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DMO engaged the Helmsman Institute to review the complexity of DMO sustainment operations. The Pappas review had observed that sustainment was an area with significant opportunities for efficiencies.105. It is an estimate of the differential cost above that of the current capability and is included in submissions to government for approval. We recommend this process cease immediately. examining 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. Defence published a final, complete edition, comprising 18 pages plus appendices with a date of 12December2016. 52Defence, Houston Review into Army Aviation, November 2016. 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. personnel and skill shortages in the DMO, delays due to industry capacity and capability, and. There is no record of whether the intended savings to sustainment costs were achieved from the Defence Materiel Organisations (DMO) 2008 initiative to identify efficiencies. [1], As of 30 June 2021, Defence through the Capability Acquisition and Sustainment Group (CASG) was managing 161 major projects and 13 minor acquisition projects, at various phases in the Capability Life Cycle, worth a total of $121.6 billion, with an annual acquisition budget was A$9.3 billion. 4. In May2016, the Sustainment Gate Review for the program found that the commercial incentive in the contract was insufficient to obtain the desired rate improvement. Create a collaborative framework for the management of sustainment without diluting individuals responsibilities. Key elements of the governance and organisational framework include: a specialist organisational unitcurrently the Capability Acquisition and Sustainment Groupstaffed by a mix of civilian and military personnel; contract-like arrangements for sustainment between that unit and the Chiefs of Navy, Army and Air Force (Defences Capability Managers); and day-to-day responsibility for most sustainment activities falling to Systems Program Offices, which carry out that work using a mix of in-sourced and out-sourced service provision. 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. 42Defence advised the ANAO in June 2017 that no decision had been made on the scope of the Program Performance Management System, nor its roll-out plan. 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. The total spend was about $350000. 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 They include: 2.21The review is examined in more detail in Chapter 5 of this audit report, while the transparency of internal costs is examined in Chapter 3. 0000001615 00000 n 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. The plan must include the purposes and activities that the entity will pursue, the results it expects to achieve and planned performance measures. The audit found that Defence had established and continued to refine a generally sound Materiel Sustainment Agreement (MSA) framework to facilitate the management of sustainment activity for specialist military equipment. 114Defence, Final Audit Report, Audit Task: 12-041, SRP Savings and Performance Reporting, Audit and Fraud Control Division, August 2012. 4.15Defence records show that the department made substantial efforts to keep track of the large number of diverse initiatives identified across the department under Smart Sustainment, including internal reporting to management. 191-202, available from [accessed 20 April 2017]. 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. All 22 Tiger helicopters, simulators, ground support systems and contracted training devices have been accepted and introduced into service within project budget approvals. Box 2: Sustainment work in Defences Capability Acquisition and Sustainment Group. 62Until the implementation of the full system, project performance review data will continue to be captured using spreadsheets. 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. 2.1The ANAO examined Defences governance and operational arrangements for managing the sustainment of specialist military equipment, with a particular focus on the clarity of: 2.2Defence has clear and long-standing arrangements for the management of materiel sustainment for specialist military equipment. The cost principles The government-wide principles, issued by OMB (or, in the case of commercial organizations, the Federal Acquisition Regulation [48 CFR 21], or, in the case of hospitals, 45 CFR 75, Appendix IX, "Principles For Determining Costs Applicable to Research and Development Under Grants and Contracts with Hospitals"), on allowability and unallowability of costs under federally sponsored agreements. 33. 3.44The Mortimer Review (2008) observed that through-life maintenance and support account for more than half of the DMO annual budget and involve about two-thirds of its workforce. The cost principle may not take into account any increases in market value to the assets, nor can it report on the depreciation of the asset over time. The simplified formula is: Develop a through-life capability management plan. , O8>vz_y!_BG10Vu j1+f)*f) A0 u`e0;F)l` qX+^09Wy7k&C ) By any reasonable standard the military outputthe effectiveness of the ADFis world class, but does the Department arrive at that effectiveness in the most efficient way possible? The objective of the audit was to assess whether Defence has a fit-for-purpose framework for the management of materiel sustainment. Develop an Asset Management Strategy for sustainment. 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. The ANAO suggests that Defence could devise a means of doing this, thereby capturing additional useful information on sustainment performance and current risks. SeeCost Considerations-The Cost Principlesfor additional details. 3.66There is no direct explanation in the estimates documents reconciling or explaining the difference or helping the reader to identify any trends. If the owner does not have the capacity to operate as a smart buyer, the owner risks project schedule and cost overruns and facilities that do not meet performance objectives.165. 