191Defence Portfolio Additional Estimates Statements 201516, Table 10: Capability Sustainment Programme, p. 21, available from [accessed 20 April 2017]. Defence advises that Over the past 12months the CASG e-Procurement Team and the DoF AusTender Team, and SAP Australia Canberra Office have been progressing a whole of Government project to address the technical and business process risks posed by the current SAP AusTender Contract Reporting data capture and reporting solution. 0000002145 00000 n
For example, the category listed in the PBS Helicopters, Tactical Unmanned Aerial Systems and Guided Weapons no longer appears and the items are distributed among other categories. However, Defence did not adequately assess the outcomes from the smart sustainment reforms. This represents a major investment of at least $120million, including contracts for services from the principal provider (Bechtel) valued at some $107million. It is apparent, however, that different and additional items are included in the latter series. 208Internally, other areas within Defence had earlier recognised the need for being smart buyers in procurement. The Systems Program Office Director reviews the data and comments for each measure and provides comments for a set of key performance indicators and an additional set of key health indicators.35 Further comments can be added up the hierarchy to the relevant Capability Acquisition and Sustainment Group division head. [1], As of 30 June 2021, Defence through the Capability Acquisition and Sustainment Group (CASG) was managing 161 major projects and 13 minor acquisition projects, at various phases in the Capability Life Cycle, worth a total of $121.6 billion, with an annual acquisition budget was A$9.3 billion. They provide recommendations as to how government can become a smart buyer, knowing what it wants and judging better what it has bought. 5.5A subsidiary recommendation (2.2 disbanding the DMO and transferring its core responsibilities in relation to capability delivery to a new Capability Acquisition and Sustainment Group) has led to the creation of Capability Acquisition and Sustainment Group in Defence. 199In its 200809 Annual Report, Defence stated that to implement this recommendation, it had created the Sustainment Reinvestment Office to co-ordinate DMOs role in achieving the $5.5 billion in savings expected from Smart Sustainment under the Strategic Reform Program. Poor Demand Satisfaction outcomes will ordinarily be reflected in the increase of Urgency of Need Designators A and B demands or directly in Priority 1 stores related Urgent Defect. There are four basic financial . Rizzos Recommendation 1 was that Navy and DMO should jointly establish practical methodologies for integrated through life asset and sustainment management (p. 38). 6Defence Materiel Handbook (Sustainment Management) DMH (SUS) 4-0-001, September 2015, p. 1. However, the departments approach to monitoring savings does not provide sufficient information to determine whether that occurred, and how the reported savings were achieved. The Review made 24 recommendations and identified seven of these as strategic in scope because of their significant and enduring impact on the management of sustainment in DMO. Create a collaborative framework for the management of sustainment without diluting individuals responsibilities. 156ANAO Report No.52 201314, Multi-Role Helicopter Program. According to generally accepted accounting principles (GAAP), manufacturing overhead must be included in the cost of Work in Process Inventory and Finished Goods Inventory on a manufacturer's balance sheet, as well as in the Cost of Goods Sold on its income statement. 10Joint Committee of Public Accounts and Audit, Report 448, p. 30. 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. Defences implementation of the recommendations of the First Principles Review has also introduced a single end-to-end capability development function, the Capability Life Cycle, which will reduce previous delineations between the management of acquisition and sustainment activity. Setting the Direction 3. 223, available from [accessed 16 January 2017]. 24Navys Fleet Screening instructions state that the focus of Navys review has evolved beyond a financial emphasis in light of the Rizzo Review to include consideration of how Navy and Capability Acquisition and Sustainment Group are meeting their obligations for whole of life sustainment of Navy capability. Defence has had no central facility to maintain a register of contracts for sustainment (or, indeed, acquisition) until January2016. 56Defence, Plan to Reform Support Ship Repair and Management Practices, [Rizzo Review] July 2011, p. 68. [Materiel Acquisition Agreement] Closure and accompanying Product Schedule Change Proposal (PdCP) to transfer the delivery of the Deployable Aircraft Maintenance Rig capability to CA12 completed and awaiting Assets Under Control (AUC) balance adjustments before paperwork can be processed for signature. The first is a Defence internal review conducted in late 2015; the second comprises work done following the First Principles Review as part of the Systems Program Office reform and consolidation project. 8. This affects financial planning, as it makes it extremely difficult to set an agreed baseline position and accurately link expenditure to outputs. for Institutions of Higher Educations (IHEs). 21In April 2015, the ANAO completed a performance audit of Materiel Sustainment Agreements (ANAO Report No.30 201415, Materiel Sustainment Agreements). 26. 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. 0000000016 00000 n
