Executive summary
Defence's projects for acquiring major capital equipment face
an array of internal and external forces and influences that create significant
difficulties for the organisation. Indeed, such projects are of a scale and
complexity that they present 'formidable and ever-increasing challenges'. The
problems identified in defence procurement, however, are largely a function of the
organisation's own making—unintentionally self-inflicted. In effect, Defence
has a flawed management structure that stymies the work of dedicated,
professional and in many cases highly skilled personnel.
Current management structure
The committee finds that the current management structure in Defence
has produced an organisation that lacks a robust risk management regime: an
organisation where its personnel are insensitive or unresponsive to risk, where
no one owns risk. Defence is also an organisation that seems incapable of learning
from past mistakes. This inability to learn
from earlier project mishaps is particularly salient. Senior officers in
Defence may well argue that the failures noted in this report are drawn from
history: but if the organisation cannot or will not apply lessons from previous
projects to current and future ones then it is destined to repeat them. The
challenge for Defence is to change an organisational structure with entrenched
attitudes that despite repeated reforms has:
- a growing disconnect between strategic guidance and capability
development with the current foundation document—the 2009 Defence White
Paper—setting an unrealistic and unachievable acquisition program for the Australian
Defence Force's (ADF) future capability;
- a culture of non-compliance with policy and guidelines; where
personnel get 'bogged down' with too much paper work, produce a 'certain amount
of nugatory work' and 'miss the important things going on';
- confused or blurred lines of responsibility;
- accountability that is too diffuse to be effective—the
organisation is unable or unwilling to hold people to account;
- a poor alignment of responsibility due to an excessive number of
groups and agency functions, which gives rise to unhealthy management and organisational
relationships—for example capability managers sidelined from active
participation in an acquisition;
- little understanding or appreciation of the importance of
contestability and a mindset that simply cannot, or refuses to, comprehend the
meaning of 'independent advice';
-
a 'One Defence' view that does not produce an integrated
enterprise: Defence remains an organisation composed of separate groups working
to their own agendas;
- difficulty attracting and retaining people with the required
level of skill and experience to support acquisition activities, particularly
engineering, which over the past 15 years or more has atrophied most notably with
the hollowing out of technical skills in Navy; and
- yet to engage actively with industry as a collaborative partner in
capability development and acquisition and to achieve the status of intelligent
customer.
Need for structural reform
The recommendations in this report take account of Defence's
attempts to remedy shortcomings. They also recognise that Defence has made
efforts to change while simultaneously attempting to comply with multiple
reform agendas arising from a string of government reviews and directives. The key
recommendations deal with much needed organisational change directed at
achieving the correct alignment of responsibilities and functions of relevant
agencies, and providing them with the skills and resources they need to fulfil
their obligations. They underscore the importance of Defence becoming a self
critical, self evaluating and self correcting organisation. More specifically,
the recommendations are intended to:
- return responsibility to capability managers, including for
financial management, and make them accountable for decision-making and
performance under their areas of authority;
- make the Defence Materiel Organisation (DMO) a streamlined and specialist
acquisition agency;
- inject real contestability into decision-making and guarantee
that the government is provided with independent advice from key agencies—Defence
Science and Technology Organisation (DSTO), DMO and technical experts; and
- ensure that Defence's focus is on obtaining the right people with
the right skills and experience and, importantly, matching their skills with
the right job: that Defence also manages its skills base so that agencies complement
their skill requirements and do not compete from the same pool of specialists.
New management model
The committee proposes a model that, after second pass decision,
allocates one single point of accountability for every project to the relevant
capability manager, supported by financial delegation and budget control. It
reduces the role of the Capability Development Group (CDG) and DMO—producing
savings and eliminating much overlap. It also reinforces the Kinnaird/Mortimer
concept for internal independence for the purposes of genuine contestability,
and minimises the waste of skill through inappropriate placement, duplication
and misalignment of skills. The committee's proposal also introduces a direct
client/provider model with precise accountability and without any
intermediaries. Under this model, the DMO would become a contract and project
management specialist supporting the capability manager at relevant points in
the acquisition and sustainment cycles.
