Chapter 5
Requirements stage
Overview of the requirements stage
5.1
The Defence Capability Development Handbook (DCDH) identifies two
goals of the requirements stage. Firstly, first pass approval by government to
allow further investigation and refinement of the option(s) that will 'satisfy
the identified capability need'.[1]
The other goal is that of second pass approval by government to 'acquire and
implement an agreed capability that fulfils the capability requirement
identified in the Defence Capability Plan' (DCP). The DCDH notes that this
approval will include a 'defined acquisition budget, schedule and level of
performance, and a budgeted whole-of-life cost and workforce requirement'.[2]
5.2
The Kinnaird, Mortimer and Pappas reviews identified key challenges in
relation to the requirements stage. They included: the efficiency of the
two-pass process for new acquisitions; balancing cost and risk including
identification and mitigation of technical risks; benchmarking off-the-shelf
options; accountability and responsibility for program management; skills and expertise
in capability planning; strengthening the Capability Development Group; and
understanding whole-of-life costs.
Process
DCP entry to first pass
5.3
Once a project commences (following entry into the DCP), a number of
documents are developed to inform the final Ministerial Submission (MINSUB) or
Cabinet Submission (CABSUB) provided to government for approval. The
information required by government at first pass includes a business case for
each capability option which must identify the:
- background including strategic policy and recent developments;
- rational or how the option proposed addresses the capability gap identified
by government in the DCP;
- key outcomes sought or the capability option requiring approval;
- levels and types of risk associated with the option's
implementation; and
- financial and workforce implications including expected
whole-of-life costs.[3]
5.4
In order to reach first pass, a substantial number of documents are
prepared starting with a Project Management Plan (PMP) which outlines what is
to be done, when, by whom and at what cost. It also identifies the risks and
responding mitigation strategies. Thereafter, the key information required
prior to first pass and key steps in the process to obtain it include
consideration of the scope, operational parameters, option set for a project and
how the project should be tailored to suit its needs.
5.5
Part of the pre-first pass documentation preparation process will also
include scoping studies and industry engagement to establish availability of
product in the marketplace, and provide an indication of whole-of-life costs
and innovative options that might be available. The formal pre-first pass
solicitation mechanisms include the following:
- Request for Information (RFI) used to obtain estimated cost,
capability and schedule information on a new project;
- Rapid Prototyping, Development and Evaluation (RPDE) Program
which can be tasked with investigating potential options and solutions for a
capability based on the project scope, cost and schedule parameters in the DCP;
and
- Capability and Technology Demonstrator (CTD) Program which is a
collaborative activity between CDG, DMO and DSTO to enable industry to
demonstrate how advanced technologies can enhance priority areas of Defence
capability.
5.6
In terms of establishing technical risks, DSTO develops a Technical Risk
Indicator (TRI) to determine the feasibility of the technology to provide the
capability being proposed and identify any potential areas of significant risk.
The TRI will also identify high technical risks associated with any options and
address differing risk profiles that arise with each capability option
(i.e. military-off-the-shelf, Australianised).[4]
In addition, a draft Materiel Acquisition Agreement (MAA) and Acquisition
Strategy, which identifies the preferred alternative for procuring and
implementing each capability system beyond second pass, must be developed.
