Audit snapshot

What is the purpose?

  • The MPR is an annual review of the Department of Defence’s major defence equipment acquisitions, undertaken at the request of the Parliament’s Joint Committee of Public Accounts and Audit (JCPAA).
  • Its purpose is to provide information and assurance to the Parliament on the performance of selected acquisitions.
  • This year, it includes 25 major projects.
  • This is the 13th Major Projects Report since its commencement in 2007–08.

What did we find?

  • The Auditor–General concluded:

Based on the procedures I have performed and the evidence I have obtained, nothing has come to my attention that causes me to believe that the information in the 25 Project Data Summary Sheets in Part 3 (PDSSs) and the Statement by the Secretary of Defence, excluding the forecast information, has not been prepared in all material respects in accordance with the 2019–20 Major Projects Report Guidelines, as endorsed by the JCPAA.

What is reviewed?

The Department of Defence prepares Project Data Summary Sheets (PDSS) on selected major defence equipment acquisition projects in accordance with guidelines endorsed by the Joint Committee of Public Accounts and Audit.

The ANAO reviews the information in the PDSSs in accordance with the ANAO Auditing Standards specified by the Auditor-General under the Auditor-General Act 1997.

The PDSSs cover:

  1. Project background and government approvals
  2. Financial performance
  3. Schedule performance
  4. Delivery against agreed scope
  1. Risks and issues
  2. Project maturity
  3. Lessons learned by the project
  4. Management accountability for the project

$78.7bn

is the value of the 25 Defence Major Projects reviewed.

5 of 25

Defence Major Projects experienced in-year schedule slippage.

98%

is the expected delivery against agreed scope across the 25 Major Projects.

Due to the complexity of material and the multiple sources of information for the 2019–20 Major Projects Report, we are unable to represent the entire document in HTML. You can download the full report in PDF or view selected sections in HTML below. PDF files for individual Project Data Summary Sheets (PDSS) are also available for download.

!Part 1. ANAO Review and Analysis

Summary and Review Conclusion

About the Major Projects Report

1. The Department of Defence’s (Defence) major defence equipment acquisition projects (Major Projects) continue to be the subject of parliamentary and public interest. This is due to their high cost and contribution to national security, the challenges involved in completing them within the specified budget and schedule, and to the required capability, and their contribution to industrial and employment policy objectives.

2. The Major Projects Report (MPR) comprises Defence information and commentary on selected Major Projects, and assurance and analysis of that information by the Australian National Audit Office (ANAO). The objective of the MPR is ‘to improve the accountability and transparency of Defence acquisitions for the benefit of Parliament and other stakeholders.’ 1

3. The ANAO has reviewed information provided by Defence regarding 25 of its Major Projects in this thirteenth annual report (2018–19: 26). In February 2012, the Parliament’s Joint Committee of Public Accounts and Audit (JCPAA) identified this review as a ‘Priority Assurance Review’, under subsection 19A(5) of the Auditor‐General Act 1997 (the Act), allowing the ANAO full access to the information gathering powers under the Act.

4. Defence’s Capability Acquisition and Sustainment Group (CASG) manages the process of bringing new defence capabilities into service and providing information for ANAO review as part of the MPR process. As at 30 June 2020, CASG was managing 206 active major and minor capital equipment projects worth $130.5 billion2, with an in-year budget of $8.7 billion.3 Defence capitalised some $8.8 billion from these projects in 2019–20.4

5. The 2020 Defence Strategic Update adjusted some of the strategic policy objectives of the 2016 Defence White Paper and foreshadowed that the Defence Budget will grow over the next ten years to $73.7 billion in 2029–30, with total funding over the decade of $575 billion (including approximately $270 billion of investment in Defence capability).5 6

Major Projects selected for review

6. Major Projects are selected for inclusion in the MPR based on the criteria included in the 2019–20 Major Projects Report Guidelines (the Guidelines), as endorsed by the JCPAA.7 They represent a selection of the most significant Major Projects managed by CASG.

7. The total approved budget for the Major Projects included in this report is approximately $78.7 billion, covering 60 per cent of the total budget of active major and minor capital equipment projects of $130.5 billion.8 The selected projects are listed in Table 1.

Table 1: 2019–20 MPR projects and approved budgets at 30 June 2020 1, 2

Project Number (Defence Capability Plan)

Project Name (on Defence advice)

Abbreviation (on Defence advice)

Approved Budget $m

AIR 6000 Phase 2A/2B

New Air Combat Capability 3

Joint Strike Fighter

16,631.3

SEA 4000 Phase 3

Air Warfare Destroyer Build 3

AWD Ships

9108.9

SEA 5000 Phase 1

Future Frigates

Future Frigates

6291.8

SEA 1000 Phase 1B

Future Submarines Design Acquisition 3

Future Subs

5925.8

LAND 400 Phase 2

Combat Reconnaissance Vehicles 3

Combat Recon. Vehicles

5761.7

AIR 7000 Phase 2B

Maritime Patrol and Response Aircraft System

P-8A Poseidon

5362.4

AIR 9000 Phase 2/4/6

Multi-Role Helicopter 3

MRH90 Helicopters

3773.9

SEA 1180 Phase 1

Offshore Patrol Vessel 3

Offshore Patrol Vessel

3701.4

AIR 5349 Phase 3

EA-18G Growler Airborne Electronic Attack Capability

Growler

3505.9

LAND 121 Phase 3B

Medium Heavy Capability, Field Vehicles, Modules and Trailers 3

Overlander Medium/Heavy

3398.6

AIR 9000 Phase 8

Future Naval Aviation Combat System Helicopter

MH-60R Seahawk

3219.3

LAND 121 Phase 4

Protected Mobility Vehicle – Light (PMV-L) 3

Hawkei

1987.5

AIR 8000 Phase 2

Battlefield Airlift – Caribou Replacement 3

Battlefield Airlifter

1439.2

AIR 7000 Phase 1B

MQ-4C Triton Remotely Piloted Aircraft System

MQ-4C Triton

1311.4

SEA 1654 Phase 3

Maritime Operational Support Capability

Repl Replenishment Ships

1084.7

AIR 5431 Phase 3

Civil Military Air Management System 3

CMATS

975.6

LAND 200 Tranche 2

Battlefield Command System 3

Battlefield Command System

969.7

JP 2072 Phase 2B

Battlespace Communications System Phase 2B

Battle Comm. Sys. (Land) 2B

947.1

SEA 1439 Phase 5B2

Collins Class Communications and Electronic Warfare Improvement Program

Collins Comms and EW

610.7

SEA 3036 Phase 1

Pacific Patrol Boat Replacement

Pacific Patrol Boat Repl

504.3

LAND 53 Phase 1BR

Night Fighting Equipment Replacement

Night Fighting Equip Repl

446.7

SEA 1439 Phase 3

Collins Class Submarine Reliability and Sustainability 4

Collins R&S

445.8

SEA 1442 Phase 4

Maritime Communications Modernisation

Maritime Comms

444.0

SEA 1448 Phase 4B

ANZAC Air Search Radar Replacement

ANZAC Air Search Radar Repl

429.4

JP 2008 Phase 5A

Indian Ocean Region UHF SATCOM

UHF SATCOM

422.1

Total

25

 

 

78,699.2

     

Note 1: The 2019–20 MPR Guidelines, at Part 4 of this report, include 30 projects. Subsequent to endorsement of the 2019–20 MPR Guidelines in September 2020, five projects were removed from the MPR based on the low-risk nature of the remaining activities to FOC. Once a project is selected for review, it remains within the portfolio of projects under review until the JCPAA endorses its removal, normally once it has met the capability requirements of Defence.

Note 2: SEA 5000 Phase 1 Future Frigates, SEA 1000 Phase 1B Future Submarines Design Acquisition, LAND 400 Phase 2 Combat Reconnaissance Vehicles, AIR 7000 Phase 1B and LAND 200 Tranche 2 Battlefield Command System are included in the MPR for the first time in 2019–‍20.

Note 3: These projects have been the subject of individual performance audits. See Table 7 for more information.

Note 4: SEA 1439 Phase 3 Collins Class Submarine Reliability and Sustainability is a group of 24 activities primarily sustainment in nature. While not an acquisition project, it has been included at the JCPAA’s request.

Source: The Project Data Summary Sheets in Part 3 of this report.

Engagement objective and scope

8. The objective of this assurance engagement and related procedures is to provide the Auditor-General’s independent assurance over the status of the selected Major Projects. The status of the selected Major Projects is reported in the Statement by the Secretary of Defence (see Part 3 of this report) and the Project Data Summary Sheets (PDSSs) prepared by Defence (see Part 3 of this report). Assurance from the ANAO’s review is conveyed in the Independent Assurance Report by the Auditor-General (see Part 3 of this report).

9. The following forecast information found in the PDSSs is excluded from the scope of the ANAO’s review:

  • Section 1.2 Current Status—Materiel Capability Delivery Performance, and Section 4.1—Measures of Materiel Capability Delivery Performance;
  • Section 1.3 Project Context—Major Risks and Issues, and Section 5—Major Risks and Issues; and
  • forecast dates where included in each PDSS.

10. Accordingly, the Auditor-General’s Independent Assurance Report does not provide any assurance in relation to this information. However, material inconsistencies identified in relation to this information are required to be considered in forming the Auditor-General’s conclusion.

11. The exclusions to the scope of the review, noted above, are due to a lack of Defence systems from which to provide complete and accurate evidence9 in a sufficiently timely manner to facilitate the review. This has been an area of focus of the JCPAA over a number of years10, and it is intended that all components of the PDSSs will eventually be included within the scope of the ANAO’s review.

12. Separate to the formal assurance review, the ANAO has undertaken an analysis of key elements of the PDSSs—including cost, schedule, progress towards delivery of required capability, project maturity, and risks and issues. Longitudinal analysis across these key elements of projects has also been undertaken.

13. Defence provides further insights and context in its commentary and analysis contained in Part 2. This commentary and analysis is not included within the scope of the ANAO’s review.

Review methodology

14. The criteria for Defence’s preparation of information for ANAO review are provided by the Guidelines approved by the JCPAA. There is an expectation that Defence has procedures in place designed to ensure that project information and data was recorded in a complete and accurate manner, for all 25 projects.

15. The ANAO has reviewed the PDSSs prepared by Defence as a priority assurance review under subsection 19A(5) of the Auditor-General Act 1997 (the Act), allowing the ANAO full access to the information gathering powers under the Act. The ANAO’s review provides limited assurance and was undertaken in accordance with the applicable Auditing Standards. The ANAO’s review included an assessment of Defence’s systems and controls, including the governance and oversight in place, to ensure appropriate project management. The ANAO also sought representations and confirmations from Defence senior management and industry (through Defence) in relation to the status of the Major Projects in this report.

Report structure

16. The report is organised into four parts:

  • Part 1 comprises the ANAO’s review and analysis (pp. 1–70);
  • Part 2 comprises Defence’s commentary, analysis and appendices (not included within the scope of the Independent Assurance Report by the Auditor-General) (pp. 71–116);
  • Part 3 incorporates the Independent Assurance Report by the Auditor-General, the Statement by the Secretary of Defence, and the PDSSs prepared by Defence as part of the assurance review process (pp. 117–368); and
  • Part 4 reproduces the 2018–19 Major Projects Report Guidelines endorsed by the JCPAA, which provide the criteria for the compilation of PDSSs by Defence (pp. 369–396).

Figure 1, below, depicts the four parts of this report.

Figure 1: 2019–20 Report structure

2019–20 Report structure

Note: To assist in conducting inter-report analysis, the presentation of data in the PDSSs remains largely consistent and comparable with the 2018–19 MPR.

Project Data Summary Sheets

17. The PDSSs include unclassified information on project performance, prepared by Defence.11 As projects generally appear in the MPR for multiple years, changes to the PDSS from the previous year are depicted in bold orange text in the PDSS.

18. Each PDSS comprises:

  • Project Header: including name; capability and acquisition type; Capability Manager; approval dates; total approved and in-year budgets; stage; complexity; and an image;
  • Section 1—Project Summary: including description; current status including financial assurance and contingency statement; and context, including background, uniqueness, major risks and issues, and other current sub-projects;
  • Section 2—Financial Performance: including budgets and expenditure; variances; and major contracts in place (in addition to quantities delivered as at 30 June 2020);
  • Section 3—Schedule Performance: providing information on design development; test and evaluation; and forecasts and achievements against key project milestones, including Initial Materiel Release (IMR), Final Materiel Release (FMR)12, Initial Operational Capability (IOC) and Final Operational Capability (FOC)13;
  • Section 4—Materiel Capability Delivery Performance: provides a summary of Defence’s assessment of its expected delivery of key capabilities, the extent to which milestones were achieved (particularly where caveats are placed on the Capability Manager’s declaration of significant milestones), and a description of the constitution of each key milestone;
  • Section 5—Major Risks and Issues: outlines the major risks and issues of the project and remedial actions undertaken for each;
  • Section 6—Project Maturity: provides a summary of the project’s maturity, as defined by Defence14, and a comparison against the benchmark score;
  • Section 7—Lessons Learned: outlines the key lessons that have been learned at the project level (further information on lessons learned by Defence is included in Defence’s Appendix 6 in Part 2 of this report); and
  • Section 8—Project Line Management: details current project management responsibilities within Defence.

The role of the Joint Committee of Public Accounts and Audit

19. The JCPAA has taken an active role in the development and review of the MPR program. Each year, the Committee considers the draft Guidelines, incorporating the selection of projects for review, and provides the Committee’s views in relation to the Guidelines’ content and development, prior to their endorsement. Following endorsement by the Committee, the Guidelines provide the criteria for Defence’s preparation of PDSSs for ANAO review. The main changes to the MPR Guidelines have tended to follow on from the JCPAA’s recommendations.15

20. The main change to the MPR Guidelines this year was amending the entry criteria to include the Future Subs project.16 This was in response to the JCPAA’s interest in including major naval shipbuilding projects in the MPR due to their large size and complexity.

Overall outcomes

Statement by the Secretary of Defence

21. The Statement by the Secretary of Defence was signed on 20 November 2020. The Secretary’s statement provides his opinion that the PDSSs for the 25 selected projects ‘comply in all material respects with the Guidelines and reflect the status of the projects as at 30 June 2020’.

22. In addition, the Statement by the Secretary of Defence details significant events occurring post 30 June 2020, which materially impact the projects included in the report, and which should be read in conjunction with the individual PDSSs. These include: Joint Strike Fighter, Future Subs, Combat Recon. Vehicles, P-8A Poseidon, MRH90 Helicopters, Hawkei, Repl Replenishment Ships, Battlefield Command System, Battle Comm. Sys. (Land) 2B, Collins Comms and EW, Pacific Patrol Boat Repl, Night Fighting Equip Repl, Maritime Comms, and ANZAC Air Search Radar Repl.

23. The 2019–20 MPR Guidelines require Defence to report in the Statement by the Secretary of Defence on projects which have been removed from the MPR which still have outstanding caveats, significant remaining materiel capability or milestones to be delivered. Defence has reported on outstanding caveats in the 2019–20 Statement by the Secretary of Defence.

Conclusion by the Auditor-General

24. The Auditor-General has concluded in the Independent Assurance Report for 2019–20 that ‘nothing has come to my attention that causes me to believe that the information in the 25 Project Data Summary Sheets in Part 3 (PDSSs) and the Statement by the Secretary of Defence, excluding the forecast information, has not been prepared in all material respects in accordance with the 2019–20 Major Projects Report Guidelines (the Guidelines), as endorsed by the Joint Committee of Public Accounts and Audit.’

Key observations from the review

25. The ANAO’s review includes Defence’s project management and reporting arrangements contributing to the overall governance of Major Projects. The ANAO has made observations regarding the following areas:

Status of JCPAA Recommendations and Requests
  • Following a JCPAA recommendation made in September 201817, Defence advised the Committee in May 2020 that Predict! will be mandated as the risk management system.18 Defence advised the ANAO in October 2020 that there have been no updates to Defence policy to reflect that Predict! is now the mandated risk management tool. An update to Defence’s policy is expected in May 2021 (see paragraphs 1.66 to 1.68).
  • Following JCPAA recommendations made in May 2016 and October 201719, Defence considered updates to the Project Maturity Score policy, but did not implement changes. Defence advised the ANAO in August 2020 that the Project Maturity Score will no longer be required as an input to the management of project performance. Defence further advised that an alternative to replace the Project Maturity Score in the PDSS will not be implemented. Therefore project maturity will not be reported in future MPRs (see paragraphs 1.71 to 1.72).
  • Following JCPAA recommendations made in May 2014 and May 201620, Defence is yet to implement a system of materiel capability delivery performance/scope reporting, with a robust methodology applicable to materiel acquisition (see paragraphs 2.54 to 2.59).
  • Following a JCPAA request made in 201821 ‘on how Defence major project cost variations and the costs of retaining project staff over time might be reported annually in future Major Projects Reports,’ Defence advised that it is not yet in a position to provide the staff cost component of projects and its systems are not capable of calculating the cost of retaining project staff over time (see paragraph 1.51 and paragraphs 1.53 to 1.56).
Status of Auditor-General Report Recommendations
  • In July 2020 Defence closed both recommendations from Auditor-General Report No. 31 2018–19 Defence’s Management of its Projects of Concern (see paragraphs 1.15 to 1.16).
  • Defence closed the recommendation from Auditor-General Report No. 3 2019–20 Defence’s Quarterly Performance Report on Acquisition and Sustainment in March 2020 (see paragraphs 1.18 to 1.19).
Defence Acquisition Governance
  • The importance of capturing Government decisions in internal Defence documentation and ensuring that Materiel Acquisition Agreements are appropriately aligned with these decisions (see paragraphs 1.23 to 1.28).
  • Defence’s implementation of the Smart Buyer Framework to support strategic decision making in the acquisition of major projects. The framework was not utilised at the Second Pass government approval stage for projects in the current MPR (see paragraphs 1.29 to 1.30).
  • Defence has advised that it is transitioning to a different reporting system for reporting on the status of acquisition projects from August 2020 (see paragraphs 1.31 to 1.33).
  • Projects’ use of contingency funds (see paragraph 1.45). One project in the MPR, MRH90 Helicopters, committed contingency funds of $26.3 million in 2019–20 for supportability and performance risks.
  • The status of CASG’s Risk Management Reform Program (initiated by Deputy Secretary CASG in 2017) and establishment of the CASG Risk Management Framework (see paragraphs 1.59 to 1.62).
  • A number of projects had not fully met the requirements of Defence’s Project Risk Management Manual Version 2.5 (PRMM V2.5) (see paragraph 1.64).
  • Defence updated its policy on Lessons Learned in May 2020. Compliance is not expected until May 2021 (see paragraphs 1.73 to 1.75).
  • Defence has not defined, in its internal policies and procedures, the terms ‘caveat’ or ‘deficiency’ relating to the declaration of significant capability milestones. The ANAO has observed use of these terms by Defence to represent exceptions to the achievement of significant milestones (see paragraphs 1.76 to 1.80).

ANAO’s analysis of project performance

26. In addition to its limited assurance review, the ANAO has undertaken an analysis of key elements of the Defence PDSSs—relating to cost, schedule, progress towards delivery of required capability, project maturity, risks and issues, and longitudinal analysis across these key elements of projects.

27. Table 2 provides: summary data on Defence’s progress toward delivering the capabilities for the Major Projects covered in this report; and compares current data against that reported in previous editions of the MPR. This section also contains a summary analysis of the three principal components of project performance: cost, schedule and capability.

