Obsolescence will result in increased Urgent Defect, Cannibalisations and reduced Demand Satisfaction Rates. 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). Box 1: The origin of Systems Program Offices. An output measure, which directly reflects achievement against the Materiel Availability outcome. 18Where a Systems Program Office manages multiple equipment lines, one or more product managers with responsibility for specific equipment types may support the Systems Program Office Director. Defence was urged to use lifecycle costing throughout the acquisition lifecycle by an ANAO performance audit in early 1998. 164Defence, First Principles Review, pp. A Smart Buyer will also enable appropriate financial return for its Suppliers. Ruth L. Kirschstein National Research Service Awards, Cost Considerations-Allocation of Costs and Closely Related Work, Cost Considerations-Allowability of Costs/Activities. On its face, this is arguably of wider applicability: [Acquisition and sustainment each have] a distinct character, but need to be carefully linked to ensure a smooth passage from acquisition (design, build, test and commission) to sustainment (maintain, operate, support logistically). The most appropriate procurement model for delivering the capability and achieving value for money. This narrower focus risks telling only a partial account of sustainment within Defence and is potentially at odds with the One Defence model promoted by the First Principles Review. 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. 66Defence, Report on Defence Governance, Acquisition and Support (prepared by KPMG), April 2000; Defence Procurement Review (Malcolm Kinnaird AO, chairman), August 2003the Kinnaird Review; Going to the Next Level: the Report of the Defence Procurement and Sustainment Review (David Mortimer AO, chairman), September 2008the Mortimer Review; 2008 Audit of the Defence Budget (George Pappas, consultant), April 2009the Pappas Review; and Review of the Defence Accountability Framework (Associate Professor Rufus Black), January 2011the Black Review. In November 2016, the contract was amended and increased by $32 million. 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. Will future rises in fuel prices be subtracted from savings? (The Cost of Defence: ASPI Defence Budget Brief 201213, 2012, p. 138). 11. 5.59Defence paid $5.5million over four years (201112 to 201415) for consultancy services related to its sustainment business model. 2.13Generally, the lifecycle of Defences military assets falls into two periods: acquisition and sustainment. [17], On 13 February 2012, Warren King (former Deputy CEO) was appointed CEO.[18]. There are no standardised reporting mechanisms (reporting is informal, anecdotal, local or crisis based) or management processes, with all divisions having different methodologies and management systems. The report includes performance summaries for the Top 30 major acquisition projects, all major acquisition projects reported in the Major Projects Report and the Top 30 sustainment products. address four tests to determine the allowability of costs. 40Rather, it would be a Strategic Sustainment Analytic, a high-level sustainment health indicator that can be used for broad cross-product comparison. Parliamentary committees have frequently stated an interest in Defences reporting of its sustainment performance and, in particular, obtaining greater insight into that performance. 157Defence, Report on Defence Governance, Acquisition and Support, (KPMG), April 2000, p. 51. The outcome from this review is alignment of the SPO activity to Planning, Governance and Assurance roles, and enabling industry to undertake the management and delivery of sustainment activity, in particular the transactional functions required to maintain capability. It is now too late to revisit these events; nonetheless, Defence could benefit from evaluating future major change programs. Bechtel is now, with others, providing the UK with tailored private sector expertise and human resources, indicating relevant experience in the Defence procurement field. For more information or to provide feedback on the Cost Principles, please send an email to theDefence Financial Investigation Service. 207General Accounting Office, GAO/T-NSIAD-97-110 Defense Outsourcing: Challenges Facing DOD as It Attempts to Save Billions in Infrastructure Costs, 1997, pp. How to Use the Commonwealth Procurement Rules Division 1 - Rules for all Procurements 4. 13Defence, First Principles Review: Creating One Defence, 2015the First Principles Review. The capability management role needs to be resourced appropriately to be able to take the lead roles of the asset owner and the sustainment customer. [13], In March 2009, the Corporate general manager of the DMO, Jane Wolfe, was dismissed for unsatisfactory performance. 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. 0000002145 00000 n A project to reform and consolidate Systems Program Offices is currently underway, with 24 out of 64 Systems Program Offices (37.5percent) reviewed as at February2017. 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. The term smart buyer is a term of art, with a specific meaning in public administration, relating to outsourcing, and which arose around 1990 following work in the USA by the GAO and the Brookings Institution.205 The key paragraph in an early GAO study states: The government must have an active role in the decision-making process. 