12 September 2009

DMO: What was all the fuss about?

Governments never tire of reorganising defence acqusition, and telling us that each iteration will greatly reduce delays and cost over-runs. At each stage victory is declared a short time after the reorganisation, in disregard of the fact that major defence projects have long lead times and the difficult bits are always at the end. Project Wedgetail is a good example of that – see Project Wedgetail: a cautionary tale.

In 2000 the Howard Government merged the former Defence Acquisition Organisation with Joint Logistics Command to produce the Defence Materiel Organisation, nothwithstanding the demonstrable fact the DAO’s performance on cost and schedule was very creditable when compared with its peer organisations in the United States and the United Kingdom.

In 2003 we had the Kinnaird Report, the recommendations were accepted, and victory was declared again – so much so that the 2008 Report of the Defence Procurement and Sustainment Review conducted by Mr David Mortimer was published with the title Going to the Next Level – the clear implication being that, by implementing the new report’s recommendations, an organisation which was already fabulous would become even better.

This report was said by the then Parliamentary Secretary for Defence Procurement, the Hon. Greg Combet, to be:

... a formal evaluation of the effectiveness of the ongoing reforms to the Defence Materiel Organisation (DMO) [that] were implemented following the 2003 Review of Defence Procurement...

In announcing the review, Mr Combet said that he was also seeking advice on:

...further potential reforms to the acquisition and through-life support of defence equipment.

We now have two interesting pieces of data that together shed an interesting light on the permanent revolution in DMO.

The first comes from the Report of the Defence Procurement and Sustainment Review. On page 30 there is an interesting chart which shows the results of a DMO analysis of the primary causes of schedule slippage to major capital projects in financial year 2007-08. The three principal causes of slippage are:

- Australian industry: 30%

- Foreign industry: 20%

- Foreign Government negotiation and payments: 16%

In other words, fully 66% of the reasons for schedule slippage in 2007-08 were factors beyond the control of DMO.

The second comes from Senator Faulkner’s 13 August speech to the Australia and New Zealand School of Government. Speaking about Defence’s acquisition performance, Senator Faulkner said:

But it is important to remember that 83% of the over 200 Defence acquisition projects closed in the last ten years have been on – or below – their approved budget.

It is worth dwelling on what this statement actually means. It refers to projects closed out in the last ten years. Even taking a very conservative estimate of five years for the average life of projects (and that is a very conservative estimate: Wedgetail commenced in 2000), that means that roughly speaking we are talking about projects commenced in the time span 1994-2004. A good swag of that 83% closed out on or under budget would have been undertaken by the old Defence Acquisition Organisation, before any of this nonsense began. And the data could only include the less complex projects begun since the government began implementing the recommendations of the Kinnaird review of 2003.

To summarise, most of the reasons for schedule slip are beyond DMO’s control, and for as long as anyone can remember, the overwhelming majority of acquisition projects have come in on or under budget.

Enough to make one wonder what all the fuss has been about.

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