Table 2: Summary longitudinal analysis1

 

2017–18 MPR

2018–19 MPR

2019–20

MPR

Number of Projects

26

26

25

Total Approved Budget at 30 June

$59.4 billion

$64.1 billion

$78.7 billion

Total Approved Budget at final Second Pass Approval

$50.2 billion

$53.9 billion

$68.9 billion

Total Expenditure Against Total Approved Budget

$32.4 billion (54.5%)

$36.3 billion (56.6%)

$38.9 billion (49.4%)

Total In-year Expenditure Against In-year Budget

$4.6 billion (98.6%)

$4.8 billion (93.4%)

$5.7 billion (92.5%)

Total Budget Variation since initial Second Pass Approval 2

$23.0 billion (38.7%)

$24.4 billion (38.0%)

$24.2 billion (30.7%)

Total Budget Variation since final Second Pass Approval 3

$9.2 billion (15.5%)

$10.2 billion (15.9%)

$9.8 billion (12.5%)

In-year Approved Budget Variation

-$0.3 billion (-0.5%)

$1.2 billion (1.9%)

$0.1 billion (0.1%)

Total Schedule Slippage 4

771 months (31%)

651 months (25%)

507 months (21%)

Average Schedule Slippage across Projects 4a

31 months

25 months

22 months

In-year Schedule Slippage

103 months (4%)

92 months (4%)

68 months (3%)

Total Project Maturity 5

1484 / 1820 (82%)

1485 / 1820 (82%)

1301 / 1750 (74%)

Total Reported Risks and Issues 6, 7

138

138

142

Expected Capability (Defence Reporting) 8

  • High level of confidence of delivery (Green)

98%

98%

98%

  • Under threat, considered manageable (Amber)

2%

2%

2%

  • Unlikely to be met (Red)

0%

0% 9

0% 9

    

Refer to paragraphs 26 to 41 in Part 1 of this report.

Note 1: The data for the 25 Major Projects in the 2019–20 MPR compares the data from projects in the 2018–19 MPR and 2017–18 MPR. The Major Projects included within each MPR are based on entry and exit criteria in the Guidelines, which have been included in Part 4 of this report. The entry and exit of projects should be considered when comparing data across years.

Note 2: Where a project has multiple Second Pass Approvals, the MPR has historically reported budget variations from the initial Second Pass Approval. The figures in this row are consistent with prior year reporting. See Table 3 for a breakdown of the major components of this variance, and Table 7 for all real variations.

Note 3: Where a project has multiple Second Pass Approvals, the budget at Second Pass Approval reported in the Header refers to the total budget as at the final Second Pass Approval. The figures in this row use this methodology.

Note 4: Slippage refers to a delay in the current forecast date compared to the original government approved date of FOC. Slippage can occur due to late delivery, increases in scope or at times can be a deliberate management decision. In 2019–20, these figures have been adjusted to exclude delays to a project’s schedule that do not result in slippage past the original government approved date, and to exclude schedule reductions over the life of the project. However, paragraph 2.40 reports total schedule reductions over the life of the projects.

Note 4a: As shown in Table 4 below and Table 10 on p. 66 of this report, for the fourteen 2019–20 major projects which have experienced slippage, the range is 1 to 108 months of total slippage.

Note 5: The figures represent the total of the reported maturity scores divided by the total benchmark maturity score, in the PDSSs across all projects.

Note 6: The grey section of the table is excluded from the scope of the ANAO’s priority assurance review, due to a lack of systems from which to obtain complete and accurate evidence in a sufficiently timely manner to facilitate the review.

Note 7: The figures represent the combined number of open ‘high’ and ‘extreme’ risks and issues reported in the PDSSs across all projects. Risks and issues may be aggregated at a strategic level.

Note 8: These figures represent the average predicted capability delivery across all of the Major Projects. This method reduces the effect of any individual project’s size on the aggregate figure. Previously, these figures were calculated based on the number of distinct capability measures defined by each project and therefore projects with more capability measures had more of an effect on the aggregate figure.

Note 9: Defence advised in these years that AWD Ships would not deliver one element of capability at FOC (which equated to approximately one per cent). However, across all the Major Projects this percentage rounded to zero per cent.

Cost

28. Cost management is an ongoing process in Defence’s administration of the Major Projects. While all projects reported that they could continue to operate within the total approved budget of $78.7 billion, the MRH90 Helicopters project was required to draw upon contingency funds to complete project activities.

29. The approved budget for Major Projects included in this MPR has increased by $24.2 billion (30.7 per cent) since initial Second Pass Approval. Budget variations greater than $500 million are detailed in Table 3, below.22 However, as the MPR predominantly focusses on the approved capital budget for acquisition, the ongoing costs of Project Offices23, training, replacement capability, etc., are not reported here.

Table 3: Budget variation over $500m post initial Second Pass Approval by variation type 1, 2

Project

Variation Type

Explanation

Year

Amount $b

 

Scope Increases

 

 

 

14.1

MRH90 Helicopters

 

34 additional aircraft at Phase 4/6 Second Pass Approval

2005–06

2.3

 

Joint Strike Fighter

 

58 additional aircraft at Stage 2 Second Pass Approval

2013–14

10.5

 

P-8A Poseidon

 

Four additional aircraft

2015–16

1.3

 

 

Real Cost and other Increases

 

 

 

1.8

AWD Ships

 

Real Cost Increase of $1.2b offset by $0.1b transfer for facilities in 2014

2013–14 and 2015–16

1.1

 

Overlander Medium/Heavy

 

Project supplementation3 ($684.2m) and additional vehicles, trailers and equipment ($28.0m) at Revised Second Pass Approval

2013–14

0.7

 

 

Other budget movements

 

 

 

1.2

Other

Scope increase/budget transfers (net)

Other scope changes and transfers

Various

1.2

 

 

Price Indexation – materials and labour (net) (to July 2010) 4

 

2.3

Exchange Variation – foreign exchange (net) (to 30 June 2020)

 

5.0

 

Total

24.2 5

        

Note 1: For the variations related to all projects and their value, refer to Table 7 of this report. For the breakdown of in-year variation, refer to Table 8 of this report.

Note 2: For projects with multiple Second Pass Approvals, this table shows variations from the initial approval.

Note 3: Defence has advised that ‘project supplementation’ is a unique term used to describe the approvals history of this project as follows: ‘The original amount of $2549.2, was the Government decision to split Phase 3 into Phase 3A and 3B. In 2011, Government approved Second Pass approval of Phase 3A and the ‘Interim Pass’ Government approval for Phase 3B. The decision to grant Phase 3B ‘Interim Pass’ was to allow greater bargaining power for Defence while negotiating Phase 3A. Phase 3B was always going to return to Government for formal Second Pass approval, which occurred in July 2013, once contract negotiations were complete.’

Note 4: Prior to 1 July 2010, projects were periodically supplemented for price indexation, whereas the allocation for price indexation is now provided for on an out-turned basis at Second Pass Approval.

Note 5: Figures do not add precisely due to rounding.

Source: ANAO analysis of the 2019–20 PDSSs.

Schedule

30. Delivering Major Projects on schedule continues to present challenges for Defence, affecting when the capability is made available for operational release and deployment by the Australian Defence Force, as well as the cost of delivery.

31. The total schedule slippage for the 25 selected Major Projects, as at 30 June 2020, was 507 months when compared to the initial schedule.24 This represents a 21 per cent increase since Second Pass Approval. Across MPR projects that have experienced slippage (14 of 23 projects with approved FOC dates25), the average slippage is 36.2 months (3.0 years). Table 4 below includes details of in-year and total schedule slippage by project. The table shows an increase of 68 months of in-year slippage during 2019–20.

32. The total slippage of 507 months in 2019–20 is 144 months lower than the total in 2018–19 of 651 months. This is due to:

  • the exclusion of projects which have exited the MPR (LHD Ships, Additional MRTT, ANZAC ASMD 2B, HATS, Battle Comm. Sys. (Land) 2A, and LHD Landing Craft) removing 218 months of slippage from the total reported in 2018–19 (see Table 5);
  • a reduction of 6 months of slippage due to the Collins Comms and EW project recovering this slippage in 2019–20;
  • the addition of 68 months of in-year slippage described above; and
  • the Battlefield Command System project adding 12 months of slippage to the total of 507 months. The slippage occurred prior to the project entering the MPR in 2019–20.

Table 4: Schedule slippage from original planned Final Operational Capability 1

Project

In-year (months)

Total (months)

Project

In-year (months)

Total (months)

Joint Strike Fighter 2

0

0

MQ-4C Triton 2

43

43

AWD Ships

0

37

Repl Replenishment Ships 2

0

0

Future Frigates 2, 3

N/A

N/A

CMATS 2

6

34

Future Subs 3

N/A

N/A

Battlefield Command System 2

4

16

Combat Recon. Vehicles

0

0

Battle Comm. Sys. (Land) 2B

0

24

P-8A Poseidon

0

29

Collins Comms and EW

0

30

MRH90 Helicopters

0

89

Pacific Patrol Boat Repl

0

2

Offshore Patrol Vessel

0

0

Night Fighting Equip Repl

0

0

Growler

0

1

Collins R&S

0

108

Overlander Medium/Heavy

0

0

Maritime Comms

3

16

MH-60R Seahawk

0

0

ANZAC Air Search Radar Repl

0

0

Hawkei 2

0

0

UHF SATCOM 2

0

42

Battlefield Airlifter 2

12

36

 

 

 

 

 

 

Total (months)

68

507

 

 

 

Total (%)

3

21

      

Note 1: Refer to footnote 24.

Note 2: These projects have been identified by Defence as Projects of Interest (see paragraph 1.21 in Part 1).

Note 3: These projects’ FOC milestones are yet to be approved by Government.

Source: ANAO analysis of the 2019–20 PDSSs.

33. Platform availability has contributed to the slippage experienced within some projects. For example, Maritime Comms and Collins R&S have been impacted by changes to docking schedules of the Anzac Class frigates and Collins Class submarines respectively. Significant delays have also been experienced by those projects with the most developmental content: AWD Ships, MRH90 Helicopters, CMATS, MQ-4C Triton, and Battle Comm. Sys. (Land) 2B.

34. Table 5, below, provides details of total schedule slippage by project, for projects which have exited the MPR. Compared to the 507 months total schedule slippage for the current 23 Major Projects26, the 27 projects which have exited the MPR27 have reported accumulated schedule slippage of 1146 months, as at their respective exit dates. Table 5 indicates that schedule slippage for projects which have exited the MPR was more pronounced in projects with the most developmental content.

Table 5: Schedule slippage for projects which have exited the MPR 1

Project

Total (months)

Project

Total (months)

Wedgetail (Developmental)

77

HF Modernisation (Developmental)

136

Super Hornet (MOTS)

0

Armidales (Australianised MOTS)

43

LHD Ships (Australianised MOTS)

37

HATS (Australianised COTS)

0

Hornet Upgrade (Australianised MOTS)

39

Collins RCS (Australianised MOTS)

107

ARH Tiger Helicopters (Australianised MOTS)

82

Battle Comm. Sys. (Land) 2A (MOTS)

39

C-17 Heavy Airlift (MOTS)

0

Hw Torpedo (MOTS)

61

Air to Air Refuel (Developmental)

64

SM-2 Missile (Australianised MOTS)

26

FFG Upgrade (Developmental)

132

ANZAC ASMD 2A (Australianised MOTS)

80

Bushmaster Vehicles (Australianised MOTS)

1

155mm Howitzer (MOTS)

7

Overlander Light (Australianised MOTS)

4

Stand Off Weapon (Australianised MOTS)

37

Additional MRTT (Australianised MOTS)

21

Battle Comm. Sys. (Australianised MOTS)

24

Next Gen Satellite 2 (MOTS)

0

C-RAM (MOTS)

2

ANZAC ASMD 2B (Developmental)

75

LHD Landing Craft (Australianised MOTS)

46

Additional Chinook (MOTS)

6

 

 

Total 

 1146

    

Note 1: The Hornet Refurb and Battle Management System (BMS) projects are not included in this table as they did not have FOC milestones.

Note 2: Next Gen Satellite shows slippage in Figure 9, which related to the final capability milestones at the time. By the time it reached FOC, a new final capability milestone had been introduced and slippage was reduced.

Source: PDSSs in Major Projects Reports and ANAO analysis.

35. Additional ANAO analysis (refer to Figure 8, on page 59) has compared project slippage against the Defence classification of projects as Military Off-The-Shelf (MOTS), Australianised MOTS or developmental. These classifications are a general indicator of the difficulty associated with the procurement process.

36. Figure 9 (on page 60) provides analysis of projects either completed, or removed from the MPR review, and shows that a focus on MOTS28 acquisitions has assisted in reducing schedule slippage. Prima facie, the more developmental in nature a project is, the more likely it will result in a greater degree of project slippage. Figure 9 was requested by the JCPAA in May 2014.29

37. Longitudinal analysis indicates that while the reasons for schedule slippage vary, it primarily reflects the underestimation of both the scope and complexity of work, particularly for Australianised MOTS and developmental projects (see paragraphs 2.27 to 2.34).

Capability

38. The third principal component of project performance examined in this report is progress towards the delivery of capability required by government. While the assessment of expected capability delivery by Defence is outside the scope of the Auditor-General’s formal review conclusion, it is included in the analysis to provide an overall perspective of the three principal components of project performance.

39. The Defence PDSSs report that 19 projects in this year’s report will deliver all of their key capability requirements. Defence’s assessment indicates that some elements of the capability required may be ‘under threat’, but the risk is assessed as ‘manageable’. The five project offices experiencing challenges with expected capability delivery (2018–19: five) are Joint Strike Fighter, MRH90 Helicopters, Hawkei, Battlefield Command System and Battlefield Airlifter. One project office (AWD Ships) reports that it is unable to deliver all of the required capability by FOC.

40. Table 6, below, summarises expected capability delivery as at 30 June 2020, as reported by Defence.

Table 6: Capability delivery

Expected Capability
(Defence Reporting)

2017–18 MPR (%)

2018–19 MPR (%)

2019–20 MPR (%)

High Confidence (Green)

98

98

98

Under Threat, considered manageable (Amber)

2

2

2

Unlikely (Red)

0

1

1

Total

100

100

100

    

Note 1: Defence advised in these years that AWD Ships would not deliver one element of capability at FOC (which equates to approximately one per cent of elements required). However, across all the Major Projects this percentage rounds to zero.

Source: PDSSs in Major Projects Reports and ANAO analysis.

41. In addition to reporting on expected capability delivery, Defence has continued the practice of including in the PDSSs declassified information on contractual remedies for projects, including stop payments and liquidated damages. During 2019–20, Combat Recon. Vehicles, Hawkei and UHF SATCOM had negotiated contractual remedies involving stop payments or liquidated damages. Prior settlements for projects within this report related to MRH90 Helicopters, Hawkei, Pacific Patrol Boat Repl, Maritime Comms, and UHF SATCOM.

Impact of COVID-19 on the Major Projects

42. Sixteen of the 25 projects have reported experiencing an impact as a result of the COVID-19 pandemic in their PDSSs. The pandemic has seen projects reporting impacts to cost and schedule.

Cost

43. Six projects reported an impact on project budget as a result of the COVID-19 pandemic. A further two projects highlighted an impact to the budget as an emerging issue. Of the six projects that have reported impact to the budget, four experienced an underspend, citing varying reasons for this (delay to training and support, overseas suppliers, shipyard closures and international travel restrictions). Two projects experienced an overspend – one due to accelerated payment terms and the other citing FOREX losses. The remaining 19 projects did not report an impact to the project budget.

Schedule

44. Fifteen projects reported an impact on scheduling as a result of the COVID-19 pandemic, relating to:

  1. supplier disruption (supplier production and/or shipping delays);
  2. workforce limitations – travel (specialists and crew were due to travel both interstate and from other countries to work with/on the projects); and/or
  3. contractor delays (scope, delivery and certification delays).

    45. Some projects identified multiple impacts across these three areas. Ten projects reported nil impacts to scheduling.

    Capability

    46. No projects reported an impact relating to capability.

    47. Further information on COVID-19 impacts is reported in the Statement by the Secretary of Defence.

    1. The Major Projects Review

    1.1 This chapter provides the Australian National Audit Office’s (ANAO) overview of the scope and approach adopted for its limited assurance review of the 25 Project Data Summary Sheets (PDSSs) prepared by the Department of Defence (Defence). The chapter also includes information and commentary on developments in Defence’s acquisition governance processes, based on the ANAO’s review.

    Review scope and approach

    1.2 In 2012 the Parliament’s Joint Committee of Public Accounts and Audit (JCPAA) identified the ANAO’s review of Defence PDSSs as a priority assurance review, under subsection 19A(5) of the Auditor-General Act 1997 (the Act). This provided the ANAO with full access to the information gathering powers under the Act. The ANAO’s review of the individual project PDSSs, which are reproduced in Part 3 of the Major Projects Report (MPR), was conducted in accordance with the auditing standards set by the Auditor-General under section 24 of the Act through its incorporation of the Australian Standard on Assurance Engagements (ASAE) 3000 Assurance Engagements Other than Audits or Reviews of Historical Financial Information, issued by the Australian Auditing and Assurance Standards Board.

    1.3 The following forecast information is excluded from the scope of the ANAO’s review: capability delivery, risks and issues, and forecast dates. These exclusions are due to the lack of Defence systems from which to provide complete and accurate evidence30, in a sufficiently timely manner to complete the review. Accordingly, the Independent Assurance Report by the Auditor-General does not provide any assurance in relation to this information. However, material inconsistencies identified in relation to this information are required to be considered in forming the conclusion.

    1.4 The ANAO’s work is appropriate for the purpose of providing an Independent Assurance Report in accordance with the ANAO Auditing Standards. However, the review of individual PDSSs is based on a limited assurance approach and is not as extensive as individual performance and financial statement audits conducted by the ANAO, in terms of the nature and scope of issues covered, and the extent to which evidence is required by the ANAO. Consequently, the level of assurance provided by this review, in relation to the 25 major Defence equipment acquisition projects (Major Projects), is less than that provided by the ANAO’s program of performance and financial statement audits.

    1.5 Separately, the ANAO reviews: developments in Defence’s acquisition governance processes (information and commentary on governance issues appears in this chapter); and undertakes analysis of key elements of the PDSSs (information and commentary on systemic issues and longitudinal analysis for the 25 projects reviewed appears in the next chapter).

    1.6 The ANAO’s review was conducted in accordance with the ANAO Auditing Standards at a cost to the ANAO of approximately $2.0 million.31

    Review methodology

    1.7 The ANAO’s review of the information presented in the individual Defence PDSSs included:

    • examination and assessment of the governance and oversight in place to ensure appropriate project management;
    • an assessment of the systems and controls that support project financial management, risk management and project status reporting, within Defence;
    • an examination of each PDSS and the documents and information relevant to them;
    • a review of relevant processes and procedures used by Defence in the preparation of the PDSSs;
    • discussions with persons responsible for the preparation of the PDSSs and management of the projects;
    • analysis of project information, for example, cost and schedule variances;
    • taking account of industry contractor comments provided on draft PDSS information;
    • assessing the assurance by Defence managers attesting to the accuracy and completeness of the PDSSs;
    • examination of the representations by the Chief Finance Officer supporting the project financial assurance and contingency statements;
    • examination of confirmations, provided by the Capability Managers, relating to each project’s progress toward Initial Materiel Release (IMR), Final Materiel Release (FMR), Initial Operational Capability (IOC) and Final Operational Capability (FOC); and
    • examination of the Statement by the Secretary of Defence, including significant events occurring post 30 June, and management representations by the Secretary of Defence.

    1.8 The ANAO’s review of PDSSs also focused on project management and reporting arrangements contributing to the overall governance of the Major Projects. The ANAO considered:

    • developments in acquisition governance (see paragraphs 1.10 to 1.33, below);
    • the financial framework, particularly as it applies to the project financial assurance and contingency statements, and Defence’s advice that project financial reporting during 2019–20 would be prepared on the same basis as project approvals and expenditure represented in the Portfolio Budget Statements and the Defence Annual Report (i.e. on a cash basis) (see Section 2 of the PDSSs);
    • schedule management and test and evaluation processes (see Section 3 of the PDSSs);
    • materiel capability / scope delivery forecast assessments, including Defence statements of the likelihood of delivering key capabilities, particularly where caveats are placed on the Capability Manager’s declaration of significant milestones (see Section 4 of the PDSSs);
    • the changes due to Defence’s reform of the Defence Enterprise Risk Management Framework, and the completeness and accuracy of major risk and issue data (see Section 5 of the PDSSs);
    • the project maturity framework along with its related reporting and the systems in place to support the consistent and accurate application and the provision of this data (see Section 6 of the PDSSs); and
    • the impact of acquisition issues on sustainment to ensure the PDSS is a complete and accurate representation of the acquisition project.

    1.9 This review informed the ANAO’s understanding of the systems and processes supporting the PDSSs for the 2019–20 review period. It also highlighted issues in those systems and processes that warrant attention.