5.7Defences Capability Acquisition and Sustainment Group has its own CASG First Principles Review Implementation Plan, which contains a range of elements, some of which correspond directly to the summary set of recommendations in the First Principles Review (such as [Systems Program Office] Consolidation and Reform). 92See Defence Portfolio Budget Statements 201516, p. 21, Table 6: Capability Sustainment Programme; Defence Portfolio Additional Estimates Statements 201516, p. 21, Table 10: Capability Sustainment Programme. Cost accounting standards and disclosure statement. Contents - Commonwealth Procurement Rules - 1 July 2022 1. 127Defence, First Principles Review, Key Recommendation 6, p. 73. Defence refers to itself as a smart buyer in the Defence Industry Policy Statements in 2007. 22 and 81): 4.11In 2011, a Chief of Service advised DMOs audit committee112 that an emerging issue from the Strategic Reform Program, common across all the ADF, was a shortage of future funding for sustainment. CASG customers means internal customers: the Capability Managers for whom the Capability Acquisition and Sustainment Group undertakes sustainment. The Rizzo Review into naval sustainment raised this problem in the following terms: To avoid being seen to fail personally, there is a danger (especially in the can do, make do environment) that staff will choose to not raise bad news. 166Defence, Smart BuyerDetail Design, approved 20 October 2016. Figure 3.3:Defence estimates of the cost of its capability sustainment program, 200506 to 202021. 5.57A briefing to DMO Division Heads in September2011 summarised the shortcomings of Defences approach to sustainment in the absence of an asset management approach: 5.58In 2011, DMO set about developing a Sustainment Business Model drawing on generically applicable asset management principles.179 There is then little evidence of substantial progress of the project for some years. 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. 3.1To assess whether Defence has in place an effective performance framework to support the management and external scrutiny of materiel sustainment, the ANAO examined: With the introduction of its Sustainment Performance Management System (SPMS), Defence continues to develop a basis for an effective monitoring system for sustainment. 2.16Two recent reviews of the operations of Systems Program Offices have identified major challenges for the future management of sustainment. [4][3]. Cannibalisation reflects an inability of the supply chain to support requirements, but is not an indicator of Supply Chain performance alone as the requirement may be the result of induced failure from a number of domains. 147A summary of the findings of the first tranche of Systems Program Offices reviews is set out in Chapter 2. Defence has drawn heavily on contracted industry expertise to support its implementation of the program of organisational change relating to acquisition and sustainment that has followed the First Principles Review. 101Any savings in sustainment costs were to be retained by Defence for reinvestment primarily in operating costs for new equipment. We understand that there are in more than 580 panellists across 79 skills sets. Further, Defences Capability Acquisition and Sustainment Group, is implementing reforms that will potentially increase reliance on industry to deliver these services. In business, it is a key aspect of an organization's financial stability. In May2016, a sustainment gate review identified the cost of sustainment as a key risk for this program. The CASG MSP implementation is inconsistent with the intent of the First Principles Review, opting for the ease of 'body shopping' rather than thoughtful outcomes-based procurement. 229. 1.7The objective of the audit was to assess whether Defence has a fit-for-purpose framework for the management of materiel sustainment. Defence should give sustainment much higher attention and priority during the initial phases of the assets life cycle (Needs, Requirements, and Acquisition). 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. At the time DMO developed MRS it was noted internally that DMO currently spends around 3billion dollars per year on sustainment activities and at this stage has no system that can adequately report on the effectiveness or efficiency of these activities.29 Work began in September2005 to introduce sustainment reporting capacity into MRS. 3.3Several major reports have criticised sustainment reporting over the last decade, including Mortimer (2008) and Rizzo (2011).30 Rizzo was highly critical of existing performance indicators: Each current [MSA] Product Schedule has inadequate Key Performance Indicators They only include a small subset of the contractual measures that should be placed on each party and there are no consequences associated with noncompliance. 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). Delivering what is required with processes, systems and tools being the means not the end. Defence was able to provide the ANAO with copies of a suite of standard letters of assurance from managers throughout DMO, each stating that, to the best of their knowledge, cost reductions of various values had been implemented for the respective financial year. a sustainment gate review of Air Forces Airborne Early Warning and Control fleet, which observed that all Systems Program Offices staff needed to be fully capable to deal with a complex platform and small fleet of aircraft. The 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. xref Cash management involves: reducing excessive amount of cash in hand utilizing cash effectively maintaining optimum balance of cash to meet planned and unexpected expenditures managing cash flows - that is cash disbursements and receipts at all times Thus, cash management helps to manage your business' working capital efficiently. 