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Background

1. The Department of Defence’s (Defence) Capability Acquisition and Sustainment Group (CASG) manages the process of bringing most new specialist military equipment into service for the Australian Defence Force (ADF). On 4 October 2022, a new Naval Shipbuilding and Sustainment Group (NSSG) came into effect, with responsibility for building and sustaining maritime capabilities.¹ As at 30 June 2022, CASG was managing 168 active major and minor capital equipment projects worth $130.5 billion with an in-year budget of $11.2 billion.² Defence capitalised some $8.2 billion from these projects in 2021–22.³

2. The Major Projects Report (MPR) contains Defence information and commentary on a selection of its major projects (the Major Projects) and assurance and analysis of that information by the Australian National Audit Office (ANAO). This report is the fifteenth annual MPR.

3. Major Projects are selected for inclusion in the MPR based on criteria endorsed by the Parliament’s Joint Committee of Public Accounts and Audit (JCPAA).⁴ The projects represent a selection of the most significant major projects managed by CASG and the new NSSG.

4. The total approved budget for the 21 Major Projects in this report is approximately $59.0 billion, which is 45 per cent of the $130.5 billion budget for active major and minor capital equipment projects.

Selected projects

5. The 21 Major Projects selected for review comprise seven AIR projects, eight SEA projects, five LAND projects and one joint (JNT) project. These projects and their government approved budgets as at 30 June 2022 are listed in Table 1, on p. 4.

Table 1: 2021–22 MPR — selected projects and approved budgets at 30 June 2022

Note 1: AIR 555 Phase 1 Airborne Intelligence, Surveillance, Reconnaissance and Electronic Warfare (ISREW) Capability is included in the MPR Program for the first time in 2021–22.

Note 2: These projects have been the subject of individual performance audits. See Appendix 2, on p. 76, for more information.

Source: Defence’s Project Data Summary Sheets (PDSSs) in Part 3 of this report.

Rationale for undertaking the review

6. The MPR is prepared at the request of the Parliament. The JCPAA has stated that the objective of the MPR is ‘to improve the accountability and transparency of Defence acquisitions for the benefit of Parliament and other stakeholders.’⁵ The JCPAA commissions the MPR in the public interest, for the benefit of users of the report inside and outside the Parliament. The MPR informs parliamentary scrutiny and the national conversation on major Defence acquisitions, and is intended to assist users by adopting a consistent reporting format over time and through the inclusion of summary and longitudinal analysis prepared by the ANAO.

7. Defence’s major defence equipment acquisition projects remain the subject of parliamentary and public interest due to their: high cost and contribution to national security in a changing strategic environment; the challenges involved in completing them within the specified budget and schedule, and to the required capability; and their contribution to industrial and employment policy objectives.

Conduct of the review

8. The MPR is prepared by Defence and the ANAO. Defence prepares information for ANAO review in accordance with the 2021–22 Major Projects Report Guidelines (Guidelines) endorsed annually by the JCPAA (included in Part 4 of this report).⁶ The status of the Major Projects selected for review is reported in the Statement by the Secretary of Defence (included in Part 3 of this report) and a Project Data Summary Sheet (PDSS) prepared by Defence for each of the Major Projects (included in Part 3 of this report).

9. The ANAO has reviewed each of the PDSSs prepared by Defence as a ‘priority assurance review’ under subsection 19A(5) of the Auditor-General Act 1997 (the Act), which allows the ANAO full access to the information gathering powers under the Act.

10. The ANAO’s review provides limited assurance⁷ and was undertaken in accordance with the applicable auditing standards. The ANAO’s review included an assessment of Defence’s systems and controls, including the governance and oversight in place, to ensure appropriate project management. The ANAO also sought representations and confirmation from Defence senior management and industry (through Defence) on the status of the selected Major Projects.

11. The objective of this ANAO assurance engagement and the ANAO review procedures is to allow the Auditor-General to provide independent assurance over the status of the Major Projects selected for review. The Auditor-General’s summary conclusion is set out in paragraph 22. The full conclusion is found in the Auditor-General’s Independent Assurance Report in Part 3 of this report.

12. Certain forecast information found in the PDSSs is excluded from the scope of the ANAO’s review, such as forecast dates, expected capability/scope delivery performance and future risks.⁸ Accordingly, the Auditor-General’s Independent Assurance Report does not provide any assurance in relation to this information. However, material inconsistencies identified in relation to this information are considered in forming the Auditor-General’s conclusion. These exclusions to the scope of the review are due to a lack of Defence systems from which to provide complete and/or accurate evidence⁹ in a sufficiently timely manner to facilitate the review. This has been an area of focus of the JCPAA over a number of years¹⁰, and it is intended that all components of the PDSSs will eventually be included within the scope of the ANAO’s review.

13. In addition to the formal assurance review, the ANAO has undertaken an analysis of key elements of the PDSSs, including longitudinal analysis.¹¹

14. Defence provides additional insights and context in its commentary and analysis contained in Part 2 of the MPR. This commentary and analysis is not included in the scope of the ANAO’s assurance review. Information on significant events occurring post 30 June 2022 is outlined in the Statement by the Secretary of Defence contained in Part 3 of the MPR, and is included in the scope of the ANAO’s assurance review.

Treatment of classified information

15. The Guidelines approved by the JCPAA set out the information to be included by Defence in its Project Data Summary Sheets (PDSSs) for each MPR project, including key forecast dates. The Guidelines also provide (at paragraph 1.20 of Part 4) that:

Defence is responsible for ensuring information of a classified nature is made available to the ANAO for review, as it relates to the data contained within the PDSSs. Data of a classified nature must be prepared in such a way as to allow for unclassified publication. Defence will confirm to the ANAO the classification of information proposed to be published in the MPR. Defence will provide advice with regards to the aggregated security classification of information contained within the PDSS suite, and suitability for unclassified publication.

16. Defence has advised the ANAO of its decision that key schedule information for four projects (Offshore Patrol Vessel, Peregrine, SRGB Air Defence, and JORN Mid-Life Upgrade) is not for publication, and has not been published in the relevant PDSSs.

17. The Secretary of Defence advised the ANAO on 29 November 2022 that:

It is assessed that some details, both in independent projects and in the aggregate, would or could reasonably be expected to cause damage to the security, defence or international relations of the Commonwealth without sanitisation of the data.

18. As required by the Guidelines, the classified information was provided to the ANAO for review. The ANAO obtained assurance over the information provided.

19. The Auditor-General has included an Emphasis of Matter, in the Independent Assurance Report (see Part 3), relating to the PDSSs for these four projects. This is the first time that information of this type has been excluded from a PDSS. The exclusion of key forecast dates and variance information means that this information is not available to users of the MPR.

20. Due to the non-publication of this key information by Defence, the ANAO was not in a position to publish a complete analysis of schedule performance for the suite of MPR projects, as in the past. The ANAO analysis involves both in-year analysis (across the current MPR projects) and longitudinal analysis (across all projects included in the MPR over time). As a consequence, this year’s MPR does not provide the user with the same level of information, reducing the level of transparency and accountability over the MPR projects as a whole. Impacts on the ANAO’s analysis are discussed further in paragraph 35 and highlighted in the relevant text in Part 1.

Overall outcomes

Auditor-General’s summary conclusion

21. The Auditor-General has concluded in the Independent Assurance Report for 2021–22 that ‘nothing has come to my attention that causes me to believe that the information in the 21 Project Data Summary Sheets in Part 3 (PDSSs) and the Statement by the Secretary of Defence, excluding the forecast information, has not been prepared in all material respects in accordance with the 2021–22 Major Projects Report Guidelines (the Guidelines), as endorsed by the Joint Committee of Public Accounts and Audit.’

22. The Auditor-General has made an Emphasis of Matter drawing attention to disclosures within the Statement by the Secretary of Defence that some information in the PDSSs¹² is not for publication after a Defence security classification review conducted in November 2022. The Auditor-General’s conclusion is not modified in respect of this matter.

Statement by the Secretary of Defence

23. The Statement by the Secretary of Defence was signed on 20 January 2023. The Secretary’s statement provides his opinion that the PDSSs for the 21 selected projects ‘comply in all material respects with the Guidelines and reflect the status of the projects as at 30 June 2022’. The Secretary has also included a statement on the non-publication of information by Defence in certain PDSSs:

A security classification review of the Capability Acquisition and Sustainment Group and sponsor information contained within the Project Data Summary Sheets for release in the 2021-22 Major Projects Report has been completed.

