Defense Procurement Reform in Australia
 
Speech by The Hon John Moore MP,
Australian Minister for Defence
At the Opening of the Pacific 2000 International Maritime Exhibition
Sydney Exhibition and Conference Centre
1 February 2000
     
(Source : Australian Defence Organization ; issued Feb. 1, 2000)
 
 
Distinguished guests, ladies and gentlemen.

It is a great pleasure to be with you in Sydney today, for the opening of the Pacific 2000 International Maritime Exhibition.

This event - the most comprehensive maritime and naval exhibition ever held in the Asia Pacific Region - is a showcase for the world's naval and commercial maritime industries, and related technology. It will, along with the wide range of conferences to be presented over the next few days, provide many worthwhile opportunities for industry, governments and defence professionals to meet, and to discuss the latest innovations.

The Defence and Industry Strategic Policy Statement
This is an appropriate forum to discuss with you, some recent developments in defence industry policy, here in Australia.

As you may know, the Government released the Cabinet-endorsed Defence and Industry Strategic Policy Statement at the Defence Procurement Conference in June 1998.

This has proved to be a watershed in Defence policy-making. For the first time, defence industry policy clearly fits into the framework of our strategic policy and is endorsed at the highest level of government. Importantly, strategic policy and industry policy are working together to support our defence self-reliance.

A major focus of the Defence and Industry Strategic Policy Statement is that industry is an integral part of the nation's defence capability. This reflects the Government's vision for a technologically advanced Defence Force, focused on its core business of fighting and winning, supported by a sustainable, in-country Defence industry. The Defence and Industry Strategic Policy presents a vision that sees the Australian Defence Force and the wider community as partners in providing the nation's security.

To achieve this vision, the Policy sets Defence the task of developing a framework for engaging Australia's national defence support base, through a National Support Strategy". The Defence and Industry Strategic Policy Statement presents six strategies, to draw together the Australian Defence Force and the wider community. It also details forty-nine key initiatives to aid in the policy's implementation.

In providing such public detail on the implementation plan, the Statement is, I believe, unique among policy documents in Defence. Of the 49 initiatives, 45 have now been achieved. This is an excellent record.

Important Achievements
Important achievements include the formation of the Defence and Industry Advisory Council. I chair this Council, which consists of senior Defence and industry managers. It advises on key strategic issues relating to defence policy for industry. The first meeting, which occurred in December last year, was very productive.

Another important achievement is the development of a Policy and Support Centre to develop a new Intellectual Property policy and manage its application across Defence. This has proved pivotal in identifying and managing the Intellectual Property required to repair, maintain and adapt capabilities across the whole of Defence.

I would also like to mention one other significant achievement: the development of a Code of Ethics to guide the relationship between prime contractors and small to medium enterprises. This is an important step in improving relations and trust between different tiers of Australian industry. To its credit, defence industry took the lead role in developing this.

While there are initiatives that have not yet been fully achieved, it must be said that they have been substantially advanced. These include the development of a staff exchange program between industry and the Defence Organisation. This is an important initiative, as it will help Defence and industry to gain a greater understanding of each other's cultures.

Another initiative is the development of a partnering charter for Defence and industry. A framework document has been completed and will be released shortly, after consideration by the Defence and Industry Advisory Council.

Defence has also developed a broad National Support Framework. Activities relating to its implementation include:
**Better arrangements with Ansett and Qantas for strategic airlift support,
**The development of procedures for exemption from standard road transport regulations in operational contingencies,
**And ongoing work to remove constraints in deploying civilian contractors into areas of operations. In particular, interim guidelines were issued for those contractors to be engaged in support of the East Timor deployment.

Future activities also relating to the National Support Framework include:
**The development of agreements for priority access to ports and harbours, (such as those used during the East Timor deployment),
**Establishment of the needs of Defence for rail transport in operational contingencies,
**Ongoing study of contractor preparedness management,
**And further work on the involvement of contractors in military planning.

What Next?
The principles and general direction of the Defence and Industry Strategic Policy Statement remain sound, and our record in implementing it, is good. It makes no sense to "re-invent" the policy. Rather we need to build on these principles, and deal with emerging issues and opportunities.

Since the Statement was released, a number of matters, such as simultaneous deployments to East Timor and Bougainville, varied pressures on the Defence budget, and the development of a Defence White Paper, have brought into focus the major policy issues for the next year.

On the broader issue of defence funding, I would like to reiterate the Prime Minister's remarks of last week. Australia will need to ensure that we have a viable Defence Force to meet the challenges of the next decade, and beyond. To this end, the Government is committed to providing additional funding to Defence, over time, to achieve this goal.

