This represents a major investment of at least $120million, including contracts for services from the principal provider (Bechtel) valued at some $107million. Most recently, the First Principles Review recommended immediate implementation of measures of productivity, a related concept. Progress in implementing the quoted recommendation has not been explicitly tracked with the other recommendations such as 2.12 and 2.13 in regular reporting on progress of the First Principles Review. Maintenance Completion (tasks) to Plan is an output measure, which directly reflects achievement against the Materiel Confidence outcome. This chapter examines the First Principles Review to identify implications for Defences management of sustainment. These activities are outside the scope of the audit. Systems Program Office consolidation and reform is one of the largest reforms to Capability Acquisition and Sustainment Group deriving from the 2015 First Principles Review. Further, the ANAO understands that the adjustments related to the expected savings were not identified in the Commonwealths central budget management system. A key step in the MPR process is the preparation of a Project Data Summary Sheet for each project being reviewed. Most recently, the First Principles Review recommended immediate implementation of measures of productivity, a related concept. The ANAO suggests that Defence could devise a means of doing this, thereby capturing additional useful information on sustainment performance and current risks. The women and men of the ADF through the capability managers (our customers). Subsequently, the term has been used widely by others, including in a military acquisition context. The document details the Cost Principles that Defence Capability Acquisition and Sustainment Group (CASG) and industry will utilise as a framework towards contract costs and provides Defence and the CASG's expectations and clarity of what costs may be attributed to (cost-recovered from) the Commonwealth. For example, a commercial organization An organization, institution, corporation, or other legal entity, including, but not limited to, partnerships, sole proprietorships, and limited liability companies, that is organized or operated for the profit or benefit of its shareholders or other owners. Measures the number of occurrences where Cannibalisation was approved by the Capability Manager Representative. Defence expects that all sustainment products will be reporting in SPMS by the end of June2017. The Committee recommended that Defence commit to maintaining its physical science and engineering workforce capabilities in key areas to allow it to be both a smart buyer and a technically proficient owner of materiel. The Australian National Audit Office (ANAO) is a specialist public sector practice providing a range of audit and assurance services to the Parliament and Commonwealth entities. 2.20Defence records indicate that, as at February2017, the project had reviewed 24 Systems Program Offices across three domains (Maritime, Aerospace, and Joint), comprising 37.5percent of the Groups business delivery units. Defence has not implemented measures of efficiency and productivity for all sustainment products. The Review found a need for the Ministry of Defence to rebuild its capability as an intelligent client for warship design and build.172 It concluded that, to ensure pace could be maintained additional technical expertise in the form of a Client Friend (or Friends) is procured early, in particular to assist in the development of a detailed specification. For more information or to provide feedback on the Cost Principles, please send an email to theDefence Financial Investigation Service. A service optimisation program for Army Land Rovers, saving $590000 a year. 16. The ANAO recommends that Defence develop and implement an evaluation plan to assess the implementation of the recommendations of the First Principles Review. 4.9Defences Sustainment Complexity Review in mid-2010 warned that most Systems Program Offices did not have the capacity to undertake Smart Sustainment initiatives.109 Nevertheless, in late 2010, an internal health check on Defences governance arrangements for Smart Sustainment found that, despite some difficulties, Defence had the fundamentals in place to support their success.110. collaborating with a university recipient would be subject to the cost principles The government-wide principles, issued by OMB (or, in the case of commercial organizations, the Federal Acquisition Regulation [48 CFR 21], or, in the case of hospitals, 45 CFR 75, Appendix IX, "Principles For Determining Costs Applicable to Research and Development Under Grants and Contracts with Hospitals"), on allowability and unallowability of costs under federally sponsored agreements. The Chief of the Defence Forces Preparedness Directive provides the strategic preparedness guidance for Defence Groups, Services and Capability Acquisition and Sustainment Group. 