    Acquisition governance

    1.10 Consistent with previous years, the ANAO considered Defence’s Major Project acquisition governance processes when planning and conducting the review for the 2019–20 MPR. While some of these processes are now established, others continue to mature or require further development to achieve their intended impact.

    Defence Independent Assurance Reviews

    1.11 The Defence Independent Assurance Review (IAR) process provides the Defence Senior Executive with assurance that projects and products will deliver approved objectives and are prepared to progress to the next stage of activity. These management initiated reviews consider a project’s status while sufficient time remains for corrective action to be implemented.32, 33

    1.12 IARs are intended to commence at project initiation and are usually conducted on an annual basis through to FOC. They are an important input to key acquisition and sustainment decision points or milestones as defined in the Capability Life Cycle.34

    1.13 Sixteen of the 25 projects included in this report had an Independent Assurance Review conducted during 2019–2035, which formed key evidence for the ANAO’s review.36 Defence advised that there was a pause in the conduct of IARs in mid-2020 due to COVID-19.

    Projects of Concern

    1.14 The Projects of Concern process is intended to focus the attention of the highest levels of government, Defence and industry on remediating problem projects.37 As at 30 June 2020, one MPR project, MRH90 Helicopters, was a continuing Project of Concern. The project was placed on the list in November 2011 due to contractor performance relating to significant technical issues preventing the achievement of milestones on schedule.38 The project has progressed the materiel capability delivery relating to the cargo hook, mission troop seats and fast roping and rappelling. There remains an ongoing inability to meet materiel capability delivery milestones and performance criteria to do with the Taipan Gun Mount, aero-medical evacuation equipment and the Common Mission Management System.39 Final Operational Capability is scheduled for December 2021.

    1.15 Auditor-General Report No.31 2018–19, Defence’s Management of its Projects of Concern, assessed whether the Department of Defence’s Projects of Concern regime was effective in managing the recovery of underperforming projects. It concluded that, while the regime is an appropriate mechanism for escalating troubled projects to the attention of senior managers and ministers, Defence was not able to demonstrate the effectiveness of its regime in managing the recovery of underperforming projects. Moreover, the audit observed that the transparency and rigour of the framework’s application has declined in recent years. The audit recommended that:

    • Recommendation no.1: Defence introduce, as part of its formal policy and procedures, a consistent approach to managing entry to, and exit from, its Projects of Interest and Projects of Concern lists. This should reflect Defence’s risk appetite and be made consistent with the new Capability Acquisition and Sustainment Group Risk Model and other, Defence-wide, frameworks for managing risk. To aid transparency, the policy and the list should be made public.
    • Recommendation no.2: Defence evaluates its Projects of Concern regime.40

    1.16 In July 2020 Defence closed both these recommendations, advising that: CASG has developed a consistent approach to entry and exit from the Projects of Interest and Projects of Concern lists and the Projects of Concern list is publicly available; and CASG has evaluated the Projects of Concern regime and has effective assurance mechanisms in place, underpinned by Independent Assurance Reviews.

    Quarterly Performance Report

    1.17 The Defence Quarterly Performance Report (QPR) aims to provide senior stakeholders within government and Defence with insight into the delivery of capability to the Australian Defence Force.41 The report is provided to the Minister for Defence and the Minister for Defence Industry on a quarterly basis.42

    1.18 In July 2019, the ANAO completed an audit on the effectiveness of the QPR in providing senior stakeholders with accurate and timely information on the status and emerging risks and issues. It found the June 2018 QPR, reviewed by the ANAO, to be largely effective, contained mostly accurate information, and was valued by senior stakeholders.43 The ANAO recommended that Defence improve the QPR as a tool for senior leaders by reporting on:

    1. trend performance data for sustainment products; and
    2. emerging candidates for the Projects/Products of Concern list and Products/Projects of Interest list that have been recommended by an Independent Assurance Review or which are under active consideration by senior management.44

      1.19 In the course of its review for the 2018–19 MPR, the ANAO observed that Defence’s June 2019 QPR reported on both improved and deteriorated performance for both acquisition and sustainment products since the previous QPR. This reflected a change in trend reporting consistent with the agreed ANAO recommendation. The ANAO also observed that Defence’s June 2019 QPR reported the emerging candidates for the Projects/Products of Concern list and Products/Projects of Interest list which had been recommended either by an IAR or which were under active consideration. This change was also consistent with the agreed ANAO recommendation.45 Defence closed this recommendation in March 2020.

      1.20 The ANAO examines QPRs as part of the procedures for its limited assurance review of Defence’s PDSSs.46 For the 2019–20 review, the ANAO examined the four QPRs from September 2019 to June 2020.

      1.21 The June 2020 QPR identified nine MPR projects as Projects of Interest47:

      • Joint Strike Fighter—the QPR notes risks to the achievement of IOC in December 2020 due to the impacts of COVID-19, which have included delayed aircraft production, travel restrictions, the postponement of air exercises and the isolation of personnel.48
      • Future Frigates—due to size, complexity, risk-profile and media interest. The QPR notes that all scheduled activities have been progressing as planned, although some will need to be reassessed in light of COVID-19 restrictions.49
      • Hawkei—the QPR notes schedule risks due to COVID-19 which may impact Army’s ability to undertake the full range of operational test and evaluation activities, and operator and maintainer training, required to achieve IOC in December 2020.50
      • Battlefield Airlifter—Final Operational Capability (FOC) was not met in December 2019 and the QPR notes that ‘residual’ activities remain outstanding, including fleet fitment and certification of Mode 5 Identification Friend or Foe and remediation of the Missile Approach Warning System. Air Force expects to review the capability requirement and advise the Government of a revised capability definition and Final Operational Capability date, no later than December 2020.51
      • Repl Replenishment Ships (Maritime Operational Support Capability)—the QPR notes delays to delivery of both ships due to COVID-19, which has slowed construction progress and resulted in international travel restrictions, preventing Australian based contractors from travelling to Spain to complete their activities. There is no forecast delay to FOC.52
      • MQ-4C Triton, due to the United States Navy announcing a production funding suspension for its Triton program until 2023. The suspension will have capability, schedule and cost implications, and potential sustainment cost and capability impacts. The project is undergoing a fundamental review.53
      • Civil Military Air Traffic Management System (CMATS)—the QPR notes risks to schedule due to execution of design milestones, integration with related projects (procurement of digital radios and surveillance radars),and the ongoing need for Airservices Australia to implement cost saving changes agreed with Defence.54
      • Battlefield Command System—the QPR notes schedule risks due to vehicle integration issues.55
      • UHF SATCOM—the QPR notes that software rectification issues require attention.56, 57

      1.22 These ongoing issues for the Joint Strike Fighter, Future Frigates, Hawkei, Battlefield Airlifter, Repl Replenishment Ships, MQ-4C Triton, CMATS, Battlefield Command System and UHF SATCOM projects align with the results of the ANAO’s review of the PDSSs. Delays to progress have impacted the delivery schedule of Joint Strike Fighter, Battlefield Airlifter, MQ-4C Triton, CMATS and Battlefield Command System during 2019–2058 (see Table 4, on page 15).

      Project Directives and Materiel Acquisition Agreements

      1.23 Project Directives (previously known as Joint Project Directives) state the terms of government approval, reflecting the approved scope and timeframes for activities, responsibilities and resources allocated, and key risks and issues.59 Project Directives have historically been used to inform internal Defence documentation such as Materiel Acquisition Agreements (MAAs) between Capability Acquisition and Sustainment Group (CASG) and the Service Chiefs.60, 61 Project Directives had previously been described as a key governance document under the Capability Life Cycle62, intended to ensure that all parties in Defence are informed of Government decisions. Defence updated the Capability Life Cycle Manual in June 2020, which no longer refers to Project Directives as a key governance document. Defence has advised the ANAO that Government decisions are recorded in Defence’s Capability Lifecycle Management Tool, which records Government decisions in relation to a project. In some cases, the Joint Force Authority may provide a specific documented directive. The ANAO has previously highlighted the importance of ensuring that Project Directives properly reflect the relevant Government decision, and that MAAs are appropriately aligned with the relevant Project Directive.63

      1.24 Of the five new projects entering the 2019–20 MPR, the Future Frigates and MQ-4C Triton projects advised the ANAO that they had direct access to government approved documentation. The Future Subs, Combat Recon. Vehicles and Battlefield Command System projects advised that they did not have access to Government approvals through the Capability Life Cycle Management Tool. In November 2020, Defence advised the ANAO that ‘the internal Cabinet Liaison Services section provides advice to Defence in relation to information pertaining to Government approvals. Where a Project has not been identified as having a need to know, the Project can request access to relevant Cabinet documents via a business case.’

      1.25 The Combat Recon. Vehicles achieved Second Pass Approval (Government Approval) in March 2018. Defence proceeded to update the Materiel Acquisition Agreement between CASG and the Capability Manager in May 2019. Key dates listed in the MAA do not align with Government approvals, and Defence has advised the ANAO that it intends to update the MAA to ensure alignment.64

      1.26 The risk of misalignment or error is reduced if Defence has appropriate access to Government records, such as that previously provided by the Project Directive.

      1.27 The ANAO requires access to original approval documents to validate the requirements of projects. At this time, validation based on internal Defence documentation is not always possible.

      1.28 First advised by Defence in July 201665, Product Delivery Agreements (PDAs)66 were to be developed to replace the existing MAAs and Materiel Sustainment Agreements (MSAs). Defence advised the ANAO that this initiative is still in the concept phase and will not apply until a PDA framework is approved and implemented.

      Smart Buyer Framework

      1.29 The 2015 First Principles Review recommended the construction of a ‘smart buyer’ framework, with the aim of ‘[ensuring] Defence can make strategic decisions regarding the most appropriate procurement and contracting methodologies’. Defence has begun to conduct Smart Buyer assessments for acquisition projects at different stages of approval. None of the projects currently in the Major Projects portfolio have been approved under the Smart Buyer processes. The ANAO will continue to report on the outcomes of the First Principles Review and the Smart Buyer framework.

      1.30 Defence advised the ANAO that no MPR projects have been considered by the Smart Buyer Framework in 2019–20 as the Smart Buyer Framework is not applicable post Government approval. Defence records indicate that two MPR projects have undergone a Smart Buyer workshop during 2019–20: AIR 8000 Ph. 2 (Battlefield Airlifter) and LAND 200 Ph. 2 (Battlefield Command System). In both cases, the workshops were conducted to remediate project issues, not to initiate an approach to a Gate.67

      Business systems

      1.31 Defence continues to review its business systems with the aim of consolidating processes and systems in order to provide a more manageable system environment. During 2019–20, Defence continued to report on the status of acquisition projects in the Monthly Reporting System (MRS), which provides much of the data for the PDSSs. In August 2020, Defence discontinued the Monthly Reporting System with project reporting now occurring via the Monthly Reporting Module (MRM). Defence advised the ANAO that MRM replicates the functionality of MRS while delivering an updated platform and user interface, and that the Project Performance Report Information Platform (PPRIP) delivers a platform for projects to also conduct monthly reviews of their project and enable raising of risks and actions with line management.

      1.32 Defence further advised the ANAO in November 2020 that all 25 of the Major Projects in this report are using the PPRIP.

      1.33 As the MRM was implemented in the 2020–21 financial year, the ANAO will review Defence’s use of the MRM in the 2020–21 MPR. As the replacement for the MRS, the MRM is a key system of reporting used to support disclosures in Defence’s PDSSs.

      Results of the review

      1.34 The following sections outline the results of the ANAO’s review, which inform the overall conclusion in the Independent Assurance Report by the Auditor-General for 2019–20.

      Financial framework

      1.35 The project financial assurance statements were introduced in the 2011–12 Major Projects Report and have been included within the scope of the Independent Assurance Report by the Auditor-General since 2014–15. The contingency statements were introduced for the first time in the 2013–14 report and these describe the use of contingency funding to mitigate project risks. Together, they are aimed at providing greater transparency over projects’ financial status.

      1.36 A project’s total approved budget comprises:

      • the allocated budget, which covers the project’s approved activities, as indicated in the MAA; and
      • the contingency budget, which is set aside for the eventuality of risks occurring and includes unforeseen work that arises within the delivery of the planned scope of work.68

      1.37 In 2019–20, the ANAO reviewed the financial framework as it applied to managing project budgets and expenditure, including: project financial assurance, contingency, the reporting environment, and reporting cost variations and personnel costs.

      Project financial assurance statement

      1.38 The project financial assurance statement’s objective is to enhance transparency by providing readers with information on each project’s financial position (in relation to delivering project capability) and whether there is ‘sufficient remaining budget for the project to be completed’.69

      1.39 As discussed in the 2018–19 MPR (para 1.38), in September and November 2018, due to cost pressures, the Joint Strike Fighter (JSF/F-35) project received government approval to transfer project scope of $1.5 billion to other phases of the program (none of which have been approved by government). There was no corresponding transfer of funds out of the project budget.70 Defence has not made any further disclosures of this sort for other projects in this year’s PDSSs. The 2019–20 PDSS for the Joint Strike Fighter (found in Part 3 of this MPR) states that:

      The majority of these scope items were no longer needed, as FOC requirements will be met without major upgrades. Beyond Line of Sight Communications (BLOS) was only desirable and will now be delivered as a cost effective common capability rather than Australian unique. In conjunction with the retirement of cost risks within the project, this has remediated the cost issues identified to Government in 2017. These adjustments have also aligned Australian delivery schedules with the global JSF development program. While the approved changes have reduced the capability being delivered by Phase 2A/2B it has not increased or reduced funding, of the capability being delivered, in the broader AIR 6000 program. As the changes have minimal impact on overall delivery schedule of the project, AIR 6000 Phase 2A/B plans for FOC in 2023 remain unchanged.

      1.40 The Joint Strike Fighter PDSS reports a risk that project capability may be affected by overall funding or programming issues arising from internal cost growth, forecasting accuracy and external budget constraints. The remedial actions to address this risk reported in the PDSS include:

      • ‘Conduct ongoing engagement with the [United States] F-35 Joint Program Office and major project suppliers to facilitate improved cost data to allow the F-35 project to meet budgeting and programming expectations’ — i.e. clarifying potential cost pressures on the project;
      • ‘Proactive management of cost risk identification and engagement with the Capability Manager to prioritize requirements to deliver project capability within the approved project budget’ — i.e. actively identify cost risk and engage with senior leaders; and
      • ‘Options may be developed for Capability Manager consideration to achieve project affordability by aligning project expenditure with the Defence Integrated Investment Program capacity in any specific year’ — i.e. consider options for scheduling project expenditure to align with Defence’s available funding.

      1.41 The Chief Finance Officer’s representation letter to the Secretary of Defence on the 2019–‍20 MPR’s project financial assurance statements was unqualified. The project financial assurance statement is restricted to the current financial contractual obligations of Defence for these projects, including the result of settlement actions and the receipt of any liquidated damages, and current known risks and estimated future expenditure as at 30 June 2020.

      Contingency statements and contingency management

      1.42 The purpose of the project contingency budget is to estimate the inherent cost, schedule and technical uncertainties of projects’ in-scope work.71 Defence policy requires project managers to ensure that all decisions in regards to a project’s contingency budget are included in the project’s contingency budget log to ensure ongoing transparency and traceability.72

      1.43 PDSSs are required to include a statement regarding the application of contingency funds during the year, if applicable, as well as disclosing the risks mitigated by the application of those contingency funds. Defence’s Project Risk Management Manual (PRMM version 2.5, page 105) requires that contingency be applied for identified risk mitigation activities.

      1.44 Contingency provisions for projects are not programmed or funded in cash terms73 and projects are encouraged to meet contingency funding requirements from within their currently programmed cash funding. If this cannot be achieved, a project may propose to access contingency funding from the relevant capital program (Approved Major Capital Investment Program (AMCIP), Facilities and Infrastructure Program (FIP) and ICT Capital Program). If this cannot be achieved, the contingency call will be presented to the Defence Investment Committee, which if agreed will potentially be met by budget offsets across the whole Integrated Investment Program.74

      1.45 One project in the MPR, MRH90 Helicopters, had contingency funds of $26.3 million committed in 2019–20 for supportability and performance risks. Access to these funds was approved in previous financial years.

      1.46 The ANAO’s examination of projects’ contingency logs as at 30 June 2020 highlighted that the clarity of the relationship between contingency allocation and identified risks continues to be an issue. Four projects (Combat Recon. Vehicles, Offshore Patrol Vessel, Repl Replenishment Ships, and Pacific Patrol Boat Repl) did not explicitly align their contingency log with their risk log to ensure the expected cost impact of risks is maintained effectively, as required by PRMM version 2.5.

      1.47 The ANAO will continue to monitor non-compliance with PRMM version 2.5 and the release of specific guidance following the implementation of the CASG Risk Management Framework expected to be implemented in stages to 2022 (see paragraphs 1.61–1.63).

      Reporting environment

      1.48 On 4 April 2018, Defence advised project offices that project financial reporting for 2017–‍18 PDSSs would be prepared on the same basis as project approvals and expenditure represented in the Portfolio Budget Statements and the Defence Annual Report (i.e. on a cash basis).75

      1.49 Defence obtains cash expenditure data using a management reporting tool called Budget and Output Reporting Information System (BORIS). Prior to the 2017–18 MPR, accrual expenditure data was extracted from the Financial Management Information System known as Resource and Output Management and Accounting Network (ROMAN). Given the change in the extraction method, the ANAO requested that Defence perform reconciliations of the cash expenditure figures from BORIS to ROMAN for each project.

      1.50 In the 2019–20 MPR, Defence continued to report the projects’ financial information on a cash basis and therefore continued to perform these reconciliations. This activity concluded in October 2020 and enabled the ANAO to obtain assurance over the cash expenditure. Defence’s Chief Finance Officer has determined that, from the 2020–21 MPR onwards, Defence would report expenditure data on an accrual basis. The 2019–20 MPR will therefore be the last year that these reconciliations need to be performed.

      Reporting cost variations since Second Pass Approval and personnel costs

      1.51 In May 2018, the JCPAA wrote to the Auditor-General to request that the ANAO report back to it ‘on how Defence major project cost variations and the costs of retaining project staff over time might be reported annually in future Major Projects Reports.’76

      1.52 A new table was included in the 2017–18 MPR showing all budget variations post initial Second Pass Approval for projects. Refer to Table 7 on page 44.

      Project Personnel Numbers and Costs

      1.53 In terms of calculating the cost of retaining project staff, Defence advised the ANAO in November 2018 that its IT systems did not provide a direct mapping of personnel to projects. It noted that personnel often work on multiple projects and sustainment activities at any given time.

      1.54 The ANAO observed during fieldwork in 2019 that several MPR projects had staff who worked concurrently on other projects, which included shared corporate staff. Some of these projects did not have systems in place to record accurately the proportion of time these shared staff attributed to the project. Moreover, the ANAO observed that MPR projects used different methods to record personnel data.

      1.55 In April 2020, the Defence Finance Group (DFG) indicated that it was possible to extract employee expenses (excluding contractors) from Defence’s personnel system, known as the Personnel Management Key Solution (PMKeyS). DFG advised the ANAO that it would need to work with Defence People Group to ensure all relevant Department IDs within PMKeyS for a project have been captured, as well as ensuring that people are properly allocated to the correct Department IDs. In November 2020 Defence advised that it continued to investigate whether PMKeyS could be used as a robust source to track employee costs by projects.

      1.56 However, Defence has advised the ANAO that it is still not yet in a position to provide the staff cost component of projects and that its systems are not capable of calculating the cost of retaining project staff over time. Accordingly, Defence has not provided any data on the costs of project staff for projects in the MPR.77 The ANAO will continue to monitor Defence’s progress in recording project personnel numbers and costs.

      Enterprise Risk Management Framework

      1.57 While major risks and issues data in the PDSSs remains excluded from the formal scope of the Auditor-General’s Independent Assurance Report78, material inconsistencies identified in relation to this information are required to be detailed in the report. The following information is included to provide an overall perspective of how risks and issues are managed within Defence and the selected Major Projects.

