Chapter 2 Joint capability and procurement
2.1
The Committee is aware that current conditions are challenging for Defence
procurement. On one hand, the Australian Defence Force (ADF) is engaged in a
higher tempo of operations than has been the case for some considerable time.
On the other, significant elements of capability are due for renewal and
replacement in the near and mid-term. In addition, the Global Financial Crisis
will place pressure on all government expenditure. This Review of the
Defence Annual Report 2007-08 represents an important opportunity to reflect
on key areas of Defence procurement.
2.2
The ‘joint’ projects considered here are those areas of procurement
intended to link different arms of the services, leading to higher capability. The
High Frequency (HF) Modernisation and Airborne Surveillance for Land Operations
projects reflect this, influencing force effectiveness across the ADF by
increasing the information available to them. Increasing cooperation between
elements of the ADF makes this type of capability especially important.
HF Modernisation Project - JP 2043
Introduction
2.3
This project, JP 2043, ‘provides for the procurement of a Modernised HF
Communications System for Defence long–range communications’.[1]
The role of the system is to provide a further element of communications
capability across the ADF, supplementing the main satellite communications
system with an alternative HF network for ‘Satellite communications fitted
platforms’ and a ‘primary long–range communication capability for platforms not
Satellite communications fitted’.[2]
2.4
The initial phase of the project, completed in 2004, encompassed five
main fixed sites in: the Riverina, Townsville, Darwin, North West Cape, and a
primary Canberra site with backup facilities.[3]
2.5
The current, second, phase of the project has two components. The first is
intended to provide enhancements to the system already installed: for ‘increased
levels of automation, improved capability, enhanced security and survivability,
[and] reduced reliance on staff’.[4]
2.6
The second is to upgrade communications for selected mobile platforms
across Defence.[5] This includes Chinook and
Black Hawk helicopters, Coastal Mine Hunters, Armidale Class Patrol Boats,
Hydrographic Ships, Army Land Strategic HF communications facilities, and facilities
at RAAF No. 1 Combat Communications Squadron, and Defence Force School of
Signals Watsonia (Simpson Barracks).[6]
2.7
The project has been subject to significant delays. The ASPI 2008-09
mid-year Defence budget update quotes a delay of 57 months for this
project.[7] The Australian National
Audit Office (ANAO) Major Projects report shows higher variations for
some project milestones, including a projected 127 month variation for ‘Final
Operational Capability–Mobiles’.[8]
2.8
The ANAO Major Projects report attributes delays to ‘requirements
instability’: that Defence continued to change specifications well into the
project time-line.[9] They are also attributed
to ‘contractor delays with software development and system instability’.[10]
2.9
The ANAO Major Projects report observes that this project is:
…a complex software intensive
and high risk project involving geographically diverse sites at five major
locations across Australia. Implementation of the Fixed Network has involved
civil infrastructure development, electrical power generation and transmission,
telecommunications infrastructure extension, communications system hardware and
antenna installation. It has involved the engineering disciplines of systems
engineering, software development, system design and integration, system test
and evaluation.[11]
2.10
In addition, the ANAO Major Projects report notes specific risks
for the upgrade of mobile platforms, which is yet to be delivered:
Platform availability will be an issue for all Mobiles
upgrades. The upgrade schedules need to be coordinated with the maintenance
schedules and operational requirements of the platforms. Other risk factors
related to Mobiles upgrades include the complex task of integrating High
Frequency upgrade equipment with existing communications systems of varying
levels of maturity and sophistication, and of accommodating the new equipment
within the spaces available.[12]
Current status
2.11
Defence advised the Committee of the project’s current status. The Core
System, completed in 2004, ‘provides the fundamental heart of the overall HF
communication network’ providing the ‘ability to send HF signals out to ships
and aircraft as well as vehicles’.[13]
2.12
Defence advised the Committee that ‘the final capability’, which is ‘currently
in delay’, will:
…deliver additional functionality to the standard capability
that we have at the moment. It will provide automatic link establishment and
those sorts of facilities that will reduce the level of operator input required
to establish and maintain calls.[14]
Causes of delay
2.13
Defence told the Committee that project delays were due to a:
…process of refining the requirements and ensuring that as
they were decomposed into lower level requirements and they were understood by
Boeing that raised some issues with definition of requirements. There were some
delays as a result of that.[15]
2.14
Some delays were directly attributable to the prime contractor:
Boeing admits that it underestimated the time it would take
in terms of the amount of software that was to be developed and also the time
it would take to develop that software. They indicated that their metrics of
how long it took versus what they initially estimated were about two to two and
a half times out early in the piece.[16]
2.15
In Defence’s view, the contractor’s response to these time over-runs
compounded problems:
As a part of the program to try to catch up time, they cut
corners on their systems engineering process. The cutting of corners and then
led to rework. It takes you longer to rework stuff than it does to do it right
in the first place.[17]
2.16
As a result of these difficulties, Defence told the Committee, Boeing had
given for this final component of the project:
… a commitment date to deliver final system capability by
December 2009. Currently their schedule indicates that final systems acceptance
would be March 2011 with contract completion around May 2012.[18]
Responses to delay
2.17
In the face of these problems, Defence told the Committee that it had
recourse to two avenues through which to engage the contractor and restore
progress. One was ‘rebaselining’, in which client and contractor negotiated new
time-lines they considered achievable. This was seen as an alternative to
persisting with schedules no longer considered practicable.[19]
2.18
A second avenue lay in ‘adjustments to capability’, where elements of
contractual requirement were lessened or removed. Defence told the Committee
that these negotiations allowed Boeing ‘some waivers from requirements’. For ‘requirements
that are on contract’ but not provided, Defence would otherwise have sought compensation.[20]
2.19
Defence told the Committee that it was most likely to provide waivers to
the contractor for the elements of capability which now proved to be
unnecessary:
Some of the requirements when they were initially specified
where required and highly desirable. They are no longer as essential as what
was originally thought because there are other systems being introduced that
provide that capability in a better way. For example, email over HF was a
requirement, but it is no longer a key requirement for the ADF.[21]
2.20
Defence told the Committee that these were effective ways to re-start
stalled procurement projects, and that the HF Modernisation Project was in
better shape due to these measures having been taken.
