Additional Comments by Senator David Fawcett
Executive Summary
In
providing additional comments to the majority report, I wish to acknowledge the
extensive effort that has gone into the inquiry, particularly on behalf of the
Committee Secretary to collate an extensive array of evidence and record the
varying opinions of witnesses and committee members in a coherent manner.
I
have four key areas of concern, however, that I believe could have been
addressed more thoroughly in respect to both scope and depth: Governance;
Strategy; Sovereignty; and Industry.
Governance
of the Australian Defence organisation (ADO) is dysfunctional. Civil control of
the military should occur through the decisions of a well-informed, elected
Minister who is connected into the governance processes of the ADO in an
ongoing manner analogous to the Board Chair of a publically listed company.
This is not currently the case due to the policy of “one voice” to Government
and the unintended consequences of two decades of Government initiated measures
aimed at reducing costs (well documented by Kinnaird, Mortimer, Black, Rizzo
and Coles). Defence procurement does not occur in a vacuum and lasting
improvement in this area will require changes to Governance of the whole ADO,
the component parts of its system including the nature of their interaction with
each other and Executive Government.
A
strategic view of Australia’s national security interests should view Defence primarily
through the prism of what we want it to be able to do, not just a list of the
equipment we think it should have. This will lead to a logical definition of the
capabilities needed to generate the military effects required by foreign policy
and those capabilities required to support internal agencies (such as disaster
relief and counter terrorism). One of the flow-on effects from dysfunctional
governance is that the Minister and National Security Committee of Cabinet
(NSCC) are not made aware of the increasing gaps between what they imagine
Defence can do and what the ADO is actually funded for. The Defence White Paper
(DWP) requires a more effective, closed-loop planning cycle to inform
Government of the likely cost of procuring and sustaining the capability envisaged
to support the national security strategy. Trade-offs, where required to ensure
that the ADF is not a hollow force, need to be made before the DWP and consequent
Defence Capability Plan (DCP) are published. These steps will increase capital
productivity which has the potential to deliver significant savings in the
defence portfolio over the medium term.
Sovereignty
is about the ability to choose a course of action as a nation. It does not
imply that we should attempt to emulate a super power which is able to design,
develop, manufacture and support everything required for the defence of the
nation. It does mean though that we cannot afford to be in a position where we
have no option but to accept the level of capability, risk, cost, safety and
availability another nation may deign to provide for us at their convenience.
Being able to choose where we sit along that spectrum requires that we retain
the ability to understand technology and quantitatively assess the assertions
of a would-be provider: the fabled smart customer. The ability to evaluate and
where necessary, repair or modify and certify leading edge military technology
to a chosen standard is one of the things separating a third world and a first
world nation. Many of Australia’s procurement problems stem from the growing
gap between our perceived and actual ability in this regard.
Australia’s
defence industry has proven to be innovative and remarkably resilient in the
face of entrenched cultural indifference or even antagonism within Government
and Defence. ADO personnel frequently express the view that industry is just
out to make a profit and should not be trusted. Executive Government appears to
regard defence industry through the prism of jobs creation rather than as a
part of Australia’s national security capability. The Defence Materiel
Organisation (DMO) appears to regard industry as having an unending capacity to
absorb risk without cost, to respond at short notice despite indefinite delay
to procurement decisions, and to be willing to create and retain advanced
manufacturing capability without the cash flow arising from steady contracted
work. Despite a rich history of world leading innovation in technology,
manufacturing and programming, there remains a strong bias against contracting
directly with Australian based companies.
The
evidence presented during this inquiry identifies principles that must be
respected if we are to be successful. Those principles lead me to outline one
way that we might go about recreating true civil control of a strategically
aligned defence force. A Defence force empowered to be self-critical, to
respond to changed circumstances in a timely manner, funded to deliver the
effects Government knows it can afford and in a constructive partnership with
the industry stakeholders in Australia’s national security capability.
Key Principles
- Accountability requires that the responsible
individual has both command and control over the people and resources needed to
achieve the mission;
- People who are qualified and
experienced in areas directly relevant to their task will generally succeed,
albeit their effectiveness and efficiency may be improved by following
appropriate processes. Conversely, application of increasing layers of process
to compensate for a lack of qualified or experienced people, will generally
lead to failure at some point.
Elections
and promotions mean that the personality and task-specific competence of
individuals holding appointments in Executive Government and Defence will vary
over time. This drives a requirement for a system of independent checks and
balances coupled with transparent, closed-loop reporting to ensure compliance
with best practice and to allow dissenting voices to be heard by the relevant
decision-makers.
Major
Conclusions
- Accountability will only be
achieved if Government empowers Defence to reduce the number of groups in the
ADO and to restore the continuity of command by returning control of enabling
functions to the ADF. Efficiency and effectiveness can be best achieved by
having the Secretary oversee a regulator that: sets the standards to be
complied with; determines the competence required before personnel will be
authorised to exercise their authority (limited if required); and audits
compliance.
- Defence must build on successful
measures such as Gate Reviews and Air/Seaworthiness Boards to establish a
consistent framework for contestability. The framework must include a
transparent, closed-loop reporting mechanism so that dissenting voices are
heard by the relevant decision maker.
- The success of the resolution
process for Projects of Concern has demonstrated that it is possible to have
senior stakeholders agree on trade-offs to cost, schedule and capability to
avoid project failure. There may be times where such a trade-off should in fact
be made pre 1st or 2nd Pass rather than delay submissions
to NSCC. Conversely, insufficient information to be able to accept the risk
profile of a project may mean that it should not proceed. Lack of capital
productivity is a significant cost driver for Government in the defence
portfolio and timely decision to commit, to defer for a defined period or to
cancel has the potential to achieve significant savings over time.
- The ADO is often under media and
political pressure to reduce the number of “contractors and consultants” as a
cost saving measure. If the Australian Public Service (APS) or uniformed personnel
do not have the required competence for the role, this is not only false
economy due to decreased productivity, it directly elevates the project risk.
Government must be prepared to defend the right of Capability Managers to
engage (employ or contract) the skills they need to complete the tasks they are
given. If the nation cannot afford to engage task-competent people to manage
multi-million dollar projects, the project should be deferred or cancelled.
- The ADF has (or has had) the
ability to identify risk in many circumstances prior to contract signature.
This capability has not been used to best effect with dissenting voices
sometimes ignored. The decision makers must have disclosure of the fact that
dissent was made and the basis upon which the dissenting concerns were dealt
with or discarded.
- Defence Industry is part of
Australia's defence capability, particularly for Through Life Support (TLS) but
also in some areas of development and manufacture. The health (capacity and
competence) of Australia's defence industry sector should therefore be
considered as part of the Capability Development process. A key to reducing
risk and cost is for Government to plan for a stable procurement workload (on
defence and industry) which provides incentive for private sector investment in
(and sustainment of) skills and infrastructure.
TABLE OF CONTENTS
1.1.1.1.
While I share the conclusion
reached by other Committee members that reform is required, I believe that the
analysis could have been deeper and broader in scope in four key areas:
Governance; Strategy; Sovereignty; and Industry.
1.1.1.2.
Chapters 1-14 of the Senate FADT References
Committee Report on Defence Procurement consider a range of issues raised by
witnesses from the Defence organisation, industry, academia and commentators. Almost
without exception, witnesses highlighted that people across industry and
defence are working hard to achieve the best possible outcome for Australia's
national security. Defence personnel are rightly proud of the work they are doing,
the improvements they are making within the process they are required to use
and the capabilities that are being delivered. Industry participants
highlighted their concern not only to remain profitable but equally as
important in their view, to make tangible improvements to the capabilities used
by servicemen and women.
1.1.1.3.
In spite of the hard work and good
will of people involved, witnesses highlighted symptoms of dysfunction spanning
risk management, accountability, contestability, organisational structure, a
focus on process instead of competent people, and the inadequate interaction with
industry. The efficacy (or otherwise) of past attempts at remediation and
current policies were explored at length and some witnesses proposed changes to
process or organisational responsibility in discrete parts of the ADO. The
report makes valid observations and recommendations in each of these areas but it
could go further.
1.1.1.4.
Defence procurement does not occur
in isolation. To find the underlying causes (as opposed to responding to
specific symptoms) it is important to consider the role, actions and interface
of all stakeholders, including Executive Government. For a solution to be
effective it must consider the system as a whole. Any remediation must consider
the interaction between component parts, rather than attempting to change the
behaviour of just one part. To that end, witness suggestions such as the
re-establishment of Force Development and Analysis (FDA), the abolition of DMO or
the establishment of DMO as an executive agency may (or may not be) useful but
in any case must be evaluated in the context of the whole system (comprising Executive
Government, industry and the ADO).
1.1.2.1.
These additional comments seek to
outline what a systems approach to reform of Defence procurement may look like.
The comments are designed to stimulate debate at a level that moves well beyond
the kind of specific actions (such as appointing an Associate Secretary—Capability
or the recreation of FDA) which have previously been mooted to address symptoms
of dysfunction in a particular area.
1.1.2.2.
In developing these comments, it
has been important to consider:
a. what the intended outcomes were
when the existing organisational structures and approaches to procurement were
developed;
b. to what extent have these outcomes
been achieved vs how have previous reforms contributed to unintended
consequences; and
c. how, while taking action to
recover from the unintended consequences, to minimise the prospect of voiding
the improvements that have been made in past years.
The scope
of these comments will therefore include a brief history which will touch on
some highlights of policy decisions. It is not intended to be a detailed
academic exercise but to provide a context for the changes the Defence
organisation underwent in the two decades from 1990 to the present.
1.1.2.3.
