This matter is also taken up in the next chapter. Unclear sustainment requirementsDefence lacked a clear unclassified top-level operational requirement for the platform. 0000002593 00000 n Defence is seeking to address the issue.76 In the same month, it endorsed a total cost of ownership approach to estimating whole of life costs for all major capital equipment, infrastructure, and information and communications technology projects. SeeCost Considerations-The Cost Principlesfor additional details. 5.30In August2016, Defence finalised a Systems Program Office Design Guide to provide Capability Acquisition and Sustainment Group senior managers with sufficient guidance to design or redesign Systems Program Offices.146, 5.31In March2017, Defence advised that the first 25 Systems Program Office reports had been provided to the Capability Acquisition and Sustainment Group Executive Advisory Committee for exposure and awareness. Develop and implement a strategy to address skills shortages in sustainment role. The review was conducted by David Mortimer, who presented his findings in September 2008. Chapter 237 Principles of Antiviral Therapy. The minute did not inform the minister that the SPMS had been under development for over two years at that point. The most appropriate procurement model for delivering the capability and achieving value for money. Notwithstanding these concerns, Defence adopted the term Systems Program Office where Systems Program Offices perform both functions. Defences 201516 public reporting of sustainment activity included expenditure information and other descriptive material. 2.10Defence intends to replace MSAs (and the associated Materiel Acquisition Agreements) progressively with Product Delivery Agreements. <<964faa8c6ebb704a921f34cb193ed03f>]>> These activities are outside the scope of the audit. Step 2develop a risk-based tailored project execution strategy, covering approvals, project management, and through life asset management, including a coherent approach to the acquisition and sustainment phases. 3.57Defence provides information about sustainment in its Portfolio Budget Statements (PBS), Portfolio Additional Estimates Statements (PAES) and Annual Reports. 'Some Economic Aspects of the Weapons Systems Acquisition Process' (2003); available from, This page was last edited on 19 February 2023, at 03:28. This has occurred with the extension of DMOs earlier program of gate reviews to cover sustainment as well as acquisition.54. SPOs vary widely in their shape, size, supplier relationships and services to Capability Managers.134. The Dashboard area of Comodo Antispam Gateway ( CASG) allows administrators to take overall control of domain, account and customer management.The interface is divided into three areas - Domain Management, Account Management and Customer Management. 102Email from Steve Gumley, CEO, to DMO General Managers, Division Heads and Branch Heads, 26 February 2008. It provides only a partial account of materiel sustainment within Defence and is potentially at odds with the One Defence model promoted by the First Principles Review. that the aircraft has not met, and is unlikely ever to meet, the required level of capability expected by government. 76Defence, Defence Integrated Investment ProgramTotal Cost of Ownership, paper put to the Defence Committee, October 2016. 52Defence, Houston Review into Army Aviation, November 2016. 20In April 2016, Capability Acquisition and Sustainment Group defined a Systems Program Office as a business unit that works directly with Capability Managers and Suppliers as necessary to deliver agreed capability across the CLC [capability lifecycle], coordinating the FIC [fundamental-inputs-to-capability] elements required to achieve this objective. 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. As discussed, a quality assurance process for the Quarterly Performance Report would provide a firmer basis for internal and external scrutiny of sustainment reporting. 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. Encouraging Competition 6. 144The First Principles Review (p. 36) states: We consider that it would be possible to rationalise and reduce the Systems Program Office structure and staffing levels as more sophisticated contracting models are established and their individual support functions are consolidated as part of the service delivery reform. 5.64The current Capability Life Cycle manual and its detailed design document do not mention a business model for sustainment nor any overarching sustainment framework. Work continues with the Capability Managers to develop more systemic demand-related reform activities for implementation in the medium to longer term. 209Defence, Defence and Industry Policy Statement 2007, p. 28: Defences in-house S&T organisation, DSTO, enables the ADF to be a smart buyer, user and adaptor of military technology. achieving a clearer line of sight between planning and reporting documentsfor both expenditure and descriptive information at the corporate and project levels; and. For example, this approach could make in-sourced labour appear costless and put outsourcing at a comparative disadvantage. Implementing the Mortimer Review recommendations became, as a whole, one of the 15 streams of the Strategic Reform Program in 2010. The use of the traffic light indicators Green (acceptable performance) or Amber (early signs of underperformance). Defence lacked a single set of accurate information to inform decision makingThe review found that, whilst significant levels of information and analysis exist across the Collins Class Sustainment Program, the basis for long-term decision making was not always consistent or accurate, with multiple systems and datasets in use for financial, maintenance and supply chain activities. Source: NASA Cost Estimating Handbook, v.4.0, 2015, Appendix C: Cost Estimating Methodologies, available from [accessed 21 December 2016]. 