casg cost principles

Once fully implemented this system should be capable of systematically reporting against a suite of performance indicators settled in agreement with Capability Managers. In July 2005, DMO became a Prescribed Agency under Australian Financial Management and Accountability legislation, meaning that although it remains a part of the Department of Defence, it was separately accountable to the Minister of Defence for its budget and performance. Source: Abstracted from Defence, Reform Issues, April2011. 95Since 201314, Defence has also reported estimates for sustainment by Defence Group/Service. Rizzos Recommendation 1 was that Navy and DMO should jointly establish practical methodologies for integrated through life asset and sustainment management (p. 38). Benchmarking the performance of the Collins Class submarines gave Defence a baseline against which to measure its progress in remediating the sustainment program. (b) The non-Federal entity assumes responsibility for administering Federal funds in a manner consistent with underlying agreements, program . 24Navys Fleet Screening instructions state that the focus of Navys review has evolved beyond a financial emphasis in light of the Rizzo Review to include consideration of how Navy and Capability Acquisition and Sustainment Group are meeting their obligations for whole of life sustainment of Navy capability. 3.9In September2016, Defence decided to expand SPMS to cover acquisition. [19], Capability Acquisition and Sustainment Group, Last edited on 19 February 2023, at 03:28, "First Principles Review: Creating One Defence", "Department of Defence Annual Report 202-21 | Performance Criteria | Criterion 10 | Manage the investment, acquisition and sustainment of Defence equipment, supplies and services to meet Government and Defence requirements", "DMO appoints industry supremo to drive reform", "Going to the Next Level The Report of the Defence Procurement and Sustainment Review", "Address to the Department of Defence Senior Leadership Group", "Fact Sheet: Smaller Government: Defence Materiel Organisation: Reintegration into the Department of Defence", "Defence extracts new deputy secretary from industry", Mortimer Review into Defence Procurement and Sustainment, https://en.wikipedia.org/w/index.php?title=Capability_Acquisition_and_Sustainment_Group&oldid=1140236078, Military Equipment Acquisition and Sustainment, inadequate project management resources in the. Nevertheless, the consultants considered the program was failing because of shortcomings in governance, program management, and Defences approach to reform described by a major vendor as minor reform, driven by piecemeal, top down budget pressure. To form a conclusion against the audit objective, the ANAO adopted the following high-level criteria: 1.8The scope of this performance audit is the management of sustainment of specialist military equipment. Defence began its Smart Sustainment reforms in early 2010 as part of the Strategic Reform Program Implementation package. The two most relevant tables for sustainment reporting are Web Table8.11: Top 30 sustainment products by expenditure, as forecast in the Portfolio Budget Statements 201516, and Web Table8.2: Top 30 sustainment products, performance summary as at 30June2016.193, Table A.4:Web Table8.11: Top 30 sustainment products by expenditure, as forecast in the Portfolio Budget Statements 201516, Variation (under)/over revised estimate $m, E-7A Airborne Early Warning and Control Capability System, AP-3C Orion Weapons System (Electronic Warfare), Navy Munitions, Army Munitions, Explosive Ordnance, Wide Area Surveillance Capability and Air Force Minor Projects, Command and Intelligence Systems Software Applications, Auxiliary Oiler Replenishment HMAS Success, Total sustainment product funds available. Defence had not developed robust capability and cost baselines for all capabilities, did not fully understand sustainment cost drivers nor whole-of-life costs for platforms. The Reviews terms of reference included one specific reference to sustainmenta requirement that Defence ensure a commercially astute, focused and accountable materiel acquisition and sustainment capability. Defence has not put in place plans to evaluate either the reforms themselves or its implementation of them. There is a proven link between lack of conformance to operating intent / requirement and reduced platform life / reduce Sustainment Efficiency. The cost principles are set forth in HHS regulations at 2 CFR Part 200, Subpart E, 45 CFR Part 75, Subpart E, and Appendix IX (Hospital Cost Principles) to Part 200 and Part 45. It is an output measure, which directly reflects achievement against the Sustainment Efficiency outcome. %%EOF An output measure, which directly reflects achievement against the Materiel Availability outcome. Defence has advised that Collins Class sustainment cost per materiel ready day has decreased by approximately 40percent. 27. 