This approach is problematic as it does not inform government of the total cost of the project across the life of the capability. Reviews have consistently emphasised the need for Defence to improve the efficiency of its operations, including in sustainment. 164Defence, First Principles Review, pp. For example, the Systems Program Office reviews are not yet complete and Defence has provided no evidence that decisions have been taken on changes to their structure and functioning. 4.15Defence records show that the department made substantial efforts to keep track of the large number of diverse initiatives identified across the department under Smart Sustainment, including internal reporting to management. PDF Caracal paper on polymers - Politico Europe Defence had developed, by the time of that review, a consistent approach to acquisition. 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. SeeCost Considerations-The Cost Principlesfor additional details. In January2017 Defences Systems Program Offices managed the sustainment of 112 fleets of equipment and services. In the Defence Annual Report 200405 (p. 242), DSTO nominated ensuring Australia is a smart buyer of defence equipment as one of the ways in which it supports Australias defence. 176The Helmsman Sustainment Complexity Review [Helmsman Review], July 2010; Plan to Reform Support Ship Repair and Management Practices [Rizzo Review], July 2011; and Study into the Business of Sustaining Australias Strategic Collins Class Submarine Capability [Coles Review], November 2012. To address these problems, Support Command Australia, the Defence Acquisition Organisation and part of National Support were merged to form the DMO. Defence has had no central facility to maintain a register of contracts for sustainment (or, indeed, acquisition) until January2016. The 2003 Australian Defence Aerospace Industry Sector Strategic Plan, produced jointly by Defence and industry representatives, recommended this approach, as well as a move to long-term through-life support contracts.149 Aerospace Systems Division then led in this reform area, producing a Performance-Based Contracting Handbook in 2005. 50ANAO Report No.40 201617, 201516 Major Projects Report. The success of the contract will be measured by Defences ability to operate without Bechtel support at the end of the contract, rather than by any specific product delivered by Bechtel. The CAJWG has agreed on basic principles where by the standards should be based on work already performed and should reflect future best market practices(rather than solutions currently applied in most markets) that, once implemented, should dismantle the operational part of Barrier 3 as concerns the categories of C orporate Actions addressed. 169Defence, Observations and conclusions of the Gate Review Board, CA48MRH90 Multirole Helicopter: Sustainment Performance Gate Review, 12 May 2016. Such a framework would need to articulate how an organisation responsible for both acquisition and sustainment would carry out those major tasks. Materiel Ready Days Achievement, measured as a percentage achieved against planned reflects the reliability of the Mission System and the Support System. the use of consistent time series data and analysis of sustainment expenditure. Also, it incurred related staff costs of $3.1million over six financial years (201112 to 201617). Coles also draws an insightful distinction between acquisition and sustainment work in relation to submarines. 3.32The First Principles Review found no direct measures of productivity in the existing management information systems, though some cost and schedule information is included in MRS and SPMS. In 201516, Defence spent about $6.3billion21percent of its total departmental expenditureon sustainment of specialist military equipment. Due to the nature of the Key Health Indicator, it seeks to measure disruption post External Maintenance Period and consequential impact on Materiel Ready Days (Materiel Availability outcome). Closure of the Materiel Acquisition Agreement and project closure will be completed during 2016. Effective sustainment of naval, military and air assets is essential to the preparedness of the Australian Defence Force (ADF) and to enable Defence to conduct operations. <<964faa8c6ebb704a921f34cb193ed03f>]>>
They may also be involved in acquisition projects but the greater bulk of their work involves sustainment. 2.4The sustainment of specialist military equipment was formerly a core responsibility of the DMO. Defence has initiated a reform project as part of its First Principles Review implementation. the experience, skills and competencies of Systems Program Office staff; [Systems Program Offices (SPOs)] not being able to manage to an effective asset management plan; Disrupted maintenance schedules, affecting availability and increasing costs; Shortened life of type, and increased whole-of-life cost; and. Capability Acquisition and Sustainment Group - Wikipedia As their names indicate, direct material . The initiative was not prescriptive except that capability and safety should not be compromised by any savings proposal. 155Defence, A History of Performance Based Contracting in Defence, [2016]. 