This model would remove the unnecessary layers of current
vested interests and streamline the process through a single point of
accountability. In short, it is a greatly simplified model aided by significant
streamlining. It builds on the strengths of accountability in the services (as
identified by the Black Review) and seeks to harness the learning and potential
for alignment across the three services envisaged with the creation of the
Defence Acquisition Organisation (DAO) and DMO.
Recommendations
Realignment of responsibilities
Recommendation 1— Strategic Policy Division paragraph 8.63
The committee recommends that all matters concerning
strategic planning, capability planning, industry policy, costing and all
matters for the coordination of contestability from DMO, DSTO and industry
should remain with the current Strategic Policy Group and CDG in combination.
Recommendation 2—Capability Managers paragraph
8.64
The committee recommends that accountability for all service
specific procurement items should be exclusively transferred with budgets to
service chiefs, who should be responsible for all procurement and sustainment
of their materiel. This transfer of responsibility occurs after proposals have
been thoroughly tested internally and externally and after government decisions
are made at second pass.
Recommendation 3—DMO and CDG paragraph
8.65
The committee recommends that the capability manager should have
expanded responsibility and importantly financial responsibility after second
pass. Under the committee's recommended model, for all acquisition projects,
the capability manager would be the sole client with the contracted suppliers; DMO's
role being limited to tendering, contracting and project management
specialities, strictly according to the terms of the second pass decision. All
specification changes should be monitored by CDG and put to government for
agreement, as currently the practice, with the capability manager to be fully
accountable.
Recommendation 4—CDG paragraph
8.66
The committee recommends that all matters of coordination,
overall budget management monitoring and reporting after second pass should
remain in the current CDG, but without budgetary control.
Contestability and independence
Recommendation 5—mandatory gate reviews paragraph 10.77
The committee notes concern about the gate reviews losing their
potency and simply becoming part of the process if overused. The committee believes
an annual gate review for major projects would add value but recognises that
the format and/or structure may need to be scaled to suit project scope/cost.
The committee recommends that full gate reviews be:
- mandatory for major projects at the following specified
milestones—Defence Capability Plan (DCP) entry; project initiation and review board
consideration; first pass approval; second pass approval, contract solicitation
and contract negotiation; and
- mandatory when a project starts to diverge from original cost or
schedule or when significant changes to scope are proposed.
Recommendation 6—gate reviews and compliance paragraph
10.78
In light of revelations about breaches of policy such as chairs
of boards having line management responsibility and of misunderstandings
stemming from the documentation provided to the gate review boards, the
committee recommends further that the Independent Project Performance Office (IPPO):
- exert stronger compliance checks to guarantee the independence
and impartiality of the gate review board particularly enforcing the
requirement that the chair of the board must not have line management
responsibility for the project under review; and
- exercise greater scrutiny of the documentation provided to the
review board to ensure that it is relevant and complete including reports on
technical risk.
To ensure that the IPPO has the authority and resources to
discharge it functions, the committee further recommends that Defence consider
carefully whether the functions of the Office should be located in CDG or
another agency.
Recommendation 7—gate reviews and monitoring paragraph 10.79
With regard to ensuring that the recommendations of the
review boards are implemented, the committee endorses the Australian National
Audit Office's recommendation that 'Defence ensures that a control mechanism be
deployed to monitor the status and completion of actions recommended by Gate
Review Assurance Boards and agreed by the relevant executive'.[1]
Recommendation 8—DMO and Minister's
directive paragraph 10.82
The committee recommends that the minister review, update and
reinstate the Ministerial Directive to CEO DMO. The directive is intended to
set boundaries and expectations and establish clear accountability for
achievement of Defence capital acquisition programs. It should include the
requirement that CEO DMO provides independent advice to the minister in DMO's
specialist area of major capital projects.
Recommendation 9—DMO's independence paragraph
10.83
The committee recommends that the government should again look
carefully at making DMO a statutorily independent agency, as previously
recommended by Kinnaird and Mortimer, but rejected by Defence and government.
