Major Projects Challenges for 2010-11

2.5  The DMO will continue to face many challenges to successfully manage the increasing complexity of major acquisition projects to best meet the needs of the ADF in its primary role of defending Australia and its national interests.

2.6  The technical challenges of these projects are driven by the evolving nature of modern war fighting equipment and an increased reliance on interoperability, not only with existing and emerging ADF equipment and systems, but also in operation with our allies. Most importantly, the challenges of integration will continue to grow as the complexity and interoperability within and across weapons systems increase.

2.7  The Project Data Summary Sheets (PDSS) (refer Part 3) identify several challenges facing the major projects in coming years. The main challenges include:

●  Employing and maintaining an appropriately skilled workforce. This is particularly important for projects where the skills required are in high demand by other Australian industries. This strategic risk is being addressed through the DMO's Industry Capability programs;

●  The acquisition of new equipment presents multiple integration challenges for projects, and existing platforms, including: electronic systems, training and support systems (AWD Ships, LHD Ships, Wedgetail, MRH90 Helicopters, Air to Air Refuelling, HF Modernisation, Stand Off Weapon, and ANZAC ASMD 2B);

●  Contractor overestimation of the technical maturity of the equipment and an underestimation of the level of effort required to deliver new equipment including: integration, training packages, publications, spare parts and certification processes (Wedgetail, ARH Tiger Helicopters, Air to Air Refuel and Bushranger Vehicles);

●  The availability of in-service equipment, due to operational requirements, may limit the ability of projects to install and test new equipment in accordance with the original planned project schedule (HF Modernisation, Collins RCS, Hw Torpedo and Collins R&S);

●  The maturity of the maintenance and supply networks for new equipment to support the transition to in-service use by ADF units (Super Hornet, ARH Tiger Helicopters, C-17 Heavy Airlift and Anzac ASMD 2A);

●  Managing the expectations of our customers on changes to existing designs based on contemporary expectations and requirements that may affect project cost and schedule. Some of these changes may reflect recent operational experience (AWD Ships, Overlander Vehicles, Collins RCS and Stand Off Weapon);

●  The necessity to comply with increasingly demanding certification and regulatory requirements including emerging requirements (LHD Ships, Air to Air Refuel, Armidales, Hw Torpedo and Stand Off Weapon); and

●  Ensuring access to Intellectual Property to enable continued further enhancement and improvement of systems. This also has implications for the integration of new capabilities with existing systems (LHD Ships, Hornet Upgrade and FFG Upgrade).

2.8  Table 2.1 provides a summary of cost and schedule performance for the 22 projects and table 2.2 summaries the key characteristics of each project in terms of maturity and type. This analysis shows that while projects have been managed within approved budgets, schedule performance remains the key issue for delivery of projects.

Table 2.1 - Project Cost and Schedule Status

Table 2.2 Project Characteristics

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93  The portion of Second Pass (or equivalent) budget approved by Government, transferred to the DMO under a MAA with Defence for delivery of the materiel system.

94  The total of price indexation variations between Second Pass budget and the current budget.

95  The total of foreign exchange variations between Second Pass budget and the current budget.

96  The total value of all approved project scope changes between Second Pass budget and the current budget.

97  The total of all transfers to and from other Defence Groups (i.e. Defence Support Group) and DMO projects.

98  The total of all other budgetary adjustments (administrative in nature) outside of price indexation, foreign exchange, scope and transfer variations between Second Pass budget and the current budget.

99  Net variation accounts for budgetary movements outside of price indexation, foreign exchange, Government approved scope changes and transfer variations to the Second Pass budget as a percentage.

100  A schedule variance factor of 1 = on time; >1 = late; and <1 = early.

101  Of the $951.8m, $388.1 m of this relates to a real cost increase for contract price indexation beyond the supplementation provided by Government.

102  The ADF customer who will be the Capability Manager when equipment/ systems enter service.

103  'New' - a capability that has not previously existed in the ADF; 'Replacement - a current capability that is being replaced by more up to date technology or to respond to a changing threat; 'Upgrade' - an upgrade to existing capabilities.

104  'Developmental' - Involving substantial design development and systems integration; 'MOTS/COTS' - Off-the-shelf equipment of Military or Commercial origin; and 'Australianised' MOTS/ COTS, an off-the-shelf design with significant levels of unique adaptation for Australian requirements.

105  The DMOs categorisation of projects that represent the complexity of the project on a sliding scale of 1 to 4, with ACAT 1 representing the most complex projects.

106  Provides an indication of whether the projects were initially developed under pre-or post Kinnaird reforms.

107  Provides an indication of maturity of a project based on the benchmark stage of a project.

108  Identifies the entity that has prime systems integrator responsibility for delivering mission and support systems for the project.