2.11A simplified representation of the essential relationship among elements responsible for the sustainment of specialist military equipment is in Figure2.1 below. Defence further advised that approximately 850 contractors were employed in the Group in March 2017. As others have observed, the apparent growth flows mainly from the inclusion of certain Estate and Infrastructure Group costs (such as garrison support) and the balance of Defences estimated future sustainment funding that Defence has yet to allocate to a Defence Group within the broader Capability Sustainment Program in the last years of the period.98 This is apparent for the period following the delisting of DMO and the inclusion of items other than specialist military equipment in Defences overall sustainment estimates (Figure3.5). 83Defence, FPR Implementation Committee paper, SPO Reform ImplementationAvoiding Cost Transfers, February 2017. 84Mr Kim Gillis, Deputy Secretary, Capability Acquisition and Sustainment Group, Defence, quoted in Ziesing, K, From the Source: Deputy Secretary CASG Kim Gillis, (interview) Australian Defence Magazine, 1 November 2016. 123Defence, First Principles Review, p. 10. This practice: has created the risk of dependency on particular suppliers; raises concerns about probity as contractors and APS staff involved in the procurement may not be dealing with each other at arms-length; and means that Defence may not be getting value for money. Fragmented management meant Defence did not have an enterprise-wide view of the many Smart Sustainment initiatives, and was missing opportunities for wider reform. 3.42To provide the historical cost data to support analogous or parametric cost estimates, Defences Chief Finance Officer will build a database of historical costs and cost attributes. 3.15Under current arrangements for its production, the Quarterly Performance Report is neither timelyit is more than 50 days old by the time it gets to ministersnor clearit is dense with acronyms and jargon. The 2012 Coles Review, by subsequent reports, has been both successful and insightful.119. A Defence instruction on lifecycle costing has been in place since at least November1992.64 In addition, a Through Life Support Manual Volume 6Life Cycle Costing Analysis has been available since 2001 (and remains current).65 The issue of instructions and availability of guidance has not provided assurance of adequate costing action. The ANAO found that, 18months after implementation commenced, there had been limited progress. 22 and 81): 4.11In 2011, a Chief of Service advised DMOs audit committee112 that an emerging issue from the Strategic Reform Program, common across all the ADF, was a shortage of future funding for sustainment. Without a single version of the truth from a financial perspective, it is difficult to assess the impacts of variances in funding appropriations on sustainment objectives. The fundamentals of Defences governance and organisational framework for the management of materiel sustainment are fit-for-purpose. The table reports, for each Top 30 sustainment product: the budget estimate for. 193Defence Annual Report 201516, Chapter 8, available from [accessed 20 April 2017]. These measures track expenditure against phasing and is key indicator of the quality of Systems Program Office planning and costing processes across the Financial Year. A project to reform and consolidate Systems Program Offices is currently underway, with 24 out of 64 Systems Program Offices (37.5percent) reviewed as at February2017. Using internal and external expertise to provide the best advice so that the outcome is delivered in the most cost-effective and efficient manner. How to Prepare a Cash Flow Statement | HBS Online CASG employs more than 7000 military, civilian and contracted staff in more than 70 locations around Australia and internationally. depends on the type of organization (regardless whether domestic or foreign) making the expenditure. Part 200 Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards; Subpart E View Full Text; Previous; Next; Top; Details. Other reforms flowing from the First Principles Review remain underway: 30. In May 2016, Defence entered into another contract with Bechtel for $65.8 million, to conclude in June 2018. 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. Other reforms flowing from the First Principles Review remain underway: Defence has also been developing its approach to asset management over many years, having obtained substantial advice from internal and external sources to adopt a Defence-wide asset management strategy to underpin a sustainment business mode for specialist military equipment. 8Joint Committee of Public Accounts and Audit, Report 442, pp. There is also evidence of a planned benchmarking exercise to identify appropriate operating and functional models that can support DMOs future End State Design (around May2015). 3.24Gate reviews can draw management attention to sustainment risks in individual fleets. 104Defence, 2008 Audit of the Defence Budget, April 2009. Defence has not published program level expenditure data on a consistent basis over time, or time series analysis, to assist with external scrutiny of its sustainment expenditure. This requires visibility of the total cost of ownership of major equipment. Note b:Staff numbers are rounded to the nearest whole number. SPO overhead has increased through a number of avenues: i. The review was conducted by David Mortimer, who presented his findings in September 2008. %PDF-1.4