      1.58 Risk management has been a focus of the MPR since its inception. The CASG risk management environment consists of multiple policies and varying implementation mechanisms and documentation. There are multiple group-level (i.e. CASG), sub-group (i.e. Divisional) and project-level risk management documents. The primary focus of the ANAO’s examination of risk management is at the project level, in order to provide assurance over the PDSSs.

      1.59 At the Group level, the Deputy Secretary CASG issued a directive in May 2017 establishing a CASG Risk Management Reform Program to implement a risk management model that is situated within Defence’s risk management framework. Defence advised the ANAO in November 2020 that it has delivered all three phases of the reform. The third phase, which included the development of risk management policies and toolsets for use by projects, was initially planned to be concluded in June 2019; Defence concluded the contract with its industry partner in May 2020. In addition, Risk Profiles for some CASG Domains remain in draft, and Risk Management Implementation Plans and the Risk Management Annual Program Plan are still being updated.

      1.60 In June 2020 the Deputy Secretary CASG issued a directive establishing the CASG Risk Management Framework, which is the key deliverable of the CASG Risk Management Reform Program. This initiative includes:

      • the framework—which is the primary policy and operating framework for the management of risk across the group; and
      • the Group Risk Management Strategy 2020-22, which provides a structured pathway to implementing the remodelled approach to managing risk across the 2020-22 period.

      1.61 Defence also advised on the release of tools to standardise risk practices across CASG. This will include the rollout of Predict! version 6.0 across CASG.79 Defence anticipates the roll-out of these tools and risk practices to be complete by February 2022.

      1.62 It is not clear whether Defence has achieved the outcomes of all three phases of the CASG Risk Reform as intended in the 2017 Deputy Secretary CASG Directive. That Directive included implementation of the remodelled approach to management of risk, which is now not due to be completed until February 2022.80

      1.63 The ANAO will continue to monitor implementation of the Risk Management Framework, but will not be able to consider including risks and issues in the scope of the MPR until implementation of the framework is more mature.

      1.64 In 2019–20, the ANAO again examined project offices’ risk and issue logs at the Group and Service level, which are predominantly created and maintained utilising spreadsheets and/or Predict! software. Overall, the issues with risk management that the ANAO observed related to:

      • variable compliance with corporate guidance. While all 25 MPR projects had a Risk Management Plan, five did not validate the currency of the Risk Management Plan in line with PRMM version 2.581;
      • the visibility of risks and issues when a project is transitioning to sustainment;
      • for one project (Joint Strike Fighter), sustainment and acquisition risks are managed together82;
      • the frequency with which risk and issue logs are reviewed to ensure risks and issues are accurate and complete, appropriately managed in a timely manner, and accurately reported to senior management;
      • risk management logs and supporting documentation of variable quality, particularly where spreadsheets are being used83; and
      • lack of quality control resulting in inconsistent approaches in the recording of issues within Predict!

      1.65 The ANAO has previously observed that Defence’s use of spreadsheets as a primary form of record for risk management is a high risk approach. Spreadsheets lack formalised change/version control and reporting, thereby increasing the risk of error. This can make spreadsheets unreliable corporate data handling tools as accidental or deliberate changes can be made to formulae and data, without there being a record of when, by whom, and what change was made. As a result, a significant amount of quality assurance is necessary to obtain confidence that spreadsheets are complete and accurate at 30 June, which is not an efficient approach.

      1.66 The JCPAA recommended in September 2018 that Defence plan and report a methodology to the Committee showing how acquisition projects can transition from the use of spreadsheet risk registers to tools with better version control.84 In response, Defence advised in May that Predict! will be mandated as the risk management system.85 Defence advised the ANAO in October 2020 that there have been no updates to Defence policy to reflect that Predict! is now the mandated risk management tool. An update to Defence’s policy is expected in May 2021.

      1.67 Defence advised the ANAO in November 2020 that as at 30 June, 21 out of the 25 MPR projects86 have a presence in Predict!, but are not necessarily using it to manage risks and issues. The ANAO’s review of the documentation from CASG’s 25 project offices at 30 June indicates that:

      • nine utilise spreadsheets87 as their primary risk management tool;
      • nine utilise Predict!88;
      • three (Maritime Comms, Combat Recon. Vehicle and Future Subs) utilise both Microsoft Excel and Predict!;
      • two (Joint Strike Fighter and CMATS) utilise a bespoke SharePoint based tool;
      • one (Night Fighting Equip Repl) utilises the Project Performance Report (see paragraph 1.31 to 1.32); and
      • one (Future Frigates) uses Predict! and Defence’s Capability Lifecycle Management Tool.

      1.68 Defence advised in November 2020 that CASG has an approved rollout plan to transition all CASG projects to Predict! over the next few years. The ANAO will report on MPR projects’ use of the mandated Predict! tool in the next MPR.

      Project maturity framework

      1.69 Project Maturity Scores have been a feature of the Major Projects Report since its inception in 2007–08. The DMO [Defence Materiel Organisation] Project Management Manual 2012 defined a maturity score as:

      The quantification, in a simple and communicable manner, of the relative maturity of capital investment projects as they progress through the capability development and acquisition life cycle.89

      1.70 Maturity scores are a composite indicator, cumulatively constructed through the assessment and summation of seven different attributes. The attributes are: Schedule, Cost, Requirement, Technical Understanding, Technical Difficulty, Commercial, and Operations and Support, which are assessed on a scale of one to 10.90 Comparing the maturity score against its expected life cycle gate benchmark provided internal and external stakeholders with a useful indication of a project’s progress.

      1.71 In 201691 and again in 201792, the JCPAA recommended that Defence update the policy on Project Maturity Scores. In 2018 and 2019 Defence considered updates to the policy, but did not implement changes.93

      1.72 Defence advised the ANAO in August 2020 that the Project Maturity Score will no longer be required as an input to the management of project performance. Defence also advised that an alternative to replace the Project Maturity Score currently included in its PDSSs will not be implemented. This component of the PDSS has therefore been removed from the 2020–21 MPR Guidelines.

      Lessons Learned

      1.73 In May 2020, CASG released a revised version of its Lessons Program Policy. The Policy is enforced by a Defence Joint Directive which directs all Defence ‘Groups and Services, as required, to establish and lead a whole-of-Defence Joint Lessons that provides centralised Lessons management and coordination’.

      1.74 Version 2.0 of the CASG Lessons Program Policy states that94:

      Deputy Secretary CASG expects the CASG leadership to share best practices and lessons. To facilitate this the CASG Lessons Program continually analyses lessons collected from programs, projects, products and governance review outcomes; and ensures they are readily available via the Defence Lessons Repository (DLR).

      1.75 Defence advised the ANAO that this policy does not impact the reporting of lessons in the MPR and that compliance with the new policy is not expected until May 2021. Defence also advised that it is establishing a framework for monitoring compliance.

      Caveats and deficiencies

      1.76 Defence has not defined the terms ‘caveat’ or ‘deficiency’ to the declaration of significant milestones in its internal policies and procedures. The ANAO has observed the use of these terms by Defence to represent exceptions to the achievement of significant milestones declared by Defence such as IMR, IOC, FMR and FOC.

      1.77 The 2017–18 MPR noted a ‘reduced trend of Major Projects which had achieved significant milestones with caveats’, consistent with Defence’s advice at the time that it discourages Independent Assurance Reviews recommending caveats at FOC.95 Only one project (Growler) achieved a major milestone with caveats in 2017–18.96

      1.78 In 2018–19, Defence declared major milestones with caveats or deficiencies for four projects (P-8A Poseidon, Growler, Additional MRTT and LHD Ships). In 2019–20, Defence declared a similar number of milestones with caveats to the previous year:

      • P-8A Poseidon — as at 30 June the project expected to declare three caveats to the achievement of the Material Release 3 (MR3) milestone, related to Objective Search and Rescue (SAR) store capability (UNIPAC III), spares and permanent installation of one Mobile Tactical Operations centre. MR3 was acknowledged by the Capability Manager in September 2020.
      • Overlander Medium/Heavy — Defence declared one caveat to the achievement of the IOC milestone in December 2019, related to certification of the Air Movements Training and Development Unit.
      • Hawkei — Defence declared four caveats to the achievement of the IMR milestone in May 2020, related to low risk verification and validation activities, delivery of spares and deficiencies in the delivery of the mission system Complete Equipment Schedule and Repair Parts Scale.
      • Additional MRTT97 — Defence declared caveats to FOC in January 2020 relating to aircrew staffing across the KC-30A fleet.

      1.79 In addition, Defence accepted two ‘concessions’ to the declaration of FOC in December 2019 for the Battle Comm. Sys (Land) 2A project98, with two out of six nodal configurations having ‘capability limitations’ due to exceeding weight limits.

      1.80 The ANAO will continue to monitor Defence’s declaration of caveats (or exceptions) to the achievement of significant Capability Milestones. The MPR Guidelines provide that in respect to projects which have been removed from the MPR with outstanding caveats, reporting will be provided in the Statement by the Secretary of Defence until their final status is accepted by the Capability Manager.99

      2. Analysis of Projects’ Performance

      2.1 Performance information is important in the management and delivery of major Defence equipment acquisition projects (Major Projects). It informs decisions about the allocation of resources, supports advice to government, and enables stakeholders to assess project progress.

      2.2 Project performance has been the subject of many of the reviews of the Department of Defence (Defence), and a consistent area of focus of the Parliament’s Joint Committee of Public Accounts and Audit (JCPAA) since the first Major Projects Report (MPR). This chapter progresses previous Australian National Audit Office (ANAO) analysis over project performance.

      Project performance analysis by the ANAO

      2.3 The major dimensions of projects’ performance examined in this chapter are:

      • Cost performance (pp. 40–51) — this includes the percentage of budget expended (Budget Expended), changes in budget since Second Pass Approval, in-year changes to budget, and in-year expenditure.
      • Schedule performance (pp. 52–66) — this includes the percentage of time elapsed (Time Elapsed), total schedule slippage, and in-year changes to schedule.
      • Capability performance (pp. 67–69) — this includes the key challenges faced by Defence in the delivery of key materiel capabilities.

      2.4 The following sections of this chapter provide ANAO analysis relating to the three principal dimensions of project performance noted above, drawing on the Defence PDSSs for the 25 Major Projects. This work includes analysis of in-year information, longitudinal analysis and analysis of the results of project progress for the year-ended 30 June 2020. Figure 2 (below) directly compares cost performance with schedule performance through two metrics, Budget Expended and Time Elapsed.100

      Figure 2: Budget Expended and Time Elapsed

      Budget Expended and Time Elapsed

      Note: Future Frigates and Future Subs are yet to have their FOC milestones approved by Government.

      Source: ANAO analysis of the 2019–20 PDSSs.

      2.5 Figure 2 shows that for most projects (20 of 23101), Budget Expended is broadly in line with (within 10 per cent), or lagging, Time Elapsed. This relationship is generally expected in an acquisition environment predominantly based on milestone payments. However, due to the varying complexity, stages and acquisition approaches across the portfolio of projects, further analysis of these simple performance measures is required to provide a better understanding of key variances.

      2.6 Where Budget Expended is significantly lagging Time Elapsed, the project schedule may be at risk — i.e. expenditure lags may indicate delays in milestone achievement. In 2019–20, the Budget Expended for three projects lagged Time Elapsed by at least 20 per cent. For two of these three projects, milestones have been delayed, as detailed below:

      • Hawkei (Budget Expended 39 per cent, Time Elapsed 62 per cent) — the project’s achievement of milestones has been delayed by reliability issues, design maturity, and production delays. The project completed its Production Reliability Acceptance Test 24 months later than originally contracted.
      • Battlefield Airlifter (Budget Expended 63 per cent, Time Elapsed 94 per cent) — the project anticipates delivering some requirements after the achievement of the FOC milestone, including some training equipment, aircraft upgrades, the Structural Substantiation Program, and the Missile Approach Warning System. Defence is revalidating the business case and execution strategy for this acquisition activity during 2020.

      2.7 For the third project, Joint Strike Fighter (Budget Expended 39 per cent, Time Elapsed 75 per cent), the expenditure lag reflects the recent transition from the aircraft development stage, where relatively little budget was expended. The project has now entered into main production contracts for aircraft, with in-year expenditure increasing compared to prior years.

      2.8 Where Budget Expended leads Time Elapsed, the project budget may be at risk — i.e. expenditure increases may indicate real cost increases. However, for the three projects where Budget Expended leads Time Elapsed by 10 per cent or more, the cause of the variance does not relate to insufficient project funds, as detailed below:

      • Collins Comms and EW (Budget Expended 52 per cent, Time Elapsed 42 per cent) — the project’s contract is structured so that more significant milestone payments fall earlier in the life of the project. The project also expects expenditure to reduce as lessons learned on early installations are applied to later installations.
      • Night Fighting Equip Repl (Budget Expended 64 per cent, Time Elapsed 54 per cent) — this project’s FOC date anticipates the purchase of a second tranche of equipment, which has not yet been funded. The currently funded tranche of equipment was largely delivered at 30 June 2020, leading the approved expenditure to exceed the approved schedule.
      • ANZAC Air Search Radar Repl (Budget Expended 63 per cent, Time Elapsed 43 per cent) — this project spent approximately nine per cent of its budget prior to Second Pass, to conduct a Risk Reduction Program and make early purchases of equipment to ensure the schedule would be met.102

      2.9 In each case of significant variance between Budget Expended and Time Elapsed, the performance information highlights projects that may require further attention. This is to ensure that unspent funds are returned to the Defence budget for re-allocation in a timely manner, the timing of key deliverables remains in focus, or planning focuses on bringing together all elements in a timely manner, as equipment is delivered.

      Cost performance analysis

      Budget Expended and Project Maturity

      2.10 Figure 3, below, sets out each project’s Budget Expended against Project Maturity103 and shows that Budget Expended lags Project Maturity for the majority of projects (21 of 25). This relationship is typical of acquisition projects for two reasons:

      • in an acquisition environment predominantly based on milestone payments, projects will typically develop confidence in delivering their scope through design reviews, testing and demonstration, ahead of formal acceptance of milestone achievement or equipment deliveries (and expenditure of budget); and
      • more generally, Budget Expended will often lag Project Maturity as the result of Defence’s project maturity framework attributing approximately 50 per cent (35 out of 70 points) of total Project Maturity at Second Pass Approval (the main investment decision by government) prior to any significant expenditure of budget.

      2.11 In both cases, the Budget Expended is expected to catch up to Project Maturity over the course of the project’s life, with projects approaching closure expected to show Budget Expended and Project Maturity broadly in line with each other.

      2.12 Budget Expended lags Project Maturity with a variance of 20 per cent or more in 12 projects. As expected, the majority of these projects are at a relatively early stage and have expended minimal budget while progressing through design and testing phases, or are waiting on significant amounts of equipment to be delivered. The exception to this is the Night Fighting Equip Repl project, where most Tranche 1 equipment has been delivered, leading to an advanced maturity score, while the evaluation of future Tranche 2 equipment is still in its early stages.

      2.13 Where Budget Expended leads Project Maturity by a significant amount, this may indicate that the project is behind in development or achievement of its scope, or that the required scope is not affordable. There are no instances where Budget Expended leads Project Maturity by 20 per cent or more. The largest variance is for UHF SATCOM, where Budget Expended leads Project Maturity by 11 per cent. The project’s maturity score has been affected by delays in software development, while the majority of budget has been expended and the project has funded further development with contingency.

      Figure 3: Budget Expended and Project Maturity

      Budget Expended and Project Maturity

      Source: ANAO analysis of the 2019–20 PDSSs.

      Second Pass Approval and 30 June 2020 approved budget

      2.14 Figure 4, below, compares each project’s approved budget at initial Second Pass Approval and its approved budget at 30 June 2020. Six projects have variations of $500 million or more. The list below describes the components of these variations:

      • Joint Strike Fighter — net increase of $13.9 billion, comprising $10.5 billion for 58 additional aircraft in 2013–14, $3.0 billion for exchange rate variation and $0.4 billion for price indexation.104
      • AWD Ships — net increase of $1.9 billion, comprising $1.2 billion for a Real Cost Increase105 in July 2015 to complete the project, $1.2 billion for price indexation, offset by a $0.4 billion decrease for exchange rate variation and a $0.1 billion decrease for transfers to facilities projects in 2013–14.
      • P-8A Poseidon — net increase of $1.8 billion, comprising $1.3 billion for four additional aircraft in 2015–16 and $0.5 billion for exchange rate variation.
      • MRH90 Helicopters — net increase of $2.8 billion, comprising $2.6 billion for 34 additional aircraft in 2005–06 and other minor scope changes, and $0.7 billion for price indexation, offset by a $0.3 billion decrease due to scope transfers for facilities, and a $0.1 billion decrease for exchange rate variation.
      • Growler — net increase of $0.8 billion, comprising $0.9 billion for exchange rate variation, $0.3 billion for the Mobile Threat Training Emitter System and weapons, offset in 2015–‍16 by a $0.2 billion decrease for transfers to facilities projects and $0.2 billion for the return to the Defence budget of surplus funds and contingency for reallocation.
      • Overlander Medium/Heavy — net increase of $0.8 billion, comprising $0.7 billion ‘project supplementation’ to reduce cost pressures and $0.1 billion exchange rate variation.

      Figure 4: Projects’ initial Second Pass Approval and 30 June 2020 approved budget ($m)

      Projects’ initial Second Pass Approval and 30 June 2020 approved budget

      Note 1: Marker indicates that the budget for the project at 30 June 2020 is less than the original budgeted cost.

      Note 2: On 22 May 2015, the Minister for Defence and the Minister for Finance announced there would be further delays to the delivery of the Air Warfare Destroyers (AWD) and an additional $1.2 billion would be required to complete the project. The budget increase was incorporated into the approved project budget as at 30 June 2016.

      Source: ANAO analysis of the 2019–20 PDSSs. Previous MPRs have reported that budget variances since initial Second Pass Approval have resulted from: increasing the scope of a project via revised Second Pass Approvals, programmatic decisions, Real Cost Increases/Decreases, transfers to/from other projects and budgetary adjustments. Project budgets may also be affected by price indexation106 and foreign exchange variation.

      2.15 The total budget for the 25 projects at 30 June 2020 was $78.7 billion, a net increase of $24.2 billion, when compared to the approved budget at initial Second Pass Approval of $54.5 billion. A summary of budget variations is at Table 3 (page 13) and a more detailed analysis of budget variations is included in Table 7, below.

      Table 7: Budget variation post initial Second Pass Approval by variation type as at 30 June 2020, and performance audits relating to Major Projects1

      Project

      Initial Second Pass Approval Budget $m

      Variation

      Explanation of Variation

      Year/s of Variation

      Total Amount of Variation $m

      Performance Audits

      AIR 6000 Phase 2A/2B New Air Combat Capability 2

      2751.6

      (Stage 1)

      Scope increase/Budgetary Adjustments/Transfer

      58 additional aircraft (Stage 2 Second Pass Approval) offset by minor transfers

      2013–14
      2017–18

      10,504.1

      Auditor-General Report No.14 of 2018–19: Joint Strike Fighter — introduction into service and sustainment planning

      Auditor-General Report No.6 of 2012–13: Management of Australia’s Air Combat Capability – F-35A Joint Strike Fighter Acquisition

      SEA 4000 Phase 3 Air Warfare Destroyer Build

      7207.4

      Real Cost Increase/Budget transfers

      Real Cost Increase of $1.2b offset by minor transfers for facilities in 2014

      2013–14 
      2015–16

      1089.6

      Auditor-General Report No.22 of 2013–14: Air Warfare Destroyer Program

      Auditor-General Report No.57 of 2010–11: Acceptance into Service of Navy Capability

      SEA 5000 Phase 1 Future Frigates

      6183.9

      Budget transfer

      Funding transfer to Estate and Infrastructure Group to address funding shortfall with the Naval Capability Infrastructure Subprogram

      2019–20

      3.3

      Auditor-General Report No.39 of 2017–18: Naval Construction Programs – Mobilisation

      SEA 1000 Phase 1B Future Submarines Design Acquisition

      5952.5

      Budget transfer

      Transfer to the Chief Information Officer Group component of SEA1000 Phase 1B for the Defence Secret Environment - International.

