184Defence, First Principles Review Oversight Board ProposalHealth Check on Progress, 7 February 2017. The recruitment freeze has resulted in the incremental engagement of multiple individual contractors versus a single Integrated Support Contractor; and. 134Defence, Strategy& [sic] (formerly Booz & Company), Right Sizing the DMOUsing a capability-driven approach: same outcomes, fewer staff, Canberra, March 2013, p. 2. Increased duration for Engineering Change Proposals also presents latent risk to Sustainment Efficiency outcomes due a potential increase in cannibalisations and the requirement to fund future Engineering Change Proposals in out years. 2.10Defence intends to replace MSAs (and the associated Materiel Acquisition Agreements) progressively with Product Delivery Agreements. Defence subsequently increased the numbers of organisational units it considered to be Systems Program Offices from 54 to 78, with staff numbers ranging from three to 178.135. This expanded on various models of contract, including Management & Operations (M&O) contracts, as vehicles for enterprise transformation and offered suggestions as to how Capability Acquisition and Sustainment Group might approach the following 18months of reform.129 The paper set out a range of options for organisational transformation. In a submission to the Joint Committee of Public Accounts and Audit inquiry into contract management in the Australian Public Service in 2000, Defence, through the then Under Secretary for Defence Acquisitionalmost a direct counterpart position to the current Deputy Secretary, Capability Acquisition and Sustainment Group stated that: Defence must see that it has available the technical, financial and managerial expertise to be a smart buyer. 43 199798, Lifecycle Costing in the Department of Defence, examined Defences 1992 policy on lifecycle costing, finding that while Defences policy and procedures advocate the use of whole-of-life costings in acquisition decisions, in practice, Defences use of whole-of-life costing was uneven. In July 2015, Defence issued a request for quote and tasking statement to Bechtel. Similarly, in an international seminar on Defence acquisition in July2000, an issue identified by Defence at the time was the challenge to be a smart buyer. Instead, it would usually be done as several separate calculations, as we showed in the first 4 steps of the derivation. Opportunities also remain to increase the completeness and transparency of publicly reported information regarding materiel sustainment. 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. Accordingly, the Key Health Indicator will have a primary impact upon Materiel Confidence with a secondary, often more obvious, impact on Materiel Availability. Most of the sustainment budget is for maintenance of major platforms which, in turn, depends on age and use. With the introduction of its Sustainment Performance Management System (SPMS), Defence continues to develop a basis for an effective monitoring system for sustainment. 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. 37The performance framework was set out in some detail in ANAO Report No.30 201415, Materiel Sustainment Agreements, p. 103 forward. Defence had not developed robust capability and cost baselines for all capabilities, did not fully understand sustainment cost drivers nor whole-of-life costs for platforms. [6], Ministerial statements in 2010 and 2011 suggested that the Government believed new procurement reforms were needed. Significantly, the Coles review recommended that Defence develop an asset management strategy for sustainment (see Appendix 5 of this audit report) and Chief of Navy subsequently expressed a strong desire for a total asset management framework.174. 150D Abraham, Performance based contractinga panacea for supporting legacy aerospace platforms?, Defence Geddes Papers, 2005, available from [accessed 16 January 2017]. 5.8The ANAO identified the following streams of workeither directly flowing from the First Principles Review or from Capability Acquisition and Sustainment Groups own list of deliverablesas having the most apparent potential to affect the management of sustainment: 5.9The First Principles Review specifies few targets or measures of performance. 173In an Australian context, Simon Domberger pointed out that loss of skills to an organisation may be seen as a contracting cost. 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. However, Defence did not adequately assess the outcomes from the smart sustainment reforms. This recommendation was not included in the summary of First Principles Review recommendations at the front of the report of the review, whereas the recommendations set out in the preceding and subsequent paragraphs of the report are included in that summary (recommendations 2.12 and 2.13 respectively). First, the effective management of risks to national security which can arise with the exposure of details of the readiness and availability of Defence capability. 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. The anticipated transfer transactional workloads to industry will therefore increase the unit cost of capability delivery as far as the [Capability Managers] are concerned, regardless of the expected overall improvement in Defences budget.83, 3.47Systems Program Offices have had between three and four thousand staff over the last decade (Figure3.2, below). An indicator of the accuracy of the NAVALLOW Configuration record for each Platform. How to Use the Commonwealth Procurement Rules Division 1 - Rules for all Procurements 4. Defence was urged to use lifecycle costing throughout the acquisition lifecycle by an ANAO performance audit in early 1998. 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. 2.7In most cases, a major platformsuch as an aircraft type or class of shipis managed by a single Systems Program Office.18 Systems Program Offices maintain a relationship with industry bodies, particularly those providing maintenance services, spares, engineering and other support, and with the representative of the relevant capability manager.19 Each Systems Program Office has contracts with industry suppliers of services, parts and consumables. 157Defence, Report on Defence Governance, Acquisition and Support, (KPMG), April 2000, p. 51. 203Defence, The Helmsman Sustainment Complexity Review, July 2010, p. 29. 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. 