Defence Business: ADM 2012 - Tip of the spear | ADM April 2012
Daniel Cotterill and Julian Kerr | Canberra
Defence Minister Stephen Smith focused on what he saw as the main challenges facing the defence organisation in 2012. These are the Collins submarine, both in terms of sustainment and replacement, the Defence Capability Plan (DCP) and a variety of budget related matters.
The Minister referred to the Collins as “a most significant challenge” and “a matter of ongoing concern”. He was however confident that the Coles Review would do for the Collins Class what the Rizzo Report has done for the amphibious fleet, saying it needed to provide “a clear sighted path to improve the sustainment and availability of the Collins Class Submarines”.
Smith noted that the end of the Collins’ life-of-type was not currently known, but that the new CEO of the DMO had advised him that a modified of-the-shelf submarine could be in service by the end of the decade if need be.
The Minister referred to the future submarine project as “the largest and most ambitious ever undertaken in Australia,” and said that all options except nuclear are currently under consideration. He also made the point that Australian and US co-operation on submarines was of strategic importance to both countries and that such co-operation will extend into the future submarine program.
The government will be seeking to reduce the amount of over programming in the DCP with Minister Smith saying that it was currently, “promising more than we can deliver” and was in essence, “planning for failure”. His comments were made in the context of a $1.6 billion under spend in 2010-11 which was cited as a “significant failure of Defence’s planning and budget processes”.
In an even more ominous conclusion to the Minister’s address it was made clear that he was looking to see if Defence could make a further contribution to the government’s bottom line in 2012-13. As that is the financial year in which the government has promised to return the federal budget to surplus, and an election year, you can be sure that budget cuts, (sorry, the search for savings and efficiencies), will be on in earnest.
Secretary intent on real reform
Defence Secretary Duncan Lewis made it clear from the outset that he is intent on genuine reform in the defence organisation. He acknowledged that Defence had been criticised for many things including the speed at which it works, the ways it treats its people and for its processes.
“Not all of this criticism is fair but some is and the CDF and I are seized of the need to work to address these problems,” he said.
The Secretary pointed to the development of a five-year enterprise level Defence Corporate Plan that will prioritise Defence activities and drive implementation with clear performance benchmarks and accountabilities for delivery.
He echoed the Minister’s point on DCP over-programming saying, “we need to operate with far greater certainty of capability development schedules, [and] we need to increase transparency by providing more relevant and accurate reporting of projects to government.
“We’re already issuing joint project directives – that’s the CDF and I – that articulate the individual responsibilities of Defence officers in the capability development process and align with the various conditions imposed by the government. These directives are a very important step now in clarifying who is responsible for what. I place high value on internal contestability of advice on capability, this is a good way of testing our thinking and exploring value for money.”
The Secretary also remarked on Defence’s current and likely budget position. “Government has expected Defence to make a contribution to helping get the nation back into surplus and we’ve done that. Defence has not and will not be immune from the whole of government fiscal priorities.
“We will have to make adjustment to how we do business to cope with this fiscal environment… This is an ongoing management challenge and you can expect to see us continuing to fine tune our financial and procurement plans to cope with these new fiscal realities.”
Industry seeks implementation and engagement
Managing Director of Thales Australia, Chris Jenkins, spoke on a range of issues but the main thrust of his address centred on the need for better, more consistent implementation of defence industry policy.
“That Defence Industry Policy statement was 18 months ago,” he said, “but we don’t seem to have taken the next step yet, which is to really articulate what will be done to maintain these priority industry capabilities (PICs) and grow them.”
Jenkins acknowledged recent DMO “health checks” for some of the PICs, and was encouraged to see that apparently the PICs are in good shape.
“But we need to go further,” he said. “We need to build more linkages between the PICs and the delivery of outcomes tabled in the DCP.”
