The experience to date with the Strategic Reform Program has demonstrated that reform in Defence is necessary, achievable and sustainable.
During a press conference on 6 May 2011, the Minister for Defence, Stephen Smith, along with Minister for Materiel, Jason Clare, announced further Strategic Reform Program (SRP) initiatives. These include:
- savings to be achieved by reducing Defence’s civilian workforce by 1000 positions
- continued reforms to shared services ‘to realise workforce reductions in corporate overhead functions in a way that does not reduce standards of service in support of operations or capability development’, and
- project management accountability reforms.
Civilian employment reform and efficiency measures
Under the Workforce and Shared Services Reform Stream of the SRP, Defence recognised that the predicted net increase of 1655 civilian personnel from 2010–11 to 2013–14 could sustain a reduction of 1000 positions ‘over the next three years’. As such, this measure was introduced by Minister Smith at the press conference on 6 May and includes the application of the temporary increase in the public service efficiency dividend of 1.5 per cent, from which Defence is not exempt.
Usually the savings achieved via the SRP are reinvested in Defence for the acquisition of new capabilities under the Defence White Paper, Defending Australia in the Asia Pacific century: Force 2030. However, in this instance Minister Smith has directed that the estimated $300 million saved over the next three to four years through the reform of civilian employment will be included in Defence’s contribution to Government surplus measures.
The Capability Development Group, Joint Operations Command and the Royal Australian Navy are exempt from the application of this measure as they are deemed priority areas in support of operations.
Shared services reform
The Budget does not offer much in the way of detail about Defence’s shared services reform other than Minister Smith’s statement that it is an ‘externally-led reform’ involving the ‘rationalisation of shared services’ towards realising further ‘workforce reductions in corporate overhead functions...’.
The Defence Strategic Reform Advisory Board, chaired by Mr George Pappas, continues to oversee the SRP, including this reform, and also provides advice to Government. Planning for this reform is expected to be completed by late July, with implementation to commence in August 2011.
The increased efficiencies under this reform are expected to achieve savings of over $1.1 billion throughout the forward estimates. More specific details about how these expected savings will be achieved remains ambiguous at this time.
Accountability and procurement reforms
According to the Minister for Defence’s budget media release, to date, Defence has not fully implemented some of the accepted key recommendations following the 2008 Defence procurement and sustainment review (the Mortimer Review) and will fast-track all residual recommendations as a priority. This will involve:
- the provision of greater guidance to Defence, via acquisition project directives, on the Government’s intentions
- ‘benchmarking all acquisition proposals against off-the-shelf options where available’
- the formation of an independent Project Performance Office (PPO) to monitor project progression
- a requirement for Capability Managers to regularly report to Government on the status of capability development, and
- a more stringent process for changing the scope of a project.
The Government indicated that it will request the Auditor-General to undertake an audit of the Mortimer implementations during the second half of 2011.
The Government has also flagged further reforms that are aimed at ‘improving project management and minimising risk at project start and identifying problems early’. These reforms will see:
- an expansion of the two-pass approval system to include ‘minor capital projects valued between $8 million and $20 million’
- the establishment of an Early Indicators and Warning system that will trigger a report to the Minister for Defence and the Minister for Materiel, prompting an internal review and possibly further action if necessary
- expanded Gate Reviews, which will assess projects and provide recommendations. The expansion incorporates ‘all major projects in DMO [Defence Materiel Organisation] and... other parts of Defence including the Chief Information Officer’s Group and the Defence Support Group’ and in cases where the Early Indicator and Warning system prompts a diagnostic review, and
- the establishment of Quarterly Accountability Reports, which will generate reports every three months to the Minister for Defence, Minister for Materiel, Secretary of Defence and the Chief of the Defence Force. Reporting on ‘designated key projects’ will commence on 1 July 2011, with the Government expecting to start receiving such reports from October 2011.
Further announcements concerning reforms to accountability and governance processes and maintenance of naval ships are expected following the release of the Government’s response to the Rufus Black (Defence Accountability Framework) and Paul Rizzo (Amphibious Sustainment) Reviews.
Measure of the SRP’s achievements?
According to the Defence Annual Report 2009–10, under the SRP, Defence ‘delivered the $797m in cost reductions programmed for 2009–10 while maintaining capability and delivering agreed outcomes’.
The Defence Portfolio budget statements 2011–12 simply note that ‘Defence has successfully delivered the scheduled cost reductions and reforms without any adverse impact on capability or safety’. DMO reports that the Smart Sustainment initiative, which is aligned with SRP savings targets, lists average yearly savings targets of approximately $520.6 million for the forward estimates ‘building to $777.0m in 2018–19’.
During a hearing of the Joint Standing Committee on Foreign Affairs, Defence and Trade Defence Subcommittee in March 2011 on the Review of the Defence Annual Report 2009–10, Defence Secretary, Dr Ian Watt, commented in relation to the SRP:
It is early days. This is a decade-long campaign. We are one and two-third years into it. We achieved our cost reduction targets last year. Looking on the basis of everything so far, we are certainly well on the way to achieving them this year and we expect to do that. The targets get harder to achieve. We are looking to make cost reductions of about $1 billion next year. I think in two years time it rises to nearly $2 billion, so the ski ramp comes up. The most important thing is that we have sign-on at senior levels. It is very true that major reform exercises do not tend to fail on the shop floor, they fail firstly around the boardroom table. (emphasis added)
Since the SRP was first introduced in the 2009 Defence Budget, Defence appears hesitant to disclose any quantitative figures about the level of savings achieved under this initiative. As Mark Thomson pointed out in Cost of Defence 2010–11:
If the SRP really is ‘a major public sector reform initiative’ as the Minister has said, why not open it up to public scrutiny?... It is a matter of public and parliamentary interest to see whether the savings are being delivered and, perhaps more importantly, what the impact on capability is.
Until Defence takes seriously its need to provide taxpayers and parliament with clear explanations of how savings are being achieved, the SRP will remain a mystery.