Report No. 52 of 2013-14 – Defence procurement activities Auditor-general’s Reports

I would like to take note of Auditor-General’s report No. 52 of 2013-14. I would like to place on record my appreciation for an excellent report, yet again, from the Auditor-General and his staff, who have consistently provided very technically accurate and insightful reports into a number of Defence procurement activities. The comments in this report support many of the findings that the Senate review of Defence procurement in 2012 found, but they do not highlight some of the interactions between Defence, DMO and government that have shaped the outcomes that have been so accurately reported in the ANAO report. I would just like to go to a few of those, because if Australia is to learn from our past mistakes and make sure that we have successful Defence procurement in the future we do need to understand that no part of the Defence procurement system operates in isolation. Just as we apply systems engineering concepts to technical equipment, we do need to apply the same process to understanding all of the inputs and constituent parts of the process that guides and shapes the efficacy of Defence procurement.

I note that the report goes into quite some detail about the fact that the requirements definition was not as thorough as it could have been. Both the operational concepts document and the functional performance specification were identified as having significant gaps in areas, which then led to the Commonwealth having no contractual basis to require performance from the contractor. As highlighted in the Senate report of 2012, there were a number of reasons for this lack of knowledge. One of the clearest was that the people with the appropriate skill sets to identify risk, the people who are best qualified—and the ANAO report specifically looks at the degree of immaturity of the platform and the status of its development and certification—are people with developmental, test and evaluation expertise. In fact, the ADF for many years, across all three services, has funded the training of personnel and the maintenance of organisations to provide those skill sets to support exactly this kind of procurement activity.

The interaction, though, of government and the expectations around the outcomes of things like the Kinnaird and Mortimer reviews, where there is an emphasis on military off-the-shelf acquisition, means that a culture develops where people say, ‘We no longer need those skill sets, because we are going to be buying things off the shelf.’ The risk appetite of the government, of the media and of Defence is set around this expectation that everything is going to be off the shelf and therefore all the risk is carried by the contractor and the Commonwealth does not need to invest in understanding that.

And we saw with MRH—and again it was highlighted in the Senate report—that what is known as a preview evaluation was not conducted, which means that the people who were technically competent to identify the risk were not employed by the Commonwealth to go and do that activity, because it is supposed to be a military off-the-shelf acquisition. So the very people who would have been able to say, ‘There are problems with maturity’ were not tasked, because of the expectation that was set by government to Defence.

If you read the report you will find there is a table that looks at certain elements of capability that were fully defined. They highlight the fact that there was a pre-contract functional performance specification as well as a contract functional performance specification. My strong recollection, when I used to run the ADF’s flight-test organisation—it is of some years ago, so I am happy to be corrected—was that some of the people who worked for me were working within the acquisition organisation, helping to create the functional performance specification pre-contract and faithfully following Defence’s laid-down procedures of tracing requirements from the operational concept document to what that meant functionally for the platform. But the directive came through quite late in the process: ‘This was a military, off-the-shelf aircraft. We’re not going to be able to change anything, anyway, so take out all of those detailed requirements because we will live with what we are delivered.’

The flaw in that process has now been shown, in that, whilst the government and Defence seek to minimise risk in the acquisition process, by going for an off-the-shelf acquisition the people who have to operate the aircraft—normally the service chief is the responsible person, the airworthiness authority, for that particular platform—are responsible for making sure that it is safe for the people who are using it. There are a number of standards that they need to meet in terms of things like crashworthiness or the ability of the aircraft to operate in a given environment—for example, by night. So things like crashworthy seating and the infrared searchlight that is used when operating by night were flagged ahead of the contract. Yet, because it was delivered as, ‘We’ll take what we get,’ the service chief could not put his hand on his heart and send people into the field with that. So it has had to be rectified at some considerable cost.

So this interaction of government expectations drives deficient functional performance specification in the contract, which then drives further cost and delays in the actual program. So we need to step back collectively—as the executive on this side of the lake, with Defence on the other side of the lake and with industry—and be open about the fact that if we are going to acquire Defence capability that is modern, current, there is a good chance that there will be some technical risk. That is not always the case, but it often is. And if we pretend that we can transfer all the risk to industry, or if we pretend that risk does not exist, we will end up, again and again, being disappointed.

Government, the media, industry, and Defence need to recognise that there will be risk. We need to retain the skill sets in the appropriate organisations within Defence so that they can be tasked to identify the risk, because only when it has been identified—when our systems are transparent enough that that is then elevated to the appropriate decision makers—can we manage the risk.

And if that risk had been identified and managed earlier—we have seen the same things in the refuelling aircraft and the armed reconnaissance helicopter and other Defence projects—and if expectations had been managed, then both the schedule and the cost would have been managed so that that Defence got the capability it wanted and when it expected it and could have retired its legacy capabilities and had postings in place for its people, as opposed to having high expectations of a quick delivery, which did not result.

It also results in particular types of aircraft being unfairly blamed. People are making the comment that European aircraft are dreadful and that we should never go there again, we should only buy aircraft from the US. They forget, perhaps, that in the early days of the Black Hawk fleet—again because of spare parts and other design issues—the availability of that fleet was very low, and it took some time for it to reach the mature capability that it has now demonstrated.

So I am sure that both ARH and MRH will, in time, develop to be very capable aircraft. There are still some inherent issues with the MRH in terms of things like the door gun and the fact that that impedes the roping device and the ability for people to get through the door while the gun is in place. That will be a lifelong issue that, again, could perhaps have been picked up had a preview evaluation been done. But the reality is that any capability is a system of systems. And we need to look at the role of government, Defence, industry and even the media, in terms of setting expectations and schedule pressures so that we work collaboratively to understand those elements. We need to work towards a system where we identify risk and manage it so that the taxpayer can be assured that their money is being used effectively and we can be assured that the men and women in our Defence Force have equipment that is safe and fit for purpose, so that they can achieve the tasks that we give them. I seek leave to continue my remarks later.

Leave granted; debate adjourned.