Defence has not explained what became of these initiatives. (b) The non-Federal entity assumes responsibility for administering Federal funds in a manner consistent with underlying agreements, program . the project was approved in March1999 with a budget of $1.58billion (December1999 prices). Defence notes that the audit was conducted at a strategic level, and acknowledges the opportunities for improvement identified by the ANAO. Defence expects that this research will be complete in 2018. The project has spent $133.966million on sustainment in 201516 against a budget for the year of $133.679million, and $1867million of an acquisition budget of $2033million. 194Defence Annual Report 201516, Chapter 8, Web Table 8.11: Top 30 sustainment products by expenditure, as forecast in the Portfolio Budget Statements 201516, available from [accessed 20 April 2017]. There has been no consistent application of fundamental tools such as Earned Value Management. 3.13This broad focus is consistent with Defence advice to the ANAO that some sustainment services for some equipment items are also undertaken by Capability Managers and other enabling Groups, including Joint Logistics Command.45 The primary data source for the report is SPMSthe central source of truth for sustainment management data and reporting for sustainment management personnel at all levels of both Capability Acquisition and Sustainment Group and Capability Manager organisations.46 The approach, as advised to the JCPAA, also reflects the First Principles Review recommendation that an end-to-end approach should be taken for accountability for capabilitythe One Defence model.47, Figure 3.1:Preparation of the Quarterly Performance Report, 3.14However, Defence advised the ANAO in June2017 that the Quarterly Performance Reports primary focus is on products and projects delivered by the Capability Acquisition and Sustainment Group, and does not encompass the complete sustainment enterprise. requirements as long as they meet the standards prescribed in 2 CFR Part200.302 and 45 CFR Part 75.302 for financial management systems. 11Military units regulate the technical integrity of capability and undertake some operational level maintenance. 3.24Gate reviews can draw management attention to sustainment risks in individual fleets. internal reporting practices for sustainment; whether Defence has established measures of efficiency and productivity for sustainment activity; whether Defence assesses whole-of-life costs and the total cost of ownership of its assets; and. @ GV Cannibalisation reflects an inability of the supply chain to support requirements, but is not an indicator of Supply Chain performance alone as the requirement may be the result of induced failure from a number of domains. However, Defence did not adequately assess the outcomes from the smart sustainment reforms. Dr Stephen Gumley was the DMO's chief executive officer from February 2004 until his retirement was announced by the Minister for Defence, Stephen Smith, on 7 July 2011. ideally located with the principal user but, dependent on the maturity and nature of the current, new and enhanced materiel systems, may be located at more than one site. Defence had not defined the cultural changes it expected from the program and therefore may not deliver the behavioural changes required for long-term reform. An unspecified proportion of Smart Sustainment savings of $197million in. Defence has done earlier work relevant to the assessment of its productivity. For example, a small number of products could be selected, with rotation or other variation from year-to-year, limiting the risks that may flow from time-series analysis and the release of other material whose aggregation could add risk. The table reports, for each Top 30 sustainment product: the budget estimate for. 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. 72ANAO Report No.6 201314, Capability Development Reform, Chapter 7. 98Australian Strategic Policy Institute, The Cost of Defence: ASPI Defence Budget Brief 201617, p. 58. Reviews have consistently emphasised the need for Defence to improve the efficiency of its operations, including in sustainment. While poor outcomes in the Key Health Indicator represent risk across all Materiel Sustainment Agreement outcomes, these risks are more acute in relation to Material Confidence and Materiel. 200.408 Limitation on allowance of costs. The ANAO has recommended that Defence institute a risk-based quality assurance process for information included in the Quarterly Performance Report. Honest and open behaviour which enables others to know exactly what Defence is doing and why. Develop enterprise-wide IT strategy and information management strategy. 168See, for example, Deputy Secretary, CASG, address to Australian Defence Magazine, 16 February 2017. Capability Acquisition and Sustainment Group also undertook in July2016 that over the next 12months, Capability Acquisition and Sustainment Group will commence effort capture (where staff time is tracked against the projects and products we support), led by the Group Business Manager.85. 3.60The Defence PBS 201516 reports estimates for Defences Capability Sustainment Program and Top 30 sustainment products, as well as some descriptive information on Defences Top 30 sustainment products. The availability of the aircraft is either shown as Green (acceptable performance) or Amber (early signs of underperformance), depending on the part of the report examined. Correct date believed to be July 2009.] 