News Review: Pappas Review published | ADM Feb 2010

The Audit was conducted by an external consultant, George Pappas of Pappas McKinsey, who advised on the efficiency and effectiveness of the Defence budget and how to improve budget management, Senator Faulkner said.

"Releasing the Audit shows our commitment to transparency in Government and highlights the robust decision-making that underpinned the Defence White Paper and the Strategic Reform Program," he added.

Some of the material in the Audit has been suppressed for military security, privacy and commercial confidentiality, while some of the material suppressed has yet to be considered by Cabinet.

Highly publicised project delays and cost over-runs have resulted in an extremely risk-averse approach to capability development and acquisition by the ADF's Capability Development Group (CDG) and the DMO.

"Technical risk (in both the project itself and related projects) is the cause of more than 50 per cent of post-approval [cost and schedule] slippage," Pappas points out, recommending, "the cost of local sourcing in comparison to other options must be determined prior to government approval, and presented to Government with the option set; Local sourcing should only be considered where it is a strategic priority or where it is competitive with other options, and if local sourcing is chosen outside this criteria, that the rationale be clearly articulated."

Senator Faulkner said, "The Government accepted the vast majority of the Audit recommendations and these will be implemented through the Strategic Reform Program (SRP)."

Coming on the heels of the 2008 Mortimer Review and almost simultaneously with an ASPI paper on the strategic implications of higher levels of off the shelf purchasing (We'll have six of them and four of those by Andrew Davies and Peter Layton) the Pappas Review has important consequences for the defence industry: clearly, Defence's reduced tolerance of risk means the DMO will in future seek more rigorous justification of the need for local development of innovative new equipment and solutions.

Senator Faulkner also said the SRP will generate significant reforms over the next ten years to deliver gross savings of around $20 billion.

These savings will be reinvested to build stronger military capabilities to defend Australia and its national interests.

"We agreed to an alternative funding model which provides funding certainty for planning and real funding growth to meet the growing cost of the military equipment we will need in an increasingly demanding world.

"This model is similar to that recommended in the Audit and, we believe, more appropriate given current fiscal circumstances."