The simplified formula is: By July2011, the Rizzo Review stated that The Team recognises that Defence has a policy instruction on lifecycle costing However, it is considerably outofdate and compliance is inadequate. 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. 2.5Defence describes the accountabilities of the Group as follows: The Capability Acquisition and Sustainment Group (CASG) purchases and maintains military equipment and supplies in the quantities and to the service levels that are required by Defence and approved by Government.16. 3.17The ANAO observed marked differences in the information provided about Armys Armed Reconnaissance (Tiger) helicopter between: 3.18A comparison shows that the Quarterly Performance Report does not include information available to Defence that is critical to the readers ability to understand the gap between the expectation of capability and reality for the Tiger helicopter program (See Appendix 3). The total spend was about $350000. For example, Quarterly Performance Reports could include a section providing an update on how the issues identified in the sustainment gate reviews are being addressed over time. Smart Sustainment is examined in Chapter 4. 91Defence Annual Report 201516, Chapter 8, Web Tables 8.2 and 8.11. The objective of the audit was to assess whether Defence has a fit-for-purpose framework for the management of materiel sustainment. Cost Accounting Standards Board Notice on Principles and Other Matters to Guide Conformance of the Cost Accounting Standards (CAS) to Generally Accepted Accounting Principles (GAAP) . 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. Antiviral chemotherapy typically involves a delicate interplay between host cellular functions and viral targets of action. 139It is not clear from the report how the First Principles Review drew this conclusion. 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. SeeCost Considerations-The Cost Principlesfor additional details. 177Defence, Defence Asset Management Landscape Document, May 2012, p. 1. Defence advised that a contract variation has been applied to accommodate this additional work, bringing the total cost to $16.3million. Further, Defences Capability Acquisition and Sustainment Group, is implementing reforms that will potentially increase reliance on industry to deliver these services. In that later report the list was labelled sustainment products of interest rather than underperforming, though the items are still listed in order of concern. 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. The most substantial reform effort was Smart Sustainment under the Strategic Reform Program, associated with the 2009 Defence White Paper. This could have provided, for the first time, a systematic approach to the organisation of sustainment activities across the Systems Program Offices. High levels of unplanned maintenance will affect Sustainment Efficiency through uncontrolled cost of repairs and a probable increase in Cannibalisations. Note a:Data is current as at 24February2017. The main insights into what became of the initiative can be derived only from external consultancy reports. 3.46Treating staff as costless lessens transparency of the true cost of activity and introduces risks because of the inaccurate price signals and distorted incentive structure then facing Systems Program Office managers and the capability manager. This has occurred with the extension of DMOs earlier program of gate reviews to cover sustainment as well as acquisition.54. Its goal was to deliver projects and sustainment on time, on budget and to the required capability, safety and quality. Defences 201516 public reporting of sustainment activity included expenditure information and other descriptive material. This table lists, for each of the nine elements of Defences Capability Sustainment Program: the, Table77: Top 30 Sustainment Products by End of Financial Year Outcome, Web Table8.11 includes a list of the same Top 30 sustainment products reported on in the PBS and PAES. Defence had not developed robust capability and cost baselines for all capabilities, did not fully understand sustainment cost drivers nor whole-of-life costs for platforms. Defence notes that the audit was conducted at a strategic level, and acknowledges the opportunities for improvement identified by the ANAO. 192Defence Portfolio Additional Estimates Statements 201516, Table 77: Top 30 Sustainment Products by End of Financial Year Outcome 201516, Appendix F, pp. 210In the latter case, this is in relation to having the technical knowledge to build the future submarine. 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. 113Defence, Smart Sustainment Reform Health Check, June 2011. Figures for 201516 are based on Defence advice with one-third of Capability Acquisition and Sustainment Group staff costs allocated to acquisition and two-thirds to sustainment. The Defence Science and Technology Groups Aerospace Division had concluded that a systematic and top-down approach such as enterprise-wide asset management was particularly suitable to address the challenges of reforming sustainment management in Capability and Sustainment Group. The bulk of SPO staff consist of engineering and logistics experts who are trained to solve technical and practical problems. In January 2014, the International Standards Organisation released the ISO 55000 series of standards for asset management. 142Defence, First Principles Review, p. 36. The ANAO has recommended that Defence develop and implement an evaluation plan. 3.6SPMS was introduced, first, for Navy (MayJuly2015) following work to develop its sustainment performance framework with a standard suite of performance indicators.37 The system was being implemented in Air Force and Army from late 2015 through 2016. These are usually long life items, with little fleet replacement across years to decades and have budgets dominated by maintenance. TheCASG Cost Principlesapply to all procurements. External Maintenance Period Demand Fill Rate. 5.8The ANAO identified the following streams of workeither directly flowing from the First Principles Review or from Capability Acquisition and Sustainment Groups own list of deliverablesas having the most apparent potential to affect the management of sustainment: 5.9The First Principles Review specifies few targets or measures of performance. An output measure, which directly reflects achievement against the Materiel Availability outcome. 