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). Tiger sustainment is continuing to mature. Defence has advised that Collins Class sustainment cost per materiel ready day has decreased by approximately 40percent. Defence should give proper attention to asset management, logistic support and engineering requirements. In 2011, a health check by external consultants found some early successes with cost reductions and changes in practice. Accounting standards IAS 18 require a company to recognize revenue only when the amount is measurable and cash flows are probable. Following the change in government in 2013, it terminated work on the Strategic Reform Program. To form a conclusion against the audit objective, the ANAO adopted the following high-level criteria: 5. In light of the Parliamentary interest in Defence sustainment (see paragraph 1.4 forward) the ANAO has considered, on the basis of the current audits findings, the issue of enhanced scrutiny of sustainment through a process similar to the existing Major Projects Report (MPR).1 The MPR has been prepared annually over the last decade to provide independent assurance of the status of selected Defence major acquisition projects. In 201516, Defence spent about $6.3billion21percent of its total departmental expenditureon sustainment of specialist military equipment. 48This is separate from the long-established Projects of Concern, which generally include acquisition projects rather than sustainment products. For example, the description for the Canberra Class ships states that during. This table lists, for each of the nine elements of Defences Capability Sustainment Program: the, Table77: Top 30 Sustainment Products by End of Financial Year Outcome, Web Table8.11 includes a list of the same Top 30 sustainment products reported on in the PBS and PAES. The ANAO recommends that Defence develop and implement an evaluation plan to assess the implementation of the recommendations of the First Principles Review. Defence advised that, during the course of this contract, a number of Systems Program Offices have merged into larger organisations, resulting in a total of 48 being reviewed (as at end February2017). This data is likely therefore to understate the total number of staff in Systems Program Offices. [14] Wolfe was reinstated in April 2010 following a legal challenge against procedural aspects of her dismissal in the Federal Court of Australia. 14. This document applies to all NIH grants and cooperative agreements for budget periods beginning on or after October 1, 2022. Defence agreed to the recommendation that total cost information be provided to relevant Defence committees, with qualification. Accordingly, the Key Health Indicator will have a primary impact upon Materiel Confidence with a secondary, often more obvious, impact on Materiel Availability. In the Defence Annual Report 200405 (p. 242), DSTO nominated ensuring Australia is a smart buyer of defence equipment as one of the ways in which it supports Australias defence. 3242. 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. The management of sustainment arises mainly in the discussion leading to First Principles Review Key Recommendation 2: Establish a single end-to-end capability development function within the department to maximise the efficient, effective and professional delivery of military capability.122. 3.10Reviews of Defence over the years have highlighted the importance of management reporting on its activities. 3.59At the time of this audit, the latest set of these documents where both prospective and retrospective elements are available was for the financial year 201516. The following paragraphs provide an overview of the contents of the 201516 performance documents. Chapter 237 Principles of Antiviral Therapy. 2732. 50ANAO Report No.40 201617, 201516 Major Projects Report. The main insights into what became of the initiative can be derived only from external consultancy reports. Box 2: Sustainment work in Defences Capability Acquisition and Sustainment Group. Note a:The Collins Class submarine sustainment program has been a project of concern since November2008. 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 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. 60Defence, Jim McDowell Workshop, First Principles Review Implementation, 15 August 2015. 24. Information sharing about asset management was inconsistent and fractured. 5.29In September2015, Defence engaged a consulting firm to review and develop an optimal design for one of its Systems Program Offices. It provides only a partial account of materiel sustainment within Defence and is potentially at odds with the One Defence model promoted by the First Principles Review. SeeCost Considerations-The Cost Principlesfor additional details. 16Defence, Capability Acquisition and Sustainment Group, Accountability, available from [accessed 13 April 2017]. The fundamentals of Defences governance and organisational framework for the management of materiel sustainment are fit-for-purpose. The government agreed to the recommendation but Defence did not implement it.199 By December2013, some five years later, Defence decided that it would not meet the recommendations intent. [15][16] The case is said to have "significant implications" for the Senior Executive Service of the Australian Public Service, where legal challenges to performance decisions have been rare. The women and men of the ADF through the capability managers (our customers). Defence advised that a contract variation has been applied to accommodate this additional work, bringing the total cost to $16.3million. This indicates that any actual adjustments, if made, were to internal Defence allocations. The CASG Cost Principles apply to all procurements. This has largely been achieved by increasing the number of materiel ready days being obtained by adopting a 10+2 year Usage and Upkeep Cycle, but also by reducing costs of maintenance periods, particularly Full Cycle Dockings. A 2016 Parliamentary inquiry into Capability of Defences physical science and engineering workforce noted that: Several submissions and witnesses emphasised the need for Defence to have a sufficient [science and engineering] workforce to allow it to be a smart buyer or an informed customer. The report is expected to be a direct acquittal of the performance measurement and reporting intentions identified in the corporate plan.87. 