Chapter 4
Strategic analysis and needs
4.1
This chapter and the chapters to follow discuss the respective Defence
reviews namely the Kinnaird Review, Mortimer Review and Pappas Report. All
chapters consider the extent to which the recommendations of the reviews have
been implemented by Defence and its agencies whilst noting where the evidence suggests
issues remain or challenges have emerged. Concerns raised in evidence in
relation to aspects of the capability development process and areas which
require further clarification and discussion are also noted for future
committee consideration.
4.2
This and the following chapter detail the main findings of the reviews
and their recommendations in relation to the first phase of the capability life
cycle concerning strategy, and needs analysis and requirements.
Overview of the strategic analysis and needs stage
4.3
The needs and requirements phase in the capability development life
cycle is recognised by most reviews as critical to the lifecycle of a project.
This is because the phase entails the articulation and translation of strategic
priorities and the identification of current and future capability gaps. During
this phase, costs, capability and risks need to be considered and balanced as
capability options are translated into costed, defined solutions.
4.4
The Defence Capability Development Handbook (DCDH) describes the
outcome of the needs stage as the:
...identification of high level capability and cost
requirements for individual projects, and a Government approved DCP outlining
planned capability acquisition over the next 10 years.[1]
4.5
Key issues identified in relation to strategy and needs by the
respective Defence reviews include improving communication between Defence and
government on capability and strategy, accurate costing and schedule estimates
of projects including whole-of-life costs on entry to the DCP and early
engagement with industry.
4.6
The Kinnaird Review (2003) established that poor project definition,
analysis and planning before tenders had been sought from industry contributed
to failures such as cost over-runs, schedule delays, and reduced capability of
the delivered platforms and systems.[2]
The Mortimer Review (2009) highlighted that as capability systems remain in
service for 20 or 30 years, it is critical that new systems or upgrades are
'initiated on the basis of a long-term defence strategy' which demands 'high
quality strategic and capability advice to Government'.[3]
Relating strategy to capability
Process
4.7
In considering the priorities for the development of the ADF and its
resources, the government must relate its strategic priorities for the defence
and security of the country with the development of Defence capability.
4.8
Both Kinnaird and Mortimer made a number of recommendations to Defence
directed at strengthening the information provided to government to enable it
to 'assess the consequences of strategic decisions in terms of required defence
capability within the context of its overall budget'.[4]
A classified Defence Planning Guidance was introduced in response to these
recommendations to provide government-endorsed direction on strategy, force
structure and investment priorities on an annual basis.
Priority setting
4.9
The key cyclical planning documents that provide the foundation for
Defence capabilities and serve as overarching guidance on capability include:
1. Force
Structure Review (FSR)
4.10
This classified document considers defence capabilities broadly across
Defence as well as specifically in areas such as submarine capability over a
five-year period.[5]
Its findings inform the Defence White Paper and in turn, the Defence Capability
Plan.
2. Defence
White Paper (DWP)
4.11
The Defence White Paper is a key strategic document that presents the
government's long-term strategic forecast and commitments for Defence including
for its future capability. Mr Neil Orme, acting Deputy Secretary, Strategy described
it as 'the capstone guidance paper' for Defence.[6]
This important public policy document also 'apportions Defence funding and
workforce resources to achieve strategic interests and goals in accordance with
priorities'.[7]
According to Defence, together with other guidance provided by government, the
White Paper informs:
...the development of more detailed planning, capability,
workforce, preparedness and financial guidance. This guidance, alongside
classified documentation, sets the parameters for the Annual Defence budget.[8]
4.12
Defence argues that White Papers provide 'public transparency and
accountability for Defence policy and plans'.[9]
The 2009 DWP outlines the strategic priorities to 2030 including deterring and
defeating armed attacks on Australia, contributing to stability in the South
Pacific and East Timor and contributing to military contingencies in the
Asia-Pacific region and the rest of the world.[10]
The DWP provides a 'broad picture' of what major capability investment is
required for the development of Force 2030 over a five-year cycle.[11]
The capability investments laid out in the DWP are then translated into a
Defence Capability Plan of solutions to meet requirements in the DWP.
