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Annual Report 2014–15

Volume 1, Part 3 : Governance and Accountability

Chapter 7
First Principles Review

First Principles Review

Defence is an organisation with a long and proud history. Its evolutionary journey from separate single Service agencies into the Australian Defence Force (ADF) and further into an increasingly integrated Defence organisation began in the 1970s. The First Principles Review set out the next phase of change for Defence.

On 5 August 2014, the then Minister for Defence announced the First Principles Review team, which comprised Mr David Peever (Chair), the Hon Robert Hill, AC, the Hon Lindsay Tanner, Lieutenant General Peter Leahy, AC (Retd), and Mr Jim McDowell. The review team was to ensure that Defence is fit for purpose and able to promptly respond to future challenges.

The review team conducted an end-to-end holistic review of Defence based on the outcomes required of Defence and founded on the following first principles:

  • Clear authorities and accountabilities that align with resources: decision-makers are empowered and held responsible for delivering on strategies and plans within agreed resourcing
  • Outcome orientation: delivering what is required with processes, systems and tools being the ‘means not the end’
  • Simplicity: eliminating complicated and unnecessary structures, processes systems and tools
  • Focus on core business: Defence doing only for itself what no one else can do more effectively and efficiently
  • Professionalism: committed people with the right skills in appropriate jobs
  • Timely, contestable advice: using internal and external expertise to provide the best advice so that the outcome is delivered in the most cost-effective and efficient manner
  • Transparency: honest and open behaviour which enables others to know exactly what Defence is doing and why.

The First Principles Review’s report, Creating One Defence, was released on 1 April 2015 by the Minister for Defence. When its recommendations are implemented, Defence will be positioned to best meet future demands.

The review and its supporting analysis led the review team to recommend transformational change to an organisation that they believed had drifted from contemporary best practice. In combination, the review’s recommendations will change the structure, governance arrangements, accountabilities, processes and systems of Defence. They are designed to operate as a whole and will need to be implemented as such in order to be most effective.

The combined result will be a more unified and integrated organisation that is more consistently linked to its strategy and clearly led by its centre. This has been called the One Defence approach, and has four key features:

  • a stronger and more strategic centre able to provide clear direction, contestability of decision-making, along with enhanced organisational control of resources and monitoring of organisational performance
  • an end-to-end approach for capability development with capability managers having clear authority and accountability as sponsors for the delivery of capability outcomes to time and budget, supported by an integrated capability delivery function and subject to direction setting and contestability from the centre
  • enablers that are integrated and customer-centric with greater use of cross-functional processes, particularly in regional locations
  • a planned and professional workforce with a strong performance management culture at its core.

Effective implementation is essential to achieving the One Defence model and to generating the efficiencies the review has identified. An integrated implementation plan has been developed. Successful delivery of the review’s intent requires a unified leadership team willing to drive change and a behavioural shift; a sense of urgency and a willingness to push the pace of change; and sufficient planning, oversight and commitment to delivering the full intent of the review’s recommendations.

The One Defence transformation is an opportunity for Defence to establish better relationships with the Government, ministers, external stakeholders, central agencies, and its own leadership and workforce. It is an opportunity for Defence to reset and reposition itself as a truly integrated agency that consistently produces the best public value, and is able to meet current and future demands on it. Most importantly, it will allow Defence to effectively deliver on its primary focus: to protect and advance Australia’s strategic interests through the provision of appropriately prepared and equipped armed forces.

Service delivery reform programme

In 2014–15, the service delivery reform programme moved from being a standalone programme to an element of the Enablers work stream in the First Principles Review.

The service delivery reform programme, initiated by the Secretary and the Chief of the Defence Force in April 2014, focuses on developing a service delivery approach which ensures that Defence makes the best use of its resources for delivering the core capabilities needed to achieve its outcomes.

The programme involved developing an agreed service delivery framework for Defence, fully implementing shared services, standardising services, removing duplication of functions and ensuring that there are single, clear lines of ownership and accountability. This approach is consistent with work that is happening across the public sector on implementing shared services for corporate and enabling functions.

The service delivery reform programme functions include:

  • administration, coordination and governance
  • APS education and training
  • audit and assurance
  • communication and public affairs
  • financial services
  • human resource services
  • information and communication technologies
  • information management
  • legal services.
  • non-materiel procurement
  • regional services
  • security

The service delivery reform programme was examined by the First Principles Review team. The review team noted that it is critical for the development of the One Defence system that the shared services model be fully implemented.