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. 114Defence, Final Audit Report, Audit Task: 12-041, SRP Savings and Performance Reporting, Audit and Fraud Control Division, August 2012. They are mandatory for all procurements valued at greater than two million Australian dollars (AUD$2m), and guidance for all others, unless exemptions apply. The following paragraphs provide an overview of the contents of the 201516 performance documents. 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. Defence has stated that gate reviews review overall performance of the sustainment system and its fitness for purpose rather than just its outcomes for the past month.. Note a:Many entries on the AusTender site represent individual payments rather than separate contracts. Box 2: Sustainment work in Defences Capability Acquisition and Sustainment Group. Free Cash Flow (FCF) Formula - Corporate Finance Institute Performance measures in Materiel Sustainment Agreements must be realistic and must be consistent with the requirements in sustainment performance artefacts such as the sustainment contract. Commercial organizations An organization, institution, corporation, or other legal entity, including, but not limited to, partnerships, sole proprietorships, and limited liability companies, that is organized or operated for the profit or benefit of its shareholders or other owners. 212Senate Foreign Affairs, Defence and Trade References Committee, Capability of Defences physical science and engineering workforce, April 2016, paragraph 3.16. http://www.defence.gov.au/annualreports/15-16/Chapters/chapter-8.asp, http://www.defence.gov.au/casg/AboutCASG/Accountability/, https://www.nasa.gov/offices/ocfo/nasa-cost-estimating-handbook-ceh, http://www.finance.gov.au/resource-management/performance/, http://www.defence.gov.au/Budget/17-18/PBS.asp, http://www.defence.gov.au/AnnualReports/15-16/Chapters/chapter-8.asp, https://www.aspistrategist.org.au/graphs-week-finally-getting-collins-class-paid/, http://www.defence.gov.au/ADC/publications.asp#Geddes, http://www.defence.gov.au/Budget/15-16/PBS.asp, http://www.defence.gov.au/annualreports/15-16/Chapters/Chapter8-WebTable8.11.xls, http://www.defence.gov.au/annualreports/15-16/Chapters/Chapter8-WebTable8.2.pdf, Auditor-General's responses to requests for audit, Systems Assurance and Data Analytics Group, Professional Services and Relationships Group, http://www.defence.gov.au/Budget/15-16/PAES.asp, http://www.gao.gov/products/T-NSIAD-97-110, Defences Management of Materiel Sustainment. 5.47Operating as a smart buyer is an essential function for an organisation seeking to outsource work. Mortimer identified five principal areas of concern. Tiger sustainment is continuing to mature. 152Defence, Next Generation Performance-Based Support ContractsAchieving the Outcomes that Defence Requires (PBC Discussion Paper v1.0), February 2010. [Materiel Acquisition Agreement] Closure and accompanying Product Schedule Change Proposal (PdCP) to transfer the delivery of the Deployable Aircraft Maintenance Rig capability to CA12 completed and awaiting Assets Under Control (AUC) balance adjustments before paperwork can be processed for signature. Manufacturing (or factory) overhead. Areas for improvement include: 21. 3.21Defence has implemented a strategy in recent years that should help to draw problems in individual sustainment products to senior management attention. xb```f`` In Australia, see also Pat Barrett AM, Auditor-General for Australia, Some issues in contract management in the public sector, presentation to Australian Corporate Lawyers Association/Australian Institute of Administrative Law conference on outsourcing, Canberra, 26 July 2000. 128In mid-2015, Defence established a standing offer panel to support the implementation of the First Principles Review. Defences implementation of the recommendations of the First Principles Review has also introduced a single end-to-end capability development function, the Capability Life Cycle, which will reduce previous delineations between the management of acquisition and sustainment activity. This has occurred with the extension of DMOs earlier program of gate reviews to cover sustainment as well as acquisition.54. CAS Compliance Financial Services - Capital Edge Consulting 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. For example, sustainment cost has been identified as a key risk for the MRH90 helicopter: 3.25Information from sustainment gate reviews is not routinely incorporated into management reporting on sustainment. 7.2 The Cost Principles - National Institutes of Health They provide recommendations as to how government can become a smart buyer, knowing what it wants and judging better what it has bought. Defence expected savings from: reducing spares; making more use of performance-based contracting; discouraging unnecessary end-of-year spending; travel efficiencies and improved maintenance philosophies. Final Operational Capability was declared in April2016 and ministerial advice was noted on 3May2016. %%EOF 26Paul J Rizzo, Plan to Reform Support Ship Repair and Management Practices, July 2011, p. 8the Rizzo Review. 