3. Defence
Planning Guidance (DPG)
4.13
The Defence Planning Guidance provides an opportunity for Defence to
deal with threats and opportunities as they arise within the DWP five-year
cycle.[12]
This classified document is Defence's lead strategy document as it articulates
the strategic priorities that guide Defence to produce the military outcomes
sought by government.[13]
4. Defence
Capability Plan (DCP)
4.14
The DCP is a costed, rolling ten-year program of unapproved major
capital equipment projects identified to meet the requirements of the DWP.
4.15
In consultation with other Defence Services and Groups, CDG prepare the
DCP which is then approved by the NSC. The DCDH states that the Defence
Investment Committee endorses capability proposals and recommends any changes
to the DCP before it is provided to government. It makes clear:
Defence capability committees may endorse proposed changes to
the DCP, but they are not given effect until they are approved by the
government.[14]
4.16
Once approved by government, a project in the DCP will be developed as
part of the first and second pass government approval process in the
requirements phase.
Structure
4.17
Kinnaird and Mortimer made recommendations regarding the provision of
information to enable government to match strategic priorities with defence
capability. In response to these recommendations, the Strategic Policy Division
within Defence's Strategic Executive was made responsible for leading the
strategic process with the support of CDG and other Defence elements.[15]
4.18
The Strategic Executive is responsible for developing and articulating
the strategic guidance and military priorities that form the starting point of
the needs analysis.[16]
The five-yearly FSR and five-yearly DWP are key elements to this guidance.[17]
The Strategy Executive will then translate the broad guidance of the DWP into
an annual Defence Planning Guidance to provide a more refined assessment of
needs and Quarterly Strategic Review.[18]
In addition, the Strategic Executive is responsible for ensuring that the
development, acquisition and evaluation of capabilities align with Defence's
strategic priorities as articulated in the CDF's planning directives,
Australian capability context scenarios, ad hoc strategic papers and the future
joint operating concept.[19]
4.19
The strategic guidance developed by the Strategic Executive will inform
the development of Force Structure Options which are then fed into the
development of the DCP which 'articulates projects that give effect to
delivering those capability outcomes'.[20]
4.20
In terms of establishing whether capabilities for later inclusion in the
DWP are feasible, the Strategy Executive will commission environmental scans
and analysis. At the same time, intelligence assessments inform the development
of policy guidance which in turn, help to shape more detailed plans to meet the
government's security objectives which will then be developed into formal
government guidance as a DWP.[21]
4.21
Once capability needs are identified in the DWP and Defence Planning
Guidance, CDG will then take over and lead the development of the DCP which
outlines a ten-year program for new major capital equipment investment. Thereafter,
as CDG has representation on the internal Defence committees responsible for
reviewing proposals prior to first and second pass, the Strategy Executive will
consider each project that comes through the Defence committee system in terms
of strategic guidance.[22]
People
4.22
The Strategy Executive is headed by the Deputy Secretary Strategy. The
Strategy Policy Division, responsible for the strategic guidance, comprises
approximately 80 people of whom 'a couple of dozen or so would be involved in
the strategic planning business' including the Force Structure Development
Cell.[23]
4.23
In terms of the skills and expertise of the Strategy Executive, the
committee was not able to establish the level of expertise in this group and
its ability to draw on and process information to inform strategic guidance.
Moreover, the extent to which the Strategy Executive draws on and utilises
personnel from CDG, DMO and the Services to inform its work was not clear.
Unanswered questions
4.24
The committee held two days of hearings with Defence agencies to discuss
and clarify each stage of the capability development and acquisition process,
the responsibilities of those involved in the process and the division of
responsibility and accountability between them. However, the questions that
remain for the committee go to heart of the capability identification process
from inception.
4.25
There is a strong claim made by Defence and government that there is a clear
linkage between strategic guidance and capability, otherwise defined as the
ability to 'achieve an operational effect'. In fact, witnesses highlighted that
Defence drives much of the White Paper development which it then in turn quotes
as the strategic guidance that gives it leave to develop and propose a
capability case to government. Witnesses also discussed the propensity of
government to delay funding for projects in the DCP and the impact this is
having on industry. However, there is now a disconnect emerging between
government expectations of Defence (stemming from NSC guidance as to the
desired ability to achieve 'an operational effect' and the capability Defence
actually operates. That is, capability in the procurement cycle, capability
held captive in an unfunded DCP, and capability cases drawn from the White
Paper that have yet achieved first or second pass approval from government.
