For many years, Defence's program for the procurement of major
capital equipment has been dogged by delays and cost overruns for which there
are tangible consequences for the taxpayer and Australians engaged in active
military service. This appears to have remained unchanged since the committee's
last report on the subject in March 2003.* Indeed, as noted in the committee's
preliminary report, a number of the projects in the White Paper that have
progressed to the DCP stage and beyond have experienced significant problems
that have warranted their placement on DMO's list of projects of concern. Some
projects that pre-date the 2009 White Paper are still in production and have
many years to go before they finally emerge as completed projects. Some have
been cancelled, costing billions of dollars of taxpayers' money. Any slowdown
or mishap in their delivery and acceptance into service will have an effect on
those not yet in the DCP; those waiting for first or second pass approval or those
currently under construction. Among other things, a delayed or unsuccessful
project creates a capability gap, fails to meet the government's strategic
requirements, damages Defence's relationship with industry and undermines public
and parliamentary confidence in Defence's procurement program.
In Part I of the report, the committee examines a number of the
acquisition projects that have experienced difficulties and the reasons for
their underperformance. While acknowledging that defence organisations face particular
and significant challenges in managing their major acquisitions, the committee
seeks to understand the extent to which improved practices using qualified and
experienced personnel or behaviour or fundamental changes to the management
structure could have helped Defence better manage its procurement processes.
* Senate Foreign Affairs, Defence and Trade References Committee, Materiel acquisition and management in Defence, March 2003 and also Bluewater ships: consolidating past achievements December 2006.
In its preliminary report, the committee drew attention to a number of
projects that had underperformed or were underperforming. In this chapter, the committee
looks in greater detail at individual projects that have experienced
difficulties in order to identify the source of the problem. It then considers
the projects collectively to determine whether there are common or recurring
problems that indicate deep seated or persistent problems in Defence's
A number of the projects date back to the 1990s when they were approved:
that is pre Kinnaird and Mortimer reforms. Even so, many still remain in the
procurement pipeline and carry with them certain risks, some of which have materialised.
In this sense, they are today's problems. Keeping in mind that they are major
projects, any delay or capability shortfall may have a cascading effect and cause
difficulties for other projects with serious implications for Australia's
defence capability for decades to come. Also, these problem projects, the
origins of which may go back many years, have generated a substantial body of
knowledge and experience from which Defence should have learnt lessons. The
committee believes that these particular projects, often dismissed as legacy
projects, cannot be ignored, even those that have been cancelled, including the
Super Seasprite helicopters and landing watercraft. More to the point, the
committee is concerned that despite assurances to the contrary, more recent
projects are showing similar symptoms of failure.
Approved in 1996, the Super Seasprite project was intended to acquire
Super Seasprite helicopters for the Navy's ANZAC ships. But, having failed to
deliver the required capability, the project was eventually cancelled in March
2008 with a total expenditure of $1.4 billion.
According to the then Parliamentary Secretary for Defence Procurement, the
program 'cost us more than one billion dollars for no result'.
He stated that the project had been mismanaged which meant that not only had
Defence lost this money but Australia's naval aviation capability, especially
in the area of anti-submarine warfare, had suffered.
The Super Seasprite project stands out as an example of where Defence, through
the requirement definition process, did not fully comprehend the risks associated
with the acquisition.
The ANAO attributed the failure of the project to a range of factors, some of
which are common across many projects that have suffered from poor performance,
inadequate understanding of risks during the early stages of the
acquisition and tender evaluation process;
- underestimation of costs;
- difficulties attracting and retaining appropriately qualified
- disparity between contractual and ADF certification requirements
for fit for service.
More specifically, the committee has evidence that, in the later part of
1999 and the beginning of 2000, a subject matter expert advised the Director of
the Naval Aviation Systems Project Office and the Head of the Aerospace Systems
Division that the Super Seasprite project required a lot of development work. The
advice noted that 'Developmental work brings with it considerable risks though,
if able to be managed accordingly, should be addressed effectively'. At that
time, the consultant recommended that if the Project Office or Department were
unable to fund the required T&E function then they should 'get out of the
contract now, or as soon as practicably possible'. According to the expert, the
same advice was provided around 1997 to the Naval Aviation Systems Project
Office by experts in Defence through the Officer in Command, Aircraft
Maintenance and Flight Test Unit.
