27. The ANAO's analysis of the lead or main capability for the 28 Major Projects covered in the 2010-11 MPR shows that 14 projects have experienced schedule slippage. The total slippage across the Major Projects amounts to 760 months, which represents a 31 per cent increase on the original planned schedule for achieving FOC.19
28. However, some of the additional projects included in this year's MPR are at a comparatively early stage. The impact of 'new' projects, which are less likely to have yet recorded schedule slippage, will tend to reduce the average overall. As the 2010-11 MPR has reached a point where total project numbers have predominantly stabilised, this impact should be limited in future years.
29. The projects currently forecast to experience delays of four or more years are: High Frequency (HF) Modernisation (134 months); Collins Reliability and Sustainability (99 months); FFG Upgrade (84 months); Collins Replacement Combat System (72 months); ANZAC Anti-Ship Missile Defence (ASMD) Phase 2A (72 months); ANZAC ASMD Phase 2B (57 months) and Wedgetail (48 months).
30. Analysis of the 2010-11 PDSSs indicates that seven of the 28 projects in this report have experienced in-year schedule slippage totalling 72 months. These involve: HF Modernisation (14 months); Air to Air Refuel (12 months); AWD Ships (12 months); C-17 Heavy Airlift (11 months); ANZAC ASMD Ph 2A (eight months); ANZAC ASMD Ph 2B (eight months) and Hornet Upgrade (seven months). In contrast, the expected FOC date for the Armidales project decreased by one month.
31. As shown in Chapter 2, 61 per cent of the total schedule slippage relates to the initial nine projects reported on in the 2007-08 MPR.
32. Further disaggregation according to a project's Second Pass Approval shows that 88 per cent of the total schedule slippage across the Major Projects covered in the 2010-11 MPR is made up of projects approved prior to the DMO's demerger from the Department of Defence, in July 2005. This is a positive indicator of the benefits that the DMO, as a specialist acquisition and sustainment organisation, is able to bring to complex Defence procurement.
33. The reasons for schedule slippage vary but primarily reflect the underestimation of both the scope and complexity of work by industry and the Defence Organisation. PDSS data shows that for more complex projects, the ability of industry to meet the capacity required (AWD Ships) and the technical specification involving system design and integration (Wedgetail), is often significantly underestimated compared to the original planned schedule.
34. The Defence Organisation's standard practice does not involve an independent third party review of a project's planned schedule prior to the provision of the forecast project schedule to government for approval at Second Pass. In the last few years, the DMO has introduced the option for a DMO Gate Review Assurance Board considering the readiness of a project to proceed to Second Pass and to request an independent review (known as a non-advocate review) if this is considered necessary.
35. The DMO classifies projects as Military-Off-The-Shelf (MOTS), Australianised Military-Off-The-Shelf (AMOTS) or Developmental.20 These classifications are a generic indicator of the level of difficulty in the procurement process. Following the Kinnaird and Mortimer reviews, increasingly government has required the Defence Organisation to pursue MOTS/Commercial-Off-The-Shelf (COTS) capability solutions, where such solutions exist that can deliver the required capability.21 The intention of this policy is to reduce the risk associated with the acquisition of new capability by limiting the Defence Organisation's exposure to the additional risk associated with Developmental projects.
36. However, where acquisitions are inappropriately classified as MOTS but are actually Developmental in nature, significant schedule slippage is likely. The ANAO identified a significant example of the impact of such misclassification in its 2009-10 performance audit of Joint Project 2070-Lightweight Torpedo Replacement.22 Further examples of projects that have suffered from schedule slippage on similar grounds are the ARH Tiger Helicopters and the MRH90 Helicopters. As reflected in Table 4.2 of the 2009-10 MPR, the ARH Tiger Helicopters were far more developmental than envisaged at contract signature.23 The MRH90 Helicopters were originally categorised as an AMOTS solution but have now been assessed to be Developmental.24
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19 Source 1: In the instances where a Major Project has multiple segments/capabilities with separate FOC dates, the ANAO has used the project's current lead/main capability FOC for calculating schedule performance. The DMO's approach is to use the final FOC date for a project listed in the 2010-11 PDSSs. These two approaches, which are both valid measures, lead to a small difference in the calculated percentage by which the Major Projects' total schedule has slipped for the 2010-11 MPR (ANAO - 31 per cent; and DMO - 28 per cent). For example, the ANAO's methodology results in a slippage of 37 months for Bushmaster Vehicles based on production period 1, while the DMO's methodology results in 0 months slippage based on production period 4, which was approved in 2011.
Source 2: The Joint Strike Fighter, Hornet Refurb and UHF SATCOM projects do not have an FOC date and therefore are not included in schedule calculations.
20 Australian National Audit Office, 2010-11 Major Projects Report, Part 2, p. 108.
21 Defence Materiel Organisation, Defence Procurement and Sustainment Review, September 2008, p. 39.
22 ANAO Audit Report No.37 2009-10, Lightweight Torpedo Replacement Project, pp. 15-16.
23 Australian National Audit Office, 2009-10 Major Projects Report, Part 3, p. 219.
24 Gate Review Assurance Board, MRH90 Gate Review Outcomes, 15 April 2011.