This chapter sets out the Joint Committee and Public Accounts and Audit’s (JCPAA) inquiry into Defence First Principles Review Auditor-General Report No. 34 (2017-18) Defence’s Implementation of the First Principles Review.
The First Principles Review (the Review) was commissioned by the Minister for Defence in August 2014. The Review was ‘designed to ensure Defence is fit for purpose and able to promptly respond to future challenges’. The Review made 76 recommendations, 75 of which the Government agreed or agreed to in-principle.
Committee conclusions and recommendations
The Auditor-General’s report found that Defence has implemented a considerable number of important recommendations of the Review and the implementation of a number of other important recommendations remained a work in progress.
Creation of a strong strategic centre
Defence has implemented many elements of the recommendations on the creation of a strong strategic centre. There are however opportunities to improve implementation of the Review’s recommendations, including by maintaining momentum, measuring efficiencies, and improving Ministerial engagement.
The Committee notes the ANAO’s conclusion that maintaining momentum until implementation is completed is a key challenge faced by Defence. The Committee therefore encourages Defence to maintain momentum to complete implementation of the recommendations from the First Principles Review.
Defence indicated that an internal review will be carried out in order to measure efficiencies gained through implementation of the Review’s recommendations; however the Committee notes the ANAO’s finding that potential savings have not yet been quantified. The Committee highlights the importance of promptly implementing an effective evaluation framework to measure efficiencies and the outcomes, not just outputs, of the review.
The Committee notes Defence has taken steps to engage more effectively with government, however there are further opportunities to improve ministerial engagement. The Review recommended that the Minister meet with the Defence Committee twice a year to consider issues regarding strategy, funding and capability. The Committee notes, however, that bi-annual meetings between the department and the Minister have not always occurred.
The Committee considers the Review’s recommendation regarding ministerial engagement has not been fully implemented and Defence should continue to improve ministerial engagement immediately.
The Committee recommends that the Department of Defence maintain momentum to implement recommendations of the First Principles Review relating to the creation of a strong strategic centre and that the department report to the Committee on progress towards full implementation, including the evaluation framework, within six months of tabling this report.
Enabling services, workforce and behaviour
The Committee considers that Defence’s capacity to reform enabling services functions would be enhanced by a coordinated, department-wide plan to address inefficiencies identified by the Review in the Service Delivery work stream.
The Committee notes the ANAO’s finding that ‘Defence is not yet able to demonstrate that the intended outcomes of the recommendations relating to enabling services, workforce and behaviour have been achieved’.
The Committee would like to see more timely implementation of the recommendations relating to enabling services, workforce and behaviour, and is concerned that Defence has not demonstrated sufficient outcomes from implementation of these recommendations.
The Committee notes the ANAO finding that Defence does not have a comprehensive plan to address the inefficiencies identified in the Review. Work to address estate reforms is ongoing and requires further effort and time, including implementing the recommendations regarding benchmarking.
The Committee notes that Defence has begun implementing workforce recommendations, however action remains to be taken in addressing workforce related issues. The Committee further notes that the recommendation of the Review relating to reducing organisational layers could be further addressed.
Defence has implemented the recommendations on behaviour, but is still to demonstrate the intended outcomes.
The Committee recommends that the Department of Defence report back to the Committee on progress in implementing the recommendations of the First Principles Review relating to enabling services, workforce and behaviour within six months of tabling this report. The Committee also recommends that Department of Defence report back to the Committee on any outcomes identified by implementation of these recommendations.
Systems Program Offices
The Committee acknowledges Defence’s achievements thus far in reforming the Systems Program Offices (SPOs).
Completion of the SPOs reform is required to realise many of the anticipated improvements in the efficient and effective delivery of military capability. The Committee notes the ANAO’s expectation that work addressing SPO reform will be ongoing until 2023.
The Committee recommends that Department of Defence report back to the Committee after six months of tabling this report with an update on the timeframes for reform of the System Program Offices.
Review of evidence
The JCPAA held one public hearing related to the Auditor-General’s report on Defence’s Implementation of the First Principles Review in Canberra on 12 September 2018. Representatives from the ANAO and the Department of Defence attended the hearing. A list of witnesses can be found in Appendix D. A list of submissions to the inquiry is provided in Appendix C.
The Committee received submissions from Defence, ANAO and the Community and Public Sector Union (CPSU).
The JCPAA inquiry into the Auditor-General’s report on Defence’s Implementation of the First Principles Review focussed on the following key issues:
The implementation of the recommendations on the creation of a strong strategic centre
The implementation of the recommendations on enabling services, workforce and behaviour
The implementation of the recommendations on the reform of Systems Programs Offices
The audit report
The objective of the audit was to assess the effectiveness of Defence’s implementation of the First Principles Review.
