examining each Systems Program Office to determine where each fits within the smart buyer function, and the most appropriate procurement model for delivering the capability and achieving value for money. 33Defence internal documents. In one case, whole-of-life cost estimates were not prominent with only the acquisition cost and net personnel and operating costs referred to in recommendations to government.74. The First Principles Review has pointed out that Defence has treated Systems Program Office staff costs at the project level as a free good, reducing the transparency of the cost of sustainment work and providing inaccurate price signals and a distorted incentive structure to Capability Managers. trailer
130In May 2016, Defence entered into another contract with Bechtel for $65.8 million, to conclude in June 2018. According to the DMO website, the executive team has considerable private and public sector experience, as well as extensive military domain knowledge. It terminated upon the delisting of DMO. These activities are outside the scope of the audit. From the perspective of the field review, there is some indication that the sustainment models continue to drift apart.202. 3.48On the inclusion of staff costs in the new Product Delivery Agreements, Defence informed the ANAO in March2017 that The PDA remains under development, and it is inappropriate to speculate in any detail on how anticipated elements of the document will be used. The ANAO examined the reforms to Defence sustainmentknown as smart sustainmentcarried out as part of the Strategic Reform Program from 2009 forward. 5.42A design guide for the establishment of the Centres of Expertise has been produced and initial establishment of these centres is scheduled for April2017, with the establishment of a balanced matrix expected to be over a two-year period.158. The Canberra Times reported that its 'senior public service sources' believe she is the highest-ranking Australian Commonwealth public servant to ever have been dismissed for underperformance. 10Joint Committee of Public Accounts and Audit, Report 448, p. 30. Final Operational Capability was declared with caveats by Chief of Army (CA) on 14April2016. As noted in Figure 3.2, Systems Program Office staff have numbered between three thousand and four thousand over the last decade. Applicability of a particular set of cost principles The government-wide principles, issued by OMB (or, in the case of commercial organizations, the Federal Acquisition Regulation [48 CFR 21], or, in the case of hospitals, 45 CFR 75, Appendix IX, "Principles For Determining Costs Applicable to Research and Development Under Grants and Contracts with Hospitals"), on allowability and unallowability of costs under federally sponsored agreements. These estimates, based on the latest available figures each year (generally from the Portfolio Additional Estimates Statements) are set out below (in Figure3.3) for the period 200506 to 202021 (the end of the current forward estimates period as at May2017). Contents - Commonwealth Procurement Rules - 1 July 2022 1. The availability of the aircraft is either shown as Green (acceptable performance) or Amber (early signs of underperformance), depending on the part of the report examined. Defence agreed to the recommendation that total cost information be provided to relevant Defence committees, with qualification. difficulties in the introduction of equipment into full service. Defence advises that Over the past 12months the CASG e-Procurement Team and the DoF AusTender Team, and SAP Australia Canberra Office have been progressing a whole of Government project to address the technical and business process risks posed by the current SAP AusTender Contract Reporting data capture and reporting solution. 22. Government officials must be the ones applying discretion and making value judgments throughout the process. The table reports, for each Top 30 sustainment product: the budget estimate for. Such a framework would need to articulate how an organisation responsible for both acquisition and sustainment would carry out those major tasks. This requires visibility of the total cost of ownership of major equipment. Ongoing legacy reform activities that continue to require oversight and do not align with current reform activities; SPOs continue to manage and perform work that industry may be able to do more effectively or efficiently, whilst insufficient resources are being applied to governing and assuring. Rizzos Recommendation 1 was that Navy and DMO should jointly establish practical methodologies for integrated through life asset and sustainment management (p. 38). Figure 2.1:Simplified representation of organisational arrangements supporting Defence sustainment of specialist military equipment. The effectiveness of these reviews could be increased if the lessons obtained from gate reviews were routinely incorporated into management reporting on sustainment and if gate reviews were extended to contribute to the proposed quality assurance mechanism for Quarterly Performance Reports. 1 A cost principle will also include expenses incurred in purchasing the asset, such as shipping and delivery fees, as well as setup and . A service optimisation program for Army Land Rovers, saving $590000 a year. 48This is separate from the long-established Projects of Concern, which generally include acquisition projects rather than sustainment products. It also agreed that deviation from the endorsed approach will be permitted only in exceptional circumstances, and with the approval of Defences costing authorityits Chief Finance Officer. For example, sustainment cost has been identified as a key risk for the MRH90 helicopter: 3.25Information from sustainment gate reviews is not routinely incorporated into management reporting on sustainment. The final Contract Acceptance milestone was achieved on 28May2013 within the approved acquisition budget envelope. Note:For 200506 to 201415, expenditure was made through the Defence Materiel Organisation. This chapter examines Defences performance framework to support the management and external scrutiny of materiel sustainment for specialist military equipment. 