106The reforms were aimed at: simplifying our internal processes to reduce time and/or waste; consolidating where process work is conducted so it is not duplicated in other parts of the organisation; aligning some of our more complex processes, like the acquisition of new capability, so there is a clear linkage between the identified need and the final product; ensuring our policies reflect contemporary standards; improving our decision making around expending resources; reducing our demand for goods and services; and building a cost-conscious culture in Defence. SPOs with a preponderance of contractor activity in acquisition include Submarines and those SPOs designated Project Offices., Table A.2:Navy Materiel Sustainment Agreement Performance Framework Core Key Performance Indicators. They may also be involved in acquisition projects but the greater bulk of their work involves sustainment. In July 2005, DMO became a Prescribed Agency under Australian Financial Management and Accountability legislation, meaning that although it remains a part of the Department of Defence, it was separately accountable to the Minister of Defence for its budget and performance. since 2000, a specialist acquisition and sustainment unitpreviously the Defence Materiel Organisation (DMO) and most recently the Capability Acquisition and Sustainment Groupstaffed by a mix of civilian and military personnel; maintenance by the specialist unit of physically dispersed sub-unitsknown as Systems Program Officeswith day-to-day responsibility for Capability Acquisition and Sustainment Group sustainment activities. CASG Cost Principles | Business & Industry | Defence A preference in the report of the First Principles Review for a whole-of-life focus (rather than on acquisition and sustainment as distinct spheres) is evident from the discussion of total cost of ownership (pp. 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. The Future PGCS 2019 Chloe Kempster www.pgcs.org.au/library/2019 2 73The ANAO examined nine Second Pass or Combined First and Second Pass approvals including submissions related to Army, Navy, and Air Force capital acquisitions. 12For example, the Kinnaird and Mortimer reviews recommended an independent entity. 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. Eight underperforming products were listed in the second quarter of 2016. The primary impact of poor outcomes in this Key Health Indicator is Sustainment Efficiency outcome. PDF Cost Principles: Allowable Costs Uniform Guidance 2 CFR 200 195Defence Annual Report 201516, Chapter 8, Web Table 8.2: Top 30 sustainment products, performance summary as at 30 June 2016, available from [accessed 20 April 2017]. Table6: Capability Sustainment Program lists estimates for nine elements of Defences Capability Sustainment Program (Navy Sustainment, Army Sustainment and so on) over the four financial years of the forward estimates period. ~rEy0Eq2I;+t4NY1. Mortimer also recommended that a general manager Commercial[5] position be created to implement a business-like focus throughout the organisation. CASG Cost Principles V2.0 I 9 October 2017 Foreword The CASG Cost Principles support the Defence objective to standardise applicability and transparency of the cost basis used in Defence contracts. Defence informed the ANAO that both measures are based on direct product costs incurred by the Capability Acquisition and Sustainment Group and do not include sustainment costs incurred by other parts of Defence. 191Defence Portfolio Additional Estimates Statements 201516, Table 10: Capability Sustainment Programme, p. 21, available from [accessed 20 April 2017]. 3.52Under the PGPA Act, Commonwealth entities must prepare and publish a corporate plan by the last day of August each year. An alternative approach is to manage a total project budget that includes employee expenses. From 1July2005 until the DMO was delisted on 30June2015, Defence reported its sustainment expenditure estimates in its Portfolio Budget Statements (and Portfolio Additional Estimates Statements). 14For the great majority of Defences military assets, Capability Acquisition and Sustainment Group (CASG) is responsible for sustainment. Performance measures in Materiel Sustainment Agreements must be realistic and must be consistent with the requirements in sustainment performance artefacts such as the sustainment contract. 167Deputy Secretary, Capability Acquisition and Sustainment Group, Defence, CASG Bulletin, Issue 4, 2015. A Defence instruction on lifecycle costing has been in place since at least November1992.64 In addition, a Through Life Support Manual Volume 6Life Cycle Costing Analysis has been available since 2001 (and remains current).65 The issue of instructions and availability of guidance has not provided assurance of adequate costing action. Cash Conversion Ratio - the amount of time between when a business pays for its inventory (cost of goods sold) and receives payment from its customers is the cash conversion ratio Funding Gap - a measure of the shortfall a company has to overcome (how much more cash it needs) Dividend Payments - CF can be used to fund dividend payments to investors Defence has summarised Bechtels tasks under the contract as follows: The contract is fee-based with no performance measures. 