5.7
Kinnaird, Mortimer and Pappas recommended that a military-off-the-shelf
(MOTS) alternative be part of any set of options put to government to ensure as
Kinnaird noted that a 'benchmark is established against which the costs,
military effects, and schedule of all proposals can be assessed'.[5]
Conversely, all reviews found that any requirements set beyond that of
off-the-shelf equipment generate what Mortimer described as 'disproportionately
large increases to the cost, schedule and risk of projects'.[6]
They would therefore need to be based on 'a rigorous cost-benefit analysis of
the additional capability sought against the cost and risk of doing so'.[7]
5.8
In light of these recommendations, the 2009 DWP states that MOTS and
commercial-off-the-shelf (COTS) solutions will be the benchmark against which a
rigorous cost benefit analysis of the military effects and schedule aspects of
all proposals will be undertaken.[8]
The DCDH reconfirms the DWP by noting that where an off-the-shelf option exits,
it will be presented to government and be the benchmark against which a
rigorous cost-benefit analysis of any additional capability is sought, taking
into account the cost and risk in doing so. The DCDH explains that when an
off-the-shelf option is 'judged not to exist', this will be explained in the
first pass submission to government.[9]
In relation to an Australianised option, the DCDH states that any option
proposing the Australianisation or modification of off-the-shelf equipment must
detail the rational and associated costs and risks. The DCDH also makes clear
that the first-time integration of a number of separate off-the-shelf systems
is no longer an off-the-shelf solution and must be considered 'developmental'.[10]
5.9
Defence noted that, as indicated in the 2009 DWP, it is seeking to drive
down the costs of ownership of military capability and that part of this drive
will include, where appropriate, 'focus on military- and
commercial-off-the-shelf equipment'.[11]
In relation to Mortimer's recommendation 2.3 concerning the provision of
cost-benefit analysis of any option that is not off-the-shelf, however, the minister
stated in May 2011 that Defence would 'accelerate implementation' of this
recommendation which is yet to be fully implemented.[12]
Second pass
5.10
Once government has approved a capability proposal at first pass, the
options agreed by government will be further refined. The key activities to
achieve second pass include the development of:
- detailed requirements definition and CDD refinement;
- solicitation documentation (RFT, Letter of Offer and Acceptance);
- industry and Foreign Military Sales (FMS) solicitation activities
including contract negotiations and offer definition activities. These include:
- Request for Proposal (RFP) used to encourage suppliers to propose
solutions to achieve a desired outcome or resolve a specific problem;
- Request for Tender (RFT) utilised to obtain offers for clearly
defined and specific requirements;
- Letter of Request (LOR) which initiates a request for the
establishment of a Foreign Military Sales (FMS) case;
-
consideration of project documents including a Capability
Proposal Second Pass (CPSP), Acquisition Business Case and commercial,
technical and workforce risk assessments by internal Defence committees and
CABSUB/MINSUB; and finally
- government approval of the CABSUB/MINSUB.[13]
Structure
Capability Development Group
5.11
CDG takes carriage of the requirements stage and is responsible for
developing options for government consideration at both first and second pass.
The Capability Systems Division (CS Div) Desk Officers within CDG manage this
process. They are responsible for leading the Integrated Project Team and
bringing together people 'from the capability manager, from DSTO, from DMO,
maybe CIOG [Chief Information Officer Group] if required, and maybe then might
hire contractors to provide some professional support as well'.[14]
In fulfilling this role, the CS Div Desk Officers develop capability options
and manage the development of the project document suite which includes the
Capability Definition Document (CDD) for each option; Workforce Plan and cost
estimates; Science and Technology Plan with DSTO; draft MAA with DMO; and the
capability proposal from which the MINSUB/CABSUB is produced for government
consideration at first and second pass.
5.12
Prior to submission at first and second pass, the CS Div Desk Officers
are responsible for ensuring that the necessary documentation is considered by
a number of internal Defence committees starting with the Options Review
Committee (ORC). Chaired by the Chief of CDG, the ORC will provide direction on
capability options that should be developed for first pass consideration.[15]
MOTS benchmarking and options
5.13
Part of the role of the CS Div Desk Officer is to ensure that a MOTS
option is provided as a benchmark against which other options can be considered
by government at first pass. However, evidence provided to the committee
suggests that whilst the 2009 DWP requires the inclusion of a MOTS option for
each project, the requirement will often translate into a hypothetical
off-the-shelf option or local construction of an off-the-shelf design.[16]
Other evidence highlighted the consequences for domestic industry of a MOTS
purchase in terms of viability and skill base with concerns raised that MOTS:
- options should only be pursued when the Australian defence
industry is unable to meet the capability requirement;[17]
- can actually increase risks and costs when sustainment and
whole-of-life costs are analysed whilst offering limited opportunities to
develop a domestic industry capability to support the ADF capability
acquisitions;[18]
- procurement should not allow the erosion of domestic capability
to design, develop and produce equipment when it is in the national interest to
retain such capabilities;[19]
and
- can either be a model for risk management or disguise risk.[20]
5.14
The Rizzo Report highlighted that the benchmark must take into account
the longer-term costs of COTS/MOTS acquisition whereby Defence loses engineering
capacity which then carries costs in terms of project and capability failure
with amphibious ships being a case in point.[21]
He also noted that long-term costs in terms of actions required to rebuild the
technical capability some years down the track should also be considered. Rizzo
further recognised that the combination of MOTS and the Commercial Support
Program (CSP) has implications for Defence personnel and technical competence
as well as domestic industry. The committee is interested to establish,
therefore, what elements of industry capability are in fact strategic
capability that should not be lost to overseas suppliers. This goes to the
question of moving elements of industry division to CDG and having this
decision made as part of first pass approval.
