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). The fact that a proposed cost is awarded as requested by an applicant does not indicate a determination of allowability. Consequently, DMO retains over 50 SPOs [Systems Program Offices] each operating relatively independently of others and in different positions in the value chain. REVISED DECEMBER2022. 6. The development and maintenance of the MSA framework had also encouraged and facilitated collaboration between Defence and the (then) DMO at both the management and operational levels (see paragraph 12). 199In its 200809 Annual Report, Defence stated that to implement this recommendation, it had created the Sustainment Reinvestment Office to co-ordinate DMOs role in achieving the $5.5 billion in savings expected from Smart Sustainment under the Strategic Reform Program. There was no systematic evaluation of the constituent projects at their conclusion nor overall evaluation of this major program. 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. 5.3Otherwise, the report does not discuss sustainment as a topic separate from the acquisition stage of the equipment lifecycle. 3.17The ANAO observed marked differences in the information provided about Armys Armed Reconnaissance (Tiger) helicopter between: 3.18A comparison shows that the Quarterly Performance Report does not include information available to Defence that is critical to the readers ability to understand the gap between the expectation of capability and reality for the Tiger helicopter program (See Appendix 3). 5.26In 2016, the First Principles Review concluded that Defence had too many Systems Program Offices139, and that Defence could make savings by restructuring them and reducing their staff.140 The Review drew on a 2013 consultants report that identified ways to reduce the DMO workforce.141. 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. The First Principles developed were: Clear authorities and accountabilities that align with resources Decision-makers are empowered and held responsible for delivering on strategies and plans within agreed resourcing. Bechtel is now, with others, providing the UK with tailored private sector expertise and human resources, indicating relevant experience in the Defence procurement field. The Review team thought the answer to that was No.60. A service optimisation program for Army Land Rovers, saving $590000 a year. 43 199798, Lifecycle Costing in the Department of Defence, examined Defences 1992 policy on lifecycle costing, finding that while Defences policy and procedures advocate the use of whole-of-life costings in acquisition decisions, in practice, Defences use of whole-of-life costing was uneven. 73 0 obj<>stream 3.42To provide the historical cost data to support analogous or parametric cost estimates, Defences Chief Finance Officer will build a database of historical costs and cost attributes. Table94: Top 30 Sustainment Products by End of Financial Year Outcome, Under the heading Top 30 Sustainment Product Descriptions, Defence provides a description for each of the Top 30 sustainment products. 157Defence, Report on Defence Governance, Acquisition and Support, (KPMG), April 2000, p. 51. 4.9Defences Sustainment Complexity Review in mid-2010 warned that most Systems Program Offices did not have the capacity to undertake Smart Sustainment initiatives.109 Nevertheless, in late 2010, an internal health check on Defences governance arrangements for Smart Sustainment found that, despite some difficulties, Defence had the fundamentals in place to support their success.110. Defence needs to be an intelligent customer for sustainment. 5.12Bechtel had made contact with Defence in July2013 seeking an opportunity to help with reform of the DMO, presenting a paper Australian Defence OrganisationDMO Transformation Opportunities. 5.2The report of the First Principles Review refers to sustainment in the discussion of its recommendation that Systems Program Offices each be examined and analysed: In some cases it would be appropriate to outsource completely the acquisition and sustainment functions conducted by a Systems Program Office. Defence has not kept a systematic record of the outcomes of the Smart Sustainment initiative associated with the 2009 Strategic Reform Program. SPO staff have limited experience, skills, and competencies needed to effectively establish, govern, and assure industry delivery of capability. 2. Note a:The Collins Class submarine sustainment program has been a project of concern since November2008. Accounting standards IAS 18 require a company to recognize revenue only when the amount is measurable and cash flows are probable. Defence has not put in place plans to evaluate either the reforms themselves or its implementation of them. Defence has initiated a reform project as part of its First Principles Review implementation. This recommendation was not included in the summary of First Principles Review recommendations at the front of the report of the review, whereas the recommendations set out in the preceding and subsequent paragraphs of the report are included in that summary (recommendations 2.12 and 2.13 respectively). 3.50To assess Defences public reporting for the sustainment of specialist military equipment, the ANAO considered: 3.51The Public Governance, Performance and Accountability Act 2013 (PGPA Act) aims to improve the line of sight between what was intended and what is delivered. Closure of the Materiel Acquisition Agreement and project closure will be completed during 2016. 26. But no such global improvement approach had been implemented across sustainment. This matter is also taken up in the next chapter. 99Some of those attempts are examined later (paragraph 5.54 forward). Smart Sustainment had a ten-year savings target of $5.5billion. They identify, in general, the allowable and allocable items (see Section 2.0) of cost normally associated with MCC-financed contracts. The term contract for availability is a term used in British military circles but is equivalent to performance-based contracting. Data is entered monthly by subject matter experts, usually based in the relevant Systems Program Office. 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.
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