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. Combat Support Vehicles, including Fire Vehicles, C and D Vehicles, Bulk Liquid Distribution equipment, Special Forces Vehicles and Engineer Equipment, Management of vehicle maintenance and support equipment, electrical systems and general stores. It is an overarching element in progressing First Principles Review implementation in Capability Acquisition and Sustainment Group. For more information or to provide feedback on the Cost Principles, please send an email to theDefence Financial Investigation Service. In the longer term the system is to be expanded to cover acquisition. Completing this work is likely to take longer than the two years intended for the First Principles Review Implementation. Note a:Navy Allowance (NAVALLOW) is the Navy logistics system. The existence of open Priority 1 / Priority 2 defects have a direct influence on the achievement of Materiel Ready Days (Materiel Availability outcome) due to reduced Seaworthy Materiel. [Systems Program Offices] claim that policies and new tools are developed which do not sit well with sustainment and, because Canberra is acquisition-focused, sustainment advice is not taken.25. Accounting standards IAS 18 require a company to recognize revenue only when the amount is measurable and cash flows are probable. 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. 153Defence [DMO], CEO Roundtable Discussions [Note: Document dated 23 July 2008. 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. This issue could be managed provided the scope of any sustainment review is appropriately selected. 3.46Treating staff as costless lessens transparency of the true cost of activity and introduces risks because of the inaccurate price signals and distorted incentive structure then facing Systems Program Office managers and the capability manager. The government must be a smart buyer when purchasing assistance services and be able to make independent judgments about policy recommendations.206. Defence procurement guidance did not reflect some of the requirements of the Commonwealth Procurement Rules in place at the time of the review. SeeCost Considerations-The Cost Principlesfor additional details.. In March 2016, Defence extended Bechtels contract until 30 June 2016, which increased the value to $9.7 million. Defence had not developed robust capability and cost baselines for all capabilities, did not fully understand sustainment cost drivers nor whole-of-life costs for platforms. A key step in the MPR process is the preparation of a Project Data Summary Sheet for each project being reviewed. Defence has initiated a reform project as part of its First Principles Review implementation. Such visibility would enhance Defences ability to benchmark its sustainment performance against allied countries with similar equipment. Defence planned to reallocate the $20.6billion to other areas of Defence capability and contribute to the governments 2009 Defence White Paper, Defending Australia in the Asia Pacific century: Force 2030. 202Defence, The Helmsman Sustainment Complexity Review [Helmsman Review], July 2010, p. 29. 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. [19], Capability Acquisition and Sustainment Group, Last edited on 19 February 2023, at 03:28, "First Principles Review: Creating One Defence", "Department of Defence Annual Report 202-21 | Performance Criteria | Criterion 10 | Manage the investment, acquisition and sustainment of Defence equipment, supplies and services to meet Government and Defence requirements", "DMO appoints industry supremo to drive reform", "Going to the Next Level The Report of the Defence Procurement and Sustainment Review", "Address to the Department of Defence Senior Leadership Group", "Fact Sheet: Smaller Government: Defence Materiel Organisation: Reintegration into the Department of Defence", "Defence extracts new deputy secretary from industry", Mortimer Review into Defence Procurement and Sustainment, https://en.wikipedia.org/w/index.php?title=Capability_Acquisition_and_Sustainment_Group&oldid=1140236078, Military Equipment Acquisition and Sustainment, inadequate project management resources in the. Defence has established an appropriate governance and operational framework for the management of materiel sustainment; Defence has established and implemented a high quality performance framework to support the management and external scrutiny of materiel sustainment; and. @ GV Reforms to the management of sustainment flowing from the First Principles Review remain at an early stage, and this stream of activity is likely to take much longer than the expected two years. There is no evidence of any decisions having been made.147. These cost principles provide a framework within which items of direct and indirect cost can be incorporated in a cost-reimbursement contract or subcontract. The cost of that workforce is not included in the internal price paid by Defence capability managers for the sustainment services provided by DMO/Capability Acquisition and Sustainment Group through MSAs. 39Capability Acquisition and Sustainment Group Cost is the MSA-related expenditure. Defence had not defined the cultural changes it expected from the program and therefore may not deliver the behavioural changes required for long-term reform. There has long been a strong internal perception in Defence that sustainment attracts less management attention than acquisition. SeeCost Considerations-The Cost Principlesfor additional details. Cost principle is the accounting practice of recording the original purchase price of an asset on all financial statements. 200.407 Prior written approval (prior approval). Under the PGPA Act, Defence will need to report meaningfully against this plan in its annual performance statement. It must cover a minimum of four years. CASG employs more than 7000 military, civilian and contracted staff in more than 70 locations around Australia and internationally. That review found shortcomings in the application of procurement principles, which exposed Defence to risks. 37The performance framework was set out in some detail in ANAO Report No.30 201415, Materiel Sustainment Agreements, p. 103 forward. the use of consistent time series data and analysis of sustainment expenditure. Reviews of Defence over the last two decades have identified many opportunities for improvement in Defence sustainment practice. 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. However, based on the ANAOs review of a Quarterly Performance Report produced during the audit, its contents are neither complete nor reliable, it takes two months to produce and its contents are sometimes difficult to understand.

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