208Internally, other areas within Defence had earlier recognised the need for being smart buyers in procurement. The objective of the audit was to assess whether Defence has a fit-for-purpose framework for the management of materiel sustainment. For example, a note to Table21: Army Deliverables, which in relation to the Armys Armed Reconnaissance (Tiger) Helicopter, states while Tiger reliability, availability and maintainability continue to improve, rate of effort is affected by the low rate of availability of aircraft with fully serviceable mission equipment due to poor but improving contracted sustainment support and the requirement for unscheduled maintenance. This approach is problematic as it does not inform government of the total cost of the project across the life of the capability. A single defined and realistic requirement is critical to target setting, future planning, and the development of enterprise behaviours. SeeCost Considerations-The Cost Principlesfor additional details. 127Defence, First Principles Review, Key Recommendation 6, p. 73. Three principal issues remain for the conduct of a process for sustainment parallel to the MPR for acquisition: 35. Parliamentary committees have frequently stated an interest in Defences reporting of its sustainment performance and, in particular, obtaining greater insight into that performance. Defence later recognised that gate reviews also have potential value for sustainment, especially where it allows management to become aware of maintenance problems that might otherwise remain hidden. However, the skills may be retained in the marketplace and the real issue is whether the organisation loses the capability of being a smart purchaser (The Contracting Organization: A Strategic Guide to Outsourcing, Oxford 1998, p. 103DMO internal paper, Reform Issues, April 2011. This measure seeks to qualify the degree to which the supply chain is confined by obsolescence - systems or components. FIFO: What the First In, First Out Method Is and How . This risks encouraging insourcing in preference to outsourcing even where the total real cost to the Commonwealth of the former is greater.82 Defence has noted this internally (February2017): Any reduction of SPO [full-time equivalent staff], without a commensurate reduction of activity, will result in work being outsourced to industry and therefore increase the cost to the [Capability Manager]. Setting the Direction 3. Sustainment costs were increasing because of the inappropriate application of DMO policies and procedures, and a lack of business acumen in contracting and engagement with industry. Appendix 5 of this audit report sets out both the root causes and those of the Coles Reviews consequential recommendations that have wider applicability in Defence sustainment. The Defence Science and Technology Groups Aerospace Division had concluded that a systematic and top-down approach such as enterprise-wide asset management was particularly suitable to address the challenges of reforming sustainment management in Capability and Sustainment Group. These tests also apply regardless of treatment as a direct cost Costs that can be identified specifically with a particular sponsored project, an instructional activity, or any other institutional activity, or that can be directly assigned to such activities relatively easily with a high degree of accuracy. 34Defence, Decision BriefSustainment Performance Management System Development, 8 August 2011. 2.17In late 2015, Defences Audit and Fraud Control Division reviewed the contracted service arrangements within three Systems Program Offices in response to a request by Defences Chief Finance Officer Group. A Smart Buyer will also enable appropriate financial return for its Suppliers. 3.54Under section 17 of the PGPA Act, one of the functions of a Commonwealth entitys audit committee is to provide independent advice and assurance to the entitys accountable authoritythe Secretary of Defenceon performance reporting for the entity. The Review found, in terms similar to those of Coles: In fact, the general comment is that sustainment is the poor cousin to acquisition.28 In June2017 Defence advised the ANAO that it was attempting to address this perception through the current round of reforms, such as the new Capability Life Cycle and the December2016 release of Support Procurement Strategies. Source:Defence, Portfolio Budget Statements and Additional Estimates Statements, 200506 to 201718. Defence does not yet have a completed register of its acquisition and sustainment contracts though, since January2016, it has had a facility in place and begun populating it. 126This mirrors similar changes underway in the counterpart UK organisation, Defence Equipment and Support. Reviews of Defence over the last two decades have identified many opportunities for improvement in Defence sustainment practice. High levels of unplanned maintenance will affect Sustainment Efficiency through uncontrolled cost of repairs and a probable increase in Cannibalisations. It is apparent, however, that different and additional items are included in the latter series. This Key Health Indicator relates to the ability of the Capability Acquisition and Sustainment Group to manage temporary variations to the platforms configuration. Defence has not been able to provide the ANAO with adequate evidence to support this claim, nor an account of how $360million allocated as seed funding for Smart Sustainment initiatives was used. 71Defence, Rizzo Review, Chapter 4, p. 29. 