Opportunities remain to improve the quality and transparency of Defences publicly reported information regarding materiel sustainment, while being sensitive to national security concerns. An alternative approach is to manage a total project budget that includes employee expenses. The cut was subsequently referred to within DMO as a harvesting of fat within the products readily absorbed by relevant Systems Program Offices and Divisions.103 The CEO DMO also wrote to the CEOs of companies undertaking sustainment work for DMO seeking their support. Nevertheless, the consultants considered the program was failing because of shortcomings in governance, program management, and Defences approach to reform described by a major vendor as minor reform, driven by piecemeal, top down budget pressure. REVISED DECEMBER2022. In February2016, the Deputy Secretary, Capability Acquisition and Sustainment Group, informed the First Principles Review Implementation Committee that the business framework project has commenced and been resourced to deliver a fundamental rebuild of all Group processes.159 The completion date was extended to 1July2016 and the objective was to have a High-level business framework approved. Key elements are: 2.3While a number of reviews have focused on the optimal distance of the specialist entity from the Department of Defence12with changes over time in its degree of separationand have made recommendations on the units operations and practices, the fundamentals of the sustainment management framework have been stable for over a decade. Honest and open behaviour which enables others to know exactly what Defence is doing and why. These tests also apply regardless of treatment as a direct cost Costs that can be identified specifically with a particular sponsored project, an instructional activity, or any other institutional activity, or that can be directly assigned to such activities relatively easily with a high degree of accuracy. 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. The following paragraphs provide an overview of the contents of the 201516 performance documents. DMO's stated vision was to become the leading program management and engineering services organisation in Australia. 206General Accounting Office, GAO/GGD-92-11 Government Contractors: Are Service Contractors Performing Inherently Governmental Functions?, 1991, p. 30, available from [accessed 16 January 2017]. 5. Opinion: with a baffling review process, no wonder MSPs haven't Defects post Maintenance Period. SeeCost Considerations-The Cost Principlesfor additional details. 122Defence, First Principles Review, pp. Mortimer identified five principal areas of concern. . SeeCost Considerations-The Cost Principlesfor additional details. The objective of the audit was to assess whether Defence has a fit-for-purpose framework for the management of materiel sustainment. 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. Defence has clear and long-standing arrangements for managing the sustainment of specialist military equipment. PDF Supplement to FRN CAS-GAAP Guiding Principles - White House 102Email from Steve Gumley, CEO, to DMO General Managers, Division Heads and Branch Heads, 26 February 2008. 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. Accrual Accounting vs. Cash Basis Accounting: What's the Difference? 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. Note b:Staff numbers are rounded to the nearest whole number. However, they are not conducted according to any auditing standard. 2.12Navy, Army and Air Force policy requires six-monthly reviews of MSAs. Source: NASA Cost Estimating Handbook, v.4.0, 2015, Appendix C: Cost Estimating Methodologies, available from [accessed 21 December 2016]. Defences asset management project is also examined. 190Defence Portfolio Budget Statements 201516, Section 2: DMO Outcomes and Planned Performance, p. 151, available from [accessed 20 April 2017]. The Tiger fleet achieved a total of 312.0 flying hours in June against a planned 698 hours. 63Commonwealth Procurement Rules, July 2014, p. 13. 4.20In October2015, Defences First Principles Review Implementation Team decided that work on Smart Sustainment, along with other reform activities underway within Capability Acquisition and Sustainment Group at that time, would cease and the relevant elements were to be incorporated into work on the new Capability Life Cycle. Grouping of polymers in relation to the specific registration requirements, in order to facilitate cost-effective registration of PRR in line with the 'one substance, one registration' principle and to reduce testing costs and avoid unnecessary testing (e.g. In its 201415 Annual Report, Defence claimed to have achieved $2billion of savings from the initiative in its first five years. Defence has initiated a reform project as part of its First Principles Review implementation. Table94: Top 30 Sustainment Products by End of Financial Year Outcome, Under the heading Top 30 Sustainment Product Descriptions, Defence provides a description for each of the Top 30 sustainment products. Final Operational Capability was declared in April2016 and ministerial advice was noted on 3May2016. 5.47Operating as a smart buyer is an essential function for an organisation seeking to outsource work. 177Defence, Defence Asset Management Landscape Document, May 2012, p. 1. 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. These risks and issues are highlighted so that stakeholders can respond in a coordinated manner to guide the conduct of remediation actions. Reviews of Defence over the last two decades have identified many opportunities for improvement in Defence sustainment practice. 33. 