Introduction

1. The Defence Materiel Organisation (DMO), which is responsible for developing and sustaining capability for the Australian Defence Force (ADF) in support of Australia's national security, expended some $4.8 billion in 2008-09 on major and minor capital acquisition projects.¹

2. Defence acquisition projects are the subject of considerable Parliamentary and public interest, in view of their planned contribution to national security and the challenges in bringing major projects in on time, within budget and with the required capability.

3. Various Parliamentary committees, in particular the Joint Committee of Public Accounts and Audit (JCPAA) and the Joint Standing Committee on Foreign Affairs, Defence and Trade, have supported the development of an annual report on the progress of major Defence acquisition projects to improve transparency and accountability. Following consultation with key stakeholders, the Auditor-General agreed to perform a review and report yearly to the Parliament on major Defence acquisition projects. Government funding to the ANAO in the May 2008 Budget enabled the establishment of a Major Projects Report (MPR) program, with the first report tabled by the ANAO in November 2008 (2007-08 MPR).

4. This second report covers 15 projects, an increase of six projects on the first report. The approved budget for the 15 projects totals $37.8 billion, as at 30 June 2009 (Table 1).

5. The 2009-10 MPR is scheduled to report on the progress of 23 major projects, with up to 30 projects in future years. The ANAO's review of these projects will be additional to its regular program of performance audits and financial statement audit work conducted in the Defence portfolio.

Table 1

2008-09 MPR Projects and Approved Budgets at 30 June 2009

Project	Project No.	DMO Abbreviation	Approved Budget $m
Air Warfare Destroyer Build	SEA 4000 Ph 3	AWD Ships	8 261
Bridging Air Combat Capability	AIR 5349 Ph 1	Super Hornet	4 310
Multi-Role Helicopter	AIR 9000 Ph 2, 4 and 6	MRH90	4 199
Airborne Early Warning and Control Aircraft*	AIR 5077 Ph 3	Wedgetail	4 154
Amphibious Deployment and Support	JP 2048 Ph 4A/4B	LHD Ships	3 542
Armed Reconnaissance Helicopter*	AIR 87 Ph 2	ARH Tiger	2 101
Air to Air Refuelling Capability	AIR 5402	Air to Air Refuel	2 088
C-17 Globemaster III Heavy Airlifter*	AIR 8000 Ph 3	C-17 Heavy Airlift	2 055
F/A-18 Hornet Upgrade*	AIR 5376 Ph 2	Hornet Upgrade	2 042
Guided Missile Frigate Upgrade Implementation*	SEA 1390 Ph 2.1	FFG Upgrade	1 537
F/A-18 Hornet Upgrade Structural Refurbishment	AIR 5376 Ph 3.2	Hornet Refurb	938
Bushmaster Protected Mobility Vehicle*	LAND 116 Ph 3	Bushranger	931
High Frequency Modernisation*	JP 2043 Ph 3A	HF Modernisation	661
Armidale Class Patrol Boat*	SEA 1444 Ph 1	Armidales	535
Collins Replacement Combat System*	SEA 1439 Ph 4A	Collins RCS	459
Total			37 813

Source:	2008-09 MPR, Part 2.
Note 1:	*Indicates the project was included in the 2007-08 MPR. The 2007-08 MPR covered Hornet Upgrade Phase 2.2; the 2008-09 MPR covers all Phase 2.
Note 2:	Approved Budget figures have been rounded to nearest $ million.
Note 3:	The Bushmaster Protected Mobility Vehicle is also known as 'Project Bushranger'.

6. The complexity of projects in the report range from military-off-the-shelf (MOTS) capability solutions, such as the purchase of the C-17 Heavy Airlift project, to highly developmental projects such as the Wedgetail aircraft. A useful way to grade the complexity of projects is DMO's Acquisition Category framework, as set out in Table 2, which categorises projects according to their nature, schedule management complexity and technical difficulty.

Table 2

Project Complexity at 30 June 2009

Acquisition Category	Projects
ACAT I Extensive project and schedule management complexity and very high levels of technical difficulty.	AWD Ships, Wedgetail, LHD Ships
ACAT II Significant project and schedule management complexity and high levels of technical difficulty.	Super Hornet, MRH90, ARH Tiger, Air to Air Refuel, C-17 Heavy Airlift, Hornet Upgrade, FFG Upgrade, Hornet Refurb, HF Modernisation, Collins RCS
ACAT III Traditional project and schedule management techniques and moderate levels of technical difficulty.	Bushranger, Armidales
ACAT IV Traditional project and schedule management requirements and low levels of technical difficulty.

Source:	2008-09 MPR, Part 2.
Note:	The complexity of a project will vary over its life-cycle. A project's Acquisition Category is reviewed by DMO at key stages of procurement.

7. The more complex the project, the greater the risk in delivering within budget, on schedule and to the required capability.2 DMO's experience supports the view that the more developmental in nature a project, the more susceptible a project is to schedule delays compared to MOTS solutions. DMO has provided further analysis on schedule performance in the DMO section of the report.3

8. Chapter 1 contains further analysis of project performance in terms of budgeted cost, schedule and capability.

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1 Department of Defence, Defence Annual Report 2008-09, Volume 2, p.28.

2 The 2009 review by The Helmsman Institute, commissioned by the DMO, comparing project complexity between Defence and other sectors, found that Defence projects are more complex than private sector projects, and that current levels of project complexity are likely to continue and may increase. However, the review also noted that some of the causes for complexity were driven by the Australian Defence Force requirements such as decisions made by Defence, Government policy and sector approaches.

3 See Part 2, paragraphs 3.12 to 3.14.