159Defence, First Principles Review Implementation Committee, Outcomes, 11 February 2016. However, even with higher rates of availability, improved fleet serviceability and Repairable Item (RI) turnaround time, flying hours are still lower than expected. The cost principles The government-wide principles, issued by OMB (or, in the case of commercial organizations, the Federal Acquisition Regulation [48 CFR 21], or, in the case of hospitals, 45 CFR 75, Appendix IX, "Principles For Determining Costs Applicable to Research and Development Under Grants and Contracts with Hospitals"), on allowability and unallowability of costs under federally sponsored agreements. In March2017, Defence informed the ANAO that work was underway to address this. Revised KPIs could more effectively support more targeted performance based contracting outcomes. 3.24Gate reviews can draw management attention to sustainment risks in individual fleets. In Defences case, this should eliminate the need for some 20000 manual update transactions to AusTender each year. They do this through a combination of internal work and commercial contracts. The DMO was given responsibility for purchasing, through-life support and disposal of military equipment assets, other than facilities and administrative assets. Defences view is that, once implemented, this initiative will improve Defences cost estimates for major capital equipment projects and will bring Defence practice into line with the approach adopted by capital intensive industries and Defence partner nations. A preference in the report of the First Principles Review for a whole-of-life focus (rather than on acquisition and sustainment as distinct spheres) is evident from the discussion of total cost of ownership (pp. Asset management might not apply to items at the commodities end of the sustainment spectrum, but would apply to platforms and may apply to products (see Box 1, p. 2). Defence confirmed in March2017 that this risk remains. 76Defence, Defence Integrated Investment ProgramTotal Cost of Ownership, paper put to the Defence Committee, October 2016. In May2016, a sustainment gate review identified the cost of sustainment as a key risk for this program. The Secretary of Defence and Chief of the Defence Force. Research and reviews conducted for Defence have revealed a range of specific operational problems that are detracting from the efficient and effective sustainment of Defence capability, including the functioning of Systems Program Offices. However, it was not: complete; consolidated in one easy to locate area; prepared in a manner which permitted the comparison of actual expenditure against estimates; or consistent in its presentation of clear reasons for full-year variances. When implemented, the system will be renamed the Program Performance Management System.42 In the long term, Defence intends to build an enterprise solution to encompass both sustainment and acquisition management and reporting using SAP software. 73 0 obj<>stream It is now planning to implement a new model, which seeks to capture the full cost of ownership throughout the life of an asset, with implementation planned for completion in July2018. 2.10Defence intends to replace MSAs (and the associated Materiel Acquisition Agreements) progressively with Product Delivery Agreements. Defence suppliers have access to potentially commercially sensitive Defence financial information which could provide an unfair advantage to some service providers. Second, the material to be produced for scrutiny of sustainment performance would need to reflect a One Defence (that is, whole of portfolio) view. Improvements are still being seen in Rate of Effort (ROE) generation, since the implementation of the renegotiated ARH Sustainment contract arrangement. 1.3In recent years, Defence has spent, each year, similar amounts on sustainment and the acquisition of new equipment (Figure1.1, below). The Final Materiel Release (FMR) Report Approval Certificate has been signed by all stakeholders with caveats. The ANAO has also observed in Chapter 3 of this audit report that there is scope to improve the quality and transparency of public reporting on sustainment in existing Defence reportsthe Portfolio Budget Statements, Portfolio Additional Estimates Statements and Defence Annual Report. As an executive agency, the DMO would receive its own acquisition funding stream as a government appropriation, and would be headed by a chief executive with "significant private sector and commercial experience". Defence is seeking to address the issue.76 In the same month, it endorsed a total cost of ownership approach to estimating whole of life costs for all major capital equipment, infrastructure, and information and communications technology projects. Systemic issues identified by Defence from the reviews of Systems Program Offices to date are set out in Box 3. 