When implemented, the system will be renamed the Program Performance Management System.42 In the long term, Defence intends to build an enterprise solution to encompass both sustainment and acquisition management and reporting using SAP software. 5. The consultants attributed the diversity to historical issues around original parent organisations, [and] individual service influences. inefficiencies in the processes leading to government approvals for new projects. 115Raytheon Australia, Smart Sustainment Solutions, March 2013. In November 2016, the contract was amended and increased by $32 million. It expressed concern that without such a feature Defence was exposed to risk. The ANAO found that, 18months after implementation commenced, there had been limited progress. 5.2The report of the First Principles Review refers to sustainment in the discussion of its recommendation that Systems Program Offices each be examined and analysed: In some cases it would be appropriate to outsource completely the acquisition and sustainment functions conducted by a Systems Program Office. Initial establishment of centres of expertise in Capability Acquisition and Sustainment Group is underway. A 2016 Parliamentary inquiry into Capability of Defences physical science and engineering workforce noted that: Several submissions and witnesses emphasised the need for Defence to have a sufficient [science and engineering] workforce to allow it to be a smart buyer or an informed customer. The objective of the audit was to assess whether Defence has a fit-for-purpose framework for the management of materiel sustainment. 3.56The first planning and reporting cycle under the PGPA Act requirements was for 201516. Miss Chloe Kempster A/Director of Project Controls - Program Management Function Capability Acquisition and Sustainment Group (CASG) PGCS August 2019 Introduction What we will cover today: 1. The real growth rate for the then recommended force structure option was 4.2 per cent. The former focused on availability (aircraft made available to the squadron), while Air Force focused on serviceability (aircraft actually able to be flown). The skill sets required in sustainment are quite different from those required for design and build: repairing the range of equipments in a submarine poses problems of access and control which are not likely to be experienced during build, and the design issues which crop up during sustainment are focused on keeping equipment operational rather than on design for performance. Defence has entered into sole source contracts with suppliers outside of the Defence system established to manage such arrangements. Their report made many recommendations generally aimed at reducing complexity in sustainment management, including greater use of performance-based contracts, a more consistent operating model across sustainment and improving commercial asset management expertise. Setting the Direction 3. Similarly, the new Capability Acquisition and Sustainment Group Business Framework is expected to take many years to fully implement. Failure to pay sufficient attention to sustainment early on will increase the cost of ownership to Defence. This stream of activity is likely to take much longer than the two years expected for implementation. The Systems Program Office Director reviews the data and comments for each measure and provides comments for a set of key performance indicators and an additional set of key health indicators.35 Further comments can be added up the hierarchy to the relevant Capability Acquisition and Sustainment Group division head. Develop an Asset Management Strategy for sustainment. Obsolescence will result in increased Urgent Defect, Cannibalisations and reduced Demand Satisfaction Rates. Reform is expected to lead to greater outsourcing of functions currently performed in-house by Defences Systems Program Offices. 88Previously, the relevant expenses would have been allocated across several categories, including repair and overhaul, and inventory supplies. The DMO was a half-way house with a separate chief executive and badging, but staff and funds continued to be provided by the department. 142Defence, First Principles Review, p. 36. 0000000016 00000 n This was, strictly speaking, a previous initiative. 118The Australian Strategic Policy Institute commented: Why a savings [sic] should be claimed from a fluctuation in fuel prices is unclear. The Future PGCS 2019 Chloe Kempster www.pgcs.org.au/library/2019 2 186Defence Portfolio Budget Statements 201516, Table 6: Capability Sustainment Programme, p. 21, available from [accessed 20 April 2017]. Correct date believed to be July 2009.] This month closes out the Financial Year total at 3995.2 against the planned 5848 hours, a result of 68.32 percent. An ANAO performance audit in 2013 found that, in most cases, submissions to government included whole-of-life cost estimates. Cost Accounting Standards Board Notice on Principles and Other Matters to Guide Conformance of the Cost Accounting Standards (CAS) to Generally Accepted Accounting Principles (GAAP) . The audit had found, among other things, that it was not generally used in the in-service (sustainment) stage. 24. 54During 2016, Defence renamed its gate reviews independent assurance reviews. For example, a note to Table21: Army Deliverables, which in relation to the Armys Armed Reconnaissance (Tiger) Helicopter, states while Tiger reliability, availability and maintainability continue to improve, rate of effort is affected by the low rate of availability of aircraft with fully serviceable mission equipment due to poor but improving contracted sustainment support and the requirement for unscheduled maintenance. Reporting and compliance was devoted to soft governance rather than to hard asset management decisions, based on sound financials, across the whole capability lifecycle. 