> our title:

Aussie Senate Proposes Blueprint for Acquisition Reform

> original title:

The Swings and Roundabout of Defence Reform (excerpt)

(Source: Australian Strategic Policy Institute; posted Sep 12, 2012)

On Monday we promised to provide some suggestions for implementing the recent 364-page report from the Senate Foreign Affairs Defence and Trade Reference Committee on ‘Procurement procedures for Defence capital projects’. Today we’ll discuss one of the most radical of its 28 separate recommendations: to transfer accountability for all procurement and sustainment of defence materiel to the service chiefs following second pass approval.

Under the proposed model, the service chiefs ‘would be the sole client with the contracted suppliers’ and have control over the associated budgets, with Defence Material Organisation’s (DMO’s) role ‘limited to tendering, contracting and project management specialities’.

For long-time observers of Australian defence administration, there’s a ‘back to future’ feel about the proposed new arrangement. Indeed, there were times in the past when the service chiefs had much greater control of both sustainment and procurement. One has to ask; are current arrangements a failed experiment? If so, it seems reasonable to conclude that it wasn’t a good idea to centralise procurement and sustainment into what we know as the DMO.

But it’s not as simple as that. There is no perfect organisational solution to be found—whatever you do is a compromise between competing factors. The current arrangement consolidates hard-to-find sustainment and procurement expertise, but disempowers the service chiefs, who are the ultimate customers. The proposed new arrangement empowers the service chiefs, but at the cost of dispersing scare expertise. There are advantages and disadvantages either way. The danger is that we end up oscillating between the two suboptimal arrangements in a fruitless attempt to find a simple organisational solution to a complex management problem.

Be that as it may, the Committee’s proposal deserves to be considered on its merits. The trouble is that it’s not entirely clear what’s envisaged in key aspects. Here are some points that need to be clarified before any implementation should be considered. (end of excerpt)

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for the full post, on the ASPI website.

Procurement Procedures for Defence Capital Projects

(Source: Australian Senate Foreign Affairs, Defence and Trade Committee; issued Aug. 28, 2012)

Defence's projects for acquiring major capital equipment face an array of internal and external forces and influences that create significant difficulties for the organisation. Indeed, such projects are of a scale and complexity that they present 'formidable and ever-increasing challenges'. The problems identified in defence procurement, however, are largely a function of the organisation's own making—unintentionally self-inflicted. In effect, Defence has a flawed management structure that stymies the work of dedicated, professional and in many cases highly skilled personnel.

Current management structure

The committee finds that the current management structure in Defence has produced an organisation that lacks a robust risk management regime: an organisation where its personnel are insensitive or unresponsive to risk, where no one owns risk. Defence is also an organisation that seems incapable of learning from past mistakes. This inability to learn from earlier project mishaps is particularly salient. Senior officers in Defence may well argue that the failures noted in this report are drawn from history: but if the organisation cannot or will not apply lessons from previous projects to current and future ones then it is destined to repeat them. The challenge for Defence is to change an organisational structure with entrenched attitudes that despite repeated reforms has:

-- a growing disconnect between strategic guidance and capability development with the current foundation document—the 2009 Defence White Paper—setting an unrealistic and unachievable acquisition program for the Australian Defence Force's (ADF) future capability;
-- a culture of non-compliance with policy and guidelines; where personnel get 'bogged down' with too much paper work, produce a 'certain amount of nugatory work' and 'miss the important things going on';
-- confused or blurred lines of responsibility;
-- accountability that is too diffuse to be effective—the organisation is unable or unwilling to hold people to account;
-- a poor alignment of responsibility due to an excessive number of groups and agency functions, which gives rise to unhealthy management and organisational relationships—for example capability managers sidelined from active participation in an acquisition;
little understanding or appreciation of the importance of contestability and a mindset that simply cannot, or refuses to, comprehend the meaning of 'independent advice';
-- a 'One Defence' view that does not produce an integrated enterprise: Defence remains an organisation composed of separate groups working to their own agendas;
-- difficulty attracting and retaining people with the required level of skill and experience to support acquisition activities, particularly engineering, which over the past 15 years or more has atrophied most notably with the hollowing out of technical skills in Navy; and
-- yet to engage actively with industry as a collaborative partner in capability development and acquisition and to achieve the status of intelligent customer.

Need for structural reform

The recommendations in this report take account of Defence's attempts to remedy shortcomings. They also recognise that Defence has made efforts to change while simultaneously attempting to comply with multiple reform agendas arising from a string of government reviews and directives. The key recommendations deal with much needed organisational change directed at achieving the correct alignment of responsibilities and functions of relevant agencies, and providing them with the skills and resources they need to fulfil their obligations. They underscore the importance of Defence becoming a self-critical, self-evaluating and self-correcting organisation.

More specifically, the recommendations are intended to:

-- return responsibility to capability managers, including for financial management, and make them accountable for decision-making and performance under their areas of authority;
-- make the Defence Materiel Organisation (DMO) a streamlined and specialist acquisition agency;
-- inject real contestability into decision-making and guarantee that the government is provided with independent advice from key agencies—Defence Science and Technology Organisation (DSTO), DMO and technical experts; and
-- ensure that Defence's focus is on obtaining the right people with the right skills and experience and, importantly, matching their skills with the right job: that Defence also manages its skills base so that agencies complement their skill requirements and do not compete from the same pool of specialists.

New management model

The committee proposes a model that, after second pass decision, allocates one single point of accountability for every project to the relevant capability manager, supported by financial delegation and budget control. It reduces the role of the Capability Development Group (CDG) and DMO—producing savings and eliminating much overlap. It also reinforces the Kinnaird/Mortimer concept for internal independence for the purposes of genuine contestability, and minimises the waste of skill through inappropriate placement, duplication and misalignment of skills.

The committee's proposal also introduces a direct client/provider model with precise accountability and without any intermediaries. Under this model, the DMO would become a contract and project management specialist supporting the capability manager at relevant points in the acquisition and sustainment cycles.

This model would remove the unnecessary layers of current vested interests and streamline the process through a single point of accountability. In short, it is a greatly simplified model aided by significant streamlining. It builds on the strengths of accountability in the services (as identified by the Black Review) and seeks to harness the learning and potential for alignment across the three services envisaged with the creation of the Defence Acquisition Organisation (DAO) and DMO.

Click here
for the full report (364 pages in PDF format) on the Australian Parliament website.