4.26
Reviews of defence and procurement in the United States and United
Kingdom have highlighted the importance of a transparent audit trail between
government expectations and Defence capability management. Despite the claims,
the committee is interested to establish how robust this linkage is in the
Australian context. The committee intends to investigate the degree of
alignment between the NSC guidance as to the ability it expects Defence to have
in order to 'achieve an operational effect'. These matters will be raised in
light of the budget which is eventually allocated in any given planning period
and the agreed measures (if in fact any exist) by which both Defence and
government can evaluate performance.
4.27
The committee understands that the Deputy Secretary Strategy drafts the
DWP whilst the Strategy Executive is also responsible for informing the DWP. What
is not clear to the committee, however, is the extent to which industry and
other stakeholders are consulted as part of the DWP development process. A key
example in point pursued by the committee is that of SEA 1180, the multirole
vessels described in the DWP as an 'offshore combatant vessel', otherwise
referred to as the patrol boat, mine-hunter, coastal and hydrographic ship
replacement project.[24]
SEA 1180 entered the DCP in 2009. Whilst the committee was informed by Defence
that industry was engaged in the project through the Rapid Prototyping
Development and Evaluation Team, other submitters questioned the timing of
industry engagement and argued that the project's inclusion in the DWP
demonstrates 'the risk of planning in an information vacuum'.[25]
Funding in the White Paper
4.28
The 2009 White Paper contained a financial plan with the following
central features:
- 3 per cent real growth in the Defence budget to 2017–18;
- 2.2 per cent real growth in the Defence budget from 2018–19 to
2030;
- 2.5 per cent fixed indexation in the Defence budget from 2009–10
to 2030.[26]
4.29
A former Chief of the Defence Force, Admiral Chris Barrie, stated that
the White Paper could be seriously criticised because of its lack of detail on
funding. In this regard he noted that the White Paper only deals with funding
in 1½ pages 'in broad brush statements of average percentage growth to the
budget, and imperatives about savings (or cost reductions) intended to balance
the books'.[27]
4.30
Dr Thomson noted that the 'analysis of the underlying trend in the cost
of delivering military capability shows that real funding growth of around 2.7%
per year is needed to maintain a modern defence force. Consistent with this,
the trend in Australian defence funding over the past sixty years has been 2.7%
real growth'. In his assessment, 2.2 per cent real growth post 2018–19 'will
force a contraction of either the scale and range (or both) of capabilities in
the defence force.' Furthermore, he was concerned about the 2.5 per cent fixed
indexation. He argued that the adoption of a fixed index subverts the goal of
maintaining the buying power of defence budget against changing circumstances.
In his view it would make 'more sense to index the budget to the consumer price
index, that way defence funding would be protected against an extended period
of higher than average inflation'.[28]
Procurement targets
4.31
A number of submissions were also concerned about achieving the
procurement targets set in the White Paper. They cited the Defence Incoming
Government Brief 'Red Book' released by the government on 28 October 2010,
which revealed that the two-pass process had stalled.[29]
It was clear to Dr Andrew Davies and Dr Thomson that projects were falling
behind schedule as early as May 2010. Since then, the situation has
deteriorated further. They identified several contributing factors:
- The government has deferred substantial defence funding to beyond
2012–13, presumably to hasten a return to surplus for the Commonwealth.
- Some projects have been displaced by the bringing forward of
projects to ensure force protection for Australian troops in Afghanistan.
-
Bureaucratic delays in Defence have caused the approval of
projects to proceed much more slowly than anticipated, especially in the case
of first-pass approvals.
-
Industry has failed to deliver capability to the contracted
schedule across a large number of projects.[30]
4.32
In their view:
Given the mounting delays, it looks increasingly unlikely
that the program of modernisation can be achieved on schedule. To make matters
worse, the deferral of funds to beyond 2012-13 has created a five year period
where spending will need to grow in real terms by 6% a year to regain the
promised ‘3% real growth over the decade’. On past experience, this is unlikely
to be feasible especially in light of capacity limitations at almost every step
of the process, from initial approval to industry delivery.