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. Defence should give proper attention to asset management, logistic support and engineering requirements. 28. 3.65During DMOs existence, the data represents expenditure by DMO on capability sustainment excluding DMO service fees/DMO departmental appropriation (representing DMO staff and other operating costs). In general, NIH grant awards provide for reimbursement of actual, allowable costs incurred and are subject to Federal 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. 6. 69Defence Annual Report 199798, p. 224. This has largely been achieved by increasing the number of materiel ready days being obtained by adopting a 10+2 year Usage and Upkeep Cycle, but also by reducing costs of maintenance periods, particularly Full Cycle Dockings. The Defence Science and Technology Group had been helping individual Systems Program Offices with asset management but believed its real potential was at the enterprise level. On its face, this is arguably of wider applicability: [Acquisition and sustainment each have] a distinct character, but need to be carefully linked to ensure a smooth passage from acquisition (design, build, test and commission) to sustainment (maintain, operate, support logistically). In light of the Parliamentary interest in Defence sustainment (see paragraph 1.4 forward) the ANAO has considered, on the basis of the current audits findings, the issue of enhanced scrutiny of sustainment through a process similar to the existing Major Projects Report (MPR).1 The MPR has been prepared annually over the last decade to provide independent assurance of the status of selected Defence major acquisition projects. 17ANAO comment: The Secretary is the Departments accountable authority under the Public Governance, Performance and Accountability Act 2013. 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. Although this largely represents the absorption and re-badging of the former DMO, other subsidiary recommendations are directed at substantial restructuring and reformulating the business practices in this part of Defence. There is a risk that insights into a very substantial reform process could be lost. 0000002669 00000 n The term includes small and large businesses and is used interchangeably with "for-profit organization." Closure of the Materiel Acquisition Agreement and project closure will be completed during 2016. However, the skills may be retained in the marketplace and the real issue is whether the organisation loses the capability of being a smart purchaser (The Contracting Organization: A Strategic Guide to Outsourcing, Oxford 1998, p. Areas for improvement include: Defences second corporate plan prepared under the Public Governance, Performance and Accountability Act 2013 (PGPA Act) identifies sustainment more clearly than the first corporate plan. through read-across of data). Reviews have consistently emphasised the need for Defence to improve the efficiency of its operations, including in sustainment. 1.4Parliamentary committees over several years have stated an interest in Defences reporting of its sustainment performance and, in particular, obtaining greater insight into that performance.7 In May2014, the JCPAA recommended that the DMO prepare a suitable methodology for reporting sustainment activity and expenditure, within six months.8 The Government disagreed on the basis that current arrangements balanced Parliamentary scrutiny of sustainment expenditure with the protection of classified information on the military capability, readiness and availability associated with that sustainment.9 In September2014, the Committee sought a sustainment options paper from the ANAO, which was made public by the Committee. Internal Defence briefs and letters of assurance reveal that Defence believed it could claim some $500million in savings from no longer having to sustain the Super Seasprite helicopter following the projects cancellation. Defences devolved and fragmented leadership approach to the program meant that Defence had no holistic vision of what the reform program was setting out to achieve, and therefore no logical program of work designed to support it. 67ANAO Report No. In this light, the cost of those staff is a substantial omission from the apparent price of services facing the capability manager. The tasks articulated in the Directive cover the full range of Defence activities from humanitarian assistance and disaster relief to peace and stability operations, while ensuring the joint force retains the necessary baseline posture to mobilise in the self-reliant defence of Australia. Defence had multiple repositories and versions of asset management information making it hard to assess whether Defence was aligned to best practice. 5.35The problem of existing contract arrangements was described as follows by an RAAF officer in 2005, with a special focus on ageing aerospace platforms: The typical [support entity] entails a Systems Program Office managing a variety of small to large volume-based, process-oriented contracts. Will future rises in fuel prices be subtracted from savings? (The Cost of Defence: ASPI Defence Budget Brief 201213, 2012, p. 138). The CAJWG has agreed on basic principles where by the standards should be based on work already performed and should reflect future best market practices(rather than solutions currently applied in most markets) that, once implemented, should dismantle the operational part of Barrier 3 as concerns the categories of C orporate Actions addressed. A group of measures (Monthly and Year to Date) which assess the reliability of price prediction by Capability Acquisition and Sustainment Group and is represented as measure of Achievement against In-Year Phasings. 