5.15
Other considerations in relation to MOTS include interoperability as
well as compliance with Australian regulations including health and safety
requirements. As overseas providers and governments have different risk
tolerance to that of the Australian authorities, a purely MOTS acquisition can
therefore place Defence in a position of either being non-compliant with
Australian law or having to accept additional cost and modification to make the
equipment compliant. Sometimes the non-compliance is inconsequential and yet
because so much is driven by process rather than decisions made by informed people,
significant cost and waste results from attempts to modify equipment
unnecessarily. On the other hand, sometimes the true costs of required upgrades
are not factored in because the process assumes that a US Army or Air Force
product will automatically be suitable for ADF use. It has been suggested to
the committee that the concept of an Airworthiness Board-like review of CDG
business cases will allow informed, independent corporate knowledge to be
applied to the issue early on in the development cycle.
5.16
The committee recognises that there is considerable debate around the
MOTS benchmarking requirement including the suggestion that the requirement has
turned into a preference for MOTS. The committee also acknowledges the wider
options debate and the impact of MOTS procurements on the domestic defence
industry. The committee intends to consider these debates in its main report.
Independent analysis and engagement
with industry
5.17
Kinnaird and Mortimer recommended the use of resources on early analysis
including funding industry studies and gathering the best 'commercial advice on
acquisition options'.[22]
In accordance with these recommendations, in the pre-first pass phase, the CS
Div Project Officers can draw on Project Development Funds to develop the CDD,
conduct technical and trade studies, market studies, costing studies and
analysis.[23]
5.18
Another consideration in relation to the capability development,
procurement and sustainment options is that of the capacity and sustainment of
Australia's defence industry. Mr Graham Priestnall of the Australian Industry
and Defence Network noted of industry that:
The sustainment of ADF capability, an area where many SMEs
operate, is the greatest cost to the government in acquiring and maintaining
capability, yet this draws relatively minor focus and analysis within all
ongoing reviews.[24]
5.19
Despite recommendations by Kinnaird, Mortimer and Pappas, industry
representatives argue that this remains an area that draws relatively minor
focus and analysis during the capability development lifecycle and in ongoing
reviews.[25]
Moreover, the perception is that through-life support and sustainment experts
in industry are not involved in the design phase of a developmental project.
The committee intends to consider the evidence that sustainment of industry is
not a central consideration in the context of through-life costs and capability
sustainment. Additionally, the committee is interested in establishing an
understanding of how such considerations are articulated and of the relative importance
given to them.
5.20
In relation to engagement with industry more broadly, Defence recently
reinvigorated its environmental working groups to facilitate early informal
engagement in order to establish what is available on the market and gather
ideas from industry. These forums provide an opportunity for Defence and
industry to discuss DCP projects during the requirements stage leading then to
formal engagement on the draft tender document. CDG will invite industry
comment on the draft tender document in order to ensure that only specifications
that can be delivered are included in the final tender document.[26]
Defence Science and Technology
Organisation
5.21
DSTO provides the technical and technology risk analyses required at
first and second pass. In light of findings and recommendations by Kinnaird,
Mortimer and Pappas regarding the need for greater consideration of such risks,
DSTO has been mandated to 'provide external evaluation and verification of
project proposals'.[27]
5.22
The Joint Decision Support Centre which is a CDG–DSTO initiative is a
forum where methodologies can be applied to assist decision makers within CDG
to look at particular concepts or options that might arise in a DCP project.
