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. In the 201718 Defence PBS Defence presents the estimates and descriptive information for its Top 30 sustainment products in a single table. The primary impact of poor outcomes in this Key Health Indicator is Sustainment Efficiency outcome. 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.. SeeCost Considerations-The Cost Principlesfor additional details. Box 3: Systemic issues identified by Defence in the reform of Systems Program Officesa. The red traffic light for FMR is due to the late achievement against the MAA milestone. 59Defence Materiel Organisation, Zero-Based ReviewPhase 2, Final Report, 9 December 2003. See Defence Portfolio Budget Statements 201718, Table 68: Top 30 Sustainment Products by End of Financial Year Outcome 201718, pp. 28The same issue continues to arise. Top Cash Management Strategies to Manage Cash Effectively The 2012 Coles Review, by subsequent reports, has been both successful and insightful.119. It expressed concern that without such a feature Defence was exposed to risk. Defence has done earlier work relevant to the assessment of its productivity. According to Defence, there has been no way to easily identify and report on contracts from existing Defence systems because they have been designed for financial accounting with very limited information recorded about procurement and contracting.a. Note a:Many entries on the AusTender site represent individual payments rather than separate contracts. 200.403 Factors affecting allowability of costs. Source:Defence, Portfolio Budget Statements and Additional Estimates Statements, 200607 to 201718. 145According to AusTender records, the cost of the review and resulting report was $613 000. This month closes out the Financial Year total at 3995.2 against the planned 5848 hours, a result of 68.32 percent. We understand that there are in more than 580 panellists across 79 skills sets. At worst, nondelivery will result in a red traffic light status in DMO Sustainment Overview Reports which it seems that few stakeholders read.31. Defence has not implemented measures of efficiency and productivity for all sustainment products. Data is entered monthly by subject matter experts, usually based in the relevant Systems Program Office. Commonwealth Procurement Rules | Department of Finance 4.10Defence gave examples of activities it considered successful in its 201011 Annual Report (pp. Box 1: The origin of Systems Program Offices. 30Defence, Going to the Next Level, the report of the Defence Procurement and Sustainment Review [Mortimer Review], 2008, p. 49, Recommendation 4.2; Defence, Plan to Reform Support Ship Repair and Management Practices, [Rizzo Review] July 2011, p. 46. The idea is to establish a managed resource pool that provides skilled personnel for CASG activities. 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. Coles also draws an insightful distinction between acquisition and sustainment work in relation to submarines. This Key Health Indicator relates to the Engineering Change Proposal action, which is yet to be finalised - either raised and not actioned or incomplete. They may also be involved in acquisition projects but the greater bulk of their work involves sustainment. The subsequent Defence Procurement Review (Kinnaird Review) in 2003 also stressed the need for high-quality, highly skilled sustainment managers in delivering modern military capability in a business-like manner. 200.404 Reasonable costs. The lack of understanding of whole-of-life costings and poor management of sustainment funding within Defence meant that the increasing levels of future cost reductions expected were at risk (the review estimated a shortfall of $1.8billion could increase to a $3billion shortfall). 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. Defence has clear and long-standing governance and organisational arrangements for managing the sustainment of specialist military equipment. A key focus of the enhanced Commonwealth performance framework established under the PGPA Act is ensuring that programme managers, accountable authorities, ministers, the parliament and the public are able to use performance information to draw clear links between the use of public resources and the results achieved.86. [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. There is no evidence that specific merger integration activities have been undertaken to ensure consistent integrated operating models. Defences asset management project is also examined. It is likely that some unquantifiable portion of claimed savings derive from the five per cent across-the-board cut among Systems Program Offices imposed by the Chief Executive Officer before the Strategic Reform Program commenced. 13Defence, First Principles Review: Creating One Defence, 2015the First Principles Review. According to the DMO website, the executive team has considerable private and public sector experience, as well as extensive military domain knowledge. The envisaged end state is the deployment of a Program Performance Management System (PPMS), see paragraph 3.9 of this audit report), covering both acquisition and sustainment, commencing 30June2017.62. While the Systems Program Office was generally meeting targets for availability, the number of aircraft able to be flown was markedly lower. Introducing performance-based contracting into Defence sustainment has been underway for over a decade. 