Australia — Strategic Reform Program

The Min­is­ter for Defence Stephen Smith and the Min­is­ter for Defence Materiel Jason Clare today announced addi­tion­al Strate­gic Reform Pro­gram (SRP) ini­tia­tives and the first set of fur­ther account­abil­i­ty and pro­cure­ment reforms for Defence.
The reforms will enhance Defence man­age­ment and improve the deliv­ery of bil­lions of dol­lars of invest­ment in new capa­bil­i­ties being pro­gres­sive­ly rolled out under the Force 2030 plan as set out in the 2009 Defence White Paper.

In line with the Strate­gic Reform Pro­gram, the Min­is­ter for Defence announced that addi­tion­al Defence effi­cien­cy mea­sures would be achieved by a reduc­tion in Aus­tralian Pub­lic Ser­vice (APS) civil­ian staffing growth in Defence, and the sav­ings effect­ed here would con­tribute to the Government’s return to a Bud­get sur­plus and the Government’s broad­er fis­cal strategy.

APS Sav­ings: Civil­ian Employees 

The SRP will deliv­er over $20 bil­lion in sav­ings to rein­vest in the deliv­ery of Force 2030. Ear­ly progress sug­gests that more can be done. In addi­tion to the SRP mea­sures already announced, the Gov­ern­ment is announc­ing today a sec­ond phase of SRP-relat­ed sav­ings to be realised pri­mar­i­ly through fur­ther improve­ments to shared ser­vices design and implementation. 

The White Paper and the work­force and shared ser­vices stream of the SRP pre­dict­ed a net increase in the Defence APS work­force of 1,655 from 2010-11 to 2013–14.

Reforms to shared ser­vices and oth­er effi­cien­cy mea­sures means that Defence can reduce this over­all fore­cast APS work­force growth by 1000 over the next three years. 

This includes the appli­ca­tion of the Government’s increased effi­cien­cy div­i­dend to Defence. Under this whole of Gov­ern­ment mea­sure, the effi­cien­cy div­i­dend will rise from 1.25 per cent to 1.5 per cent in 2011-12 and 2012–13, before return­ing to 1.25 per cent for 2013–14 and 2014–15.

Reduc­ing the APS work­force growth will be achieved by nat­ur­al attri­tion, not hir­ing new staff and, if required, some lim­it­ed vol­un­tary redundancies.

Sav­ings from these reduc­tions to fore­cast APS growth will be returned to the Budget.

There will be no reduc­tions to the Aus­tralian Defence Force mil­i­tary work­force as a result of these changes. 

Giv­en pri­or­i­ty accord­ed to main­tain­ing sup­port to oper­a­tions, improv­ing Navy sus­tain­ment and enhanc­ing capa­bil­i­ty devel­op­ment, the Joint Oper­a­tions Com­mand (JOC), the Navy and the Capa­bil­i­ty Devel­op­ment Group (CDG) will be exempt from these addi­tion­al reduc­tions to their fore­cast APS workforce. 

Fur­ther Shared Ser­vices Reform

Defence will under­take fur­ther exter­nal­ly-led reform and ratio­nal­i­sa­tion of shared ser­vices, both with­in Defence Groups, and across Defence as a whole. The intent is to realise work­force reduc­tions in cor­po­rate over­head func­tions in a way that does not reduce stan­dards of ser­vice in sup­port of oper­a­tions or capa­bil­i­ty development. 

This reform will be under­tak­en as part of the Strate­gic Reform Pro­gram, using its gov­er­nance and over­sight process­es, includ­ing over­sight by the inde­pen­dent Defence Strate­gic Reform Advi­so­ry Board chaired by Mr George Pappas.

All Groups in Defence will be sub­ject to this exam­i­na­tion, with pri­or­i­ty in those areas where the largest gains in effec­tive­ness and effi­cien­cy are like­ly to occur. Plan­ning will be com­plet­ed by late July, with imple­men­ta­tion to com­mence in August 2011.

Project man­age­ment account­abil­i­ty reforms

Mr Smith and Mr Clare also released the first set of fur­ther account­abil­i­ty and pro­cure­ment reforms.

