18Where a Systems Program Office manages multiple equipment lines, one or more product managers with responsibility for specific equipment types may support the Systems Program Office Director. A Smart Buyer will also enable appropriate financial return for its Suppliers. The year-end spend performance indicator is blank. SeeCost Considerations-The Cost Principlesfor additional details. Failure of this Key Health Indicator will affect the achievement of all three of the Materiel Sustainment Agreement outcomes. 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. The instruction was cancelled in March 2014 and replaced by the Defence Logistics Manual, DEFLOGMAN Part 2, Volume 10, Chapter 16, Life Cycle Costing Analysis. Defence agreed to the recommendation that total cost information be provided to relevant Defence committees, with qualification. SeeCost Considerations-The Cost Principlesfor additional details. 5.56Appendix 6 of this audit report summarises proposals between 2008 and 2011 to introduce a Defence Sustainment Efficiency Office and a Sustainment Business Model. The skill sets required in sustainment are quite different from those required for design and build: repairing the range of equipments in a submarine poses problems of access and control which are not likely to be experienced during build, and the design issues which crop up during sustainment are focused on keeping equipment operational rather than on design for performance. 3.9In September2016, Defence decided to expand SPMS to cover acquisition. 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. 77The total cost of ownership (whole-of-life costing or lifecycle costing) includes the costs of: capital acquisition; bringing the equipment into service; operating it; sustainment; disposal; and financing. Figure 3.3:Defence estimates of the cost of its capability sustainment program, 200506 to 202021. Source: K. Horn, C. Wong, E. Axelband, P. Steinberg, and I. Chang, RAND white paper, Maintaining the Armys Smart Buyer Capability in a Period of Downsizing, 1999. 15. The ANAO suggests that Defence could devise a means of doing this, thereby capturing additional useful information on sustainment performance and current risks. This matter is also taken up in the next chapter. 5.48The First Principles Review recommended that Defence establish a single end-to-end capability development function and that this would require, among other changes, Moving to a leaner smart buyer model that better leverages industry, is more commercially oriented and delivers value for money.164 The Review cites a US Government Accountability Office report which is also consistent with past Australian usage: A smart buyer is one who retains an in-house staff who understands the organizations mission, its requirements, and its customer needs, and who can translate those needs and requirements into corporate direction. Note b:These figures include Australian Public Service and Australian Defence Force staff. Source: Defence, 2008 Audit of the Defence Budget, 2009, pp. 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. This requires visibility of the total cost of ownership of major equipment. Bechtel was one of the companies on this panel. Contracts with the principal provider are not performance-based. According to the online course Financial Accounting: "The purpose of the statement of cash flows is to provide a more detailed picture of what happened to a business's cash during an accounting period." An output measure, which directly contributes to the Material Availability and Materiel Confidence outcome. Retrofitting the necessary sustainment arrangements is more challenging than getting them right at the outset. 68The Defence qualification was that The amount and type of LCC [life cycle costing] information presented to committees will vary according to the issues being considered and only pertinent information should be included. First Principles Review (April 2015) 2. Such cost reductions may be required to re-invest into inventory, obsolescence remedies, new infrastructure to manage an ageing fleet and the transition to future submarines. The ANAO has recommended that Defence institute a risk-based quality assurance process for information included in the Quarterly Performance Report. [12] Gumley had headed an executive team of around 20 senior managers. 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. 60Defence, Jim McDowell Workshop, First Principles Review Implementation, 15 August 2015. 11Military units regulate the technical integrity of capability and undertake some operational level maintenance. [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. 29Defence, Operational Concept Document for DMO Sustainment Reporting System (Version A, December 2004, Sponsored by Director General Standardisation). 3.4This led to the commencement of work on a new IT system, the Sustainment Performance Management System (SPMS), in mid-2011 to replace the sustainment module in MRS.32 Defence agreed in August2012 to the continuing refinement and implementation of a shared Sustainment Performance Management Framework and reporting system for use in the sustainment of all products jointly managed by Defence and DMO.33 An objective of developing SPMS is that the system should provide the central source of truth for sustainment management data and reporting for sustainment management personnel at all levels of both Capability Acquisition and Sustainment Group and Capability Manager organisations.34 This was contrasted with the MRS, which reportedly required substantial work-arounds requiring double and triple handling. 