Defence Business: ADM2011: What we need to do better | ADM Mar 2011
Julian Kerr and Katherine Ziesing | Canberra
The defence industry in Australia has been left in no doubt that it faces increased rigour by the Commonwealth in the oversight of Projects of Concern, as well as a stronger overall focus on program schedule, business relationships and resources.
The ADM team was very pleased to welcome defence minister Stephen Smith to open the ADM2011 Congress last month. In a wide-ranging speech, the minister acknowledged the great work that the ADF carried out, and is still carrying out, in the wake of the spate of natural disasters in Queensland. But this work also highlighted the serious shortcomings of the ADF’s amphibious capability and its wider impacts on national security.
“Delivering and maintaining these assets is a critical element of our national security,” Smith said. “But we know that procurement, maintenance and sustainment is not without serious challenges.
“A most pressing example of this is the advice to me from Defence over the last few weeks that the maintenance and sustainment of our amphibious capability has, regrettably, effectively failed.”
The minister outlined the issues facing the amphibious fleet (see P12 News for more detail) and how the Navy and government are addressing the issue urgently despite the ‘seeds of the issue being sown over a decade ago’.
“Their [RAN] advice was a frank appraisal and identifies systemic and cultural problems in the maintenance of our amphibious ship fleet for over a decade or more. It outlines the adverse side effects of a ‘can do’ and ‘make do’ culture and a lack of sufficient adherence to verification, certification and assurance processes.
“It outlines a perception that major support ships are not subject to the same level of risk as submarines and aircraft, almost a perception that HMAS Manoora and HMAS Kanimbla are second tier ships. It outlines insufficient resources being applied to address shortcomings.
“I will be as frank in public as I have been frank in private in expressing my disappointment at this,” Smith said.
With this in mind, the minister announced the formation of a special team led by prominent Australian businessman Paul Rizzo with the support of Air Vice Marshal (Rtd) Neil Smith and Rear Admiral (Rtd) Brian Adams to ‘develop a plan to address the causes of the problems facing the availability of the amphibious and support ships and oversee the early stages of the implementation of the reforms.’ They will have a wide-ranging remit over the sustainment of the entire RAN fleet and are due to report in three months time.
The minister made it very clear that he has high expectations of both Defence and Defence Industry to get it right for the sake of all parties involved.
“Mistakes made at the beginning of complex and costly Defence projects are multiplied substantially into major problems later in the life of a project,” Smith said. “It is much more important to get projects right at the outset, than subsequently cancel a project after wasting tax payer dollars, or compromising on capability, schedule or cost. If we fail in this, it reflects badly. It reflects badly not just on Government, but on Defence itself and on the Defence Industry.”
Warren King, deputy CEO of the Defence Materiel Organisation (DMO), made it clear that a Project of Concern without an agreed and ultimately successful remediation plan would almost certainly be cancelled.
Defence materiel minister Jason Clare and DMO CEO Stephen Gumley, both of whom hit out at schedule slippages and referred to imminent reforms that will improve accountability in Defence, reinforced this tougher stance and the way projects are managed.
To improve accountability, Gumley disclosed that the implementation of a system of Project Directives for project managers and Fundamental Providers of Capability within DMO would be one of the organisation’s major undertakings this year. The directives would ensure that everybody understood exactly what had been approved by government, exactly what had been going to be delivered, and when technology or requirements had changed, inform government and seek permission for changes.
“These will focus on making sure we get things right at the start. The logic here is pretty simple - 80 per cent of problems with projects occur in the first 20 per cent of the project’s life,” Clare said, figures that head of Capability Development Group Air Marshal John Harvey echoed.
“The reforms will also focus on picking up problems early, like schedule slippage, taking action to fix them before they get worse and the extra steps we need to take to remediate projects if they do go bad.”
Clare has instituted twice-yearly meetings with the CEOs of companies on the Projects of Concern list, and said the forthcoming changes would include the injection of more rigour and measurable standards into the Projects of Concern process.
However, it was King, also the DMO’s General Manager Programs, who provided more detail on the tougher regime now being instituted.
“Basically it means unless we prove otherwise, the project (of concern) is going to be cancelled. People didn’t quite believe that, but one of the first projects that came up on this was FFG7s (FFG Upgrade).
“Without disclosing private conversations, it was made clear to me that unless we had a remediation program they were going to be turned into patrol boats.”
King said some people in both DMO and industry still thought Projects of Concern was a ‘light and flippant’ status. It was not, and the coming year or two would see even greater emphasis on the implications of the list for both Defence and for industry.
“If we don’t together focus on a project that ends up on the Projects of Concern it could be cancelled. It won’t matter if you’re a multinational supplier or an SME, that’s the net effect,” he stated.
