124Defence, First Principles Review, p. 40. 5.49Defence has developed its own meaning for the term smart buyer, which does not clearly capture the intent of the First Principles Review recommendation. 130139, available from
[accessed 10 May 2017]. Failure of this Key Health Indicator will affect the achievement of all three of the Materiel Sustainment Agreement outcomes. These competencies include: specifying requirements independent of suppliers, working out where best to obtain those requirements; and knowing how to assess what they have received on behalf of the Commonwealth. The Defence Audit and Risk Committee will therefore require appropriate information on sustainment reporting to enable it to provide this advice and assurance to the Secretary. Defence concurs with the ANAOs conclusion that the fundamentals of the governance and organisational framework for the management of sustainment are clear, and fit for purpose. The ANAO examined first, a 2008 DMO initiative to cut sustainment costs and, second, Smart Sustainment to identify what became of those reforms. Defence has clear and long-standing arrangements for managing the sustainment of specialist military equipment. 5.67Defence already has an evaluation process developed that will be implemented by the end of 201617. Defence records show that the department made substantial efforts to keep track of the large number of diverse initiatives identified across the department under the smart sustainment reforms associated with the SRP, including internal reporting to management. [12] Gumley had headed an executive team of around 20 senior managers. requirements as long as they meet the standards prescribed in 2 CFR Part200.302 and 45 CFR Part 75.302 for financial management systems. Measures the number of occurrences where Cannibalisation was approved by the Capability Manager Representative. Similarly, the new Capability Acquisition and Sustainment Group Business Framework is expected to take many years to fully implement. Cash Flow Statement: What It Is and Examples - Investopedia apply to all NIH award instruments, award mechanisms, and special programs and authorities, including modular awards and awards under SNAP with one exception: they do not apply to Kirschstein-NRSA individual fellowship awards. The development and maintenance of the MSA framework had also encouraged and facilitated collaboration between Defence and the (then) DMO at both the management and operational levels (see paragraph 12). The objective of the audit was to assess whether Defence has a fit-for-purpose framework for the management of materiel sustainment. In particular, the other recommendations with substantial implications for the management of sustainment are as follows: 2.3 developing a new organisational design and structure as part of the implementation process for the Capability Acquisition and Sustainment Group with reduced management layers; 2.4 examining [and analysing] 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; and, 2.11 significant investment to develop an operational framework which comprehensively explains how the organisation operates and the roles and responsibilities within it; a detailed set of life cycle management processes which provide project and engineering discipline to manage complex materiel procurement from initiation to disposal; and reviewing architecture to reinforce accountability at all levels and bringing together information upon which good management decisions can be made.123. 50ANAO Report No.40 201617, 201516 Major Projects Report. 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. 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. 139It is not clear from the report how the First Principles Review drew this conclusion. consolidation and review of Systems Program Offices; any further development of Defences approach to asset management. Defence therefore requires a robust framework to manage the risks associated with the widespread use of contracted services. Nevertheless, an internal review conducted by Defence and research conducted for Defence following the 2015 First Principles Review have identified a range of operational problems that detract from the efficient and effective sustainment of Defence capability, including: adherence to procurement principles; staff capabilities; duplication of effort and transparency of internal costs. In 2003, a few years after the formation of the DMO, a zero-based review found that there was a significant opportunity to reduce resourcing levels by re-engineering processes and improving systemsin other words, improve efficiency.59 Specifically, there was potential to optimise resource utilisation through judicious outsourcing to original equipment manufacturers in appropriate circumstances. Army refer to the reviews as Sustainment Financial Screens, and Air Force call their reviews Sustainment Assessment Reviews. 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. 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. In business, it is a key aspect of an organization's financial stability. Many antiviral agents exert significant host cellular toxicity, a limitation that has hindered antiviral drug development. 49 of 51. 5.16As at November2016, the total estimated value of contracts awarded to support Defence activity in Capability Acquisition and Sustainment Group directly or indirectly associated with implementing the First Principles Review, excluding the Bechtel contract, was $40million. 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. The 201617 Defence Corporate Plan incorporated a revised set of Defence Purposes and performance measures.89 These identify sustainment more clearly than in the previous plan, under the revised Purpose 2, Deliver and sustain Defence capability and conduct operations. Defence has not kept a systematic record of the outcomes of the Smart Sustainment initiative associated with the 2009 Strategic Reform Program. The Pappas review had observed that sustainment was an area with significant opportunities for efficiencies.105. There is a risk that insights into a very substantial reform process could be lost. It is now planning to implement a new model, which seeks to capture the full cost of ownership throughout the life of an asset, with implementation planned for completion in July2018. 32Defence, Decision BriefSustainment Performance Management System Development, 8 August 2011. The term smart buyer is a term of art, with a specific meaning in public administration, relating to outsourcing, and which arose around 1990 following work in the USA by the GAO and the Brookings Institution.205 The key paragraph in an early GAO study states: The government must have an active role in the decision-making process. 