Lessons learned
2.21
Defence told the Committee that the HF Modernisation Project was an example
of how Defence procurement was done prior to the 2003 Defence Procurement
Review, known as the ‘Kinnaird report’.[22]
2.22
In Defence’s view, the fortunes of JP 2043—a project started well before
the implementation of the Kinnaird report’s recommendations—show why change in
procurement was necessary. They also show the usefulness of subsequent reforms:
in particular the move to assign greater resources to earlier stages of
projects so that their practicability can be more thoroughly tested:
… while this was going on of course Malcolm Kinnaird was
doing his pivotal Kinnaird study. It really has reinforced the things that
Kinnaird identified. That is, before you go to government on the eve of a
contract you should truly understand what the specifications are and how you
should express them, truly engage much more deeply with industry and, as he
said, pay for it between the first and second parts to get the quality of
information you need. I think we are much wiser now about finding out what are
the drivers of cost schedule and capability in that first and second part. When
we enter into a contract we have a much better understanding of those and
therefore a contract has sufficient provision for cost schedule and capability
risks. I think that is the big lesson.[23]
2.23
Defence also told the Committee that post-Kinnaird reforms gave Defence
a greater flexibility to alter project deliverables, along the lines described
above, where it proved necessary:
This is a good example of as time goes by, where it is
sensible and pragmatic to do so, we should shift the goal posts … [f]or
example, if we do not need to pursue that anymore because there are other means
of delivering capability we would be wasting money, effort and time if we
persisted. Similarly, as we said before, where threats change it is very
appropriate that we shift the goal posts before we sign a contract. That is
what the Kinnaird process allows us to do.[24]
2.24
Further, Defence told the Committee that hardware procurement was just
one part of the capability equation. Post-Kinnaird, Defence was in a better
position to respond to eventualities over the life of contracts:
Where we do need to change the capability, we go through the
process to say how will we fulfil capability requirement? Sometimes it is done
by altering our tactics and procedures to deal with a shortfall. Where perhaps
we buy a thing that does not go as fast or as far we change our tactics and
procedures. The combination of all of the fundamental inputs to capability, as
we call them, which includes the training we give people, the quality of our
people, the way we fight the battle, that gives the whole capability. The
hardware is just one part of it. It is an important part, but just one part.[25]
2.25
Defence told the Committee, JP 2043 demonstrated: that there had been a need
for change; that change had occurred; and that it had been effective. Although
this project continued to suffer problems as a legacy of earlier procurement
practices, the adoption of Kinnaird reforms made similar problems less likely
in the future.[26]
Committee comment
2.26
The Committee takes a keen interest in the ability of Defence to meet
time‑lines and complete this project.
2.27
Defence will still need to demonstrate that the post-Kinnaird reforms
are sufficient and have been well-implemented delivering projects on time, on
budget, and with required levels of capability.
Airborne Surveillance for Land Operations - JP 129
Introduction
2.28
This project is to acquire an Unmanned Aerial Vehicle (UAV) capability
for the ADF.
2.29
Current military UAVs are most often fixed-wing pilot-less aircraft used
for Intelligence, Surveillance, and Reconnaissance (ISR) tasks, although some
are rotary aircraft,[27] and increasingly UAVs
are being used as weapons platforms.[28] UAVs vary in size and
mission, ranging from small battle-field UAVs that carry a payload of less than
1 Kg to long-range, high altitude reconnaissance craft.[29]
2.30
Interest in and use of UAVs has increased as a result of ‘asymmetric’
campaigns currently underway. Israel has used UAVs extensively in recent
campaigns in Gaza,[30] and the US employs a
considerable number its current campaigns: in 2006 it was using 1500 UAVs in
Iraq alone.[31]
2.31
Australian Defence personnel currently operate leased ScanEagle UAVs in
Afghanistan as part of Operation Slipper.[32] They also operate Skylark
UAVs.[33]
2.32
The ADF had planned to acquire other UAVs under project JP 129 - Airborne
Surveillance for Land Operations, signed with Boeing in 2006 and based on an
Israeli aircraft, but this was cancelled in late 2008.[34]
Another UAV project (Australia’s involvement in the US Broad Areas Maritime
Surveillance, or ‘BAMS’ program) which entailed acquisition of the Global
Hawk, was until recently being considered by the ADF, but was cancelled early
this year.[35] Currently, Defence is
considering ‘alternative capabilities’ for future UAV acquisitions.[36]
2.33
As for a number of Defence acquisitions projects, plans to acquire UAVs
are integral to aspirations to enhance capacity for Network Centric Warfare
(NCW). The ‘technical difficulties’ cited by the Defence Material Organisation
(DMO) as the cause of the cancellation of JP 129 reflect the challenges
experienced in other projects pertinent to NCW. Such projects entail
considerable levels of software development and system integration, both of
which increase risk for project outcomes.