207General Accounting Office, GAO/T-NSIAD-97-110 Defense Outsourcing: Challenges Facing DOD as It Attempts to Save Billions in Infrastructure Costs, 1997, pp. 34. This data is likely therefore to understate the total number of staff in Systems Program Offices. Opportunities remain to improve the quality and transparency of Defences publicly reported information regarding materiel sustainment, while being sensitive to national security concerns. Develop clear lines of authority and responsibility for sustainment. Such visibility would enhance Defences ability to benchmark its sustainment performance against allied countries with similar equipment. 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. 5.55In November2016, Defence informed the ANAO that it intends to use the principles of the ISO 55000 Asset Management Standard as a guide of good practice and to further develop Defences framework for the management of sustainment.175 In March2017, it advised that the policy issued under the earlier DMO governance framework was gradually being reviewed and updated. 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. 5.37Defence undertook substantial work in 2009 and 2010 to explore greater use of the technique so as to enhance Defences ability to meet capability preparedness requirements, and reduce the total cost of ownership.152 DMO advised industry CEOs at a meeting in July2009 that For greenfield sustainment and other new contracts there will be a greater focus on contracting for availability.153 Defence established a Performance-Based Contracting Centre of Excellence at that time and produced a new Defence contracting template with performance-based contracting integrated into it.154 Defence has claimed that almost all projects since 2011 have used a performance-based contracting template for materiel support services and have enjoyed the support of the Performance-Based Contracting Centre of Excellence.155 It has not been able to substantiate this claim (Box 6). 156ANAO Report No.52 201314, Multi-Role Helicopter Program. The following paragraphs provide an overview of the contents of the 201516 performance documents. A target expenditure cut of five per cent of sustainment costs over a financial year was set by the Chief Executive Officer of the DMO in February2008. for Institutions of Higher Educations (IHEs). 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. The term includes small and large businesses and is used interchangeably with "for-profit organization." 4.3The CEO wrote to all Systems Program Office directors seeking their help. 2 CFR 200.400 - Policy guide. | Electronic Code of Federal 143The First Principles Review (p. 36) states: The Capability Acquisition and Sustainment Group should outsource significant elements of the project management associated with sustainment contracts to an appropriate provider or providers We envisage efficient implementation would result in reductions in the public service workforce and the transfer of military personnel to other functions within Defence. Systemic issues identified by Defence from the reviews of Systems Program Offices to date are set out in Box 3. 0000001012 00000 n 198Defence, Going to the Next Level, the report of the Defence Procurement and Sustainment Review [Mortimer Review], 2008, p. 46. The Defence Science and Technology Groups Aerospace Division had concluded that a systematic and top-down approach such as enterprise-wide asset management was particularly suitable to address the challenges of reforming sustainment management in Capability and Sustainment Group. 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 is a project relevant to sustainment and which has been underway for many years. The absence of an asset management approach within Defence makes it difficult to piece together a holistic asset management view across the myriad individual policies which focused on discrete processes. The gross centralisation, while simple to operate, is inconsistent with the principles of value for money, competition, or any rational industry policy. 3.59At the time of this audit, the latest set of these documents where both prospective and retrospective elements are available was for the financial year 201516. Completing this work is likely to take longer than the two years intended for the First Principles Review Implementation. 11. This was because of shortcomings in governance, program management, and Defences approach to reform.113 Its major findings include: 4.12A year later, in August2012, a Defence internal audit of Strategic Reform Program savings and performance reporting questioned the integrity of reporting and found it had focused mainly on reporting savings rather than achieving reform.114 A Defence update to Defence Ministers on the Smart Sustainment reform program (August2012) reported that: Currently more than 800 Smart Sustainment initiatives are either underway or planned; about half of these have quantified the estimated savings, equating to about $3.7b across the remaining years of SRP (against a residual target of about $4.6b). 34Defence, Decision BriefSustainment Performance Management System Development, 8 August 2011. 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. 3.15Under current arrangements for its production, the Quarterly Performance Report is neither timelyit is more than 50 days old by the time it gets to ministersnor clearit is dense with acronyms and jargon. The Coles Review identified five root causes of the problems it observed. 