5.12Bechtel had made contact with Defence in July2013 seeking an opportunity to help with reform of the DMO, presenting a paper Australian Defence OrganisationDMO Transformation Opportunities. 203Defence, The Helmsman Sustainment Complexity Review, July 2010, p. 29. 166Defence, Smart BuyerDetail Design, approved 20 October 2016. That review found sustainment is still being treated as a poor relation compared to the generally higher-profile acquisition work.27 The Sustainment Complexity Review (2010), which found 50 plus sustainment business models in DMOs Systems Program Offices, explained this diversity by reference to the greater attention Defence had given acquisition. The multiple approaches and varying quality for determining baselines and metrics for the various improvements expected for the program, and inadequate tracking of benefits would limit Defences assurance about improvements and cost reductions. For example, the category listed in the PBS Helicopters, Tactical Unmanned Aerial Systems and Guided Weapons no longer appears and the items are distributed among other categories. 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. Defence was urged to use lifecycle costing throughout the acquisition lifecycle by an ANAO performance audit in early 1998. With benchmark availability on the verge of being achieved, the focus should now be on efficiency improvements and cost reductions across the sustainment program. 2.8As a consequence of the 2015 First Principles Review and the decision to consolidate and reform Systems Program Offices, Defence has adopted a new definition of Systems Program Office. 169Defence, Observations and conclusions of the Gate Review Board, CA48MRH90 Multirole Helicopter: Sustainment Performance Gate Review, 12 May 2016. 1.10The team members for this audit were Dr David Rowlands, Kim Murray and David Brunoro. The most appropriate procurement model for delivering the capability and achieving value for money. 125Defences current plans for systems development envisage the department implementing support for earned value management in late 2019. The review also found that while the cost effectiveness of the Collins Class submarine sustainment program was showing signs of improving as submarine availability increased, it was yet to achieve international benchmarks.d The review team recommended that Defence should now focus on cost reductions to improve the efficiency of the Collins Class submarine sustainment program.e. Reporting: SPOs report to multiple bodies for performance management and technical assurance, and all require different information, formats, and timings; Policy: implementing changes to policy and process from multiple sources with limited guidance or support; and. Materiel Ready Days Achievement, measured as a percentage achieved against planned reflects the reliability of the Mission System and the Support System. The Capability Acquisition and Sustainment Group (CASG) is an organisation within the Australian Department of Defence, responsible for acquisition, supply chain management, and sustainment of military equipment and materiel including aircraft, ships, vehicles, electronic systems, weapons, ordnance, uniforms and rations for the Australian Defence Force. However, in 2013, a further report by external consultants stated that Defence needed an integrated, whole-of-life approach to sustainment and that Defence could realise significant benefits by modelling the management of their assets on the approach taken by commercial organisationsan asset management approach. The Review found, in terms similar to those of Coles: In fact, the general comment is that sustainment is the poor cousin to acquisition.28 In June2017 Defence advised the ANAO that it was attempting to address this perception through the current round of reforms, such as the new Capability Life Cycle and the December2016 release of Support Procurement Strategies. The gross centralisation, while simple to operate, is inconsistent with the principles of value for money, competition, or any rational industry policy. Further detail is provided in Appendix 4. Cost accounting standards and disclosure statement. In March2017, Defence informed the ANAO that work was underway to address this. Defence advised that the new Business Framework will take many years to fully implement.162 Between February2016 and February2017, Defence entered into contracts with the International Centre for Complex Project Management (ICCPM) worth a total of $2.94million for work described as relating to the development and implementation of the business framework. This should be implemented immediately and individual leaders from the first line to the Deputy Secretary Capability Acquisition and Sustainment must be accountable for cost and schedule targets.61, 3.33On the question of the above recommendation about measuring productivity, Defence referred the ANAO to the Capability Acquisition and Sustainment Group Business Framework and, within it, the proposed process for the Capability Acquisition and Sustainment Group Business Review Cycle. Defence notes that the audit was conducted at a strategic level, and acknowledges the opportunities for improvement identified by the ANAO. Chapter 237 Principles of Antiviral Therapy. 168See, for example, Deputy Secretary, CASG, address to Australian Defence Magazine, 16 February 2017. 186Defence Portfolio Budget Statements 201516, Table 6: Capability Sustainment Programme, p. 21, available from [accessed 20 April 2017]. 3.62In summary, the ANAOs review of public reporting on sustainment activity indicates that: 3.63Defence has not published program level estimate data on a consistent basis over time, and no time series analysis is published by Defence to assist with external scrutiny of sustainment expenditure. Poor planning, poor compliance with External Maintenance Period Planning Milestones, transference of Organic maintenance tasks to External Maintenance Period due to poor Organic Maintenance Completion rates or failure to undertake reliable Pre Refit Condition Assessment will result in increased External Maintenance Period cost. for commercial organizations An organization, institution, corporation, or other legal entity, including, but not limited to, partnerships, sole proprietorships, and limited liability companies, that is organized or operated for the profit or benefit of its shareholders or other owners. Defence continues to strive towards efficiencies in the delivery of sustainment outcomes for Defence capability and to report on outcomes, noting the need to balance transparency and accountability to the Australian public and Parliament, with the national security interests of the Commonwealth. Opportunities remain to improve the quality and transparency of Defences publicly reported information regarding materiel sustainment, while being sensitive to national security concerns. Further, Defences Capability Acquisition and Sustainment Group, is implementing reforms that will potentially increase reliance on industry to deliver these services. Simplicity Navy, Army, Air Force units and Joint Logistic Command business units also conduct sustainment activities at a tactical level, inclusive of maintenance, inventory management and regulation of the technical integrity of materiel within units. 