Government Announces Defence Procurement Reform

On 29 June 2011, Defence Minister the Hon. Stephen Smith MP addressed the Defence and Industry Conference in Adelaide. In his speech, the Minister focused on some of the challenges facing procurement, maintenance and sustainment of capability; and the many areas where ongoing reform is taking place. He spoke of determination within Defence and Industry to work together to deliver enhanced capability for the Australian Defence Force and national security.

The Defence Budget – The Minister highlighted the need to improve Defence’ Budget estimation process, to ensure that funding is based on realistic and reliable forecasts. This was highlighted by the $1.6 billion underspend in 2010-11. Defence’s Secretary and Chief Financial Officer are currently conducting a thorough reassessment of its budgetary forecasts and estimations across 2011-12 and the forward estimates, and will report to the Minister before the end of 2011.

Shared Services – Efficiency measures and reforms to shared services are being undertaken as part of the Strategic Reform Program. As a result, forecast public service workforce growth has been reduced by 1000 for the next three years. These reforms will not result in any reductions to the military workforce. Joint Operations Command, the Navy and the Capability Development Group will also be exempt from these reductions.

Accountability – The Government will make its formal response to the Black Review of the Defence Accountability Framework. This review is the first to examine personal and institutional accountability within Defence.

Procurement – Following procurement reforms announced by Ministers Smith and Clare in May 2011, Defence is accelerating implementation of all the Kinnaird and Mortimer review recommendations. Improvement as a result of these changes is already visible.

Minor Projects – The two-pass approval system which has been successful in improving the budget, schedule and capability delivery of major projects is now being introduced into the management of minor projects (those valued between $8-20 million). This will ensure that these projects are managed efficiently and effectively, with increased oversight by the Minister himself.

Early Warnings – The Government is implementing an Early Warning and Indicator system to prevent problems early in the life of projects, where 80 per cent of problems occur. A set of triggers – which alert the Minister for Defence, the Minister for Defence Materiel, the Secretary of Defence and the Chief of the Defence Force – have been established to warn of projects which are at risk of running late, being over budget or not delivering the required capability. This will then lead to an internal review of the project and a recommendation about whether a full diagnostic Gate Review is required.

The Gate Review process, which has proven very successful in the identification and resolution of problems in high value and highly complex projects, will now be expanded to ensure that operational capability is being delivered. In addition, enhanced and more rigorous reporting to Government on high priority projects is also being introduced. The Minister emphasised the need for prevention and early resolution of problems, saying “early intervention is always better than an exhaustive assessment well after the seeds of project difficulty have been sown … prevention not post mortems.”

Maintenance – Reform will also soon be undertaken in response to the Rizzo Review into the maintenance of Naval Ships. The Review has already revealed that systematic breakdown, including under resourced naval engineering capabilities, inefficient industry contracts and inadequate risk managements have together caused the problems now being experienced in the repair and management of Australia’s amphibious and support ships. The Rizzo Review will develop a plan to address these problems and oversee the early stages of its implementation.

Projects of Concern – The Minister announced that, as a result of the examination of the Projects of Concern Process by the Minister for Defence Materiel, there will now be additional procurement reforms to the process, including the introduction of a formal process for adding and removing projects from the list. Formal remediation plans will also be put in place in order to identify project remediation objectives, identify milestones and timelines for their achievement, and detail the basis on which the project will be removed from the list. The Minister for Defence Materiel will hold biannual meetings with Defence and Industry representatives in order to ensure that those responsible are being held to account for the remediation on their projects. When a company has a project on the Projects of Concern list, its performance in the remediation process will be evaluated when it tenders for other projects, and in extreme circumstances, companies could be excluded from further tenders until their project is remediated.

The Minister congratulated Boeing for successful completion of Project Vigilare, which is now no longer a Project of Concern. Similarly, the High Frequency Modernisation project has also been removed from the list following the introduction of a revised schedule and the achievement of key milestones. Nine projects remain on the list.

Over Programming – The Minister reasserted the Government’s commitment to updating the Defence Capability Plan, in particular the level of over programming. Over programming is a deliberate strategy to manage the risk of projects being delayed, so that funding can be diverted to other high priority capability projects, providing flexibility and helping to ensure that best use is made of funding in the event of delays to individual projects. Although all versions of the Defence Capability Plan have been over programmed, the Minister said that he does not believe that this is the best basis for capability, as it creates false expectations and effectively plans for failure since not all programs can actually be realised.

A copy of the Minister’s speech is available here.