The CEO’s salary should be set by the Remuneration Tribunal and, as stipulated
in the previous recommendation, direct access to the minister should be
restored pursuant to a re-instatement of a ministerial directive which has
fallen into disuse. The intention behind this recommendation for the DMO to be
a statutory agency is to find a better way to: guarantee DMO's independence and
assist it to provide frank advice to government, have its functions and
responsibilities spelt out in legislation, and allow it more latitude to employ
specialist personnel.
Recommendation 10—DSTO's
independent advice paragraph 10.84
The committee recommends that the minister consider how best
to ensure that DSTO's specialist advice on technical risk associated with
Defence's major capability developments are conveyed to government in a clear
and accurate way. The Ministerial Directive to CEO DMO may serve as a model.
Recommendation 11—DSTO and risk
assessments paragraph 10.85
The committee recommends that the Technical Risk Assessments
and Technical Risk Certifications (currently presented to the Defence
Capability Committee and the Defence Capability and Investment Committee)
should be a joint activity overseen by the relevant Service test and evaluation
(T&E) agency head and the Chief Defence Scientist. In light of past
underestimation of technical risk, the intention would be to review past
experiences and current documentation to determine how risk assessments could
be better presented to non-technical experts to minimise the opportunity for
risk assessments to be misinterpreted. The reporting structure also needs to be
transparent such that assessments cannot be ignored without justification to
the key decision-makers (e.g. minister).
Skilling Defence
Recommendation 12—Strategic Policy
group paragraph 11.93
The committee recommends that Strategic Policy Group and CDG
should have more strategic analytical skills to test rigorously and
independently the capability managers’ development of the Defence White Paper
capability elements, restoring the creative tension but free of competition for
skills.
Recommendation 13—Capability Managers paragraph 11.94
The committee recommends that, after second pass, capability
managers have sole responsibility for acquisition projects, supported by staff
seconded through the DMO, as well as maintaining relationships with contractor
and sub contractors.
Recommendation 14—DMO paragraph
11.95
The committee recommends that the government ensure that the
DMO has the funds, means and government support necessary to consolidate and
build on the efforts already underway to develop its multidiscipline skills
base with the ultimate goal of achieving a world-class acquisition community.
Recommendation 15—Streamlining paragraph
11.96
The committee recommends most strongly that the
organisational changes specified in the recommendations dealing with skills be
adopted, and that the streamlining and consolidation of skills identified be
the primary focus and outcome in securing that change.
Future submarines SEA 1000
Recommendation 16—Early planning
and analysis paragraph 3.20
Because the future submarine project is still at an early
stage, and based on the RAND study, the Coles Report, independent defence
analysts and the past performance of major Defence acquisition projects, the
committee recommends that government and Defence start work immediately to:
- ensure that the program is directly managed by the Chief of Navy
supported by the ASC and DMO where relevant, the scientific community and the
public—support must be both external to the program and internal within the
navy and submarine community;
- avoid early lock-in through premature weapons systems choices;
- ensure that the capability sought is available and minimises
developmental risks;
- take drastic action to address the serious skill shortages
identified by RAND before a decision on assembly in Australia is made,
regardless of type and design;
- ensure that the program is open and transparent—full disclosure
throughout the program is necessary to obtain government, industry and public
support;
- involve experienced people in key management positions—this
requires a strategy to grow people so they are experienced in various
disciplines—a top-level strategic lesson must be implemented far in advance of
any specific program; and
- listen to technical community concerns about risk—the technical
community, supplemented by outside expertise from industry and allied
technology partners as necessary, should understand the state of technology and
the degree to which a new design extends that technology.[2]
Recommendation 17 —
applying lessons paragraph
3.22
The committee recommends that government and Defence respond
publicly to the committee's criticisms made in this report with respect to
lessons not learnt, and outline the detailed process and all the options on
which current planning on submarines is taking place.
AIR 8000 Phase 2 (Battlefield Airlift—Caribou replacement)
Recommendation 18—Statement of
Operational Requirement paragraph 15.62
The committee recommends that the Chief of Air Force as the
relevant capability manager require a report by the relevant test and evaluation
(T&E) agency against the approved Statement of Operational Requirement to
provide early identification of potential issues with the AIR 8000 Phase 2
project that could delay introduction into service.