5.17As set out above (paragraph 5.8), the activities most likely to affect the management of sustainment are: 5.18When Defence established Systems Program Offices in 2000 as the focus of the newly created DMO, Systems Program Offices were to have the following characteristics: 5.19Defence has more recently (April2016) defined Systems Program Offices as: a business unit that works directly with Capability Managers and Suppliers as necessary to deliver agreed capability across the [Capability Life Cycle], coordinating the [Fundamental Inputs to Capability] elements required to achieve this objective.133. There has long been a strong internal perception in Defence that sustainment attracts less management attention than acquisition. Shared services: do not provide what is needed by SPOs, resulting in significant use of SPO staff on Financial Management and HR tasks. Note a:The Collins Class submarine sustainment program has been a project of concern since November2008. In the Defence Annual Report 200405 (p. 242), DSTO nominated ensuring Australia is a smart buyer of defence equipment as one of the ways in which it supports Australias defence. a 2016 sustainment gate review of the Multi-Role Helicopter (MRH) project which commented on the need to clarify the roles and responsibilities of Defence and industry, and ensure the Systems Program Office has the appropriate skills and sufficient capacity to discharge its responsibilities, the 2016 Houston Review into Army Aviation, which observed that the Systems Program Office for the Tiger and the MRH helicopters relied heavily on several key contractors. At the time DMO developed MRS it was noted internally that DMO currently spends around 3billion dollars per year on sustainment activities and at this stage has no system that can adequately report on the effectiveness or efficiency of these activities.29 Work began in September2005 to introduce sustainment reporting capacity into MRS. 3.3Several major reports have criticised sustainment reporting over the last decade, including Mortimer (2008) and Rizzo (2011).30 Rizzo was highly critical of existing performance indicators: Each current [MSA] Product Schedule has inadequate Key Performance Indicators They only include a small subset of the contractual measures that should be placed on each party and there are no consequences associated with noncompliance. 138Pappas describes lean as a way of working that focuses on (among other goals), the continual reduction of seven forms of waste By eliminating waste substantial productivity improvements are made: quality is improved, available time is increased, and cost is reduced. The report includes performance summaries for the Top 30 major acquisition projects, all major acquisition projects reported in the Major Projects Report and the Top 30 sustainment products. Accounting standards IAS 18 require a company to recognize revenue only when the amount is measurable and cash flows are probable. Improve leadership skills, knowledge and experience. It also considers how Defenceparticularly within the Capability Acquisition and Sustainment Groupis implementing the reforms most relevant to the management of sustainment, and the progress of those reforms. However, Defence continues to address specific operational shortcomings and there remains scope for Defence to improve its performance monitoring, reporting and evaluation activities to better support the management and external scrutiny of materiel sustainment. The indicator was replaced with a measure CASG-related Product Cost per materiel-ready day, whose value could be generated automatically and would not require comment by the Systems Program Office.39 This would be reported in SPMS but not be represented as a key performance indicator40 because it did not include the cost of all the fundamental-inputs-to-capability and did not measure the cost per materiel-ready day. 181Defence, ISO55000 Gap Assessment, Capability Acquisition and Sustainment Group, September 2015, p. 6. [9], On 1 April 2015, the Minister for Defence released the First Principles Review. Deficiencies in the configuration record indicates potential Configuration variance and will impact the availability of necessary inventory for planned and corrective maintenance tasks resulting in increased risk to achieving Materiel Ready Days (Materiel Availability outcome). A Smart Buyer will also enable appropriate financial return for its Suppliers. 1.9The audit was conducted in accordance with ANAO Auditing Standards at a cost to the ANAO of approximately $422000. for Institutions of Higher Educations (IHEs). Cost accounting standards and disclosure statement. Fuel and lubricants, combat clothing and explosive ordnance fall into this category, which makes up about 20percent of sustainment expenditure. As their names indicate, direct material . The government agreed to the recommendation but Defence did not implement it.199 By December2013, some five years later, Defence decided that it would not meet the recommendations intent. are subject to the cost principles The government-wide principles, issued by OMB (or, in the case of commercial organizations, the Federal Acquisition Regulation [48 CFR 21], or, in the case of hospitals, 45 CFR 75, Appendix IX, "Principles For Determining Costs Applicable to Research and Development Under Grants and Contracts with Hospitals"), on allowability and unallowability of costs under federally sponsored agreements. 94Defence has advised that around two-thirds of Systems Program Office staff are engaged in sustainment work. The fact that a proposed cost is awarded as requested by an applicant does not indicate a determination of allowability. 101Any savings in sustainment costs were to be retained by Defence for reinvestment primarily in operating costs for new equipment. As others have observed, the apparent growth flows mainly from the inclusion of certain Estate and Infrastructure Group costs (such as garrison support) and the balance of Defences estimated future sustainment funding that Defence has yet to allocate to a Defence Group within the broader Capability Sustainment Program in the last years of the period.98 This is apparent for the period following the delisting of DMO and the inclusion of items other than specialist military equipment in Defences overall sustainment estimates (Figure3.5). 124Defence, First Principles Review, p. 40. That modelling indicated cost of ownership of between $240million and $360million per year (October2012 prices), or $5.1million to $7.7million per aircraft per year. 5.24According to Defence documentation, the degree of outsourcing among Systems Program Offices has long been diverse, ranging from a totally outsourced model to a high degree of transaction-based activities carried out in-house.136 A 2015 review of Defences Systems Program Offices concluded that Defence manages the majority of its acquisition and sustainment activity in-house.137. Defence has recently improved its whole-of-life costing of proposals to acquire major capital equipment but remains unable to measure or report reliably the total cost of ownership. Current proposals appear to be limited to an independent health check on progress.184 On the face of it, the scope of the health check is narrow, focused on closing recommendations and assessing progress. 2.17In late 2015, Defences Audit and Fraud Control Division reviewed the contracted service arrangements within three Systems Program Offices in response to a request by Defences Chief Finance Officer Group. 130, Overview of the enhanced Commonwealth performance framework, p. 4, available from