The conceptual outline discussed
in these additional comments will also seek to take into account the principles
that I believe have come to prominence through this inquiry being:
a. Accountability requires that the responsible
individual has both command and control over the people and resources needed to
achieve the mission;
b. People who are qualified and
experienced in areas directly relevant to their task will generally succeed, albeit
their effectiveness and efficiency may be improved by following appropriate
processes. Conversely, application of increasing layers of process to
compensate for a lack of qualified or experienced people, will generally lead
to failure at some point.
c. Elections and promotions mean that
the personality and task-specific competence of individuals holding
appointments in Executive Government and defence will vary over time. This
drives a requirement for a system of independent checks and balances coupled
with transparent, closed-loop reporting to ensure compliance with best practice
and to allow dissenting voices to be heard by the relevant decision-makers.
1.1.2.4.
In this report, when I use the
following terms, I mean:
a. Australian Defence Force (ADF—the
Army, RAN and RAAF);
b. Australian Defence organisation or
“Defence” (ADO—the ADF plus the many groups (peer organisations) that have
grown around it over the past two decades);
c.
Executive Government - which
includes the Minister and NSCC of the Government of the day whether Labor or
Coalition;
d. Competence - being the combination
of qualifications and experience across a range of issues in the related field;
e. Task-specific competence - which
recognises that an individual may be very competent in a given field (eg: an orthopaedic
surgeon) but in respect to a specific task (eg: neurosurgery) you would not want
them conducting the operation; and
f. Fundamental inputs to capability -
(FIC) being the standard ADF definition of the broad range of considerations
that must be considered (ie: funded) for a “capability” to be sustainable and
effective. FIC includes the major equipment plus personnel, organisation,
training, supplies, infrastructure etc[1].
1.2.1.1.
At the end of periods of conflict
such as the Vietnam and Cold Wars, the public expected funds to be directed to
more constructive purposes—a peace dividend. Vietnam for example had become
communist but the domino-effect feared during the 1960s did not eventuate. The concept
of (and capabilities required for) forward defence were discredited in the
public’s eye. Regional cooperation appeared to be on the rise and Australia’s
allies had begun to disengage from Southeast Asia. Australia was increasingly
seen as being responsible for its own security in a benign regional environment.
The costs of maintaining a balanced, deployable joint force of air, land and
maritime capabilities were hard to justify and subsequently not considered a
priority after the Dibb Report (1986) which led to the Defence of Australia policy,
focussing almost entirely on defending the air-sea gap to Australia’s north. It
has been argued that the White Papers that followed Dibb resulted in force
structures that did not allow for a sustained, deployed ADF combat commitment
regionally or globally.
1.2.1.2.
The end of the cold war reinforced
the notion that a draw down in military capability was justified. Despite small
scale contributions to international military operations (1990–91 Persian Gulf
War, peacekeeping missions to Somalia, Rwanda and Cambodia), it was not until Operation
Morris Dance (Fiji 1987) or in a broader sense, the East Timor crisis that
Australia’s inability to deploy and sustain a credible combat force (even in
regional terms) became apparent.
1.2.2.1.
On the back of Defence of
Australia, the Government of the day sought savings from the Defence
Department for investment elsewhere. The advent of more than a decade of peace
meant that many of the enabling functions provided by specialised people and
processes (such as logistics and engineering) that a military depends on to
sustain an armed force in combat were easy pickings for cost savings.
1.2.2.2.
The traditional structure of the
three stand-alone services each owning their enabling support functions provided
good accountability and allowed a depth of knowledge and experience to be
developed and retained. There was, however, also duplication and inefficient
practice, which led to an expectation that savings could be made by
rationalising enabling functions on a tri-service basis. This started a process
of external parties imposing change on how Defence worked internally. The key
changes included:
a. Commercial Support Program
(CSP). Stemming from the Wrigley
Review (1990) and the Force Structure Review (1991), this program targeted
savings by outsourcing a number of Defence functions to industry and drawing
down the numbers of members in uniform. The enabling functions that were
targeted in the CSP included areas as broad as maintenance, training,
logistics, facilities, administration, catering and health care. The Defence
Minister informed Estimates in 1993 that, "What we have said is that
the bottom line is the dollar— that is, how we can do it cheapest and save
money". The savings were often based on industry tenders of the day which
were premised on absorbing a workforce that had been qualified and given
experience by Defence (particularly true in the area of maintenance and
training). Over time some of these initial assumptions (and savings) changed as
workers retired. With Defence having ceased to train the same scope or number
of specialists (including technicians and engineers), industry had to factor in
training and provision of experience for the workforce.
b. Defence also lost many options to
post people to deep-maintenance organisations where they had traditionally gained
technical mastery of the equipment used by Defence. This had flow-on effects in
Defence's ability to staff HQ and acquisition organisations with people who were
competent in specialised technical and engineering roles. Coles, Rizzo and this
Senate Inquiry all noted the decreasing capacity for the ADF to be an informed
customer. These longer term consequences of the CSP may have been unintended,
but they could hardly be called unforseen. A Parliamentary Library document
from 1993 notes that Defence raised concerns regarding CSP in that it would
lead to "a reduction in ADF core skills, where reducing the pool of
skilled service personnel may result in limitations to the future deployment
capacity of some units of the ADF". This has in fact now happened as
highlighted by the failure of the amphibious fleet in 2011 and the subsequent
Rizzo Review.
c. Shared Services. Before the end of the decade, Executive Government
continued the hunt for short term savings through the Defence Efficiency Review
and Defence Reform program. The resulting application of shared services caused
further externally-driven changes to a broad range of internal Defence
processes. A wide range of enabling functions was affected including among
other areas administrative support, information technology, personnel and
defence estate. Defence moved from the three uniformed services being supported
by a range of subordinate units (the basis for continuity of command), to the
three services having to negotiate for support from a growing federation of
peer organisations, each having their own management structures and priorities.
d. This has led to a large number of
negative, unintended consequences including: decreased productivity, increased costs
associated with the creation of new management structures and large increases
in senior management appointments, a breakdown in the continuity of command,
and decreased effectiveness in the delivery of support[2].
The Black Review in large part relates to the consequences of the
implementation of shared services. The decreases in productivity across Defence
have manifested in situations ranging from many day-to-day activities to
service level capability decisions. Indicative examples at these extremes include:
i. A junior officer in charge of a
maintenance workshop losing days of productive time while trying to get an
eye-flush shower (required by OH&S) fixed by the Defence Support Group when
all it required was a 50c rubber washer but he was not authorised to have one
of his own staff fix it; through to
ii. The deputy Chief of Air Force and
numerous subordinate staff spending weeks attempting (unsuccessfully) to use
RAAF funds (approved for the purpose) to make a strategic acquisition of land near
Woomera to develop the capability to conduct end-end testing and training with stand-off
weapons but being opposed by Corporate Support and Infrastructure Group (CSIG[3])
who were responsible to facilitate the purchase but whose senior management had
different aims and priorities.
e. Defence Procurement. The process of centralisation continued with the materiel
procurement function being removed from the three services and placed under the
new Defence Acquisition Organisation (DAO). Further reform saw the services
also lose the through-life support and logistics function to an expanded DAO
which became the Defence Materiel Organisation (DMO). This was intended to professionalise
Defence interaction with industry, better facilitate joint acquisition, ensure
that acquisition took due account of ongoing logistic considerations and to impose
a common approach to defence procurement. The very fact that this Senate
Inquiry is being held and has elicited such a wide range of submissions
indicates that the outcome has not been what was hoped for. Evidence to the
Inquiry has highlighted that despite a large investment in courses and
certification, DMO still has a challenge to develop those initial
qualifications into task-competence and to retain experienced professional
staff. The inquiry also found extensive evidence that standardisation remains
an issue (despite extensive process and manuals).
1.2.2.3.
Kinnaird and Mortimer. The next tranche of change came as signs of
dysfunction increased. By December 2002 Kinnaird was engaged to conduct a
review of problems associated with major Defence acquisition projects. The part-implementation
of the Kinnaird Review recommendations resulted in wide-ranging process reform
and over time was considered to have improved both capability development in
Defence, and acquisition in DMO. A number of Kinnaird’s recommendations were
not heeded (eg: organisational change) by Government or not adequately funded,
preventing effective implementation. By 2008, Mortimer (supported by competent
defence officers) was engaged to review the effectiveness of procurement post Kinnaird
and while noting improvements, concluded that significant problems still
existed within Defence procurement. The Minister in accepting his report
commented on the “complex and bewildering processes, practices and acronyms
that comprise Defence’s procurement system”.
1.2.2.4.
In his foreword, Mortimer refers
to the “necessary cultural and institutional changes that will be required
to give effect to these reforms. Without these changes the Review is of the
firm belief that some of its recommendations will be significantly weakened and
will not deliver the full benefits intended”. Unable, unwilling or unconvinced,
the Government again declined to consider major organisational change. The
result was to address the symptoms of dysfunction with further layers of
process and measures which this inquiry has shown to be largely ineffective.
1.2.2.5.
At the end of two decades of
constant change which was motivated by the pursuit of short term savings, is
the tax-payer dollar being spent any more wisely? Without a defined reference
baseline and with a constant process of change layered upon ongoing change,
Defence has been unable to provide the Parliament with quantifiable evidence of
savings achieved through these measures. Indeed, when the cost of the
unintended consequences (eg: the demise of the amphibious capability, failed or
delayed projects etc) are factored along with the expense of multiple reviews, oversight
committees and “change management” measures and re-building activities, it is
probable that in net terms, the cost to the taxpayer has been, and continues to
be, significant.
1.2.3.1.
The United Kingdom Ministry of
Defence (UK MoD) has also undergone substantial reform in the past two decades.