Capability development and public information
Recommendation 19—2013 White Paper paragraph
3.65
The committee recommends that the 2013 White Paper is prepared
in such a way that all procurement proposals are costed and scheduled
realistically and that Defence undertake comprehensive consultation with
industry before decisions on inclusion are made, or alternately, a green paper
is issued in advance for broader and open public consultation.
Recommendation 20 —DCP paragraph
3.66
The committee recommends that, commencing next financial year,
Defence publishes as an addendum to its portfolio budget statements, all the
current financial detail of planned capability from the time of inclusion in
the DCP, right through to contract completion and provision for sustainment,
for all projects over $30 million for total procurement and lifelong
sustainment.
T&E—building capability
Recommendation 21—creating
opportunities paragraph 12.51
The committee recommends that the government make a long-term
commitment to building technical competence in the ADF by requiring Defence to
create the opportunities for the development of relevant experience.
Recommendation 22—T&E and DSTO
pre-first pass paragraph 12.52
The committee recommends that capability managers should
require their developmental T&E practitioners to be an equal stakeholder
with DSTO in the pre-first pass risk analysis and specifically to conduct the
pre-contract evaluation so they are aware of risks before committing to the
project.
Recommendation 23—policy and
implementation paragraph 12.54
The committee recommends:
- the immediate finalisation of central defence policy on T&E
to be implemented by capability managers in line with the committee’s
recommended shift of full accountability for capability managers for all
technical assessment of capability procurement and sustainment (independently
assessed in conjunction with DSTO);
- full responsibility for the implementation of prescribed T&E
processes be assigned to capability managers for all procurement activity from
inception through to acquisition and sustainment; and
- each capability manager should ensure adequate skilled resources
to oversee all T&E activity in line with central policy, as part of all
acquisitions, including MOTS, as part of the capability managers’ total
responsibility for procurement, but prior to as well as after second pass.
Recommendation 24—training and
experience paragraph 12.55
The committee recommends that Defence build on the capability
already extant in aerospace to identify training and experience requirements
for operators and engineers in the land and maritime domains and apply these to
the Australian Defence Test and Evaluation Office. Capability managers will
need to invest in a comparable level of training to enable their personnel to
conduct (or at least participate in) developmental testing. The intention is to
provide a base of expertise from which Defence can draw on as a smart customer
during the first pass stage and to assist in the acceptance testing of
capability.
Recommendation 25—pre-first pass
T&E paragraph 12.56
The committee recommends that Defence mandate a default
position of engaging specialist T&E personnel pre-first pass during the
project and on acceptance in order to stay abreast of potential or realised
risk and subsequent management. This requirement is also to apply to Military-off-the-shelf/Commercial-off-the-shelf
(MOTS/COTS) acquisition.
Defence industry
Recommendation 26— planning for
investment paragraph 13.55
The committee recommends that Defence make their Defence
Capability Plan (DCP) a document that provides industry with greater certainty
about Defence's plans and intentions for future capability development to
enable industry to invest with confidence in capability development. In
particular, it recommends that the next DCP include:
- a schedule that provides anticipated timelines for the
construction and delivery of all DCP items, with continuity the key feature;
- a detailed explanation on this acquisition schedule indicating
the reasoning and analysis behind it and how Defence has taken into account
demand flows; and
- reliable cost estimates.
Recommendation 27—early
engagement with Defence paragraph 14.28
The committee recommends that Defence:
- continue to collaborate with industry to reinvigorate the
Capability Development Advisory Forum and the associated environmental working
groups as a means of engaging industry early in the capability development
process. The committee recommends further than Defence ensure that such
engagement with industry is a genuine two-way exchange of ideas and of
information; and
- continue to support training programs such as Skilling
Australia's Defence Industry (SADI).
Recommendation 28 paragraph
14.29
Given the reach back capacity of primes and their ability to
tap into research and development of US and European headquarters, the
committee recommends that industry consultation start at the earliest Defence
White Paper and DCP stage.
Navigation: Previous Page | Contents | Next Page