The review team recommended, consistent with the One Defence model, that the service delivery reform programme, including full integration of the DMO’s corporate functions, be completed.

Base services contractual reform

After several years of hard work, the base services retender procurement activity was completed in August 2014, with five contracts signed on 10 July 2014, and five additional contracts signed on 10 August 2014. Transition to these new contracts began progressively from July 2014; the national transition was completed on 1 December 2014.  

The 10 new nationally focused base services contracts replaced 21 smaller regionally focused contracts. The contracts have a combined value of $1.1 billion a year and deliver services that maintain the Defence estate including non-major capital facilities works and services that enable Defence capability.

The base services contractual reform is the result of a once-in-a-decade opportunity to deliver services under an outcome-based model rather than paying for availability. By retendering the 21 previous contracts through a single procurement process, Defence has improved its value-for-money outcomes by leveraging its national volume, increasing the level of standardisation and better managing supply and demand. 

Service delivery

The new base services contracts are enabling core Defence capability and activities across all bases. The focus is now on continuous and service delivery improvements. Product and services managers are working in consultation with Service and Group representatives to address performance and conformance issues as they arise.

Performance management

The new base services contracts have a comprehensive performance management framework that focuses on strategic and operational performance management, and abatement and reward mechanisms.

Defence continues to monitor the performance of its base services contractors through the contract performance management framework. This framework includes a process of contractor self-reporting, Defence assurance activities and an external assessment of the contractors’ performance management framework.

Contract governance

A contract governance framework, underpinned by staffing restructures, business rules and processes, is in place for all base services contracts. These arrangements were developed based upon Australian National Audit Office (ANAO) better practice guidance and taking into consideration recommendations made by the ANAO in its 2009 audit of Defence garrison support services contracts.

An internal shared service has been established for the processing of contract amendments, abatements and other contractual notices. The internal shared service was developed to provide better governance, and to ensure that Commonwealth and Defence accountability requirements are met and that base services contracts continue to deliver value for money and Defence control over the total cost of ownership.

Cultural change

March 2015 marked the third year of the Pathway to Change: Evolving Defence Culture implementation. As at 30 June 2015, 159, or 91 per cent, of the 175 Pathway to Change key actions and recommendations from the six culture reviews have been finalised.

As Defence transitions from implementation of recommendations to cultural programmes and initiatives, the focus has moved to cultural reinforcement and evaluation to ensure that Pathway to Change effectively achieves Defence’s goal of cultural reform.

On 1 July 2014, Defence began a four-year collaboration with the Australian Human Rights Commission to support the achievement of cultural reform and the intent of Pathway to Change in Defence.

In this, the first year of the collaboration, the Commission visited eight ADF bases. In each case the Commission reviewed data on incidents, unacceptable behaviour, offences and other matters; conducted meetings with command and staff members; conducted focus groups and interviews with personnel; and, after each visit, provided feedback and suggestions to the Service or command on the progress of cultural reform at the establishment.

Defence recognises that, to realise enduring cultural change, a sustained effort from all Defence staff and, in particular, Defence leaders will be required over many years. An evaluation framework has been developed to capture the success of Pathway to Change. The framework aligns Pathway to Change levers with the various measures and metrics currently available within Defence, including internal surveys of employee attitudes and behaviour and Defence census data.

Initial observations indicate that positive cultural change is occurring under the six key Pathway to Change levers for cultural change and reinforcement. Examples for each lever are summarised below:

  • Leadership and accountability: Perceptions of Defence commitment to creating a diverse workforce remain high.
  • Values and behaviours: Perceptions of adherence to Defence values remain steady, particularly in the areas of integrity, loyalty and teamwork.
  • Right from the start: There is an increased perception of command chain intolerance of unacceptable behaviour in training establishments—most trainees and cadets agree that their supervisor/instructor leads by example.
  • Practical measures: The proportion of women recruited to the ADF is increasing, with an increasing proportion of women attending the Centre for Defence and Strategic Studies.
  • Corrective processes: Defence is addressing the time it takes to resolve unacceptable behaviour cases. There are some positive results in the percentage of unacceptable behaviour cases that have been finalised in less than six months. Progress in this area will continue now that better complaint-reporting processes and infrastructure arrangements are in place.
  • Structure and support: Perceptions of workplace flexibility requests being accommodated by supervisors are increasing.