23Fleet Screenings is a term originally used by Navy. Defences devolved and fragmented leadership approach to the program meant that Defence had no holistic vision of what the reform program was setting out to achieve, and therefore no logical program of work designed to support it. Chapter 237 Principles of Antiviral Therapy. 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 project has spent $133.966million on sustainment in 201516 against a budget for the year of $133.679million, and $1867million of an acquisition budget of $2033million. 62Until the implementation of the full system, project performance review data will continue to be captured using spreadsheets. 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 had commenced populating it. The Defence Materiel Organisation was formed in 2000 when the then Defence Acquisition Organisation merged with Support Command Australia, bringing together the Department of Defence's capital acquisition and logistics organisations into a single entity. 185For example, a 2015 Lessons Learned Report prepared by Defence states that Defence did not adequately enforce the provisions of the [sustainment] contract . This information is presented in multiple tables and sections of the PBS and an explanation of the variation between tables is not provided.90 Further, some of the descriptive information about sustainment activity is not always expressed in clear language, which detracts from its usefulness. For example, in ANAO Report No.52201314, Multi-Role Helicopter Program, the ANAO concluded that the pre-2012 sustainment contract provisions for Defences Multi-role Helicopter Program were largely ineffective.156 The audit report noted that this was largely due to Defence not applying its own processes to the standards required. 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. Learn why the cost principle is an important principle for your small business. Fuel and lubricants, combat clothing and explosive ordnance fall into this category, which makes up about 20percent of sustainment expenditure. 36Not all Performance or Health Indicators will apply to all Navy sustainment products. The ANAO has made a recommendation aimed at evaluation of the reforms now underway. The tests are as follows: These four tests apply regardless of whether the particular category of costs is one specified in 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. The Product Delivery Agreement will cover both acquisition and sustainment of a capability system over its life, through to disposal. 10. 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. 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. 3.34Achieving value for money is the core rule of the Commonwealth Procurement Rules. The document details the cost principles that Defence and industry will utilise in costing contracts. In November 2016, the contract was amended and increased by $32 million. Opportunities also remain to increase the completeness and transparency of publicly reported information regarding materiel sustainment. 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. 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. 3. Commercial organizations are subject to the cost principles located at 48 CFR Part 31.2 Federal Acquisition Regulation. 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. From the perspective of the field review, there is some indication that the sustainment models continue to drift apart.202. 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. 2.14Five years later, the Rizzo Review into naval sustainment drew a similar conclusion: The need for the sustainment of assets is understood in Defence and DMO, but it is not given the same rigorous attention as asset acquisition. Primary impact will be on achievement of Materiel Ready Days (Materiel Availability outcome) with secondary impact upon Sustainment Efficiency outcome as alternate supply chain or cannibalisation will be required. 191Defence Portfolio Additional Estimates Statements 201516, Table 10: Capability Sustainment Programme, p. 21, available from [accessed 20 April 2017]. A single defined and realistic requirement is critical to target setting, future planning, and the development of enterprise behaviours. The terms of reference were also accompanied by a range of issues for consideration, among which was How Defence sustains and supports capabilities and extending lessons from the Coles review [of Collins Class submarine sustainment] across all areas of sustainment. See Fisher, P., A Study of Defence Publications Relating to the Procurement of Software-intensive Systems, DSTO, 1997. Encouraging Competition 6. By July2011, the Rizzo Review stated that The Team recognises that Defence has a policy instruction on lifecycle costing However, it is considerably outofdate and compliance is inadequate. 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. Maintenance is still a large cost component for sustainment of these systems but regular replacement is more significant in comparison with platforms. 