Like Australia, many of these reforms have been driven by cost saving measures
based on “commercial best practice” and have had similar results of downsizing
uniformed technical workforce while outsourcing to industry. Like the
amphibious fleet failure in Australia, the UK has also been impacted by the
unintended consequences. The Haddon-Cave Report into the MoD after the loss of
an Royal Air Force (RAF) Nimrod in 2006 condemned the change of organisational
culture within the MoD between 1998 and 2006 in the wake of the Strategic
Defence Review. Mr Haddon-Cave QC noted that short term costs savings and
budget measures (such as outsourcing and matrixed management) had reduced the
effectiveness and accountability of the MoD leading to catastrophic
organisational failures. The report quotes: There was no doubt that the
culture of the time had switched. In the days of the RAF chief engineer in the
1990s, you had to be on top of airworthiness. By 2004 you had to be on top of
your budget if you wanted to get ahead. The UK Secretary of State for Defence noted: “This
report must act as a wake-up call for us all—for politicians, for industry and
for the military. Cutting corners costs lives. Wars cannot be fought on a
peacetime budget.”
1.2.3.2.
Likewise the United States Department
of Defense (US DoD) has been subject to a range of reforms in an attempt to
deliver savings. The sheer scale of the organisation makes potential savings
large but corresponding challenges immense. In 1991 for example, the DoD had
around 250 finance and accounting systems (most incompatible with each other),
18 separate military payroll systems and a history of independent action within
each service. Like Australia and the UK, these reforms have come in waves and
through the 1990s in particular, followed commercial concepts such as
outsourcing. The drive for savings in the US has affected technology based
organisation other the DoD. The Space Shuttle Columbia Accident Investigation
Board found that externally driven savings measures had driven a culture change
within the National Aeronautics and Space Administration (NASA) which had
affected management and the ability of the engineering specialists to
successfully challenge the cost savings measures of “business process reform”
teams. The dilution of technically qualified and experienced people in the
management structures meant that consensus became a way of doing business even
in respect to technical issues, rather than engineering principles being the
baseline consideration that drove cost, scope and schedule decisions.
1.3.1.1.
The underlying drivers of the
symptoms identified in the Committee report (poor risk management, lack of accountability,
inadequate contestability, dysfunctional organisational structure, a focus on
process instead of competent people, and the inadequate interaction with
industry) need to be identified if the situation is to be improved on a
sustainable basis. The primary aim of such root cause analysis is to:
a.
identify the factors that drove
the nature, magnitude, location, and timing of harmful outcomes of one or more
past events, in order to
b. identify the behaviours, actions
(or inactions), and conditions which need to be changed to prevent recurrence
of similar outcomes; and to
c. identify the lessons that should
be learned to promote the achievement of better outcomes in future.
1.3.1.2.
As with any systems approach, the
interaction of components within the system can be multi-faceted with multiple
order effects. Analysis of any given symptom may therefore link to a number of
principles and desired outcomes. Many volumes could be written in this area but
I will seek to highlight what I believe to be the fundamental issues to be
addressed.
1.3.1.3.
Accountability. Principle - Accountability requires that the responsible
individual has both command and control over the people and resources needed to
achieve the mission.
1.3.1.4.
The Committee noted the strong
theme from witnesses and reviews such as Coles, Rizzo and Black regarding a
lack of accountability. Principle would suggest that the underlying cause is a
lack of control. Despite the assurances from the ADO that Materiel Acquisition
Agreements (MAA) and Materiel Sustainment Agreements (MSA) provide the Capability
Manager with control, the practical outcomes indicate otherwise.
1.3.1.5.
Take the Rizzo Review as an
example. Chief of Navy did not control the through-life support of his ships –
he had a contract with DMO who was responsible for that and indeed Navy’s
engineering workforce and technical regulatory structure (CN’s check and
balance against poor DMO performance) had been downsized as part of the cost
savings delivered to Government through CSP and the creation of DMO. Who should
be held accountable? Take the example of the Captain and his workshop. He
lodged the work order to have DSG fix the eye-wash shower and diligently
pursued them in an attempt to get some action when it became apparent that they
had other priorities. Who is accountable for the loss of productivity and lack
of compliance with OH&S? Who should be held to account for the late
achievement of an operational capability of the stand-off weapon for RAAF? The Capability
Manager or the ADO group that refused to facilitate the functions requested of
them?
1.3.1.6.
The assumption was made that the
services only needed to use the facilities or “fight” with provided equipment. Someone
else could buy them and look after them. Having services provided and
non-combat roles filled by commercial, civilian or centralised agencies was
seen to be a way to save money through economies of scale, lower on-costs for
employees and standardisation. The flaw is the premise is that all the
underlying modelling and assumptions will prove to be accurate. In reality
failures occur, circumstances change, assumptions prove to be invalid, priorities
and national commitments of Executive Government change. To be effective, ADF
commanders must be able to respond and adapt in a timely manner. This requires
an ability to re-prioritise, re-allocate resources and if necessary, adapt
proven procedures to meet new circumstances. ADF commanders at all levels no
longer have this flexibility due to the extensive network of committees and
contracts established to manage the inter-group boundaries within the ADO which
have proven to be so disempowering for ADF stakeholders. Black and Coles both
highlighted the impact of excessive committees and confused responsibilities on
both effectiveness and efficiency.
1.3.1.7.
A new paradigm is required for the
Capability Manager to be accountable (ie: able to command and control) while retaining
the benefits that have accrued in some areas through CSP and the DER. The
change is subtle but profound. Rather than strip the Capability Manager of
responsibility and employ someone else to do the job, return responsibility to
the Capability Manager and employ someone to make sure he does it in accordance
with approved/standardised guidelines and regulation. This proposal is based
on:
a. Civil precedence. There have been many calls for Defence to be more businesslike
but the current structures largely prevent that. CEOs who accept full profit
& loss responsibility generally have the ability to control all parts of
their business. Their actions however are moderated by the Board who set
strategic direction and ensure that a strong compliance regime is in place with
respect to relevant regulation set by the appropriate authority (eg: APRA –
financial services, ACCC – competition, fair trading and consumer protection
or CASA – aviation safety etc).
b. Military precedence. The ADF already has a successful model of this
combination of unity-of-command subject to regulation. Each Capability Manager
is responsible for the operation of the multiple types of aircraft in their
service (including maintainers, aircrew, and ground support staff). They are
held to account to comply with the standards set by two regulators (the
Director General of Technical Airworthiness (DGTA) and via the Defence Airworthiness
Coordination and Policy Agency (DACPA)). These regulators audit and report on
the level of compliance. DGTA also approves the level of delegated authority
that an engineer may exercise when posted into an appointment by the Capability
Manager. The results of these audits form part of the annual Airworthiness
Board which evaluates the readiness or continuing airworthiness (people,
training, facilities, logistics, engineering, operations) for each aircraft
type. While DACPA and DGTA set the standards, there is a clear accountability
for the services to adhere to these regulations while making other resource and
priority based decisions in response to changing tasking and circumstances.
Military staff working with Mortimer pointed to this model as the precedent
that should be expanded when the role of Governance Boards were discussed in
the context of procurement.
c. Evidence. The Black Review identified the lack of
accountability due to the ADO matrix structure but “with the notable
exception of the operational chain of command where clear lines of devolved
accountability and responsibility are central to the military command chain”.
It is important to note that pre the CSP and DER reforms, the ADF applied these
clear lines of accountability and responsibility to all of its enabling
services (logistics, training, procurement etc). It may not have done it as
efficiently as possible, but in hindsight it probably provided better value for
the tax-payer than the raft of unintended consequences that have followed the
reforms. By returning responsibility for controlling the enabling functions to
the ADF (that Black has recently identified still retains a culture of
accountability), the aims of the CSP and DER reforms can be better harnessed by
alignment and best practice through regulation, audit and closed-loop reporting
(eg: analogous with the airworthiness model).
1.3.1.8.
I conclude that accountability
will only be achieved if Government empowers Defence to reduce the number of
groups in the ADO and to restore the continuity of command by returning control
of enabling functions to the ADF. Efficiency and effectiveness can be best
achieved by having a regulator that sets both the standards to be complied with
and the competence required before personnel will be authorised to exercise
authority (limited if required) in related areas. I also contend that the
burden of excessive compliance reporting and successive audits from multiple
parties that Defence is currently subject to is a function of the matrix
management model where no one agency is responsible. Correct setting of priorities,
schedule coordination and alignment of audits with unit activity could
significantly reduce the burden which is currently placed on the ADO and
achieve more efficient and effective outcomes.
1.3.1.9.
I also contend that accountability
is required from Executive Government to defence. There needs to be a
recognition that the term “raise, train, sustain” is there for a reason and
that tasking part of the ADF is not a free good. After years of efficiency
measures, there is not much redundancy or depth in many of the areas that
directly generate the required military effects. Commitment of ADF forces to an
unplanned task (regional intervention, natural disaster recovery etc) is a
valid use of the ADF but if it comes on top of a high operational tempo
supporting existing commitments, there will be a cost: always financial (direct
operating costs, cancelled or deferred activities, accelerated maintenance) and
sometimes also a capability gap while the deep-maintenance stagger for major
equipment is re-established.
1.3.1.10.
Contestability. Principle - Elections and promotions mean that
the personality and task-specific competence of individuals holding
appointments in Executive Government and Defence will vary over time. This
drives a requirement for a system of independent checks and balances coupled
with transparent, closed-loop reporting to ensure compliance with best practice
and to allow dissenting voices to be heard by the relevant decision-makers.
1.3.1.11.