Despite early warnings from subject matters experts, the project
proceeded without any effective risk management. In early 2008, briefs prepared
for senior Defence personnel outlined a series of inadequacies in the Super Seasprite
capability, some of which had been identified as early as 1998. These matters
had also been covered in the 2005 Deficiency Review which, according to an ANAO
audit report, had 'effectively recommended that the Project be cancelled'. The
ANAO concluded that the Project was:
...high risk from the outset and the scale of these risks
escalated rapidly in the early stages and remained high prior to the
Government's decision to cancel the Project. The issues encountered were fundamental
to the Project's success and were not overcome during the 12 year life of the
Project. From an accountability perspective, this leads to a question regarding
how the Project was allowed to continue for so long...Factors contributing to
this outcome include a degree of optimism surrounding the ability to achieve
outcomes, a reluctance to make firm decisions based on the information
available; and a lack of visibility of information to decision makers...
This failed project provides a raft of lessons for any future project. It
especially drives home the need not only for the adequate resourcing of early
T&E activities but to ensure that the advice from subject matter experts is
communicated to key decision-makers, who are able to comprehend and heed such
advice and take decisive action—that is take responsibility.
Landing Watercraft for HMAS Manoora
and HMAS Kanimbla (LCM 2000)
The LCM 2000 project was meant to purchase six watercraft that would transfer
personnel and supplies from Navy's Landing Platform Ships (LPAs) to shore. Originally
approved in 1997, the landing watercraft project was on the projects of concern
list in 2010.
The government cancelled the project in February 2011 with the
accompanying explanation that the dimensions and weight of the watercraft meant
that they were 'unsuitable to be launched' from HMA Ships Kanimbla and
Manoora and 'not fit' for alternative ADF use.
At that time, Mr Warren King explained:
The aspiration of the project was to get a capability that
was more competent in sea lift than existed anywhere in the world at that time.
A tender was placed around the early 2000s and, because a new design that had
not been tested or proven offered potentially more capability than existed in
existing designs, the decision at the time was made to go with this new design.
The problem was that the tender was actually based on a very
early concept design to be produced by a company that had never built a landing
craft using aluminium, which had never been used in such a manner.
According to Mr King, the LCM 2000 project highlighted the need to establish
early that the 'solution would not deliver what the capability managers wanted
and [that] a considered discussion around that at that time would have been a
very valuable undertaking'.
Both the Super Seasprite and the landing watercraft projects were
cancelled due to very poor risk analysis at the early capability definition
stage and the failure to identify and mitigate this deficiency.
The Wedgetail project is intended to provide the ADF with an airborne
early warning and control capability. It involves the provision of six aircraft
and associated supplies and support.
The government gave the equivalent of first pass approval for Phase 3 of
this project in 1997. The airborne early warning and control system is based on
Boeing's next generation 737 aircraft, modified to accommodate sophisticated
mission parts. The committee notes that this project is a 'highly developmental
project'—the core of the surveillance capability, the phased array radar, had
never previously been integrated into an operational system.
In 2007, Boeing announced a two-year slippage in the program. The
following year, Boeing advised that continuing problems with radar and
electronic support measures and systems integration had caused further delays. While
the government recognised that this developmental project had experienced some
'well publicised issues', it noted that the aircraft was a 'vital capability
for the ADF' and needed the project to succeed.
According to the Chief of Air Force, Air Marshal Geoffrey Brown, there
was 'a large degree of underestimation of the complexity' of the Wedgetail
program right from the start. In his opinion, 'everybody viewed it as a much
easier program than what it was, and that probably led to the way it was
staffed'. According to the Air Marshal, the original strategy was for Australia
to be the second purchaser following the Royal Air Force (RAF) through the
development process. Australia, however, ended up being in the lead and taking
a lot of the development load. He explained:
You have to remember that we ended up being the leading-edge
customer on this. We had not intended being the leading-edge customer; the RAF
were supposed to be, but they ended up doing a PPP, which delayed them. So the
initial acquisition strategy was all about a public-private partnership. They
had some significant problems in standing that up.
As at the end of 2011, the Final Operational Capability (FOC) milestone
had been pushed back 48 months from December 2008 to December 2012 and Initial
Operational Capability had been pushed back 54 months.
In February 2012, Defence announced that the first fully configured aircraft
would be accepted in July 2012, representing a 68 month delay against the
Mr George Pappas' audit report noted that slippage has an inherent cost
risk attached to it:
For every year that a project slips, costs are incurred
across a number of areas including: project team salaries and allowances; administration
costs such as travel and support contracts; financial costs (indices);
operational costs (time based services and warranty rundown); and capability
related costs (the cost of not having a capability, or maintaining an expensive
He cited Wedgetail as an example of costs incurred due to schedule
slippage. According to his audit, schedule delays were costing USD $1.5 million
per month, about two-thirds of which were personnel related costs.
