Eliminating complicated and unnecessary structures, processes, systems and tools. Source: Abstracted from Defence, Reform Issues, April2011. Contracts with the principal provider are not performance-based. Free Cash Flow (FCF) Formula - Corporate Finance Institute 183Defence, minute Effective implementation of asset management in Defence, 17 September 2015. Sustainment costs were increasing because of the inappropriate application of DMO policies and procedures, and a lack of business acumen in contracting and engagement with industry. Similarly, in an international seminar on Defence acquisition in July2000, an issue identified by Defence at the time was the challenge to be a smart buyer. 32. 5.8The ANAO identified the following streams of workeither directly flowing from the First Principles Review or from Capability Acquisition and Sustainment Groups own list of deliverablesas having the most apparent potential to affect the management of sustainment: 5.9The First Principles Review specifies few targets or measures of performance. 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. Initial establishment of centres of expertise in Capability Acquisition and Sustainment Group is underway. 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). In the Quarterly Performance Report, Defence does not identify the Tiger as an under-performing acquisition or sustainment project, even though the other sources suggest just that. Key Takeaways Accrual accounting records revenue and. 3.16One potentially useful feature is a list of underperforming sustainment products.48 This is based on information provided through MRS, SPMS and gate reviews. Defence defines sustainment as involving the provision of in-service support for specialist military equipment, including platforms, fleets and systems operated by Defence. Late delivery has minimal impact on the overall development of the Armed Reconnaissance Helicopter (ARH) capability. It has engaged a consultancy (at an estimated cost of $1.2million) to undertake the data identification and cleansing for active major contracts for the top 15 Acquisition and Sustainment projects/products (about 60 contracts) by 30June2016.c After completing approximately 15 major contracts the project was suspended due to competing priorities within Capability Acquisition and Sustainment Group. Note a:Defence, Smart BuyerDetail Design, approved 20October2016, p.1. Lack of a performance based ethosDefence had failed to define performance targets for individuals and organisations and this had been a key driver of inefficiency and sub-optimal behaviours that affected sustainment performance. 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. This introduces risks related to ensuring that Systems Program Office staff working on outsourcing have the necessary skills and competencies. This was funding to be spent by DMO on sustainment on behalf of Defence.95 From 201314 forward, Defence also reported the estimated cost of capability sustainment for the whole of Defence. The instruction was cancelled in March 2014 and replaced by the Defence Logistics Manual, DEFLOGMAN Part 2, Volume 10, Chapter 16, Life Cycle Costing Analysis. 3.45The First Principles Review found that, at the project level, Defence treats staff as a free good across the department: Employee costs are not considered part of a projects costs and a manager cannot adjust numbers of staff based on project need. This resulted in the various parties failing to act on, or enforce, their responsibilities within the sustainment space. 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. Defence should give proper attention to asset management, logistic support and engineering requirements. 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. An indicator of the accuracy of the NAVALLOW Configuration record for each Platform. This chapter examines Defences performance framework to support the management and external scrutiny of materiel sustainment for specialist military equipment. Defences 201516 public reporting of sustainment activity included expenditure information and other descriptive material. Reviews have consistently emphasised the need for Defence to improve the efficiency of its operations, including in sustainment. A final consideration is that of resourcing. The term includes small and large businesses and is used interchangeably with "for-profit organization. This method produces a rough order-of-magnitude estimate, and is generally used early in the life cycle of a new asset/system when technical definition is immature and insufficient cost data is available. In business, it is a key aspect of an organization's financial stability. Step 2develop a risk-based tailored project execution strategy, covering approvals, project management, and through life asset management, including a coherent approach to the acquisition and sustainment phases. 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). The primary impact of poor outcomes in this Key Health Indicator is Sustainment Efficiency outcome. 