A structured framework that
facilitates contestability is one effective way of benefiting from alternative
views and harnessing corporate knowledge. A Governing Board, Board of Reference
or Board of Directors (eg: of a public company) are long-standing and effective
ways to implement this. This can apply to Defence at various levels. Since the
Levene review of 2011, the UK MoD for example operates under a Defence Board
chaired by the Minister (Secretary of State for Defence) who has “directors” on
the board speaking for the military as well as non-executive directors drawn
from non-defence fields to provide alternative views. The ADF already use a
different style of board as part of the airworthiness and seaworthiness
process. DMO uses a Gate Review that can provide similar function.
1.3.1.12.
In the Australian context, a
framework to facilitate contestability (including transparent, closed-loop
reporting) would need to be effective at multiple levels:
a. Strategic. In developing the DWP, alternative views must be heard
with respect to:
i. The operational concepts for how
military capability will generate the effects required to support the national
security strategy;
ii. The scope and duration of military
effects the government requires defence to be able to generate (ie: wars of
choice (Afghanistan or East Timor), wars of necessity (defence of mainland
Australia), as well as regional and domestic contingencies (protecting sea
lines of communication from piracy or interdiction, natural disasters etc);
iii. The true cost (and future growth
pressures) of all the FIC elements required to generate the military effects
including compliance costs associated with whole-of-government regulations (eg:
environmental and OH&S considerations for facilities);
iv. The trade-offs that will
inevitably have to be made if the DWP and DCP is going to reflect an
affordable, achievable plan that the ADO, central agencies (Finance and
Treasury) and industry can confidently use for planning; and
v. The extent to which Australia
wishes to maintain its sovereign ability to choose the level of capability,
safety and certification standards to be applied to military equipment.
b. Capability. The need for improved contestability throughout the capability
life cycle has been a major finding of the committee report. The
choice/appointment of people to be the informed voices should be subject to
checks and balances such that the issue of their competence for the role is
contestable to avoid short-cuts being taken. A transparent and closed-loop
reporting system is vital if contestability is to be effective. There should be
full disclosure to the Minister and NSCC of the existence of dissenting voices.
The nature of the dissent, actions taken to mitigate or mange identified risks
or the reasons to discard the advice must be part of the brief flagged to
Government. Relevant stages of the life cycle include:
i. Pre-First Pass to contract
signature. Checks and balances are
required to ensure that the proposed capability aligns with the national security
strategy as articulated in the DWP. Involving informed and experienced people
in the system is the best form of recalling corporate knowledge (lessons
learned) which can help constrain the conspiracy of optimism. The system
requires the early engagement of competent people to speak to risk (technology,
integration, certification, and industry capacity), the proposed contracting
approach (appropriate risk sharing) and the long-term considerations such as
whole-of-life costs, skills development and viability of strategic industry
stakeholders.
ii. There should also be
contestability around decisions to delay going to Government for 1st
or 2nd Pass. The “tender quality” threshold that has become expected
for information provided to government and the consequential delays have been
shown to be a driver of risk due to the flow on effects for industry (eg:
inability to retain project specific competence in workforce, cash flow and
schedule compression if IOC is a fixed schedule requirement) and the Capability
Manager (extension of legacy capability, re-alignment of personnel posting
plans, re-training and possible re-contracting for other FIC elements). The
success of the resolution process for Projects of Concern has demonstrated that
it is possible to have senior stakeholders agree on trade-offs to cost,
schedule and capability to avoid project failure. There may well be times where
such a trade-off should in fact be made rather than delay submissions to NSCC.
Conversely, the inability of CDG to obtain sufficient information to be able to
accept the risk profile of a project may mean that it should be cancelled. Lack
of capital productivity is a significant cost driver for Government in the
defence portfolio and a timely decision to commit, to defer for a defined
period or to cancel has the potential to achieve significant savings over time.
iii. Acquisition. Checks and balances are required to ensure compliance
with approved procurement guidelines, and that changes in scope remain aligned
with the 2nd Pass Approval. The Committee heard from both industry
and ADO members about the adverse impacts of “project specific” culture that
may develop in the relationship between the contractor and defence (be it
adversarial or excessively compliant). Audit and review by experienced people
(eg: Mortimer’s Governance boards or DMO Gate Reviews) can provide checks and
balances to ensure an effective working environment prevails that maintains the
aim of meeting the end users operational need within the terms and intent of
the contract. Contestability around decisions to delay contract signature are
subject to the same considerations as for 1st and 2nd
Pass.
iv. In-service. The failure of the ASLAV upgrade
program due in part to poor through-life configuration control, the amphibious
fleet failure, Collins sustainment issues all point to the need for periodic
contestability around compliance with engineering/operational/training/logistic
requirements and adequacy of resources provided for all required FIC elements.
While not perfect, the airworthiness system in Defence is a proven system that
affords this contestability across all three services in the aerospace domain. It
has recently been extended to Navy for major systems and should be scaled
appropriately across Defence for all major capability systems.
c. ADO. Members of the ADF are currently subject to an
excessive amount of compliance reporting and audit activity (internal and by
external groups) that detracts from a focus on effective military outcomes. Greater
efficiency and effectiveness may be achieved if a common framework was applied
across the ADO in a coordinated manner. Where shared services (or whole of
government obligations) are currently in place, the Minister should hold the
Secretary accountable for developing/maintaining agreed standards to be applied
across all three services and the consequential auditing and reporting of compliance.
d. Conclusion. Defence must build on successful measures such as
Gate Reviews and Airworthiness/Seaworthiness Boards to establish a consistent
framework for contestability. This framework allows the Capability Manager to
be held accountable for what is achieved while enabling a system of checks and
balances that provides assurance the quality / efficacy of how it is achieved. The
framework must include a transparent, closed-loop reporting mechanism to ensure
that dissenting voices can be heard by the relevant decision maker. The
Government must also introduce contestability at the strategic level (noting
the difficult balance required between national security and transparency).
1.3.1.13.
Process vs (task-competent)
people. Principle - People who are
qualified and experienced in areas directly relevant to their task will
generally succeed, albeit their effectiveness and efficiency may be improved by
following appropriate processes. Conversely, application of increasing layers
of process to compensate for a lack of qualified or experienced people, will
generally lead to failure at some point.
1.3.1.14.
The Haddon-Cave Review (UK) has
been often seen by people predominantly as a report concerned with the RAF. The
report is prescient, however, in its dissection of the nature and causes of
dysfunction that have afflicted numerous western technical organisations
following the 1990s when business trends were adopted by governments in the
face of cost pressures. The lessons highlighted by Haddon-Cave are applicable
across the ADO with regard to the dilution of technically qualified and
experienced people in the management structures. In the UK this meant that
consensus became a way of doing business even in respect to technical issues,
rather than engineering principles being the baseline consideration that drove
cost, scope and schedule decisions. The Committee has seen evidence of similar
outcomes in the ADO with generalist ADF and APS staff relying on process rather
than subject matter competence.
1.3.1.15.
To have a role with authority in
complex or technical project in civil community (eg: a pipeline engineer in the
energy sector), there is often a competence matrix which provides guidance on the
qualifications and experience required for given tasks. This approach is
already applied in parts of the ADO in various forms. It must become a standard
part of practice with scaled levels of detail and discretion for appointing
authorities depending on the criticality of the role. The role of the external
regulator who audits and reports on compliance is critical if this system is to
be effective. While some parts of the ADO already make extensive use of
external agencies (eg: Engineers Australia, Project Management Institute) to
assist in the process of defining competencies, this should become standard
practice. Existing ADF regulators such as DGTA and the Flight Test Airworthiness
Authority should also be used to identify specific competence considerations for
design engineering, developmental test and evaluation and certification roles.
1.3.1.16.
There are areas where the ADO no
longer retains sufficient competence or capacity to support all projects.
Indeed it may not be viable to always maintain the numbers of professional
required when concurrent projects are under way. Above-the-line professional
service providers (PSP) have proven invaluable to many projects, provide competence
and often, the benefit of corporate knowledge and recall of “lessons learned”. Evidence
provided to Senate Estimates indicates that the ADO is often under media and
political pressure to reduce the number of “contractor and consultants” and
even the annual defence report highlights efforts to replace contractors with
APS. If the APS or uniformed personnel do not have the required competence for
the role, this is not only false economy due to decreased productivity, it
directly elevates the project risk. Government must be prepared to defend the
right of Capability Managers to engage the skills they need to complete the
tasks they are given. If the nation cannot afford to engage task-competent
people to manage multi-million dollar projects, the project should be deferred
or cancelled. Skills in this category could include engineers, project
managers, contract negotiation specialists, integrated logistic support (ILS)
professionals, test and evaluation (T&E) specialists (developmental or
operational) and accounting or finance managers.
1.3.1.17.