212Senate Foreign Affairs, Defence and Trade References Committee, Capability of Defences physical science and engineering workforce, April 2016, paragraph 3.16. http://www.defence.gov.au/annualreports/15-16/Chapters/chapter-8.asp, http://www.defence.gov.au/casg/AboutCASG/Accountability/, https://www.nasa.gov/offices/ocfo/nasa-cost-estimating-handbook-ceh, http://www.finance.gov.au/resource-management/performance/, http://www.defence.gov.au/Budget/17-18/PBS.asp, http://www.defence.gov.au/AnnualReports/15-16/Chapters/chapter-8.asp, https://www.aspistrategist.org.au/graphs-week-finally-getting-collins-class-paid/, http://www.defence.gov.au/ADC/publications.asp#Geddes, http://www.defence.gov.au/Budget/15-16/PBS.asp, http://www.defence.gov.au/annualreports/15-16/Chapters/Chapter8-WebTable8.11.xls, http://www.defence.gov.au/annualreports/15-16/Chapters/Chapter8-WebTable8.2.pdf, Auditor-General's responses to requests for audit, Systems Assurance and Data Analytics Group, Professional Services and Relationships Group, http://www.defence.gov.au/Budget/15-16/PAES.asp, http://www.gao.gov/products/T-NSIAD-97-110, Defences Management of Materiel Sustainment. This requires visibility of the total cost of ownership of major equipment. As noted in paragraph 5.14, in July2016, a former senior Bechtel executive was seconded to the position of First Assistant Secretary Program Performance in Capability Acquisition and Sustainment Group, under the day-to-day direction of the senior Capability Acquisition and Sustainment Group leadership. Subsequently, the term has been used widely by others, including in a military acquisition context. There are others which relate to the more detailed findings of the First Principles Review, including those identified in the paragraph above (such as a common approach to project management).125 All elements have implications for both acquisition and sustainment. To facilitate the reforms, Defence made $360million of investment funds available for projects that would yield net savings. This followed a joint speech by the Secretary of Defence and Chief of the Defence Force stating that improving Defence productivity was a priority. Defence would benefit from evaluating future major change programs. Accordingly, the Key Health Indicator will have a primary impact upon Materiel Confidence with a secondary, often more obvious, impact on Materiel Availability. A Defence Central Contracts Register facility commenced operation in January2016.b This enables efficient collection of data for new Defence contracts: it does not include existing contracts, which can be added only by a separate stream of work. Later (April2004), senior DMO managers stated that there was scope to achieve a better risk balance in sustainment program management, where well-defined tasks had, in the past, been transferred to industry successfully with net savings, thereby improving efficiency. In business, it is a key aspect of an organization's financial stability. This measure is applicable to Service / Commodity products only and the achievement against the agreed service levels contained within the Requirements element of the Product Schedule. 4.4Defence informed the ANAO that it believed it had achieved a five per cent sustainment budget cut in 200809. 31. 87Department of Finance, Resource Management Guide No. 102Email from Steve Gumley, CEO, to DMO General Managers, Division Heads and Branch Heads, 26 February 2008. 14 and 40). 3.53Commonwealth entities must reportin an annual performance statementtheir actual results against the planned performance criteria outlined in their corporate plan and Portfolio Budget Statements. The ANAO recommends that Defence develop and implement an evaluation plan to assess the implementation of the recommendations of the First Principles Review. 168See, for example, Deputy Secretary, CASG, address to Australian Defence Magazine, 16 February 2017. 0000000516 00000 n 5.51In its implementation of the smart buyer concept, Capability Acquisition and Sustainment Group does not clearly articulate the competencies required to specify outsourcing requirements. It addresses sustainment management at a high level and is not focused on the sustainment of individual platforms or the technical aspects of their maintenance. The subsequent Defence Procurement Review (Kinnaird Review) in 2003 also stressed the need for high-quality, highly skilled sustainment managers in delivering modern military capability in a business-like manner. External Maintenance Period Demand Fill Rate. Nevertheless, developing wholeoflife cost estimates for major capital projects has been a challenge for Defence for decades. Defence notes the findings of the ANAO, and agrees to both recommendations. Sustainment costs were increasing because of the inappropriate application of DMO policies and procedures, and a lack of business acumen in contracting and engagement with industry. The 2015 First Principles Review was preceded by earlier major reform initiatives, notably the Strategic Reform Program (SRP) begun in 2009. The second series, commencing in 201314, represents the reported totals for Defences capability sustainment program. This represents a major investment of at least $120million, including contracts for services from the principal provider (Bechtel) valued at some $107million. In June2017, Defence advised the ANAO that implementation plans for significant reforms to Systems Program Offices would be developed in the second half of 2017. a collection of multi-functional, multi-disciplined teams; staffed to achieve a balance between environmental, capability system and technical needs in whole-of-life management; organised along class/fleet/weapon system lines; and. Defence decided to migrate only material, high-risk existing contracts onto its central register. Asset management might not apply to items at the commodities end of the sustainment spectrum, but would apply to platforms and may apply to products (see Box 1, p. 2). Reforms to the management of sustainment flowing from the 2015 First Principles Review remain at an early stage, and this stream of activity is likely to take much longer than the expected two years. A cash flow statement is a financial report that details how cash entered and left a business during a reporting period. This equipment never made it into service before the project was cancelled, yielding no capability whatsoever at a cost of $1.5billion. 