Minister for Defence Stephen Smith and Minister for Defence Materiel Jason Clare today provided an update on the implementation of key Defence Procurement Reforms.
Over the past year, the Government has announced a series of reforms to strengthen procurement processes within Defence.
These include:
• Reforms to Project management accountability (announced in May 2011);
• Reforms to strengthen the Projects of Concern process (announced in June 2011);
• Reforms to Support Ship Repair and Management Practices – the Rizzo Report (announced in July 2011);
• Reforms in the Sustainment of Australia’s Collins Class submarines – the Coles Review (announced in August 2011).
Implementation of all these reforms is well underway, with the majority already implemented.
An effectively functioning Defence organisation, including the Australian Defence Force (ADF), is a critical part of protecting and defending Australia’s national security interests.
There will always be risk in complex, costly procurements involving cutting edge technology.
To minimise that risk and to manage it effectively, we need to continue to instil greater rigour and greater individual and institutional accountability to our consideration and management of major capability projects, both acquisition and sustainment.
This in particular applies to the early stages of projects – 80 per cent of problems with Defence capability projects emerge in the first 20 per cent of the project’s life.
Project Management Accountability
In May last year, we announced a number of reforms to increase the level of project management accountability including:
• project directives issued by the Secretary of the Department of Defence and the Chief of the Defence Force to ensure Defence acquisitions progress according to Government direction;
• benchmarking all acquisition proposals against off-the-shelf options where available;
• the introduction of a two-pass approval system for minor capital projects valued between $8 million and $20 million;
• implementation of an Early Indicators and Warning system;
• the expansion of the Gate Review system; and
• the introduction of Quarterly Accountability Reports.
All of these reforms have now been implemented.
Projects of Concern
The Projects of Concern process was established by the Government in 2008 to focus the attention of the highest levels of Government, Defence and industry on remediating problem projects.
Since inception, 19 projects in total have been placed on the list. Of those, 13 have been removed, 11 due to remediation and two cancelled (Watercraft for Amphibious Ships and Sea Sprite Helicopters).
In December 2011, a further three projects were removed from the Projects of Concern list – halving the number of projects on the list in one year.
This cut the number of projects on the Projects of Concern list from 12 at the beginning of 2011 to the current six.
In June last year, we announced a number of reforms to strengthen the Projects of Concern process, including:
• the establishment of a more formal process for adding projects to the list;
• the establishment of a more formal process for removing projects from the list;
• the development of agreed remediation plans, including formal milestones for the removal of a project from the list;
• increased Ministerial involvement and oversight of the process; and
• incentives for companies to fix projects on the list by taking into account the performance of companies in addressing Projects of Concern when evaluating their tenders for other projects.
All of these reforms have now been implemented.
Reforms to Support Ship Repair and Management Practices
In July last year, we announced a number of reforms to support ship repair and management practices through the Rizzo Report including:
• that Navy engineering be rebuilt and reorganised, led by a two star Navy Admiral to give the necessary weight to this critical function;
• that the Defence Materiel Organisation (DMO) undertake a fundamental restructure of its Amphibious and Afloat Support Systems Program Office; and
• that the DMO increase the Systems Program Office by over 20 new positions.
These three key recommendations have been implemented.
Capability and Procurement Reform
These reforms complement a number of other important initiatives that were announced last year.
In 2011, we also accelerated the full implementation of all the Kinnaird and Mortimer recommendations previously agreed by Government.
In 2003, the Kinnaird Report led to the two-pass approval system, the creation of the Capability Development Group and the Defence Materiel Organisation as a prescribed agency under the Financial Management and Accountability Act.
Most of the Kinnaird reforms have been implemented and have had a positive impact.
In 2008, the Mortimer Review into Defence Procurement and Sustainment made 46 recommendations.
The Government agreed to 42 of them in full and three in part.
Many of these recommendations have been implemented, including increased investment in Defence industry skills and incorporation of improved commercial practices into Defence procurement.
Some of the key recommendations have not yet been fully implemented.
Defence has accelerated the implementation of all outstanding agreed recommendations made by Mortimer as a matter of priority.
This includes:
• project directives issued by the Secretary of the Department of Defence and the Chief of the Defence Force to ensure acquisitions progress according to Government direction; and
• benchmarking all acquisition proposals against off-the-shelf options where available.
Implementation of these important reforms to capability development and procurement continues, with specific action including:
• introducing new rigour into the management of so called ‘minor’ projects, including a modified two-pass approval system for minor capital equipment projects valued between $8 million and $20 million.
• implementing an Early Warning and Indicator system to address the early stages of capability planning and prevent problems early in the life of a project;
• expanding the use of the Gate Review process for mature projects to ensure that the desired operational capability is being delivered; and
• providing enhanced and more rigorous reporting to Government on high priority projects.
Further capability development and procurement reforms will enhance the delivery of Defence capability projects, strengthen Australian Defence industry and improve accountability.
These reforms include the Government’s response to the Coles Review of the Sustainment of Australia’s Collins Class submarines.
Coles Review
This Review is examining complex engineering issues associated with submarine sustainment.
In December last year the Government released the report of Phase 1 of the Coles Review. Phase 1 identifies a range of key issues that need to be addressed and interim recommendations about how to address some of these issues, including:
• resources should be directed to the provision of spares leading directly to increased availability;
• any decision to reduce the agreed Materiel Ready Days in a year should only be taken by the Collins Class Program Manager;
• the In-Service Support Contact (ISSC) between the Defence Materiel Organisation and ASC, currently under discussion, should be placed as planned; and
• the classification of Priority 1 Urgent Defects by the submarine commander should be moderated to avoid over classification purely to increase priority of spares.
Implementation of these recommendations has commenced.
Phase 2 of the Coles Review will put forward evidenced-based findings and recommendations on how to improve performance in Collins submarine sustainment. Phase 2 is due in the coming weeks.
Lessons learnt from the Coles Review will also play an important role in the development of the Future Submarine Project, including the need to take a long term view of maintenance and sustainment of the Future Submarine from the outset of the project.