154The template was referred to as ASDEFCON (Support) version 3.0, June 2011. DMOs approach was extremely variable and inconsistent, particularly when compared with most commercial and other government organisations: It has inherited 50+ business models that existed before the DMO was formed in 2000. In essence, this First Principles Review recommendation is very similar to the finding of the Defence Governance and Accountability Review of 2000 which advocated outsourcing provided sufficient inhouse competency is retained to allow [Defence] to be a smart customer and that [Defence] has sufficient contract management capability. 4.8The harvesting and reallocation of the $20.6billion from Defences Strategic Reform Program are not apparent in Defences Portfolio Budget Statements and Annual Reports. 92See Defence Portfolio Budget Statements 201516, p. 21, Table 6: Capability Sustainment Programme; Defence Portfolio Additional Estimates Statements 201516, p. 21, Table 10: Capability Sustainment Programme. SeeCost Considerations-The Cost Principlesfor additional details.. This represents a major investment of at least $120million, including contracts for services from the principal provider (Bechtel) valued at some $107million. 0000000016 00000 n 3.42To provide the historical cost data to support analogous or parametric cost estimates, Defences Chief Finance Officer will build a database of historical costs and cost attributes. 22Performance measurement and reporting on sustainment is considered in Chapter 3 of this report. 2.11A simplified representation of the essential relationship among elements responsible for the sustainment of specialist military equipment is in Figure2.1 below. for Institutions of Higher Educations (IHEs). Defence has elaborated on its approach to being a smart buyer in its submission to the Joint Select Committee on Government Procurement, April 2017. Defence was urged to use lifecycle costing throughout the acquisition lifecycle by an ANAO performance audit in early 1998. Lack of a performance based ethosDefence had failed to define performance targets for individuals and organisations and this had been a key driver of inefficiency and sub-optimal behaviours that affected sustainment performance. The tests are as follows: These four tests apply regardless of whether the particular category of costs is one specified in the cost principles The government-wide principles, issued by OMB (or, in the case of commercial organizations, the Federal Acquisition Regulation [48 CFR 21], or, in the case of hospitals, 45 CFR 75, Appendix IX, "Principles For Determining Costs Applicable to Research and Development Under Grants and Contracts with Hospitals"), on allowability and unallowability of costs under federally sponsored agreements. Thus, for example, slippage in new acquisition projects can increase sustainment costs for ageing platforms. An output measure, which directly reflects achievement against the Materiel Availability outcome. 10Joint Committee of Public Accounts and Audit, Report 448, p. 30. 1See, for example, ANAO Report No.40 201617, 201516 Major Projects Report. 3.62In summary, the ANAOs review of public reporting on sustainment activity indicates that: 3.63Defence has not published program level estimate data on a consistent basis over time, and no time series analysis is published by Defence to assist with external scrutiny of sustainment expenditure. 37The performance framework was set out in some detail in ANAO Report No.30 201415, Materiel Sustainment Agreements, p. 103 forward. In May 2016, Defence entered into another contract with Bechtel for $65.8 million, to conclude in June 2018. 5.51In its implementation of the smart buyer concept, Capability Acquisition and Sustainment Group does not clearly articulate the competencies required to specify outsourcing requirements. The term includes small and large businesses and is used interchangeably with "for-profit organization." 5.20The purpose and structure of Systems Program Offices have remained essentially the same since their inception in 2000. Browse our range of publications including performance and financial statement audit reports, assurance review reports,information reportsand annual reports. 2. 