According to Dr Ian Sare, Deputy Chief Defence Scientist, DSTO provides the
staffing for the centre which is tasked by CDG CS Div Desk Officers to conduct
studies to assist them in preparing the formal documentation for government
consideration. In this regard, Dr Sare noted that the centre 'has been a very
effective way of trying to apply objective operational analysis-type
methodologies to assist decision support'.[28]
5.23
The DSTO provides detailed analyses of the technical issues in relation
to the options that might be then brought forward to government for
consideration.[29]
In relation to this process, Dr Sare informed the committee that the role of
DSTO is to provide advice and:
We will then frequently do studies and analyses to
investigate the feasibility of different options that might then deliver a
capability. We will utilise our best knowledge of what is happening in the
broader community. We have, for example, very strong international defence
science links with the US, the UK, Canada and New Zealand.[30]
5.24
As previously noted, a TRI forms part of the documentation required by
government at first pass. The TRI identifies the key systems with which the
proposed options will need to interact to deliver the required capability. It
can also note any developmental system or technology that needs to be developed
in time to meet the proposed schedule and which could potentially provide
greater capability than those options previously identified.[31]
Air Marshal Harvey further explained the TRI process:
What happens is that you have a broad study to understand the
field and what might be possible. You will talk in general terms about what the
technical risks are and that helps to inform the options review committee in
order to determine which options to pursue.[32]
5.25
Whilst the TRI provides an early indication of risk, the Technical Risk
Assessment (TRA) provides a detailed assessment of technical risks and issues
associated with each option in the capability proposal prior to first pass
consideration. A number of internal Defence review committees will consider the
DSTO risk assessments from which the Chief Defence Scientist will draft a
Technical Risk Certification for inclusion in the MINSUB/CABSUB at first pass
as appropriate.
5.26
Pappas referred to DSTO's involvement in pre-approval assessments of
major acquisition projects but was of the view that there was 'scope for more
constructive involvement'. Importantly, he noted that DSTO's involvement and
assessments are 'not always paid the respect they should be'. He went on to
say:
Scope and specification changes make the conduct of a Technical
Risk Assessment very difficult and there does not appear to be consistent
criteria that determines the degree of initial and ongoing DSTO involvement in
retiring technical risk in projects.[33]
5.27
He urged closer cooperation which would, among other things, assist
project teams to understand the 'grounds for risk assessments and the potential
ways to reduce/mitigate the major risks'.[34]
Pappas also made a number of recommendations directed at more effective
management of technical risk.