5.42A design guide for the establishment of the Centres of Expertise has been produced and initial establishment of these centres is scheduled for April2017, with the establishment of a balanced matrix expected to be over a two-year period.158. 108Defence, The Strategic Reform Program: Making it Happen, 2010, p. 4. The cost principle states that any asset should be recorded at the purchase price. 186Defence Portfolio Budget Statements 201516, Table 6: Capability Sustainment Programme, p. 21, available from [accessed 20 April 2017]. 20. Following the change in government in 2013, it terminated work on the Strategic Reform Program. Many antiviral agents exert significant host cellular toxicity, a limitation that has hindered antiviral drug development. However, the skills may be retained in the marketplace and the real issue is whether the organisation loses the capability of being a smart purchaser (The Contracting Organization: A Strategic Guide to Outsourcing, Oxford 1998, p. 19. Defence has clear and long-standing governance and organisational arrangements for managing the sustainment of specialist military equipment. Final Operational Capability was declared in April2016 and ministerial advice was noted on 3May2016. Defence conducts reviews of sustainment performance through sustainment gate reviews that help Defence to obtain insight into a project or products progress and status. 229. The Quarterly Performance Report is the primary way by which Defence provides information to government and senior Defence personnel about the status of major acquisition and sustainment activities. 166Defence, Smart BuyerDetail Design, approved 20 October 2016. Source: Defence, 2008 Audit of the Defence Budget, 2009, pp. 49 of 51. Improve leadership skills, knowledge and experience. The second series, commencing in 201314, represents the reported totals for Defences capability sustainment program. 198Defence, Going to the Next Level, the report of the Defence Procurement and Sustainment Review [Mortimer Review], 2008, p. 46. [12] Gumley had headed an executive team of around 20 senior managers. 60Defence, Jim McDowell Workshop, First Principles Review Implementation, 15 August 2015. The SPMS system was not fully implemented during audit fieldwork but is expected to be fully operational by the end of June2017. Eight underperforming products were listed in the second quarter of 2016. 5.63The Sustainment Business Model project has not delivered all that DMO expected. developing the new operational framework (Business Framework) to explain comprehensively how the organisation (specifically, Capability Acquisition and Sustainment Group) operates; development of the smart buyer model; and. In November 2016, the contract was amended and increased by $32 million. This form of measure is applicable to Aviation related products only measured as a percentage achieved against planned reflects the reliability of the Mission System and the Support System. Note a:Many entries on the AusTender site represent individual payments rather than separate contracts. 0000000516 00000 n F&A (indirect) cost pools must be distributed to benefitted cost objectives on bases that will produce an equitable result in consideration of relative benefits derived., and set forth allowability and allocability principles for selected items of cost. The two most relevant tables for sustainment reporting are Web Table8.11: Top 30 sustainment products by expenditure, as forecast in the Portfolio Budget Statements 201516, and Web Table8.2: Top 30 sustainment products, performance summary as at 30June2016.193, Table A.4:Web Table8.11: Top 30 sustainment products by expenditure, as forecast in the Portfolio Budget Statements 201516, Variation (under)/over revised estimate $m, E-7A Airborne Early Warning and Control Capability System, AP-3C Orion Weapons System (Electronic Warfare), Navy Munitions, Army Munitions, Explosive Ordnance, Wide Area Surveillance Capability and Air Force Minor Projects, Command and Intelligence Systems Software Applications, Auxiliary Oiler Replenishment HMAS Success, Total sustainment product funds available. Defence has not explained what became of these initiatives. Rate of Effort / Aircraft Availability Achievement. It addresses sustainment management at a high level and is not focused on the sustainment of individual platforms or the technical aspects of their maintenance. Please direct enquiries relating to reports through our contact page. In 2000, when the expected benefits were not being realised, Defence reviewed Support Command Australia and the Defence Acquisition Organisation, finding that serious problems persisted in capital acquisition and whole-of-life support. 3.19In this case, the Quarterly Performance Reports usefulness is reduced by the following: 3.20The contrasting information identified in this case indicates that the Quarterly Performance Report would benefit from the application of a quality assurance process to ensure that government and senior Defence personnel are presented with a frank and balanced assessment of performance (see paragraph 3.27 below). 