The Auditor-General’s report found that:
Defence has implemented a substantial number of the most important recommendations of the Review—relating to building a strong strategic centre within Defence and reforming the capability development process. The implementation of other important recommendations—including the reform and consolidation of Defence’s Systems Program Offices and enabling services—remains a work in progress. Achieving full implementation and the intended results of this agenda will require continued focus across Defence for several more years. Defence is not yet in a position to demonstrate that it has achieved all the intended outcomes of the Review.
The audit made one recommendation:
That Defence ensures that its evaluation encompasses all of the recommendations of the First Principles Review and seeks to assess whether the intended outcomes of the Review have been achieved.
The recommendation was agreed to by Defence.
Creation of a strong strategic centre
One of the key recommendations to come from the First Principles Review was that Defence establish a strong strategic centre to strengthen accountability and top-level decision making.
The Auditor-General noted that, generally, ‘the recommendations leading to changes in organisation structure and changes in responsibility have been introduced promptly’.
One of the key challenges identified by the audit was to ensure that the momentum generated by the review implementation program is maintained until the work is completed in its entirety:
The key challenges for Defence are: to ensure that the momentum gained by the program in the context of the Review does not dissipate before the full intent of the review work is carried out; and senior management remains aware of progress until the intended outcome is achieved.
Measuring efficiencies gained
In relation to demonstrating changes in effectiveness and efficiencies resulting from the implementation of the Review recommendations, the ANAO highlighted concerns that efficiencies were not being measured, stating ‘although Defence indicated to the Government that efficiency improvements would be possible, no quantifiable savings have been identified’.
Defence’s submission to the Committee discusses a management action plan to address the recommendations in the Auditor-General’s report:
The framework will monitor, measure and report on the embedding of First Principles Review reforms and the resulting benefits to Defence. The evaluation framework includes evaluation criteria, metrics and targets to assess that the intent of the Review has been achieved.
Defence further advised that an internal review will be carried out over 2018-19 and 2019-20 in order to ‘quantify the efficiencies made following the implementation phase’.
Representatives from Defence stated that while savings are not currently quantifiable, details on savings and other efficiency measures will become available as program implementation progresses. The First Assistant Secretary, Procurement and Contract, Defence, contended that:
We’ve implemented an evaluation framework … through the implementation committee, which covers all work streams under first principles. It looks at … capability, behaviours and service delivery to metrics for all work streams that measure not just money, but efficiency—time, unit, cost.
The Review recommended that the Minister meet with the Defence Committee twice a year to consider issues regarding strategy, funding and capability. The recommendation was accepted by Defence and closed in February 2017 after a regular meeting framework had been developed.
The Committee notes, however, that bi-annual meetings between the department and the Minister have not always been held. The ANAO highlighted their concern in relation to this recommendation, stating that ‘the audit report reports the fact that that hadn’t been fully implemented’.
The Acting Secretary of Defence explained:
[meetings] haven’t always been quite held at that time frame. But whether they’re held still does not mean that we are not reporting and engaging the minister on the first principles review.
…while the framework of meeting here twice a year might not have been played out exactly like that, I don’t think that that necessarily means there is not an engagement with the minister on the implementation of the first principles review.
Defence has taken the approach of boosting central agency and Ministerial engagement through avenues including committee representation and senior executive meetings. The Acting Secretary of Defence advised that Defence investment in committee representation contributes to ministerial engagement, with committee members including:
colleagues from the Department of Finance and the Department of Prime Minister and Cabinet … [however] ministerial engagement will depend on whether it’s three widgets or a frigate … there is a deep ministerial engagement through, particularly, the higher-risk really large-capability acquisitions
Enabling services, workforce and behaviour
The ANAO found that ‘Defence’s ability to improve enabling functions is limited by the lack of a coordinated, enterprise-wide plan to address the inefficiencies identified by the Review in the Service Delivery work stream’. ANAO also outlined that implementing the Strategic Workforce Plan will continue until 2021.
Corporate and military enabling services
The ANAO found that Defence
… implemented the recommendations on estate and information management by developing plans and schedules that enable progress to be resourced, monitored and reported through appropriate channels within Defence.
Defence’s implementation of the recommendations relating to service delivery has had an initial focus on improving the customer experience. Defence has implemented the organisational changes required to meet the recommendations, but has no comprehensive plan to address the inefficiencies identified in the Review and through Defence’s benchmarking. This limits Defence’s ability to maximise the effectiveness and efficiency of enabling services and meet recommendation 3.0.
