The Australian National Audit Office (ANAO) released its 2018-2019 Major Projects Report (MPR) on December 16.
Covering the 2018/109 financial year, the MPR reviews the status of selected major defence equipment acquisition projects for that period.
‘Major defence equipment acquisition projects continue to be the subject of parliamentary and public interest,’ the MPR summary reads. ‘This is due to their high cost and contribution to national security, and the challenges involved in completing them within the specified budget and schedule, and to the required capability.
‘The MPR reviews overall issues, risks, challenges and complexities affecting major projects and also reviews the status of each of the selected major projects, in terms of cost, schedule and forecast capability. The objective of the report is ‘to improve the accountability and transparency of Defence acquisitions for the benefit of Parliament and other stakeholders’.’
‘Major projects are selected for review based on the criteria included in the 2018–19 Major Projects Report Guidelines, as endorsed by the Joint Committee of Public Accounts and Audit (JCPAA),’ the MPR reads. ‘They represent a selection of the most significant major projects managed by Defence. The total approved budget for the major projects included in this report is approximately $64.1 billion, covering 49 per cent of the total budget of active major and minor capital equipment projects of $132 billion.’
A total of 26 projects were reviewed by the MPR, ranging in value from the $236.7 million Project JP 2018 Phase 3 amphibious watercraft replacement, to the $16.52 billion Project AIR 6000 Phase 2A/2B New Air Combat Capability (F-35A). This compares to 26 projects totalling $59.6 billion reviewed in the 2017-2018 MPR, and 27 projects valued at $62.0 billion in the 2016-2017 MPR.
Of this year’s 26 projects, 22 of them appeared in the 2018-2018 MPR. Compared to the previous report, there is a $1.225 billion, or 2.1% variation in the approved budgets for these projects, much of which can be attributed to long-term projects such as AIR 6000’s exposure to exchange rate variations.
More concerning was Defence’s continuing inability to spend its total approved budget. From an initial Portfolio Budget Statements (PBS) forecast expenditure of $5.8094 billion, a mid-year Portfolio Additional Estimates Statements (PAES) forecast of $5.3823 billion, and a final forecast of $5.173 billion, Defence was only able to spend $4.8314 billion.
The bulk of this underspend was seen in the Project SEA 4000 Hobart class air warfare destroyer and Project AIR 7000 Phase 2 P-8A Poseidon programs where there was a variance in deferred planned expenditure to subsequent years and deferred payment of invoices incurred during the year; and in the Project Land 121 Phase 4 PMV-L Hawkei program due to ‘ongoing vehicle reliability issues, design maturity, and delays in the delivery of engine components delaying payment of milestones’.
Also troubling is the forecast slippage of final operational capability (FOC) milestones compared to initial predictions when they were approved by government. For the 26 projects in the MPR, 21 have experienced schedule slippage which, to date, totals a staggering 691 months (or 57.6 years). This is actually an improvement on the 2017-2018 MPR which showed a total slippage of 801 months, but is attributable to the exit of previously troubled projects from the MPR.
Topping the list of projects that have experienced the most slippage is the Project SEA 1439 Phase 3 Collins class reliability and sustainability program with 112 months, the Project AIR 9000 Phase 2/4/6 battlefield helicopter MRH 90 which has experienced an 89 month slippage, the SEA 1448 Phase 2B ANZAC ASMD with 77 months.
The MPR provides one explanation of the slippage; ‘A closer examination of the reasons for schedule slippage demonstrates the importance of initial assessments of project complexity,’ it reads. ‘A key factor is whether a project is MOTS (military off-the-shelf), Australianised MOTS, or developmental. One project, (AIR 9000 Phases 2/4/6) MRH90 Helicopters113, was originally misclassified as MOTS. The project was reclassified by Defence to Australianised MOTS (i.e. more developmental) subsequent to Second Pass Approval’.
A footnote says the Project AIR 87 Tiger Armed Reconnaissance Helicopter (ARH) is another example of a project being reclassified as being more developmental.
Other FOC variances were the result of changes to the FOC definition due to capability enhancements, delays in related projects, administrative processes, delays to security requirements, and delays to final operational test and evaluation trials.
The complete ANAO 2018-2019 MPR can be viewed here.