The purpose of the security review is to ensure that each individual Project Data Summary Sheet is presenting data at an ‘unclassified’ level and to confirm the aggregated information is not a risk to national security, and is suitable for public release by tabling in parliament.

It is assessed that some details, both in independent projects and in the aggregate, would or could reasonably be expected to cause damage to the security, defence or international relations of the Commonwealth without sanitisation of the data.

24. The Statement by the Secretary of Defence (Statement) also details significant events occurring post 30 June 2022, which materially impact the projects included in the report and should be read in conjunction with the individual PDSSs. The Statement includes information on: Hunter Class Frigates, Hawkei, Repl Replenishment Ships, and CMATS.¹³

Key observations

25. The ANAO’s review (found in Part 1 of this report) includes Defence’s project management and reporting arrangements contributing to the overall governance of the Major Projects. A summary of key observations is provided below.

Non-publication of information by Defence and more limited data and analysis in this year’s MPR

• As noted at paragraph 16 above, Defence has not published key schedule information in four PDSSs (Offshore Patrol Vessel, Peregrine, SRGB Air Defence, and JORN Mid-Life Upgrade).¹⁴
• The ANAO was not in a position to publish a complete analysis of schedule performance, as in the past.
• This year’s MPR does not provide the user with the same level of information, reducing the level of transparency and accountability over the MPR projects as a whole.

Status of JCPAA recommendations and requests

• Following JCPAA recommendations made in May 2014, May 2016 and October 2017, Defence has yet to implement a consistent measure of capability performance with a robust methodology applicable to materiel acquisition (see paragraph 2.50 to 2.60).¹⁵
• Following a JCPAA recommendation made in September 2018, Defence advised the Committee in May 2020 that ‘Predict!’ was CASG’s risk management system.¹⁶ Defence mandated the use of ‘Predict!’ to record all CASG project risks in August 2021. Following JCPAA Recommendation 3 made in March 2022, Defence updated the JCPAA on ‘Predict!’ and CASG projects that have yet to fully transition to it.¹⁷ This update is consistent with the findings of the ANAO (see paragraphs 1.90 to 1.95).
• Following a JCPAA request made to the ANAO in 2018 ‘on how Defence major project cost variations and the costs of retaining project staff over time might be reported annually in future Major Projects Reports’, Defence advised that it is still unable to provide project staffing costs as its systems cannot track the movement of staff costs across projects over time (see paragraphs 1.79 to 1.81).¹⁸
• Following a JCPAA recommendation made in March 2022, Defence is revisiting the criteria for Projects of Concern. Defence has advised the committee that this body of work is anticipated for completion by June 2023 (see paragraph 1.32 and 1.33).
• Following a JCPAA recommendation made in March 2022 that Defence define terms used in the Major Projects Report associated with a delta or deviation from a project milestone achievement¹⁹, Defence definitions were published in late 2022 as part of the normal cycle for updating capability guidance. This is consistent with the understanding of the ANAO (see paragraphs 1.106).
• Following a JCPAA recommendation made in March 2022, Defence responded to the committee on the outcome of the Smart Buyer review of the MPR^{20, 21} (see paragraph 1.57).

Status of Auditor-General report recommendations

• Auditor-General Report No. 34 2020–21 Implementation of ANAO and Parliamentary Committee Recommendations — Department of Defence was tabled in April 2021 and included an assessment of four recommendations relevant to the MPR.²² ANAO assessed one of these recommendations as implemented, one as largely implemented, and two as not implemented.
• In July 2020 Defence closed two recommendations from Auditor-General Report No. 31 2018–19 Defence’s Management of its Projects of Concern. The ANAO assessed these recommendations as not implemented (see paragraphs 1.26 to 1.30).²³ This is being addressed by Defence and the recommendations are anticipated to be implemented by June 2023.
• Auditor-General Report No. 18 2020–21 Defence’s Procurement of Combat Reconnaissance Vehicles (LAND 400 Phase 2) included a recommendation for improvement in Defence’s Independent Assurance Review processes. Reporting on the recommendation was provided to the Defence Audit and Risk Committee in February 2022, noting that the recommendation had been closed with an agreed closure date of April 2021.
• Auditor-General Report No. 15 2021–22 Department of Defence’s Procurement of Six Evolved Cape Class Patrol Boats included a recommendation on probity management for unsolicited procurement proposals received from industry. Actions for implementation were tabled and closed at the February 2022 Defence Audit and Risk Committee, with a planned implementation date of March 2022.

Defence acquisition governance

26. When reviewing Defence’s Project Data Summary Sheets (PDSSs), the ANAO considered the following items.

• Defence’s use of the Independent Assurance Review (IAR) process to report on the status of acquisition projects. In 2021–22, Defence completed an IAR on 14 of the 21 projects in this report (see paragraphs 1.13 to 1.18).²⁴
• Defence’s approach to entry and exit from the Projects of Interest and Projects of Concern lists (see paragraphs 1.19 to 1.34).
• Defence’s reporting to senior department leadership and government stakeholders on the delivery of capability to the ADF. The ANAO observed a gap in reporting activity (see paragraphs 1.35 to 1.47).
• The importance of capturing government decisions in internal Defence documentation and ensuring that Materiel Acquisition Agreements are appropriately aligned with these decisions (see paragraphs 1.48 to 1.54).
• Defence’s implementation of the Smart Buyer Framework to support strategic decision making in the acquisition of major projects. The framework was not used at the Second Pass government approval stage for projects in the current MPR (see paragraphs 1.55 to 1.58).
• Defence’s implementation of new business systems to report on the status of acquisition projects (see paragraphs 1.59 to 1.62).
• Defence’s use of project contingency funds (see paragraphs 1.71 to 1.75). Four MPR projects committed contingency funds in 2021–22. These were: MRH90 Helicopters (to manage supportability and performance risks), Offshore Patrol Vessel (to address risk relating to delivery of the third vessel), SRGB Air Defence (for treatment of COVID related impacts), and Battle Comm. Sys. (Land) 2B (to address COVID related delays).
• The status of Capability Acquisition and Sustainment Group’s (CASG) Risk Management Reform Program and the establishment of the CASG Risk Management Framework (see paragraphs 1.82 to 1.89).
• Projects that had not fully met the requirements of CASG’s Risk Management Manual Version 1 and Financial Policy (titled Management Of Defence Capability Project Contingency) for contingency allocation (see paragraph 1.73) and risk management (see paragraph 1.90 to 1.94).
• The status of CASG’s Lessons Learned policy. The policy was updated in February 2022 and Defence is yet to fully implement it, including the compliance monitoring arrangements (see paragraphs 1.97 to 1.98).
• The recent inclusion of definitions, in Defence’s internal policies, of terms relating to the declaration of significant capability milestones, including ‘caveat’ and ‘deficiency’.²⁵ The ANAO has continued to observe the use of these and other terms by Defence to represent exceptions to the achievement of significant milestones (see paragraphs 1.101 to 1.108).

27. The ANAO did not review Defence’s governance and co-ordination arrangements for the new Naval Shipbuilding and Sustainment Group (NSSG), which took effect on 4 October 2022. Defence provides more information about the NSSG in its contribution (Part 2). Defence internal communications indicate that the NSSG:

will be the dedicated entity, in partnership with the Royal Australian Navy, to deliver the Naval Shipbuilding and Sustainment Enterprise, building and sustaining maritime capabilities.

Project performance analysis

28. In addition to its limited assurance review, the ANAO has undertaken an analysis of key elements of the Defence PDSSs, including in-year analysis across the 21 current Major Projects, and longitudinal analysis across all projects included in the MPR over time. As discussed in paragraph 20 above, Defence’s decision to not publish key schedule information in four PDSSs means that the ANAO was not in a position to publish a complete analysis of schedule performance, as in the past. Consequently, this year’s MPR does not provide the user with the same level of information, reducing the level of transparency and accountability over the MPR projects as a whole.

29. A summary of the ANAO’s analysis is found in Table 5, p. 17. The detailed analysis is found in Chapter 2.

Cost

30. Cost management is an ongoing process in Defence’s administration of the Major Projects. Defence has reported that all 21 projects could continue to operate within the total approved budget of $59.0 billion. The MRH90 Helicopters, Offshore Patrol Vessel, SRGB Air Defence and Battle Comm. Sys. (Land) 2B projects drew upon contingency funds to complete project activities.