      2019–20

      (2.4)

      Auditor-General Report No.48 of 2016–17: Future Submarine – Competitive Evaluation Process

      Auditor-General Report No.39 of 2017–18: Naval Construction Programs – Mobilisation

      Auditor-General Report No.22 of 2019–20: Future Submarine Program – Transition to Design

      LAND 400 Phase 2 Combat Reconnaissance Vehicles

      5762.7

      N/A

      N/A

      N/A

      0.0

      Auditor-General Report No.18 of 2020-21: Defence’s Procurement of Combat Reconnaissance Vehicles (LAND 400 Phase 2)

      AIR 7000 Phase 2B Maritime Patrol and Response Aircraft System

      3577.7

      Scope increase/Real Cost Decrease

      Four additional aircraft

      $1m transferred from Defence Science and Technology Group from 2017–18 surplus funds

      Offset by a $20.3m Real Cost Decrease

      2015–16
      2017–18
      2019–20

      1276.1

      N/A

      AIR 9000 Phase 2/4/6 Multi-Role Helicopter3

      957.2

      (Phase 2)

      Scope increase/Budget transfers

      34 additional aircraft (Phase 4/6 Second Pass Approval), offset by minor transfers

      2005–06
      2018–19

       

      2270.5

      Auditor-General Report No.9 of 2015–16: Test and Evaluation of Major Defence Equipment Acquisitions (paragraph 4.54)

      Auditor-General Report No.52 of 2013–14: Multi-Role Helicopter Program

      Auditor-General Report No.57 of 2010–11: Acceptance into Service of Navy Capability

      SEA 1180 Phase 1 Offshore Patrol Vessel

      3632.8

      N/A

      N/A

      N/A

      0.0

      Auditor-General Report No.39 of 2017–18: Naval Construction Programs – Mobilisation

      Auditor-General Report No.12 of 2020–21: Defence’s Procurement of Offshore Patrol Vessels – SEA 1180 Phase 1

      AIR 5349 Phase 3 EA-18G Growler Airborne Electronic Attack Capability

      2641.4

      Scope increase/Real Cost Decrease

      Additional training devices offset by return of surplus funds and other minor transfers

      2014–15 
      2015–16 
      2016–17

      (91.6)

      N/A

      LAND 121 Phase 3B Medium Heavy Capability, Field Vehicles, Modules and Trailers 2

      2549.2

      Real Cost Increase 4 /Scope/Budgetary

      adjustment

       

      Project supplementation ($684.2m) and additional vehicles, trailers and equipment ($28.0m) at Revised Second Pass Approval

      Budgetary Adjustment (-$30.0m)

      2013–14
      2018–19

      682.2

      Auditor-General Report No.52 of 2014–15: Australian Defence Force’s Medium and Heavy Vehicle Fleet Replacement (LAND 121 Phase 3B)

      AIR 9000 Phase 8 Future Naval Aviation Combat System Helicopter

      3029.6

      Budget transfer

      Transfer to Defence Support and Reform Group

      2013–14

      (39.2)

      N/A

      LAND 121 Phase 4 Protected Mobility Vehicle – Light

      1945.0

      N/A

      N/A

      N/A

      0.0

      Auditor-General Report No. 6 of 2018–19: Army’s Protected Mobility Vehicle – Light

      AIR 8000 Phase 2 Battlefield Airlift – Caribou Replacement

      1156.5

      Budget transfer

      Transfer to Defence Science and Technology Group

      2019–20

      (1.0)

      Auditor-General Report No.3 of 2013–14: AIR 8000 Phase 2 – C-27J Spartan Battlefield Airlift Aircraft

      AIR 7000 Phase 1B MQ-4C Triton Remotely Piloted Aircraft System

      923.6

      Scope increase/Budget Transfer/Real cost decrease

      1 additional aircraft at Second Pass Approval – Tranche 2 and minor transfers from DSTG offset by a Force Structure Plan amendment

      2017–18
      2018–19
      2019–20

      320.3

      N/A

      SEA 1654 Phase 3

      Maritime Operational Support Capability

      1004.6

      Budget Transfers

      Transfer for training and additional expected costs and Contract Change Proposals

      2015–16
      2018–19
      2019–20

      81.4

      N/A

      AIR 5341 Phase 3 Civil Military Air Management System

      731.4

      Real Cost Increase/ Budgetary Adjustment

      Real Cost Increase offset by minor transfers

      2017–18

      240.7

      Auditor-General Report No.4 of 2019–20: OneSky: Contractual Arrangements

      Auditor-General Report No.46 of 2016–17: Conduct of the OneSKY Tender

      Auditor-General Report No.1 of 2016–17: Procurement of the International Centre for Complex Project Management to Assist on the OneSKY Australia Program

      LAND 200 Tranche 2B

      Battlefield Command System

      930.0

      N/A

      N/A

      N/A

      0.0

      Auditor-General Report No.40 of 2018–19: Modernising Army Command and Control – the Land 200 Program

      SEA 1439 Phase 5B2

      Collins Class Communications and Electronic Warfare Improvement Program

      247.7 (Stage 1)

      Scope increase

      Additional capability (Stage 2 Second Pass Approval)

      2016–17

      351.5

      Auditor-General Report No.23 of 2008–09: Management of the Collins-class Operations Sustainment

      SEA 1439 Phase 3 Collins Class Submarine Reliability and Sustainability

      72.0

      Scope increase/ Budget transfers/ Budgetary adjustments

      Implementation of full scope, offset by minor transfers

      2000–01
      2001–02 
      2002–03 
      2004–05 
      2005–06 
      2006–07 
      2018–19

      305.0

      Auditor-General Report No.23 of 2008–09: Management of the Collins-class Operations Sustainment

      SEA 1442 Phase 4 Maritime Communications Modernisation

      385.7

      N/A

      N/A

      N/A

      0.0

      Auditor-General Report No.30 of 2018–19: ANZAC Class Frigates - Sustainment

      SEA 1448 Phase 4B

      ANZAC Air Search Radar Replacement

      427.8

       

      N/A

      N/A

      N/A

      0.0

      Auditor-General Report No.30 of 2018–19: ANZAC Class Frigates - Sustainment

      JP 2008 Phase 5A Indian Ocean Region UHF SATCOM

      460.9

      Real Cost Decrease

      Real Cost Decrease

      2013–14

      (18.0)

      N/A

      Total

      52,531.2

       

       

       

      16,972.5

       

             

      Note 1: Some projects have multiple Second Pass Approvals. This table reports on variations since the first, i.e. initial, Second Pass Approval.

      Note 2: Projects that have had no Real Variations to their budget, and have not appeared in any performance audits, do not appear in this table. They are: Battle Comm. Sys. (Land) 2B, Pacific Patrol Boat Repl, and Night Fighting Equip Repl. For a definition of ‘Real Variations’ see pages 381 to 382 in the 2019–20 MPR Guidelines in Part 4 of this report.

      Note 3: Described by Defence as ‘project supplementation’. Refer to Note 3 of Table 3.

      Budget performance

      2.16 The following figures and tables illustrate the budget performance of the 25 selected projects by way of:

      • in-year budget variations by project (see Table 8, below); and
      • expenditure forecasting performance against actual expenditure for 2019–20 (see Figure 5, on page 51).
      In-year budget variance analysis

      2.17 Table 8, below, sets out the in-year budget variations for each project. Overall, the approved budget for the projects as at 30 June 2020 increased by $74.8 million, or 0.1 per cent, compared to their approved budget as at 30 June 2019. This was driven by exchange rate variation increases of $85.5 million and net real decreases of $10.6 million.

      2.18 Exchange rate variations result from projects’ exposure to foreign currencies and movements in foreign exchange rates against the Australian dollar.107 Budget adjustments aim to maintain the relative buying power of the project budget. Movements in the US dollar and the Euro are the main influences. Projects with larger movements in foreign exchange in 2019–20 included:

      • Joint Strike Fighter — movement of $108.7 million, or 0.7 per cent increase in budget.
      • Combat Recon. Vehicles — movement of -$50.7 million, or 0.9 per cent decrease in budget.

      2.19 Real Variations108 primarily reflect changes in the scope of projects, transfers between projects for approved equipment/capability and budgetary adjustments such as administrative savings decisions. In 2019–20, the two projects with more significant Real Variations were:

      • Repl Replenishment Ships — variation of $12.0 million reflecting budget transfers covering additional costs expected in Australian fit out activities, engineering and ILS costs associated with CCPs and additional project support costs to cover the period of delay.
      • P-8A Poseidon — variation of -$20.3 million reflecting the return of funds to the Integrated Investment Program.

      Table 8: In-year (2019–20) budget variations by project

      Project

      Approved Budget 2018–19 $m

      Approved Budget 2019–20

      In-year Exchange Variation $m

      In-year Real Variation $m

      Total Variance $m

      Total Variance (per cent)

      Joint Strike Fighter

      16,522.6

      16,631.3

      108.7

      -

      108.7

      0.7

      AWD Ships

      9103.7

      9,108.9

      5.2

      -

      5.2

      0.1

      Future Frigates

      -

      6,291.8

      23.4

      3.3

      26.7

      0.4

      Future Subs

      -

      5,925.8

      (34.5)

      (2.4)

      (36.9)

      (0.6)

      Combat Recon. Vehicles

      -

      5,761.7

      (50.7)

      -

      (50.7)

      (0.9)

      P-8A Poseidon

      5375.7

      5,362.4

      7.0

      (20.3)

      (13.3)

      (0.2)

      MRH90 Helicopters

      3771.1

      3,773.9

      2.8

      -

      2.8

      0.1

      Offshore Patrol Vessel

      3724.3

      3,701.4

      (22.9)

      -

      (22.9)

      (0.6)

      Growler

      3510.3

      3,505.9

      (4.4)

      -

      (4.4)

      (0.1)

      Overlander Medium/Heavy

      3399.9

      3,398.6

      (1.3)

      -

      (1.3)

      0.0

      MH-60R Seahawk

      3212.5

      3,219.3

      6.8

      -

      6.8

      0.2

      Hawkei 1

      1979.6

      1,987.5

      8.0

      -

      7.9

      0.4

      Battlefield Airlifter

      1442.1

      1,439.2

      (1.9)

      (1.0)

      (2.9)

      (0.2)

      MQ-4C Triton

      -

      1,311.4

      11.4

      (2.2)

      9.2

      0.7

      Repl Replenishment Ships

      1070.6

      1,084.7

      2.1

      12.0

      14.1

      1.4

      CMATS

      975.8

      975.6

      (0.2)

      -

      (0.2)

      0.0

      Battlefield Command System

      -

      969.7

      8.8

      -

      8.8

      1.4

      Battle Comm. Sys. (Land) 2B

      942.6

      947.1

      4.5

      -

      4.5

      0.4

      Collins Comms and EW

      607.8

      610.7

      2.9

      -

      2.9

      0.5

      Pacific Patrol Boat Repl

      504.0

      504.3

      0.3

      -

      0.3

      0.1

      Night Fighting Equip Repl

      442.6

      446.7

      4.1

      -

      4.1

      0.9

      Collins R&S

      445.3

      445.8

      0.5

      -

      0.5

      0.1

      Maritime Comms

      440.0

      444.0

      4.0

      -

      4.0

      0.9

      ANZAC Air Search Radar Repl

      428.7

      429.4

      0.7

      -

      0.7

      0.2

      UHF SATCOM

      421.8

      422.1

      0.3

      -

      0.3

      0.1

      Total 2

      58,321.0

      78,699.2

      85.5

      (10.6)

      74.8

      0.1

             

      Note 1: The Total Variance and components for this project do not add up due to rounding differences.

      Note 2: The difference between the total approved budgets for 2018–19 and 2019–20 is partly due to the projects entering the MPR in 2019–20 (Future Frigates, Future Subs, Combat Recon. Vehicles, MQ-4C Triton, and Battlefield Command System) not contributing to the total budget figure for 2018–19.

      Source: ANAO analysis of the 2018–19 and 2019–20 PDSSs.

      In-year forecast and actual expenditure

      2.20 Accurately forecasting and managing budget expenditure is an important element in the management of a portfolio of projects. Figure 5, below, sets out the expenditure forecasting performance of each project against actual expenditure in 2019–20. In total, actual expenditure for the 25 projects at 30 June 2020 was $5651.9 million. This is compared against an initial Portfolio Budget Statements (PBS) forecast expenditure of $6621.6 million, a mid-year Portfolio Additional Estimates Statements (PAES) forecast of $6171.7 million, and a final forecast of $6110.2 million (Final Plan, approved during May 2020).

      2.21 Figure 5 highlights the following in-year variances occurred in the following projects:

      • Joint Strike Fighter (expenditure of $1938.4 million compared to $2388.6 million PBS, $1897.6 million PAES and $1884.6 million Final Plan estimates) – the variation reflects a refinement of the in-year budget based on improved forecast expenditure and schedule information from the US-based Joint Program Office.
      • Future Frigates (expenditure of $263.6 million compared to $492.3 million PBS, $372.9 million PAES and $375.2 million Final Plan estimates) – the variation is due to delays against the Head Contract.
      • Future Submarines (expenditure of $553.1 million compared to $289.3 million PBS, $580.9 million PAES and $579.5 million Final Plan estimates) — the variation is due to Government approval to enter into the Strategic Partnering Agreement and Submarine Design Contract with Naval Group, as well as reprogramming of contract activities.
      • P-8A Poseidon (expenditure of $223.5 million compared to $360.3 million PBS, $301.6 million PAES and $299.8 million Final Plan estimates) – the variation is due to early payment for the final aircraft in 2018–19, and a deliberate approach by Air Force to manage acquisition budget requirements in 2019–20 by delaying a range of payments to future financial years.
      • Offshore Patrol Vessel (expenditure of $227.2 million compared to $349.2 million PBS, $249.2 million PAES and $248.9 million Final Plan estimates) – the variation is due to the reprogramming of activities as well as delays in contractual milestones and underspend on Project Office costs and government furnished equipment.
      • Repl Replenishment Ships (expenditure of $107.1 million compared to $191.8 million PBS, $196.0 million PAES and $195.3 million Final Plan estimates) – the variation is due to the closure of the naval shipyard in Spain and nationwide as a result of the COVID-19 pandemic, as well as Contract Change Proposals and delays in delivery of the Close In Weapon System.

      Figure 5: In-year (2019–20) projects’ forecast expenditure performance compared to actual expenditure ($m)

      In-year (2019–20) projects’ forecast expenditure performance compared to actual expenditure ($m)

      Sources: ANAO analysis of the 2019–20 PDSSs and Defence Portfolio Budget Statements.

      Schedule performance analysis

      2.22 Defence data continues to show that schedule performance is a key issue in delivering and sustaining equipment.109 Project schedule slippage can have the effect of introducing or exacerbating a capability gap, or requiring an extension to the planned withdrawal date for those platforms being replaced.110

      Time Elapsed and Project Maturity

      2.23 Based on the findings of the Defence Procurement Review 2003111, in 2005 Defence began to increase the proportion of MOTS acquisitions, which are generally lower risk projects and therefore more likely to meet schedule timelines. Analysis of the available performance information highlights that the selection of MOTS projects assists in reducing risk during project acquisition, where Project Maturity is more advanced at Second Pass Approval than developmental projects. For example, CMATS is a developmental project that has experienced significant schedule slippage; its maturity score at Second Pass Approval was 31 points, below the expected benchmark of 35 points for projects at Second Pass Approval. In contrast, MH-60R Seahawk is a MOTS project that has not experienced any slippage to date; its maturity score at Second Pass Approval was 37 points.

      2.24 Figure 6, below, sets out each project’s Time Elapsed against Project Maturity.112 Time Elapsed lags Project Maturity for 16 of 23113 projects. Similar to the analysis of Budget Expended and Project Maturity, at paragraphs 2.10 to 2.13, this pattern is expected as projects will generally score 50 per cent of their Project Maturity at Second Pass Approval, when Time Elapsed is zero (for the purposes of the ANAO’s analysis in this report). The lag is most pronounced in MOTS and Australianised MOTS acquisitions, including the Offshore Patrol Vessel, Combat Recon. Vehicles, and Night Fighting Equip Repl projects. The exception is MQ-4C Triton, a developmental project where the lag in Time Elapsed against Project Maturity reflects the project’s extensive schedule to FOC, driven by the aircraft production schedules.

      2.25 For the 7 projects where Time Elapsed lags Project Maturity by 20 per cent or more, this generally reflects projects at relatively early stages of acquisition processes, including proceeding through design activities, or awaiting significant amounts of their major equipment to be constructed and delivered. There is one significant exception to this:

      • Night Fighting Equip Repl, where this project’s FOC date anticipates the purchase of a second tranche of equipment, which has not yet been approved. The currently approved tranche of equipment is MOTS products that were largely delivered at 30 June 2020, leading the maturity of the approved project scope to exceed the approved schedule.

      2.26 For the seven projects where Time Elapsed leads Project Maturity, there were no instances where this difference was significant (20 per cent or more). The greatest variance was for the Battlefield Airlifter project, where Time Elapsed leads Project Maturity by 16 per cent. The project anticipates delivery of some requirements after the achievement of the FOC milestone, including some training equipment, aircraft upgrades, the Structural Substantiation Program, and the Missile Approach Warning System. Defence is revalidating the business case and execution strategy for this acquisition activity during 2020.

      Figure 6: Time Elapsed and Project Maturity

      Time Elapsed and Project Maturity

      Note: Future Frigates and Future Subs are yet to have FOC milestones approved by Government.

      Source: ANAO analysis of the 2019–20 PDSSs.

      Schedule slippage and acquisition type by approval date

      2.27 As noted in paragraphs 35 to 37, the ANAO compares project slippage against the Defence classification of projects as Military Off-The-Shelf (MOTS), Australianised MOTS, or developmental, as these classifications are a general indicator of the difficulty associated with the procurement process. Prima facie, the more developmental in nature a project is, the greater the schedule risk and therefore the greater the need for more robust planning by Defence114,115.

      Project classification

      2.28 Table 9 below provides information on the classification of all 54 Major Projects included in the MPR since its inception, and the year of approval (generally second pass) for each Major Project. The table indicates that of the 54 Major Projects:

      • 13 projects (24 per cent) were developmental;
      • 25 projects (46 per cent) were Australianised MOTS (AMOTS); and
      • 16 projects (30 per cent) were MOTS.

      Table 9: Project year of approval and acquisition type

      Project

      Year of Approval

      Acquisition type

      HF Modernisation

      1996

      Developmental

      Hornet Upgrade

      1998

      AMOTS

      Bushmaster Vehicles

      1998

      AMOTS

      ARH Tiger Helicopters

      1999

      AMOTS

      FFG Upgrade

      1999

      Developmental

      Collins R&S

      2000

      AMOTS

      Wedgetail

      2000

      Developmental

      Hw Torpedo

      2001

      MOTS

      Collins RCS

      2002

      AMOTS

      Armidales

      2002

      AMOTS

      Hornet Refurb

      2003

      MOTS

      Air to Air Refuel

      2003

      Developmental

      ANZAC ASMD 2A

      2003

      AMOTS

      SM-2 Missile

      2004

      AMOTS

      MRH90 Helicopters

      2004

      AMOTS

      ANZAC ASMD 2B

      2005

      Developmental

      Stand Off Weapon

      2005

      AMOTS

      C-17 Heavy Airlift

      2006

      MOTS

      Super Hornet

      2007

      MOTS

      AWD Ships

      2007

      AMOTS

      LHD Ships

      2007

      AMOTS

      Overlander Light

      2007

      AMOTS

      Next Gen Satellite

      2007

      MOTS

      UHF SATCOM

      2009

      MOTS

      155mm Howitzer

      2009

      MOTS

      Joint Strike Fighter

      2009

      Developmental

      Battle Comm. Sys.