3In February 2017, Defence advised the Joint Committee of Public Accounts and Audit in a submission to the Committees Inquiry into Defence Sustainment Expenditure that A recent review by [the] Defence Intelligence Organisation determined that the current public reporting regime is safe. 0000000516 00000 n Source:Defence, Portfolio Budget Statements and Additional Estimates Statements, 200506 to 201718. External Maintenance Period Demand Fill Rate. 3.36Numerous reviews and audits have urged greater focus on whole-of-life costs and better knowledge of the total costs of ownership of military assets, including sustainment, but have found that Defence has struggled to establish the skills, systems and data for this activity66: 3.37In recent years, Defence has generally estimated whole-of-life costs when seeking government agreement to a proposed acquisition. 3.39The 2015 First Principles Review found that: Costing methodology does not account for all of the inputs to capability, at acquisition and over project life, and the true total cost of ownership is opaque.75 It also found that, to manage its major equipment efficiently and effectively, Defence needs to manage on a whole-of-life basis. A consultancy found in March2013 that: DMO evolved through the amalgamation of many dispersed business units, without undergoing typical post-merger integration activities needed to drive efficiency. Note a:Many entries on the AusTender site represent individual payments rather than separate contracts. 356), items such as Super Hornet fighter aircraft (operating costs) and C-17 transport aircraft (operating costs) are shown as separate line items. 4. or any other modern web browser. 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. See Fisher, P., A Study of Defence Publications Relating to the Procurement of Software-intensive Systems, DSTO, 1997. Defence does not yet have a completed register of its acquisition and sustainment contracts though, since January2016, it has had a facility in place and begun populating it. However, a September2015 assessment by external consultants of Capability and Sustainment Group policy and guidance against the requirements of the Asset Management Standards concluded180: While the organisation can demonstrate clear leadership and commitment to delivering and sustaining asset capabilities that meet its strategic business and operational intent, its ability to uniformly translate this intent into actions that demonstrate the consistent delivery of the business outcomes from its assets, is hindered by incomplete process documentation and [the absence of] an integrated Business Management System for its assets.181, 5.61The report noted that it is impossible to compare different operational business processes within the organisation, in order to determine which process is the most effective for the entire organisation, until the organisation has determined the base policies (rules) by which it will conduct the comparisons.182, 5.62The same view was reflected in advice received by Capability and Sustainment Group from the Chief Defence Scientist, also in September2015. Defence has not implemented measures of efficiency and productivity for all sustainment products. 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. Source:Department of Defence, Annual Report 201516, Web Table8.11 available from [accessed 20April2017]. This proposal is regarded as a key principle, integral to the acquisition and reform agenda. During the course of this audit the Joint Committee of Public Accounts and Audit (JCPAA) announced that it had commenced an inquiry into Defence sustainment expenditure. Subsequently, the term has been used widely by others, including in a military acquisition context. Improving the How 4. An output measure, which directly reflects achievement against the Materiel Availability outcome. This represents a major investment of at least $120million, including contracts for services from the principal provider (Bechtel) valued at some $107million. 138Pappas describes lean as a way of working that focuses on (among other goals), the continual reduction of seven forms of waste By eliminating waste substantial productivity improvements are made: quality is improved, available time is increased, and cost is reduced. That data showed the performance of the Collins Class submarines fell well below that of international comparator submarine fleets.b The review also found the cost effectiveness (cost per materiel ready day)c of the international navies fleets was at least twice that of the Collins Class sustainment program. In May 2008, the Australian Government commissioned a review of Defence procurement, which included in its terms of reference a report on the progress of implementing reforms from the last such review the 2003 Kinnaird Review. This equipment never made it into service before the project was cancelled, yielding no capability whatsoever at a cost of $1.5billion. Source: Defence, Plan to Reform Support Ship Repair and Management Practices, [Rizzo Review] July 2011, p. 38. Defence has not published program level expenditure data on a consistent basis over time, or time series analysis, to assist with external scrutiny of its sustainment expenditure. Those prices comprise only the costs incurred by the relevant Systems Program Office for goods and services supplied under contract. Defences comments, and suggested editorial amendments, have been provided to the ANAO. 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. 3.55Sustainment has been identified as a distinct category of expenditure since 1July2005.88 In effect, this was the point at which the term sustainment came into regular Defence use. 149Defence, The Australian Defence Aerospace Sector Strategic Plan: Strengthening Military Aerospace Capability in Australia, 2003, Recommendation 4, p. 8. 94Defence has advised that around two-thirds of Systems Program Office staff are engaged in sustainment work. 9Executive Minute on Joint Committee of Public Accounts and Audit Report No. 3.6SPMS was introduced, first, for Navy (MayJuly2015) following work to develop its sustainment performance framework with a standard suite of performance indicators.37 The system was being implemented in Air Force and Army from late 2015 through 2016.
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