Additionally, the project's forecast additional exposure to index inflation was
estimated at AUD $15 million over the next 5 years.
The main lessons to be learnt from this project stem from its
developmental nature. Thus, DMO recognised that greater effort was required to
understand and better appreciate:
- what is involved in being a customer of a first-of-type program;
- the time and effort required to undertake such a complex project;
the challenges in contractor management; and
- the importance of pro-active risk management and stakeholder
engagement throughout the project.
DMO also noted the need to allocate adequate resources and allow
sufficient lead-time to develop and execute the evaluation and negotiation
phases for the in-service component. With regard to industry, DMO
recognised that industry must 'pay greater attention to adequately resourcing
complex and highly developmental projects'.
But it is not clear to the committee who was responsible—RAAF or DMO, or any
other part of Defence—and whether it was ever flagged that part of this project
was very developmental with a high risk of failure and non-delivery as it
Tiger Armed Reconnaissance
The proposal to purchase 22 Tiger Armed Reconnaissance Helicopters (ARH)
received government approval in 1999. They were to replace the Army's aerial
reconnaissance and fire support capability, which dated back to 1960's
The helicopter is based on the Eurocopter French and German Tiger Helicopters
with some modifications ('Australianisation'). The acquisition of this
helicopter was deemed to be an 'off the shelf' (OTS) procurement and hence
represented a low risk to Defence.
This assessment of low risk, however, is at odds with the Aircraft Research
and Development Unit (ARDU) pre-contract report which highlighted that there
were a large number of identified deficiencies and also a significant body of
development and certification remaining that the manufacturer was unlikely to
complete in the time allowed under the proposed contract.
Evidence received by the committee shows a deliberate decision by the Defence
Acquisition Organisation (DAO) not to advise the capability manager (and by
extension it is assumed government) of this information.
It appears that while DAO preferred to believe the manufacturer’s undertakings
in respect to the maturity of the product, subsequent ANAO audits, Project of
Concern Summaries and briefings to the Parliament have validated the predicted
impact of the risks identified in the report.
According to a 2006 ANAO audit report, the DMO understood that 'flying
Tiger helicopter prototypes had been demonstrated prior to the award of the
Australian Acquisition Contract' although they were yet to receive full
certification and design acceptance by the French Government.
In effect, ARH 1 and 2, the lead Australian helicopters, were the first of type
to undergo production acceptance by any nation's Defence Force.
Indeed, while presented as a military-off-the-shelf (MOTS) acquisition,
the aircraft was still undergoing development and was delivered into service
'as an aircraft type more developmental than that which was originally intended
by the initial requirement'.
Additionally, airworthiness certification for the ADF relied on France's
certification of the French aircraft, and delays in the French program flowed
through to the Australian program. There were also some major issues associated
with the through life support contract as noted in a 2006 ANAO report. In May
2008, the then Parliamentary Secretary announced that a Deed of Agreement had
been formalised between the Commonwealth and the contractor, Australian
Aerospace, that resolved some of the outstanding contractual issues that were
constraining the project.
The final operational capability, originally planned for June 2009, is
now forecast for December 2012, 42 months late.
According to DMO, the main lessons to be learnt from this project are:
- aircraft still undergoing development by their parent Defence
Force or Original Equipment Manufacturer (OEM) should not be classified as OTS;
- resolve or escalate minor disputes as they arise to prevent
escalation to major contract dispute; and
- use integrated teams with strong processes and empowered staff
facilitated by appropriate contractual arrangements.
It should be noted that the ANAO audit report found that the DMO
accepted the first of the assembled aircraft on the basis of the draft
acceptance procedure. Importantly, that acceptance followed a Production
Acceptance Test and Evaluation Report compiled by the Defence Aircraft Research
and Development Unit Test Team that recommended the aircraft should not be accepted
in its delivered state.
The ANAO recommended:
- prior to accepting aircraft against specified capability,
technical and operational airworthiness standards, DMO completes the required
testing activities, unless there is a demonstrable case for not doing so;
- project authorities liaise and consult closely with capability managers
prior to finalising product acceptance, where significant operational
capability issues exist; and
- DMO incorporates into final contract documentation unambiguous
specifications, including required configurations for airborne weapon systems,
so that the impact on the platform is fully understood.
Suggestions that DMO should complete the required testing activities
prior to accepting aircraft and consult closely with capability managers before
finalising product acceptance are patently obvious. They are not about adding
processes but about establishing appropriate priorities—not cutting corners on
vital test and evaluation activities; ensuring that technical advice from
subject matter experts informs discussions in submissions; and involving
capability managers in specifying capability, technical and operational
worthiness standards and the required testing to those standards.
