Defence manages $95.4 billion of total assets. This includes approximately:
Defence Groups and Services, are accountable for the underlying business transactions and records that substantiate the reported financial balances of assets under their control.
Chief Finance Officer Group undertakes accounting processes to enable the accurate and timely reporting of asset balances and ensure that they are consistent with requirements for financial statement reporting defined in the Australian Accounting Standards.
Defence conducts an annual fair value assessment of all assets.
During 2016–17, Defence worked to secure and advance the improvements in financial and asset management achieved in previous years. This has been achieved by:
Defence undertakes procurement in accordance with the Commonwealth Procurement Rules and Defence policies. In 2016–17, Defence released a new Defence Procurement Policy Manual, which sets out in one place the 1 March 2017 edition of the Commonwealth Procurement Rules and additional Defence procurement policy directives, all of which must be complied with by Defence officials undertaking procurement.
In accordance with the Commonwealth Procurement Rules, the Defence annual procurement plan is published on the AusTender website (www.tenders.gov.au) to provide industry notice of proposed Defence procurements and enable industry to prepare for the competitive tendering phase. Defence also publishes open tenders on AusTender.
Defence supports small business participation in the Commonwealth Government procurement market. Small and medium-sized enterprise participation statistics are available on the Department of Finance’s website at www.finance.gov.au/procurement/statistics-on-commonwealth-purchasing-contracts.
Defence also recognises the importance of ensuring that small businesses are paid on time. The results of the survey of Australian Government payments to small business are available on the Treasury’s website at www.treasury.gov.au/publication/australian-government-pay-on-time-survey-performance-report.
To ensure non-corporate Commonwealth entities pay small and medium-sized enterprises on time, the Department of Finance released Resource Management Guide No. 417—Supplier Pay On-Time or Pay Interest Policy. To comply with the policy, Defence contracting templates include provisions that require the Commonwealth to make a self- generated interest payment for late payments that accrue interest of more than $100 (and without the need for any further invoice) for all contracts valued up to $1 million.
Defence has implemented a mandatory procurement policy on the use of the Defence Purchasing Card as the method of payment for purchases of less than $10,000. The method of payment for purchases at or above $10,000 is decided on a case-by-case basis. This policy reduces the administrative burden for payment and is of particular benefit to small business.
Australian industry continued to play a vital role in the acquisition and sustainment of Defence capability in 2016–17. The criticality of the Defence–industry partnership was recognised in the Defence Industry Policy Statement released in February 2016. Defence continued to roll out the initiatives in the Defence Industry Policy Statement to support maximising Australian industry involvement. Specific activities include:
The work will continue in 2017–18 with the development of:
These initiatives focus on planning, guiding and supporting Australian defence industry to support Defence capability.
The 2016 Defence Industry Policy Statement set out a new approach to Defence industry and innovation, supported by almost $1.6 billion of funding over 10 years. The new approach is built around two high-profile programs: the Next Generation Technologies Fund ($730 million) and the Defence Innovation Hub ($640 million). These two programs focus on the research and development ends of the innovation spectrum respectively, and they form the complementary pillars of the enhanced Defence innovation pipeline.
Launched by the Hon Christopher Pyne MP, Minister for Defence Industry, in December 2016, the Centre for Defence Industry Capability is the ‘front door’ to the new innovation programs and provides a simplified access point to engage Defence on innovative ideas. Furthermore, the Centre for Defence Industry Capability provides a range of advisory services to assist small to medium-sized enterprises seeking to do business with Defence, as well as export facilitation services, including Team Defence Australia and the Global Supply Chain Program.
The Next Generation Technologies Fund was launched by Mr Pyne in March 2017 and is investing $730 million over the coming decade in strategic research and innovation partnerships. Through these partnerships with academia, industry and publicly funded research agencies, Defence is building capability in the national innovation system to develop game-changing capabilities of the future.
Since the launch, several new research frameworks have been developed to grow cross-disciplinary collaboration, and new partnerships with the university sector and publicly funded research agencies have been established. Twenty-two universities across Australia are now conducting research in one or more of nine priority areas identified in the Integrated Investment Program (IIP). More information about the IIP is provided below.
The Defence Innovation Hub was launched by Mr Pyne in December 2016, and received more than 200 innovation proposals up to 30 June 2017. The Defence Innovation Hub seeks proposals aligned with the six capability streams identified in the Integrated Investment Program. The investment priorities are reviewed on an annual basis.