      2009

      AMOTS

      Additional Chinook

      2010

      MOTS

      C-RAM

      2010

      MOTS

      MH-60R Seahawk

      2011

      MOTS

      LHD Landing Craft

      2011

      AMOTS

      Battle Comm. Sys. (Land) 2A

      2011

      MOTS

      Battlefield Airlifter

      2012

      MOTS

      Growler

      2013

      AMOTS

      Maritime Comms

      2013

      AMOTS

      Overlander Medium/Heavy

      2013

      AMOTS

      BMS

      2013

      AMOTS

      P-8A Poseidon

      2014

      MOTS

      HATS

      2014

      AMOTS

      CMATS

      2014

      Developmental

      Battle Comm. Sys. (Land) 2B

      2015

      Developmental

      Collins Comms and EW

      2015

      MOTS

      Additional MRTT

      2015

      AMOTS

      Hawkei

      2015

      Developmental

      Repl Replenishment Ships

      2016

      AMOTS

      Pacific Patrol Boat Repl

      2016

      MOTS

      Night Fighting Equipment Repl

      2016

      MOTS

      ANZAC Air Search Radar Repl

      2017

      Developmental

      Battlefield Command System

      2017

      Developmental

      Offshore Patrol Vessel

      2017

      AMOTS

      Combat Recon. Vehicles

      2018

      AMOTS

      Future Frigates

      2018

      AMOTS

      MQ-4C Triton

      2018

      Developmental

      Future Subs

      2019

      Developmental

         

      2.29 Table 9 (above) and Figure 7 (below) indicate that developmental projects became less common after 2005. Based on the findings of the Defence Procurement Review 2003 (Kinnaird Review)116, in 2005 Defence began to increase the proportion of MOTS acquisitions, which are generally lower risk projects and therefore more likely to meet schedule timelines.117 Table 9 and Figure 7 also indicate a more recent trend, where developmental projects have become more common since 2014. Of the 17 Major Projects which have received government approval since 2014:

      • 7 projects (41 per cent) were developmental;
      • 6 projects (35 per cent) were Australianised MOTS; and
      • 4 projects (24 per cent) were MOTS.

      Figure 7: Acquisition type and year of approval

      Acquisition type and year of approval

      Note 1: Projects to the left of the dotted line (at 2005) were approved prior to implementation of the Kinnaird reforms in 2005. Projects to the right were approved following the reforms being implemented.

      Schedule slippage and acquisition type

      2.30 The challenge of gaining a full understanding of the complexities of developmental aspects of projects at Second Pass Approval is evident by the extent of slippage over time. Figure 8, below, illustrates the total schedule slippage118 since Second Pass Approval for 23 of the selected projects in this MPR.119 It also depicts the acquisition type and places projects in order of government approval. Figure 9, below, illustrates the total schedule slippage for the 27 projects that have exited the review.120

      2.31 Figure 9 shows that the inclusion of MOTS acquisitions contributed, prima facie, to a reduction in schedule slippage in the Major Projects portfolio. For projects that have exited the MPR, MOTS projects report an average of 14 months of slippage per project, while Australianised MOTS projects report an average of 39 months and developmental projects report an average of 97 months. Decisions on whether to undertake developmental projects should be considered on a risk basis.121 In this context, the consideration of risk should be holistic and weigh up the level of capability to be acquired against potential risks relating to cost and schedule.

      2.32 Figures 8 and 9 illustrate that older projects have experienced the most slippage. These projects tended to be more developmental (complex) in nature and typically experienced schedule slippage in the past, and have often continued to do so. This demonstrates an ongoing trend of slippage in historically late projects, which is more pronounced in older projects. This trend is also visible, but less prominent, in newer projects.

      2.33 Two recent developmental projects, Hawkei and ANZAC Air Search Radar Repl, are yet to experience slippage to their FOC dates. However, these projects have experienced slippage to design reviews, test programs, or material release milestones. In the case of Hawkei, there was 24 months slippage to the Production Reliability Acceptance Test, leading to 17 months slippage to Initial Materiel Release, which was declared in May 2020 with four caveats.122 In contrast, recent MOTS projects, Pacific Patrol Boat Repl and Night Fighting Equip Repl, have adhered more closely to their design and materiel release schedules with only minor variances. This indicates that although developmental projects currently in the MPR are not reporting significantly more slippage to FOC than MOTS projects, developmental projects still carry a higher level of technical risk.123

      2.34 While it is not possible to predict the full extent of slippage a project will experience, Figure 9 analysis has been provided to highlight changes since the Kinnaird Review. Fifteen post Kinnaird and 12 pre Kinnaird projects have exited the MPR. Total slippage of the 15 post Kinnaird projects is 24.8 years. Total slippage of the 12 pre Kinnaird projects is 70.7 years. One of the 15 post Kinnaird projects was a developmental acquisition and four of the 12 pre Kinnaird acquisitions were developmental.

      Figure 8: Current Major Projects — Total slippage post Second Pass Approval and acquisition type by approval date (years)

      Current Major Projects — Total slippage post Second Pass Approval and acquisition type by approval date (years)

      Note 1: The order of the projects is from latest to earliest approved. All project slippage relates to FOC dates. The Future Frigates and Future Subs projects do not yet have FOC dates.

      Note 2: Additional scope approved following Second Pass Approval has caused slippage for: P-8A Poseidon (24 months), Collins Comms and EW (30 months), Pacific Patrol Boat Repl (2 months), and Collins R&S (13 months). The additional scope for these projects explains 69 months of the 507 months of total slippage reported in 2019–20.

      Note 3: Only one project in the 2019–20 MPR, Collins R&S, was approved prior to the Kinnaird reforms in 2005.

      Source: ANAO analysis of the PDSSs in Major Projects Reports.

      Figure 9: Exited Major Projects — Total slippage post Second Pass Approval and acquisition type by approval date (years)

      Exited Major Projects — Total slippage post Second Pass Approval and acquisition type by approval date (years)

      Note 1: The order of the projects is from latest to earliest approved. All project slippage relates to FOC dates. The Hornet Refurb and BMS projects did not have FOC dates.

      Note 2: The slippage shown for Next Gen Satellite related to the final capability milestones at the time. By the time it reached FOC, a new final capability milestone had been introduced which reduced this slippage.

      Note 3: Projects to the left of the dotted line were approved following implementation of the Kinnaird reforms in 2005. Projects to the right were approved prior to the reforms being implemented.

      Source: ANAO analysis of the PDSSs in Major Projects Reports.

      Schedule performance

      2.35 The figures and tables that follow illustrate:

      • the original and 30 June 2020 forecasts for achieving FOC;
      • in-year schedule changes to achieving FOC; and
      • total schedule slippage across the Major Projects.
      Original and 30 June 2020 Final Operational Capability forecasts

      2.36 Figure 10, below, presents information on the selected projects’ original and 30 June 2020 forecasts for achieving FOC. The total schedule slippage124 for the 25 Major Projects to date is 507 months compared to the initial prediction when approved by government. This represents a 21 per cent increase on the approved schedule. Of the 25 projects in the 2019–20 report, 14 have experienced schedule slippage and two do not have FOC dates approved by Government. A further three projects have experienced delays from earlier FOC forecasts, but have not slipped past the original FOC date approved by Government (Joint Strike Fighter, Overlander Medium/Heavy, and Repl Replenishment Ships).

      2.37 Total schedule slippage across the Major Projects was 507 months in 2019–20. This is 144 months lower than the figure of 651 months reported for 2018–19 in the MPR. The difference is mainly due to the exit of projects with significant slippage — including ANZAC ASMD 2B, LHD Landing Craft, Battle Comm. Sys. (Land) 2A, and LHD Ships — which reduced the total accumulated slippage by 218 months. This was offset by in-year slippage for MQ-4C Triton (associated with changes in the planned aircraft delivery schedule) and Battlefield Airlifter (with Defence revalidating the business case for the delivery of this project’s remaining scope). These two projects, combined, added 55 of the 68 months schedule slippage experienced in 2019–20. Additionally, Battlefield Command System added 12 months of slippage to the total of 507 months; the slippage occurred prior to its inclusion in the MPR in 2019–20.

      2.38 The reasons for schedule slippage often require a deep understanding of project technical elements and a realistic assessment of the capacity of the private sector to deliver in the expected timeframe. A project office’s ability to gain access to the platform for upgrading can also result in schedule delay (for example, Maritime Comms and Collins R&S).125

      2.39 A closer examination of the reasons for schedule slippage demonstrates the importance of initial assessments of project complexity. Past experience indicates that a key factor is whether a project is MOTS, Australianised MOTS or developmental126, as discussed at paragraphs 2.30–2.34. One project, MRH90 Helicopters127, was originally misclassified as MOTS. The project was reclassified by Defence to Australianised MOTS (i.e. more developmental) subsequent to Second Pass Approval.128 This project has experienced extended schedule slippage. Another project, UHF SATCOM, is still classified as MOTS but includes the development of significant amounts of software. Delays in software development have led to 42 months of slippage to the FOC milestone.

      2.40 Figure 10 indicates that no projects are currently forecasting an FOC date earlier than originally approved. However, a number of projects have experienced both schedule recovery and schedule delay that has offset that schedule recovery. Projects fitting this pattern are Joint Strike Fighter, AWD Ships, Growler, Overlander Medium/Heavy, Repl Replenishment Ships, Collins Comms and EW, and Collins R&S. In the case of Joint Strike Fighter, Overlander Medium/Heavy, and Repl Replenishment Ships, their schedule recovery and schedule delay is equal such that all three projects are currently forecasting the achievement of FOC as originally approved by Government. In total, these seven projects have contributed 36 months of schedule recovery to the Major Projects. Previously, the ANAO’s analysis (for example in Table 2 and Figure 8) has excluded this effect so as to report on the total slippage experienced by the Major Projects. This year the analysis has been adjusted to exclude delays to a project’s recovered schedule that do not result in slippage past the original government approved date.

      Figure 10: Projects’ original and 30 June 2020 FOC forecasts

      Projects’ original and 30 June 2020 FOC forecasts

      Source: ANAO analysis of the 2019–20 PDSSs.

      In-year schedule performance

      2.41 In 2019–20, there was schedule slippage of 68 months in the forecast achievement of FOC across the 23 Major Projects129, as shown in Figure 11 below. In-year project performance, measured by slippage over the last 12 months, may not reflect the project trend.

      2.42 In-year schedule slippage occurred for the following 5 projects130 (the explanation provided, drawn from the 2019–20 PDSSs, may also include the reasons for prior slippage):

      • Battlefield Airlifter — FOC has been delayed while Defence re-evaluates the business case for delivery of this project’s remaining capability.
      • MQ-4C Triton— the variance reflects the alignment of the project’s FOC schedule with the aircraft production schedule.
      • CMATS — the variance reflects the incorporation of additional system automation requirements.
      • Battlefield Command System — the variance reflects the time taken to establish platform integration contracts, availability of Government Furnished Materiel, delays to materiel and data from interdependent projects, and contractor performance.
      • Maritime Comms — the variance reflects alignment of the project schedule with the maintenance schedule for the Anzac Class frigates.

      2.43 Further, the Joint Strike Fighter project saw a delay of two months from the forecast reported in 2018–19. This has not been included as slippage in the number above or in Figure 11 below, as this delay did not see the project slip past the FOC date originally approved by Government. Rather, this project was previously forecasting an earlier date of achievement compared to the original approval.

      2.44 Additionally, one project shows recovery of previously reported slippage:

      • Collins Comms and EW — this project’s schedule is aligned with the docking schedule for the Collins Class submarines.

      Figure 11: In-year (2019–20) schedule slippage and recovery

      In-year (2019–20) schedule slippage and recovery

      Note: Defence’s PDSSs indicate that 16 of the 25 Major Projects did not record changes to their FOC dates this year. The Joint Strike Fighter project changed its FOC date but without slipping past the date originally approved by Government, and has not been included in this figure. Future Frigates and Future Subs do not yet have FOC dates approved by Government.

      Source: ANAO analysis of the 2019–20 PDSSs.

      2.45 Project delays may indicate unanticipated problems with project progress or optimism in previous forecasting, regardless of whether the delay makes the project later than originally approved by Government. For example, in 2018–19 the Repl Replenishment Ships project delayed its FOC forecast by seven months based on integrated planning producing a more mature understanding of FOC activities, though the later FOC forecast remained within the window originally approved by Government. All delays should be monitored to ensure that a project remains on track and any issues can be managed.

      Schedule performance by year of entry to MPR

      2.46 Table 10, below, shows the accumulated schedule slippage of the Major Projects included in the 2019–20 MPR.131 The table shows that over half the total schedule slippage across the Major Projects covered in the 2019–20 MPR (42.3 years or 507 months) comprises slippage from the four oldest projects, approved prior to 2010.

      2.47 Table 10 also shows that 21 per cent (108 of 507 months) of the total schedule slippage across the 2019–20 Major Projects is attributed to the sole remaining project approved prior to the Kinnaird reforms, Collins R&S.

      Table 10: Project slippage

      Project

      Second Pass Approval

      date

      No. of months between approval and original FOC date

      No. of months between approval and 30/6/20 FOC date

      Slippage between original FOC and 30/6/20 FOC date (months)

      Collins R&S

      September 2000

      165

      273

      108

      MRH90 Helicopters

      August 2004

      119

      208

      89

      AWD Ships

      June 2007

      131

      168

      37

      UHF SATCOM

      March 2009

      111

      153

      42

      Joint Strike Fighter

      November 2009

      169

      169

      0

      MH-60R Seahawk

      June 2011

      150

      150

      0

      Battlefield Airlifter

      April 2012

      68

      104

      36

      Growler

      April 2013

      111

      112

      1

      Maritime Comms

      July 2013

      125

      141

      16

      Overlander Medium/Heavy

      July 2013

      125

      125

      0

      P-8A Poseidon

      February 2014

      71

      100

      29

      CMATS

      December 2014

      102

      136

      34

      Battle Comm. Sys. (Land) 2B

      April 2015

      65

      89

      24

      Collins Comms and EW

      June 2015

      114

      144

      30

      Hawkei

      August 2015

      94

      94

      0

      Repl Replenishment Ships

      April 2016

      80

      80

      0

      Pacific Patrol Boat Repl

      April 2016

      89

      91

      2

      Night Fighting Equip Repl

      August 2016

      85

      85

      0

      ANZAC Air Search Radar Repl

      June 2017

      84

      84

      0

      Battlefield Command System

      September 2017

      57

      73

      16

      Offshore Patrol Vessel

      November 2017

      151

      151

      0

      Combat Recon. Vehicles

      March 2018

      111

      111

      0

      MQ-4C Triton

      June 2018

      90

      133

      43

      Total - All Projects With Slippage 

      2467

      2974

      507

           

      Note: The Future Frigates and Future Subs projects are not included as they do not yet have FOC dates approved by Government.

      Source: ANAO analysis of the 2019–20 PDSSs.

      Capability performance analysis

      2.48 Defence defines capability as the power to achieve a desired operational effect in a nominated environment, within a specified time, and to sustain that effect for a designated period.132 An operational effect is achieved by combining the nine Fundamental Inputs to Capability — organisation, command and management, personnel, collective training, major systems, facilities and training areas, supplies, support, and industry133 — and undertaking designated operations.

      2.49 In acquiring Defence platforms and systems, a range of documentation (including capability definition, operational concept, function and performance specification, and Test and Evaluation Master Plans) is developed, which establishes the detailed requirements/performance attributes to be achieved.

      2.50 The Defence PDSSs report that 19 projects in this year’s MPR will deliver all of their key capability requirements. Defence’s assessment indicates that some elements of the capability required may be ‘under threat’, but the risk is assessed as ‘manageable’. The five project offices experiencing challenges with expected capability delivery (2018–19: five) are Joint Strike Fighter, MRH90 Helicopters, Hawkei, Battlefield Command System and Battlefield Airlifter. One project office (AWD Ships) reports that it is unable to deliver all of the required capability by FOC.

      2.51 Since the 2009–10 MPR, capability reporting134 has been based on Defence’s prediction of the final capability that would be achieved on the basis of deliverables and/or activities completed. This assessment of capability performance (Expected Capability) is measured against the Materiel Release Milestones (MRMs) and Completion Criteria specified in each project’s Materiel Acquisition Agreement (MAA). This is distinct from an assessment of whether milestones will be achieved on schedule. As the ANAO has previously noted, this data involves making certain assumptions in forecasting achievements and is therefore subjective in approach.135

      2.52 For example, the Battlefield Airlifter project reported a 100 per cent Green capability prediction at its inclusion in the MPR in 2013–14. However, the 2013–14 PDSS also reported major risks relating to capability deficiencies arising from the US Government divesting from the program, with Australia no longer able to rely on the US Air Force processes. These risks have continued to affect the project, with a mature training system and a number of baseline capability requirements now not expected to be delivered until after FOC. These capability issues were reported in the PDSS Pie Chart for the first time in 2018–19, indicating that the earlier level of confidence in the ability to achieve the required capability may have been overly optimistic.136

      2.53 The inherent subjectivity of the capability prediction is also apparent through a comparison of a platform’s predicted hours in service (sometimes referred to as ‘rate of effort’) and the actual hours achieved. For the 2019–20 financial year, Defence predicted that the MH-60R Seahawk helicopters would achieve 7200 flying hours.137 In October 2020 Defence reported an estimated actual achievement of 4900 flying hours138, indicating that the platform flew for only 68 per cent of the time expected by Defence. The PDSS for the MH-60R Seahawk acquisition project reports that 100 per cent of capability is expected to be achieved. Similar discrepancies between the prediction of capability to be delivered by the acquisition project, and the actual performance of platforms in service, can be seen for other Major Projects, including the Joint Strike Fighter project (100 per cent of capability expected to be delivered with 1 per cent at risk but considered manageable, 68 per cent of planned flying hours achieved in 2019–20) and the Growler project (100 per cent of capability expected to be delivered, 70 per cent of planned flying hours achieved in 2019–20). This comparison further demonstrates that Defence’s capability forecasts may be optimistic.

      2.54 Over time, the JCPAA has sought the use of a more robust measure of capability performance.139

      2.55 In October 2017, the JCPAA recommended that Defence ‘review the procedure for the development of expected capability estimates for future Major Projects Reports. The outcomes of this review should be provided to the Committee within six months of the tabling of this report. Further, the Committee requests that Defence provide a progress report within three months of the tabling of this report.’140

      2.56 Defence made a submission to the Committee in March 2018 regarding this recommendation, which advised that:

      Defence will conduct a schedule baseline validation activity for the Major Projects Report projects to drive greater consistency in schedule reporting.

      Once this activity is complete, Defence should be in a better position to investigate a more robust approach to measuring Capability estimates. Utilising the validated baseline data could inform:

      • A simple percentage of schedule milestones achieved to measure progress to date. This is a quantitative assessment that relies on the maintenance of a robust project baseline, which is not dissimilar to the approach proposed by ANAO previously;
      • CASG working with Force Design to identify how to measure capability, that considers all elements of Fundamental Inputs to Capability, and that is suitable for unclassified publication; and
      • Defence is working towards a new whole of organisational reporting system (the Enterprise Resource Planning (ERP) System) which is expected to roll-out in Financial Year 2020-21. CASG will endeavour to incorporate the work conducted with Force Design on measuring capability.141

      2.57 In September 2018, the JCPAA noted that ‘Materiel Capability Delivery Performance charts continue to be ambiguous in displaying actual current capability levels.’142

      2.58 Defence advised the ANAO in November 2018 that partial progress had been made on its schedule baseline validation activity discussed in paragraph 2.56. The ANAO notes that a measurement of schedule milestones will not necessarily reflect a measurement of capability delivered.

      2.59 The Deputy Secretary CASG advised the JCPAA in a public hearing on 27 May 2020 that:

      I acknowledge the issues of the National Audit Office and would like to work with them, as we indicated in our submission, by perhaps reviewing the report and the way in which we articulate the information.143

      !Part 2. Defence Major Projects Report

      Part 2. Defence Major Projects Report is available to download in a separate PDF file, or in the complete report PDF which is available to download at Related documents on this page.

      !Part 3. Assurance by the Auditor-General and the Secretary of Defence

      .

      Assurance by the Auditor-General and the Secretary of Defence

      PRIORITY ASSURANCE REVIEW – SECTION 19A(5) OF THE AUDITOR-GENERAL ACT 1997

      Independent Assurance Report

      Department of Defence Project Data Summary Sheets

      To the President of the Senate
      To the Speaker of the House of Representatives

      Conclusion

      Based on the procedures I have performed and the evidence I have obtained, nothing has come to my attention that causes me to believe that the information in the 25 Project Data Summary Sheets in Part 3 (PDSSs) and the Statement by the Secretary of Defence, excluding the forecast information, has not been prepared in all material respects in accordance with the 2019–20 Major Projects Report Guidelines (the Guidelines), as endorsed by the Joint Committee of Public Accounts and Audit.

