Clean sheet for re-vamped DIDS

The Department of Defence has gone back to the drawing board in its plan to market test its $1.1 billion Defence Integrated Distribution System (DIDS). The original blueprint for this project was overly prescriptive, according to a senior Defence source, and so didn't allow the bidders to reap savings from applying innovative and efficient logistics, transport and distribution practices common in the commercial sector.

Among other things, industry sources charge that the department mandated the use of a number of existing military stores and workshops rather than allowing the bidders to capture business efficiencies by using some of their own storage and workshop infrastructure or building new facilities in more convenient locations.

New tenders, allowing the bidders much more freedom of action, will be called later this year, according to defence minister Peter Reith. "The Government was not prepared to proceed with ... an arrangement which would have delivered a less than optimal result, and I have directed the department of defence to invite the current tenderers to resubmit their bids taking these factors into consideration," he said in a statement July 9.

Five industry consortia and one in-house bid team submitted tenders in November 1999 for a 10-year contract to take over 28 warehousing facilities and seven major equipment repair and maintenance workshops currently operated by the department.

The revised tender, which will be released later this year, will not be so prescriptive and will encourage a more innovative approach, according to Colonel Peter Tweedie, of Joint Logistics Command.

All six bidders will be required to submit new tenders by the end of this year, Tweedie said, and the department aims to sign a prime contract by mid-2002. The transition to the new DIDS system should take 9-12 months, he estimated.

According to industry and local government sources, one reason why the DIDS tenders haven't promised some of the hoped-for savings is that Defence mandated the continuing use of the Defence National Storage and Distribution Centre (DNSDC) at Moorebank in Sydney as the major logistics hub for DIDS. Critics have pointed out that manpower and transport costs associated with major Sydney-based facilities will push overall costs upwards, especially as an increasing proportion of the Australian Defence Force is now located in western and northern Australia.

ADM understands that Defence is still studying the issue of whether to mandate the DNSDC, in which a great deal has been invested, or delete it from any list of mandated sites.

Industry analysts have advocated siting the DIDS logistics hub further west, near Broken Hill or Adelaide, to improve access to the growing population of naval, air and army bases in Western Australia and the Northern Territory. Key logistics nodes such as major air and naval bases must be retained for obvious reasons, industry sources say, though even defence sources acknowledge that as long as the contenders can convince the department they can satisfy, for example, a requirement to deliver critical aircraft spares to the Williamtown flightline within 30 minutes, the exact warehouse location is immaterial.

A senior defence source warned that significant challenges remain in re-developing the tender. Among these are ensuring that the winning bidder's own computerised inventory and logistics management systems can interact effectively with the department of defence's own Standard Defence Supply System (SDSS).

The current contenders for DIDS are:

* Force Logistics (Mayne Logistics Ltd, Melbourne, and Serco Australia Ltd, Brisbane)

* Integrated Defence Logistics (TNT Australia Ltd and Transfield Holdings Ltd)

* ADI-FOX (Linfox Transport and ADI Ltd)

* NexGen Logistics (BAE Systems Australia, K&S Group, Caterpillar Logistics, Honeywell, National Jet Systems Ltd, Vector Data Systems, John Holland Construction Ltd)

* Tenix Toll Defence Logistics (Tenix Defence Systems and Toll Holdings Ltd)

* Defence In-House Option.

The department expects it will have to pay up to $6 million to the five industry consortia to cover the cost of revising their tenders. The companies expected a decision by June last year and the validity of many of the tenders expired around the end of last year.

Spokesmen for the industry consortia have declined so far to comment on the termination of the current DIDS tender process and the re-scoping of the project. An industry source who asked not to be named told ADM that until the new tender is issued it would be impossible to judge how much extra freedom the contenders have to develop innovative solutions.

Some of the contenders had proposed using their own network of warehouses and workshops and others had proposed a "green field solution" with all-new facilities sited in the most appropriate locations. So a small change in the department's requirements in one area could have a significant knock-on effect elsewhere, he said.

The source warned also that Peter Reith's ongoing requirement to "maintain jobs in regional and rural Australia" may complicate matters: no firm guidance has been received as yet on what constitutes a regional or rural centre and so framing a bid which satisfies what is an essentially political requirement may be difficult, he warned.

The DIDS program is intended to reap annual cost savings of between 20 and 30 per cent, Reith said. DIDS was developed as part of the department of defence's Commercial Support Program (CSP), which has seen 114 non-core administrative and support functions put out to commercial tender since the mid-1990s. The department has reaped average savings of more than 30 per cent, or about $340 million a year, on work originally valued at about $1.2 billion a year when it was carried out in-house, Reith said.

By Greg Ferguson, Adelaide