Defence spends similar amounts each year on sustainment and the acquisition of new equipment. The availability of appropriately skilled, qualified and authorised staff (Navy and Civilian) to fill positions in the Systems Program Office and Capability Manager Representative organisations is a key contributor to all three of the Materiel Sustainment Agreement outcomes and a key constraint to long term Materiel Confidence. Create a collaborative framework for the management of sustainment without diluting individuals responsibilities. 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. Outcome orientation Delivering what is required with processes, systems and tools being the 'means not the end'. Opportunities remain to improve the quality and transparency of Defences publicly reported information regarding materiel sustainment, while being sensitive to national security concerns. For commodities, the maintenance component of the budget is comparatively small with replacement or replenishment being the dominant activity. To facilitate equitable distribution of indirect expenses to the cost objectives served, it may be necessary to establish a number of pools of F&A (indirect) costs. Information sharing about asset management was inconsistent and fractured. 5.5A subsidiary recommendation (2.2 disbanding the DMO and transferring its core responsibilities in relation to capability delivery to a new Capability Acquisition and Sustainment Group) has led to the creation of Capability Acquisition and Sustainment Group in Defence. 12. Under the PGPA Act, Defence will need to report meaningfully against this plan in its annual performance statement. Data is entered monthly by subject matter experts, usually based in the relevant Systems Program Office. The Bechtel team assisting Defence comprises around 60 people (January 2017). Given the substantial resources involved, both in the expenditure on sustainment and the reform process, Defence would benefit from assessing all aspects of these changes carefully. The value-for-money requirement remains, in the amended version, the core rule for all procurements (p. 11). 188Defence Portfolio Budget Statements 201516, Top 30 Sustainment Product Descriptions, pp. It must cover a minimum of four years. 2.7In most cases, a major platformsuch as an aircraft type or class of shipis managed by a single Systems Program Office.18 Systems Program Offices maintain a relationship with industry bodies, particularly those providing maintenance services, spares, engineering and other support, and with the representative of the relevant capability manager.19 Each Systems Program Office has contracts with industry suppliers of services, parts and consumables. A primary example is the detailed, technical paper produced by Navy in 2006, A Quantitative Approach to Navy Performance Measurement. Defence notes that the audit was conducted at a strategic level, and acknowledges the opportunities for improvement identified by the ANAO. Consequently, while cannibalisations are undertaken to avoid failure against Materiel Ready Days (Materiel Availability outcome), their true impact is on Materiel Confidence with secondary impact upon Sustainment Efficiency outcomes. Note b:This is part of a substantial project within Defence to improve both the recording of contracts and purchasing within Defence. 84Mr Kim Gillis, Deputy Secretary, Capability Acquisition and Sustainment Group, Defence, quoted in Ziesing, K, From the Source: Deputy Secretary CASG Kim Gillis, (interview) Australian Defence Magazine, 1 November 2016. 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. With benchmark availability on the verge of being achieved, the focus should now be on efficiency improvements and cost reductions across the sustainment program. As an executive agency, the DMO would receive its own acquisition funding stream as a government appropriation, and would be headed by a chief executive with "significant private sector and commercial experience". This has been achieved while managing risks to national security.2. A Smart Buyer undertakes the roles that government must perform, and effectively outsources other functions when that is the Smart thing to do. Defence materiel sustainment is about the maintenance and support of Defences fleets of specialist military equipment: the provision of in-service support for naval, military and air platforms, fleets and systems operated by Defence. A Smart Buyer has the organisation, skills, and suitable decision-making frameworks to make timely decisions on the optimum procurement, project management and approvals strategies for each acquisition or sustainment program, based on its critical risk features. Efficient, Effective, Economical and Ethical Procurement 7. One major contractor noted that Smart sustainment has achieved limited success to date through cost cutting and minor reform driven by piecemeal, top down budget pressure.115. PDF CASG Cost Principles - Department of Defence 171Defence, Airborne Early Warning and Control Sustainment Performance Gate Review, 30 July 2015. 