Guided Missile Frigate Upgrade Project
The Guided Missile Frigate (FFG) Upgrade sought to upgrade four (originally
six) Adelaide Class FFGs to ensure that they remained effective and supportable
until their removal from service between 2015 and 2021.
The FFG upgrade project commenced in 1999 and was subsequently re-baselined in
2004 and 2006 due to delays. Also, the project scope was reduced from six to
four ships. The project suffered from an underestimation of the complexity
involved and performance specifications not being formalised and agreed before
The then CEO DMO told the Joint Committee of Parliamentary Accounts and Audits (JCPAA)
in May 2007 that when the FFG project was put together in 1997 or 1998 'you
could probably argue that there were not enough people on the project'.
The project was placed on the projects of concern list in January 2008.
The then Parliamentary Secretary noted in November 2008:
When I first became engaged with the project it became
obvious to me that the main players involved including the Navy, the DMO, the
prime contractor Thales and the subcontractor Rafael were not communicating
with each other. The project was drifting and confidence in any successful
outcome was fading.
Mr John O'Callaghan, Australian Industry Group, informed the committee
that clearly there was a failure on the part of the industry project team and
the Defence project team to 'actually work together to get the appropriate
outcome' for this project.
Evidence provided to the committee shows that this was a gross understatement
of what was in fact a complete calamity.
The Operational Release for the four ships project was successfully
completed in July 2011, representing delays of between 67 and 84 months.
The problems experienced by the FFG upgrade go to matters including
Defence having no informed appreciation of the complexity of the project,
especially that the systems-of-systems risk was high, inadequate specifications
and consequent misunderstandings between Defence and the contractors.
An important lesson to be learnt from this project is the need to engage senior
people with the necessary authority early in the process to minimise the risk
of surprises and to stop the relevant parties 'retreating to their corners'
when difficulties emerge.
As mentioned earlier, having domain expertise with clear channels of
communication to these key people is also necessary; otherwise they are making
Regrettably, responsibility for the failure of the FFG Upgrade project cannot
be attributed to any one part of the chain, and clearly Chief of Navy was very
reluctant to accept the ships into service, thus demonstrating his lack of engagement.
Indeed, ANAO observed that DMO and Navy would benefit from working more closely
during acceptance test and evaluation. It noted:
A close working relationship is specified in DMO’s System
Acceptance criteria, but in practice this does not always eventuate. For
example, in December 2009, DMO completed contractual acceptance of all four
upgraded RAN FFG Guided Missile Frigates with limited engagement of Navy in the
verification and validation process leading to contractual acceptance. To date
there are significant elements of the upgraded FFG Combat System that are yet
to demonstrate the performance, reliability, availability and maintainability
expected by Navy, but recourse to contractual remedies is now significantly
The ANAO report highlighted a concern that is repeated throughout this
report—non-compliance with policy, guidelines or manuals and capability mangers
left out of the loop.
With regard to the FFG project, the committee suspects that the full
story of incompetence on this project, including that of the contractor, will
never be discovered.
KC-30A Multi-Role Tanker Transport
The government gave the equivalent of second pass approval for the
KC-30A Multi-Role Tanker Transport (MRTT) in May 2003.
The air-to-air refuelling aircraft is designed to enhance Australia's air
combat capability by extending the range and endurance of Australia's fighters
and also provide extra air-lift capability. The purchase of this new generation
Airbus A330 MRTT is intended to provide in-flight refuelling capability for
current and future aircraft as well as providing for the carriage of up to 270
passengers and cargo.
Australia is the lead customer for the A330 MRTT platform, including for
the Aerial Refuelling Boom System developed by Airbus Military. The project
involves a highly complex developmental effort to 'design, build and test the
first-of-type, highly integrated military mission and refuelling systems'. This
project has also experienced significant delays and was placed on the projects
of concern list in October 2010.
Recently, the DMO observed that 'the development and introduction into
service of a first-of-type military aircraft mission and support system is always
harder than it first appears.' With regard to the MRTT, it stated further:
At contract signature the project appeared a reasonably low
risk venture. However, over the course of the project, it became apparent to
both the DMO and the contractor that the integration of the fuel delivery
systems and military systems on a commercial aircraft introduced many
challenges including: software integration issues, underestimation of
developmental and certification testing schedule.
