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Aussie MoD Reform One Year On

 Editor's Note:
We reproduce here an annex on acquisition reform to a Feb. 27 speech by the Allan Hawke, Secretary, Australian Department Of Defence, to an industry seminar in Canberra.
Click here for the full text of the speech on the Australian MoD's website.



AUSTRALIA'S DEFENCE MATERIEL ORGANISATION AND ACQUISITION REFORM

Background

Since the 1970s, successive reviews of Defence acquisition have identified too many Defence major capital acquisition projects as failing to achieve budget, schedule or technical requirements. In addition, through-life support needs and costs are seldom optimised and are generally inadequately assessed prior to equipment delivery. These failings have arisen due to poor requirements definition and project planning, cumbersome and bureaucratic acquisition processes, and a lack of appropriately skilled staff.

In January 2000, the Under Secretary Defence Materiel commissioned a review of major capital acquisition processes in order to recommend a comprehensive reform program to redress these shortcomings. On 22 June 2000, Minister Moore agreed to implement the proposed reforms and to establish the Defence Materiel Organisation.

Acquisition Reform Program

The acquisition reform program is a comprehensive range of measures to enhance accountability; increase Government and industry involvement in capability development and acquisition planning; reduce tendering costs; and improve the cost, timeliness and effectiveness of Defence acquisitions. Key reforms include:

**earlier and more extensive Government involvement in Defence capability planning and decision-making through a two-pass Government approval process for major Defence investment proposals;

**emphasising whole-of-life considerations and costs in capability and acquisition planning;

**increased and more effective involvement of industry in capability definition and acquisition processes;

**improved risk management, emphasising increased investment in risk reduction prior to committing to acquisition;

**adopting best commercial practice in acquisition management, consistent with public sector accountabilities;

**streamlined decision-making processes, with clear identification of accountabilities and responsibilities; and

**initiatives to attract, develop and retain skilled personnel.

Challenges

With the release of the Defence White Paper and the anticipated increase in Defence spending in FY2001/02 and beyond, the Defence Materiel Organisation (DMO) faces some significant challenges. In particular, re-commencement of project activity will have substantial resource implications for both the DMO and industry. For example, industry's capacity to respond to a potentially high volume of solicitation documents and contract negotiations may be affected by recent staff lay-offs.

Such issues require careful, proactive management.

Reform Progress to Date

Reform initiatives address to date all aspects of major capital acquisition from identification and definition of capability requirements through to in-service support. Accordingly, delivery of the reform program involves coordinated efforts from the DMO, Defence Headquarters and the Chief Finance Officer (CFO).

Substantial progress has been made with implementation of the acquisition reform program, with notable achievements to date including:

**piloting a number of reform measures in major projects, including alliance contracting, one-on-one industry briefings, progressive tendering and increased use of functional specifications;

**release of a new tendering and contracting proforma for major projects, SMART 2000, that uses plain English drafting principles, reflects commercial realities and reduces the cost of tendering;

**compilation of a SMART 2000 Handbook, released in December 2000, providing guidance on the application and interpretation of the new contracting pro-forma;

**successful completion of two pilot programs with industry to assess the utility of software process maturity models as a risk mitigation measure for software intensive projects;

**replacement of centralised committee processes with a devolved system based on a standardised Project Management Methodology drawn from commercial practice;

**devolution of authority for the management of projects, through letters of appointment that document the authority and accountability of project executives; and

**development of the Defence Capability Management Cycle, incorporating the two-pass Government Approval process.

Further reform initiatives that are well advanced include:

**development of a framework to permit the more rigorous application of industry past performance as a source discriminator in tender evaluations from July 2001; and

**successful trialing of an activity based costing model which will be expanded to encompass all DMO activities.

Formation of the DMO has increased the scope and complexity of a number of the previously Defence Acquisition Organisation (DAO) centric reforms, particularly the achievement of ISO 9000 certification and personnel management initiatives. The feasibility of certifying all DMO business units by December 2001 is currently being investigated, and substantial completion of personnel management reforms is expected during 2001.

The basic DMO structure is complete and in place. To improve client focus, a number of the teams that provide acquisition and support for particular equipments will be relocated to sites near their customers or suppliers. Planning for these moves is well in hand with the F-111 team move to Amberley being the first such relocation.

Industry has been critical of Defence process as in the past - our reforms are an ongoing and serious response to these criticisms. A similar commitment from Industry to put its house in order and work with Defence in a spirit of partnership is necessary if the reforms are to achieve their objectives.


White Paper Implementation

Inevitably, most industry attention has been devoted to the Defence Capability Plan. This is where future business opportunities are identified. It is about the 'What': in other words, 'what' sorts of capabilities we will acquire. And it gives, I think, an important level of predictability to future investments; something that is very important to defence industry.

It makes some key points about the 'How': that is, 'how' we will interact with industry in getting the things we want. It sets out: what we want from industry; what we now have; and how we can better bridge the gap between the two. And as you can see for yourself, it draws heavily on our consultations with industry.

First, it commits to taking a more strategic approach to industry. In the past, we have too often made our decisions in separate functional compartments (project-by-project), and our overall industry capabilities have been an unplanned result. Our new strategic approach shows up in the creation of the DMO, which enables us to take a much more integrated approach to acquisition and in-service support.

Second, it reaffirms the Defence and Industry-Strategic Policy Statement. But in some respect, it goes beyond that. For instance, it summarises much larger changes in acquisition reform than were set out in the 1998 policy statement. The changes that are sketched in the Industry chapter are important news. For example:

**the reforms call for greater early involvement of industry in capability development and acquisition; and

**a past performance system is being introduced to evaluate contractors.

Third, it describes how the defence industry scene looks today. I do not believe we have ever done that before. This initiative reflects our determination to look strategically at industry; not just as separate procurements.

Fourth, it reaffirms the importance of industry sustainability. But in doing so, it reflects a big movement in our industry approach. Today, we place more weight on industry programs that are outward-looking, with a significant emphasis on exports, international cooperation, and research-and-development (without which, the others things don't happen). Again, this is how we are looking at industry more strategically.

A key paragraph of the Industry Chapter is:

"Ultimately, however, the ability to develop a prosperous and effective Australian defence industry rests with industry itself."

In short, industry is central to making all of this work. Once the ink is dry on the contract, much of the action lies with the contractor. In no other area of our lives would someone get away with saying that, whenever something goes wrong, it is simply the customer's fault.

We know better.

Industry - and I mean overseas industry every bit as much as local industry - has to accept that delays, technical shortfalls, and the breakdown between prime contractors and their sub-contractors, have a lot to do with them as well. We will only get where we want to go if industry can fairly assess its own performance, and its own shortcomings, too.

The DMO has not been idle since the White Paper's release - project activity has recommenced apace. The AEW&C contract was signed in December 2000 and the Armed Reconnaissance Helicopter RFT was released in the same month. RFTs for Electronic Warfare Self Protection for ADF Aircraft, and Replacement Amphibious Watercraft have already been issued in 2001. Several further RFTs including those for Replacement Patrol Vessels, NULKA Decoy Systems and the next stage of the F/A-18 Hornet Upgrade are planned for release by mid 2001.

In all, more than $3 billion of business has passed critical milestones since the White Paper gave the go ahead.


Summary
Implementation of the Defence Acquisition Reform program is well advanced, and achievement of the White Paper capability outcomes depends on the DMO's ability to continue to implement the Acquisition Reform principles. However, successful White Paper implementation is also crucially dependent on industry rising to the challenge and working in partnership with Defence. One Year On""