88Previously, the relevant expenses would have been allocated across several categories, including repair and overhaul, and inventory supplies. External Maintenance Period Activity Cost Growth. 5.40The analysis could usefully have regard to the outcomes of past reviews and audits, which provide insight into the effectiveness of Defences contracting arrangements for specific fleets of equipment. For example, the Defence Science and Technology Organisation (DSTO) referred in a 1997 publication to an initiative to help the Australian Defence Organisation (ADO) be a smart buyer in relation to software acquisition. It terminated upon the delisting of DMO. 13Defence, First Principles Review: Creating One Defence, 2015the First Principles Review. The effectiveness of these reviews could be increased if the lessons obtained from gate reviews were routinely incorporated into management reporting on sustainment and if gate reviews were extended to contribute to the proposed quality assurance mechanism for Quarterly Performance Reports. 1. The ANAO has also observed in Chapter 3 of this audit report that there is scope to improve the quality and transparency of public reporting on sustainment in existing Defence reportsthe Portfolio Budget Statements, Portfolio Additional Estimates Statements and Defence Annual Report. 33. 66Defence, Report on Defence Governance, Acquisition and Support (prepared by KPMG), April 2000; Defence Procurement Review (Malcolm Kinnaird AO, chairman), August 2003the Kinnaird Review; Going to the Next Level: the Report of the Defence Procurement and Sustainment Review (David Mortimer AO, chairman), September 2008the Mortimer Review; 2008 Audit of the Defence Budget (George Pappas, consultant), April 2009the Pappas Review; and Review of the Defence Accountability Framework (Associate Professor Rufus Black), January 2011the Black Review. 1.1Defence materiel sustainment is about the maintenance and support of Defences fleets of specialist military equipment. Defence published a final, complete edition, comprising 18 pages plus appendices with a date of 12December2016. The Canberra Times reported that its 'senior public service sources' believe she is the highest-ranking Australian Commonwealth public servant to ever have been dismissed for underperformance. This high tempo period of exercises has tested the robustness of the logistics system and deficiencies have been identified. Note c:Defence advised the ANAO that this amount includes elements considered acquisition due to the impossibility of separating these items in this context. or an F&A cost Necessary costs incurred by a recipient for a common or joint purpose benefitting more than one cost objective, and not readily assignable to the cost objectives specifically benefitted, without effort disproportionate to the results achieved. 26Paul J Rizzo, Plan to Reform Support Ship Repair and Management Practices, July 2011, p. 8the Rizzo Review. 139It is not clear from the report how the First Principles Review drew this conclusion. The CASG MSP implementation is inconsistent with the intent of the First Principles Review, opting for the ease of 'body shopping' rather than thoughtful outcomes-based procurement. The Review proposed the immediate implementation of productivity measures at a project level: It is also incumbent upon the organisation to have a process in place that effectively measures its cost, schedule and productivity at a project level. Government officials must be the ones applying discretion and making value judgments throughout the process. 3.22In 2009 Defence commenced gate reviews for capital acquisition projects as an internal assurance process.55 They have provided insight into a projects progress and an opportunity for project staff to discuss difficult issues with senior management and seek guidance. Develop clear lines of authority and responsibility for sustainment. Please use 4.20In October2015, Defences First Principles Review Implementation Team decided that work on Smart Sustainment, along with other reform activities underway within Capability Acquisition and Sustainment Group at that time, would cease and the relevant elements were to be incorporated into work on the new Capability Life Cycle. LAND 121 PH 3B Project Office [Project OverlanderMedium Heavy Capability, Field Vehicles, Modules and Trailers], LAND 121 PH 4 Project Office [Protected Mobility Vehicles (Light)Hawkei], LAND 400 [Combat Reconnaissance Vehicles, Infantry Fighting Vehicles, Manoeuvre Support Vehicles, and an Integrated Training System. 169Defence, Observations and conclusions of the Gate Review Board, CA48MRH90 Multirole Helicopter: Sustainment Performance Gate Review, 12 May 2016. However, it does set two years as a timeframe for delivery of the changes it recommends.127 In setting that objective it allows for a tail of activity that might run beyond two years for which it gives, as an example, completing the roll-out of its new smart buyer model. 