Risk management. The enquiry identified numerous examples where risk
was either not identified or poorly managed throughout the capability
acquisition process. The most telling cases were in situations where equipment
that was marketed to defence and submitted to government as off-the-shelf,
turned out to be developmental. This leads to several obvious questions:
a. Why was the risk not
identified? In giving evidence to the
inquiry Defence claimed that it had developed increasingly robust processes to
support their risk identification and management. Given the principle
identified above regarding task-specific competence, it is worth asking about
the skill sets and experience of the people implementing this process.
i. Who is commonly involved? Defence identified that their process requires DSTO
to be responsible for conducting the technical risk assessment. DSTO have a
valid role in the risk assessment, particularly where their staff have been
involved with similar technology through alliance arrangements such as the
technical collaboration program (TTCP) with the United States, Canada and the
United Kingdom. Other people who may be involved in the process include desk
officers from CDG and possibly staff from the relevant service and DMO.
ii. In evidence to the committee, DMO,
CDG and DSTO admitted few if any of their staff had qualifications, expertise
or experience in design engineering, developmental test and evaluation or
certification. The majority of DSTO personnel come from a scientific rather
than engineering background and their focus is predominantly on the technology
itself rather than the application of the technology as part of a weapons system
with all its associated integration, certification and fit-for-purpose
considerations. Defence confirmed that staff from CDG and DMO were predominantly
operators, engineers or technicians who came from an environment where mature,
in-service systems were the norm. Defence stated that these people were used to
a culture where the manufacturer was the ultimate arbiter and authority with
respect to the equipment in question. They confirmed that operators engineers
and technicians in this environment would not be used to questioning the
manufacturers advice or instructions.
iii. It should come as little surprise
then that when a manufacturer presents a solution and claims that it is
off-the-shelf and presents a range of technical looking material to
substantiate their claim that most desk officers will not be equipped to ask
the relevant questions to establish the true status or extent of residual risk
to close the gap in areas where development is acknowledged as being required.
iv. Who could be involved? This has varied over time for the land, maritime and
aerospace domains with the aerospace domain currently having most options. Over
a number of decades, Defence has invested in the capability to conduct design
engineering, developmental test and evaluation and certification activities for
its aerospace equipment across all three services. These skills reside in the
flight test engineers, experimental test pilots and flight test systems
specialists from the Aircraft Research and Development Unit (ARDU—supporting Air
Force and Army) and the Aircraft Maintenance and Flight Trials Unit (AMAFTU—supporting
Navy).
v. ARDU and AMAFTU in the past have
been tasked to conduct evaluations prior to contract signature. Where there has
been an operating product available, a Preview Evaluation (involving a series
of ground and flight assessments) has been conducted resulting in a report that
can inform contract negotiations about areas of risk. Where there is not yet an
operational solution, they have been engaged to review requirements,
specifications and to assess claims made by the manufacturer.
vi. The competence that underpins
their ability to add value to this task comes from the combination of
qualifications and experience. The career path to becoming a productive member
of ARDU or AMAFTU involves officer training, initial specialist training
(pilots course, engineering or navigator/weapons system operator), at least one
or preferably two operational tours, 12 months of tertiary level training at a
specialist school in the United States, United Kingdom or Europe and then one
or more years of supervised test activity within the Australian airworthiness
and certification system. Only at this point are people deemed competent to
support a significant development or acquisition project.
vii. There are currently no comparable
organisations in the maritime or land domains. In the past, Navy has had deep
experience in shipyards and its technical regulatory structures. There have
also been centres of expertise, for example the Oberon class submarine combat
system centre. The development of skill sets has tended to parallel the block
replacement approach of major capabilities (ships, submarines) rather than
retaining a standing capability. Land will increasingly require this capability
as it moves from low-technology vehicles to complex weapons systems highly
integrated into the digital battle space. Of note however, many of the systems
engineering skills from the aerospace domain do transfer to other domains as
evidenced by the number of ex-aerospace engineers engaged in the Air Warfare
Destroyer programme and supporting land C3 (command, control and communication)
projects. The aerospace capability is therefore a suitable basis for
determining the types of qualification and experience required to provide this
competence to the land and maritime sectors.
b. Why was the risk poorly
managed? Risk management only becomes
an issue if the risk has been identified. As highlighted in paragraph a,
scientists and service personnel who are very competent in their respective
professional fields are not well equipped to work at a forensic level with
design engineering and certification issues. That may go some way to explaining
issues in the land and maritime domains. Given that some of the more notable failures
over the past decade in Defence procurement have been in the aerospace domain,
why did ARDU and AMAFTU not identify risk in a timely manner?
i. Were they asked? Since the creation of the DAO and then DMO the
percentage of aerospace projects which have fully employed be capability
afforded by ARDU and AMAFTU in a meaningful fashion throughout the whole
capability development, acquisition, acceptance and introduction-into-service
process has steadily decreased. There are several reasons for this including
cost constraints, decreased awareness of their capability and role, and an
increasing perception that with more off-the-shelf acquisition there is a
diminishing requirement for the involvement of developmental test and
evaluation organisations.
ii. Possibly one of the last full
Preview Evaluations conducted was for Project Air 87 (Armed Reconnaissance
Helicopter) which involved the significant expense of a team of test pilots and
flight test engineers travelling to France to conduct a series of ground and flight
tests. Other projects have involved ARDU or AMAFTU upfront to a lesser extent
although nearly all have realised at some point, that the information they
require to achieve certification requires some involvement of these specialist
agencies. By then however, the unforeseen risks have often eventuated and
schedules have started to become very tight if not already delayed. The
multi-role tanker and transport (MRTT) project for example, was anticipated to
be a largely off-the-shelf project and so made minimal investment in funding
project positions to enable a developmental test and evaluation capability upfront.
Once the risks had materialised however, ARDU was requested at short notice to
surge a large number of flight test personnel in an attempt to recover
schedule.
iii. Were they listened to? This question goes to the heart of the need for a
system of checks and balances within a transparent, closed loop reporting
system. ANAO reports often make comment to the effect that Defence was not
aware of the developmental nature of the equipment and that issues became
apparent after contract signature. The Committee received evidence that this
“official record of events” was not always the complete picture.
iv. Documents provided to the
Committee highlighted that the Preview Evaluation (conducted prior to contract
signature) in support of Project Air 87 identified a number of risk areas including
significant schedule risk due to the developmental nature of the helicopter.
Numerous other software, integration and technical risks were identified, many
of which subsequently eventuated and contributed to the delayed achievement of the
operating capability. Despite the clear articulation of risk in the report, the
contract negotiations proceeded as planned and the Committee has evidence
showing DAO gave specific instructions not to release the report to the Capability
Manager in Army.
v.
In the case of the Super Sea
Sprite, evidence received by the committee indicates that staff at AMAFTU on at
least two separate occasions identified the high degree of risk associated with
the proposal to develop a digital flight control system. A similar specific
warning was made by a contractor to Defence who also stated in evidence that a
significant amount of effort was made in an attempt to get project desk
officers to understand or even acknowledge the implications of the risk.
vi. In the case of the MU90 torpedo
(Joint Project 2070) the Aircraft Stores Compatibility Engineering Agency
(associated with ARDU) recommended a range of evaluation activities to
ascertain suitability of the torpedo for fit and integration with the AP-3C
Orion. They were not funded for the proposed test activities nor was their
advice heeded on the risk associated with the Project’s intention to combine
integration activities for the MU90 with the JASSM.
c. Conclusion. Clearly the ADF has (or has had) the ability to
identify risk in many circumstances prior to contract signature. This
capability has to be used to best effect if Australia wishes to retain some
level of sovereignty (ie: be a “smart customer”). The competencies required to enable
this risk identification must be extrapolated from aerospace and developed
across the land and maritime domains. The acquisition process must mandate
their involvement early in the capability life-cycle such that the promises
made by manufacturer or the assumptions underpinning indications of cost and
schedule to senior committees or government can be tested and verified. There
is a critical need for a transparent and closed-loop reporting system that
ensures all relevant information (including dissent) is heard by appropriate
decision makers. Accountability (ie: control) requires that the project
director retain the discretion to assess dissenting voices and to make a
recommendation to the Capability Manager and eventually to Government. The
decision makers however must have disclosure of the fact that dissent was made
and the basis upon which the dissenting concerns were dealt with or discarded.
This disclosure needs to flow through to the Minister who may choose to consult
the dissenting voice or to seek a further opinion.
1.3.1.18.
Organisational structure. Post the Tange reforms of the 1970s and prior to the
reforms of the 1990s, the three individual services operated largely as
separate entities with command and control of all of the enabling functions.
While manifestly inefficient, the arrangement was largely effective in terms of
procuring and sustaining capability with a high degree of accountability (there
was no one else to blame) and a solid reputation for being a smart, informed
customer. The drive for efficiency as discussed above has had unintended
consequences which appear to have cost the taxpayer dearly in net terms. Going
back to three independent services in an attempt to remediate the unintended
consequences, however, is not an option as the gains in efficiency (where they
have been made) are essential to retain and develop in this cost constrained
environment.
1.3.1.19.
The analysis on accountability
(above) identified that control of enabling functions must be returned to the
service chiefs but subject to checks and balances from a regulator overseen by
the Defence Secretary. This means that the organisation of defence must change.
It will include a reduction in the number of groups and the creation of a new
more defined role for the Diarchy whereby the CDF is held to account for what
is done and the Secretary for how it is done (where non-military issues are
involved eg: procurement, accounting, OH&S, common standards for
administrative IT and pay systems etc).
1.3.1.20.
The analysis on contestability
(above) highlights that the governance of the ADO would be enhanced by a more
structured engagement of the Minister through a defence board as well as
developing the existing Gate Review and air/sea worthiness boards across major
capabilities and projects. The concept for this new approach to Governance is
developed further in Section II of these comments which outlines one approach
to a systems based reform of Defence.
1.3.1.21.
Defence industry. Despite the policy and the rhetoric, practice over
past years has indicated that defence industry is not really seen as a key part
of Australia's national security capability. For many MPs it is seen in the context
of job opportunities. For Defence, it appears to be seen as a service to be contracted
when required, without much regard as to what happens in between requirements.
1.3.1.22.
A commitment to competition
appears to be paramount in DMO’s thinking, even where such an approach actually
drives up risk and cost in the long term. This approach is at odds with the UK
for example where a single capability partner has been identified in areas
where the barriers to entry are high eg: submarine construction. Long term
partnerships between Defence and industry with regard to any given capability
are generally desirable but must involve contracting terms that ensure value
for money for the Commonwealth of Australia. This can be achieved through
transparent cost structures, performance/productivity targets/reviews and
options for re-tendering where value for money is not being achieved. In terms
of rebuilding competence, Defence may also consider in some areas of TLS a
balance of in-sourcing industry capacity (to a defence controlled engineering
support system) rather than outsourcing the whole task (process and people) to
industry.
