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Reform of defence acquisition.



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MEDIA STATEMENT

The Hon. John Moore, MP

Minister for Defence

 

Reform of Defence Acquisition

MIN188/99

Thursday, 1 July 1999

 

The professional management of Australia’s Defence procurement process is fundamental to developing and maintaining a high qualit y, well equipped and responsive defence force.

 

In our Defence Industry Policy Statement at the last election the Government promised “the Defence procurement process will be made more flexible, responsive, innovative and efficient”.

 

Since my appointment as Minister I have been considering the most appropriate arrangements to oversee the procurement of defence equipment for Australia. I have also been concerned at the lack of satisfactory progress on the Collins-class submarine project.

 

In February this year, the Government appointed Dr Malcolm McIntosh and Mr John Prescott to conduct a full and independent review of the submarine project. Dr McIntosh and Mr Prescott were asked to advise on the current status of the project and to identify a path for completing it expeditiously.

 

I am today publicly releasing their Report.

 

The Report makes it very clear that while the submarines have been well designed for Australia’s special requirements and have generally been soundly built they face a number of serious problems.

 

It also makes it clear that the management structures and contract arrangements established at the beginning of the project have been inadequate to provide the necessary oversight to ensure the project could be satisfactorily concluded within an acceptable timeframe

 

This has resulted in some serious design deficiencies which have not been remedied with sufficient speed and robustness.

 

The main deficiencies identified in the Report include:

 

  • The combat system is inadequate and out of date. One r esult is that the sonars are giving only about 25% effectiveness;
  • Poor design and manufacture of the diesel engines, which has resulted in broken pistons and crankshafts;
  • Noise resulting from poor machinery, hull and propeller design;
  • Cracked propeller blades;
  • Vibration and poor images with the periscopes;
  • Poor communications systems; and
  • Numerous smaller faults.

 

The main weaknesses identified are managerial, where problems have not been adequately recognised or acted upon.

 

The Report’s recommendations in clude:

 

  • Taking the combat system out of the main contract, pressing on with the interim arrangements with the US Navy, but seeking a new system “off-the-shelf’;
  • Pressing the prime contractor, the ASC, to get on with fixing the platform deficiencies; and
  • St rengthening the procurement organisation by increasing the project director to two-star equivalent and the head of procurement to junior Secretary, and recruiting the latter from the private sector.

 

I am very grateful to Dr McIntosh and Mr Prescott for pr oducing a succinct, comprehensive and frank Report.

 

The Government has considered the Report and discussed in detail the most appropriate way to oversee the procurement of defence equipment for Australia in the future.

 

I am today announcing that the Government has decided to restructure the management of the Defence procurement organisation and to significantly strengthen the management of the submarine project.

 

A new position of Head of Defence Acquisition will be established at a level equivalent to a junior Secretary.

 

Experienced project managers will be recruited into the Acquisition organisation and provision will be made for secondment to industry of senior acquisition personnel in order to strengthen commercial and project management skills throughout the organisation.

 

Defence will be required to report more fully to Cabinet on major projects. This will include setting out, in advance, clear project road-maps and schedules against which performance will be measured allowing any problems to be more rapidly exposed in future.

 

The new Head of Defence Acquisition will submit to me by the end of September a detailed roadmap to successfully conclude the Collins submarine project.

 

The position of the Submarine Project Director within Defence Acquisition will be upgraded to a two star equivalent. The Director will be responsible for ensuring the delivery of a fully effective submarine capability.

 

I am pleased to announce the appointment, effective immediately, of Rear Admiral Peter Briggs, to this important position.

 

In order that an appropriate level of operational capability is achieved within the shortest possible time-table, the Government wi ll allocate $80 million toward a combined Royal Australian Navy and US Navy programme to remedy currently identified operational limitations on the Collins-class submarines.

 

The programme will test a number of new propeller designs and hull improvements, and trial some advanced combat system components used in US Navy submarines. The programme will be in addition to the work being undertaken by the Australian Submarine Corporation and the DSTO.

 

The Government is committed to making the Collins-class submarines the most advanced conventional submarines in the world.

 

The Government is determined to bring the project to a successful conclusion with minimal delay and minimal extra cost while meeting the highest design standards. The decisions announced today are a major step toward meeting this commitment.

 

The report is available on the internet at the Defence website: www.defence.gov.au/collins/

 

 

REPORT TO THE MINISTER FOR DEFENCE ON THE COLLINS CLASS SUBMARINE AND RELATED MATTERS

 

SUMMARY AND RECOMMENDATIO NS

 

The Collins class submarines are well designed for Australia's special requirements and have generally been soundly built. They are, however, bedeviled by a myriad of design deficiencies, many of which should not have occurred, and most of which are taking far too long to remedy. Together, they are seriously restricting the operational usefulness of the boats.