Moreover, the level of funding promised (5.5% nominal growth
to 2017–18 and 4.7% nominal growth thereafter) is unlikely to adequately
maintain let alone expand the force as planned. [31]
4.33
More recently in his Defence Budget Brief, Dr Thomson stated that Defence
'can change the goalposts all they want, but the fact remains that
implementation of Force 2030 has fallen steadily behind schedule over
the past two years'. He noted that over the past 24 months, only ten projects
had been approved, 'whereas more than three times that number was planned. And
it is set to get worse'.[32]
He suggested that 'the unambiguous lesson of the past decade was that while
planning for new capability is easy, delivering it can be very difficult'.[33]
Dr Thomson informed the committee that his statistical analysis showed:
...the plans that existed in May this year [2011] for approving
projects first pass and second pass were clearly and manifestly unrealistic.
They were beyond credibility. The rate at which projects have been approved
since the introduction of the two-pass process has been very much smaller than
what is an enormous bow wave of future approvals that are planned.[34]
4.34
Air Marshal Harvey acknowledged that Defence faces challenges regarding
delays in procurement activities post project approval but was addressing them
'on a case-by-case basis at an organisational level'.[35]
He was of the view that:
...when we report at the end of this financial year you will
see a number well above the average over the last few years. So far this year
we have had nine approvals, one first pass and seven second passes, in the
three-month period, which is already a good positive trend.[36]
4.35
When questioned about funding and the slow down in approvals, Air
Marshal Harvey indicated that 'quite a ramp-up of funds' would be 'available in
the not-too-distant future, so we are making sure we get the project approval
rate up to match that funding'.[37]
4.36
The committee is yet to be convinced about Defence's assurances
regarding the approval rate and funding.
4.37
Furthermore, the committee had a series of questions pertaining to
contestability and scrutiny of the DWP and FSR which remain largely unanswered.
The committee would like, therefore, to establish:
- how particular capabilities enter the DWP and of those
responsible for such decisions;
- how proposals for entry into the DWP are contested and by whom;
- the extent to which assumptions underpinning capability
priorities identified in the DWP and FSR are subjected to independent and
rigorous scrutiny and analysis;
- whether risk assessments are undertaken by the Strategy Executive
in relation to particular capabilities before they are identified in the DWP;
- the extent to which the Strategy Executive engages with industry
if at all during this early stage;
-
the level of expertise within the Strategy Executive and its
ability to digest information from across Defence and beyond into strategic
guidance; and
-
the weight that should be given to the funding arrangements and
extent to which they shape or even bind future allocations to projects and how
robust this process is.
Defence Capability Plan
Process
4.38
Identification of capability needs leads to the development of the DCP
which outlines a 10-year program of new major capital equipment investment. In
this regard, a revised DCP completes a five-yearly Force Structure Review and Defence
White Paper package.
4.39
Projects for entry to the DCP are prepared by CDG on behalf of Defence
for approval by the NSC.[38]
The government will endorse the need to address the identified gap as a
capability project by including the project and an indicative budget provision
in the DCP.[39]
4.40
In order to develop the projects for inclusion in the DCP and provide the
rigour and discipline which Kinnaird and Mortimer identified as lacking, the
following documents are developed:[40]
1. Initial
Capability Definition Statement (ICDS) which summarises the scope, key
assumptions, risks, costs and performance criteria for the individual project
and potential impact on all elements of the Fundamental Inputs to Capability;[41]
2. Preliminary
Operational Concept Document (POCD) developed out of the ICDS which is a key
document in the Capability Definition Document (CDD) suite which is progressed
through various internal Defence committees before submission to government at first
pass;
3. Capability
Definition Document (CDD) which comprises three documents including the POCD
detailed above and:
a. Test
Concept Document which is developed by the Defence Science and Technology
Organisation (DSTO);[42]
and
b. Function
and Performance Specifications developed by CDG.
Understanding risks and estimating
costs
4.41
The Kinnaird Review found that there had been an inadequate
understanding of technology risks and whole-of-life costs and too great a focus
on presenting specific platform solutions to government 'in advance of a more
complex understanding of a joint approach to overcoming the identified
capability gap'.[43]
In response to Kinnaird's findings, the Chief Defence Scientist who heads the
DSTO was given the responsibility for providing independent advice on technical
risk.