5.28
Preparation for second pass approval involves detailed assessment by
DSTO of the options the government has agreed to pursue. This assessment
includes the identification and execution of risk treatment and issue
resolution activities that may involve industry as well as the preparation of
statements of technical risk. Documentation produced by DSTO on risk includes
a second pass TRA, a Science and Technology (S&T) Plan for second pass and
a final TRC for inclusion in the MINSUB/CABSUB as appropriate.[35]
Defence Materiel Organisation
5.29
The Mortimer Review noted that the DMO is responsible for delivering
military equipment to the ADF according to cost, schedule and specifications
agreed to by government. Mortimer argued that in order to be held accountable
for such delivery, the DMO must provide independent advice to government on
matters within its remit. Indeed, the review specifically recommended that the DMO
be responsible for the 'equipment acquisition strategy throughout the
requirement definition process'.[36]
To this end, Mortimer recommended that the CEO of the DMO provide independent
advice to government on cost, schedule, risk and commercial aspects of all
major capital equipment acquisitions at DCP entry and at first and second pass.[37]
Moreover, in order to be able to answer the government's questions on these
matters, he recommended that the CEO be a permanently invited adviser to
government committees considering Defence equipment acquisitions.[38]
5.30
In keeping with Mortimer's recommendations, the DMO is progressively
more involved as a project moves through the requirements phase. DMO's
responsibilities include direct support in developing the CDD, cost and
schedule estimates, and in undertaking risk reduction studies whilst evaluating
proposals and offers from industry.[39]
Indeed, consistent with Mortimer's recommendation 2.7, the DMO is responsible
of the acquisition strategy throughout the capability development process with
the CEO of the DMO responsible for signing off on the strategy. Furthermore, in
accordance with Mortimer's recommendation 2.10, the CEO of DMO provides
independent advice to the Defence Minister and Cabinet on the costs, schedule
and other commercial aspects of military equipment procurements in each
capability development Cabinet submission.[40]
5.31
The DMO is also represented on the four internal Defence committees
responsible for reviewing and endorsing options at first and second pass to
ensure that a 'One Defence' view is offered to government. Such representation
includes either membership or permanent invitation.[41]
5.32
Whilst the Defence committee system was established to strengthen the
two-pass process and provide greater rigour and scrutiny of projects across
Defence, the Black Review found that committees 'tend to function to confuse
accountability, blur strategic focus and disperse decision-making capacity'.[42]
The findings that committees serve to diffuse individual accountabilities will
be considered in greater depth by the committee.
Capability Managers
5.33
Capability Managers are responsible for 'raising, training and
sustaining force', and have an overarching role across the capability development
cycle to ensure that it all comes together as a complete capability.
Furthermore, as defined in the Defence Capability Development Handbook (DCDH),
Capability Managers have a 'far greater role right up front on capability
development and a far greater say over the development of those projects as
they come into service'.[43]
Indeed, according to Chief of Air Force and Capability Manager, Air Marshal
Brown, as the Capability Managers are ultimately accountable for a capability,
they will follow the project from start to finish.[44]
Department of Finance and
Deregulation
5.34
In response to recommendations by Kinnaird, Mortimer and Pappas
concerning greater certainty of costs and a strengthened two-pass process, the
Defence Capability Assessment Branch was established in 2004 within the
Department of Finance and Deregulation (Finance) Budget Group. The branch is
staffed by specialist cost analysts responsible for evaluating the costs and
financial risks associated with Defence capability procurement proposals. In
order to implement the Kinnaird recommendations, Finance agreed to a guide that
defines the standards by which the Budget Group assesses the cost and risk
estimates associated with major Defence acquisition proposals at first and
second pass. Finance then provides advice to its minister on these costs and
risks.[45]
5.35
The Finance Minister is a member of the Expenditure Review Committee
and, according to Finance, is often coopted to the NSC to consider major
capability proposals of $100 million in value or greater that have been brought
forward by Defence for government consideration.[46]
The Defence Minister and Finance Minister jointly consider proposals with a
total project value between $20 million and $100 million, unless either
minister refers the project to the NSC.
People
CDG CS Div Desk Officers
5.36
CDG brings together all available advice from DSTO, DMO, Capability
Managers and industry in order to develop the CABSUB/MINSUB for the government
to consider at first and second pass.[47]
This includes information emanating from the CDG-DSTO Joint Decision Support
Centre which applies 'objective operational analysis-type methodologies' to
assist CDG in decision making'.[48]
5.37
In order to fulfil this role, Mortimer emphasised the importance of CDG
being adequately resourced in terms of 'workforce numbers and skills to develop
capability proposals and incorporate specialist advice' from DMO and the DSTO.[49]
5.38
Indeed, of five principal areas of concern identified by Mortimer in
relation to the procurement process, inadequate project management resources in
CDG and shortages in DMO personnel were listed amongst them.[50]
Mortimer held that the accuracy of information provided to government would be
improved if CDG was better and more appropriately resourced and skilled to
consult and consider expert advice.[51]
Evidence before the committee, moreover, suggested that CDG CS Div Desk
Officers were not adequately trained and lacked appropriate supporting
management structures, processes and tools to carry out their role.[52]
Furthermore, they did not have experienced independent individuals with the
necessary corporate knowledge and ability to capture lessons learned to lead,
guide and mentor them.