3.50To assess Defences public reporting for the sustainment of specialist military equipment, the ANAO considered: 3.51The Public Governance, Performance and Accountability Act 2013 (PGPA Act) aims to improve the line of sight between what was intended and what is delivered. It is also seen as needed to streamline and consolidate the Systems Program Offices. The indicator was replaced with a measure CASG-related Product Cost per materiel-ready day, whose value could be generated automatically and would not require comment by the Systems Program Office.39 This would be reported in SPMS but not be represented as a key performance indicator40 because it did not include the cost of all the fundamental-inputs-to-capability and did not measure the cost per materiel-ready day. The ANAO found that, 18months after implementation commenced, there had been limited progress. For example, a commercial organization An organization, institution, corporation, or other legal entity, including, but not limited to, partnerships, sole proprietorships, and limited liability companies, that is organized or operated for the profit or benefit of its shareholders or other owners. Define and document a clear, unclassified requirement for the sustainment program. However, Defence did not adequately assess the outcomes from the smart sustainment reforms. By July2011, the Rizzo Review stated that The Team recognises that Defence has a policy instruction on lifecycle costing However, it is considerably outofdate and compliance is inadequate. personnel and skill shortages in the DMO, delays due to industry capacity and capability, and. 176The Helmsman Sustainment Complexity Review [Helmsman Review], July 2010; Plan to Reform Support Ship Repair and Management Practices [Rizzo Review], July 2011; and Study into the Business of Sustaining Australias Strategic Collins Class Submarine Capability [Coles Review], November 2012. The Defence PAES 201516 provides revised estimates for the 201516 financial year, the variation between the 201516 estimate from the PBS, and, for the Top 30 sustainment products, some explanation of the variation, plus a project performance update. ~rEy0Eq2I;+t4NY1. The cost principle states that any asset should be recorded at the purchase price. One recommendation was not accepted that the DMO should be separated from the Department of Defence and become an executive agency. 165United States Government Accountability Office, GAO/GGD-00-172R, Study on Facility Design Reviews, July 2000, available at http://www.gao.gov/assets/90/89986.pdf. A key criterion in determining whether consulting contracts would be appropriate is whether the government could maintain sufficient in-house capacity to be thoroughly in control of the policy and management functions of the agency. ), Figure 3.4:Estimates of Service sustainment costs, 200607 to 202021. 23Fleet Screenings is a term originally used by Navy. Defence subsequently provided the Committee with an in camera briefing (November2015), consistent with an option in the paper put forward by the ANAO. 0 [6], Ministerial statements in 2010 and 2011 suggested that the Government believed new procurement reforms were needed. This is potentially useful information though not always written in clear language. Improve leadership skills, knowledge and experience. He described the areas where he expected they could make cost reductions, including by: reducing spares; more performance-based contracting; discouraging end-of-year spending to meet budget; travel efficiencies; and improved maintenance philosophies. The review was conducted by David Mortimer, who presented his findings in September 2008. MRS and, to an increasing extent, SPMS, are now used to populate a Quarterly Performance Report on both acquisition and sustainment (see paragraph 3.11 forward). 3.21Defence has implemented a strategy in recent years that should help to draw problems in individual sustainment products to senior management attention. It provided no explanation of its inability to implement the recommendation in its advice to ministers on the matter. This data is likely therefore to understate the total number of staff in Systems Program Offices. internal reporting practices for sustainment; whether Defence has established measures of efficiency and productivity for sustainment activity; whether Defence assesses whole-of-life costs and the total cost of ownership of its assets; and. However, Defence did not adequately assess that their intended outcomes were realised or enduring. The value of these contracts totals about $835000. 198Defence, Going to the Next Level, the report of the Defence Procurement and Sustainment Review [Mortimer Review], 2008, p. 46. The fact that a proposed cost is awarded as requested by an applicant does not indicate a determination of allowability. In light of the Parliamentary interest in Defence sustainment (see paragraph 1.4 forward) the ANAO has considered, on the basis of the current audits findings, the issue of enhanced scrutiny of sustainment through a process similar to the existing Major Projects Report (MPR).1 The MPR has been prepared annually over the last decade to provide independent assurance of the status of selected Defence major acquisition projects. In business, it is a key aspect of an organization's financial stability. . The DMO was to be accountable for whole-of-life materiel management, with Systems Program Offices comprising multi-functional teams to undertake the work. Recommendations with potential Defence-wide application: 3. 