4.42
The Mortimer Review established that cost and schedule estimates in the
DCP had shown a 'persistent trend to significantly underestimate the cost and
time needed to deliver capability'. Mortimer emphasised the importance of applying
greater analysis to projects before entry into the DCP. He also highlighted the
need to define more clearly what a project is to 'deliver, providing an initial
judgement of the risk inherent in the project, and more accurately estimating
its cost and schedule on the basis of evidence'.[44]
Similarly, Pappas raised a number of concerns regarding cost estimates and
individual accountabilities in relation to the development of cost estimates.[45]
As part of efforts to strengthen the process, the Department of Finance and
Deregulation (Finance) was mandated to 'provide external evaluation and
verification of project proposals'.[46]
4.43
The committee acknowledges the Kinnaird Review's emphasis on the
importance of funding for analysis and project development prior to inclusion
in the DCP. Within this context, Kinnaird recommended the expenditure of up to
15 per cent of project funds prior to approval to cover independent
investigation and analysis and industry studies.[47]
Mortimer also underlined the crucial role of early analysis and project
definition while recommending that CDG be adequately resourced to develop
capability proposals and incorporate specialist advice.[48]
4.44
The DCDH refers to the importance of early engagement with industry as a
means of providing, amongst other things, an indication of whole-of-life costs,
any innovative options that might be available to address the capability gap
and insight into the marketplace to inform an acquisition strategy.[49]
The issue of early industry engagement, however, attracted considerable comment
during the inquiry. Indeed, the committee recognises that the recently
invigorated environmental working groups which serve as a means to facilitate
early informal engagement within industry are utilised in the requirements
stage prior to first-pass rather than during the needs stage. The committee
intends, therefore, to pursue the issue of early industry engagement in
relation to the drafting of the DWP and the needs stage of the capability
development process.
Over-programming in the DCP
4.45
The Pappas Report raised the practice of over-programming whereby extra
projects are included in the DCP, the total expected value of which exceeds the
total amount of funding available. Pappas recommended that only those projects
that Defence intends to deliver be included in the DCP (both pre- and
post-first pass). In addition to over-programming, Pappas suggested that
Defence should be trying to reduce the level of overplanning—'planning more
expenditure than budget in the expectation it will be offset by slippage'— in
the DCP.[50]
4.46
While he noted the tendency to overprogram and overplan, Pappas was also
concerned that the lack of prioritisation in the DCP compounded these problems.
As a result:
...Projects can be rescheduled without reference to strategic
requirements or rigorous debate about the consequences. It also means projects
that should fill the most important capability gaps could have their scope
changed, de-prioritised or not delivered at all.[51]
4.47
Pappas called for 'much greater transparency on which projects are
priorities, and when they are expected to be delivered.' Overall, he concluded
that 'the DCP should be an accurate statement of the capability Defence intends
to acquire'.[52]
4.48
The DWP and the DCP are foundation documents. They not only inform
parliament, industry and the public more generally but also reflect the
consideration, planning, analysis and decision-making around the procurement of
major capital assets. Both documents should be reliable and informative and
provide the transparency required for scrutiny.
4.49
Earlier, the committee considered the ambitious acquisition program
outlined in the DWP and raised concerns about both the funding and schedule
targets. It has now noted criticism of the DCP—over-programming, over-planning
and failure to indicate priorities. These two key documents are critically
important to industry and government should ensure that they provide accurate
and reliable signals that would encourage and enable companies to plan ahead
with confidence.
4.50
In August 2011, the minister stated that Defence would implement
improved planning to reduce over-programming in the DCP 'by better aligning
capability with resources and strengthening management focus'.[53]
He noted that while over-programming provides flexibility and serves as an 'aid
in ensuring that best use is made of available funding in the event of delays
to the development of individual projects', reducing over-programming would
improve the quality of information provided. The committee sought clarification
as to what level Defence would reduce over-programming in the DCP. Air Marshal
John Harvey informed the committee that whereas the current level of
over-programming was around five per cent, the minister would like a reduction
to zero.[54]
4.51
The committee recognises a disconnection in the information provided by
Defence regarding a reduction in over-programming. It understands that the minister
would like to see a reduction in rather than no over-programming and intends to
consider over-programming and its impact on the public DCP in a latter report.