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. Asset management might not apply to items at the commodities end of the sustainment spectrum, but would apply to platforms and may apply to products (see Box 1, p. 2). 130, Overview of the enhanced Commonwealth performance framework, July 2016. 41Defence was able to provide a report from SPMS for February 2017 showing Capability Acquisition and Sustainment Group cost per materiel ready day for five fleets within Maritime Systems Divisions responsibility. Mortimer identified five principal areas of concern. 3.53Commonwealth entities must reportin an annual performance statementtheir actual results against the planned performance criteria outlined in their corporate plan and Portfolio Budget Statements. Implementing the Mortimer Review recommendations became, as a whole, one of the 15 streams of the Strategic Reform Program in 2010. Defence has not been able to provide the ANAO with adequate evidence to support this claim, nor an account of how $360million allocated as seed funding for Smart Sustainment initiatives was used. 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. are set forth in HHS regulations at 2 CFR Part200, Subpart E, 45 CFR Part 75, Subpart E, and Appendix IX (Hospital Cost Principles) to Part 200 and Part 45. 71Defence, Rizzo Review, Chapter 4, p. 29. This represents a major investment of at least $120million, including contracts for services from the principal provider (Bechtel) valued at some $107million. Sustainment can be considered as falling into three categories: sustainment of platforms, products and commodities, as well as the provision of services such as test and measurement. There is no record of target for these objectives. 201Defence sought, and gained the approval from the Defence Minister to rewrite Mortimer Review Recommendation 4.3. A key criterion in determining whether consulting contracts would be appropriate is whether the government could maintain sufficient in-house capacity to be thoroughly in control of the policy and management functions of the agency. Delivering what is required with processes, systems and tools being the means not the end. 100Defence, First Principles Review, p. 14. Later (April2004), senior DMO managers stated that there was scope to achieve a better risk balance in sustainment program management, where well-defined tasks had, in the past, been transferred to industry successfully with net savings, thereby improving efficiency. 5.1The most recent major review of Defence, the 2015 First Principles Review, was a comprehensive examination with a suite of recommendations for reform. 2.10Defence intends to replace MSAs (and the associated Materiel Acquisition Agreements) progressively with Product Delivery Agreements. The number of SPO staff supporting activities such as planning, contract management, and assurance may not be sufficient and this is a risk to achieving FPR goals (including SPO reform) and ongoing delivery of [Integrated Investment Program] activities. Table A.1:Key data for each of Defences Systems Program Offices: staff, assets and major contracts, Assets under sustainment/consumables supplied, Number of sustainment contracts with a value greater than $1million, Total value of contracts with a value greater than $1million ($m), Maritime domain (17 Systems Program Offices), Amphibious fleet (excluding LHD) and supply ships, Directorate, Maritime Operational Support, Maritime targets and ranges and Dock Management at Garden Island, Hydrographic fleet, minor fleet support vessels and Army amphibious fleet, Mine hunting and clearance diving materiel, Small, Medium, and heavy arms, and surveillance systems, All clothing and apparel for all ADF elements, Health materiel and combat rations for all ADF elements. This historic cost of an asset is used to provide reliable and consistent records. 184Defence, First Principles Review Oversight Board ProposalHealth Check on Progress, 7 February 2017. In January 2014, the International Standards Organisation released the ISO 55000 series of standards for asset management. Products are those that deliver a capability based on smaller but more numerous systems often involving regular replacement of all, or components of, the capability. The ANAO has recommended that Defence institute a risk-based quality assurance process for information included in the Quarterly Performance Report. Work continues with the Capability Managers to develop more systemic demand-related reform activities for implementation in the medium to longer term. Defence has entered into sole source contracts with suppliers outside of the Defence system established to manage such arrangements. They provide recommendations as to how government can become a smart buyer, knowing what it wants and judging better what it has bought. 