The Joint Committee of Public Accounts and Audit (JCPAA) inquiry into the Defence 2016-17 Major Projects Report (MPR) was based on Australian National Audit Office (ANAO) Audit Report No. 26 (2017-18) 2016-17 Major Projects Report.
The purpose of the MPR is to report on the performance of selected major Department of Defence (Defence) equipment acquisition projects (Major Projects), since Second Pass Approval, and associated sustainment activities (where applicable), managed by Defence.
Principles underpinning the Major Projects Report
Qualified audit findings
A significant, continuing issue to the Committee in its review of the Major Projects Report was the Auditor-General’s qualified audit finding. Part of the reason for the qualified conclusion was that the ARH Tiger Helicopters (hereafter ‘Tiger’) Project Data Summary Sheets do not:
Accurately or completely represent the project’s maturity at 30 June 2017. This represents a departure from the Guidelines. The lifting of two of the nine caveats in July 2017 was a result of events occurring prior to 30 June 2017, and, accordingly, my conclusion has had regard to the caveats being lifted.
The Committee remains concerned that Tiger continues to be the cause of a second qualified audit finding in a row. The Committee hopes that the two remaining caveats on the project will be remediated as soon as possible, and that Defence’s anticipated changes to the Project Data Summary Sheets (further analysis below) may prevent further qualified findings.
The Committee notes Defence’s statement that the qualified finding indicated a ‘difference of opinion in relation to the guidelines’ but supports the Auditor-General’s statement that audit standards require a judgement to be made on ‘the substantive nature of an issue, not technicalities of definitions’. The Committee considers that the Statement of the Secretary of Defence in the MPR should have better addressed the qualified finding as Defence had done previously in the 2015-16 MPR.
Implementation of Committee recommendations
The Committee strongly encourages Defence to more proactively implement its recommendations, and has requested interim reports to the recommendations made in its previous MPR inquiry. Defence has met the Committee’s expectations in this area, providing adequate responses on major projects reporting in the United Kingdom, and committing to a more consistent methodology for determining the cost per flying hour of fixed wing aircraft and helicopters. However, Defence remains behind the Committee’s expectations on working to update Project Maturity Scores – the Committee recommended reform in this area several years ago, and changes remain slow and uncertain. Defence indicates that there will be progress seen in the 2018-19 Major Projects Report, and the Committee will continue to monitor developments in this area.
The Committee recommends that the Department of Defence provide a written update to the Committee outlining progress in updating Project Maturity Scores three months after tabling of this report.
Materiel Capability Delivery Performance
Materiel capability delivery performance charts remain an area of focus for the Committee. While they may match what is in the materiel acquisition agreement, the casual reader could still perceive them to indicate a project has a greater level of capability than that which is available in actuality. The Committee acknowledges the balance between transparency and national security and will maintain a watching brief in this area.
The Committee continues its monitoring of schedule slippage and notes that it remains relatively stable over the last three MPRs. Prompt remediation of the Tiger and Civil Military Air Traffic Control System (CMATS) projects should see the headline slippage total come down over the next few MPRs. Nonetheless, Defence will need to remain vigilant that other projects in the MPR do not run into similar problems as those experienced by Tiger and CMATS in the future.
Risk management and the use of spreadsheets
The Committee notes the same arguments put by both the ANAO and Defence regarding the use of spreadsheets to monitor risk. The ANAO, Defence, and the Committee are agreed in noting the data in a risk management register is the most important component, but the Committee agrees with the ANAO that a risk register requires appropriate version controls to reduce the risk of error. Defence needs to do more to address this issue, and the Committee will continue to monitor it in the next MPR.
The Committee recommends that the Department of Defence plans and reports a methodology to the Committee which shows how acquisition projects can transition from the use of spreadsheet risk registers to tools with better version control measures.
The Committee welcomes internal Defence discussions on how the organisation handles risk, and how it is identified, communicated and discussed as a group. Large projects carry inherent risks, and Defence will need to continue to drive change in this area – a large organisation should not be afraid to communicate frankly about risk, and the Committee hopes to see evidence in the next MPR that Defence’s work in this area has achieved real change.
Projects of Concern and Projects of Interest
The Committee was interested to learn about the development of Projects of Interest in Defence’s internal quarterly performance reporting regime, and welcomes this initiative. Greater internal scrutiny of projects which may be at risk early in the process will ideally mean that less of them move onto the Projects of Concern list, which then means a project requires direct Ministerial involvement.
Project team costs and liquidated damages
In an answer to a question on notice, Defence advised that the total revenue obtained from liquidated damages had reduced year on year from 2012-13.
Table 2.1: Liquidated Damages
Revenue – Liquidated Damages
Source: Department of Defence, Submission 1.2, p. 2.
ARH Tiger Helicopters
The Committee remains concerned about the status and costs of this project. While it is encouraging that the two remaining caveats are hoped to be resolved within the next 18 months, it is an unfortunate reality that the project still does not meet the required rate of effort, and that it will remain on the MPR in the near future. Defence must continue to hold the relevant contractor to account through the performance-based contract to efficiently and effectively resolve these caveats.
LHD Landing Craft
The Committee noted delayed 2017 trials of the LHD Landing Craft. Defence advised that the trial program was continuing and a major exercise was planned for the second quarter of 2018.
The Committee will continue to monitor the LHD Landing Craft project until it is removed from the MPR.
The Committee recommends that, within three months of the tabling of this report, the Department of Defence report to the Committee on the outcomes of the second quarter 2018 sea trials for the LHD Landing Craft. If these trials have not yet taken place, Defence should report on why this is the case.