135These numbers are for 30 June 2016 and based on the pre-stocktake number of Systems Program Offices. SeeCost Considerations-The Cost Principlesfor additional details.. 163Defence informed the ANAO that it is seeking to address the capacity and technical knowledge of Defence staff in CASG through the introduction of the matrix management approach. 1.1Defence materiel sustainment is about the maintenance and support of Defences fleets of specialist military equipment. First Principles Review (April 2015) 2. 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., and set forth allowability and allocability principles for selected items of cost. trailer 96For example, in the Portfolio Additional Estimates 200708 (pp. How Are Principles-Based and Rules-Based Accounting Different? 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. As noted in this audit report, the focus of some current arrangements requires clarification as it may reflect only the performance of Capability Acquisition and Sustainment Group. In its 201415 Annual Report, Defence claimed to have achieved $2billion of savings from the initiative in its first five years. 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. It is an output measure, which directly reflects achievement against the Sustainment Efficiency outcome. Free Cash Flow (FCF) Formula - Corporate Finance Institute Accountability and Transparency in procurement A target expenditure cut of five per cent of sustainment costs over a financial year was set by the Chief Executive Officer of the DMO in February2008. In early 2018, CASG, the Defence group that acquires and sustains military capability, established a panel through which the overwhelming majority of contracted and consulting services to Defence are delivered. He described the areas where he expected they could make cost reductions, including by: reducing spares; more performance-based contracting; discouraging end-of-year spending to meet budget; travel efficiencies; and improved maintenance philosophies. This was to focus more holistically on benefits realised to the organisation through reform, rather than only acquitting financial targets. Defence has clear and long-standing governance and organisational arrangements for managing the sustainment of specialist military equipment. How to Use the Commonwealth Procurement Rules Division 1 - Rules for all Procurements 4. There is no record of target for these objectives. Table A.3:Navy Materiel Sustainment Agreement Performance Framework - Core Key Health Indicators. The initiative was not prescriptive except that capability and safety should not be compromised by any savings proposal. 37The performance framework was set out in some detail in ANAO Report No.30 201415, Materiel Sustainment Agreements, p. 103 forward. Defences broader sustainment program also includes the maintenance and support of corporate information technology and estate and infrastructure assets. 56Defence, Plan to Reform Support Ship Repair and Management Practices, [Rizzo Review] July 2011, p. 68. 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. Defence has developed its own meaning for the term smart buyer, which does not clearly articulate the intent of the First Principles Review recommendation. 1.7The objective of the audit was to assess whether Defence has a fit-for-purpose framework for the management of materiel sustainment. 1.3In recent years, Defence has spent, each year, similar amounts on sustainment and the acquisition of new equipment (Figure1.1, below). Where it fits within the smart buyer function; and. This document applies to all NIH grants and cooperative agreements for budget periods beginning on or after October 1, 2022. The outcome from this review is alignment of the SPO activity to Planning, Governance and Assurance roles, and enabling industry to undertake the management and delivery of sustainment activity, in particular the transactional functions required to maintain capability. The 2012 Coles Review, by subsequent reports, has been both successful and insightful.119. MRS and, to an increasing extent, SPMS, are now used to populate a Quarterly Performance Report on both acquisition and sustainment (see paragraph 3.11 forward). Defence has engaged industry expertise to guide and help it with the First Principles reforms relating to acquisition and sustainment, including $107million with a single company where the contract for services is not performance-based. The cost principle states that any asset should be recorded at the purchase price. 49ANAO Audit Report No.11 201617, TigerArmys Armed Reconnaissance Helicopter. Cash Flow - Definition, Examples, Types of Cash Flows 203Defence, The Helmsman Sustainment Complexity Review, July 2010, p. 29. A list of Systems Program Offices (including staff numbers, assets under sustainment and contracts) is at Appendix 1. 2.12Navy, Army and Air Force policy requires six-monthly reviews of MSAs. Systems Program Office consolidation and reform is one of the largest reforms to Capability Acquisition and Sustainment Group deriving from the 2015 First Principles Review. Box 2: Sustainment work in Defences Capability Acquisition and Sustainment Group. Procurement Framework 3. Defence informed the ANAO that it had updated its procurement guidance in April2017 and intends to address the other concerns raised in the 2015 review over the next 18months. 112The committee was called the Materiel and Risk Committee. 40Rather, it would be a Strategic Sustainment Analytic, a high-level sustainment health indicator that can be used for broad cross-product comparison.
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