5.43Developing the Capability Acquisition and Sustainment Group Business Framework is the first component of First Principles Review Recommendation 2.11, which provides: that there be significant investment in the development of an operational framework which briefly but comprehensively explains how the organisation operates and the roles and responsibilities within it (the full recommendation is set out in paragraph 5.5, above). However, in 2013, a further report by external consultants stated that Defence needed an integrated, whole-of-life approach to sustainment and that Defence could realise significant benefits by modelling the management of their assets on the approach taken by commercial organisationsan asset management approach. That data showed the performance of the Collins Class submarines fell well below that of international comparator submarine fleets.b The review also found the cost effectiveness (cost per materiel ready day)c of the international navies fleets was at least twice that of the Collins Class sustainment program. The cut was subsequently referred to within DMO as a harvesting of fat within the products readily absorbed by relevant Systems Program Offices and Divisions.103 The CEO DMO also wrote to the CEOs of companies undertaking sustainment work for DMO seeking their support. The report also acknowledged that contract amendments were made to introduce a revised performance management regime. Setting the Direction 3. The nature of the contracts provides an inherent disincentive for contractors to improve platform supportability of their own accord as the quantum of their financial reward is often directly linked to the volume of repairs conducted.150. In its 201415 Annual Report, Defence claimed to have achieved $2billion of savings from the initiative in its first five years. CASG employs more than 7000 military, civilian and contracted staff in more than 70 locations around Australia and internationally. 17ANAO comment: The Secretary is the Departments accountable authority under the Public Governance, Performance and Accountability Act 2013. 204The Rizzo Review of naval sustainment was triggered by early decommissioning of HMAS Manoora, the extended unavailability of HMAS Kanimbla and the temporary unavailability of HMAS Tobruk. consolidation and review of Systems Program Offices; any further development of Defences approach to asset management. 39Capability Acquisition and Sustainment Group Cost is the MSA-related expenditure. In November 2016, the contract was amended and increased by $32 million. Defence records show that the department made substantial efforts to keep track of the large number of diverse initiatives identified across the department under the smart sustainment reforms associated with the SRP, including internal reporting to management. It is an overarching element in progressing First Principles Review implementation in Capability Acquisition and Sustainment Group. 2.19Following the First Principles Review, Capability Acquisition and Sustainment Group is undertaking a project to reform and consolidate Systems Program Offices. 57Final operational capability is a milestone in a Defence major capability project that marks the point at which the Capability Manager agrees that final capability can be operationally employed. Defence conducts reviews of sustainment performance through sustainment gate reviews that help Defence to obtain insight into a project or products progress and status. 5.17As set out above (paragraph 5.8), the activities most likely to affect the management of sustainment are: 5.18When Defence established Systems Program Offices in 2000 as the focus of the newly created DMO, Systems Program Offices were to have the following characteristics: 5.19Defence has more recently (April2016) defined Systems Program Offices as: a business unit that works directly with Capability Managers and Suppliers as necessary to deliver agreed capability across the [Capability Life Cycle], coordinating the [Fundamental Inputs to Capability] elements required to achieve this objective.133. 442, Review of the 201213 Defence Materiel Organisation Major Projects Report. In the USA performance-based logistics (PBL) is also used. Generally, this comprises a description of the asset and an account of the focus of Defences sustainment effort during the prospective year. Defence decided to migrate only material, high-risk existing contracts onto its central register. The framework had enabled Defence to clearly identify roles and responsibilities at a functional level, and individual agreements documented funding, deliverables, risks and performance measures for sustainment products. 5.35The problem of existing contract arrangements was described as follows by an RAAF officer in 2005, with a special focus on ageing aerospace platforms: The typical [support entity] entails a Systems Program Office managing a variety of small to large volume-based, process-oriented contracts. In this context any proposal for new reporting requirements will need to consider if the new information might be aggregated to disclose classified information on capability readiness and availability.. The terms of reference were also accompanied by a range of issues for consideration, among which was How Defence sustains and supports capabilities and extending lessons from the Coles review [of Collins Class submarine sustainment] across all areas of sustainment. Note a:Data is current as at 24February2017. Mortimer also recommended that a general manager Commercial[5] position be created to implement a business-like focus throughout the organisation. 203Defence, The Helmsman Sustainment Complexity Review, July 2010, p. 29. 33. 75Defence, First Principles Review, April 2015, p. 14. Such visibility would enhance Defences ability to benchmark its sustainment performance against allied countries with similar equipment. Reforms to the management of sustainment flowing from the First Principles Review remain at an early stage, and this stream of activity is likely to take much longer than the expected two years. DMO's stated vision was to become the leading program management and engineering services organisation in Australia. 70Defence, Mortimer Review, Recommendation 4.4.

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