1.3.1.23.
The considerations of sovereignty
apply to Australian Defence industry as much as it does to the ADO. The ability
to produce everything required for the defence of Australia is not feasible. Nor
is it desirable, however, to allow our technical abilities to atrophy to the
point of having no choice but to accept whatever equipment another nation is prepared
to sell us on their terms without understanding the true nature of capability
and risk being offered. Assuming Australia wishes to retain the ability to be a
“smart customer”, an investment in developing industrial and technical
capability has to be made at some point.
1.3.1.24.
The health (capacity and
competence) of Australia's defence industry sector should therefore be
considered as part of the Capability Development process. Recommendations at
1st Pass to NSCC should include considerations of any industry capability
health issue. If necessary, the 1st Pass recommendation should even constrain
procurement or sustainment options in order to minimize long term capability
risk as well as considering short term project risk.
1.3.1.25.
A key to reducing risk and cost is
for Government to plan for a stable procurement workload (on defence and
industry) which provides incentive for private sector investment in (and
sustainment of) skills and infrastructure. Defence is a monopoly purchaser, and
defence industries in key areas do not have normal commercial opportunities to
diversify their customer base. Where Government plans its procurement
acquisition (and sticks to the plan), some manufactured and supported in
Australia options can be as equally cost effective as MOTS/COTS. Investment in
such procurement discipline will be of far greater value to sustaining critical
defence industry capability than any form of subsidy. Where possible, priority
and strategic industry areas should be supported primarily as a function of
procurement activity rather than via “access to” training funds or other
support measures. Current Defence guidance on Priority Industry Capabilities (PIC)
states for example: “EW provides an essential capability edge for many of
our major war-fighting capabilities there is a need to have a responsive and
effective indigenous EW industry sector that can be relied upon to adapt and
integrate new systems to meet the needs of our operational posture.”
Despite this, current acquisition decisions could see most aerospace platforms
having EWSP systems designed and supported overseas within the decade. This
will not only make the retention of this PIC problematic, it will be difficult
to achieve the “essential capability edge” whilst lining up with other
client nations looking for support from the provider when there is a new threat
to be countered.
1.3.1.26.
The committee found a distinct
difference of opinion between defence and industry with regard to the timing
and level of involvement in the capability development cycle. Defence cited
concerns regarding probity as a reason to keep industry at arm’s length while
industry cited more realistic development of requirements as a way of
minimising risk. Both defence and industry agreed however that there are some
mechanisms in place that allow a productive engagement well before contracts
are being signed. One key example is the Rapid Prototyping Development and Evaluation
(RPD&E) organisation which allows early exploration and development of
concepts and technology. Of note, the Manager of RPD&E is chosen by
industry and defence in collaboration such that all parties have confidence in
the individual. This process holds considerable promise for other areas where
all industry stakeholders and defence need to have mutual confidence with
regard to probity, process and protection of IP.
1.3.1.27.
The Committee heard significant
concern from industry about the level of commercial experience within DMO, the
culture, the practice and about contracting measures that resulted in lose-lose
situations. Based on the process used to select the RPD&E Manager, industry
should have a role in the selection of the chief executive officer of what I
will call the Defence Procurement Centre of Excellence (PCOE - the group responsible
to the Secretary for the setting and auditing of procurement guidelines and
competencies). This same appointment could be responsible (directly or more
likely via selected staff) to represent industries interests when submissions
for 1st and 2nd Pass are being prepared for Government
and during review boards during the life of a project. This is not at odds with
the CEO’s role to advise service chiefs on procurement and sustainment as best
practice will generally deliver the best outcomes for all parties involved in a
contract.
1.3.1.28.
Industry views the DCP as the key
document to inform their investment decisions for workforce development and
technology. Capability Managers use the DCP to plan the management of FIC for
future capabilities. If the DCP is not realistic and predictable, industry
incurs additional cost which either makes them unviable or eventually, is
priced back into contracts with the Commonwealth. This links back to previous
discussion about the need for strategic alignment with the military effects
that Government knows it can afford and commit to. It also links to the need to
use proven approaches such as the Projects of Concern resolution process to
make the cost / capability / schedule trade-offs required to keep projects
aligned with the DCP schedule. Ministers and the NSCC must be better informed
of the opportunity cost of deferring consideration of submissions for 1st
and 2nd Pass approvals. Only then can they meaningfully decide if
the business case actually supports the proposed delay, regardless of whether
the reason is political, fiscal or just other priorities for the scheduled
meeting of Cabinet.
1.3.1.29.
The committee heard evidence about
the risks and costs resulting from the stop–start nature of defence’s “block
replacement” approach to acquisition. The problems with the AWD build at BAES
stemming from a low skill base due to gaps in ship building activity are a case
in point. Evidence was also presented about the changing nature of military
capability which is far more dependent on software and computing processor
power. Numerous accounts were received of projects which witnessed one or more
generational changes in IT technology just during the DWP to 2nd
Pass approval stage. The concept of developing a specification that will
provide the “right” solution for the next 30 years appears to be a paradigm of
the past.
1.3.1.30.
An alternative approach used with
great success by the Japanese government in submarine construction) is phased procurement.
Platforms are built with upgrades in mind (ie: designed for attributes such as access,
additional power and cooling capacity). Lower production rates with continuous
build programs reduces workforce risk (through improved retention of skills and
design knowledge), reduces technical risk (evolving design elements rather than
complete capability replacement) and spreads cost. The Collins replacement is
a clear option for Australia to consider in this regard but it could equally
apply to the replacement of vehicles for Army (Project Land 121 or Land 400) with
phasing being aligned to the 36-month Force Generation Cycle of the three
multi-role combat brigades established under Army’s Plan Beersheba.
1.3.1.31.
Evidence indicated a distinct bias
against directly contracting with Australian based small to medium enterprises
in the Defence sector. This has resulted in Australian designed and
manufactured products being sold back to the DMO via overseas prime contractors
with a significant profit margin attached. Australian SMEs have also played
crucial roles in many significant acquisition programs. It was a small
Australian company for example that conducted the analysis to show that the
combat system being delivered with the original Collins class submarine (by an
overseas prime) would not be fit for purpose[4].
Defence highlight the risk attached to through-life-support as being one reason
not to contract directly with Australian SMEs but evidence presented to the
Committee indicates that this is more of a cultural issue than an issue of
substance. The criteria used for source selection must be developed to provide
a balance which allows Australian SMEs to compete on a level playing field
where they have a technically compliant product and can demonstrate value for
money.
2. SECTION II – A proposed systems approach to
reform
2.1.1.1.
General. Reform of Defence is desperately needed but to date,
the externally imposed and led reviews have all failed to deliver the intended
outcomes, due in large part to a failure to address the underlying causes of
dysfunction. The Diarchy have highlighted that the ongoing reviews merely serve
to be a significant burden in terms of focus and resource at a time when the
ADF is maintaining a significant level of combat and humanitarian operational
commitment.
2.1.2.
Drawing on the principles, analysis and
conclusions in Section I, the following paragraphs attempt to outline what a
systems approach to reform of the ADO might look like. It will outline a
possible organisational form as well as describe the role of key stakeholders
and the outcomes expected. One possible form is at Figure 1.
2.1.3.
When discussing accountability, a common
call by media and politicians is that defence should be run more like a
business. Often their call is in relation to process but overlooks governance.
The model of governance applied across nearly all public companies and
not-for-profit organisations is that of a board of directors led by a chair who
hold the CEO to account for the operation of the business. The chair does not
run the business, but he/she facilitates the process whereby a corporate
direction is set and oversees the regular review and assessment of progress
towards agreed goals as well as adherence to accepted standards and
regulations. Importantly, deliberations and decisions of the board are
documented and provide an auditable basis for accountability flowing both ways
between the Chair and CEO. The model of a governing board, appropriately
tailored, should be applied at various levels of defence, including at the
interface with Government. It is compatible with the military chain of command,
has been shown to work effectively across all three services (eg: in respect to
airworthiness) and is the governance model of choice arising from the recent
reforms in the UK. The model is effective because it uses people and process to
inform an accountable decision maker, rather than bringing together a group of
peer organisations, each following process in an attempt to agree by consensus.
One possible form of ADO structure with a Defence Board is at Figure 2.
2.1.4.
Key elements: In the context of Australia’s defence, the key
elements would be:
a. National Security Committee of
Cabinet. This group would continue to
set the National Security Strategy, of which Defence, along with PM&C,
Foreign Affairs, AG, Treasury would inform and be directed by their relevant
Ministers. This National Security Strategy would provide direction for defence
as to the effects and influence the Government expects the Defence Force to be
able to deliver domestically, regionally and globally.
b. Defence Board. The Defence Board would be chaired by the Defence
Minister and meet on a regular basis throughout the year. Other members would
include the CDF, the Defence Secretary, the Chief Defence Scientist, the three
service chiefs[5]
and the CEO of the PCOE (ie: the procurement regulator reporting to the
Secretary). The Board would act on guidance from the NSCC, approve Defence
submissions to Cabinet/NSCC, set direction and approve global budgets for the
department and also implement a rolling review of compliance with relevant
internal and external regulation (eg: financial practice, procurement practice,
OH&S, IT etc).[6]
Because the board meetings are minuted, accountability of the broader Defence
portfolio to Government increases. For example, if the elected Minister of the
day wishes to change Defence advice underpinning cabinet submissions, he is
free to do so but it will clearly be a decision of the Minister rather than the
current situation whereby ministerial staff “require” changes with no audit
trail indicating that the final position was not that recommended by Defence.
c. Diarchy. The Diarchy would continue but with clearly defined
roles that take effect within the defence board structure. The CDF and
Secretary could be considered as two CEOs in a joint venture (JV) with the
Defence Minister as the Chair of the JV Board.