31. The total approved budget for the 21 Major Projects has increased by $17.5 billion (30 per cent) since initial Second Pass Approval by government.

32. Budget variations greater than $500 million are detailed in Table 2, on p. 13.²⁶

33. As the MPR focuses on the approved capital budget for Defence acquisition, the ongoing costs of project offices, training, replacement capability, etc., are not reported here.²⁷

34. Cost information was not affected by Defence’s decision to not publish certain information in four PDSSs this year.

Schedule

35. As discussed in paragraph 20 above, this year the ANAO was not in a position to publish a complete analysis of schedule performance, as in the past. This is due to seven projects either not disclosing their Final Operational Capability (FOC) forecast date, or not having a settled FOC date.²⁸ Therefore the figures for total schedule slippage and in-year schedule slippage in 2021–22 are not reported in this year’s MPR analysis.

• Defence has decided to not publish FOC forecast dates in three PDSSs (Offshore Patrol Vessel, Peregrine, and JORN Mid-Life Upgrade).²⁹ This represents 14 per cent of all PDSSs.³⁰
• Four (19 per cent) of the 21 PDSSs did not have FOC forecast dates at 30 June 2022.³¹
• The combined effect of Defence’s non-publication of the three FOC forecast dates, and the four FOC dates not settled, is that seven (33 per cent) of the 21 PDSSs do not include FOC dates this year. Any aggregated analysis of the remaining 14 projects (which have included FOC dates in their PDSS) would be incomplete.
• The inclusion of incomplete schedule performance analysis would misinform users of the MPR, as the 14 projects that have included FOC dates in their PDSS are not representative of all the Major Projects.

36. Delivering Major Projects on schedule continues to present challenges for Defence. Schedule slippage can affect when the capability is made available for operational release and deployment by the ADF, as well as the cost of delivery.

37. Defence’s management of platform availability has contributed to slippage in some projects.³² For example, Maritime Comms and Collins Comms and EW have been impacted by changes to docking schedules of the ANZAC Class frigates and Collins Class submarines respectively.

38. Projects with developmental content have also experienced significant delays. These projects are MRH90 Helicopters, MQ-4C Triton, CMATS, and Battle Comm. Sys. (Land) 2B.

39. Table 3, p. 15, details the slippage for projects that have exited the MPR. The 34 projects which have exited the MPR have accumulated slippage of 1363 months as at their respective exit dates.³³

Table 3: Schedule slippage for projects which have exited the MPR¹

Note 1: The Hornet Refurb and Battle Management System (BMS) projects are not included in this table as they did not have FOC milestones approved by government.

Note 2: Next Gen Satellite shows slippage in Figure 8a, on p. 63, which related to the final capability milestones at the time. By the time it reached FOC, a new final capability milestone had been introduced and slippage was reduced.

Source: Defence PDSSs in Major Projects Reports and ANAO analysis.

40. ANAO analysis has been included in relation to the Acquisition Categorisation (ACAT) level.³⁴ Reporting against the ACAT level has identified that there has been an increase in projects at the ACAT I³⁵ and ACAT II³⁶ levels. ACAT I projects carry a higher level of technical risk.

Capability/scope

41. The third principal component of project performance examined in this report is progress towards the delivery of capability as approved by government. While the assessment of expected capability/scope delivery by Defence is outside the scope of the Auditor-General’s formal review conclusion, it is included in the ANAO analysis to provide an overall perspective of the three principal components of project performance. The Hunter Class Frigate and Future Subs PDSSs do not report quantified capability/scope information as these projects did not have approved materiel capability/scope to be delivered at 30 June 2022. These two projects report narratives describing their current project activities.

42. The Defence PDSSs report that 11 projects in this year’s report will deliver all key capability/scope requirements. Four projects — Future Subs, MRH90 Helicopters, Hawkei, and Battlefield Command System — report that they are unable to deliver all of the required capability/scope by FOC (this is indicated in red in the PDSS traffic light diagram). Table 12, on pp. 69–71, outlines the reasons for each project’s ‘red’ assessment.

43. Defence’s assessment indicates that some elements of capability/scope to be delivered by projects may be ‘under threat’, but the risk is assessed as ‘manageable’ (‘amber’). The eight projects experiencing challenges with expected capability/scope delivery (2020–21: four) are Joint Strike Fighter, Hunter Class Frigate, MRH90 Helicopters, Offshore Patrol Vessel, Overlander Medium/Heavy, Battlefield Command System, Battle Comm. Sys. (Land) 2B and Pacific Patrol Boat Repl.

44. For the first time in 2021–22, PDSSs also quantified increases to projects’ materiel capability/scope delivery (‘blue’). Two projects, Hunter Class Frigates and Pacific Patrol Boat Repl, reported an increase in project materiel capability/scope delivery. Hunter Class Frigates will construct additional prototyping blocks, and Pacific Patrol Boat Repl will acquire an additional boat to replace one damaged and decommissioned from service.

45. Table 4, below, summarises expected capability/scope delivery as at 30 June 2022, as reported by Defence and analysed by the ANAO.

Table 4: Capability/scope delivery

Note 1: Defence advised in this year that AWD Ships would not deliver one element of capability/scope at FOC (which equated to approximately one per cent). However, across all the Major Projects this percentage rounded to zero per cent.

Note 2: The Blue reporting metric representing additional capability/scope was not used in these years.

Note 3: Defence advised in this year that Pacific Patrol Boat Repl would deliver an additional element of capability/scope at FOC (which equated to approximately five per cent). However, across all the Major Projects this percentage rounded to zero per cent.

Note 4: The Hunter Class Frigate and Future Subs projects are excluded from this analysis, as their capability/scope delivery was not quantified in these years.

Source: Defence PDSSs in Major Projects Reports and ANAO analysis.

46. In addition to reporting on expected capability/scope delivery, Defence has continued the practice of including in the PDSSs declassified information on contractual remedies for projects, including stop payments and liquidated damages.

47. In 2021–22, Battlefield Command System negotiated contractual remedies involving stop payments and Hawkei negotiated contractual remedies involving additional goods and services in lieu of liquidated damages.

48. Capability/scope information was not affected by Defence’s decision to not publish certain information in four PDSSs this year.

Summary longitudinal analysis

Summary analysis — 2019–20 to 2021–22

49. Table 5, below, summarises published PDSS data on Defence’s progress toward delivering the capabilities for the Major Projects covered in this year’s report (2021–22), and compares current data with that reported in the two most recent editions of the MPR (2019–20 and 2020–21).

50. As noted in paragraphs 20 and 35, aggregate schedule data for 2021–22 is not reported by the ANAO in Table 5 this year. This is due to the combined effect of Defence’s decision to not publish Final Operational Capability (FOC) forecast dates in three PDSSs this year, and the fact that four projects do not have settled FOC dates. Information that is not reported as part of the ANAO’s analysis is clearly identified in Table 5.

Table 5: Summary longitudinal analysis 2019–20 to 2021–22¹

Refer to paragraphs 24 to 44 in Part 1 of this report.

Note 1: The data for the 21 Major Projects in the 2021–22 MPR compares the data from projects in the 2020–21 MPR and 2019–20 MPR. The Major Projects included in each MPR are based on entry and exit criteria in the Guidelines endorsed by the JCPAA, which are in Part 4 of this report. The entry and exit of projects should be considered when comparing data across years.

Note 2: See Table 2 on p. 13 for a breakdown of the major components of this variance and Table 10 on pp. 50–51 for all real variations.

Note 3: Where a project has multiple Second Pass Approvals, the budget at Second Pass Approval reported in the header refers to the total budget in the final Second Pass Approval. The figures in this row use this methodology.

Note 4: Slippage refers to a delay in the current forecast date compared with the original government approved date of FOC. Slippage can occur due to late delivery, increases in scope or at times can be a deliberate management decision.

Note 5: As discussed in paragraph 35 above, the ANAO was unable to publish this analysis due to the non-publication by Defence of FOC information in three PDSSs and because four projects do not have approved FOC dates.

Note 6: The grey section of the table is excluded from the scope of the ANAO’s priority assurance review, due to a lack of systems from which to obtain complete and accurate evidence in a sufficiently timely manner to facilitate the review.