5.47Operating as a smart buyer is an essential function for an organisation seeking to outsource work. 117ANAO Audit Report No.41 200809, The Super Seasprite. This should be implemented immediately and individual leaders from the first line to the Deputy Secretary Capability Acquisition and Sustainment must be accountable for cost and schedule targets.61, 3.33On the question of the above recommendation about measuring productivity, Defence referred the ANAO to the Capability Acquisition and Sustainment Group Business Framework and, within it, the proposed process for the Capability Acquisition and Sustainment Group Business Review Cycle. In March2017, Defence informed the ANAO that work was underway to address this. The allowable use of funds under those awards is included in Ruth L. Kirschstein National Research Service Awards in IIB. Reflecting the First Principles Review theme of better engagement with industry, Defence has engaged a USA-based engineering company, Bechtel, to help with implementing the Reviews recommendations. Defence later recognised that gate reviews also have potential value for sustainment, especially where it allows management to become aware of maintenance problems that might otherwise remain hidden. The 2015 First Principles Review was preceded by earlier major reform initiatives, notably the Strategic Reform Program (SRP) begun in 2009. 32. Defence expects that this research will be complete in 2018. 3.64Published estimates comprise of two separate data series. 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. The 2012 Coles Report identified five root causes of problems with the sustainment of Collins Class Submarines, and made 25 recommendations.196 Based on the ANAOs analysis, the recommendations with potentially broader application across Defence sustainment are listed below. 147A summary of the findings of the first tranche of Systems Program Offices reviews is set out in Chapter 2. 5.33Defence defines performance-based contracting as an outcomes-oriented contracting method that ties a range of monetary and non-monetary consequences to the contractor based on their accomplishment of performance requirements.148. Neither of these is a reasonable assessment of the aircrafts capacity to meet the required level of capability expected by government. 209Defence, Defence and Industry Policy Statement 2007, p. 28: Defences in-house S&T organisation, DSTO, enables the ADF to be a smart buyer, user and adaptor of military technology. Similarly, a new Systems Program Office may be created for a major acquisition project. The envisaged end state is the deployment of a Program Performance Management System (PPMS), see paragraph 3.9 of this audit report), covering both acquisition and sustainment, commencing 30June2017.62. There is a risk that insights into a very substantial reform process could be lost. 5.12Bechtel had made contact with Defence in July2013 seeking an opportunity to help with reform of the DMO, presenting a paper Australian Defence OrganisationDMO Transformation Opportunities. It has the agility to refine those strategies as new information becomes available. 170This view is supported by a Defence Lessons Learned Report on the Tiger project (8 April 2015), which stated that The Commonwealth did not adequately enforce the provisions of the TLS [through-life support] Contract and if it had, then some of the dispute around sustainment performance may have been avoided. 2.13Generally, the lifecycle of Defences military assets falls into two periods: acquisition and sustainment. It seems you are using an outdated web browser not supported 5.15The contracts with Bechtel are not performance-based. 12. 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. Note a:The Collins Class submarine sustainment program has been a project of concern since November2008. Performance has been effective but unstable during the recent high demand collective training exercise series period that culminated in Exercise Hamel. Although this largely represents the absorption and re-badging of the former DMO, other subsidiary recommendations are directed at substantial restructuring and reformulating the business practices in this part of Defence. Source: K. Horn, C. Wong, E. Axelband, P. Steinberg, and I. Chang, RAND white paper, Maintaining the Armys Smart Buyer Capability in a Period of Downsizing, 1999. 4.17There is no evidence that Defence further developed a planned approach to a reform program supported by clear objectives or benchmarks, or that it provided reports annually to government on the achievements and benefits of this new approach. This high tempo period of exercises has tested the robustness of the logistics system and deficiencies have been identified. ~rEy0Eq2I;+t4NY1. The Government agreed to the recommendation. It is likely that some unquantifiable portion of claimed savings derive from the five per cent across-the-board cut among Systems Program Offices imposed by the Chief Executive Officer before the Strategic Reform Program commenced. These competencies include: specifying requirements independent of suppliers, working out where best to obtain those requirements; and knowing how to assess what they have received on behalf of the Commonwealth. Contents - Commonwealth Procurement Rules - 1 July 2022 1. 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. 159Defence, First Principles Review Implementation Committee, Outcomes, 11 February 2016. Defence planned to reallocate the $20.6billion to other areas of Defence capability and contribute to the governments 2009 Defence White Paper, Defending Australia in the Asia Pacific century: Force 2030. 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. At the time DMO developed MRS it was noted internally that DMO currently spends around 3billion dollars per year on sustainment activities and at this stage has no system that can adequately report on the effectiveness or efficiency of these activities.29 Work began in September2005 to introduce sustainment reporting capacity into MRS. 3.3Several major reports have criticised sustainment reporting over the last decade, including Mortimer (2008) and Rizzo (2011).30 Rizzo was highly critical of existing performance indicators: Each current [MSA] Product Schedule has inadequate Key Performance Indicators They only include a small subset of the contractual measures that should be placed on each party and there are no consequences associated with noncompliance. Mortimer identified five principal areas of concern. 42Defence advised the ANAO in June 2017 that no decision had been made on the scope of the Program Performance Management System, nor its roll-out plan. The value of the contracts for this work is $8.8million.
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