5.15The contracts with Bechtel are not performance-based. Appendix 5 of this audit report sets out both the root causes and those of the Coles Reviews consequential recommendations that have wider applicability in Defence sustainment. 84Mr Kim Gillis, Deputy Secretary, Capability Acquisition and Sustainment Group, Defence, quoted in Ziesing, K, From the Source: Deputy Secretary CASG Kim Gillis, (interview) Australian Defence Magazine, 1 November 2016. Defence advised the ANAO that it would have been difficult to implement the contract as a performance-based contract: Unlike standard Defence capability projects, Bechtel has been contracted to develop Defences capacity and capability to deliver rather than for Bechtel to deliver itself. 150D Abraham, Performance based contractinga panacea for supporting legacy aerospace platforms?, Defence Geddes Papers, 2005, available from [accessed 16 January 2017]. 5.23As discussed in paragraph 3.47 of this report, Systems Program Offices have had between three thousand and four thousand staff over the last decade. 3.35Defence major capability decisions have substantial longterm financial consequences for Defence and the Commonwealth budget. This matter is also taken up in the next chapter. 176The Helmsman Sustainment Complexity Review [Helmsman Review], July 2010; Plan to Reform Support Ship Repair and Management Practices [Rizzo Review], July 2011; and Study into the Business of Sustaining Australias Strategic Collins Class Submarine Capability [Coles Review], November 2012. Due to the nature of the Key Health Indicator, it seeks to measure disruption post External Maintenance Period and consequential impact on Materiel Ready Days (Materiel Availability outcome). Define and endorse an Asset Management Plan. 29. 184Defence, First Principles Review Oversight Board ProposalHealth Check on Progress, 7 February 2017. Defence has summarised Bechtels tasks under the contract as follows: The contract is fee-based with no performance measures. Other reforms flowing from the First Principles Review remain underway: Defence has also been developing its approach to asset management over many years, having obtained substantial advice from internal and external sources to adopt a Defence-wide asset management strategy to underpin a sustainment business mode for specialist military equipment. 5.25The 2009 report from the Pappas Review identified opportunities for efficiencies in maintenance activities carried out by Systems Program Offices by consolidating maintenance facilities; restructuring outsourcing contracts to ensure the contractual conditions create the right incentives for performance improvements; and implementing lean techniques in workshop management.138 From the formation of DMO, Defence received similar external advice from different sources that substantial improvements in efficiency were possible in the Systems Program Offices. Smart Sustainment was showing significant stress. Therefore, it is used to account for revenue when revenue streams from a sale cannot be accurately determined. 13Defence, First Principles Review: Creating One Defence, 2015the First Principles Review. Defences comments, and suggested editorial amendments, have been provided to the ANAO. 167Deputy Secretary, Capability Acquisition and Sustainment Group, Defence, CASG Bulletin, Issue 4, 2015. 5.34Performance-based contracting rose to prominence in the USA for its military in the late 1990s. Contents - Commonwealth Procurement Rules - 1 July 2022 1. The Committee recommended that Defence commit to maintaining its physical science and engineering workforce capabilities in key areas to allow it to be both a smart buyer and a technically proficient owner of materiel. It has engaged a consultancy (at an estimated cost of $1.2million) to undertake the data identification and cleansing for active major contracts for the top 15 Acquisition and Sustainment projects/products (about 60 contracts) by 30June2016.c After completing approximately 15 major contracts the project was suspended due to competing priorities within Capability Acquisition and Sustainment Group. Defence should base its selection of systems/equipment on systems sourced from credible/proven suppliers. Defence has clear and long-standing governance and organisational arrangements for managing the sustainment of specialist military equipment. During the course of this audit (9January2017) the Committee announced that it had commenced an inquiry into Defence Sustainment Expenditure. The concept was also included in the initial Materiel Sustainment Agreements in 2005 between DMO and the Defence Service Chiefs. ii. The performance of the Armed Reconnaissance (Tiger) Helicopter is reported thus in the Quarterly Performance Report for April June2016, produced in August2016: The Final Acceptance Milestone under the Acquisition Contract with Airbus Group Australia Pacific (formerly Australian Aerospace) was declared achieved on 28May2013, approximately five years later than originally contracted.