Note 7: The figures represent the combined number of open ‘high’ and ‘extreme’ risks and issues reported in the PDSSs across all projects. Risks and issues may be aggregated at a strategic level.

Note 8: These figures represent the average predicted capability/scope delivery across the Major Projects. This method reduces the effect of an individual project’s size on the aggregate figure.

Note 9: The Hunter Class Frigate and Future Subs projects are excluded from this analysis, as their capability/scope delivery was not quantified in these years.

Note 10: Defence advised in this year that AWD Ships would not deliver one element of capability/scope at FOC (which equated to approximately one per cent). However, across all the Major Projects this percentage rounded to zero per cent.

Note 11: The Blue reporting metric representing additional scope was not used in these years.

Note 12: Defence advised in this year that Pacific Patrol Boat Repl would deliver an additional element of capability/scope at FOC (which equated to approximately five per cent). However, across all the Major Projects this percentage rounded to zero per cent.

Source: Defence PDSSs in Major Projects Reports and ANAO Analysis.

COVID-19 impacts

51. In March 2022, the JCPAA recommended that Defence update the committee on the latest impacts of COVID-19 on the Major Projects.³⁷

52. Fifteen Major Projects reported disruptions to project delivery in 2021–22 caused by the COVID-19 pandemic.³⁸ All of these projects reported delays to their schedules, with five of these projects reporting additional impacts on project budgets.

Cost

53. One project (SRGB Air Defence) reported an application for contingency funds while four projects reported budget underspends. Each project reporting cost impacts indicated that the COVID-19 pandemic impacted one or more of the following factors: supply chain, workforce (including contractors) and travel.

Schedule

54. All 15 of the Major Projects that reported an impact on scheduling resulting from the COVID-19 pandemic cited additional impacts on supply chains, workforce (including contractors) and travel. This was disclosed as:

• six projects reported an impact on supply chains;
• eight projects reported an impact on workforce (including contractors); and
• nine projects reported an impact on travel.

Capability/scope

55. No projects reported an impact to capability/scope delivery caused by the COVID-19 pandemic.

1.1 The Major Projects Report (MPR) contains Department of Defence (Defence) information and commentary on a selection of its major projects (the Major Projects) and independent assurance and analysis of that information by the Australian National Audit Office (ANAO). This chapter provides the ANAO’s overview of the scope and approach adopted for its limited assurance review of the 21 Project Data Summary Sheets (PDSSs) prepared by Defence for this year’s MPR. The chapter also includes information and commentary on developments in Defence’s acquisition governance processes, based on the ANAO’s review.

Review scope and approach

1.2 In 2012, the Parliament’s Joint Committee of Public Accounts and Audit (JCPAA) identified the ANAO’s review of Defence PDSSs as a priority assurance review, under subsection 19A(5) of the Auditor-General Act 1997 (the Act). This provided the ANAO with full access to the information gathering powers under the Act. The ANAO’s review of the individual PDSSs, which are included in Part 3 of the MPR, was conducted in accordance with the auditing standards set by the Auditor-General under section 24 of the Act through the incorporation of 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.

1.3 The following forecast information provided by Defence is excluded from the scope of the ANAO’s review: capability/scope delivery; risks and issues; and forecast dates. These exclusions are due to the lack of Defence systems from which to provide complete and/or accurate evidence³⁹, in a sufficiently timely manner to complete the review. Accordingly, the Independent Assurance Report by the Auditor-General does not provide any assurance in relation to this information. However, material inconsistencies identified in relation to this information are required to be considered in forming the Auditor-General’s conclusion.

1.4 The ANAO’s work is appropriate for the purpose of providing an Independent Assurance Report in accordance with the ANAO Auditing Standards. Review of individual PDSSs is based on a limited assurance approach and is not as extensive as individual performance audits and financial statement audits conducted by the ANAO, in terms of the nature and scope of 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 21 major Defence equipment acquisition projects (Major Projects), is less than that provided by the ANAO’s program of performance and financial statement audits.

1.5 In addition to the assurance review, the ANAO considers developments in Defence’s acquisition governance processes (information and commentary on governance issues appears in this chapter) and undertakes analysis of key elements of Defence’s PDSSs (information and commentary on systemic issues, and in-year and longitudinal analysis for the Major Projects, appears in the next chapter).

1.6 The ANAO’s review was conducted in accordance with the ANAO Auditing Standards at a cost to the ANAO of approximately $1.8 million.

Review methodology

1.7 The ANAO’s review of the information presented in the individual Defence PDSSs included:

• examination and assessment of the governance and oversight in place to ensure appropriate project management⁴⁰;
• an assessment of the systems and controls that support project financial management, risk management and project status reporting within Defence;
• an examination of each PDSS and the documents and information relevant to them;
• a review of relevant processes and procedures used by Defence in the preparation of the PDSSs;
• meetings with personnel responsible for the preparation of the PDSSs and management of the projects;
• analysis of project information, for example, cost and schedule variances;
• taking account of industry contractor comments provided on draft PDSS information;
• assessing the assurance by Defence managers attesting to the accuracy and completeness of the PDSSs;
• examination of the representations by the Chief Finance Officer supporting the project financial assurance and contingency statements;
• examination of confirmations, provided by the Capability Managers, relating to each project’s progress toward Initial Materiel Release (IMR), Final Materiel Release (FMR), Initial Operational Capability (IOC) and Final Operational Capability (FOC); and
• examination of the Statement by the Secretary of Defence, including significant events occurring post 30 June, and management representations by the Secretary of Defence.

1.8 The ANAO’s review of Defence PDSSs also focused on project management and reporting arrangements contributing to the overall governance of the Major Projects. The ANAO considered:

• developments in acquisition governance (see paragraphs 1.12 to 1.62, below);
• the financial framework, particularly as it applies to the project financial assurance and contingency statements (see Section 2 of the PDSSs);
• schedule management and test and evaluation processes (see Section 3 of the PDSSs);
• materiel capability/scope delivery forecast assessments, including Defence statements of the likelihood of delivering key capabilities, particularly where caveats are placed on the Capability Manager’s declaration of significant milestones (see Section 4 of the PDSSs);
• changes due to Defence’s reform of the Defence Enterprise Risk Management Framework, and the completeness and accuracy of major risk and issue data (see Section 5 of the PDSSs); and
• the impact of acquisition issues on sustainment to ensure the PDSS is a complete and accurate representation of the acquisition project.

1.9 This review activity informed the ANAO’s understanding of the systems and processes supporting the PDSSs for the 2021–22 review period. It also highlighted issues in those systems and processes that warrant attention.

Quality and timeliness of PDSS preparation

1.10 A quality PDSS preparation process by Defence will reduce the risk of untimely and/or inaccurate reporting and will reduce the incidence of multiple reviews for the same project. The ANAO noted ongoing issues relating to processes supporting the preparation and delivery of draft PDSSs for ANAO review. The MPR Engagement Letter provided by the ANAO to Defence requires Defence to prepare quality assured evidence packs, which include a complete and accurate PDSS, in addition to copies of relevant supporting evidence, and sets the expectation that there will be no more than three versions of each project’s PDSS submitted to the ANAO for review.

1.11 Efficiency can be gained through Defence process standardisation, a project management approach and continued engagement and review by Defence leaders.

Acquisition governance

1.12 Consistent with previous years, the ANAO considered Defence’s Major Project acquisition governance processes when planning and conducting the review for the 2021–22 MPR. While some of these processes are now established, others continue to mature or require further development to achieve their intended impact.

Defence Independent Assurance Reviews

1.13 The Defence Independent Assurance Review (IAR) process provides the Defence Senior Executive with assurance that projects and products will deliver approved objectives and are prepared to progress to the next stage of activity. These management-initiated reviews consider a project’s status while sufficient time remains for corrective action to be implemented.⁴¹

1.14 IARs are intended to commence at project initiation and are conducted through to FOC; for higher-complexity projects, ideally on an annual basis. They are an important input to key acquisition and sustainment decision points or milestones.⁴²

1.15 Fourteen of the 21 Major Projects had an IAR completed during 2021–22⁴³, which formed key evidence for the ANAO’s review.

1.16 The ANAO has published three performance audit reports which recommended improvements in Defence IAR processes:

• Auditor-General Report No. 12 2020–21 Defence’s Procurement of Offshore Patrol Vessels — SEA 1180 Phase 1;
• Auditor-General Report No. 18 2020–21 Defence’s Procurement of Combat Reconnaissance Vehicles (LAND 400 Phase 2); and
• Auditor-General Report No. 15 2021–22 Department of Defence’s Procurement of Six Evolved Cape Class Patrol Boats.

