Tuesday, 20 March 2018
Joint Committee of Public Accounts and Audit; Report
On behalf of the Joint Committee of Public Accounts and Audit, I present report No. 470, Defence Sustainment Expenditure, as well as the executive minutes and responses on various reports.
Ordered that the report be printed.
That the Senate take note of the report.
In 2015 when reviewing the Defence major projects report, the JCPAA noted the size of sustainment expenditure at $5 billion per annum, and recommended that following the implementation of the Department of Defence's First principles review, that the department improve how it reports on sustainment.
In November 2016, the JCPAA readopted a lapsed inquiry into Defence sustainment expenditure, and on 21 June 2017 resolved to also inquire into Auditor-General's Report No. 2 (2017-18) Defence's management of materiel sustainment.
The sustainment budget is expected to grow year on year across the forward estimates, to over $11 billion in 2020-21. The percentage of sustainment budget to acquisition budget will average 77 per cent across the forward estimates.
Sustainment is defined by the Department of Defence as the provision of the appropriate goods and services required to achieve readiness and sustainability goals for the life of the Defence element. Defence sustainment involves the provision of in-service support, including repair and maintenance, engineering, supply and replacement parts, configuration management and disposal action.
Sustainment can apply to platforms, such as ships, aircraft, vehicle fleets, and commodities, such as clothing, combat rations, munitions, and also services, such as calibration, provision of maritime target ranges.
The Australian National Audit Office concluded that the fundamentals of the Department of Defence's governance and organisational framework for the management of materiel sustainment are fit-for-purpose. However, the Australian National Audit Office found that there remained scope for the department to improve its performance monitoring, and reporting and evaluation activities to better support management and external scrutiny of materiel sustainment.
The committee heard the reintegration of the former Defence Materiel Organisation back into the Department of Defence following the First principles review had had positive cultural effects, but that the department needed to improve its financial and descriptive performance information to provide a 'clear read' across reporting documents. Further, the department should better articulate these positive effects.
The committee considered whether there would be benefit in the Department of Defence developing a document like the Defence major projects report to report on sustainment, but has concluded that continued refinement of external reporting, and periodic ANAO reviews of the Department of Defence's reporting are the most effective way of improving sustainment reporting at this particular time.
The committee found that while it was difficult for the Australian National Audit Office and the Department of Defence to agree on definitions of the acquisition and sustainment stages of a project, that the department's move to a whole-of-life costing model may provide a better understanding of total asset cost.
The committee commended the Department of Defence on its acceptance of the findings of the First principles review and noted that it has declared a moratorium on further reviews to allow for the comprehensive implementation of the recommendations of the First principles review document.
In particular, the changes to Systems Program Offices have led to welcome reform and the delivery of efficiencies, as well as improving the way the department utilises its staff.
The committee also noted issues around the engagement of Bechtel to provide services to support the implementation of the First principles review. The Department of Defence is undertaking a competitive process to find a suitable candidate to run the Major Projects Office and the committee has called for a report on the outcome of the selection process.
The committee has made six recommendations. Several are aimed at improving Defence sustainment reporting, while others seek further information on progress on the continued development of First principles review reforms, an update on the Systems Program Offices review and the whole-of-life costing model, and a detailed progress report on behavioural changes arising out of improvements to internal performance reporting. Finally, the committee has recommended that the Australian National Audit Office review the Department of Defence's new internal monthly reporting system to ensure improvements have been made on information provided to the minister and to the departmental secretary.
In concluding, I would like to thank officials of the Department of Defence and the Australian National Audit Office for their contributions to the committee's inquiry. I would also like to extend my thanks to all members of the committee for their deliberations during this inquiry.
I commend the report to the Senate.
Question agreed to.