This narrower focus risks telling only a partial account of sustainment within Defence and is potentially at odds with the One Defence model promoted by the First Principles Review. At worst, nondelivery will result in a red traffic light status in DMO Sustainment Overview Reports which it seems that few stakeholders read.31. 59Defence Materiel Organisation, Zero-Based ReviewPhase 2, Final Report, 9 December 2003. A Smart Buyer collaborates with Industry and engages early and throughout the Capability Life Cycle. Miss Chloe Kempster A/Director of Project Controls - Program Management Function Capability Acquisition and Sustainment Group (CASG) PGCS August 2019 Introduction What we will cover today: 1. 21In April 2015, the ANAO completed a performance audit of Materiel Sustainment Agreements (ANAO Report No.30 201415, Materiel Sustainment Agreements). From the perspective of the field review, there is some indication that the sustainment models continue to drift apart.202. In a submission to the Joint Committee of Public Accounts and Audit inquiry into contract management in the Australian Public Service in 2000, Defence, through the then Under Secretary for Defence Acquisitionalmost a direct counterpart position to the current Deputy Secretary, Capability Acquisition and Sustainment Group stated that: Defence must see that it has available the technical, financial and managerial expertise to be a smart buyer. Typically, sustainment entails repair and maintenance, engineering, supply support and disposal of equipment and supporting inventory.4 Effective sustainment of naval, military and air assets is essential to the preparedness of the ADF and to enable Defence to conduct operations in accordance with the Governments requirements.5, 1.2Defence has commented that sustainment management is not a technical discipline: it is an over-arching business-oriented management function focused on meeting the outcomes required of Capability Acquisition and Sustainment Group customers.6. The reports traffic lights, in particular, focus attention on the measures contained in contractual and intra-Defence agreements (for example, aircraft availability) and not the measures that matter to Army, the end-user (aircraft actually able to be flown). 130139, available from [accessed 10 May 2017]. Earned Value Management in CASG - pgcs.org.au The data will be obtained from: Defences internal cost data; industry suppliers; industry-maintained databases; and cost data made available to Defence from the United States, United Kingdom, New Zealand and Canada.80. 13Defence, First Principles Review: Creating One Defence, 2015the First Principles Review. 139It is not clear from the report how the First Principles Review drew this conclusion. Collateral impact will be transferred to Sustainment Efficiency (expedient choice making) and Materiel Availability (poor supply chain or maintenance output). Systems Program Office staff are involved in both acquisition and sustainment. 4.20In October2015, Defences First Principles Review Implementation Team decided that work on Smart Sustainment, along with other reform activities underway within Capability Acquisition and Sustainment Group at that time, would cease and the relevant elements were to be incorporated into work on the new Capability Life Cycle. The 2012 Coles Review, by subsequent reports, has been both successful and insightful.119. There are no standardised reporting mechanisms (reporting is informal, anecdotal, local or crisis based) or management processes, with all divisions having different methodologies and management systems. By any reasonable standard the military outputthe effectiveness of the ADFis world class, but does the Department arrive at that effectiveness in the most efficient way possible? FCF = Net Income + Non-Cash Expenses - Incrase in Working Capital - Capital Expenditures. The indicator was replaced with a measure CASG-related Product Cost per materiel-ready day, whose value could be generated automatically and would not require comment by the Systems Program Office.39 This would be reported in SPMS but not be represented as a key performance indicator40 because it did not include the cost of all the fundamental-inputs-to-capability and did not measure the cost per materiel-ready day. 118The Australian Strategic Policy Institute commented: Why a savings [sic] should be claimed from a fluctuation in fuel prices is unclear. A key criterion in determining whether consulting contracts would be appropriate is whether the government could maintain sufficient in-house capacity to be thoroughly in control of the policy and management functions of the agency. A performance measure under this Purpose is Military capability is sustained consistent with Government requirements. 