1.24 As an introduction to the PDSS in the pilot report, the 2007-08 DMO MPR included a brief explanation of the DMO's business. In this Chapter we provide a snapshot of the key changes to the DMO's business. In particular, the Government's response to the September 2008 Report of the Defence Procurement and Sustainment Review led by Mr David Mortimer AO (the Mortimer Report) (to the extent that these recommendations may influence how the DMO's major projects will be managed) and the Strategic Reform Program (SRP).
1.25 Reforms that flow from the Government's response to the Mortimer Review cover the complete life cycle of capability systems. The reforms follow two themes:
● imposing commercial discipline on Defence procurement and sustainment processes; and
● making the DMO more business-like.
1.26 Among the reforms that the Mortimer Review will deliver are:
● ensuring that high quality strategic and capability advice is provided to Government to enable it to set strategy and prioritise needs; and
● increasing the rigour with which projects are assessed for entry into the Defence Capability Plan (DCP) and ensuring the DCP's affordability including the impact on future personnel and operating costs.
1.27 A further important focus of the reform will be to strengthen the role and accountability of the Capability Managers (Service Chiefs, the Vice Chief of Defence Force, Deputy Secretary Intelligence and Security, and the Chief Information Officer). Defence will implement a framework through which the Capability Managers provide greater oversight and co-ordination of all elements necessary to introduce a capability into service. The framework will include mechanisms to ensure that the DMO, the Capability Managers, and the Capability Development Group (CDG) work together to agree the baseline scope, cost, risk and schedule against which the delivery of equipment can be measured.27
1.28 The Response to the Defence Procurement and Sustainment Review noted:
"The scope, cost and schedule of Defence equipment acquisitions will be better defined in the business cases considered by Ministers (or the National Security Committee of Cabinet) through the Two Pass process. There will be greater consistency and tighter control of changes between Ministerial approvals at the highest level, and the management of project implementation on a day to day basis. This will ensure that key project characteristics and outcomes are identified at the outset, and carried through to completion, or reviewed and changed if necessary through a disciplined process involving Government."
"To assist in developing greater clarity in the capability planning process a Project Directive, based on the project approval decisions made by Government, will be issued immediately following Government approval at Second Pass. A draft Directive will be included in the submission to Government. The Project Directive will provide the top level direction from the Chief of the Defence Force (CDF) to the Capability Manager to introduce the full operational level capability into service by the date agreed upon by Government. It will articulate the respective roles of the Defence Groups, the Services and DMO in delivering their elements of the project."
"The DMO, supported by Defence Groups and Services, will have formal responsibility and accountability for developing estimates, information and advice relating to the cost, schedule and risk of equipment acquisition upon entry of a capability into the DCP and for developing the acquisition strategy."
1.29 The DMO is responding by enhancing elements of its governance. The overarching Memorandum of Arrangements between the Secretary, CDF and the CEO DMO is under review to ensure the respective responsibilities and accountabilities for Defence and the DMO are clearly described and delineated. Materiel Acquisition Agreements (MAAs) between Defence and the DMO, under which the DMO acquires materiel systems for major capital equipment investment projects, will be improved to ensure MAAs remain consistent with approval decisions made by Government and clarify when the responsibility for a new capability passes to the Capability Manager from the DMO. Consistent with this intent, the DMO is introducing two delivery milestones -Initial and Final Materiel Release - which mark the transition of materiel from the DMO to the Capability Manager. The Services and Defence Groups will remain responsible for delivering the other necessary Fundamental Inputs to Capability (FIC). When this change is finalised, the DMO proposes to report on Initial and Final Materiel Release as the milestones most relevant to the DMO's responsibility for delivery.
1.30 In future, the DMO will be responsible and accountable for developing military equipment costs, conducting schedule and risk analysis, and developing and implementing an acquisition strategy, including when acquisition under public-private partnership arrangements might be appropriate. Defence Groups will remain responsible for other inputs to capability.
1.31 Defence will provide Government with clear information on the costs and benefits of Off-the-Shelf (OTS) options for all procurements. There will be occasions when no OTS solution exists; for example to meet Australian regulations or to provide interoperability with the rest of the ADF. In such cases, the Commonwealth will accept the development risks.
1.32 The DMO will continue to increase the commercial acumen of its staff by seeking to employ more commercially experienced and skilled personnel especially at the Senior Executive Service (SES) level. To this end the DMO has commenced recruitment of a SES Band 3, General Manager - Commercial, with extensive private sector experience, who will support the CEO DMO to achieve a more business-like focus throughout the DMO. This position will also play a major role in the development of acquisition strategies for major projects and ensure sound commercial advice is provided throughout the capability development process.
1.33 For complex and demanding projects (Acquisition Category - ACAT -1 and 2 projects), the authority, responsibility and accountability of the project manager is now formally detailed in a Project Charter which will hold the Project Manager to account for meeting both financial and non-financial performance targets. Similarly, Product Charters have been enacted for the DMO's System Program Office Directors (for Materiel Sustainment - Category A and B products) who manage the sustainment of significant in-service assets.
1.34 The DMO has also instituted Gate Review Assurance Boards to examine its complex and demanding projects before crucial points in the lifecycle - both pre and post Second Pass Government approval - to probe project performance risks and direct remedial strategies where necessary.
1.35 Under the Defence Strategic Reform Program, the CEO DMO is accountable for the Smart Sustainment reform stream - to identify ways of delivering a better equipped and prepared ADF at a lower cost. The Smart Sustainment stream includes inventory reform and three elements previously in the Non Equipment Procurement reform stream - ADF clothing, explosive ordnance and fuel. The DMO will be responsible for delivering $5.5 billion of the $20 billion SRP savings over 10 years. Importantly, the DMO will adopt a systems approach and seek savings from sustainment of the force in being, the design of future support/sustainment systems, the delivery of projects, and the internal costs to deliver acquisition and sustainment outcomes.
1.36 The DMO has reprioritised resources to establish a new Acquisition and Sustainment Reform Division to drive reform and manage implementation of the Mortimer reforms and Smart Sustainment. This Division also has responsibility for standardisation across the DMO and implementation of the Government endorsed Mortimer recommendations.
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27 The Strategic Reform Program DELIVERING FORCE 2030, page 13.