32. This was the case with the earlier Smart Sustainment reforms. It is an overarching element in progressing First Principles Review implementation in Capability Acquisition and Sustainment Group. The ANAO has also observed in Chapter 3 of this audit report that there is scope to improve the quality and transparency of public reporting on sustainment in existing Defence reportsthe Portfolio Budget Statements, Portfolio Additional Estimates Statements and Defence Annual Report. Acquisition and through life support for armoured fighting vehicles, including ASLAV, M1A1 Main Battle Tank, M88 Recovery Vehicle, M113 Armoured Personnel Carrier and the Protected Mobility Vehicle (Bushmaster) and associated equipment. During 2012 DMO endeavoured to capture and model the expected cost of ownership for the 47 MRH90 aircraft over the planned life of the aircraft. 4.7Defences 2010 publication The Strategic Reform ProgramMaking It Happen stated: Defences budget to 2019 has already been adjusted to take account of the $20.6billion in reinvestment required for Force 2030this requires us to think less in terms of adding up savings and more in terms of living within our means.108. Most recently, the First Principles Review recommended immediate implementation of measures of productivity, a related concept. 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. An output measure, which directly reflects achievement against the Materiel Availability outcome. The use of the traffic light indicators Green (acceptable performance) or Amber (early signs of underperformance). 3.27The ANAO recommends that Defence institutes a risk-based quality assurance process to ensure the accuracy, completeness and relevance of the information included in the Defence Quarterly Performance Report. 9Executive Minute on Joint Committee of Public Accounts and Audit Report No. The document details the Cost Principles that Defence Capability Acquisition and Sustainment Group (CASG) and industry will utilise as a framework towards contract costs and provides Defence and the CASG's expectations and clarity of what costs may be attributed to (cost-recovered from) the Commonwealth. This chapter examines Defences performance framework to support the management and external scrutiny of materiel sustainment for specialist military equipment. The Review found a need for the Ministry of Defence to rebuild its capability as an intelligent client for warship design and build.172 It concluded that, to ensure pace could be maintained additional technical expertise in the form of a Client Friend (or Friends) is procured early, in particular to assist in the development of a detailed specification. Defence should give sustainment much higher attention and priority during the initial phases of the assets life cycle (Needs, Requirements, and Acquisition). A number of acquisition projects had been managed in project offices which are now counted as Systems Program Offices.20 Systems Program Offices do not endure indefinitely: for example, after the withdrawal from service of an asset and its disposal the relevant Systems Program Office may be dissolved or amalgamated with another. 145According to AusTender records, the cost of the review and resulting report was $613 000. Learn why the cost principle is an important principle for your small business. SeeCost Considerations-The Cost Principlesfor additional details. Information sharing about asset management was inconsistent and fractured. The first is a Defence internal review conducted in late 2015; the second comprises work done following the First Principles Review as part of the Systems Program Office reform and consolidation project. 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. However, it was not: complete; consolidated in one easy to locate area; prepared in a manner which permitted the comparison of actual expenditure against estimates; or consistent in its presentation of clear reasons for full year variances. More efficient support services for the Jindalee Operational Radar Network, reportedly saving $100million over ten years; Navy using Telstras NextG network for several minor war vessels, relinquishing satellite communications subscriptions and saving $2.3million a year; and. Introducing performance-based contracting into Defence sustainment has been underway for over a decade. The report assessed the maturity level of asset management policy and supporting guidance documentation only. This matter is also taken up in the next chapter. 3.11The Quarterly Performance Report is the primary way by which Defence provides information to government and senior Defence personnel about the status of major acquisition and sustainment activities.43 The report was developed in 2015 in consultation with the office of the Minister for Defence. Ongoing Failure to provide spares in full to support External Maintenance Period demands will drive deferral of maintenance, or partial completion of external maintenance resulting is a direct impact of Completion of Maintenance to Plan and an increasing likelihood of system failure resulting in Open Priority 1 Urgent Defects. Defence would benefit from evaluating future major change programs. Defence informed the minister there was a significant risk that Defence would fall short of the cost reduction target for the Program ($20.6billion) by some $4billion, almost one quarter of the remaining target ($17.6billion). depends on the type of organization (regardless whether domestic or foreign) making the expenditure. Most recently, the First Principles Review recommended immediate implementation of measures of productivity, a related concept. The Chief of the Defence Forces Preparedness Directive provides the strategic preparedness guidance for Defence Groups, Services and Capability Acquisition and Sustainment Group. The allowable use of funds under those awards is included in Ruth L. Kirschstein National Research Service Awards in IIB. In other cases, this information is so general as to be of limited value. address four tests to determine the allowability of costs. 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. 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.