Current Status
2.34
Defence informed the Committee about current operations in which the ADF
was employing leased UAVs, and progress on the procurement of a UAV capability
on behalf of the ADF itself.
2.35
In relation to current operations in Afghanistan, Defence told the
Committee that:
The UAV is applying a very important role at the moment and
we are operating with and using and accessing some ally resources in the UAV.
They provide intelligence surveillance and reconnaissance in the battlefield.[37]
2.36
In relation to procurement and contractual matters for UAV capability
for the ADF, Defence told the Committee that:
The reason for contract termination really had to do with
lack of performance on the part of the contractor and the subcontractor. We
have not terminated the project; we have just terminated the contract. At the
moment we are attempting to restart that contract. We are looking at what our
contemporary requirements are for that project and whether there is any
adjustment needed. Fundamentally, we were reaching a point where the company,
Boeing Australia Ltd at the time, and its subcontractor IAI MALAT of Israel
were not converging to a solution and we were falling behind at a rate greater
than we were progressing.[38]
2.37
Defence assured the Committee:
…we are taking a very pragmatic approach to our requirements
now, having learned a lot through that first contract. We have agreed the
requirements now and are working closely with the DMO to be able to get a
request to tender out to the industry again, to start the process. I might say
that we are working at an accelerated process so that we can get quickly back
into contract with the appropriate solution and getting into service.[39]
2.38
This represented progress on previous procurement projects where
contractors had failed to perform to Defence’s requirements. Defence also
assured the Committee that:
In the meantime we have UAVs in service but on lease and those
that we own in the field and so there is no loss of capability, if you like,
for current operations.[40]
2.39
In effect, Defence told the Committee, management of JP 129 was a
confirmation of the principles of the post-Kinnaird procurement process, which
provides greater flexibility for Defence to respond when procurement projects
are not running to plan:
Government has given a second pass for a particular solution
at a particular cost. That solution was not successful, so we will have to come
back to government with a new solution and a new cost to get them to give us a
new second pass approval, if you like, then go on to contract for a new UAV. [41]
2.40
Defence suggested to the Committee that the way that JP 129 had
progressed was a sign of Defence ‘having learned lessons’ on procurement. Defence’s
present approach to procurement involves ‘doing internal reviews to make sure
programs are keeping track’. In this case, such reviews
… highlighted that there were difficulties early. In fact,
when we looked deeply they would not have been overcome. So, instead of
inheriting a program that may be around three, four or five years and then find
we had troubles and leave the ADF short of capability, our new processes
actually found that there were difficulties. We took proactive action with
capability development, the Chief of Army, terminated the contract early and
are now moving outside. I think we would like to use that to highlight the fact
that we are learning lessons and we are addressing programs’ difficulties
early.[42]
Committee comment
2.41
In the Committee’s view it is encouraging to hear that Defence have been
able to terminate relationships with contractors where there is a lack of
performance. The Committee is mindful of other projects, and other times, when earlier
decisions such as this would have been desirable.
2.42
However, the Committee is also concerned about the effects on the ADF of
an absence of capability. In view of the steep rise in the use of UAVs by
coalition partners in theatres in which the ADF now operates, notably
Afghanistan, this could amount to a significant shortfall in capability. Whilst
noting the leasing and other arrangements in place the Committee is concerned
that delays in the program could have the effect of increasing risk to
Australian military personnel.
2.43
In the Committee’s view, there is a balance to be achieved between
Defence as a critical consumer and its ability to field appropriate capability.
The history of JP 129 reflects Defence’s increasing ability to respond where
contracts are not progressing according to plan. It also exemplifies the
challenges Defence faces in getting the right equipment to Australia’s armed
forces, on time.
2.44
In the Committee’s view, the question of whether the adoption of the
Kinnaird process for JP129 has been beneficial for national security is yet to
be answered. The success of the project hinges, as for all other procurement
projects, on the ability to deliver the materiel with full capability, on time
and within budget. There is some further effort needed before Defence and major
contractors can say they do this reliably.
Conclusion
2.45
A factor increasing risk in procurement is the increasing complexity of
military equipment overall. This is part of the developing Defence landscape,
which no single country can influence in any other direction. The inevitable
imperative is to seek to adopt military technologies at a commensurate level of
sophistication, in order to provide superior military capabilities, deterrents
and war-fighting ability.