...due to time constraints and the breadth of review
activities, it was not possible to conduct a comprehensive technical review and
This last statement clearly indicates a case of self-inflicted
Based on past contractor performance and an independent assessment of
remaining technical risk, Defence expected a delay of between 35–38 months for
achieving the initial operating capability. According to DMO, the lessons to be
learnt from this project are:
- DMO should have exercised greater effort for a longer period of
time to support the program;
- prior to contract award, a more robust design maturity assessment
should have been undertaken under a funded design development process; and
- a more robust process should have existed to achieve a common
understanding of derived requirements and operational intent that should have
been agreed to at an early stage in the project's life.
These lessons are standard diagnoses found after the effect, but which,
from what the committee has heard, apply to many other projects. The relative
responsibility of RAAF, DMO or others is not known. But again, in the
committee's experience, it is not likely to be discovered.
It should be noted that during its visit to RAAF Edinburgh, the
committee gained a greater understanding of the lack of resources and attention
Defence gave to the testing and evaluation of the MRTT in France. Thus, the
committee believes that another important lesson for Defence, DMO and relevant
capability managers is to ensure that any overseas testing and evaluation of an
acquisition is closely scrutinised by appropriately qualified and resourced Australian
personnel. Such personnel should be accountable to one source of authority,
i.e. the client who finally uses the product. Defence should not skimp on the
resources necessary to conduct adequate and appropriate T&E activities and
make it crystal clear who is responsible.
Multi-Role (MRH-90) Helicopter
The Multi-Role Helicopter Project received first and second pass
approval in 2006. The program is part of a strategic plan to rationalise the
number of helicopter types in ADF service and involves the acquisition of
MRH-90 helicopters for three separate roles.
The helicopter received significant negative publicity in early 2010
when a report from the Luftlande und Lufttransportschule (Airborne and Air
Transport School) was released. The report highlighted a range of deficiencies
and recommended 'using alternative aircraft whenever
possible in an operational scenario'.
In Australia, the helicopter underwent a 'high-level comprehensive diagnostic
review' during April 2011 that recommended a remediation strategy.
The helicopter was placed on the projects of concern list in November 2011.
The failure of the program to achieve an adequate rate of effort has
affected the training of Service aircrew. Additionally, the immaturity of the
MRH-90 helicopter design was not considered when it was initially classified as
a MOTS acquisition and aircraft already delivered require in-service retrofit
to bring them up to the full capability baseline.
Overall, the program has incurred delays of approximately two years and a
capability gap has had to be covered by the Army's Black Hawk fleet and
potentially Navy's Seahawk helicopters.
The DMO identified the following lessons to be learned from the project:
it is essential that the maturity of any offered product be
clearly assessed and understood; and
- elements of a chosen OTS solution may not meet the user
The committee considers this analysis to be trite; uninformative as to
the real causal issues; and unhelpful when it comes to accountability and
remedial action necessary.
For example, the committee understands that a Preview Evaluation was not
conducted despite strong advice from the ADF Flight Test Centre that such an
evaluation was a critical part of identifying and quantifying risk prior to
contract signature. Once Defence became aware of problems, albeit very late, it
should have set about establishing why the maturity of MRH-90 was not clearly
assessed and understood. If such an approach were taken, Defence may well have
looked at the structure of the organisation in order to identify where things
started to go wrong and why remedial action was not taken. This approach would
require answers to hard questions about responsibility, accountability, the
engagement of the capability manager, the use of trained and experienced teams
to test the feasibility and suitability of a capability and the attention given
to such expert advice. The lessons to be learnt would then have some relevance
and practical application.
The DMO also noted the problems caused by having only limited intellectual
property rights including the provision of adequate data for integration with
other platforms such as the Landing Helicopter Deck (LHD). In less precise
terms, DMO also referred to the need to set up Commonwealth and industry teams
well before the delivery of the first type for projects as well as a range of
lessons associated with command and control of assets and people, stakeholder
management and relationship with industry.
The committee is not aware of any response from Defence or the relevant
capability manager, who are equally responsible for the failure, and hence all
responsibility appears to rest with DMO.
Air Warfare Destroyer
The Air Warfare Destroyer (AWD) project received first pass approval in
2005 and second pass in 2007.
The project involves the acquisition of three Hobart Class Air Warfare
Destroyers to contribute to Australia's joint air warfare defence capability.
While the project is progressing within budget, it has experienced
schedule delays with early hull block production due to capacity issues at the
Melbourne shipyard. In May 2011, a plan to adjust the workload to relieve
pressure on the shipyard was announced.
Mr King informed the committee that when he was the project manager for the
AWD, the advice to government was that the developmental solution would take
three years longer and have a significant cost risk.