1.17 The assessment of whether these recommendations have been implemented by Defence is outside the scope of this review. The Defence Audit and Risk Committee has accepted closure of the two recommendations from Auditor-General Report No. 12 of 2020–21 Defence’s Procurement of Offshore Patrol Vessels — SEA 1180 Phase 1 and the recommendation in Auditor-General Report No. 18 of 2020–21 Defence’s Procurement of Combat Reconnaissance Vehicles (LAND 400 Phase 2).

1.18 Auditor-General Report No. 15 2021–22 Department of Defence’s Procurement of Six Evolved Cape Class Patrol Boats identified that no independent assurance reviews of this project had been conducted to date. Therefore, Defence and its senior leaders had not had the benefit of the full suite of inputs which contribute to providing assurance that capability requirements are being successfully delivered by an acquisition project.⁴⁴

Projects of Concern

1.19 The Projects of Concern process is intended to focus the attention of the highest levels of government, Defence and industry on remediating problem projects.⁴⁵ As at 30 June 2022, two MPR projects, MRH90 Helicopters and CMATS, were continuing Projects of Concern.

MRH90 Helicopters project

1.20 The MRH90 Helicopters project was placed on the list in November 2011 due to contractor performance relating to significant technical issues preventing the achievement of milestones on schedule.⁴⁶ The project has progressed the materiel capability/scope delivery relating to the Taipan Gun Mount, Aero-Medical Evacuation Equipment and the Common Mission Management System.⁴⁷ FOC is scheduled for March 2023, nine months later than stated last year, with a total of 104 months slippage over the life of the project.

1.21 In December 2021, the government announced plans to investigate other aircraft types to immediately replace the MRH90 helicopter fleets. Following this decision, Navy has commenced project SEA 9100 Phase 1 Improved Embarked Logistics Support Helicopter Capability to replace its fleet of six MRH90 helicopters with thirteen MH-60R Seahawk helicopters. In May 2022, Navy ceased operation of its MRH90 fleet. In January 2023, government announced the acquisition of 40 UH-60M Black Hawk helicopters to replace the Army MRH90 fleet. This is expected to result in the withdrawal from service of the Army MRH90 fleet 13 years earlier than planned.⁴⁸

CMATS project

1.22 The CMATS project was a Project of Concern between August 2017 and May 2018 due to protracted negotiations leading to a delay in entering the contract. Following contract signature, CMATS was managed as a Project of Interest.

1.23 In September 2021, the Minister for Defence made a written direction that CMATS return to the Projects of Concern list. Defence did not update internal reporting, such as the Acquisition and Sustainment Update and its Projects of Concern list, in response to the Minister’s direction. In September 2022 Defence advised the ANAO that ‘the decision to declare this project a Project of Concern required extensive consultation with Airservices⁴⁹ and with the Department of Infrastructure, Transport, Regional Development and Communications, which needed to occur post the Ministers 25 August 2021 decision’. Defence guidance states that ‘entry to … the Projects of Concern list is decided by the Minister for Defence and the Minister for Defence Industry’.⁵⁰ Defence was unable to provide the ANAO with evidence of any limitation on the Minister’s decision-making authority, or evidence of an updated policy or guidance.

1.24 CMATS has continued to experience schedule delays to its IOC and FOC dates and the contractor has been unable to provide authoritative forecast dates for system acceptance milestones.

1.25 CMATS was publicly announced as a Project of Concern by the Minister for Defence Industry on 27 October 2022.

Governance

1.26 Auditor-General Report No. 31 2018–19 Defence’s Management of its Projects of Concern assessed whether Defence’s Projects of Concern regime was effective in managing the recovery of underperforming projects. It concluded that while the regime is an appropriate mechanism for escalating troubled projects to the attention of senior managers and ministers, Defence was not able to demonstrate the effectiveness of its regime in managing the recovery of underperforming projects. Moreover, the audit observed that the transparency and rigour of the framework’s application had declined in recent years. The ANAO recommended that:

• Recommendation No. 1: Defence introduce, as part of its formal policy and procedures, a consistent approach to managing entry to, and exit from, its Projects of Interest and Projects of Concern lists. This should reflect Defence’s risk appetite and be made consistent with the new Capability Acquisition and Sustainment Group Risk Model and other, Defence-wide, frameworks for managing risk. To aid transparency, the policy and the list should be made public.
• Recommendation No. 2: Defence evaluates its Projects of Concern regime.⁵¹

1.27 In July 2020, Defence closed both these recommendations, advising that the Capability Acquisition and Sustainment Group (CASG) had developed a consistent approach to entry and exit from the Projects of Interest and Projects of Concern lists; that the Projects of Concern list was publicly available; and that CASG had evaluated the Projects of Concern regime and had effective assurance mechanisms in place, underpinned by IARs.⁵²

1.28 Auditor-General Report No. 34 2020–21 Implementation of ANAO and Parliamentary Committee Recommendations — Department of Defence concluded that the two ANAO recommendations relating to the management of Projects of Concern had not been implemented. The ANAO reported that there was no evidence that Defence established a clear basis or criteria to ensure a consistent approach to entry to and exit from the Projects of Concern or Projects of Interest lists, and that no evidence of an evaluation was provided to the ANAO.⁵³

1.29 At the JCPAA’s September 2021 hearings on the 2019–20 Major Projects Report, the Deputy Secretary CASG stated that:

We are working to improve the way in which we’re able to measure the underperforming projects. Invariably, it’s data driven quite easily on cost and schedule against the documented milestones and loaded milestones and then the capability a little more to that. As we develop up the program report or the project and sustainment report that we’re doing to supplement the sequencing in between portfolio budget statements, portfolio additional estimates statements and from this major projects report itself, we will continue to mature that by feeding in capability manager assessments and information. That’s important because, ultimately, they are the first principles responsible for the capability delivery and we are the delivery agency but the operational effect is through the capability manager.⁵⁴

1.30 In July 2022, CASG advised the ANAO that Project of Concern/Interest reporting will be provided through a bi-annual information product that is not to be used for decision-making, or to vary approved project parameters or budget plans and is for information purposes only. Defence records indicate that ‘Reporting data is not to be considered as a request for a decision to vary approved project parameters or budget plans. Advice on these matters will be requested through submissions specific to the project and issue as necessary.’⁵⁵

1.31 Recommendation 2 of JCPAA Report 489⁵⁶ was that Defence revisit its effort to provide criteria for projects to enter and exit the Projects of Concern and Projects of Interest categories and create processes for their consistent application, enabling these to be reviewed as part of the next MPR, and that the ANAO give further consideration to these issues in the next MPR. In its September 2022 response to the recommendation, Defence advised the JCPAA that the body of work to address this recommendation was under development, with completion anticipated by June 2023. Defence also stated that a Project of Concern/Interest report is presented to the Defence Investment Committee to increase oversight of performance issues.

1.32 On 10 October 2022 Defence Ministers announced⁵⁷ that the Government would ‘strengthen and revitalise Defence’s projects of concern process’, by doing the following.

• Establishing an independent projects and portfolio management office within Defence.
• Requiring monthly reports on Projects of Concern and Projects of Interest to the Minister for Defence and Minister for Defence Industry.
• Establishing formal processes and ‘early warning’ criteria for placing projects on the Projects of Concern and Projects of Interest lists.
• Fostering a culture in Defence of raising attention to emerging problems and encouraging and enabling early response.
• Providing troubled projects with extra resources and skills.
• Convening regular Ministerial summits to discuss remediation plans.⁵⁸

1.33 The ANAO will monitor implementation of the changes announced in October 2022 and include relevant commentary in the next MPR.

Longitudinal analysis

1.34 ANAO longitudinal analysis of all MPR projects on the Projects of Concern (POC) List indicates that 11 MPR projects have been included, with an average of four years on the POC list (Figure 1, p. 28).

Figure 1: MPR projects identified as Projects of Concern

Source: ANAO review of previous MPRs and Ministerial direction in September 2021 in relation to CMATS.