As with all Government programs, expenditure on Defence must be appropriate to the nation's needs and it must be efficiently delivered. Accordingly, over the course of the year ahead, we will be undertaking a major review which will significantly determine the future shape of Australia's defence forces. Our decisions will be guided by a careful review of the regional strategic environment, and the requirement that Australia obtains the most efficient and effective return possible, from our expenditure on defence.

The development of a Defence White Paper and an extensive public consultation process will focus on providing for a responsible and efficient investment in the future defence of Australia. It will be done in a way that fosters the continued confidence and support of the broad Australian community.

However, the Government has already indicated the coming budget year will be tight.

So I don't expect an increase in Defence funding in 2000 - 2001, beyond those increases already identified for the support of the East Timor deployment.

As a normal part of the annual Budget process, Defence has been undertaking a comprehensive review of all expenditure and investment priorities. The aim is to provide the Government with the widest possible range of options. But, as Minister, I have yet made no decisions on particular projects or overall allocations within Defence.

The Defence White Paper, planned for mid-year, will address the question of future Defence funding. Until that paper is finalised, the Government's aim is to maintain the maximum flexibility possible, in terms of future projects, while minimising disruption to industry.

Providing for Australia's defence is a long-term undertaking. Therefore, it is important that decisions on future defence capability and related projects are taken within the wider policy framework which the Defence White paper will provide. Defence will be seeking to consult and cooperate with industry to maintain flexibility while the White Paper is developed.

With greater budget pressures, it is even more important that we grasp the opportunities for further improvement in the way we do business.

I will now outline the major industry issues facing Defence over the coming year, and the changes that will result in the way Defence does business.

Procurement Reform
I have made no secret of my desire to see a more streamlined decision-making process for acquisition in Defence. It should be faster and it should be cheaper.

Defence will be paying increasing attention to the transition from capability definition, to acquisition…
…and from acquisition, to after-purchase support and management.

Acquisition reform is also a continuous process. Quick fixes every few years only compound the problem. As far as possible, I want to see the distinction between doing business with the government and commercial buyers, eliminated.

That means Defence has to adopt the best business practices of the commercial sector. It also means that Defence has to stop applying unique terms and conditions, wherever possible. To successfully deal with new strategic and commercial imperatives, Defence needs to investigate new business practices, as well as more innovative and effective industry policies and acquisition processes. Importantly, this includes the need to develop a closer Defence-Industry relationship, crucial to maintaining Australia's security.

To this end, I announced late last year that the DIAC has established two working groups to investigate ways to make Defence more innovative and efficient in its procurement practices.

The first working group, focusing on Defence Acquisition Reform, is headed by Dr David MacGibbon. It will identify current limitations in the Defence acquisition process, and develop practical initiatives to improve Defence acquisition. The aim is to make the acquisition process more timely, more cost-effective to all parties, more output-oriented, more adaptive to the pace of technological change, and less risk-averse.

The second review, on Private Finance Initiatives, will be headed by David Mortimer. It will liaise with industry and Defence, to investigate and develop practical proposals for the application of Private Finance Initiatives, or PFIs, to both current and future Defence projects.

Right now, Defence is exploring the potential use of private financing in some of its projects - for example, aircraft for aerial re-fuelling, and replacements for Navy patrol boats. Encouragingly, industry is coming to us with its own proposals for private financing. There is a drive to find new ways of doing business.

Both working groups will report back to the DIAC at its next meeting in March 2000.

However the success of these reviews is highly dependent upon the quality of submissions made by industry. If the Government is to be successful in having Defence adopt better commercial practices, it needs the assistance of industry to identify those practices and how they best fit in Defence.

Acquisition Workforce
In the past, far too many efforts to reform Acquisition have centered on the process and structure, without sufficient emphasis on the workforce. This is why such reform efforts have failed or been 'stymied'. The civilian and military professionals in DAO are the linchpin of the defence acquisition process, hence they are also the key to successful, lasting reform.

A quality acquisition process - which we are working towards - requires a highly trained, quality workforce. My vision of the acquisition workforce is one that is:
**more professionally trained and developed,
**people who are managers of projects rather than operators,
**a workforce that has industry and commercial experience,
**one that makes greater use of the commercial sector for assistance, and
**stays current with the best commercial and business practices.

This new workforce will be:
**committed to reducing cycle times,
**focused on a whole-of-life approach to acquisition,
**overseeing contracts to ensure work gets done on time and within budget,
**committed to eliminating unnecessary oversight and reviews,
**capable of making commercial business judgments rather than just adhering to the process, and
**doing all that, while maintaining the trust and confident of the Government and the public.