Jenkins also commented on the dire financial situation in Europe and the US and said that, “In the face of huge headwinds, we need to be doing more to encourage local industry to invest, because their investment is what ensures we have a viable defence industry base to deliver essential capabilities to the ADF. Companies right now are nervous, cautious, and deeply worried about their future in the defence industry.”
Money matters
Dr Mark Thomson, Director of the Budget and Management Program at the Australian Strategic Policy institute (ASPI), is widely acknowledged as one of the country’s most influential analysts of defence finance, and his presentation did not disappoint. The Defence budget in 2009 had featured deferred expenditure of $8.8 billion out to 2014-15 together with “absorbed measures” of $1.5 billion. Despite the economic recovery, the cuts had not been restored the following year.
As of May 2011, $1.5 billion of unspent funding had been returned to Treasury, $1.3 billion of investment had been deferred to beyond 2014, and $3.9 billion of “further efficiencies ” were anticipated.
Dr Thomson concluded that:
- Government is not delivering the funding required for the 2009 Defence White Paper
- Savings from the Strategic Reform Program are exaggerated
- Capability planning is unrealistic but overprogramming is a valuable tool
- Long-term plans are unaffordable, and
- Further budget cuts are likely
Diggerworks
The reorganisation under Plan Beersheba of Army combat forces into three multirole brigades will mean a strong focus for Diggerworks on the readying phase of each brigade, said Colonel Jason Blain, Director of the virtual organisation that works across defence agencies responsible for developing combat soldier capabilities.
“Diggerworks must work in the area of providing the refresh, that new equipment as early as possible in that readying phase and as we know, that’s because while you can trade performance up and down and cost back and forth, you can’t trade time.
“So our ability to work within that force generation cycle is what drives our adaptive approach”.
This meant, Col. Blain said, buying small amounts more often.
“When it comes to a combat soldier sense it really is about looking at how we can use technology advances to help the next iteration of combat systems that a soldier is getting and then drawing a line in the sand about where we stop that change or that adaptation.”
Shipbuilding
Understanding the industry challenge of building the ships included in the Defence Capability Plan (DCP) involves benchmarking shipbuilding productivity by using the Compensated Gross Tonnage (CGT) method, Andrew Cawley, Acting General Manager Programs at the DMO, told the Congress. This looks at the volume of the ship being built and its complexity,
“So the air warfare destroyer (AWD) works out at about 70,000 CGT. A submarine? They vary, but 50,000 wouldn’t be uncharacteristic. The complexity coefficient for an AWD is about seven to eight. The complexity coefficient for a nuclear submarine is 80.
“So we go down to the sort of ships we’re looking at. Fifty thousand for a frigate. Offshore Combatant Vessels might be 20,000. A sealift ship might be 60,000. A landing craft might be 5,000.
“It gives us a sense as we look at the programs that are coming of how much effort will need to go into the program”.
Cawley did not disclose the result of AWD productivity benchmarking but said DMO now knew what core productivity should be for Australian shipyards, taking into account their size and throughput.
Local efficiency
Andrew Davies, Operations and Capability Program Director at ASPI, warned that the current incarnation of Australian industry, specifically the home-grown and maintained part which is focused on doing business with the Commonwealth for its main source of income, was swimming against a number of strong currents.
A limited bucket of funds was now available for pursuing defence procurement options that were not efficient.
“Even as things currently stand the ADF has seen the number of platforms it operates slowly dwindle as unit prices have increased. Buying them inefficiently can only exacerbate that trend”, he commented.
Davies said he was not convinced by the argument that there was a strategic reason for having more things done by Australian industry, even if that meant losing some of the economies of scale that came with global supply chains.
Pointing to the Future Submarine, Davies said that whatever the source of its hull or propulsion system, all the systems that make it a viable weapon of war – the combat systems, sensor and weapons – would come from external suppliers.
“The strategic consequences of that are plain – if Australia finds itself in a conflict with a power that has greater strategic depth than ourselves, either our own major power ally is with us and can resupply and support us, or we lose”.