The alliance and ASC, who are the managing shipbuilder on the
project, were comfortable that they had the skills, capacity and history to
take on this task. We had done the analysis. The obvious truth is that...they do
not have the capacity...it is demonstrated now that that cannot all come together
in the required time frame. So my advice to government at the time was wrong.
The committee heard similar evidence during its visit to South
Australia, where it was told that the Melbourne shipyard was caught out by a
cold start in production and a change in management with a smaller workforce
remaining. In other words, the government was misled as to readiness of the
project to begin, as well as the contractor's real capacity to do the job.
The main problem with the AWD stemmed from Defence not fully
comprehending the ship building component—its 'understanding was shallow'.
The lessons to be learnt go directly to having full knowledge of the capacity
of the contractor's shipyards and, based on detailed evaluation, reaching
agreement on a schedule that achieves the right balance between commencing
production and completing design.
M113 Upgrade Program
The M113 Upgrade Program—stretching and upgrading the ADF's existing
M113A1 fleet which includes seven different variants—was originally an $850
million project that has increased to over $1 billion with the addition of
another 81 vehicles under the Enhanced Land Force initiative. In May 2008, the
then Parliamentary Secretary announced that the M113 Upgrade project had
effectively dealt with the technical problems that had plagued it in its
developmental stages. He stated 'we now have a straightforward path to
delivering all operational vehicles as originally specified' and which the
contractor, Tenix, had undertaken to do by December 2010 in accordance with the
The minister was clearly misled because this subsequently turned out not to be
the case and the final delivery date for the vehicles has been pushed back
several times to well beyond the December 2010 date.
The project was placed on the projects of concern list in December 2007
and removed in May 2008. According to the 2012 audit report, it was taken off
this list on the basis of Defence advice that included 'incorrect information
regarding production rates and assurances that schedule delay would be
recovered'. It found:
Subsequent advice to government in support of the 2008
proposal to acquire a further 81 upgraded APCs and the proposal to extend the
AM variant also contained incorrect and unrealistic advice relating to schedule
production rates and projections. There have been several such instances of
incorrect and/or unrealistic reporting on project status, and issues affecting
this, over the life of this project.
Indeed, the audit report noted that 'accurate information about the
status of the project and the full implications of key issues was not always
communicated to senior Defence decision-makers and the Government.'
The audit also commented on capability. For example, it noted that,
although the upgraded M113 represented an improvement on the older vehicle and
was considered fit-for-purpose when the minor upgrade was first proposed 20
years ago, it 'now lags behind armoured infantry vehicles in use with other
It stated further that the development and delivery of the vehicle has occurred
in isolation from the development of some of the fundamental inputs to
This last observation highlights the potential for mishaps when the capability
manager is removed from the acquisition and sustainment activities.
The committee indeed wonders how the project, based on a fundamental
misunderstanding of the scale of the engineering task involved, survived for so
Lightweight Torpedo Replacement
The Lightweight Torpedo Replacement Project (JP 2070) was originally
intended to acquire a replacement lightweight torpedo and support systems, and
integrate the torpedo onto the Adelaide and ANZAC Class Frigates, AP-3C Orion Maritime
Patrol Aircraft, Seahawk helicopters and Super Seasprite helicopters. As the
project encountered difficulties, the scope was reduced to exclude the Super
Seasprite, and then later to exclude the Orion and the Seahawk, leaving just
the two surface platforms.
At the conclusion of Phase 1—where Defence 'effectively removed all
competition to the MU90 torpedo'—Defence
and DMO believed the MU90 to be an off-the-shelf acquisition already in service
with other navies. In fact, the MU90 was a developmental project not yet in
According to the ANAO, the Lightweight Torpedo project provides yet another
example of where an inadequate description of risk during the capability
definition and planning phase of a project contributed to problems with
delivering the required capability. Other difficulties experienced by the
project included issues similar to those experienced by other troubled
- insufficiently rigorous cost estimates;
inadequate project planning and management;
failure to appreciate the risks involved with integrating the
weapon onto multiple platforms—inadequate understanding of the weapon and its
developmental status; and
inadequate planning of testing and acceptance.
The committee also understands that subject matter experts within
Defence, the Aircraft Stores Compatibility Engineering Agency (ASCENG),
highlighted the developmental nature of the MU90 and the integration issues.
DMO ignored its recommendation to conduct basic pre-contract evaluations such
as 'fit checks'.
Acknowledging the long history of project management difficulties and
failures, the then Minister for Defence Materiel and Science stated in May 2010
that the project should have been 'better defined, costed and managed'.