4.5The government announced Defences Strategic Reform Program in May2009. The Reviews terms of reference included one specific reference to sustainmenta requirement that Defence ensure a commercially astute, focused and accountable materiel acquisition and sustainment capability. 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. 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. The 201516 Defence Corporate Plan did not include an explicit reference to sustainment in the Purposes statement. 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. Using internal and external expertise to provide the best advice so that the outcome is delivered in the most cost-effective and efficient manner. [9], On 1 April 2015, the Minister for Defence released the First Principles Review. 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. Those prices comprise only the costs incurred by the relevant Systems Program Office for goods and services supplied under contract. 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. Table10: Capability Sustainment Program corresponds to Table6 in the PBS (see above). 4.18By June2015, Defence was claiming approximately $2billion in savings from the Smart Sustainment Program since its inception in 2009. 71Defence, Rizzo Review, Chapter 4, p. 29. 3.24Gate reviews can draw management attention to sustainment risks in individual fleets. In many cases, these are not linked resulting in data integrity issues. That letter also identified a savings target of $200million a year for re-use elsewhere in the portfolio. 3.22In 2009 Defence commenced gate reviews for capital acquisition projects as an internal assurance process.55 They have provided insight into a projects progress and an opportunity for project staff to discuss difficult issues with senior management and seek guidance. 5.39To work out whether performance-based contracting is yielding the outcomes it expects, Defence is undertaking an academic analysis of the Critical Success Factors for PBC and their role in Program success. It is an output measure, which directly reflects achievement against the Sustainment Efficiency outcome. The Commonwealth's discretion, and a reasonableness test, will apply with regard to the use of the Cost Principles for tendered contracts. In its 201415 Annual Report, Defence claimed to have achieved $2billion of savings from the initiative in its first five years. But no such global improvement approach had been implemented across sustainment. 5.16As at November2016, the total estimated value of contracts awarded to support Defence activity in Capability Acquisition and Sustainment Group directly or indirectly associated with implementing the First Principles Review, excluding the Bechtel contract, was $40million. 151Defence, DMO Acquisition and Sustainment Manual (2007), pp. 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. SeeCost Considerations-The Cost Principlesfor additional details. 165United States Government Accountability Office, GAO/GGD-00-172R, Study on Facility Design Reviews, July 2000, available at http://www.gao.gov/assets/90/89986.pdf. The document details the Cost Principles that Defence Capability Acquisition and Sustainment Group (CASG) and industry will utilise as a framework towards contract costs and provides Defence and the CASG's expectations and clarity of what costs may be attributed to (cost-recovered from) the Commonwealth. 124Defence, First Principles Review, p. 40. The Government agreed to the recommendation. 73 0 obj<>stream 5.63The Sustainment Business Model project has not delivered all that DMO expected. Table A.3:Navy Materiel Sustainment Agreement Performance Framework - Core Key Health Indicators. Defence records show that the department made substantial efforts to keep track of the large number of diverse initiatives identified across the department under the smart sustainment reforms associated with the SRP, including internal reporting to management. 202Defence, The Helmsman Sustainment Complexity Review [Helmsman Review], July 2010, p. 29. Defence confirmed in March2017 that this risk remains. In examining why contracting out work to the private sector had not worked well during the Reagan administration, these studies find that government has often not proved to be an intelligent consumer of the goods and services it has purchased. Further detail is provided in Appendix 4. 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. Cumulative effect of a change in accounting principle: remove it from 14. 174Defence, Ship Zero Concept, (QL131 Report) 10 October 2016, p. 9. 5At the strategic level, guidance is given by the Chief of the Defence Forces Preparedness Directive. In May 2016, Defence entered into another contract with Bechtel for $65.8 million, to conclude in June 2018. 196Defence, Study into the Business of Sustaining Australias Strategic Collins Class Submarine Capability, November 2012. Defence has initiated a reform project as part of its First Principles Review implementation. 47Defence, First Principles Review, p. 17.
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