The Committee acknowledges the ANAO’s finding that ‘considerable effort [has] been made to promote the importance of a strategically aligned estate and implement agreed reforms’ and that the work has proven difficult and will take ‘considerable further time and effort’. Defence provided an update on progress of the Defence Estate Strategy 2016-36 in its supplementary submission:
The Defence Estate Strategy is focused on achieving a fit-for-purpose, safe, secure, compliant and sustainable estate. Activities are progressing, including estate rationalisation, implementation of the Defence Environmental Strategy, development of the Asset Management Framework, and development of the Estate Engineering Governance and Integrity System. Progress against key activities is reported to the Enterprise Business Committee annually, with the next progress update anticipated in the first half of 2019.
The Committee further notes the ANAO’s finding that limited technology investment was found to be ‘detracting from efficiency in five enablers and a process review was recommended for four of them. Defence has not yet addressed the recommendations regarding benchmarking.’
Defence has commenced implementing workforce recommendations, but substantial action remains to be taken in addressing workforce related issues. The ANAO reported Defence has prepared a strategic plan for addressing workforce-related issues, ‘for which Defence expects most activities to be complete by 2019’.
In its submission to the Committee, the CPSU raised several concerns regarding workforce-related issues. The CPSU argued that Defence employees require additional support and discussed employees’ experience of workplace reform.
CPSU’s submission recommended that several changes be enacted to successfully implement recommendations from the Review. These include:
The need for Defence to properly define ‘contestability’
The need for Defence to properly consider what is meant by the ‘transactional level’
The need for Defence to develop principles that support positive engagement on reform, with industrial arrangements that support them.
Representatives from Defence maintained that a substantial body of work is underway to implement the recommendations relating to workforce. The Acting Secretary stated that:
As part of the first principles review there was a large piece of work done around strategic workforce planning. That strategic workforce plan is in place with a range of sub workforce plans that … understand the capabilities within the organisation and the levels they're at. We're quite attuned to requirements for which we might not have capabilities or where we need to develop them.
The ANAO reported that Defence
has implemented the recommendations on behaviour through a range of initiatives to create a more professional culture and improve performance … [but] is not yet been able to demonstrate that it has achieved the intended outcomes although evaluation of these initiatives is underway.
Defence pointed to annual surveys which measure ‘organisational climate and the quality of its leadership’, including the YourSay Organisational Climate Survey, Workplace Behaviours Survey and the broader Australian Public Service Commission State of the Service Survey. Beyond those, the department has initiated a 360-degree feedback program for all members of the Defence Senior Leadership Group. The results of these surveys and the feedback from the 360-degree process are considered by the First Principles Review Implementation Committee.
Systems Program Offices
One of the most substantial changes resulting from the Review is the program to reform Systems Program Offices (SPOs). The ANAO expects that work relating to SPOs will take until 2023 to complete and completion of SPO reform ‘will be required to realise many of the expected improvements in the efficient, effective and professional delivery of military capability’.
In Report 470: Defence Sustainment Expenditure, the JCPAA made recommendations relating to Defence’s implementation of the First Principles Review. The Committee recommended that Defence report to JCPAA on progress of the SPO review within six months.
Defence’s Government Response to the JCPAA Report stated:
The Systems Program Office reform process is expected to lead to significant efficiency and effectiveness improvements in Capability Acquisition and Sustainment Group, however, with more than 50 Offices reviewed and over 300 individual reform recommendations identified so far, this program of reform is sizable and complex.
The ANAO made the following comments regarding expected outcomes of SPO reform:
According to Defence’s consolidated ‘SPO Reform Plan’ (November 2017) success will be measured through metrics such as efficiency, effectiveness and benefits realisation. The plan contains no estimate of the financial costs or benefits of the Systems Program Office reforms. Nonetheless, in December 2017, the Implementation Committee received estimates of changes in workforce numbers, by Systems Program Office. The Committee was also advised that Defence would need to reskill up to one-third of the current Capability Acquisition and Sustainment Group workforce during implementation of the current reforms. Moreover, the net size of the Systems Program Office workforce was expected to increase to meet the workload coming through from the current Defence Integrated Investment Program.
The Acting Secretary of Defence outlined that SPO reform is ongoing:
The SPO reforms need to be considered in a point in time. It is, if you like, if you've got a capability that is coming to the end of its life that has been managed by a system program office, where contractual arrangements are already in place, it might not make sense to reform that SPO, but rather to focus on the establishment of the next phase of the system program office that supports the new capability.
Organisations can only absorb so much change, so some of the work we have moved and we are focusing on higher profile and higher yield types of reforms.