In Feb­ru­ary Min­is­ter Smith and Min­is­ter Clare fore­shad­owed they would bring for­ward a num­ber of reforms to improve account­abil­i­ty in Defence and project management.

This is the ini­tial step in that process. 

It is essen­tial that the agreed rec­om­men­da­tions of Kin­naird and Mor­timer are ful­ly imple­ment­ed and built upon.

In 2003 the Kin­naird Report rec­om­mend­ed a num­ber of reforms which led to the two-pass approval sys­tem, the cre­ation of the Capa­bil­i­ty Devel­op­ment Group and the Defence Materiel Organ­i­sa­tion as a pre­scribed agency under the Finan­cial Man­age­ment and Account­abil­i­ty Act.

Most of the Kin­naird reforms have been imple­ment­ed and have had a pos­i­tive impact.

In 2008 the Mor­timer Review into Defence Pro­cure­ment and Sus­tain­ment made 46 recommendations. 

The Gov­ern­ment agreed to 42 of them in full and three in part.

Many of these rec­om­men­da­tions have been imple­ment­ed includ­ing increased invest­ment in Defence indus­try skills and incor­po­ra­tion of improved com­mer­cial prac­tices into Defence procurement.

Some of the key rec­om­men­da­tions have not yet been ful­ly implemented.

Defence will now accel­er­ate the imple­men­ta­tion of all out­stand­ing agreed rec­om­men­da­tions made by Mor­timer as a mat­ter of priority. 

This includes: 

• project direc­tives issued by the Sec­re­tary of the Depart­ment of Defence and the Chief of the Defence Force to ensure Defence acqui­si­tions progress accord­ing to Gov­ern­ment direc­tion; and 
• bench­mark­ing all acqui­si­tion pro­pos­als against off-the-shelf options where available. 

In addi­tion to this, the Gov­ern­ment is today announc­ing a small num­ber of reforms that build on the rec­om­men­da­tions of Kin­naird and Mor­timer. These reforms will focus on improv­ing project man­age­ment and min­imis­ing risk at project start and iden­ti­fy­ing prob­lems early. 

They include: 

• The intro­duc­tion of a two-pass approval sys­tem for minor cap­i­tal projects val­ued between $8 mil­lion and $20 million; 
• Imple­men­ta­tion of an Ear­ly Indi­ca­tors and Warn­ing system; 
• The expan­sion of the Gate Review sys­tem; and 
• The intro­duc­tion of Quar­ter­ly Account­abil­i­ty Reports. 

Details of these reforms are attached.

Over the com­ing months the next stages of reform will include the Government’s response to the Black Review into Account­abil­i­ty and Gov­er­nance in the Defence Depart­ment and the Government’s response to the Riz­zo Review into the Main­te­nance of Naval Ships.

Project Man­age­ment Account­abil­i­ty Reforms

Mor­timer Reforms

As a mat­ter of pri­or­i­ty Defence will accel­er­ate the imple­men­ta­tion of the agreed rec­om­men­da­tions of the Mor­timer Review that have not yet been ful­ly implemented. 

These include: 

• Cost-ben­e­fit analy­sis of projects that are not off-the-shelf pur­chas­es to rig­or­ous­ly review the project to assess the cost and risk against off-the-shelf purchases. 
• Estab­lish­ing Project Direc­tives to pro­vide clear direc­tion to Defence on deci­sions made by the Gov­ern­ment regard­ing Defence capabilities. 
• Estab­lish­ing an inde­pen­dent Project Per­for­mance Office with­in DMO to review projects and assist project teams to solve problems. 
• Reg­u­lar report­ing to Gov­ern­ment requir­ing Capa­bil­i­ty Man­agers to pro­vide advice on the sta­tus of capa­bil­i­ty devel­op­ment projects for which they are accountable. 
• Cre­at­ing a more dis­ci­plined process for chang­ing the scope of a project includ­ing the require­ment that Defence seek the Government’s approval for sig­nif­i­cant changes to the scope of a project.

