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Improvement Initiatives

Defence Materiel Reform

The Defence Materiel Organisation reform plan encompassed three fundamental types - organisational, process and people reforms.

Significant reform was achieved during 2002-03, with further reform options expected to result from the review into Defence acquisition and management in Defence conducted by Mr Malcolm Kinnaird1.

Organisational Reforms

Whole-of-life cost-effective measures for capability ownership

The Defence Materiel Organisation now manages capability on a through-life basis. Where appropriate, systems program offices are collocated with Force Element Groups and industry. This is a significant achievement that has resulted in better support to the ADF. The creation and collocation of about 50 system program offices with Force Element Groups and industry is complete and is now a standard business practice of the Defence Materiel Organisation. The report of the recent Senate inquiry into Defence materiel acquisition and management and the Kinnaird review supported the system program office structure.

Effective Corporate Governance

Ten project governance boards provide an assurance mechanism to the Under Secretary Defence Materiel.

Improved quality of advice

The status of the top 20 projects, as well as projects of concern, are reported on a monthly basis to the Minister and the Defence Committee. The top ten projects, and other significant projects, are reported to the Government every six months.

Inquiry into Materiel Acquisition and Management

On 27 March 2003, the Senate Foreign Affairs, Defence and Trade References Committee tabled its report into materiel acquisition and management in Defence. The committee acknowledged the positive progress that has been made to date and was "broadly confident that the organisational, structural and process reforms being implemented by the Defence Materiel Organisation are providing the disciplined basis necessary to deliver project outcomes on time and within budget. The committee indicated that further improvements could be made within Defence to improve procurement and Defence industry outcomes.

Review of Materiel Acquisition and Management in Defence

A separate review of Defence acquisition and management was initiated by the Government to identify further improvements in Defence project management. The review team, led by Mr Malcolm Kinnaird, was to report to the Government early in 2003-04.

Process Reforms

Engaging industry so that it can deliver capability to the ADF

The fifth and sixth rounds of company ScoreCards and the second round of 360-degree view ScoreCards were conducted in 2002-03. These scorecards enable the Defence Materiel Organisation and industry to discuss schedule, budget and project management performance in a constructive way.

In June 2003, Defence established the Defence Unsolicited Proposals Gateway as a central point for the receipt and management of unsolicited proposals. Unsolicited innovative proposals are evaluated under the Defence Unsolicited Innovative Proposals Scheme.

The Australian Naval Shipbuilding and Repair Sector Strategic Plan was released by Defence in September 2002 for comment. The Australian Aerospace Sector Strategic Plan and Electronics Systems Sector Plan were released by Defence for consultation in June 2003. The Land and Weapons Systems Sector Strategic Plan is due to be issued by Defence for consultation in 2003-04.

Improving procurement and contracting

A number of strategies were implemented to reduce the cost of tendering for industry. These included one-on-one consultations, early notification to unsuccessful bidders, and improved function and performance specifications.

Alliance contracting for Defence Materiel Organisation projects continues to be evaluated using the Djimindi alliance and the Anzac ship alliance. The Djimindi alliance involves the acquisition and installation of the MU90 lightweight torpedo into five platforms operated by the ADF. The Anzac ship alliance is a long-term arrangement responsible for managing and delivering changes to the Anzac ships.

New contracting templates were developed. The Strategic Materiel handbook was completed and a sole-source template was released to facilitate complex and strategic sole-source procurements by streamlining the tendering process and reducing the costs of tendering for both Defence and industry.

A new version of the Defence Procurement Policy Manual was released in June 2003 and an interim centralised register for Defence contracts was implemented.

Adopting best commercial practices consistent with public sector accountabilities

The materiel acquisition and sustainment framework, which provides an integrated set of policies and processes covering project management, performance measurement, systems engineering, software acquisition, logistics support and engineering, was released in May 2003. Further detail on the processes and guidance will be developed and promulgated over the next two years.

The improved project schedule and status reporting project continues to be implemented in systems program offices. It strengthens Defence's project planning, cost and schedule controls.

Risk, safety and software management tools that improve project management continue to be trialled and tested. These tools include practical software and systems measurement, the Capability Maturity Model Integrated (CMMI) and the Australian-sponsored CMMI component (CMMI+Safe). In late 2002, the United States Department of Defense recognised the Defence Materiel Organisation's progress in improving software process and practice by the award of the practical software and systems measurement transition organisation of the year.

Activity-based costing was piloted in 2002. The pilot was discontinued as other initiatives were considered to be more effective. These include the roll-out of the improved project schedule and status reporting project, which has an activity-based costing element, and the Chief Finance Officer's decision-support costing tool project, which establishes the corporate framework for costing the force elements across Defence.

Reliably delivering quality support to ADF operations and output managers

The Defence Materiel Organisation successfully supported the ADF in operations in Iraq and Afghanistan. The success was partly due to improvements in the Standard Defence Supply System and rapid acquisition processes, and an update of the joint logistics doctrine.

The Financial Statements Improvement Plan has resulted in improved financial reporting of inventory and assets on the Standard Defence Supply System. It has also generated better business processes for accounting for assets under construction. As part of the plan, additional financial management and accrual accounting training has been conducted and technical standards for financial management competencies promulgated. The plan for 2002-03 has facilitated the transfer of responsibility for the financial reporting of all Defence specialist military equipment to the Defence Materiel Organisation from the three Services. This has enabled improved accounting for these assets as the reporting for each platform is now undertaken in a single location, rather than split across several groups.

Customer service agreements with Corporate Services and Infrastructure Group, the Navy and the Air Force were signed in September 2002, April and July 2003 respectively. Work on an agreement with the Army is in progress. Service-level agreements were negotiated between systems program offices and Force Element Groups.

People Reforms

Improving our people management

A suite of career and development guides was released to assist staff in managing their careers. These include the 'People' and 'Individual Skills and Commercial Job Family' guides. The project managers' development program commenced its fifth year and ninety staff participated in 'Quantum', the Defence Materiel Organisation's leadership program.


Contract Reporting

Defence reports on contracts in three complementary locations:

Small to Medium Sized Enterprises

In 2001-022, Defence reported via the Gazette Publishing System over 87,000 purchase orders valued at $9b. Over 50,000 purchase orders, valued at $1.6b (17.7 per cent), were placed with small to medium sized Australian enterprises. The figures do not include purchase orders under $2,000 or work let to subcontractors. There is no identification of non-Australian small-to-medium size enterprises. It is likely that the information is conservative given the potential for the flow-down of subcontract work to small-to-medium sized enterprises from overseas enterprises and local large enterprises.

Australian Industry Involvement

The Australian Industry Involvement Program is the major program through which Defence leverages its procurement activity to give effect to Government policy on Australian industry. An Australian National Audit Office audit of the program, released in June in 2003, found it ran well in practice but made recommendations relating to reporting more useful performance information. Defence accepted all six of the Auditor-General's recommendations.

  1. The Government announced on 18 September 2003 that it had agreed to broadly accept the recommendations of the Kinnaird review. |
  2. The allocation of gazetted procurements to small-to-medium sized enterprises is conducted annually by the National Office of Information Economy. The office does not expect to have the figures for 2002-03 available until early 2004.