1) The CDF would in effect act as the
JV CEO of the Defence Department and be accountable for the conduct and outcomes
of the Department.
2) The Secretary would become the JV
CEO responsible for any governance regulations to be applied across the
services (eg: financial practice, procurement practice, OH&S, IT). He would
also be responsible to conduct regular audit and reporting to the Board of the
qualifications of key appointment holders within Defence organisations
(Services, DSTO etc) and the degree of compliance within each organisation. He
would also be the sponsor for any ‘contestability” functions that central
agencies (eg: Finance) wished to apply to Defence processes (eg: capability
development).
d. Capability Board. The Capability Board receives direction from, and
reports to, the Defence Board. The Board is chaired by the VCDF and like the
successful Airworthiness Boards, captures both corporate knowledge and current
regulatory knowledge by drawing on representatives of the key stakeholders
(operators, maintainers, logisticians and industry) who are expert, experienced
and independent. These members are balanced by representatives of the other key
stakeholders who provide contestability being DSTO, PCEO, Finance and the
Strategy group (under the Defence Secretary). Like the Airworthiness Board, the
experienced members could be drawn from panels of active reserve senior
officers from relevant professional steams and recently retired industry
executives. This mix of backgrounds and experience address one of the
fundamental weaknesses and criticisms of the current process whereby some
commentators doubt the contestability, viability, strategic linkage of
capability proposals that come to government for 1st and 2nd
Pass Approval. The experience and independence of the Board would overcome the
“conspiracy of optimism” that often accompanies a proposed capability case. The
key Board outcomes include:
1) direction to the capability
Development Group when a capability gap is identified and the capability
development process is initiated;
2) review of the capability case
(periodic eg: annual or at transition points in the process eg: pre 1st
Pass) with report back to the Defence Board as a routine matter including
recommended direction, constraints or enhancements to the capability proposal
in question;[7]
and
3) A recommendation as to the level
of oversight required during procurement based on the complexity, scope and
cost of the capability in question.
e.
Procurement Board. Following 2nd Pass Approval, as the
transition to a procurement process occurs, the ongoing audit of compliance
with agreed scope, procurement procedures, schedule, cost and performance is
taken up by a Procurement Board. This Board works on the same basis as an
Airworthiness Board and reports via the VCDF to the Defence Board on a periodic
or transition milestone basis. Depending on the level of review determined by
the Capability Board, the seniority and scope of the members of the Board will
be determined by the VCDF. This process overcomes the current flaws in
reporting process whereby critical deficiencies or risks identified at the
working level are transformed through various summation processes to a “Green
traffic light” by the time the report reaches the CDF and Minister. This will
allow earlier a specific and informed corrective action or re-scoping where
required.
2.2.1.
General. In a fiscally constrained environment, good
governance demands that strategy, planning, resource and Government
expectations must align if national security is not to be compromised. Gone is
the era where Defence is able to retain the unplanned capacity to surge at
short notice for any sustained period of time to overcome shortfalls in
governance. The NSCC is the key body in Government to decide on national security
strategy and the role that Defence should play within that. Currently, the
governance linkages do not appear to be connected. In the absence of classified
briefings, the current correlation between NSCC strategic direction and the
White Paper is assumed to be plausible. Without access to current classified
Preparedness Directives, the correlation between NSCC and force structure and
depth of military capability actually maintained is not known but it certainly
does not appear to match the White Paper. While there will always be a trade
off between the publically releasable White Paper (with its intended audience
including regional powers) and full disclosure of the actual level of
capability planned/maintained, feedback from senior officers indicates that Government
expectations and funding do not align with strategy and planning.
2.2.2.
Whole Government Approach. Defence is just one of a number of agencies that
contribute to national security. Australia’s foreign policy should be a key
driver for the scope and nature of military effects required by Government
domestically, regionally and globally. Other agencies such as the AFP, ASIO,
ASIS and ANO may well identify specific areas (such as counter terrorism) where
specific Defence capabilities are required that will further shape Government’s
expectations of Defence capability and capacity. During this development
process, Defence needs to provide proactive, iterative feedback about the
likely real costs of acquiring and deploying the types of capability such that
NSCC expectations are both realistic and affordable. The worst possible outcome
would be to continue the situation whereby Government tasks Defence to develop
a scope of military infrastructure and capability that the Government is
unaware that it will never be able to adequately fund to allow Defence to maintain
(to Commonwealth standards) or deploy on sustained operations.
2.2.3.
White Paper. The White Paper process should be an opportunity to
test, develop and contest broad guidance from NSCC and then present the
concepts in a publically releasable form. Indeed the introduction to the 2009 White
Paper states: “This new Defence White Paper explains how the Government
plans to strengthen the foundations of Australia's defence. It sets out the
Government's plans for Defence for the next few years, and how it will achieve
those plans. Most importantly, it provides an indication of the level of
resources that the Government is planning to invest in Defence over coming
years and what the Government, on behalf of the Australian people, expects in
return from Defence”. The fact that Defence puts up submissions not knowing
if they will be approved and that the Minister can add, cancel or delay
projects without changing the DCP or DWP indicates that the strategic alignment
is not as robust as it should be. The key links that need to be reinforced are
the iterative steps between NSCC guidance and the team undertaking enabling
work that occurs prior to the White Paper process. The Government should
understand and own the operational concepts and associated costs that enable
Defence to fulfil the roles identified through the development of a whole of
Government National Security Strategy. The White Paper should not be
aspirational but a realistic balance between what is needed vs what can be
afforded and when. Only then will the Defence Capability Plan return to being a
meaningful document that can be used by Government, Defence and industry alike
to plan productive capacity and an even spend spread over the validity period of
the plan.
2.2.4.
Capability Evaluation. If Defence capability is to be viewed through the
prism of outcomes that support the National security strategy then a more
effective measure of ADO and Executive Government performance can be developed.
If for example our National Security Strategy called for the ability to repeat
the kind of intervention undertaken in East Timor, then the FIC that was required
to mount and sustain the intervention can be quantified. Once the Government
confirms its intent to be able to mount an intervention via the DWP, the DCP
captures the nature and schedule of programs for any upgrades or replacement of
equipment required for the task and the CDF is accountable to keep the
capability available to Government at a specified notice. The public can also
hold the Government to account such that any cuts to spending can be measured
against the cost baseline and cost growth pressures. Various think tanks (eg:
The Williams Foundation) have developed operational scenarios that provide an
example of the way defined military effects and therefore capability could be identified
and measured on an outcomes basis.
2.2.5.
To borrow concepts from the US DoD model
of the Quadrennial Review, the ability to evaluate capability derived from Strategy
requires:
a. a defined Defence strategy and
operational concepts that are consistent with the most current NSCC National
Security Strategy;
b. a defined force structure and
readiness levels to enable the operational concepts for both wars of choice and
wars of necessity as well as national tasking and humanitarian missions; and
c. Defence budget plans sufficient to
provide for the maintenance to Commonwealth standards (or to exempted levels)
of all fundamental inputs to the agreed force structure (organisation,
personnel, collective training, major systems, supplies, facilities, support,
and command and management) to support the raise, train and sustain function
across the full range of missions called for in the operational concepts;
d. Defence budget plans and any
additional resources needed to carry out such missions in a “a war of choice” (eg:
Afghanistan) for an agreed period; and
e. Defence budget plans to acquire
and maintain the level of reserve capability (“war stock”) Australia is
prepared to maintain in the event of a war of necessity.
2.2.6.
Under this model, accountability is
increased. Defence knows exactly what they have to provide to Government for a
range of operational concepts and Government knows exactly what options they
have for the funding provided. Commitments by Government to UN or allied
operations, disaster relief or other national tasking all has to come out of
the capability and capacity that has been agreed. If Government wish to exceed
the capacity, the Defence Board is in a position to identify to NSCC the short
and long term costs of their proposed commitment. Both parties accept that a
“lean” organisation cannot just surge without losing capacity or capability
unless resources are increased. By adopting this model, the Executive Government
will be able to work constructively with Defence in an environment of mutual
accountability.
2.3.1.
General. The Defence Capability Plan is currently an aspirational,
moving feast of potential Government commitment. The uncertainty is highlighted
by the current arbitrary decisions to defer billions of dollars of projects
which is causing defence industry to be stressed to the point of failure (eg: some
companies have gone into receivership and other companies are laying off
staff). The governance and strategy models outlined above will go some way to
providing certainty as well as effective, efficient and accountable processes
for Government, Defence and Industry. Inherent in this governance structure is
a principle that defence industry is part of National Defence capability.
Capability Development Group therefore has a key role in determining what
industry capability and capacity is critical to national security and then
shaping procurement to provide an enabling path to sustain the desired industry
sector.
2.3.2.
Link to strategy. The Defence Board will take direction from NSCC via
the operational concepts and White Paper and task the Capability Board to
assemble a suitably qualified and experienced team to develop the capability
proposal. Where operational requirements result in a capability gap being
identified, the Defence Board will assess the budgetary and operational
implications and as appropriate, direct the Capability Board accordingly. The other
key link at this point is to industry. The Capability Board will assess the
range of industry capabilities and capacity required to support Australia’s
ability to conduct an agreed level of independent operations and effect battle
damage repair or operational modifications. The Board will then make
recommendations to the Defence Board at 1st Pass Approval as to the
method of procurement that will allow Australian industry to develop or sustain
the required capability or capacity. Once agreed by the Defence Board, this
will determine the procurement method, thus providing industry certainty. If
for example the recommendation is for an FMS purchase (eg: an additional C-17),
industry would know not to bother bidding whereas an early decision to
manufacture and support in Australia would enable industry to make their own
commercial risk decisions as to their place in the market and likelihood of
success, confident that they would not invest in a bid team and staff build up
just to have a late notice decision by Government to purchase a MOTS solution.