Acquisition and Sustainment Update (formerly Quarterly Performance Report and Project and Sustainment Report)

1.35 The aim of the Capability Acquisition and Sustainment Quarterly Performance Report (QPR) was to provide senior stakeholders within government and Defence with insight into the delivery of capability to the ADF.⁵⁹ The report was provided to the Minister for Defence and the Minister for Defence Industry on a quarterly basis.⁶⁰

1.36 In July 2019, the ANAO completed an audit on the effectiveness of the QPR in providing senior stakeholders with accurate and timely information on the status of projects and emerging risks and issues. It found the June 2018 QPR, reviewed by the ANAO, to be largely effective, contained mostly accurate information, and was valued by senior stakeholders.⁶¹ The ANAO recommended that Defence improve the QPR as a tool for senior leaders by reporting on:

1. trend performance data for sustainment products; and
2. emerging candidates for the Projects/Products of Concern list and Products/Projects of Interest list that have been recommended by an Independent Assurance Review (IAR) or which are under active consideration by senior management.⁶²

1.37 During its review for the 2018–19 MPR, the ANAO observed that Defence’s June 2019 QPR reported on both improved and deteriorated performance for both acquisition and sustainment products since the previous QPR. This reflected a change in trend reporting consistent with the agreed ANAO recommendation. Additionally, the ANAO observed that Defence’s June 2019 QPR reported the emerging candidates for the Projects/Products of Concern list and Projects/Products of Interest list which had been recommended either by an IAR or which were under active consideration. This change was also consistent with the agreed ANAO recommendation.⁶³ Defence closed this recommendation in March 2020.⁶⁴

1.38 CASG ceased producing QPRs after June 2020, with the report superseded in February 2021 by the Project and Sustainment Report (PSR).

1.39 During Budget Estimates hearings held on 1 June 2021, the Deputy Secretary CASG stated that the PSR was anticipated to be issued on a six-monthly basis. A six-month gap in reporting activity introduces a risk of diminished information being available for decision making by senior leaders. Further, compared to the QPR, the PSR contained less information on acquisition projects and sustainment products that are not classified as a Project/Product of Concern or Project/Product of Interest.

1.40 Defence advised the ANAO in September 2021 that it has ‘management processes that ensure Capability Managers and Delivery groups are informing the Secretary of Defence and the Chief of Defence Force through weekly roundtable discussions and the Ministers are … informed on pertinent issues as they arise’. Defence also advised the ANAO that the next PSR was still in development and a draft would not be ready prior to the completion of the 2020–21 MPR.

1.41 In October 2021, Defence further advised the ANAO that the PSR was only an interim report, and that a new ‘Capability Report’ originally intended to replace the QPR was not sufficiently mature to be implemented.

1.42 The new report, the Acquisition and Sustainment Update (ASU) was trialled in September 2021 and accepted as the CASG replacement report for the PSR by the Deputy Secretary CASG in October 2021.

1.43 The ASU provides CASG leadership with significantly less detail of project/product performance, at a lower security classification. CASG has stated that it plans to migrate the ASU to a dynamic dashboard presentation. The ASU provides high level quarterly reporting on the following areas.

• Capability and Finance Overview.
• Delivery Group Updates.
• Planned Investment.
• Key Numbers.
• Portfolio Budget Statements.
• CASG – Top 30 Project/Product Performance Dashboard.
• CASG – Projects/Products of Concern/Interest.
• CASG – Independent Assurance Reviews.
• An explanation of CASG Performance Measures.

1.44 Defence advised the ANAO that: decision makers can seek additional information, including at a higher security classification through a project-specific brief; and that project-specific briefings are provided where issues need to be escalated or decisions are required.

1.45 Defence’s March 2022 ASU included developments of note for two MPR Projects of Interest⁶⁵, CMATS and Battlefield Command System, and MRH90 Helicopters as a Project of Concern. The March 2022 ASU did not include developments of note for other Projects of Concern or Projects of Interest included in the MPR.⁶⁶

• In respect to MRH90 Helicopters, the ASU reported that Defence continues to seek improved performance around supply chain and confidence in industry’s ability to support the capability and its planned withdrawal date.
• In respect to CMATS, the ASU reported that the schedule review had been completed and re-baselining activities were in progress; however, Defence remained concerned at the quality and timeliness of the re-baselining activities. The ASU also reported that a number of significant design artefacts had not been delivered until later than expected, putting at risk the contractor’s ability to complete the outstanding actions in time to prevent further project delay.⁶⁷
• In respect to the Battlefield Command System, the ASU reported that the combination of vehicle integration, contractor software development delays, and test and evaluation difficulties continued to impact the schedule.

1.46 This reporting aligns with the results of the ANAO’s review of the relevant PDSSs.

1.47 As at October 2022, the most recent finalised ASU was the March 2022 version. This report was received by Defence leaders in August 2022. This indicates a risk that the information in the ASU will be outdated by the time it reaches decision-makers. The ANAO will continue to monitor implementation of the ASU.

Project Directives and Materiel Acquisition Agreements

1.48 Project Directives (previously known as Joint Project Directives) state the terms of government approval, reflecting the approved scope and timeframes for activities, responsibilities and resources allocated, and key risks and issues.⁶⁸ Project Directives have historically been used to inform internal Defence documentation such as Materiel Acquisition Agreements (MAAs) between CASG and the Service Chiefs.^69,70 Project Directives had previously been described as a key governance document under the Capability Life Cycle⁷¹, intended to ensure that all parties in Defence are informed of government decisions.

1.49 Defence updated the Capability Life Cycle Manual in June 2020, no longer referring to Project Directives as a key governance document. The Capability Life Cycle Manual was superseded by the Defence Capability Manual in December 2020. The Defence Capability Manual also does not refer to Project Directives. Defence has advised the ANAO that government decisions are recorded in CapabilityOne, which records government decisions in relation to a project. In some cases, the Joint Force Authority^72,73 may provide a specific documented directive. The ANAO has previously highlighted the importance of ensuring that Project Directives properly reflect the relevant government decision, and that MAAs are appropriately aligned with the relevant Project Directive.⁷⁴

1.50 Last year, the SRGB Air Defence project advised that it did not have direct access to government approval documentation. The new project entering the 2021–22 MPR, Peregrine, advised that it has access to relevant approval documentation via CapabilityOne.

1.51 There has been no change to the advice provided in November 2020, that ‘the internal Cabinet Liaison Services section provides advice to Defence in relation to information pertaining to government approvals. Where a Project has not been identified as having a need to know, the Project can request access to relevant Cabinet documents via a business case.’

1.52 The risk of misalignment or error is reduced if Defence has appropriate access to government records, such as that previously provided by Project Directives. If projects can access original Cabinet documentation, there is no residual impact.

1.53 The ANAO requires access to original approval documents to validate the requirements of projects. Validation based on internal Defence documentation is not always possible or may not meet evidentiary standards.

1.54 First advised by Defence in July 2016⁷⁵, Product Delivery Agreements (PDAs)⁷⁶ were to be developed to replace the existing MAAs and Materiel Sustainment Agreements (MSAs). In October 2021, Defence advised the ANAO that in the absence of the PDA framework, Capability Managers and Delivery Groups continue to use the Materiel Acquisition Agreement and Materiel Sustainment Agreement Framework. The ANAO has not observed any progress on the PDA initiative during preparation of the 2021–22 MPR.

Smart Buyer Framework

1.55 The 2015 First Principles Review recommended the construction of a ‘smart buyer’ framework, with the aim of ‘[ensuring] Defence can make strategic decisions regarding the most appropriate procurement and contracting methodologies’. None of the projects currently in the Major Projects portfolio have been approved under the Smart Buyer processes.

Application to MPR projects

1.56 The one project entering the MPR in 2021–22, Peregrine, was not approved under the Smart Buyer process. The consequence is that ten projects in the MPR were approved after the Smart Buyer framework was introduced in 2016 but were not subject to its processes. Defence advised the ANAO that three MPR projects were involved in Smart Buyer activities during 2021–22, separate to the approvals process of these projects.⁷⁷

1.57 A Defence internal audit in March 2022 found that ‘the design of the Smart Buyer Program’s activities [was] considered effective in assisting Defence achieve expected outcomes in alignment with the 2020 Force Structure Plan, however … the overall effectiveness of the Smart Buyer Program is currently measured in a basic manner’. The audit identified that ‘the outcomes are not adequately monitored or reported on to Defence’s senior management, including its key sponsor – the [Vice Chief of the Defence Force].’