 

Apparently sensible remedies for nearly all defects have been presented to us, which gives us confidence in the ultimate performance of the boats. The main issue is to improve the managerial and contractual structures so that the deficiencies are recognised and addressed much more quickly and robustly.

 

The key deficiencies are:

 

  • Mechanical deficiencies and unreliability in diesel engines involvin g contamination from seawater in the fuel oil, corrosion of fuel injectors and pumps, vibration, seizure of pistons, broken rocker arms and generator couplings, broken gear trains and the need to replace a broken crankshaft.

 

  • Excessive noise, now to a less er extent than previously, but involving the operation of some on-board equipment, cavitation from the propeller and some flow characteristics of the hull.

 

  • Other problems in the propellers from fatigue cracking.

 

  • Vibration, focussing problems, limitations in the field of vision (called the "double dove" effect) and internal reflection of "sunspots" in the periscopes.

 

  • Unreliability in the communications mast.

 

  • Persistent shortcomings in the combat system which have seriously restricted its classification, track management and weapons control functions and the quality of information it displays on screen to the operators.

 

  • Inadequate reporting of these issues and their significance within Defence and to the Government, and lack of sufficient action to deal w ith them in a timely manner, partly caused by the structure of the original contracts, too great an adherence to some of the philosophies on which these were based even when circumstances have changed and the way in which the principal contractor and sub-contractors have been progressively released from their obligations (in Boeing's case) or not adequately held to the relevant performance standards (ASC and Boeing).

 

  • Some organisational aspects which have fragmented responsibility in Defence and Navy.

 

  • Giv en all this, top management in these areas not being able to effect adequate remedies.

 

On the contractual side, we recommend:

 

  • Removing the combat system from the prime contract.

 

  • Otherwise retaining all relevant price, performance, deliveries, specificat ions and warranties for the platform and continuing to press the prime contractor for full contracted performance, in court if necessary.

 

  • Recovering as much as possible of all remaining funds allocated to the current combat system along with damages for f ailure to deliver from the combat system contractor and minimising any further expenditure.

 

  • Continuing with Project 1446 with the US Navy as a hedge and interim fix.

 

  • Seeking off - the - shelf bids for a new, modern, COTS - based combat system against a minimal dot point specification, with a fixed - price for defined hardware and software and cost - plus for installation and any variations.

 

On the management side, we recommend:

 

  • Significantly strengthening the procurement structure, including upgrading the position of the project director to two star equivalent and the head of the organisation to junior Secretary, with applicants for the latter sought from outside Defence to bring in more commercial expertise.

 

  • Significantly strengthening the coordination of all aspects of the performance, procurement, manning and support of the submarines by creating a S ubmarine Committee under the Chief of Navy and including the senior officer from each of the relevant functional areas.

 

  • Focussing the Australian Submarine Corporation on the platforms by removal of the combat system from their responsibilities.

 

  • Seeking a new combat system contractor by open competition.

 

  • Reporting monthly to the public on the status and progress of the project.

 

In our view this is the minimum change scenario. The augmentation program Project Sea 1446 can be completed at less cost than fu rther extending the life of HMAS OTAMA. The other recommendations we have made in respect of the submarines can be expected to be completed within what would have been a reasonable contingency for such a project in the first place.

 

In the longer term, there are related issues, in respect of which we recommend:

 

  • Opportunities be found for Defence officers pursuing procurement careers to spend time in large commercial procurement projects and friendly, foreign procurement organisations.

 

  • Coordinating committ ees be established for all major procurements under the relevant Service head to ensure that all aspects of the procurement, manning, support and operations are properly considered and integrated for a smooth transition into service.

 

  • A study be made of pr ocurement strategies for software-intensive projects, whether stand-alone or embedded in large hardware projects.

 

  • The sale of Australian Defence Industries and, later, the possible sale of the Government's shares in the Australian Submarine Corporation ta ke careful cognisance of the likely downstream restructuring of the defence shipbuilding industry in Australia and the need for flexibility in selecting among overseas designers for future projects.

 

  • In future major projects, there should be more attention to the Commonwealth's own role and some new approaches in contractual arrangements to achieve better assessments of costs including more realism and transparency in provisionally costed items and contingency; processes to ensure the Commonwealth is a smart buyer; other improved risk management processes; clear requirements for performance, supported by a full range of advance tests; clear milestones; and a different approach to mid-contract reviews.

 

Chris Wordsworth, Media adviser, 02 62777800, 0419 98248 2 Fax: 02 62734118 Email: word@defence.gov.au Web: www.defence.gov.au

 

 

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