The final acceptance test and evaluation firings in November 2010 were not a
success. In May 2011, Mr King explained that the project was 'a disappointment':
What we have determined since through very thorough analysis
is a number of failures of the whole system, not the torpedo, that we have to
address. These appear to be minor in a technical sense but major in impact in
the deployment of the weapon. They relate to the construction of the torpedo
tubes, which need to have a modification carried out...but we have come up with a
fix that means we can use that tube both for the Mark 46 and for these MU90
There were two other matters that contributed to the
failures. One was to do with the handling trolleys...to make it align accurately
to the torpedo tube when you insert it into the tube so that you do not do any
damage to the torpedo. The third element...is one connector cable...What we have
found is only one variant of that cable works 100 per cent reliably on the MU90
torpedo, so we are ordering in that particular cable.
In February 2012, Mr King informed the committee that the project was
close to coming off the projects of concern list.
Again, the committee asks why this failure was not communicated and why
it proceeded for so long without someone in the organisation taking action. The
committee is not aware of the Chief of Navy's role, if any, in this project.
The ANAO undertook performance audits of the Super Seasprite and
Lightweight Torpedo projects in recognition that they were intended to deliver
significant capabilities that the ADF required but, at the time the audits were
planned, had already encountered difficulty in delivering the required
For both projects, capability has not been delivered as planned or has been
delayed by more than a decade, with significant associated costs. The committee
considers ten years delay as scandalous.
Similar, to the Super Seasprite, the Lightweight Torpedo project demonstrates
that from the earliest stages of this project risk was not managed, which then
set it on a troubled course. Most
particularly, it would seem that the advice on risk by domain experts was not
communicated to, or appreciated by, others in the chain. Thus both projects
indicate that somewhere in this management structure sound technical advice
from subject matter experts was misinterpreted, reinterpreted or disregarded by
non-experts. The Wedgetail and MRH-90 projects highlight the same
The Collins Class Submarine
Reliability and Sustainability Project
The Collins Class Submarine Reliability and Sustainability Project is a
program of upgrades to the Collins Class platform systems. The project has
exposed problems, some of which can be traced back to the initial acquisition
phase, highlighting important lessons for the purchase of the future submarines.
The acquisition of the new submarines is discussed in the following chapter.
Common problems—costs, schedule slippage and reduced capability
The committee has used the above examples, which do not represent an exhaustive
compilation of problem projects, to illustrate the main reasons for projects derailing.
Currently, Defence's main concern is with schedule slippage.
The ANAO 2010–11 Major Projects Report continued to report on schedule
slippage as the most significant challenge for the DMO and industry
contractors. It noted that this failure to maintain projects on schedule
affected the time that a capability was available for operational release and
deployment. The DMO data indicated that at 30 June 2011, the total time for the
28 major projects to achieve their FOC date was expected to be almost one‐third longer than was
The ANAO recorded that the total schedule slippage for the 28 major
projects was expected to be 760 months when compared to the initial prediction
when first approved.
The table below shows that 88 per cent of the total schedule slippage
across the major projects was made up of projects approved prior to the DMO's
demerger from the Department of Defence in July 2005. ANAO indicated that this
improvement was 'a positive indicator of the benefits that the DMO, as a
specialist and sustainment organisation, was able to bring to complex Defence
procurement'. It noted, however, the addition of projects in the post 2005 July
group that were at 'a comparatively early stage'. According to the ANAO, the
effect of 'new' projects, are less likely to have yet recorded schedule
Table 2.1: Project slippage:
Project's approved pre and post DMO demerger
No. of months between Approval
and Original FOC date
No. of months between Approval
and 30/6/11 FOC date
No. of months slippage between
Original FOC and 30/6/11 FOC date
Projects Approved pre-July 2005
Sub Total Projects Approved
Percentage of Total—Projects
Approved pre-July 2005
Projects Approved post-July 2005
Sub Total Projects Approved post-July
Percentage of Total—Projects
Approved post-July 2005
Total—All Projects With
The committee also notes that slippage is measured from approval at
Second Pass. The committee discusses delays in the earlier stages of a project
in chapters 3 and 13.
According to the 2011–12 Major Projects Report, the total budgeted costs
for the 28 major projects included in the report increased by $7.8 billion (20
per cent) since the projects received second pass approval. This figure
comprised: price (materials and labour) variation increases of $7.6 billion;
real variation (such as scope changes and budget transfers between projects)
increases of $3.7 billion; and foreign exchange rate movement decreases of $3.5
billion. The DMO reported that all projects were 'delivering capability within
the approved budget'.