Application to MPR process

1.58 In 2020 Defence conducted a management-initiated review of the MPR process, applying its Smart Buyer methodology. The Defence review did not request JCPAA or ANAO input. Following a JCPAA recommendation made in March 2022 for a joint briefing on the review⁷⁸, the ANAO and Defence responded to the committee’s recommendation on 8 and 13 September 2022 respectively. Both Defence and the ANAO agreed to the recommendation. The ANAO also advised that as the Smart Buyer review was a Defence initiative, it would be appropriate for Defence to provide the review report and a briefing to the Committee. The ANAO would be available to attend the briefing.

Business systems

1.59 Defence continues to review its business systems with the aim of consolidating them to provide a more manageable ICT environment. Project reporting occurs via the Monthly Reporting Module (MRM). A second system, the Project Performance Review Information Platform (PPRIP), delivers a platform for projects to also conduct monthly reviews of their project and enable the raising of risks and actions with line management.

1.60 Errors in MRM were identified by the ANAO in the 2020–21 MPR and Defence advised the ANAO in November 2021 that:

In relation to the internal processes to assess accuracy and completeness, the process has been: data checking and reconciliation work with DFG [Defence Finance Group] to ensure BORIS [the Budget and Output Reporting Information System, Defence’s corporate budget development and reporting system] file uploads reflect the accrual accounting position (complete Oct 20); daily automated system checks to ensure that data flows are maintained and messages are provided to users when data is not up to date; prior to each MRM [Monthly Reporting Module] lockdown period reminders on data requirements are sent to reduce human error; after each lockdown period system statistics are used to drive lessons on sign off and identify areas of improvement; and to assure that in each reporting round if the data was accurate trend information over time is used to identify anomalies and drive improvements.

1.61 As the MRM is not entirely system generated, issues remain regarding its reliability as a source of evidence for the ANAO’s review of Defence PDSSs. The ANAO has continued to identify errors within MRM reports and they are not sufficiently reliable as supporting evidence for review purposes. Additional evidence was therefore sourced to support the ANAO’s review. The ANAO will continue to monitor the completeness and accuracy of data in MRM.

1.62 Defence advised the ANAO that these business systems will be replaced by the Enterprise Resource Planning program. Timing for the replacement of these business systems, MRM and PPRIP, has not been confirmed.

New Naval Shipbuilding and Sustainment Group

1.63 The Secretary of Defence and Chief of the Defence Force announced on 4 October 2022 that a new Naval Shipbuilding and Sustainment Group (NSSG) took effect from that date. The announcement included the following information.

• The Minister for Defence agreed to establish the new group in ‘recognition of the scale and complexity of Australia’s naval enterprise.’ It would ‘focus on naval acquisition and sustainment, as well as developing a competitive shipbuilding and sovereign sustainment industry.’
• The group would ‘be the dedicated entity, in partnership with the Royal Australian Navy, to deliver the Naval Shipbuilding and Sustainment Enterprise, building and sustaining maritime capabilities’ and would ‘drive, inform and influence decision-making related to the acquisition and sustainment of Navy’s current and future fleet.’ ⁷⁹
• The Deputy Secretary, Naval Shipbuilding and Sustainment, would head the group. The group’s leadership would include the First Assistant Secretary (FAS) Submarines, the FAS National Shipbuilding and Sustainment Enterprise Headquarters, the FAS Major Surface Combatants and Combat Systems, the Head of Patrol Boats and Specialist Ships, and the Head of Maritime Sustainment Division.

1.64 As the changes were announced in October 2022, the ANAO did not review acquisition governance arrangements for the new group, or its co-ordination arrangements with the existing Capability Acquisition and Sustainment Group (CASG). The ANAO will monitor implementation and include relevant commentary in the next MPR.

Results of the ANAO’s review

1.65 The following sections outline the results of the ANAO’s review. The results inform the overall conclusion in the Independent Assurance Report by the Auditor-General for 2021–22.

Financial framework

1.66 The project financial assurance statements were introduced in the 2011–12 MPR and have been included within the scope of the Independent Assurance Report by the Auditor-General since 2014–15. The contingency statements were introduced for the first time in the 2013–14 MPR and describe the use of contingency funding to mitigate project risks. Together, they are aimed at providing greater transparency over projects’ financial status.

1.67 A project’s total approved budget comprises:

• the allocated budget, which covers the project’s approved activities, as indicated in the MAA; and
• the contingency budget, which is set aside for the eventuality of risks occurring and includes unforeseen work that arises within the delivery of the planned scope of work.⁸⁰

1.68 In 2021–22, the ANAO reviewed the financial framework as it applied to managing project budgets and expenditure, including: project financial assurance, contingency, the reporting environment, and reporting cost variations and personnel costs.

Project financial assurance statement

1.69 The project financial assurance statement’s objective is to enhance transparency by providing readers with information on each project’s financial position (in relation to delivering project capability/scope) and whether there is ‘sufficient remaining budget for the project to be completed’.⁸¹ The project financial assurance statement is restricted to the current financial contractual obligations of Defence for these projects, including the result of settlement actions and the receipt of any liquidated damages, and current known risks and estimated future expenditure as at 30 June 2022.

1.70 The Chief Finance Officer’s representation letter to the Secretary of Defence on the 2021–22 MPR’s project financial assurance statements was unqualified.

Contingency statements and contingency management

1.71 Defence policy states that the purpose of a project’s contingency is to provide funding for cost, schedule and technical uncertainties that may materialise over the life of a project. The policy requires that the project manager maintain a project contingency log, which is intended to support management’s control of project contingency and facilitate reporting on its use. The use of contingency funding is dependent on the occurrence of a contingency risk event and contingency cannot be used to pay for activities which will increase the scope of the capability project.

1.72 Contingency provisions are approved by government as part of the total project budget, though are not programmed or funded in cash terms and projects are encouraged to meet contingency funding requirements from within their currently programmed cash funding. If this cannot be achieved, a project may propose to access contingency funding from the relevant capital program — the Approved Major Capital Investment Program (AMCIP), Facilities and Infrastructure Program (FIP) or ICT Capital Program. In this case, the project must make an application to access the project’s contingency to the First Assistant Secretary, Financial Performance and Management (FASFPM) within Defence Finance Group. If this cannot be achieved, the contingency call will be presented to the Defence Investment Committee, which if agreed will potentially be met by budget offsets across the whole Integrated Investment Program. ⁸² Defence PDSSs are required to include a statement regarding the application of contingency funds during the year, if applicable, as well as disclosing the risks mitigated by the application of those contingency funds.

1.73 In 2021–22, four projects applied contingency to manage project risks: MRH90 Helicopters (to manage supportability and performance risks), Offshore Patrol Vessel (to address risk relating to delivery of the third vessel), SRGB Air Defence (for treatment of COVID related impacts) and Battle Comm. Sys. (Land) 2B (to address COVID related delays). The ANAO observed two instances of projects not complying with Defence’s financial policy relating to contingency funding.

• The Future Subs project office advised that it ceased maintaining a contingency log when its risks were formally closed following the cancellation of the program. Subsequently, Defence advised that risks, including those that may require contingency funding, were managed throughout the transition out process. This process was ongoing as at 19 January 2023. This means that the project’s contingency budget is not managed in a formal log while multiple open risks and issues remain, including some that may require contingency funding.
• The MRH90 Helicopters project uses significant contingency funds to addresses its capability issues. As at 30 June 2022, the project had ceased maintaining a complete log meeting all requirements of Defence policy. Following ANAO requests for a complete log, the project prepared and provided an updated log addressing the requirements of Defence policy.

1.74 The ANAO’s examination of project contingency logs as at 30 June 2022 highlighted that the clarity of the relationship between contingency allocation and identified risks continues to be an issue. Three projects (Joint Strike Fighter, Hunter Class Frigate, MRH90 Helicopters) did not explicitly align their contingency log with their risk log to ensure that the expected cost impact of risks is maintained effectively, as required by the Capability Acquisition and Sustainment Risk Management Manual (CAS RMM) V1.0.

1.75 The ANAO will continue to monitor non-compliance with CAS RMM V1.0 and the release of specific guidance following the implementation of the CASG Risk Management Framework (which is discussed from paragraph 1.82).