      The purpose of the Major Projects Report is to report on the performance of selected major Department of Defence (Defence) equipment acquisition projects (Major Projects), since Second Pass Approval, and associated sustainment activities (where applicable), managed by Defence.

      I have undertaken a limited assurance review of the PDSSs, reporting on the status of the projects selected by the Joint Committee of Public Accounts and Audit, and the Statement by the Secretary of Defence, for the year-ended 30 June 2020. The following forecast information was excluded from the scope of this engagement:

      1. Section 1.2 Current Status—Materiel Capability Delivery Performance and Section 4.1 Measures of Materiel Capability Delivery Performance;
      2. Section 1.3 Project Context—Major Risks and Issues and Section 5 – Major Risks and Issues; and
      3. forecast dates where included in each PDSS.

      The forecast information has not been included in the scope of the engagement, due to the lack of Defence systems from which to provide complete and accurate evidence, in a sufficiently timely manner to facilitate the review. Accordingly, my conclusion does not provide any assurance in relation to this forecast information. However, material inconsistencies identified in relation to the forecast information are required to be considered in forming my conclusion.

      Basis for Conclusion

      I have undertaken a limited assurance review in accordance with the ANAO Auditing Standards, which include the relevant Standard on Assurance Engagements ASAE 3000 Assurance Engagements Other than Audits or Reviews of Historical Financial Information, issued by the Auditing and Assurance Standards Board.

      I believe that the evidence I have obtained is sufficient and appropriate to provide a basis for my conclusion.

      Responsibilities of the Secretary of Defence for the Project Data Summary Sheets

      The Secretary of Defence is responsible for the preparation and presentation of the PDSSs for the 25 selected projects, and the Statement by the Secretary of Defence, in accordance with the Guidelines. This responsibility includes the design, implementation and maintenance of internal control that the Secretary determines is necessary to enable the preparation of PDSSs that are free from material misstatement, whether due to fraud or error. The Guidelines provide that the PDSSs and supporting evidence, provided to the ANAO for review, are complete and accurate.

      Independence and Quality Control

      I have complied with the independence and other relevant ethical requirements relating to assurance engagements, and applied Auditing Standard ASQC 1 Quality Control for Firms that Perform Audits and Reviews of Financial Reports and Other Financial Information, Other Assurance Engagements and Related Services Engagements in undertaking this assurance review.

      Responsibilities of the Auditor-General

      My responsibility is to express an independent limited assurance conclusion on the PDSSs and Statement by the Secretary of Defence, based on the procedures I have performed and the evidence I have obtained. ASAE 3000 requires that I plan and perform my procedures to obtain limited assurance about whether anything has come to my attention that the PDSSs and the Statement by the Secretary of Defence have not, in all material respects, been prepared in accordance with the Guidelines.

      In a limited assurance engagement, the assurance practitioner performs procedures, primarily consisting of: making enquiries of managers and others within the entity, as appropriate; the examination of documentation; and the evaluation of the evidence obtained. The procedures selected depend on my judgement, including identifying areas where the risks of material misstatement are likely to arise. The procedures performed are detailed at paragraph 1.7 of Part 1 of this report.

      The procedures performed in a limited assurance engagement vary in nature and timing from, and are less in extent than those performed for, a reasonable assurance engagement. Consequently the level of assurance obtained in a limited assurance engagement is substantially lower than the assurance that would have been obtained had a reasonable assurance engagement been performed. Accordingly I do not express a reasonable assurance opinion on whether the PDSSs and the Statement by the Secretary of Defence are prepared in all material respects in accordance with the Guidelines.

      Grant Hehir
      Auditor-General
      Canberra
      20 November 2020

      Statement by the Secretary of Defence

      The attached Project Data Summary Sheets (PDSS) for the 25 major projects included in this report have been prepared in accordance with the Guidelines developed by Defence in consultation with the Australian National Audit Office and endorsed by the Joint Committee of Public Accounts and Audit.

      Project Status as at 30 June 2020

      In my opinion, the Project Data Summary Sheets comply in all material respects with the Guidelines and reflect the status of the projects as at 30 June 2020.

      Significant Events Occurring Post 30 June 2020

      In stating this opinion that the PDSSs comply in all material respects with the Guidelines, I acknowledge the following material events have occurred post-30 June 2020:

      AIR 6000 Phase 2A/2B - Joint Strike Fighter

      In September 2020, Australia’s fifth-generation fighter jet capability continued to grow with the acceptance of the 30th F-35A Lightning II from prime contractor Lockheed Martin.

      SEA 1000 Phase 1B – Future Submarines Design Acquisition

      Since July 2020 there has been an update to the Design review progress. The Functional Ships Systems Requirements (SSR) review for the Definition (DEF) Phase was exited in August versus July. In August, Naval Group completed or had agreed plans in place to satisfy the SRR(DEF) exit criteria. This delay in exiting SRR(DEF) has not resulted in any further impacts on the overall SEA 1000 Phase 1B schedule.

      LAND 400 Phase 2 – Combat Reconnaissance Vehicles

      As at 5 October 2020, RDA has delivered six of 25 Block I Boxer 8x8 CRVs to Defence. A further 12 Boxer 8x8 CRVs have arrived in Australia and are undergoing final acceptance work and delivery at MILVEHCOE.

      The first two Boxer 8x8 CRV driver training courses have been conducted in Queensland during September and October 2020. The third course will be conducted later in the year, from 9 to 29 November 2020.

      AIR 7000 Phase 2B – Maritime Patrol and Response Aircraft System

      In September 2020, the Capability Manager accepted the Project’s declaration of the Materiel Release 3 milestone as at December 2019. Major elements of this milestone included delivery of an additional four P-8A aircraft, the third and final Mobile Tactical Operations Centre and all stocks of the Mk54 torpedo. MR3 was declared with three deficiencies: the permanent installation of one Mobile Tactical Operations centre (subsequently resolved in August 2020), delivery of the Objective Search and Rescue (SAR) store capability (UNIPAC III) (expected to resolve by March 2021) and delivery of all spares (expected to resolve by June 2022). The next milestone for the project is FMR/FOC in mid-2022.

      AIR 9000 Phases 2, 4, 6 – Multi-Role Helicopter

      Operational Test and Evaluation of the Taipan Gun Mount has been conducted. Work continues on this capability.

      Service Release of the Enhanced Cargo Hook System was achieved on 15 Oct 2020.

      LAND 121 Phase 4 – Protected Mobility Vehicle – Light

      Thales Australia was granted formal approval to exit Stage 2: Low-Rate Initial Production and enter Stage 3: Full-Rate Production on 30 September 2020.

      SEA 1654 Phase 3 – Maritime Operational Support Capability

      NUSHIP Supply completed Sea Trials in Spain in August 2020.

      NUSHIP Supply arrived at Fleet Base West, WA in October 2020, to commence its Final Fit-out period.

      LAND 200 Tranche 2 – Battlefield Command System

      Contract Change Proposal No 4, which incorporated the use of the Mission Partner Environment instead of the Defence Secret Network for the Battle Management System contract with Elbit Systems Limited, was approved on 24 August 2020. This Contract Change Proposal changed the date for delivery of the Software Release Review 2 (SWRR-2) from 15 Mar 21 to 15 Aug 21, with a corresponding flow-on to the Final Acceptance date from 30 Jun 21 to 30 Nov 21.

      JP 2072 Phase 2B – Battlespace Communications System Phase 2B

      Twelve External Network Access Points (ENAPs) and 12 Troposcatter systems were delivered to Army and Air Force Units as part of Release 2 Introduction Into Service.

      COVID19 is a considerable risk that will impact the development, integration and delivery of the R3 product. This is due to supplier delays, travel restrictions and reduced productivity due to working from home requirements and limitations.

      The true impact won’t be known until the expiry of the Recovery Deed at the end of December 2020.

      SEA 1439 Phase 5B2 – Collins Class Communication and Electronic Warfare Improvement Program

      SEA 1439 PH5B Materiel Release Stage 1 and Stage 2 (MR#5) and Microwave Electronic Support (MWES) Initial Capability (MR#4) have been delayed and will now be claimed in April 2021 instead of current approved schedule of December 2020.

      COVID-19 travel / work restrictions have impacted MWES installation and set to work on First of Type leading to delay in obtaining objective quality evidence to support materiel release claim.

      LAND 53 Phase 1BR – Night Fighting Equipment Replacement

      LAND 53 Phase 1BR has taken delivery of the final quantities of Night Fighting Equipment on 29 September 2020.

      Materiel Release 4 was achieved on 08 September 2020.

      Support Contract Change Proposal 008 was executed on 25 September 2020 and incorporates revised prices for current and future years as per the annual Escalation Notice approved by the Commonwealth.

      SEA 3036 Phase 1 – Pacific Patrol Boat Replacement

      The project delivered a Guardian Class Patrol Boat to Palau on 18 Sep 20 and delivered a Guardian Class Patrol Boat to Tonga on 30 October 2020.

      The delivery of a Guardian Class Patrol Boat to the Nation of Kiribati (NoK) has been postponed from 07 August 2020 to 18 June 2021. In the interim, the vessel will be laid up, stored and maintained in accordance to Original Equipment Manufacturer requirements for the vessel. This does not affect the overall budget for the Project and is being managed by CASG on a case-by-case basis.

      SEA 1442 Phase 4 – Maritime Communications Modernisation

      SEA 1442 Phase 4 did not achieve IMR in October 2020. Those drivers affecting the IMR schedule will have an effect on achieving IOC, with a new IOC date of October 2021.

      Initial Materiel Release (IMR) is a precursor to Navy’s Initial Operating Capability (IOC) and these milestones were expected to be achieved by October 2020 and January 2021 respectively. However, COVID-19 related delays have impacted on the availability of key resources to complete system testing on two ships, delaying IMR and subsequently impacting IOC. The main contributing delays to IMR and IOC relate to COVID-19 travel restrictions on international and domestic workforce required for testing, a lack of specialised local resources in Western Australia and changes to Navy’s ship availability schedules. CASG has provided Navy with a status of the capability impact and presented options for the achievement of IMR to quantify a revised IOC date to Government. In parallel, CASG is working with the Prime Contractor Leonardo MW Ltd (UK) to ensure impact to Navy and CASG is minimised.

      SEA 1448 Phase 4B – ANZAC Air Search Radar Replacement

      In September 2020 Identification Friend or Foe (IFF) Certification testing commenced following the United States (US) based IFF certification team achieving approval to travel, previously delayed due to COVID-19 restrictions. By March 2021, this testing will obtain objective quality evidence to support IFF certification and declaration of Initial Materiel Release 2 (IMR2) with subsequent declaration of Initial Operating Capability (IOC).

      A revised Materiel Acquisition Agreement is being developed with a staged TMR approach. Initial Materiel Release Stage 1 (IMR1) is on track for declaration in November 2020, covering those aspects not requiring IFF Certification. Initial Materiel Release 2 (IMR2) is forecast for March 2021, following the expected achievement of IFF Certification from the certification authority.

      JP 2048 Phase 4A/4B – Amphibious Ships

      Final Operating Capability was declared on 4 November 2019 with six notable deficiencies. The table below provides further detail on the deficiencies.

      Description of Deficiency

      Status

      Propulsion Pod Induced Vibration. The propulsion pods exhibited some deficiencies.

      The deficiencies will be rectified during the 2020 and 2021 docking schedule.

      PCRF Bed Configuration – Insufficient Space. The design noted some deficiencies.

      Immediate rectification complete. The long term solution is being managed through JP 2048 Phase 6.

      Excessive Noise in Accommodation Compartments.

      The remediation has been assigned to JP 2048 Phase 6.

      Integrated Logistic Support. The system experienced some technical issues.

      Immediate remediation complete. The outstanding issues are subject to engineering changes.

      Magazine Capacity for Embarked Force Ammunition. The capacity experienced some deficiencies.

      Mitigation is planned for inclusion in HMAS Canberra and HMAS Adelaide’s docking schedule for 2020 and 2021.

      Sewage Treatment Plants (STP). The system experienced some deficiencies.

      One STP will be remediated during HMAS Adelaide’s docking schedule in 2021. Once the proposed solution has been installed in HMAS Adelaide and assessed as effective, remediation of the remaining three STPs will be undertaken on an opportunity basis.

      AIR 7403 Phase 3 – Additional KC-30A Multi-role Tanker Transport

      Final Operating Capability was declared on 24 January 2020.

      JP 9000 Phase 7 – Helicopter Aircrew Training System

      Final Operating Capability (FOC) is defined as successful completion of two cycles of training (Courses #2 and #3), which is currently on schedule (December 2020). Accordingly, the second consecutive courses were achieved as follows:

      • Pilot course (Cse No. 5) was completed on 02 June 2020.
      • Aviation Warfare Officer course (Cse No. 5) completed on 19 June 2020.
      • Sensor Operator course (Cse No. 4) completed on 26 May 2020.
      • Aircrewman course (Cse No. 5) completed on 30 June 2020.

      All Fundamental Inputs to Capability (FIC) attestations provided in July 2020 have been in the affirmative for declaration of FOC.

      JP 2072 PH2A – Tactical Combat Radio System Replacement Program

      Final Operating Capability was declared on 4 December 2019.

      COVID-19 Impact Statement

      The full COVID-19 impacts on Defence’s contracts are still being assessed under the evolving COVID-19 circumstances overseas. COVID-19 is expected to impact some projects schedule as the effects of supply disruption, national and international travel restrictions and city and state mandated lockdowns are realised.

      Greg Moriarty
      Secretary
      Department of Defence
      20 November 2020

      !Part 4. JCPAA 2018–19 Major Projects Report Guidelines

      The JCPAA 2019–20 Major Projects Report Guidelines part is available to download in a separate PDF file, or in the complete report PDF which is available to download at Related documents on this page.

      Footnotes

      1 Joint Committee of Public Accounts and Audit, Parliament of the Commonwealth of Australia, Report 473: Defence Major Projects Report (2016–17), (2018), Executive Summary, p. 1.

      2 Department of Defence, Defence Annual Report 2019–20, Defence, Canberra, Chapter 3, Annual Performance Statements, 2020, p. 42.

      3 Department of Defence, Defence Portfolio Budget Statements 2019–20, Defence, Canberra, 2019, p. 20.

      4 Department of Defence, Defence Annual Report 2019–20, Defence, Canberra, Chapter 3, Annual Performance Statements, 2020, Appendix A Financial Statements, Note 3.2A, p. 204.

      5 Department of Defence, 2020 Defence Strategic Update, p. 7.

      6 Department of Defence, Defence Portfolio Budget Statements 2020–21, Defence, Canberra, 2020, p. 5.

      7 The 2019–20 Major Projects Report Guidelines were endorsed by the JCPAA in September 2019 and are included in Part 4 of this report.

      8 Department of Defence, Defence Annual Report 2019–20, Defence, Canberra, Chapter 3, Annual Performance Statements, 2020, p. 42.

      9 For example, Defence project risk management records can be managed in spreadsheets, where the risk to the completeness and accuracy of records is too high to be included within the scope of the review.

      10 Joint Committee of Public Accounts and Audit, Parliament of the Commonwealth of Australia, Report 473: Defence Major Projects Report (2016–17), (2018), Recommendation 2, p. vii.

      11 The MPR Guidelines provide that data of a classified nature is to be prepared in such a way as to allow for unclassified publication.

      12 IMR and FMR are milestones that Defence utilises to mark the completion and release of acquisition project supplies required to support the achievement of IOC and FOC respectively. They are defined in the relevant MAA (Materiel Acquisition Agreement). See Department of Defence, Defence Materiel Standard Procedure (Project Management) DMSP (PROJ) 11-0-008, Initial Materiel Release And Final Materiel Release Across The Project Lifecycle, Defence, Canberra, 2013, p. 2. See also the Glossary at p. ix of this report.

      13 Initial Operational Capability is the capability state relating to the in-service realisation of the first subset of a capability system that can be employed operationally. Final Operational Capability is the capability state relating to the in-service realisation of the final subset of a capability system that can be employed operationally. Declaration of IOC and FOC is made by the Capability Manager, supported by the results of operational test and evaluation and declaration by the Delivery Group(s) that the fundamental inputs to capability have been delivered. See Defence’s Appendix 4 in Part 2 of this report.

      14 The project maturity framework — outlined in the Department of Defence’s CASG Procedure (PM) 001 – Project Maturity Scores, Defence, Canberra, 2020 — is a methodology used to quantify the maturity of projects as they progress through the acquisition life cycle. See further explanation in paragraphs 1.69–1.72 of this report.

      15 Under subsection 8(1) of the legislation establishing the JCPAA, the Public Accounts and Audit Committee Act 1951, one of the duties of the Committee is to ‘examine all reports of the Auditor-General (including reports of the results of performance audits) that are tabled in each House of the Parliament’ and ‘report to both Houses of the Parliament, with any comment it thinks fit, on any items or matters in those reports, or any circumstances connected with them, that the Committee thinks should be drawn to the attention of the Parliament’.

      16 While still in the design phase and not yet having received second pass government approval, the Future Submarine project has nonetheless incurred significant expenditure of public money. See Auditor-General Report No.22 2019–20 Future Submarine Program—Transition to Design.

      17 Joint Committee of Public Accounts and Audit, Parliament of the Commonwealth of Australia, Report 473: Defence Major Projects Report (2016–17), (2018), List of Recommendations, p. vii.

      18 Department of Defence, written supplementary submission 7 to the Joint Committee of Public Accounts and Audit, Inquiry into the 2018–19 Major Projects Report and Future Submarines Project – Transition to Design, p 11.

      19 Joint Committee of Public Accounts and Audit, Parliament of the Commonwealth of Australia, Report 458: Defence Major Projects Report (2014–15), (2016), Recommendation 3, p. 50. Joint Committee of Public Accounts and Audit, Parliament of the Commonwealth of Australia, Report 468: Defence Major Projects Report (2015–16), (2017), Recommendation 2, p. vii.

      20 Joint Committee of Public Accounts and Audit, Parliament of the Commonwealth of Australia, Report 442: Inquiry into the 2012–13 Defence Materiel Organisation Major Projects Report, (2014), pp. 37–39. Joint Committee of Public Accounts and Audit, Parliament of the Commonwealth of Australia, Report 458: Defence Major Projects Report (2014-15), (2016), pp. 48–49.

      21 The reporting of cost variations was also raised at the JCPAA’s public hearing into the 2016–17 MPR on 23 March 2018 and at estimates hearings of the Finance and Public Administration Legislation Committee on 27 February 2018.

      22 Individual PDSSs also report on budget variations.

      23 The JCPAA requested in May 2018 that the ANAO report back to the Committee on how Defence Major Projects cost variations and the costs of retaining project staff over time might be reported in future MPRs. See paragraphs 1.53 to 1.56 for the outcomes of this consideration.

      24 As noted in Note 4 of Table 2, slippage refers to a delay in the current forecast date compared to the original government approved date of FOC. These figures exclude delays to a project’s schedule that do not result in slippage past the original government approved date and schedule reductions over the life of the project. In November 2017, Defence raised with the ANAO, for the purposes of calculating total schedule slippage, the feasibility of identifying what the proportion of slippage represented by the expanded scope of projects is (for example with respect to the P-8A Poseidon and Collins Comms and EW projects). See Note 2 of Figure 8 of this report which shows that the slippage attributable to increases in project scope is 69 months.

      25 Future Frigates and Future Subs are excluded as these projects do not yet have FOC milestones approved by Government.

      26 Future Frigates and Future Subs are excluded from this analysis as they do not yet have FOC milestones approved by Government.

      27 Hornet Refurb and BMS are excluded from this analysis as they did not have FOC milestones approved by Government.

      28 Off-The-Shelf: Systems, hardware or software that already exists or is confirmed in service for an equivalent purpose and requires no, or minimal change. Sometimes expressed as commercial off-the-shelf or military off-the-shelf. Department of Defence, Defence Test and Evaluation Policy, Defence, Canberra, 2019, Annex 1A, Definitions, p. ii.

      29 Joint Committee of Public Accounts and Audit, Parliament of the Commonwealth of Australia, Report 442: Inquiry into the 2012–13 Defence Materiel Organisation Major Projects Report, (2014), Recommendation 5, p. 31.