Structure
Capability Development Group
4.52
The development of the DCP is defined as a 'whole of defence' activity
led by CDG but with 'input across the portfolio with all interested parties' to
ensure there is alignment between strategy, priorities and resources.[55]
4.53
CDG was formed in accordance with Kinnaird's recommendation for a single
point of accountability to manage the capability definition and assessment
process.[56]
In terms of overall responsibility, therefore, CDG is responsible and
accountable for the development of the DCP. Indeed, the role of CDG is to
prioritise all Defence's major procurements in line with strategic guidance and
ensure that project proposals put to government for inclusion in the DCP have
reliable capability, cost, risk and schedule estimates.[57]
4.54
Principally, CDG makes recommendations to government on the appropriate
capability that would meet government priorities with agreed workforce and
funding guidance. According to the DCDH, CDG manages four key transition
points in the capability life cycle:
- developing the capability strategy aspects of the Defence
Planning Guidance (DPG) which articulates strategic options, and capability
priorities and themes, for DCP development;
- transforming future force capability needs into capability system
needs for DCP entry;
- obtaining government approval of the DCP and associated projects;
and
- transitioning approved projects to the Capability Manager and
acquisition agency (usually DMO), following government approval.[58]
Capability Investment Resources
Division of CDG
4.55
The Capability Investment Resources Division (CIR Div) is one of three
divisions within CDG and is responsible for providing independent analysis and
to review capability proposals and their related costs. The CIR Div is divided
into two branches, the Investment Analysis Branch and the Cost Analysis Branch.
4.56
In line with the Pappas recommendations regarding independent analysis,
CDG's CIR Div provides such analysis and reviews capability proposals and
related costs, including the overall balance of investment in current and
future capabilities, major investment proposals and priorities. The division is
responsible for:
a) ensuring
that the DCP is appropriately programmed;
b) independently
reviewing capital and operating costs for all projects going to the Defence
committees; and
c) management
of Net Personnel and Operating Costs (NPOC) estimates for all DCP projects and
those approved projects (ie post-second pass) for which NPOC has not been
triggered.[59]
4.57
The Cost Analysis Branch (CAB) in the CIR Div is responsible for
developing independent cost estimates as required whilst managing the DCP and
associated NPOC.[60]
The CAB will approve a cost model (which is a standardised spreadsheet) used to
present whole-of-life cost information and capture assumptions on which the
costs are developed.[61]
The DCDH notes that the cost estimates presented at first pass for government
consideration should be based on the cost model and articulate the basis and
cost drivers for the estimates whilst determining amongst other things the 'overall
affordability of each option in terms of acquisition and NPOC'.[62]
Thereafter, at second pass, each option presented to government requires an
Acquisition Business Case which includes a cost template detailing estimates
and risks for total acquisition and whole-of-life costs including amongst other
things, Personnel and Operating Costs (POC) and NPOC.[63]
Defence Materiel Organisation
4.58
The Defence Materiel Organisation (DMO) is responsible for assisting CDG
to develop the CDD suite which defines the capability system baseline, provides
cost and schedule estimates, and incorporates the results of risk reduction
studies. It provides advice on industry's capacity to support new capabilities
across the DCP whilst meeting current commitments to extant capabilities being
either acquired or supported in-service.[64]
Defence Science and Technology
Organisation (DSTO)
4.59
Science and Technology (S&T) advice informs government on capability
development decisions. The DSTO is a principal source of that advice and
provides a range of services through the capability development stages. The
DSTO will produce a preliminary Test Concept Document for each project entering
the DCP for further development.
Capability Managers
4.60
Capability Managers will develop some of the documents that make up the
capability proposals which define the requirements of each of the Fundamental
Inputs to Capability (FIC) elements of the capability system. They identify the
requirements to generate capability including personnel and workforce
requirements, organisation, collective training, major systems, supplies,
facilities and training areas, support, and command and management. They are
also responsible for detailing the risks for each option.[65]
Engaging with and informing
industry
4.61
The need for early engagement with and the provision of adequate
information to industry in the early stages of the capability development
process was emphasised by many submitters to the inquiry as essential to both
inform the development of the DCP and enable industry to plan for the future.