The Centre for Defence Industry Capability and the Defence Innovation Hub were shortlisted for the 2017 Public Sector Innovation Awards, recognising their achievements in bringing new cultural and business approaches to Defence’s partnership with Australian industry.
During 2016–17, the Australian Industry Capability Program retained its focus on Australian industry involvement in Defence acquisition and sustainment activities. The Australian Industry Capability Plan template has been strengthened in line with the Government’s policy of maximising Australian industry involvement in meeting Australia’s defence capability goals. Under the strengthened program, tenderers are now required to provide more detail in their Australian industry capability plans for projects at or above a threshold of $20 million, or where a sovereign industrial capability requirement is applicable (sovereign industrial capabilities will be released at the end of 2017).
Changes to the Australian Industry Capability Plan template have been made to explicitly address:
Defence closely monitors the implementation of the plans, which are a contracted deliverable for the successful tenderer. This improved approach to Australian industry involvement is fully aligned with the 2016 Defence White Paper, the Integrated Investment Program and the Defence Industry Policy Statement, and highlights Defence’s commitment to supporting Australian industry.
Defence is committed to procuring from Indigenous businesses through the application of the Indigenous Procurement Policy, which commenced in July 2015. Portfolio targets are established annually by the Department of the Prime Minister and Cabinet. Defence exceeded its initial 2015–16 target of 70 contracts, with 285 contracts valued at $142 million being placed with Indigenous businesses. Defence has subsequently had its target of eligible domestic contracts for 2016–17 increased from 210 to 420 contracts, bringing forward the 3 per cent target initially set for 2019–20.
Defence was recognised as the Government Member of the Year at the 2017 Supply Nation Connect Awards for its commitment and contribution to increasing opportunities for Indigenous Australians to participate in the economy.
Defence is implementing a number of initiatives to ensure:
The Integrated Investment Program now combines the previously separate programs of major capital equipment (formerly known as the Defence Capability Plan), information and communications technology, and estate and infrastructure investment.
The Integrated Investment Program includes investments that have been approved by Government, in addition to the unapproved proposals for which Defence will be seeking Government approval over the decade to 2025–26. The Integrated Investment Program is reviewed biannually by Government.
During 2016–17, 74 capability-related submissions were approved by Government against an initial plan of 62 (as given in the 2016 Defence White Paper). Fifteen of those submissions received first pass approvals, 31 received second pass approvals, 15 received other types of Integrated Investment Program project approvals, and 13 approvals were granted for submissions that provided advice to Government on current and future capability.
Significant approvals were granted for:
Eleven of these approvals, totalling $1.2 billion, required referral to the Parliamentary Standing Committee on Public Works. Of the 11 projects referred, the committee held public hearings for eight major capital facilities and infrastructure projects, valued at over $494 million. It is anticipated that the other three projects referred to the committee in 2016–17 will be the subject of public hearings in early 2017–18. In addition, 19 medium work projects, valued at $138.1 million, were notified to the Parliamentary Standing Committee on Public Works, indicating a strong project pipeline for the next two years.
Additional performance information about major capital projects and the Defence estate is available on the Defence website at www.defence.gov.au/annualreports/16-17. A list of the additional information is provided at Appendix B—Supplementary online material.
The Projects of Concern regime is a proven process for managing seriously underperforming projects at a senior level. Once listed, the primary objective of the regime is to remediate these projects by implementing an agreed plan to resolve any significant commercial, technical, cost and/or schedule difficulties. Projects of concern receive targeted senior management attention and must be reported on more regularly to the Government.
Table 8.1 provides a list of projects of concern as at 30 June 2017. A significant change since the end of the previous reporting period is the successful remediation of the Mulwala Redevelopment Project (JP 2086, Phase 1) and the subsequent removal of the project from the list.
|Project name||Project number and phase||Date added|
|Collins Class Submarines Sustainment||CN 10||November 2008|
|Multi-Role Helicopter (MRH-90)||AIR 9000, Phases 2, 4 and 6||November 2011|
|Air Warfare Destroyer||SEA 4000, Phase 3||June 2014|
|Australian Defence Satellite Communications Capability Terrestrial Enhancement||JP 2008, Phase 3F||September 2014|
Defence will continue to actively manage the remaining projects of concern in 2017–18, as agreed with Government.