2.3.3.
Sovereignty. The Capability Board would initiate consideration of
the degree of sovereignty required by Australia in respect to indigenous
industry capability and ADO competencies. Recent experience highlights however
that the Defence Board and NSCC would also have significant input into the
degree to which sovereignty consideration should affect force structure, procurement
and deployment decisions.
2.3.4.
There will need to be interaction between
the Capability Manager and the Defence Board around the extent to which
equipment procured as MOTS (even through FMS) may or may not be suitable for
operations. The CH-47D is a case in point. Procured under an FMS case from the
US Army, it was not considered suitable for deployment to the Middle East Area
of Operations (MEAO) until a number of upgrades were conducted by Australia to
overcome deficiencies in the standard US Army configuration. The upgrades
included an effective EWSP suite, the M134 Dillan 6-barrel minigun, ballistic
protection, the Engine Air Particle Separator (EAPS) system to protect the
engines from sand and the Blue Force Tracker. Another recent example is the
MRH90 helicopter which will have to have the OTS troop seating replaced, the
door gun modified such that troops can actually egress the aircraft while the
gun is providing protective fire and ongoing modifications to night vision
related lighting and display equipment that have not proven suitable for
tactical missions under low-light conditions.
2.3.5.
In order to retain the long-term
sovereign ability to assess risk and develop capability, the Defence Board may
need to make specific procurement decisions on a different basis to current
thinking. For example Australia is currently on track to have an entire fast
jet fleet of Joint Strike Fighter (F35 JSF) which will have all its
development, test and certification undertaken in the USA. Combined with a
leased OTS lead-in fighter (BAE Hawk), the C17 (OTS), the C130J (OTS), the C27J
(OTS) Australia could be in a position within the decade where it has lost the
competence for design engineering, test, development, repair or certification
activities in support of fixed wing aircraft and their subordinate systems.
2.3.6.
As demonstrated by the CH-47D, situations
will arise where Australia will require this indigenous capability to support
operations and it will certainly need the capability as part of remaining a
“smart customer” for future acquisition. Including long term “sovereign
capability” considerations in capability planning could for example lead to:
a. Identifying the need for political
pressure on the provider nation (the USA in the case of JSF) to provide better
access to Australian ADF, DSTO and industry; or
b. A decision to reduce the fleet
size of the primary JSF platform so as to have funding available to procure an
alternative platform that would allow this sovereign capability to be retained
and developed[8].
2.3.7.
Procurement. Procurement would be the responsibility of Service
Chiefs as the Capability Managers. They would have control of their budget,
staff and priorities such as to be able to balance training, operational and
maintenance requirements of assets and the comparable demands on personnel.
This is a critical interface which is currently poorly managed and often
affects both legacy capability as well as the successful introduction into
service of the new capability. The efficiencies envisaged through the creation
of DAO and DMO will still be achieved through the Secretary exercising the
regulatory authority and audit role to ensure compliance with defence
standards, regulations and procedures. While the Service
Chiefs would report to the Defence Board on the outcomes (ie serviceability
rates), the Secretary would report on the extent of compliance. Feedback
from senior Defence officers indicates that establishing additional groups
within the enabling areas of defence just because the outcome is “joint” is
wasteful and no longer required now that a combined arms defence culture is
firmly established. Procurement for Joint capabilities would be facilitated by
a lead Capability Manager.
2.3.8.
Sustainment. Sustainment would also be the responsibility of
Service Chiefs as the Capability Managers. Like procurement, they would have
control of their budget, staff and priorities such as to be able to balance training,
operational and maintenance requirements of assets and the comparable demands
on personnel. The efficiencies envisaged through the creation of DMO will
still be achieved through the Secretary exercising the regulatory authority and
audit role to ensure compliance with defence standards, regulations and
procedures. While the Service Chiefs would report to the Defence Board on the
outcomes (ie serviceability rates), the Secretary would report on the extent of
compliance.
2.4.1.
General. The implementation of this reform must not be
preceded by another external review. Key stakeholders should be briefed on the
desired outcomes (directive control) and then tasked to develop a transition
plan that meets the Government objectives while allowing ownership of the
process by defence.
2.4.2.
Stakeholders. The principal stakeholders for planning and
implementation must be the CDF and Secretary. Noting that many of the SES
management across the broader Defence organisation may become redundant, they should
be briefed by the Minister but only play an active role in developing the
transition to the extent determined by the CDF and Secretary. Some workforce
(APS and ADF) at all levels will transfer to the services and some will
transfer to the new regulatory bodies to be established under the Secretary.
2.4.3.
Timeframe. Once the CDF and Secretary have been briefed on the
expectations of Government in respect to the new Governance model and expected
outcomes, the Diarchy should be given a finite period (three - six months) to
develop their implementation plan. Over this period of transition planning, the
defence Board should begin to meet, refine its own procedures and document
decisions taken. Implementation in accordance with the schedule developed by
the CDF and Secretary should be complete within the following 24 months during
which time the Capability and Procurement Boards must commence their function.
Cost considerations. The direct savings in the order of $1bn could be
expected over the forward estimates from the elimination of the duplicated
management structures. Attributed infrastructure cost over time will also be
less due to fewer “groups” within the Defence department but transition costs
would need to be allowed for. Within the scope of these comments, no attempt
has been made to quantify the efficiency dividend of restoring accountability
but given the numerous examples of waste identified during the inquiry, the
savings are expected to be significant.
3.1. Conclusions
3.1.1. General. The current model of governance is dysfunctional and
is a root cause of the lack of: accountability; efficiency; and effectiveness
that characterises the broader Defence organisation. Unintended consequences
arising from reforms over the past two decades have played a significant role
in creating this situation.
3.1.2. Specific Conclusions from Section I
regarding causes.
a. Accountability will only be
achieved if Government empowers Defence to reduce the number of groups in the
ADO and to restore the continuity of command by returning control of enabling
functions to the ADF. Efficiency and effectiveness can be best achieved by
having the Secretary oversee a regulator that: sets the standards to be
complied with; determines the competence required before personnel will be
authorised to exercise their authority (limited if required); and audits
compliance.
b. Defence must build on successful
measures such as Gate Reviews and Air/Seaworthiness Boards to establish a
consistent framework for contestability. The framework must include a
transparent, closed-loop reporting mechanism so that dissenting voices are
heard by the relevant decision maker.
c. The success of the resolution
process for Projects of Concern has demonstrated that it is possible to have
senior stakeholders agree on trade-offs to cost, schedule and capability to
avoid project failure. There may be times where such a trade-off should in fact
be made pre 1st or 2nd Pass rather than delay submissions
to NSCC. Conversely, insufficient information to be able to accept the risk
profile of a project may mean that it should not proceed. Lack of capital
productivity is a significant cost driver for Government in the defence
portfolio and timely decision to commit, to defer for a defined period or to
cancel has the potential to achieve significant savings over time.
d. The ADO is often under media and
political pressure to reduce the number of “contractors and consultants” as a
cost saving measure. If the Australian Public Service (APS) or uniformed
personnel do not have the required competence for the role, this is not only
false economy due to decreased productivity, it directly elevates the project
risk. Government must be prepared to defend the right of Capability Managers to
engage (employ or contract) the skills they need to complete the tasks they are
given. If the nation cannot afford to engage task-competent people to manage
multi-million dollar projects, the project should be deferred or cancelled.
e. The ADF has (or has had) the
ability to identify risk in many circumstances prior to contract signature.
This capability has not been used to best effect with dissenting voices
sometimes ignored. The decision makers must have disclosure of the fact that
dissent was made and the basis upon which the dissenting concerns were dealt
with or discarded.
f. Defence Industry is part of
Australia's defence capability, particularly for Through Life Support (TLS) but
also in some areas of development and manufacture. The health (capacity and
competence) of Australia's defence industry sector should therefore be
considered as part of the Capability Development process. A key to reducing
risk and cost is for Government to plan for a stable procurement workload (on
defence and industry) which provides incentive for private sector investment in
(and sustainment of) skills and infrastructure.
3.1.3. Specific Conclusions from Section II
regarding reform:
a. The conclusions
from Section I should be facilitated by adoption of governance model headed by
a Board, based on existing practice in the commercial world and parts of the
military. The Minister should Chair the Defence Board.
b. The VCDF should
be accountable for the capability development process to ensure a whole of
defence outcome including recognition of the role that industry plays as a part
of defence capability. The service chiefs, being the Capability Managers should
be accountable for procuring, sustaining and operating capability.
c. Defence Strategy
must flow from a whole of government National Security Strategy and linkages
between the strategy, government expectations, operational concepts (including
force structure and capability/capacity) and allocated resources must be clear
and validated on a regular basis.
d. The Government
must commit to the development and retention of an agreed level of competence
in the ADF and Australian industry to assess, repair, develop, and certify
equipment to a standard of our choosing. One the areas of competence and level
of sovereignty is agreed, this must inform procurement decisions such that
opportunities to retain and develop skills will continue to exist for
Australians.
e. The Government
could use the concept proven by RPD&E (where industry and Defence jointly
select an individual trusted by all parties to be the program manager) to have
industry select the head of the procurement centre of excellence.
f. The concept of
directive control as practiced by the military should be used whereby the CDF
and Secretary as the key stakeholders will be tasked by the Minister to develop
within three–six months an implementation plan to achieve the agreed outcomes.
Once agreed by the Board, the CDF and Secretary should be required to implement
the transition in accordance with their plan but ideally within a period not
exceeding 24 months.
Senator David Fawcett
LP, South Australia
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