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This is especially so, given the recent observation by Defence that, in some cases, [Systems Program Offices] have been spending more money on salaries than they were on actual acquisitions or sustainment.84, Figure 3.2:Numbers of staff in DMO/Capability Acquisition and Sustainment Group Systems Program Offices, 200416. 74In all cases Defence included estimates for Net Personnel and Operating costs, even though the First Principles Review (p. 40) had recommended that Defence stop using this concept: Net Personnel and Operating Cost is Defences current estimate of the [additional] personnel, operating and sustainment cost of a proposed capability. 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. 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. 58ANAO Audit Report No.52 201314, Multi-Role Helicopter Program. This includes the capacity to adequately direct, supervise, and monitor contracts. Many Systems Program Offices had concerns that capability and safety were at risk. 129A Management and Operations contractor approach involves an external organisation being contracted to take on all responsibility for the day-to-day running of the organisation, including its transformation, but with the government maintaining ultimate ownership and strategic control over the body. External Maintenance Period Demand Fill Rate. Defence has engaged industry expertise to guide and help it with the First Principles reforms relating to acquisition and sustainment, including $107million with a single company where the contract for services is not performance-based. 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. 2The MPR Guidelines, which are endorsed by the JCPAA, provide that data of a classified nature is to be prepared in such a way as to allow for unclassified publication (see ANAO Report No.40 201617, 201516 Major Projects Report, paragraph 1.16, p. 463). The cost principle may not take into account any increases in market value to the assets, nor can it report on the depreciation of the asset over time. The CASG Cost Principles apply to all procurements. 75Defence, First Principles Review, April 2015, p. 14. Defences devolved and fragmented leadership approach to the program meant that Defence had no holistic vision of what the reform program was setting out to achieve, and therefore no logical program of work designed to support it. 156ANAO Report No.52 201314, Multi-Role Helicopter Program. SeeCost Considerations-The Cost Principlesfor additional details. Capability Acquisition and Sustainment Group also undertook in July2016 that over the next 12months, Capability Acquisition and Sustainment Group will commence effort capture (where staff time is tracked against the projects and products we support), led by the Group Business Manager.85. 180Defence engaged a consulting firm to carry out a high level Asset Management maturity assessment of the CASG policy and guidance documentation against the requirements of the Asset Management Standards. Box 7: The current Defence definition of smart buyer. 142Defence, First Principles Review, p. 36. First Principles Review (April 2015) 2. Defence suppliers have access to potentially commercially sensitive Defence financial information which could provide an unfair advantage to some service providers. 2.12Navy, Army and Air Force policy requires six-monthly reviews of MSAs. There is a risk that insights into a very substantial reform process could be lost. 14For the great majority of Defences military assets, Capability Acquisition and Sustainment Group (CASG) is responsible for sustainment. endstream
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reliance on a mix of public and private equipment and facilities for sustainment activity. 9Executive Minute on Joint Committee of Public Accounts and Audit Report No. The ANAO has recommended that Defence institute a risk-based quality assurance process for information included in the Quarterly Performance Report. See Fisher, P., A Study of Defence Publications Relating to the Procurement of Software-intensive Systems, DSTO, 1997. Shared services: do not provide what is needed by SPOs, resulting in significant use of SPO staff on Financial Management and HR tasks. As noted in paragraph 5.14, in July2016, a former senior Bechtel executive was seconded to the position of First Assistant Secretary Program Performance in Capability Acquisition and Sustainment Group, under the day-to-day direction of the senior Capability Acquisition and Sustainment Group leadership. The report assessed the maturity level of asset management policy and supporting guidance documentation only. 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. Define and endorse an Asset Management Plan. The Capability Acquisition and Sustainment Group (CASG) is an organisation within the Australian Department of Defence, responsible for acquisition, supply chain management, and sustainment of military equipment and materiel including aircraft, ships, vehicles, electronic systems, weapons, ordnance, uniforms and rations for the Australian Defence Force. It has engaged a consultancy (at an estimated cost of $1.2million) to undertake the data identification and cleansing for active major contracts for the top 15 Acquisition and Sustainment projects/products (about 60 contracts) by 30June2016.c After completing approximately 15 major contracts the project was suspended due to competing priorities within Capability Acquisition and Sustainment Group. Significantly, the Coles review recommended that Defence develop an asset management strategy for sustainment (see Appendix 5 of this audit report) and Chief of Navy subsequently expressed a strong desire for a total asset management framework.174. ideally located with the principal user but, dependent on the maturity and nature of the current, new and enhanced materiel systems, may be located at more than one site. 7. In June2017, Defence advised the ANAO that implementation plans for significant reforms to Systems Program Offices would be developed in the second half of 2017. The First Principles Review has pointed out that Defence has treated Systems Program Office staff costs at the project level as a free good, reducing the transparency of the cost of sustainment work and providing inaccurate price signals and a distorted incentive structure to Capability Managers. In 2008, the Mortimer Review recommended that decisions to purchase new equipment or maintain existing systems should be based on the through-life cost of each option. The gross centralisation, while simple to operate, is inconsistent with the principles of value for money, competition, or any rational industry policy. 