4.62
In response to Mortimer's recommendations regarding the public DCP, the Defence
Capability Development Handbook (DCDH) states that the public DCP contains
details of project descriptions and scope information including the
interrelationship with other approved or unapproved projects or project phases
as well as industry opportunities for acquisition and through-life support.[66]
4.63
However, evidence before the committee suggests that the clarity of the
public DCP, which is a primary information tool for industry, has declined
making measuring progress in the initial stage of a project and ability to
align workforce capabilities with project demands extremely difficult.[67]
The committee intends to consider evidence regarding the public DCP and extent
to which it is sufficiently accurate in terms of time projections and estimated
project value to meet industry expectations and enable industry to plan
according. Conversely, the question for the committee is to what extent
industry is led to rely upon the public DCP, as well as the DWP and other
published information from Defence when making investment decisions.
4.64
Other issues for consideration include the impact of industry policy and
implementation on long term industry capacity and how this implicates
procurement decisions. In this context, key questions emerge in relation to the
Defence Industry Policy Statement 2010. Whilst this policy has committed
$445.7 million in industry support over ten years, it is not clear how much of
those funds have already been distributed. Furthermore, the committee is
interested to establish whether the policy framework is adequate and how well
it has been implemented to date. Acknowledging that the strength of the Defence
industry base has a real impact on its capacity to engage with the procurement
process at the early stages and throughout the lifecycle, the committee intends
to pursue these matters.
4.65
Many submitters also raised concerns about the state of Australia's
defence industry and its future more broadly including the consequences of
delays in capital procurement outcomes on the viability of local industry and
expertise.[68]
Others emphasised the point that maintenance of a viable defence industry is
critical to Australia's (maritime) defence.[69]
Some submitters held that Australian design, development and construction of
new equipment for the ADF should be recognised as a first order policy priority
for government.[70]
These are matters for the committee's main report.
People
4.66
CDG is responsible for both the DCP and the preparation of documentation
for submission to government at first and second pass. In the context of
considering the requirements phase in the next chapter, the committee will
consider CDG and other players responsible across the needs and requirements
phase.
Unanswered questions
4.67
The committee appreciates that the process by which the DCP is developed
has been strengthened in response to the Kinnaird, Mortimer and Pappas findings
and recommendations. However, the committee questions the extent to which the
process provides for contestability and independent verification. One of the
key areas where this should take place is in relation to industry and early
engagement with industry.
4.68
The majority of submitters to the inquiry held the view that whilst early
engagement with industry is fundamental, there are few opportunities for
two-way exchange of information and knowledge with industry in the needs stage
of the capability development process.[71]
However, the committee was unable to establish exactly how and when industry is
involved at the needs stage. Questions remains therefore as to:
- when and how industry is involved in the needs stage;
- the role and importance of the public DCP in informing industry
planning, and in relation more broadly to the question of contestability;
- the process by which projects entered into the DCP are subject to
rigorous and independent verification and analysis.
4.69
Whilst the committee appreciates that DSTO has a role in the needs
stage, the committee is interested to establish whether:
- the Capability Managers, CDG and DMO have the science and
technology expertise to fully appreciate the risk assessments undertaken by
DSTO; and
- whether the DSTO Test Concept Document is given adequate weight
in consideration of feasibility and technical risk.
Committee view
4.70
The committee recognises a number of challenges in relation to the
strategic analysis and needs stage including the strength and clarity of the
linkages between strategic guidance and capability development as identified in
the DWP. Furthermore, the committee acknowledges the concerns raised in
relation to the DWP funding and procurement targets and the key questions of
whether the DWP program will be achieved. Such matters raise concerns for the
committee regarding the reliability of the DWP and DCP as central planning
documents. The committee intends to pursue these questions and consider the
inefficiencies in the process from the earliest analysis and how they impact along
the process including in terms of changes to scope and delays. These questions
also go to the issue of risk management and the capacity of Defence to identify
and mitigate risk from the beginning of the capability process, the veracity of
the process as well as to the management feedback loops recognised as
fundamental for providing transparency in relation to a project's status.
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