5.39
Mortimer noted that core personnel in CDG were military officers on
short term postings with an average of 18 months in an area where the work was
complex. Mortimer argued in favour of extending the duration of postings to CDG
and recommended that CDG and the DMO both deepen their expertise in cost and
schedule estimation and project management as a matter of priority.[53]
Pappas had similar concerns, noting that the short assignments of CDG desk
officers created continuity problems in acquisition program management as
multiple desk officers could be responsible for the evolution of the
specifications of a single platform.[54]
High turnover of staff within CDG and DMO was also raised in evidence as a
problem in relation to the consequent difficulties for large primes and SMEs.[55]
Other submitters noted that CDG personnel are primarily military officers who
might bring military experience and expertise to the technical aspects of
proposals whereas their primary role in CDG is project management and
administration. The ANAO noted that this dynamic coupled with a lack of
training and management support given to CDG desk officers 'particularly
hampered their ability to understand complex cost and schedule estimations for
the capability proposals'.[56]
In relation to this matter, the committee notes Mortimer's recommendation that
in order to make effective use of the technical, engineering and commercial
expertise received from DMO and the DSTO, CDG may require in some areas
additional personnel with specialist expertise.[57]
The committee questions whether this recommendation has been fully realised.
5.40
In response to these findings and recommendations concerning skills
development and support to CDG CS Div Desk Officers, Air Marshal Harvey observed
that CDG managers currently consider 90 per cent of the desk officers to be
sufficiently skilled to perform their assigned duties without additional
support. Furthermore, a structured CDG Desk Officer skilling program has been
implemented to address core capability development skilling. Air Marshal Harvey
informed the committee that the program provides an annual 'induction course
and then a flexible, progressive skilling program to address project and
individual needs'. Air Marshal Harvey concluded:
Realisation of the full benefits of the initiatives will be
protracted, due to the extended procurement life cycles, which are typically
two to five years just in the approval process.[58]
5.41
Furthermore, he stressed that training is currently underway to address
the skills shortages in relation to cost estimations.[59]
5.42
However, Defence also acknowledged challenges in relation to attracting
and retaining qualified and skilled staff to progress projects through the
capability life cycle. Air Marshal Harvey detailed the initiatives in place to
address these challenges:
Several skilling and professionalisation strategies have been
implemented to enhance the skills base of Defence and DMO workforces.
Identified skills shortages are being addressed via education and training,
targeted recruitment and employment schemes and above-the-line contractor
support, when necessary. As part of our commitment to improve our performance,
Defence and DMO have introduced a professional industry standards certification
framework for procurement and contracting staff. This includes a continuing
professional development or CPD program.[60]
5.43
In addition to training initiatives, Air Marshal Harvey informed the
committee that CDG was 'looking at higher pay for specific individuals who are
particularly valued by the organisation' as well as securing industry support
and increasing the numbers available within CDG.[61]
He explained that where baseline funding is not adequate, CDG can bid for
resources through the Workforce Financial Management Committee to the CDF and
Secretary of Defence.[62]
Committee evidence
5.44
While reforms and improvements have been made to strengthen the two-pass
process, the committee received considerable evidence to suggest that problems
and challenges remain. CS Div Desk Officers play a crucial role in drawing on
and synthesising often highly technical information into key documents for
government consideration and it is in relation to their role that this evidence
is largely directed.
