Introduction

Major Defence equipment acquisition projects (Major Projects) are the subject of considerable parliamentary and public interest, in view of their high cost, planned contribution to national security and the challenges involved in completing them within budget, on time and to the required level of capability.

The Defence Materiel Organisation (DMO) contributes to the development and sustainment of capability for the Australian Defence Force (ADF) and expended some $4.5 billion on major and minor capital acquisition projects in 2011–12.¹

Although the Government has foreshadowed a new Defence White Paper in 2013, it is expected that over the next 15 years, the Government will replace or upgrade up to 85 per cent of the ADF’s equipment. This will include the purchase of equipment in all of the major elements of ADF capability, including Land, Air, Sea and Joint capabilities, and is a significant investment for the Commonwealth, of up to $150 billion over the next decade.²

The procurements by the DMO do not generate new capability for the Defence Organisation until they have been successfully introduced into service with the ADF. The overarching responsibility for the introduction into service of Defence equipment, for example, provision of personnel, training and command, normally resides within other areas of the Department of Defence.³ Thus, while the DMO’s role is only part of the introduction into service of new capability, it is a significant one.

Report objective and review scope

The objective of this report is to provide:

• comprehensive information on the status of selected Major Projects, as reflected in the PDSSs prepared by the DMO, and the Statement by the Chief Executive Officer (CEO) of the DMO (contained in Part 3 of this report);
• the Auditor-General’s formal review conclusion on the ANAO’s review of the preparation of the PDSSs by the DMO in accordance with the endorsed Guidelines (contained in Part 3 of this report);
• ANAO analysis on the three key elements of the PDSSs—cost, schedule and capability, in particular, longitudinal analysis across these key elements of projects over time (contained in Part 1 of this report); and
• further insights and context by the DMO on issues highlighted during the year (contained in Part 2 of this report—although not included within the scope of the review by the ANAO).

In February 2012, the JCPAA identified this review as a ‘Priority Assurance Review’, under section 19A(5) of the Auditor-General Act 1997 (the A-G Act), allowing the ANAO full access to the information gathering powers under the A-G Act, rather than necessitating the agreement of an agency, in this case the DMO, for a review.

As in previous years, the review is conducted in accordance with the Australian Standard on Assurance Engagements (ASAE) 3000 Assurance Engagements Other than Audits or Reviews of Historical Financial Information, issued by the Australian Auditing and Assurance Standards Board.

Excluded from the scope of the ANAO’s review is PDSS data on the achievement of future dates or events (including forecasts on delivering key capabilities), the project financial assurance statements, and major risks and issues. By its nature, this information relates to future events and depends on circumstances that have not yet occurred or may not occur, or have occurred but have not yet been identified. Accordingly, the conclusion of this review does not provide any assurance in relation to this information.

While our work is appropriate for the purpose of providing an independent review report in accordance with ASAE 3000, our review is not as extensive as individual project performance audits conducted by the ANAO, in terms of the nature and scope of project issues covered, and the extent to which evidence is required by the ANAO. Consequently, the level of assurance provided by this review in relation to the 29 Major Projects is less than that provided by our performance audits. However, key themes from ANAO performance audits on major Defence acquisitions or their governance, are provided or referenced, to provide additional context and insights into the Major Projects.

Footnotes

[1] Department of Defence, Defence Annual Report 2011–2012, DMO Financial Statements, Appendix 11, p. 471.

[2] Minister for Defence Materiel, the Hon. Jason Clare MP, Defence Skills Plan to Meet the Challenges Ahead, 5 September 2011.

[3] Source 1: Department of Defence, Defence Capability Development Handbook 2011, pp. 3–4. Source 2: Defence Instructions (General) OPS 45–2, Capability Acceptance into Operational Service, 9 November 2012, paragraph 1, p.1.