The Gov­ern­ment will also request the Audi­tor Gen­er­al con­duct a planned audit of the imple­men­ta­tion of the Mor­timer Report in the sec­ond half of this year.

Two-Pass approval for minor cap­i­tal projects

Defence will imme­di­ate­ly imple­ment a two-pass approval sys­tem for minor cap­i­tal equip­ment projects val­ued between $8 mil­lion and $20 million.

Minor cap­i­tal projects are those val­ued at less than $20 mil­lion. Minor projects are not includ­ed in the Defence Capa­bil­i­ty Plan. They cov­er new equip­ment, mod­i­fi­ca­tions to exist­ing equip­ment or enhance­ments to new equip­ment. In 2010-11, the planned bud­get for minor cap­i­tal projects is around $150 mil­lion and there are about 105 minor cap­i­tal projects underway.

The two-pass approval sys­tem rec­om­mend­ed by Kin­naird has been suc­cess­ful in improv­ing the bud­get, sched­ule and capa­bil­i­ty deliv­ery of major projects. Major projects which have been through the two-pass sys­tem demon­strate a 20 per cent to 25 per cent improve­ment to their sched­ule when com­pared to those that did not. This same rigour will now be applied to minor cap­i­tal projects. 

These projects will now involve a for­mal busi­ness case for two-stage approval by the Min­is­ter for Defence.

Sec­ond pass approval for minor cap­i­tal projects will require Defence to pro­vide the Min­is­ter with ten­der qual­i­ty data upon which to base decisions.

Ear­ly Indi­ca­tors and Warn­ing System

Defence assess­es that 80 per cent of prob­lems with Defence capa­bil­i­ty projects occur in the first 20 per cent of the project’s life. That is why it is impor­tant to pick up prob­lems early. 

One of the biggest chal­lenges in Defence pro­cure­ment is projects run­ning late. The ear­li­er these issues are picked up, the ear­li­er the prob­lem can be fixed. 

The Gov­ern­ment will imple­ment an Ear­ly Indi­ca­tors and Warn­ing Sys­tem. This sys­tem will help iden­ti­fy and cor­rect poten­tial prob­lems with projects.

A set of trig­gers will be estab­lished to give ear­ly warn­ing of projects which are run­ning late, over-bud­get or not deliv­er­ing the capa­bil­i­ty required.

The Gov­ern­ment expects that a sub­stan­tial num­ber of projects may acti­vate the trig­gers. The pur­pose of the sys­tem is to iden­ti­fy prob­lems ear­ly so appro­pri­ate action can be tak­en to reme­di­ate them.

The Min­is­ter for Defence, the Min­is­ter for Defence Materiel, the Sec­re­tary of Defence and the Chief of the Defence Force will be advised when these trig­gers are acti­vat­ed. When a trig­ger is acti­vat­ed Defence will con­duct an inter­nal review of the project and rec­om­mend whether a full diag­nos­tic exam­i­na­tion (a Gate Review) is required and should be conducted.

The ini­tial trig­gers for each project stage are set out below. These will be adjust­ed or added to as the sys­tem matures.

Post-first pass triggers: 

Trig­gers will be acti­vat­ed if it is assessed that: 

• the project is like­ly to go out­side a para­me­ter agreed by Gov­ern­ment at First Pass, as reflect­ed in the respec­tive Project Direc­tive by the CDF and Secretary; 
• a sig­nif­i­cant mile­stone will not be achieved with­in three months of the sched­ule approved by Gov­ern­ment at First Pass; or 
• the project can­not meet the essen­tial require­ments with­in the cost, sched­ule and risk lev­els approved by Gov­ern­ment at First Pass. 