138Pappas describes lean as a way of working that focuses on (among other goals), the continual reduction of seven forms of waste By eliminating waste substantial productivity improvements are made: quality is improved, available time is increased, and cost is reduced. 133Defence internal correspondence, April 2016. 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. Decision-makers are empowered and held responsible for delivering on strategies and plans within agreed resourcing. 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 review recommended that the Defence Materiel Organisation should be disbanded and the transfer of its core responsibilities in relation to capability delivery to a new Capability Acquisition and Sustainment Group,[1] which took effect from 1 July 2015.[10]. 20. Defence had multiple repositories and versions of asset management information making it hard to assess whether Defence was aligned to best practice. 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. 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. SPOs with a preponderance of contractor activity in acquisition include Submarines and those SPOs designated Project Offices., Table A.2:Navy Materiel Sustainment Agreement Performance Framework Core Key Performance Indicators. 6. 88Previously, the relevant expenses would have been allocated across several categories, including repair and overhaul, and inventory supplies. However, the departments approach to monitoring savings does not provide sufficient information to determine whether that occurred, and how the reported savings were achieved. 75Defence, First Principles Review, April 2015, p. 14. 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. The ANAO recommends that Defence institutes a risk-based quality assurance process for the information included in the Defence Quarterly Performance Report. Step 1develop a risk profile for the project, which identifies the severity of risk in nine categories for the acquisition phase and eight for the sustainment phase; and. 149Defence, The Australian Defence Aerospace Sector Strategic Plan: Strengthening Military Aerospace Capability in Australia, 2003, Recommendation 4, p. 8. For example, this approach could make in-sourced labour appear costless and put outsourcing at a comparative disadvantage. Recommendations with potential Defence-wide application: 3. 5.11A major feature of the implementation of the First Principles Review has been the use of industry expertise. SeeCost Considerations-The Cost Principlesfor additional details. However, the skills may be retained in the marketplace and the real issue is whether the organisation loses the capability of being a smart purchaser (The Contracting Organization: A Strategic Guide to Outsourcing, Oxford 1998, p. It also considers how Defenceparticularly within the Capability Acquisition and Sustainment Groupis implementing the reforms most relevant to the management of sustainment, and the progress of those reforms. A number of acquisition projects had been managed in project offices which are now counted as Systems Program Offices.20 Systems Program Offices do not endure indefinitely: for example, after the withdrawal from service of an asset and its disposal the relevant Systems Program Office may be dissolved or amalgamated with another. When implemented, the system will be renamed the Program Performance Management System.42 In the long term, Defence intends to build an enterprise solution to encompass both sustainment and acquisition management and reporting using SAP software. [9], On 1 April 2015, the Minister for Defence released the First Principles Review. 3.4This led to the commencement of work on a new IT system, the Sustainment Performance Management System (SPMS), in mid-2011 to replace the sustainment module in MRS.32 Defence agreed in August2012 to the continuing refinement and implementation of a shared Sustainment Performance Management Framework and reporting system for use in the sustainment of all products jointly managed by Defence and DMO.33 An objective of developing SPMS is that the system should provide the central source of truth for sustainment management data and reporting for sustainment management personnel at all levels of both Capability Acquisition and Sustainment Group and Capability Manager organisations.34 This was contrasted with the MRS, which reportedly required substantial work-arounds requiring double and triple handling. The effectiveness of Defences internal reporting system for sustainment could be improved in several areas. In general, NIH grant awards provide for reimbursement of actual, allowable costs incurred and are subject to Federal 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. For example, Dr Davies211 noted that in his experience, having in-house expertise from public service engineers who could examine bids for work from external firms made him a much smarter buyer.212. 90In the 201718 Defence PBS, Defence presents the estimates and descriptive information for its Top 30 sustainment products in a single table. The report also includes an overview of projects of concern and underperforming acquisition projects and sustainment products.

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