Editorial: It's change - but is it also reform? | ADM September 2011

Gregor Ferguson | Sydney

The past few weeks have seen a significant change in Defence’s management and governance arrangements for capability development and acquisition.

However, speculation that the DMO would be re-absorbed back into the department, proved well off the mark. The DMO will remain in being, with a new CEO to replace Dr Stephen Gumley. It will remain a prescribed agency, but a new Associate Secretary (Capability) will sit on top of the Capability Development Group (CDG) and Capability Investment and Resources Division, and alongside the new CEO DMO and Deputy Secretary for Strategy to coordinate the entire capability development and acquisition process.

The three and a half star-equivalent Associate Secretary (Capability), or AS-CAP, will re-integrate the critical but still-separate capability development and acquisition functions which, when the DMO and CDG were first formed, were closely linked. That linkage has become frayed and the growing distance between the two functions has introduced and compounded project risks.

The AS-CAP’s role will be to strengthen internal contestability within the organisation as recommended by last month’s Black Review of accountability within Defence.The AS-CAP will be responsible for many of the functions of Defence’s old Force Development & Analysis (FDA) organisation, matching ambitions with resources and demanding a robust justification for new equipment and capability needs.

Integrating capability development and acquisition, along with Strategy and Resources, under the ASCAP makes genuine sense. However, a key driver for this change is the catalogue of delays and (less frequently) budget over-runs which have afflicted many Australian defence projects in recent times. It does not in itself signal a return to, or even a willingness to contemplate, higher levels of local industry involvement in major and minor projects.

Indeed, given Defence’s risk-aversion under the regular sting of adverse headlines and audit reports, it’s hard to argue with the view that the AS-CAP may even strengthen a growing default preference for imported Military Off The Shelf (MOTS) acquisitions. Buying MOTS equipment affords the greatest control over schedule and cost, the two performance measures to which the DMO pays most attention.

This all follows earlier announcements by Defence Minister Stephen Smith and Defence Materiel Minister Jason Clare on changes to defence acquisition. Among these were a strengthening of Defence’s project management and accountability including the application of the Kinnaird two-pass approval process to minor capital projects valued between $8 million and $20 million.

Smith and Clare also announced in June the establishment of an Independent Project Performance Office (IPPO), as recommended originally by David Mortimer in his 2008 Review of Defence Procurement and Sustainment.

These acquisition changes, including Smith’s acceptance of the Black recommendation that Defence abolish as many as possible of its unproductive committees, make business sense at one level. But in many respects they represent additions to existing processes, not fundamental reforms.

Extending the two-pass approval system to minor capital projects will slow Defence’s approval and decision-making processes still further, especially as project directors seek compliance with new accountability measures. 

And the additional human and financial resources required within the Capability Development Group to implement two-pass approval for the minors and improve the quality of 1st and 2nd Pass submissions for major projects will directly undermine the SRP.

These reforms are all driven by perceptions of risk – the government’s and Defence’s. Project risk tends to manifest as a delay and/or some kind of technical problem. A fixed-price contract keeps the cost under control, but the competitive tendering and contracting processes required to achieve a simple, fixed-price contract often compound the risks by failing to address the project’s real needs.

Many of the underlying causes of project risk (including a strategic approach to maintaining contractor proficiency) simply are not addressed by the reforms announced this year – I commend the reader to the ICCPM article on p.22 of this edition: Defence is guilty of many of the sins associated with project failure, and the reforms we’ve seen to date don’t change anything in this regard.

Meanwhile, SMEs are feeling the pinch as both Defence and the primes tighten their belts. The article on p.20 challenges SMEs to look beyond Canberra and Australia’s small clan of prime contractors for sales and growth. The “Hidden Champions” described by Stuart Carr provide examples and models for global success which Australian defence SMEs can follow (and many already do).

But there are financial, market and technological implications in these examples which the SMEs need to examine carefully for themselves. If Australia’s defence market – and defence customer – aren’t big enough in the long term to sustain significant growth by high-technology software and manufacturing companies, then what are their alternatives?

Subject: ADM Editorials