3.15Under current arrangements for its production, the Quarterly Performance Report is neither timelyit is more than 50 days old by the time it gets to ministersnor clearit is dense with acronyms and jargon. Provide high level advice to Defence Senior Leaders on reform, business improvement and change management initiatives; Support the design and implementation of the new Capability Acquisition and Sustainment Group business framework; Assist Capability Acquisition and Sustainment Group in strengthening the project controls discipline across the Group including monthly reporting, business process improvement and cost transparency, mentoring and coaching Defence leaders, and providing advice on international best practice; Assist with implementing the smart buyer function across Capability Acquisition and Sustainment Group, including conducting pilots in Chief Information Officer Group and Estate and Infrastructure Group; Assist Defence redesign and restructure Systems Program Offices to align with required reform activities, including but not limited to smart buyer function, business framework and capability life cycle reforms; Assist Capability Acquisition and Sustainment Group with the establishment of the Commercial Centre of Expertise including business process improvement, mentoring and coaching Defence leaders and providing advice on international best practice; Assist Capability Acquisition and Sustainment Group with the establishment of a Program Management Office at the Group level to support the Capability Acquisition and Sustainment Senior Leadership Group in managing the program; Assist Defence to measure the efficiency gained through the above reform activities (in terms of both cost and schedule); Other reform activities as required by Defence. 71 11 As others have observed, the apparent growth flows mainly from the inclusion of certain Estate and Infrastructure Group costs (such as garrison support) and the balance of Defences estimated future sustainment funding that Defence has yet to allocate to a Defence Group within the broader Capability Sustainment Program in the last years of the period.98 This is apparent for the period following the delisting of DMO and the inclusion of items other than specialist military equipment in Defences overall sustainment estimates (Figure3.5). 41Defence was able to provide a report from SPMS for February 2017 showing Capability Acquisition and Sustainment Group cost per materiel ready day for five fleets within Maritime Systems Divisions responsibility. Bechtel was one of the companies on this panel. A project to reform and consolidate Systems Program Offices is currently underway, with 24 out of 64 Systems Program Offices (37.5percent) reviewed as at February2017. It is now planning to implement a new model, which seeks to capture the full cost of ownership throughout the life of an asset, with implementation planned for completion in July2018. The fundamentals of Defences governance and organisational framework for the management of materiel sustainment are fit-for-purpose. 5.57A briefing to DMO Division Heads in September2011 summarised the shortcomings of Defences approach to sustainment in the absence of an asset management approach: 5.58In 2011, DMO set about developing a Sustainment Business Model drawing on generically applicable asset management principles.179 There is then little evidence of substantial progress of the project for some years. Defence advised that, during the course of this contract, a number of Systems Program Offices have merged into larger organisations, resulting in a total of 48 being reviewed (as at end February2017). This approach is problematic as it does not inform government of the total cost of the project across the life of the capability. For example, Dr Davies211 noted that in his experience, having in-house expertise from public service engineers who could examine bids for work from external firms made him a much smarter buyer.212. There are 3 classifications of cost accounting practice changes: Required Cost Accounting Practice Change arises when the contractor: Needs to comply with a new or modified CAS; Changes from one compliant practice (disclosed or established) to another compliant practice to remain in compliance with CAS In that later report the list was labelled sustainment products of interest rather than underperforming, though the items are still listed in order of concern. It was not expected to meet key sustainment metrics such as Reliability/Availability/Maintainability, Rate of Effort and cost of ownership, and should be replaced; the Chief of Army has place caveats on its useeffectively limiting what the aircraft can be used for, and where it can be used; Army did not deploy the helicopter in its engagements in Afghanistan or Iraq; the program has consistently underperformed; on average only 3.5 aircraft of the operational fleet of 16 aircraft were serviceable at 10 am on any given day in 2015, against a requirement of 12 aircraft; availability for the aircraft is predominantly limited by premature component level failures and is constrained by inadequate sustainment arrangements, despite the lower than expected hours flown, by June2014 sustainment costs for the Tiger had exceeded the original sustainment contract (, in June2016, the cost per flying hour for the Tiger fleet was $30335, compared to a target of $20000 (the long-term average in June2016 was $39472 per flying hour); and. 5.55In November2016, Defence informed the ANAO that it intends to use the principles of the ISO 55000 Asset Management Standard as a guide of good practice and to further develop Defences framework for the management of sustainment.175 In March2017, it advised that the policy issued under the earlier DMO governance framework was gradually being reviewed and updated. 