Although costs do not appear to be a major concern, the committee has
referred to Mr Pappas' observation that 'an inherent risk is attached to
slippage—project team salaries and allowances, administrative costs and
capability related costs, such as a capability gap, or maintaining an ageing
capability' (see paragraphs 2.17–2.18). ANAO indicated that schedule delays
increase the overall cost of project delivery because both the DMO and industry
staffing and administrative resources are tied up for longer than planned. Air
Commodore (retired) Ted Bushell, who has analysed all four Major Project
Reports (MPRs), drew attention to a statement in the 2010–11 MPR that none of
the major projects had exceeded their approved budgeted cost. The MPR noted,
however, that 'the cost of schedule slippage provided for in budgetary
adjustments can be significant'. According to Air Commodore (retired) Bushell,
'It is amazing that projects that are one to six to ten years late, all still
come in within their approved budgeted cost'.
The committee's view is that the simple assertion made by Defence that
costs do not increase as the result of slippage is not credible. In fact, the
committee also notes that during the JCPAA's recent consideration of the 2010–2011
ANAO's MPR, the funding is no longer available for post 2010 projects once
delivery date has been exceeded. This development demonstrates that government
has been forced to impose a discipline which will force the absorption of over
In relation to capability, the DMO expects to deliver almost all
capabilities associated with the major projects in the 2011–12 MPR.
This assessment by the DMO was outside the scope of the ANAO’s review.
Nevertheless, the ANAO stated that it 'continues to engage with the DMO on
developments regarding materiel capability measures and the revised Materiel
Acquisition Agreement (MAA) framework'. It does so, in order to enhance its 'understanding
of the DMO’s assessment of its own performance in the delivery of the materiel
element of key capabilities'.
The ANAO stated:
There are some indications that the assessment of capability
is overly optimistic in some cases. Analysis of the information available
indicates that some critical capabilities have been unavailable or are expected
to be delivered below that initially approved. For example, numerous recent
issues in the sustainment of the submarine capability have gained significant public
and political attention, and have limited the availability of this capability
to the Navy. Similarly, in respect of the MRH90 Helicopters, ARH Tiger
Helicopters and Air to Air Refuel projects, the DMO’s assessment of the
capability expected to be delivered has declined in 2010–11 as compared to
the original planned key capabilities for these platforms.
The committee takes note of ANAO's observation about achieving expected
capability and Defence's possible over optimism, and hence remains very
sceptical about such assurances. In drawing attention to slippage in the Tiger
Reconnaissance Helicopter, the Lightweight Torpedo Replacement, and the MRH-90
Helicopter projects, the ANAO stated that the delays could effectively
introduce a capability gap or require extension to the life of the platform they
are to replace.
Recent Defence projects have experienced very serious problems, many of
which should have been avoided, or at the very least anticipated and managed
better. Clearly, in some cases the government had not been advised of the
extent of the difficulties. The causes of the problems include:
- risk not managed properly or inadequately described during the
capability definition and planning phase—in general poor risk analysis in the
early stages of a capability development, which in some cases carried through
into the acquisition and delivery phase;
- risk identified by domain or subject matter experts but downplayed,
misinterpreted, or ignored by more senior non-experts—important to ensure that
risk remains visible all the way to senior decision-makers and remains so until
the senior decision-maker is satisfied that it is being actively and
- failure to appreciate the challenge of being a customer of a
- underestimation or understatement of the level of technical
maturity with programs proceeding without the requisite level of knowledge—numerous
examples where developmental projects were deemed incorrectly to be MOTS;
- inadequately planned and scoped developmental projects;
- underestimation of complexity of integration;
- inadequate specifications;
- incorrect, inaccurate or unrealistic reporting to, or failure to
advise, senior Defence officials or government on keys matters relating to a
project—the reporting regime lacks transparency;
- poor understanding of overseas certification standards and Australia's
requirements and the importance of having sufficient resident project staff, with
the requisite qualifications and experience, to ensure overseas contractors
understand Australian requirements and expectations;
- inadequate planning of testing and acceptance;
- failure to identify support requirements;
- inadequate testing of contractors claims with a 'shallow'
understanding of industry's capacity to deliver;
- poorly designed contracts with little incentive for the contractor
to deliver value for money;
- misunderstandings between DMO, capability manager and contractors;
- shortfalls in skilled labour.
The committee accepts that the reasons outlined above for the poor
performance of a number of Defence's major acquisition projects are well
understood. The committee sees no purpose in dwelling on the facts any further—they
speak for themselves. The committee, however, uses these identified failings as
a starting point from which to examine and determine the deeper underlying
causes for poor performance. Moreover, the committee notes that these failures
are the same as they have always been, with little sense of improvement except
for the genuine OTS purchases which are so relied on by Defence to claim
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