5.36Performance-based contracting was described in a chapter on managing sustainment in the DMOs 2007 Acquisition and Sustainment Manual, but not made a requirement or a priority.151 In 2008, a Defence internal audit evaluating the effectiveness of Defences use of performance-based contracting found that: the maturity of management systems for such contracts varied, there was inadequate central oversight and support, inconsistent contracting arrangements, and less effective outcomes in many cases. The multiple approaches and varying quality for determining baselines and metrics for the various improvements expected for the program, and inadequate tracking of benefits would limit Defences assurance about improvements and cost reductions. For some Defence systems the planning documentation includes a description of the system followed by a statement of the primary focus for that asset for the forthcoming financial year, and in the annual report there is an account of what has been achieved. It is now planning to implement a new model, which seeks to capture the full cost of ownership throughout the life of an asset, with implementation planned for completion in July2018. 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. A key step in the MPR process is the preparation of a Project Data Summary Sheet for each project being reviewed. This matter is also taken up in the next chapter. Cash Management - Overview, How It Works, Problems 140Defence, First Principles Review, p. 36. 20In April 2016, Capability Acquisition and Sustainment Group defined a Systems Program Office as a business unit that works directly with Capability Managers and Suppliers as necessary to deliver agreed capability across the CLC [capability lifecycle], coordinating the FIC [fundamental-inputs-to-capability] elements required to achieve this objective. 68The Defence qualification was that The amount and type of LCC [life cycle costing] information presented to committees will vary according to the issues being considered and only pertinent information should be included. Failure to pay sufficient attention to sustainment early on would increase the cost of ownership to Defence. This recommendation, which was also made in the 2003 Kinnaird Review, was not implemented by the Howard government. Simplicity For example, in April 2015, Defences Lessons Learned report for the Air 87 Phase 2 Armed Reconnaissance Helicopter project stated: By its nature the project definition and contract negotiation stages of the project focus on cost-capability aspects of the weapon system. In May 2008, the Australian Government commissioned a review of Defence procurement, which included in its terms of reference a report on the progress of implementing reforms from the last such review the 2003 Kinnaird Review. 147A summary of the findings of the first tranche of Systems Program Offices reviews is set out in Chapter 2. a Quarterly Performance Report to the Defence Minister produced during the audit (April June2016) and, in contrast. 18. Moreover, the many changes to DMO, in response, for example, to the Mortimer and Kinnaird reviews, had not significantly altered its size, shape or footprint. This equipment never made it into service before the project was cancelled, yielding no capability whatsoever at a cost of $1.5billion. 6. Note c:Defence, Current e-Procurement Projects, June2016. External Maintenance Period Activity Cost Growth. Minister Smith also said that he had asked Defence to review the effectiveness of its management of major projects. Defence advised that the new Business Framework will take many years to fully implement.162 Between February2016 and February2017, Defence entered into contracts with the International Centre for Complex Project Management (ICCPM) worth a total of $2.94million for work described as relating to the development and implementation of the business framework. 5.4Although sustainment does not attract a separate focus in the First Principles Review, the reviews findings and recommendations have major implications for how sustainment is performed. 0000001012 00000 n
The availability of the aircraft is either shown as Green (acceptable performance) or Amber (early signs of underperformance), depending on the part of the report examined. Note c:Defence defines a materiel ready day as a day in which a submarine is not in planned maintenance or does not have defects that prevent it from being at sea. This followed a joint speech by the Secretary of Defence and Chief of the Defence Force stating that improving Defence productivity was a priority. 71 0 obj<>