2.13Generally, the lifecycle of Defences military assets falls into two periods: acquisition and sustainment. For example, the Systems Program Office reviews are not yet complete and Defence has provided no evidence that decisions have been taken on changes to their structure and functioning. Define and document a clear, unclassified requirement for the sustainment program. Earned Value Management in CASG - pgcs.org.au 3.21Defence has implemented a strategy in recent years that should help to draw problems in individual sustainment products to senior management attention. This proposal is regarded as a key principle, integral to the acquisition and reform agenda. Rate of Effort / Aircraft Availability Achievement. Defence refers to itself as a smart buyer in the Defence Industry Policy Statements in 2007. In business, it is a key aspect of an organization's financial stability. A key criterion in determining whether consulting contracts would be appropriate is whether the government could maintain sufficient in-house capacity to be thoroughly in control of the policy and management functions of the agency. The Australian National Audit Office (ANAO) is a specialist public sector practice providing a range of audit and assurance services to the Parliament and Commonwealth entities. 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 First Principles developed were: Clear authorities and accountabilities that align with resources Decision-makers are empowered and held responsible for delivering on strategies and plans within agreed resourcing. A final consideration is that of resourcing. Research and reviews conducted for Defence have revealed a range of specific operational problems that are detracting from the efficient and effective sustainment of Defence capability, including the functioning of Systems Program Offices. Poor product reliability has contributed to weak serviceability at the 1st Aviation Regiment in Darwin. There is also evidence of a planned benchmarking exercise to identify appropriate operating and functional models that can support DMOs future End State Design (around May2015). Further, Defences Capability Acquisition and Sustainment Group, is implementing reforms that will potentially increase reliance on industry to deliver these services. 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. 5.15The contracts with Bechtel are not performance-based. Note b:This is part of a substantial project within Defence to improve both the recording of contracts and purchasing within Defence. Defence was urged to use lifecycle costing throughout the acquisition lifecycle by an ANAO performance audit in early 1998. Other reforms flowing from the First Principles Review remain underway: 30. Defence doing only for itself what no one else can do more effectively and efficiently. They identify, in general, the allowable and allocable items (see Section 2.0) of cost normally associated with MCC-financed contracts. It seems you are using an outdated web browser not supported Defence has advised that Collins Class sustainment cost per materiel ready day has decreased by approximately 40percent. Accounting standards IAS 18 require a company to recognize revenue only when the amount is measurable and cash flows are probable. 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. 151Defence, DMO Acquisition and Sustainment Manual (2007), pp. Shared services: do not provide what is needed by SPOs, resulting in significant use of SPO staff on Financial Management and HR tasks. 0000002669 00000 n
In examining why contracting out work to the private sector had not worked well during the Reagan administration, these studies find that government has often not proved to be an intelligent consumer of the goods and services it has purchased. Tiger sustainment is continuing to mature. It must cover a minimum of four years. 150D Abraham, Performance based contractinga panacea for supporting legacy aerospace platforms?, Defence Geddes Papers, 2005, available from [accessed 16 January 2017]. 5.45A review of progress by a consultant in MayJune2016 found that no significant progress had been made: As a result, my review changed from progress made to why none had been made.160 The consultant concluded that Lack of decision making has frankly constipated this project.161. 3242. This risks encouraging insourcing in preference to outsourcing even where the total real cost to the Commonwealth of the former is greater.82 Defence has noted this internally (February2017): Any reduction of SPO [full-time equivalent staff], without a commensurate reduction of activity, will result in work being outsourced to industry and therefore increase the cost to the [Capability Manager]. The Support and Operating Intent of the capability are not being adequately articulated by Capability Managers, which results in: Activities assigned to the Services that affect asset management and asset condition are not being completed, and limited feedback is being provided to the Capability Manager Representative regarding the impact of non-completion on cost and availability. Under the PGPA Act, Defence will need to report meaningfully against this plan in its annual performance statement. 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 notes that the audit was conducted at a strategic level, and acknowledges the opportunities for improvement identified by the ANAO. The main insights into what became of the initiative can be derived only from external consultancy reports. Table10: Capability Sustainment Program corresponds to Table6 in the PBS (see above). There is no record of target for these objectives. Defences view is that, once implemented, this initiative will improve Defences cost estimates for major capital equipment projects and will bring Defence practice into line with the approach adopted by capital intensive industries and Defence partner nations. The Defence White Paper, Defence 2000Our Future Defence Force, stated that the DMO will adopt commercial best practice as its norm and assess its performance against industry benchmarks. 20. Defence analysed these targets and developed overall targets to finalise the Defence White Paper and design of the Strategic Reform Program. 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. 49ANAO Audit Report No.11 201617, TigerArmys Armed Reconnaissance Helicopter. Note d:In late 2016, Defence estimated that the Collins Class submarine sustainment program would achieve international benchmarks for cost per materiel ready day by 202223.
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