      30 Joint Committee of Public Accounts and Audit, Parliament of the Commonwealth of Australia, Report 473: Defence Major Projects Report (2016–17), (2018), Recommendation 2, p. vii, which recommended transitioning to risk registers with better version control measures than spreadsheets. Defence is transitioning its risk management system to Predict! for all projects in this report, the implementation of which will be reviewed by the ANAO in the next MPR.

      31 In 2018–19 Defence reported that its estimated cost of contributing to the MPR was $2.4 million. Defence has not identified the estimated cost of its contribution to the 2019–20 MPR. See also page 96 at Part 2 of this report.

      32 Department of Defence, Independent Assurance Reviews for Programs, Projects and Products, Defence, Canberra, 2020, pp. 5 and 12.

      33 Although referred to by Defence as ‘assurance’ reviews, these administrative reviews are not carried out within frameworks issued by the Australian Auditing and Assurance Standards Board.

      34 Department of Defence, Capability Life Cycle Manual (Version 2.0), Defence, Canberra, 2020, p. 9.

      35 Independent Assurance Reviews were conducted for: Joint Strike Fighter, AWD Ships, P-8A Poseidon,MRH90 Helicopters, Growler, Overlander Medium/Heavy, Hawkei, Battlefield Airlifter, Repl Replenishment Ships, CMATS, Battlefield Command System, Collins Comms and EW, Pacific Patrol Boat Repl, Maritime Comms, ANZAC Air Search Radar Repl, and Night Fighting Equip Repl.

      36 IAR processes were also reviewed in two ANAO performance audits of procurements included in this MPR—Offshore Patrol Vessel and Combat Reconnaissance Vehicles:

      Auditor-General Report No.12 2020–21, Defence’s Procurement of Offshore Patrol Vessels—SEA 1180 Phase 1 included an agreed recommendation that Defence plan the sequencing of IARs undertaken during a platform selection process, to avoid conflicts with other processes and ensure access to all relevant information. See paragraphs 2.16 – 2.22 of that audit report.

      Auditor-General Report No.18 2020–21, Defence’s Procurement of Combat Reconnaissance Vehicles (LAND 400 Phase 2) included an agreed recommendation that Defence review the process in place to provide assurance to its senior leadership that agreed IAR recommendations have been implemented appropriately and in a timely manner.

      37 Department of Defence, Defence Annual Report 2019–20, Chapter 7, Asset Management, Defence, Canberra, 2020, p. 153.

      38 Issues in the project were discussed in Auditor-General Report No.52 2013–14, Multi-Role Helicopter Program.

      39 Department of Defence, Quarterly Performance Report June 2020, Defence, Canberra, 2020, pp. 29-30.

      40 Auditor-General Report No.31 2018–19, Defence’s Management of its Projects of Concern, p. 10.

      41 Department of Defence, Quarterly Performance Report June 2020, Defence, Canberra, 2020, p. 5.

      42 Auditor-General Report No.3 2019–20 Defence’s Quarterly Performance Report on Acquisition and Sustainment, p. 7.

      43 Auditor-General Report No.3 2019–20 Defence’s Quarterly Performance Report on Acquisition and Sustainment, pp. 8–9.

      44 ibid, p. 11.

      45 Auditor-General Report No.19 of 2018–19, 2019–20 Major Projects Report, paragraphs 1.20–1.21, p. 23.

      46 Similar to the PDSSs, the QPR provides a summary of projects’ performance in the areas of cost, schedule and capability. However, there are some differences between the measures used, and the level of detail provided. For example, both the PDSSs and the QPR use a ‘traffic light indicator’ to reflect materiel capability delivery/scope, but the indicators are defined differently between the two products. In the PDSSs, Amber materiel capability delivery is defined as ‘under threat but still considered able to be met’, whereas the QPR defines Amber materiel capability delivery/scope as ‘major elements of scope about to fail against the baseline’. In addition, the QPR allows for only one indicator to be used in the assessment, i.e. ‘all Green’, ‘all Amber’ or ‘all Red’. In contrast, the Pie Chart in the PDSSs allows for a breakdown of capability, with individual components assessed as Green, Amber or Red, providing a more detailed assessment (see paragraphs 2.48–2.59).

      47 These are Capability Acquisition and Sustainment Group (CASG) acquisition projects that have variances significant enough — in the areas of schedule, cost, and/or capability performance — to warrant attention from senior management. Department of Defence, Quarterly Performance Report June 2020, Defence, Canberra, 2020, p. 34.

      48 Department of Defence, Quarterly Performance Report June 2020, Defence, Canberra, 2020, p. 38.

      49 ibid, p. 35.

      50 Department of Defence, Quarterly Performance Report June 2020, Defence, Canberra, 2020, p. 45.

      51 ibid, pp. 61-62.

      52 Department of Defence, Quarterly Performance Report June 2020, Defence, Canberra, 2020, pp. 55-56.

      53 ibid, p. 59.

      54 ibid, p. 40.

      55 Department of Defence, Quarterly Performance Report June 2020, Defence, Canberra, 2020, p. 42.

      56 ibid, p. 49.

      57 In the March 2019 QPR, the entire JP2008 program was identified as a Program of Interest, which is inclusive of UHF SATCOM. Department of Defence, Quarterly Performance Report March 2019, Defence, Canberra, 2019, p. 27.

      58 The FOC dates for these projects slipped in-year by: two months for Joint Strike Fighter, 12 months for Battlefield Airlifter, 43 months for MQ-4C Triton, six months for CMATS and four months for Battlefield Command System.

      59 Department of Defence, Interim Capability Life Cycle Manual, Defence, Canberra, 2017, pp. 14 and 93.

      60 The Project Directive defines the project, in terms of fundamental inputs to capability, together with the resources necessary to deliver the project and is developed in accordance with the parameters agreed by government. Department of Defence, Interim Capability Life Cycle Manual, Defence, Canberra, 2017, p. 93.

      61 The Capability Life Cycle Manual (Version 2.0) does not describe MAAs and instead refers to Product Delivery Agreements (PDAs) (see paragraph 1.28). Projects in this MPR have an approved MAA.

      62 Department of Defence, Interim Capability Life Cycle Manual, Defence, Canberra, 2017, p. 14 and p. 93.

      63 Auditor-General Report No.6 2013–14 Capability Development Reform, p. 232.

      64 See the Combat Recon. Vehicles PDSS in Part 3 of this report and Auditor-General Report No.18 2020–21, Defence’s Procurement of Combat Reconnaissance Vehicles (LAND 400 Phase 2), paragraphs 4.10 – 4.15.

      65 Auditor-General Report No.40 2016–17 2015–16 Major Projects Report, paragraph 1.21, page 21.

      66 A PDA is an agreement between the Sponsor and Lead Delivery Group which specifies the scope, resourcing, priorities and performance and preparedness requirements for support of a capability system throughout its life, to support performance measurement. Department of Defence, Capability Life Cycle Manual (Version 2.0), Defence, Canberra, 2020, p. 49.

      67 AIR 7000 Phase 1B (MQ-4C Triton Remotely Piloted Aircraft System) and SEA 1448 Phase 4B (ANZAC Air Search Radar Replacement) held internal workshops informed by the Smart Buyer Decision Making Framework, but without the mandated independent oversight required by that framework. Smart Buyer workshops were also being held for future tranches and phases of projects in the MPR, including Future Subs.

      68 Department of Defence, (PM) 003, CASG Project Controls Manual, Acronyms, Abbreviations and Definitions, 2017, p. 8.

      69 Joint Committee of Public Accounts and Audit, Parliament of the Commonwealth of Australia, Report 436: Review of the 2011–12 Defence Materiel Organisation Major Projects Report, (2013), paragraph 3.4, p. 14.

      70 Defence advised the ANAO in November 2019 that scope elements (principally the Engine Maintenance Repair Overhaul and Upgrade facility, worth $0.08 billion) were brought forward from later phases into the Joint Strike Fighter project without commensurate funding transfer.

      71 Department of Defence, Management of Contingency Budgets in Defence Acquisition Projects, Defence, Canberra, 2019, p. 2.

      72 ibid, p. 5.

      73 Department of Defence, Management of Contingency Budgets in Defence Acquisition Projects, Defence, Canberra, 2019, p. 3.

      74 ibid, p. 4.

      75 Auditor-General Report No.26 2017–18 2016–17 Major Projects Report, p. 41.

      76 The reporting of cost variations was also raised at the JCPAA’s public hearing into the 2016–17 MPR on 23 March 2018 and at estimates hearings of the Finance and Public Administration Legislation Committee on 27 February 2018.

      77 However, Defence has demonstrated that it can estimate the cost of completing activities for the MPR. See footnote 31 and page 96 in Part 2 of this report.

      78 See paragraph 1.3 in Part 1 of this report for more information.

      79 Predict! is a risk management tool used by Defence to manage risks and issues.

      80 See Part 2 of this report.

      81 The CASG Project Risk Management Manual version 2.5, Business Rule 2 requires the project manager to validate the currency of the Risk Management Plan on transition from one stage of the Capability Life Cycle to the next stage and, for any stage that is longer than six months, every six months within that stage.

      82 As at 30 June 2020, Defence risk management guidance for acquisition projects was the PM, 002 CASG Project Risk Management Manual (PRMM), Version 2.5 2019. Defence has advised that the PRMM also provides some guidance for sustainment products; there is currently no policy providing risk management guidance for sustainment products in particular. Defence further advised that CASG is currently working on new risk management policy for products in the ‘CAS-RM Manual’. The previous guidance for sustainment products, the DMM (LOG) 04-0-003 Materiel Logistics Manual Volume 3 Risk Management in Sustainment, provided different consequence and likelihood descriptors to those used for acquisition risk management.

      83 Spreadsheets lack formalised change/version control and reporting, increasing the risk of error.

      84 Joint Committee of Public Accounts and Audit, Parliament of the Commonwealth of Australia, Report 473: Defence Major Projects Report (2016–17), (2018), List of Recommendations, p. vii.

      85 Department of Defence, written supplementary submission 7 to the Joint Committee of Public Accounts and Audit, Inquiry into the 2018–19 Major Projects Report and Future Submarines Project – Transition to Design, p 11.

      86 Defence advised in October 2020 that, as at 30 June, the four projects not yet using Predict! were: Growler, UHF Satcom, Battlefield Command System, and Night Fighting Equip Repl.

      87 The nine projects are: MRH90 Helicopters, MH-60R Seahawk, Hawkei, Battlefield Airlifter, Collins Comms and EW, Collins R&S, Battlefield Command System, ANZAC Air Search Radar Repl, and UHF SATCOM.

      88 The nine projects are: AWD Ships, P-8A Poseidon, Offshore Patrol Vessel, Growler, Overlander Medium/Heavy, Repl Replenishment Ships, MQ-4C Triton, Battle Comm. Sys. (Land) 2B, and Pacific Patrol Boat Repl.

      89 Department of Defence, DMM (PROJ) 1-0-001, DMO Project Management Manual 2012, Defence, Canberra, 2012, p. 75. This manual has since been superseded by PM 002 CASG Project Management Manual which does not refer to project maturity.

      90 See Appendix 3 in Part 2 of this report and footnote 14 for further detail.

      91 Joint Committee of Public Accounts and Audit, Parliament of the Commonwealth of Australia, Report 458: Defence Major Projects Report (2014–15), (2016), Recommendation 3, p. 50.

      92 Joint Committee of Public Accounts and Audit, Parliament of the Commonwealth of Australia, Report 468: Defence Major Projects Report (2015–16), (2017), Recommendation 2, p. vii.

      93 Auditor-General Report No.19 2019–20 2018–19 Major Projects Report, paragraphs 1.65 to 1.67.

      94 Department of Defence, PM 006 – Lessons – CASG Lessons Program, Version 2.0, Defence, Canberra, 2020.

      95 Auditor-General Report No.20 of 2017–18, 2017–18 Major Projects Report, paragraphs 1.61–1.62, p. 32.

      96 The following projects which have exited the MPR, had also achieved FOC with caveats: Wedgetail (achieved FOC with caveats in 2015), Overlander Light (achieved FOC with caveats in 2016), and ARH Tiger Helicopters (achieved FOC with caveats in 2016).

      97 This project was removed from the 2019–20 MPR and its status has been reported in the Statement by the Secretary of Defence in Part 3 of this report.

      98 This project was removed from the 2019–20 MPR and its status has been reported in the Statement by the Secretary of Defence in Part 3 of this report.

      99 This requirement was first included in the 2018–19 Major Projects Report Guidelines endorsed by the JCPAA in September 2018. The 2019–20 MPR Guidelines are included in Part 4 of this report.

      100 A project’s budgeted cost and schedule data is at 30 June 2020, and may differ from originally approved budgets and schedules.

      101 Future Frigates and Future Subs are excluded from this analysis as they do not yet have FOC milestones approved by Government.

      102 Between First Pass Approval in May 2015 and Second Pass Approval in August 2017, Government approved $65.6 million of funding to undertake these activities.

      103 The JCPAA has observed that ‘Defence remains behind the Committee’s expectations on working to update Project Maturity Scores – the Committee recommended reform in this area several years ago, and changes remain slow and uncertain.’ Joint Committee of Public Accounts and Audit, Parliament of the Commonwealth of Australia, Report 473: Defence Major Projects Report (2016-17), (2018), p. 4. Refer to paragraph 1.71. The JCPAA has since agreed to the removal of Project Maturity Scores from PDSSs from the 2020–21 MPR. As discussed in paragraph 1.72, Defence has advised that the Project Maturity Score will no longer be required as an input to the management of project performance and that an alternative to replace the Project Maturity Score currently included in its PDSSs will not be implemented.

      104 See also paragraphs 1.39 to 1.40.

      105 See Note 2 of Figure 4, below, for further information.

      106 Prior to 1 July 2010, projects were periodically supplemented for price indexation, whereas the allocation for price indexation is now provided for on an out-turned basis at Second Pass Approval.

      107 Australian Government arrangements for foreign exchange variation involve ‘no win/no loss’ supplementation. As a matter of policy, unless specifically approved, individual entities are not permitted to ‘hedge’ against foreign exchange risk.

      108 Real Variations include ‘Scope’ changes attributable to changes in requirements by Defence and government; ‘Transfers’ which occur when a portion of the budget and corresponding scope is transferred to or from another approved project or sustainment product in Defence; ‘Budgetary Adjustments’ made to account for corrections resulting from foreign exchange or indexation accounting estimation errors; ‘Real Cost Increases’, where funds have been approved by government to increase the Project’s budget (generally without a change in scope); and ‘Real Cost Decreases’, where funds have been handed back to the Defence portfolio.

      109 See Table 2 in Part 1 of this report.

      110 Extensions to planned withdrawal dates may involve additional costs relating to the maintenance and servicing of equipment, and may give rise to consideration of life of type extensions (LOTE).

      111 M Kinnaird, Defence Procurement Review 2003, Department of Defence, Canberra, 2003.

      112 Refer to footnote 14 for more detail.

      113 Future Frigates and Future Subs are excluded from this analysis as they do not yet have FOC milestones approved by Government.

      114 The Defence Procurement Review 2003, also known as the Kinnaird Review, observed that off-the-shelf equipment can usually be delivered faster than equipment requiring development, and proposed that off-the-shelf alternatives must be one of the options put to government when seeking approval to procure a capability. M Kinnaird, Defence Procurement Review 2003, Department of Defence, Canberra, 2003.

      115 The 2015 First Principles Review identified technical risk as the major cause of post Second Pass Approval schedule slippage, and observed that schedule slippage causes cost escalation: D Peever, First Principles Review: Creating One Defence, Department of Defence, Canberra, 2015, p. 34 and p. 92. Defence’s implementation of the Review was examined in Auditor-General Report No.34 of 2017–‍18 Defence’s Implementation of the First Principles Review.

      116 Discussed in footnote 114.

      117 Auditor-General Report No.19 of 2019–20 2018–19 Major Projects Report, paragraph 2.27.

      118 Refer to footnote 24.

      119 Future Frigates and Future Subs are excluded as they do not yet have FOC dates approved by Government.

      120 Hornet Refurb and BMS are excluded as they did not have FOC dates approved by Government.

      121 Of the five projects added to the MPR in 2019–20, three are developmental (Future Subs, MQ-4C Triton, and Battlefield Command System). Of these projects, MQ-4C Triton has experienced 43 months of schedule slippage and Battlefield Command System has experienced 16 months of schedule slippage. Future Subs does not yet have an FOC milestone approved by Government and is not shown in Figure 8.

      122 See the Hawkei PDSS in Part 3 of this report.

      123 As discussed in paragraph 2.29, developmental projects have become more common since 2014.

      124 Schedule slippage is defined in footnote 24.

      125 See the ANZAC ASMD 2B and Collins R&S PDSSs in Part 3 of this report.

      126 Auditor-General Report No.6 2013–14 Capability Development Reform, paragraphs 9.1 to 9.4, pp. 198–199.

      127 Further information on MRH90 Helicopters can be found in Auditor-General Reports No.48 2008–09, Planning and Approval of Defence Major Capital Equipment Projects, pp. 84, 90 and 133; No.52 2011–12 Gate Reviews for Defence Capital Acquisition Projects, pp. 86–87 and pp. 130–133; and No.52 2013–14 Multi-Role Helicopter Program.

      128 Similarly, the ARH Tiger Helicopters project, which exited the Major Projects Report in 2016–17, was originally misidentified as MOTS by Defence and was subsequently reclassified as being more developmental. See Auditor-General Report No.11 2016–17 Tiger—Army’s Armed Reconnaissance Helicopter, paragraphs 1.7 and 2.3.

      129 Future Frigates and Future Subs are excluded from this analysis as they do not yet have FOC milestones approved by Government.

      130 In the Statement by the Secretary of Defence found in Part 3 of this report, the Secretary also makes reference to additional information on achieved milestone dates for the Future Subs, P-8A Poseidon, Hawkei, Repl Replenishment Ships, and Night Fighting Equip Repl projects.

      131 Tables 4 and 5, on pages 15 and 16 respectively, report on the slippage for each project that has been in the MPR since 2007–08.

      132 Department of Defence, Capability Life Cycle Manual, Defence, Canberra, 2020, p. A-2.

      133 ibid p. 13.

      134 As per the 2019–20 MPR Guidelines, a project is defined as the acquisition or upgrade of Specialist Military Equipment, which normally excludes facilities and other Fundamental Inputs to Capability. The 2019–20 MPR Guidelines also note that the MPR may report on associated sustainment activities (where applicable).

      135 Auditor-General Report No.17 2010–11 2009–10 Major Projects Report, p. 35.

      136 The most recent PDSS references a number of issues that are expected to have an ongoing effect on sustainment. The aircraft has been affected by structural fatigue, difficulty obtaining spares, low availability, poor build quality and design limitations. See the Battlefield Airlifter PDSS in Part 3 of this report.

      137 Source: Department of Defence, Defence Portfolio Budget Statements 2019–20, Defence, Canberra, 2019, p. 60.

      138 Source: Department of Defence, Defence Portfolio Budget Statements 2020–21, Defence, Canberra, 2019, p. 63.

      139 Joint Committee of Public Accounts and Audit, Parliament of the Commonwealth of Australia, Report 442: Inquiry into the 2012–13 Defence Materiel Organisation Major Projects Report, (2014), pp. 37–39. Joint Committee of Public Accounts and Audit, Parliament of the Commonwealth of Australia, Report 458: Defence Major Projects Report (2014-15), (2016), pp. 48–49.

      140 Joint Committee of Public Accounts and Audit, Parliament of the Commonwealth of Australia, Report 468: Defence Major Projects Report (2015–16), (2017), Recommendation 1, p. vii.

      141 Department of Defence, written submission to the Joint Committee of Public Accounts and Audit, Inquiry into the 2016-17 Defence Major Projects Report, p. 1.

      142 Joint Committee of Public Accounts and Audit, Parliament of the Commonwealth of Australia, Report 473: Defence Major Projects Report (2016–17), (2018), p. 2.

      143 Commonwealth, Public Hearing, Joint Committee of Public Accounts and Audit, 27 May 2020, Mr T Fraser, Deputy Secretary, Capability Acquisition and Sustainment Group, Department of Defence, p. 3.