Sustainment savings
For Glenn Brown, Head of Qantas Aviation Services, the most promising areas of sustainment cost improvement lie in creating scale by placing multiple programs into a common facility and spreading operations management and operations support costs across multiple programs wherever possible.Thin Systems Program Office (SPO) models also eliminate much redundancy and duplication of effort.
Harry Dunstall, Deputy CEO and General Manager Commercial at DMO, explained the numerous obligations, requirements and constraints placed on the DMO as a public sector entity.
Under the Commonwealth Procurement Guidelines, value for money did not automatically equate to lowest price.
“When we’re looking at value for money we are taking the whole of the bid, having a look at it across the full range of evaluation criteria, bringing those assessments together and determining which one of these do we think is going to best deliver the outcome that we need for a price that is fair and defensible,” he explained.
“Sometimes it comes down to really fine judgments. We assess it across a balance of all evaluation criteria and we then weight it as to which tender is the best and for a whole range of reasons one tender that might be higher priced might still be better value for money, for example, because it offers a better technical or operational solution.
“By contrast, something that is lower priced but still meets a significant part of the requirement might be determined to be value for money because the increase in price to get the extra requirements might be so much greater that it’s just not worth it”.
DMO perspectives
Tony Hindmarsh, Acting Head Acquisition and Sustainment at the DMO, said he was available to anyone who wanted to talk to him about innovation or ideas.
“I have no direct responsibility for those innovations or initiatives being delivered but I can be your advocate within the organisation, whether it be with DMO or with the capability managers and that’s how I’ve shaped my role; hence less bureaucracy.”
Reconciling the balance between mobility and protection – “too light to fight and too heavy to move”- will be a challenge in creating the future land force, according to Brigadier Patrick Kidd, Army’s Director General Development and Plans.
“There will be a real tension between the design of the task force to be afloat and the needs of the land task force to fight ashore. But Land Force must retain the potency required to win”, he said.
No single platform could meet the demands of all terrains and threat, therefore a mix of platforms ranging from light to heavy would be required.
Current problems included life for type for ASLAV and the M113A4 APC and lack of protection for first line logistics and manoeuvre support assets.
Air Vice Marshal Chris Deeble, Program Manager for both Wedgetail and Collins, said failure to establish good sustainment for the Collins class would set up the Future Submarine to fail.
Collins “still wears the scares of acquisition” as a result of acquisition teams having been predominantly operator and engineering heavy, with few logistics experts.
Discussing the eventual retirement of the six Collins-class boats, AVM Deeble commented that “you can extend capability by enhancing it, you can look at the physical dimension by upgrading various sub-component parts and you can effect a change by improving reliability, availability and maintainability,. But quite clearly, you need to understand where you’re making the right investments”.
Service life evaluation was continuing and a view on the submarines’ current design life was expected by mid-year, he said.
What did it all mean?
So what are we to conclude from the views shared by the most senior echelons of politics, bureaucracy and industry at ADM 2012?
First, reform is ongoing in several areas across defence and the DMO, and they mean it. Several very determined and experienced heavy hitters made it plain that they have their pruning shears out and they are intent on using them. Wait this one out at your peril.
Second, money will indeed be tight, tighter than it has been for the past few years anyway. The Minister made it clear that he intends to help his Cabinet colleagues where he can to get the federal budget back into surplus in 2012-13, while Mark Thomson made the case that there is already not quite enough to fund all existing programs.
Third, that while industry is understandably concerned in the face of such change and uncertainty, the wise and experienced should still see the glass as half full. It seem that the government has finally started to pay attention to the core business of defence acquisition and spend the time needed to actually make the project approval process workable – though more could be done here.
Far better for industry to see an increase in the pace of actual projects being approved and real money being spent, than for the creation of ever grander plans and budget allocations that never come to fruition.
Daniel Cotterill is a former ADM Correspondent and Ministerial Chief of Staff currently engaged as a PR and public affairs consultant in both the automotive and defence industries.