4.2In February2008, the Chief Executive Officer (CEO) of DMO announced a target of reducing by five per cent in real terms, in 200809, the sustainment cost of each of the 100 or so fleets of equipment then sustained by DMO.101 The CEO announced this measure as an ongoing reform program that aims to identify efficiencies within the DMO and reduce the cost of ownership to the Commonwealth in the operation of sustainment fleets.102 This, he wrote, was to satisfy a key priority of the government to reduce inefficiencies across the public sector. This Key Performance Indicator assesses conformance to Product operation within Statement of Operating Intent and the adherence to cyclical maintenance schedules. 21In April 2015, the ANAO completed a performance audit of Materiel Sustainment Agreements (ANAO Report No.30 201415, Materiel Sustainment Agreements). 3.68For each Service, comparing the amounts presented in the first and last years of this analysis yields an average annual (compound) rate of growth in the estimates.97, Table 3.1:Increases in sustainment estimates by service, 200607 to 202021 ($m), Annual rate of growth (compound) from 200607 to 202021. 18. To facilitate equitable distribution of indirect expenses to the cost objectives served, it may be necessary to establish a number of pools of F&A (indirect) costs. Increased duration for Engineering Change Proposals also presents latent risk to Sustainment Efficiency outcomes due a potential increase in cannibalisations and the requirement to fund future Engineering Change Proposals in out years. 165United States Government Accountability Office, GAO/GGD-00-172R, Study on Facility Design Reviews, July 2000, available at http://www.gao.gov/assets/90/89986.pdf. The implicit assumption is that future costs will be influenced by the same factors as past costs. Provide high level advice to Defence Senior Leaders on reform, business improvement and change management initiatives; Support the design and implementation of the new Capability Acquisition and Sustainment Group business framework; Assist Capability Acquisition and Sustainment Group in strengthening the project controls discipline across the Group including monthly reporting, business process improvement and cost transparency, mentoring and coaching Defence leaders, and providing advice on international best practice; Assist with implementing the smart buyer function across Capability Acquisition and Sustainment Group, including conducting pilots in Chief Information Officer Group and Estate and Infrastructure Group; Assist Defence redesign and restructure Systems Program Offices to align with required reform activities, including but not limited to smart buyer function, business framework and capability life cycle reforms; Assist Capability Acquisition and Sustainment Group with the establishment of the Commercial Centre of Expertise including business process improvement, mentoring and coaching Defence leaders and providing advice on international best practice; Assist Capability Acquisition and Sustainment Group with the establishment of a Program Management Office at the Group level to support the Capability Acquisition and Sustainment Senior Leadership Group in managing the program; Assist Defence to measure the efficiency gained through the above reform activities (in terms of both cost and schedule); Other reform activities as required by Defence. depends on the type of organization (regardless whether domestic or foreign) making the expenditure. A target expenditure cut of five per cent of sustainment costs over a financial year was set by the Chief Executive Officer of the DMO in February2008. 3.9In September2016, Defence decided to expand SPMS to cover acquisition. The main insights into what became of the initiative can be derived only from external consultancy reports. An alternative approach is to manage a total project budget that includes employee expenses. SeeCost Considerations-The Cost Principlesfor additional details. 3.53Commonwealth entities must reportin an annual performance statementtheir actual results against the planned performance criteria outlined in their corporate plan and Portfolio Budget Statements. Defence has not put in place plans to evaluate either the reforms themselves or its implementation of them. A key focus of the enhanced Commonwealth performance framework established under the PGPA Act is ensuring that programme managers, accountable authorities, ministers, the parliament and the public are able to use performance information to draw clear links between the use of public resources and the results achieved.86. 154The template was referred to as ASDEFCON (Support) version 3.0, June 2011. Note: Military units also undertake some operational-level sustainment activities. 132Defence considered not using the term Systems Program Office as this could be confused with the use of the same term in the USA, where Systems Program Offices were said to be concerned only with acquisition and not sustainment. Defence records show that the department made substantial efforts to keep track of the large number of diverse initiatives identified across the department under the smart sustainment reforms associated with the SRP, including internal reporting to management.