279280. 4.19Notwithstanding Defences effort to keep track of the claimed and planned savings from Smart Sustainment, Defence has not been able to provide the ANAO with adequate evidence that the savings were realised. CASG Cost Principles | Business & Industry | Defence In . In the 201718 Defence PBS Defence presents the estimates and descriptive information for its Top 30 sustainment products in a single table. The Bechtel team assisting Defence comprises around 60 people (January 2017). 5.25The 2009 report from the Pappas Review identified opportunities for efficiencies in maintenance activities carried out by Systems Program Offices by consolidating maintenance facilities; restructuring outsourcing contracts to ensure the contractual conditions create the right incentives for performance improvements; and implementing lean techniques in workshop management.138 From the formation of DMO, Defence received similar external advice from different sources that substantial improvements in efficiency were possible in the Systems Program Offices. 1.10The team members for this audit were Dr David Rowlands, Kim Murray and David Brunoro. depends on the type of organization (regardless whether domestic or foreign) making the expenditure. 113Defence, Smart Sustainment Reform Health Check, June 2011. Under the PGPA Act, Defence will need to report meaningfully against this plan in its annual performance statement. 17ANAO comment: The Secretary is the Departments accountable authority under the Public Governance, Performance and Accountability Act 2013. In March2017, Defence informed the ANAO that work was underway to address this. In November 2016, the contract was amended and increased by $32 million. public reporting principles and requirements, including under the, Defences public annual reporting of sustainment activity; and. This prevents accurate lower level plans and targets (for example, for maintenance and operations) being established and achieved. See Defence Portfolio Budget Statements 201718, Table 68: Top 30 Sustainment Products by End of Financial Year Outcome 201718, pp. Outcome orientation Delivering what is required with processes, systems and tools being the 'means not the end'. In 2003, a few years after the formation of the DMO, a zero-based review found that there was a significant opportunity to reduce resourcing levels by re-engineering processes and improving systemsin other words, improve efficiency.59 Specifically, there was potential to optimise resource utilisation through judicious outsourcing to original equipment manufacturers in appropriate circumstances. High levels of unplanned maintenance will affect Sustainment Efficiency through uncontrolled cost of repairs and a probable increase in Cannibalisations. This resulted in the various parties failing to act on, or enforce, their responsibilities within the sustainment space. Acquisition and through life support for armoured fighting vehicles, including ASLAV, M1A1 Main Battle Tank, M88 Recovery Vehicle, M113 Armoured Personnel Carrier and the Protected Mobility Vehicle (Bushmaster) and associated equipment. 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. He described the areas where he expected they could make cost reductions, including by: reducing spares; more performance-based contracting; discouraging end-of-year spending to meet budget; travel efficiencies; and improved maintenance philosophies. The ability to maintain, change and control the Configuration baseline of the product is key to ensuring long-term supportability and the health of maintenance and supply support outcomes. The Support and Operating Intent of the capability are not being adequately articulated by Capability Managers, which results in: Activities assigned to the Services that affect asset management and asset condition are not being completed, and limited feedback is being provided to the Capability Manager Representative regarding the impact of non-completion on cost and availability. The DMO was to be accountable for whole-of-life materiel management, with Systems Program Offices comprising multi-functional teams to undertake the work. This represents a major investment of at least $120million, including contracts for services from the principal provider (Bechtel) valued at some $107million. Defence informed the minister there was a significant risk that Defence would fall short of the cost reduction target for the Program ($20.6billion) by some $4billion, almost one quarter of the remaining target ($17.6billion). Bechtel was one of the companies on this panel. 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. Systems Program Office staff are involved in both acquisition and sustainment. It is apparent from this audit that Defence has developed information systems that could support the preparation of similar information for its sustainment work. 91Defence Annual Report 201516, Chapter 8, Web Tables 8.2 and 8.11. Systems Program Offices are located in different parts of the country but are organisationally all part of the Capability Acquisition and Sustainment Group within Defence. The ANAO has recommended that Defence institute a risk-based quality assurance process for information included in the Quarterly Performance Report.
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