly“traumatic” and needlessly painful disasters will keep on occurring.


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