96For example, in the Portfolio Additional Estimates 200708 (pp. For example, a commercial organization An organization, institution, corporation, or other legal entity, including, but not limited to, partnerships, sole proprietorships, and limited liability companies, that is organized or operated for the profit or benefit of its shareholders or other owners. 5.66The ANAO recommends that Defence develop and implement an evaluation plan to assess the implementation of the recommendations of the First Principles Review. The former focused on availability (aircraft made available to the squadron), while Air Force focused on serviceability (aircraft actually able to be flown). Defences pubic reporting of program level estimates over time. The Chief of the Defence Forces Preparedness Directive provides the strategic preparedness guidance for Defence Groups, Services and Capability Acquisition and Sustainment Group. Manufacturing (or factory) overhead. Moreover, the many changes to DMO, in response, for example, to the Mortimer and Kinnaird reviews, had not significantly altered its size, shape or footprint. 2.11A simplified representation of the essential relationship among elements responsible for the sustainment of specialist military equipment is in Figure2.1 below. This includes the capacity to adequately direct, supervise, and monitor contracts. are set forth in HHS regulations at 2 CFR Part200, Subpart E, 45 CFR Part 75, Subpart E, and Appendix IX (Hospital Cost Principles) to Part 200 and Part 45. xref examining each Systems Program Office to determine where each fits within the smart buyer function, and the most appropriate procurement model for delivering the capability and achieving value for money. With the introduction of its Sustainment Performance Management System (SPMS), Defence continues to develop a basis for an effective monitoring system for sustainment. Defence has clear and long-standing governance and organisational arrangements for managing the sustainment of specialist military equipment. Consequently, even if an asset is acquired at an original cost of $50,000, and that asset's market value increases over five years to $75,000, the cost principle will remain recorded at the . This chapter examines Defences performance framework to support the management and external scrutiny of materiel sustainment for specialist military equipment. Ten such products are listed in the report for the subsequent quarter (July September2016). 183Defence, minute Effective implementation of asset management in Defence, 17 September 2015. Staff in the Capability Acquisition and Sustainment Group compile the report manually, incorporating information contained in MRS and, increasingly, SPMS. 142Defence, First Principles Review, p. 36. There is no record of target for these objectives. Minister Smith also said that he had asked Defence to review the effectiveness of its management of major projects. Box 1: The origin of Systems Program Offices. The ANAOs analysis found that the report may not include additional information available to Defence that is critical to the readers ability to understand the status of significant military platforms. This chapter examines Defences governance and operational arrangements for managing the sustainment of specialist military equipment. SeeCost Considerations-The Cost Principlesfor additional details. These are all fundamental skills in an organisation seeking to engage more with industry and contract out sustainment work wherever that represents value for money. 19. These two positions make up the Defences leadership diarchy. The ANAO work program outlines potential and in-progress work across financial statement and performance audit. ADFs G-Wagon fleet, the commercial vehicle fleet and the B-vehicle fleet. 108Defence, The Strategic Reform Program: Making it Happen, 2010, p. 4. There was no systematic evaluation of the constituent projects at their conclusion nor overall evaluation of this major program. These cost principles provide a framework within which items of direct and indirect cost can be incorporated in a cost-reimbursement contract or subcontract. Note b:This is part of a substantial project within Defence to improve both the recording of contracts and purchasing within Defence.