16. The ANAO's analysis indicates that maintaining major acquisition projects on schedule remains a major challenge for the DMO and industry contractors, affecting when the capability is made available to the ADF as the end user.
17. In analysing the history of the 15 projects covered in the 2008-09 MPR, eight project schedules slipped by a total of 378 months against original dates for achieving final operational capability (FOC).4 The main projects to experience significant schedule slippage are HF Modernisation (74 months), Collins RCS (72 months), FFG Upgrade (65 months), Wedgetail (48 months), ARH Tiger (42 months), Armidales (33 months) and Bushranger (26 months). Across the 15 major projects, on average, this results in a slippage of just over two years against original target dates for achieving FOC.5
18. In analysing the in-year (2008-09) changes to the status of the 15 projects in this report, seven projects have experienced in-year schedule slippage totalling 119 months or an average seven per cent increase in the FOC schedule across the 15 projects.6 This slippage in turn affects budget performance, related projects and other administrative processes, for example, the timing of ADF training programs.
19. The ANAO analysis underlines the importance of the focus applied to schedule performance by DMO as an effective means of managing schedule and budget performance within the control of DMO.
20. The main drivers for budget supplementation during 2008-09 have been the impact of price indexation for material and labour, and movements in foreign exchange rates. As Defence projects can extend over a number of years, supplementation to project budgets to deal with labour and material price changes and foreign exchange variations are generally a standard budget feature. Across the life of 13 projects7 in the 2008-09 MPR, as at 30 June 2009, price and exchange variations comprised 52 per cent ($3.7 billion) and 21 per cent ($1.5 billion) respectively of the variation to the original approved budgets. The real variations to the project budgets amounted to 27 per cent ($2 billion).8
21. In terms of real budget increases, a significant proportion is related to Government decisions to acquire additional quantities of equipment after initial approvals or the merging of a previously separate project into another, resulting in increases to project budgets.9
22. The third major dimension in assessing DMO's performance with major acquisitions is the extent to which capability is delivered in accordance with requirements specified by the ADF. The 2008-09 MPR provides limited data in this area, partly reflecting DMO concerns with the security implications of providing capability progress information across all projects in a public report. Nevertheless, data included in the 2008-09 MPR involving traffic light (green, amber and red) indicators about DMO's level of confidence with achieving the key capability attributes of a project show that for the nine projects in the 2007-08 MPR, there has been a slight increase (three per cent), to 83 per cent, in the percentage of key capability attributes DMO has a high level of confidence in meeting, as at September 2009.10
23. DMO has agreed to explore the options of enhancing disclosures in relation to capability for future MPRs in the light of JCPAA interest in this key area of project performance.
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4 FOC is the point in time at which the final subset of a capability system that can be operationally employed is realised. FOC is a capability state endorsed by Government at Second Pass Approval and reported as having been reached by the capability manager. Major capital equipment can be in Defence service use before formally achieving FOC.
5 In the case of the eight projects which have experienced slippage to their FOC dates, this represents an average delay of just under four years.
6 See Part 1, Figure 7.
7 This data does not include the MRH90 and LHD Ships projects as the acquisition strategies involved a small initial budget approval. In the case of MRH90, the project's approved budget at the Government's Second Pass Approval stage was just under $1 billion, and in the case of LHD Ships, almost $3 billion.
8 An explanation of the definition of real variations is included at Part 1, paragraph 1.6.
9 See Part 2, Table 3.2.
10 For the 2008 - 09 MPR, DMO decided not to include capability data in the PDSSs, for ANAO review. Instead, DMO decided to provide a capability section in its report (Part 2), which is outside the scope of the ANAO ' s assurance review.