5.45
Such concerns included the following:
- although the administrative framework for implementation of the
two-pass process is appropriate, the quality of record keeping within CDG is
poor;[63]
- CDG officers responsible for managing capability proposals
through the two-pass process are inadequately trained and lack appropriate
supporting management structures, processes and tools to perform their role,
particularly complex cost and schedule estimates for capability proposals;[64]
- the absence of a core of experienced professionals in CDG
including retired military officers and ex-project managers;[65]
- given extended project timeframes, changing staff with
departmental and project offices inevitably result in a large number of
different uniformed and public service personnel working on a Defence project
which can be disruptive;[66]
and
- the level of contestability, independent scrutiny and analysis
previously undertaken by the Force Development and Analysis division (FDA)
should be reinstated.[67]
5.46
The committee raised these questions with CDG during two days of public
hearings. It sought evidence from Defence and specifically CDG in order to
establish the extent to which CDG has a demonstrated ability to draw on and
process technical, engineering and commercial expertise and advice received
from the DMO, DSTO and industry. Whilst the committee appreciates that efforts
and improvements have been made in relation to attracting and retaining
qualified personnel, skill development and training, it recognises that
challenges remain which must be addressed. The committee intends, therefore, to
consider these matters in greater depth.
5.47
One of the consistent themes in evidence before the committee concerned
the level of engineering skill and input across the capability development and
acquisition life cycle. Some submitters recognised this challenge as
symptomatic of a general deskilling across Defence and consequent dilution of
technical support services and engineering skills.[68] Much
of the discussion regarding engineering and technical skills focused on the DMO
and the Services. Even so, the committee appreciates that engineering input
would be essential at the needs and requirements phase to the extent that such
skills would enable CDG to have a greater appreciation for, and ability to, interpret
input from industry and DSTO. This is another area for further committee
consideration.
Capability Managers
5.48
One of the issues raised in evidence and taken up by the committee during
the hearings with Defence was the extent to which the centralisation of
resources to CDG (and the DMO in relation to acquisition and sustainment) and
away from the Services has affected the ability of Service Chiefs to manage the
capability process. Furthermore, evidence to the committee suggests that under
the current governance model, the Capability Managers are not and cannot be
accountable and that this is one of the fundamental flaws in governance that
has prevented successful reform.[69]
5.49
ANAO's recent audit regarding Navy highlighted the impacts of
centralisation. ANAO found that the removal of capability personnel from Navy
into CDG to manage capability proposals diminished the ability of Chief of Navy
as Capability Manager to obtain guidance and assistance in relation to the requirements
determination and how it fits into the process.[70]
Ms Fran Holbert, Executive Director of ANAO's Performance Audit Services Group
described the consequences:
It meant that the technical regulatory framework had stepped
back and was not engaged with the procurement framework being operated through
DMO. It is not clear how so much distance could have arisen given that there
are Navy people in Navy, in DMO and in CDG. But it is the case that gaps opened
up in the knowledge those different areas had about how risks were developing
and what was going on with them.[71]
5.50
The committee recognises the substantial work undertaken by the ANAO in
this regard and as centralisation is a key theme emanating from the evidence,
the committee expects to consider it and its significance in a subsequent report.
Defence industry
5.51
Some submissions to the inquiry argued that the NSC's annual approval
rate has dropped to 10 projects rather than the expected rate of 50 projects a
year.[72]
The consequences for industry of such a slippage include increased cost as
project teams are formed and disbanded and aggravation of the 'already severe
problem of uneven workload'.[73]
However, Defence rejected the suggestion that there had been slippage in the
approval rate. Defence maintained that whilst a project may 'slip a month or so
in terms of scheduling with the cabinet', it was not aware of any material
delays with any implications for delivery of capability at all over the last
few years.[74]
The committee recognises a serious disconnect between Defence and industry's
view of the approval rate, which is affecting industry's ability to plan and
up-skill as well as the working relationship between Defence and industry.
Indeed, the position of Defence is that industry must plan to ensure that it
can play its part.[75]
This divergence in understanding and the respective information underpinning it
together with its consequences will be considered in greater depth by the
committee at a later stage.
5.52
These considerations, the impact of MOTS procurement on the domestic
industry in terms of viability and skills maintenance, the tension between
security needs and industry needs, schedule delays resulting from slow supply
from industry, and the challenges for the defence industry will also be
considered in greater detail by the committee.
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