69Defence Annual Report 199798, p. 224. or an F&A cost Necessary costs incurred by a recipient for a common or joint purpose benefitting more than one cost objective, and not readily assignable to the cost objectives specifically benefitted, without effort disproportionate to the results achieved. Defence has clear and long-standing governance and organisational arrangements for managing the sustainment of specialist military equipment. 124Defence, First Principles Review, p. 40. 109Defence, Helmsman Sustainment Complexity Review, July 2010, p. 5. since 2000, a specialist acquisition and sustainment unitpreviously the Defence Materiel Organisation (DMO) and most recently the Capability Acquisition and Sustainment Groupstaffed by a mix of civilian and military personnel; maintenance by the specialist unit of physically dispersed sub-unitsknown as Systems Program Officeswith day-to-day responsibility for Capability Acquisition and Sustainment Group sustainment activities. 5.30In August2016, Defence finalised a Systems Program Office Design Guide to provide Capability Acquisition and Sustainment Group senior managers with sufficient guidance to design or redesign Systems Program Offices.146, 5.31In March2017, Defence advised that the first 25 Systems Program Office reports had been provided to the Capability Acquisition and Sustainment Group Executive Advisory Committee for exposure and awareness. In 2016, the Coles review team found significant improvements in the performance of the Collins Class submarines. Research and reviews conducted for Defence have revealed a range of specific operational problems that are detracting from the efficient and effective sustainment of Defence capability, including the functioning of Systems Program Offices. The Smart Sustainment reform stream of the Strategic Reform Program funded the work (see paragraph 4.6). 11. This risks encouraging insourcing in preference to outsourcing even where the total real cost to the Commonwealth of the former is greater.82 Defence has noted this internally (February2017): Any reduction of SPO [full-time equivalent staff], without a commensurate reduction of activity, will result in work being outsourced to industry and therefore increase the cost to the [Capability Manager]. the experience, skills and competencies of Systems Program Office staff; [Systems Program Offices (SPOs)] not being able to manage to an effective asset management plan; Disrupted maintenance schedules, affecting availability and increasing costs; Shortened life of type, and increased whole-of-life cost; and. 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). 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. that the aircraft has not met, and is unlikely ever to meet, the required level of capability expected by government. We understand that there are in more than 580 panellists across 79 skills sets. [17], On 13 February 2012, Warren King (former Deputy CEO) was appointed CEO.[18]. Reporting: SPOs report to multiple bodies for performance management and technical assurance, and all require different information, formats, and timings; Policy: implementing changes to policy and process from multiple sources with limited guidance or support; and. Defence should base its selection of systems/equipment on systems sourced from credible/proven suppliers. The Review team thought the answer to that was No.60. Create a collaborative framework for the management of sustainment without diluting individuals responsibilities. inefficiencies in the processes leading to government approvals for new projects. The system supporting the current AusTender site is described by Defence as in a state of decay as it is over a decade old and no longer viable to upgrade and sustain. 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. 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. Raised / Open Priority 1 / Priority 2 Maintenance Deficiency Report (Urgent Defect). 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. 1.4Parliamentary committees over several years have stated an interest in Defences reporting of its sustainment performance and, in particular, obtaining greater insight into that performance.7 In May2014, the JCPAA recommended that the DMO prepare a suitable methodology for reporting sustainment activity and expenditure, within six months.8 The Government disagreed on the basis that current arrangements balanced Parliamentary scrutiny of sustainment expenditure with the protection of classified information on the military capability, readiness and availability associated with that sustainment.9 In September2014, the Committee sought a sustainment options paper from the ANAO, which was made public by the Committee. Defence informed the ANAO that both measures are based on direct product costs incurred by the Capability Acquisition and Sustainment Group and do not include sustainment costs incurred by other parts of Defence. The review also found that while the cost effectiveness of the Collins Class submarine sustainment program was showing signs of improving as submarine availability increased, it was yet to achieve international benchmarks.d The review team recommended that Defence should now focus on cost reductions to improve the efficiency of the Collins Class submarine sustainment program.e.