Now, some may say that's too much to ask for. I don't happen to agree with that view.

Whole of Life Approach
There is a fresh focus by the Government on the efficient delivery of capabilities. Under this focus, Defence is moving away from managing platforms and hardware, toward a more holistic, Capability-Based Management approach. This approach considers the enduring nature of a capability.

It considers the contribution of each Weapon System over the whole of its life-cycle, from the time that a requirement is identified, through the acquisition, operation, development and eventual disposal of an asset, and, the introduction of a replacement system.

Whole-of-capability management includes the consideration of essential supporting activities, infrastructure and, most importantly, the critical role of our people. In the future, when specifications are being developed, there will be greater involvement from capability-users, as well as personnel involved providing 'in-service' support for the capability.

The planning and management of resources is linked to the management of capabilities. This link is absolutely vital for success. Decisions determining up to 80% of whole-of-life costs, including materiel logistic costs, are made during the conception and acquisition stages of the materiel life cycle.

Failure to allow for Support Command to adequately inform these decisions can lead to excessive costs being incurred during the in-service phase. Therefore, we are currently investigating ways to bring Acquisition and Support together, into the one organisation.

This is occurring as part of a broad review of Support Command, to assess the progress of current reforms and to determine the way ahead. The final report will be delivered to me in early April.

Where practical, we are also looking at ways industry can be further involved to improve the delivery of material logistics. The fact remains that infrastructure must continue to shrink, if Defence is able to afford much-needed capability investment and increased readiness.

The emphasis with Support should be the same as with Acquisition… managing suppliers rather than managing supplies. We talk about introducing best commercial practices to acquisition. If we are to bring the two organisations together, we also need to look at introducing similar practices to logistic support. By best commercial practices, I mean practices that would allow Defence to reduce inventory levels while improving the responsiveness of the supply system to user needs.

As with the acquisition process, our logistic system is one that has been based on procedures and concepts which have evolved over time, not necessarily a system that best meet its needs. Key steps to solve the problems we are faced with include streamlining the logistic workforce, and adopting best business practices to improve inventory management and the reliability of financial management information.

Strategic Relationships
Government will realise its vision for defence reform through a close partnership and strategic relationship with industry.

Most developed Western nations are moving to less adversarial relationships between Defence and industry, while retaining the benefits of competition in the procurement process. Australia is doing the same.

The Defence and Industry Strategic Policy Statement has already recognised this, with its theme of "Team Australia". "Team Australia" is much more than a snappy slogan or a 'feel good' objective. It is an essential element to achieving the procurement reform and industry structure needed to deliver quality defence capabilities that are timely and effective. The most obvious expression of this relationship is 'partnering'.

As stated in the Defence and Industry Strategic Policy Statement:
"Partnering has become increasingly common in the private sector, where it has been found to reduce cost and schedule overruns, encourage innovation, and make risk more manageable. Partnering can produce similar benefits for Defence."

We have developed general guidance on partnering charters which will be shortly considered by the Defence and Industry Advisory Council. Indeed, we have already entered into a number of partnering relationships. This should be seen as part of a broader strategy towards strategic agreements across the whole of Defence business.

The use of risk/reward sharing and collaborative problem solving offer us the opportunity to overcome many of the difficulties we have experienced during acquisition, and at the same time, produce exceptional results in terms of capability outcomes.

Strategic and long term relationships are also inherent in the way we do business. For years, we have been linking initial support contracts to acquisition contracts. We are now lengthening the term of such arrangements, with commitment to whole-of-life support.

We are also exploring new approaches such as 'alliance contracting', or simply, 'alliancing'. The objective is to improve the quality, timeliness and effectiveness of the acquisition of capabilities, with reduced costs of doing business for all participants. For instance, in conjunction with Thomson Marconi Sonar, we are using the Light Weight Torpedo project as a pilot.

To help this process, Defence is now engaging industry earlier and more fully in its capability processes, through mechanisms such as the Capability Development Advisory Forum. But we have further to go. I expect Defence to further define these strategic relationships over the coming year, and incorporate the outcomes into its acquisition practices.

Conclusion
In conclusion, we have achieved a great deal through the implementation of the 1998 Defence and Industry Strategic Policy Statement. But we need to build on this, especially as we now have sizeable pressures on the Defence budget.

Thank you for asking me to speak at the Pacific 2000 International Maritime Exhibition. I wish you every success over the next four days.

It now gives me great pleasure to declare the event, officially open.
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