1.7The objective of the audit was to assess whether Defence has a fit-for-purpose framework for the management of materiel sustainment. In January2017 Defences Systems Program Offices managed the sustainment of 112 fleets of equipment and services. The Committee expressed the view, in May2015, that: Sustainment expenditure is currently at approximately $5billion per annum and predicted to increase significantly over time. Efficient, Effective, Economical and Ethical Procurement 7. We understand that there are in more than 580 panellists across 79 skills sets. While poor outcomes in the Key Health Indicator represent risk across all Materiel Sustainment Agreement outcomes, these risks are more acute in relation to Material Confidence and Materiel. inefficiencies in the processes leading to government approvals for new projects. 25Defence, Inspector Generals Group, Review of Support Provided to DMO Systems Program Offices by the DMO Operations Divisions, 2006, p. 16. 5.59Defence paid $5.5million over four years (201112 to 201415) for consultancy services related to its sustainment business model. 5.33Defence defines performance-based contracting as an outcomes-oriented contracting method that ties a range of monetary and non-monetary consequences to the contractor based on their accomplishment of performance requirements.148. Contents - Commonwealth Procurement Rules - 1 July 2022 1. There has long been a strong internal perception in Defence that sustainment attracts less management attention than acquisition. 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. The success of the contract will be measured by Defences ability to operate without Bechtel support at the end of the contract, rather than by any specific product delivered by Bechtel. Establishing the validity of the logistic support framework is a secondary consideration (p. 14). 4.3The CEO wrote to all Systems Program Office directors seeking their help. Defence has clear and long-standing arrangements for managing the sustainment of specialist military equipment. [15][16] The case is said to have "significant implications" for the Senior Executive Service of the Australian Public Service, where legal challenges to performance decisions have been rare. 24Navys Fleet Screening instructions state that the focus of Navys review has evolved beyond a financial emphasis in light of the Rizzo Review to include consideration of how Navy and Capability Acquisition and Sustainment Group are meeting their obligations for whole of life sustainment of Navy capability. [13], In March 2009, the Corporate general manager of the DMO, Jane Wolfe, was dismissed for unsatisfactory performance. 160Defence, Review by Mr Jeff Worley, 30 May to 3 June 2016. 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) . Capability Acquisition and Sustainment Group officers have stated that, because of the lack of internal capacity and expertise, the group has depended heavily on consultants/contractors with its reforms. Systems Program Offices are located in different parts of the country but are organisationally all part of the Capability Acquisition and Sustainment Group within Defence. It is an output measure, which directly reflects achievement against the Sustainment Efficiency outcome. The most appropriate procurement model for delivering the capability and achieving value for money. F&A (indirect) cost pools must be distributed to benefitted cost objectives on bases that will produce an equitable result in consideration of relative benefits derived.. Defence did not track expenditure or benefits from the $360million allocated to support the program. Subsequently, the term has been used widely by others, including in a military acquisition context. 196Defence, Study into the Business of Sustaining Australias Strategic Collins Class Submarine Capability, November 2012. Maintenance Completion (tasks) to Plan achievement is an output measure, which directly reflects achievement against the Materiel Confidence outcome. Failure to pay sufficient attention to sustainment early on will increase the cost of ownership to Defence. For more information or to provide feedback on the Cost Principles, please send an email to theDefence Financial Investigation Service. 166Defence, Smart BuyerDetail Design, approved 20 October 2016. In other cases, this information is so general as to be of limited value. However, they are in a different order, which may reflect changes in organisation following the delisting of DMO. However, it does set two years as a timeframe for delivery of the changes it recommends.127 In setting that objective it allows for a tail of activity that might run beyond two years for which it gives, as an example, completing the roll-out of its new smart buyer model. FIFO: What the First In, First Out Method Is and How . 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. Cash management, also known as treasury management, is the process that involves collecting and managing cash flows from the operating, investing, and financing activities of a company. Parliamentary committees have frequently stated an interest in Defences reporting of its sustainment performance and, in particular, obtaining greater insight into that performance. 5.26In 2016, the First Principles Review concluded that Defence had too many Systems Program Offices139, and that Defence could make savings by restructuring them and reducing their staff.140 The Review drew on a 2013 consultants report that identified ways to reduce the DMO workforce.141. 130In May 2016, Defence entered into another contract with Bechtel for $65.8 million, to conclude in June 2018. This narrower focus risks telling only a partial account of sustainment within Defence and is potentially at odds with the One Defence model promoted by the First Principles Review. 5.29In September2015, Defence engaged a consulting firm to review and develop an optimal design for one of its Systems Program Offices. The development of an effective sustainment monitoring system remains a work in progress, and the effectiveness of Defences internal reporting system for sustainment could be improved in several areas. Cash accounting is an accounting method in which payment receipts are recorded during the period they are received, and expenses are recorded in the period in which they are actually paid. 23Fleet Screenings is a term originally used by Navy. In the Quarterly Performance Report, Defence does not identify the Tiger as an under-performing acquisition or sustainment project, even though the other sources suggest just that. The ANAO examined first, a 2008 DMO initiative to cut sustainment costs and, second, Smart Sustainment to identify what became of those reforms. Smart Sustainment had a ten-year savings target of $5.5billion. 3.35Defence major capability decisions have substantial longterm financial consequences for Defence and the Commonwealth budget.
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