69Defence Annual Report 199798, p. 224. 26Paul J Rizzo, Plan to Reform Support Ship Repair and Management Practices, July 2011, p. 8the Rizzo Review. 50ANAO Report No.40 201617, 201516 Major Projects Report. The development of an effective sustainment monitoring system remains a work-in-progress, and the effectiveness of Defences internal reporting system for sustainment could be improved in several areas. Specifically, the review identified instances where: 2.18Defence makes extensive use of external service providers and contractors to deliver acquisition and sustainment services. At the time DMO developed MRS it was noted internally that DMO currently spends around 3billion dollars per year on sustainment activities and at this stage has no system that can adequately report on the effectiveness or efficiency of these activities.29 Work began in September2005 to introduce sustainment reporting capacity into MRS. 3.3Several major reports have criticised sustainment reporting over the last decade, including Mortimer (2008) and Rizzo (2011).30 Rizzo was highly critical of existing performance indicators: Each current [MSA] Product Schedule has inadequate Key Performance Indicators They only include a small subset of the contractual measures that should be placed on each party and there are no consequences associated with noncompliance. Nevertheless, developing wholeoflife cost estimates for major capital projects has been a challenge for Defence for decades. 279280. 169Defence, Observations and conclusions of the Gate Review Board, CA48MRH90 Multirole Helicopter: Sustainment Performance Gate Review, 12 May 2016. In 2011, a health check by external consultants found some early successes with cost reductions and changes in practice. 13Defence, First Principles Review: Creating One Defence, 2015the First Principles Review. 171Defence, Airborne Early Warning and Control Sustainment Performance Gate Review, 30 July 2015. Source:Defence, Portfolio Budget Statements and Additional Estimates Statements, 200607 to 201718. The system supporting the current AusTender site is described by Defence as in a state of decay as it is over a decade old and no longer viable to upgrade and sustain. The Commonwealth's discretion, and a reasonableness test, will apply with regard to the use of the Cost Principles for tendered contracts. Defence has clear and long-standing arrangements for managing the sustainment of specialist military equipment. 5.48The First Principles Review recommended that Defence establish a single end-to-end capability development function and that this would require, among other changes, Moving to a leaner smart buyer model that better leverages industry, is more commercially oriented and delivers value for money.164 The Review cites a US Government Accountability Office report which is also consistent with past Australian usage: A smart buyer is one who retains an in-house staff who understands the organizations mission, its requirements, and its customer needs, and who can translate those needs and requirements into corporate direction. 6Defence Materiel Handbook (Sustainment Management) DMH (SUS) 4-0-001, September 2015, p. 1. Defence has not been able to provide the ANAO with adequate evidence to support this claim, nor an account of how $360million allocated as seed funding for Smart Sustainment initiatives was used. In June2017, Defence advised the ANAO that implementation plans for significant reforms to Systems Program Offices would be developed in the second half of 2017. This was funding to be spent by DMO on sustainment on behalf of Defence.95 From 201314 forward, Defence also reported the estimated cost of capability sustainment for the whole of Defence. Defence has not kept a systematic record of the outcomes of the Smart Sustainment initiative associated with the 2009 Strategic Reform Program. 178British Standards Institution, Publicly Available Specification for the optimal management of physical assets PAS 55-1:2008: Asset Management, cited in Defence, Defence Asset Management Landscape Document, May 2012, p. 1. Reflecting the First Principles Review theme of better engagement with industry, Defence has engaged a USA-based engineering company, Bechtel, to help with implementing the Reviews recommendations. It is an overarching element in progressing First Principles Review implementation in Capability Acquisition and Sustainment Group. Correct date believed to be July 2009.] 197The 2012 Coles Review characterised the recommendations from 2012 report as Strategic, Management or Operational recommendations. 119Australian Strategic Policy Institute, Graphs of the week: finally getting the Collins class we paid for, 27 October 2016 available from [accessed 28 April 2017]. Defence has recently improved its whole-of-life costing of proposals to acquire major capital equipment but remains unable to measure or report reliably the total cost of ownership.

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