A remediation plan agreed by DMO and industry rarely meant recovering schedule or all the capability, but once agreed, “You’d better commit to it and you’d better deliver”.
Two simple warning indicators that he used were perpetually slipping milestones - “we can pretty much see when a project is going to come off the list because the milestones start being stable” - together with the business relationships between DMO and industry and the resources that industry had brought to bear.
Details had still to be completed on how early warning thresholds would be established, and judgement would still have to be applied on top of that about the end capability and its importance.
However, when a project triggered an early warning indicator it would become subject to a diagnostic gate review – a process currently internal to the DMO but which would be broadened to include independent experts.
“We will then ask the capability manager, ‘In view of the fact that this particular capability is late or not as competent as we thought it’s going to be, do you still want it?,” King said.
“DCIC (Defence Capability and Investment Committee) will then consider it and make a recommendation to the Minister as to whether it should be cancelled or persevered with. The Minister will make the decisions”.
King emphasised that there was no discretion in the process; once a project triggered an early warning indicator, it would be reviewed. Furthermore, the early warnings and indicators system would apply through the first and second pass approval stages as well as into contract. He also flagged the increased use of gate reviews with independent members drawn from both defence and defence industry. He also put out the call for people to contact him if they were interested in joining such bodies.
Speaking more generally, King said Defence needed to minimise “interpretive” scope creep - interpreting more requirements inside a contract rather than the basic contract – and be far better at understanding and guarding against undeliverable proposals.
“Just looking at Projects of Concern and discussing projects overall, it seems to me that if it’s COTS/MOTS you need about a 10 per cent contingency. If it’s some sort of Australianisation, that’s controlled you probably need somewhere between 30 and 50 per cent. And if it’s developmental, it looks almost like 100 per cent,” he commented.
On the sustainment side of the house, DMO’s newly confirmed General Manager of Systems Shireane McKinnie spoke of making sustainment a job family, much like project management, in the DMO. This will help address the massive SRP curve that the Smart Sustainment stream will face over the coming years.
“We need to move away from our traditional transaction-focused business approach towards a more outcomes-focused approach,” McKinnie said. “To move toward more strategically focused business models for sustainment we are establishing a new Sustainment Management job family. Akin to the project management job family, the intention is to build a better basis on which we can provide our customers with cost availability trade off options and work with suppliers to better leverage our contracts to deliver improved outcomes for the ADF.”
There will also be an increased focus on performance based contracting. Whilst not new to the DMO, the organisation is using a number of programs, almost as pilots, to see what needs to be examined more closely under this model for future programs and build the skills within the DMO to administer such contracts effectively.
“The revised ASDEFCON Strategic Support template will reflect our learning and experience in this area. It is scheduled for release in mid-2011,” McKinnie confirmed. “We need to ensure that we develop contracts which are efficient to manage. We need to do everything we can to mitigate risk and reduce complexity for our SPOs and for our Suppliers. To incentivise improved performance and efficient business practices, DMO is considering the use of alternative contracting models as well as our traditional fixed-priced approach.”
Some of the unintended and possibly unforeseen consequences on ADF aerospace sustainment of MOTS acquisitions and the global supply chain were spelt out by Air Vice Marshal Colin Thorne, head of DMO’s Aerospace Systems Division.
The greater integration of aircraft and cuts in fleet size was reducing spares consumption and the incentive for third party parts operators, he said. The healthy third party industry in P-3 and C-130 parts was unlikely to be replicated with the Joint Strike Fighter (JSF).
With each new aircraft type now having access to its own supply, maintenance and flight management systems, fleet data was often likely to reside offshore, making it very difficult to severe the umbilical with the original equipment manufacturer in favour of a third party local support arrangement.Likewise, the F-18F Super Hornet and JSF challenged Australia’s ability to apply, reapply, repair or, most importantly, test the effectiveness of their low observable coatings.
“And, of course, in order to effect a repair you’ve actually got to penetrate the low observable coating. So that creates a probably unintended barrier to our ability to sustain in-house,” he noted.
“What about our ability to reprogram software? Integrating new systems onto the aircraft - although that implies that we’re going to depart from the vanilla solution and go it ourselves. But even reprogramming threat libraries for EW systems or radar matching libraries – this is going to be a real challenge.”
Acknowledging that such developments were inevitable, AVM Thorne said the problem was that Defence and defence industry systems were well out of step with this.
As an example, the C-17 Globemaster master support program involved parts that could either be owned by the Commonwealth or owned by the pool, but many of them had stock numbers that were common with items used by the ADF.
“So you end up with a situation – and we haven’t solved this problem – where you’ve got to somehow separate those items from the common pool. And of course as you start to go down that stream, life becomes very, very difficult.”