Post-sec­ond pass triggers:

Trig­gers will be acti­vat­ed if it is assessed that: 

• the sched­ule for meet­ing Ini­tial or Final Oper­a­tional capa­bil­i­ty will be delayed by 10 per cent or more for off-the-shelf capa­bil­i­ty, 20 per cent or more for local adap­ta­tion of off-the-shelf capa­bil­i­ty and 30 per cent or more for devel­op­men­tal projects. 
• the project’s costs will exceed its approved budget; 
• the con­trac­tor is not meet­ing promised capa­bil­i­ty or sched­ule mile­stones or exceed­ing approved costs; 
• pol­i­cy or leg­isla­tive changes are like­ly to increase the project’s sched­ule or cost; 
• an essen­tial capa­bil­i­ty require­ment will not be met; 
• emerg­ing require­ments or reg­u­la­to­ry or safe­ty stan­dards are dif­fer­ent to those at the time the project was approved by Gov­ern­ment and will mate­ri­al­ly affect the project; 
• indus­try engaged in the project does not have the required work­force or finan­cial capac­i­ty or man­age­ment com­mit­ment to meet crit­i­cal project mile­stones; or 
• project risks have increased beyond the para­me­ters agreed by Government. 

The Defence Annu­al Report will pub­lish details of the action tak­en on projects as a result of an ear­ly warn­ing indi­ca­tor being triggered. 

Full Diag­nos­tic Reviews

As fore­shad­owed in the 2009/10 Defence Annu­al Report and the 2009/10 Aus­tralian Nation­al Audit Office Major Projects report, Defence will expand the use of the full diag­nos­tic review of projects, known as Gate Reviews.

Gate Reviews com­menced in 2009 for select­ed high val­ue and high­ly com­plex projects and have proven very effec­tive in the ear­ly iden­ti­fi­ca­tion and res­o­lu­tion of prob­lems. All major projects man­aged by the Defence Materiel Organ­i­sa­tion will now under­go at least one Gate Review per year. 

Gate Reviews will also be extend­ed to oth­er areas of Defence includ­ing Chief Infor­ma­tion Offi­cer Group and Defence Sup­port Group. These reviews will nor­mal­ly be linked to a key project deci­sion point or milestone. 

Reviews will also be con­duct­ed in cas­es where the Gov­ern­ment or Defence have con­cerns, or where a project’s ear­ly indi­ca­tor or warn­ing is trig­gered. A Project Man­ag­er will also be able to request a Gate Review to enlist senior man­age­ment assis­tance to resolve sig­nif­i­cant issues. A Gate Review Board will be con­vened for each review.

A num­ber of inde­pen­dent experts will be con­tract­ed to pro­vide advice to these reviews. 

Quar­ter­ly Account­abil­i­ty Reports

There is a need for more reg­u­lar and rig­or­ous report­ing to Gov­ern­ment on high pri­or­i­ty projects. Accord­ing­ly, there will be a quar­ter­ly report to the Min­is­ter for Defence, the Min­is­ter for Defence Materiel, the Sec­re­tary of the Depart­ment of Defence and the Chief of the Defence Force on des­ig­nat­ed key projects. 

The report on each such project will be for­mal­ly signed off by the Chief Finan­cial Offi­cer, the Chief Exec­u­tive Offi­cer of the Defence Materiel Organ­i­sa­tion, the Chief of the Capa­bil­i­ty Devel­op­ment Group and the rel­e­vant capa­bil­i­ty man­ag­er, gen­er­al­ly the rel­e­vant Ser­vice Chief. This will help improve account­abil­i­ty and pick up prob­lems early.

This will alert senior Defence offi­cials and Gov­ern­ment to prob­lems in projects so that an appro­pri­ate reme­di­a­tion plan can be devel­oped ear­ly and act­ed on. Reports of this nature are con­sis­tent with both the Kin­naird and Mor­timer Reviews and will now be implemented.

Such report­ing will begin at the next quar­ter, 1 July 2011, with the first such reports deliv­ered in October. 

Media con­tact:
Mr Smith’s Office: Andrew Porter 0419 474 392
Mr Clare’s Office: Kore­na Flana­gan 0418 251 316
Defence Media Oper­a­tions (02) 6127 1999 or 0408 498 664 

Press release
Min­is­te­r­i­al Sup­port and Pub­lic Affairs,
Depart­ment of Defence,
Can­ber­ra, Australia 

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