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An unspecified proportion of Smart Sustainment savings of $197million in. 356), items such as Super Hornet fighter aircraft (operating costs) and C-17 transport aircraft (operating costs) are shown as separate line items. From the perspective of the field review, there is some indication that the sustainment models continue to drift apart.202. The audit had found, among other things, that it was not generally used in the in-service (sustainment) stage. Demand Satisfaction Rate measures the effectiveness of the supply chain. 3.28Defence will institute a Quality Assurance process covering the Defence Quarterly Performance Report. 125Defences current plans for systems development envisage the department implementing support for earned value management in late 2019. 5.1The most recent major review of Defence, the 2015 First Principles Review, was a comprehensive examination with a suite of recommendations for reform. 3.62In summary, the ANAOs review of public reporting on sustainment activity indicates that: 3.63Defence has not published program level estimate data on a consistent basis over time, and no time series analysis is published by Defence to assist with external scrutiny of sustainment expenditure. Defence subsequently increased the numbers of organisational units it considered to be Systems Program Offices from 54 to 78, with staff numbers ranging from three to 178.135. Figure 1.1:Defence acquisition and sustainment expenditure. A smart buyer also retains the requisite capabilities and technical knowledge to lead and conduct teaming activities, accurately define the technical services needed, recognize value during the acquisition of such technical services, and evaluate the quality of services ultimately provided. The principle under APB Opinion 20, Accounting Changes, requires restating the affected balance sheet account to reflect the balance as if the new accounting principle had been used from the beginning; the offsetting debit or credit is reported in the income statement as the "cumulative effect of a change in accounting principle." Defence expects that all sustainment products will be reporting in SPMS by the end of June2017. For example, in ANAO Report No.52201314, Multi-Role Helicopter Program, the ANAO concluded that the pre-2012 sustainment contract provisions for Defences Multi-role Helicopter Program were largely ineffective.156 The audit report noted that this was largely due to Defence not applying its own processes to the standards required. 19. 200.407 Prior written approval (prior approval). 5.45A review of progress by a consultant in MayJune2016 found that no significant progress had been made: As a result, my review changed from progress made to why none had been made.160 The consultant concluded that Lack of decision making has frankly constipated this project.161. 3.8Neither indicator is useful in determining the total cost of the capability to Defence. 2732. Defence has clear and long-standing governance and organisational arrangements for managing the sustainment of specialist military equipment. 3.50To assess Defences public reporting for the sustainment of specialist military equipment, the ANAO considered: 3.51The Public Governance, Performance and Accountability Act 2013 (PGPA Act) aims to improve the line of sight between what was intended and what is delivered. Opportunities also remain to increase the completeness and transparency of publicly reported information regarding materiel sustainment. Figure 3.5:Cumulative estimates of Defence sustainment costs, by year, 200607 to 202021. Contents - Commonwealth Procurement Rules - 1 July 2022 1. The Coles Review (2012) used benchmarking against international comparator navies to review the sustainment of Defences Collins Class submarines.a The Coles team used data from an international benchmarking report compiled by Defence to compare the performance of the Collins Class boats against submarine fleets of international navies. SeeCost Considerations-The Cost Principlesfor additional details. Defence has not implemented measures of efficiency and productivity for all sustainment products. 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. The 2015 First Principles Review was preceded by earlier major reform initiatives, notably the Strategic Reform Program (SRP) begun in 2009. The Principles focus on compliance of the accounting framework to the Principles, not the financial accounting system; the Principles operate within the test of reasonableness and are not intended to mandate what costs Industry are able to incur or not incur. For example, Dr Davies211 noted that in his experience, having in-house expertise from public service engineers who could examine bids for work from external firms made him a much smarter buyer.212. Table A.3:Navy Materiel Sustainment Agreement Performance Framework - Core Key Health Indicators. since 2005, contract-like arrangements known as Materiel Sustainment Agreements between the specialist unit and the Australian Defence Forces capability managersprimarily the Chiefs of Navy, Army and Air Force; a mix of in-sourced and out-sourced service provision for sustainment activity; and. Cash accounting is an accounting method in which payment receipts are recorded during the period they are received, and expenses are recorded in the period in which they are actually paid. 73 0 obj<>stream
But no such global improvement approach had been implemented across sustainment. Part of the context for this audit is to inform the Parliament regarding Defences approach to managing sustainment expenditure, including in the context of the current JCPAA inquiry, and to inform the ANAOs future program in this area.
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