3.56The first planning and reporting cycle under the PGPA Act requirements was for 201516. Defences comments, and suggested editorial amendments, have been provided to the ANAO. Opinion: Defence's MSP creation is without strategy, and at a premium Design and implement sustainment arrangements that encourage performance-based behaviour. Cash Flow Statement: What It Is and Examples - Investopedia Please direct enquiries relating to reports through our contact page. PDF Cost Principles: Allowable Costs Uniform Guidance 2 CFR 200 Defence advises that Over the past 12months the CASG e-Procurement Team and the DoF AusTender Team, and SAP Australia Canberra Office have been progressing a whole of Government project to address the technical and business process risks posed by the current SAP AusTender Contract Reporting data capture and reporting solution. 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. This practice: has created the risk of dependency on particular suppliers; raises concerns about probity as contractors and APS staff involved in the procurement may not be dealing with each other at arms-length; and means that Defence may not be getting value for money. In 2011, a review of the Smart Sustainment program by consultants engaged by Defence identified that there were no records to support how these funds were spent or what benefits had been realised. Many antiviral agents exert significant host cellular toxicity, a limitation that has hindered antiviral drug development. 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 allowable use of funds under those awards is included in Ruth L. Kirschstein National Research Service Awards in IIB. Implementation is incremental and subject to feedback and review. 3.41Defence also decided that, in the absence of tender quality cost information it would mandate an analogous78 or a parametric79 approach to developing cost estimates for all Defence major capital equipment projects. 70Defence, Mortimer Review, Recommendation 4.4. These measures track expenditure against phasing and is key indicator of the quality of Systems Program Office planning and costing processes across the Financial Year. 5.21The report found that the lack of Systems Program Office commonality added complexity, blurred accountability and confounded the ability to build enterprise solutions for common services. 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. Defence has recently improved its whole-of-life costing of proposals to acquire major capital equipment but remains unable to measure or report reliably the total cost of ownership. 27. Raised / Open Priority 1 / Priority 2 Maintenance Deficiency Report (Urgent Defect). The use of the traffic light indicators Green (acceptable performance) or Amber (early signs of underperformance). 78The analogy estimating method uses actual costs from a similar asset/system and then relies heavily on expert judgement to adjust these costs to account for differences between the similar asset/system and the new asset/system to develop an estimated cost for the new asset/system. 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. 187Defence Portfolio Budget Statements 201516, Table 94: Top 30 Sustainment Products by End of Financial Year Outcome 201516, p. 190, available from [accessed 20 April 2017]. There was no systematic evaluation of the constituent projects at their conclusion nor overall evaluation of this major program. 183Defence, minute Effective implementation of asset management in Defence, 17 September 2015. There remains potential to improve some core key performance indicators used within the systemfor example, to more usefully determine the total cost of the capability to Defence. Defence should give sustainment much higher attention and priority during the initial phases of the assets life cycle (Needs, Requirements, and Acquisition). REVISED DECEMBER2022. A Defence Central Contracts Register facility commenced operation in January2016.b This enables efficient collection of data for new Defence contracts: it does not include existing contracts, which can be added only by a separate stream of work. ], P3 Orion, P8 Poseidon, Herron UAV, and Aeronautical Life Support Equipment, Ground support equipment, aircraft common spares, aerospace support and test equipment, and technical data and publications, Air Mobility & Tanker Program Office (AMTPO), Directorate Aerospace Simulators & Special Aircraft (DASSPA), Tiger (ARH), Taipan (MRH-90), Blackhawk and Kiowa helicopters, Cargo Helicopter & Unmanned Surveillance Project Office, Chinook and Unmanned Aerial Vehicle aircraft, Squirrel and Seahawk helicopters and aerial targets, Helicopter Aircrew Training System Project Office, Multirole Helicopter [MRH-90] Project Office, Joint domain (16 Systems Program Offices), Wide area and space surveillance capability, Maritime strategic communications capability, Joint C4I [communications, command, control, computers and intelligence], Joint communications, command, control, computers and intelligence capability, Land C3 [communications, command and control], Land communications, command and control capability, Maritime command, control, and communications capability, Joint & Air Intelligence, Surveillance, Reconnaissance and Electronic Warfare, Joint & air intelligence surveillance reconnaissance and electronic warfare capability, Land Intelligence Surveillance, Reconnaissance and Electronic Warfare, Land intelligence surveillance reconnaissance and electronic warfare capability, Maritime Intelligence, Surveillance, Reconnaissance & Electronic Warfare, Maritime intelligence surveillance reconnaissance and electronic warfare capability.