Reporting on cost variations, project personnel numbers and costs

1.76 In May 2018, the JCPAA wrote to the Auditor-General to request that the ANAO report back to it ‘on how Defence major project cost variations and the costs of retaining project staff over time might be reported annually in future Major Projects Reports.’⁸³

Cost variations since Second Pass Approval

1.77 Table 9, at pp. 48–49, shows all budget variations post initial Second Pass Approval for projects.

Project personnel numbers and costs

1.78 In December 2021, the ANAO’s audit of Defence’s financial statements found that ‘Defence does not capture employee-related costs as part of its asset under construction projects. There are currently no systems or processes to identify the time spent by officers on specific projects.’ The ANAO recommended that Defence consider implementing a time recording system to capture employee costs associated with each project. Defence agreed to this recommendation.

1.79 In April 2022 Defence advised the ANAO that:

Defence does not currently have systems or processes that capture the employee (APS or ADF) workforce costs directly attributable to the development and acquisition of non-financial assets in a systemic, repeatable or efficient manner.

1.80 In the context of the 2021–22 financial statements audit, Defence estimated its in-year employee costs (for Australian Public Service and Australian Defence Force employees only) in all CASG projects, not just those in the MPR, to be $62.7 million.

1.81 The ANAO will continue to monitor Defence’s progress in recording project personnel numbers.

Enterprise Risk Management Framework

1.82 While major risks and issues data in the Defence PDSSs remains excluded from the formal scope of the Auditor-General’s Independent Assurance Report⁸⁴, material inconsistencies identified in relation to this information are required to be detailed in the report. The following information is included to provide an overall perspective of how risks and issues are managed within Defence and the selected Major Projects.

1.83 Risk management has been a focus of the MPR since its inception. The CASG risk management environment consists of multiple policies and varying implementation mechanisms and documentation. There are multiple group-level (i.e. CASG), sub-group (i.e. Divisional) and project-level risk management documents. The primary focus of the ANAO’s examination of risk management is at the project level, to conduct its review of the PDSSs. At the Group level, the Deputy Secretary CASG issued a directive in May 2017 establishing a CASG Risk Management Reform Program to implement a risk management model within Defence’s risk management framework.

1.84 The JCPAA recommended in September 2018 that Defence plan and report a methodology to the JCPAA showing how acquisition projects can transition from the use of spreadsheet risk registers to tools with better version control.⁸⁵ In response, Defence advised the JCPAA in May 2020 that Predict! would be mandated as the risk management system.

1.85 In June 2020, the Deputy Secretary CASG issued a directive establishing the CASG Risk Management Framework, which is the key deliverable of the CASG Risk Management Reform Program. The initiative includes:

• the framework, which is the primary policy and operating framework for the management of risk across the group; and
• the Group Risk Management Strategy 2020–22, which provides a structured pathway to implementing the remodelled approach to managing risk across the 2020–22 period.

1.86 The reform was initially planned to be concluded in June 2019. Defence concluded the contract with its industry partner in May 2020. Defence advised the ANAO in November 2020 that it had delivered all three phases of the reform, including the development of risk management policies and toolsets for use by projects. However, Risk Profiles for some CASG Domains remained in draft, and Risk Management Implementation Plans were still being updated.

1.87 Defence advised the ANAO in October 2021 that it had released tools to standardise risk practices across CASG, and that this includes the roll-out of Predict! across CASG. The rollout of these tools and risk practices was endorsed as complete by the CASG Group Business Manager in March 2022, which concluded the third and final phase of the CASG Risk Reform as initially planned in the CASG Deputy Secretary’s Directive of 2017.

1.88 The JCPAA recommended in March 2022 that Defence provide an update on the implementation of its new risk management system and which, if any, projects had not fully transitioned. In response to JCPAA Report 489, Defence advised the committee that two of the projects included in the 2021–22 MPR, Future Subs and MRH90 Helicopters, were granted exemptions. This is consistent with ANAO analysis in Table 6, p. 38.

1.89 Defence has advised the JCPAA that the implementation of the CASG Risk Reform Program and Predict! is expected to improve the efficiency of Defence’s risk management and standardise reporting. The ANAO will continue to monitor implementation of the Risk Reform Program, with a view to commence providing assurance over project risks and issues in the next MPR.

Roll-out status at 30 June 2022

1.90 As discussed, Defence has undertaken a roll-out of the Predict! Risk Management System tool across CASG.

1.91 The ANAO’s review of risk management documentation relating to CASG’s 21 project offices indicates that as at 30 June 2022:

• nineteen utilised Predict!;
• two utilised MS Excel spreadsheets as their primary risk management tool;
• one (Hunter Class Frigate) used Predict! and Defence’s CapabilityOne;
• one (CMATS) used Predict! and a bespoke SharePoint based tool (managed jointly with Airservices Australia, as Airservices Australia does not use Predict!); and
• one (Light Tactical Fixed Wing) used Predict! and MS Excel.

1.92 Table 6, p. 38, lists the MPR projects’ use of the Predict! Risk Management System tool as at 30 June 2022.

Table 6: MPR projects’ use of Predict! Risk Management System as at 30 June 2022

Source: ANAO

Issues identified

1.93 In 2021–22, the ANAO again examined project offices’ risk and issue logs at the Group and Service level, which are predominantly created and maintained utilising Predict! software.

1.94 The key issues with risk management, as observed by the ANAO, related to the following.

• Variable compliance with corporate guidance. While most of the 21 MPR projects had an approved Risk Management Plan, only the Joint Strike Fighter, Hunter Class Frigate, Combat Recon. Vehicles, Overlander Medium/Heavy, Hawkei, Light Tactical Fixed Wing, SRGB Air Defence, JORN Mid-Life Upgrade, and Battle Comm. Sys. (Land) 2B, projects have updated their risk management plan within six months as required by CAS RMM V1.0.⁸⁶
• The visibility of risks and issues when a project is transitioning to sustainment.
• The frequency with which risk and issue logs are reviewed to ensure risks and issues are accurate and complete, appropriately managed in a timely manner, and accurately reported to senior management.
• Lack of quality control resulting in inconsistent approaches in the recording of issues within Predict!.
• Lack of a clear link between allocations against risk in the contingency log and risk log (as discussed at paragraph 1.74).
• Risk management logs and supporting documentation of variable quality, particularly where spreadsheets⁸⁷ are being used in conjunction with Predict!.

1.95 Defence’s Independent Assurance Review (IAR) for the Hunter Class Frigate (June 2022) identified that risk ratings were different in the CASG Risk Management Manual compared to those used by the Capability Manager’s Steering Group (CMSG). The CASG Manual has ‘very high’ as the top rating for risks, while the top CMSG risk rating is ‘extreme’. This resulted in some changes to the final IAR report to enable a consistent understanding of the risk assessment.

Lessons learned arrangements

1.96 In February 2022, CASG released a revised version of its Lessons Program Policy. The Policy is underpinned by a Defence Joint Directive which directs all ‘Groups and Services, as required, to establish and lead a whole-of-Defence Joint Lessons that provides centralised Lessons management and coordination’.

1.97 Version 3.0 of the CASG Lessons Program Policy states that the:

Deputy Secretary CASG expects leadership at all levels to actively participate in the CASG Lessons Program through the identification, analysis and documenting of observations, insights and lessons across the One Defence Capability System.⁸⁸

1.98 Defence is yet to fully implement the lessons learned framework and compliance monitoring process. The ANAO has observed that nine projects’ lessons are not available within the Defence Lessons Repository and seven projects do not maintain a lessons learned log, described in Table 7, p. 40. Full implementation is expected to enable projects to review and apply lessons learned that are applicable to enable more consistent and improved project outcomes. The ANAO will continue to monitor Defence’s progress in implementing the lessons learned process for projects’ use.

Table 7: MPR projects’ application of the Defence Lessons Learned Policy as at 30 June 2022

Source: ANAO analysis

Longitudinal analysis

1.99 The MPR Guidelines provide for Defence PDSSs to include information on ‘systemic lessons’ where they are applicable to the project. The seven categories are: requirements management, first of type equipment, off the shelf equipment, contract management, schedule management, resourcing, and/or governance.

1.100 Figure 2, p. 41, shows the spread across the seven categories reported in Defence PDSSs 2007–08 to 2021–22. Contract management (77) and requirements management (70) had the highest number of reported lessons.

Figure 2: MPR projects — lessons learned as reported in PDSSs — (2007–08 to 2021–22)

Source: ANAO analysis of Defence PDSSs.

Caveats and deficiencies

1.101 Defence has defined in its internal policies and procedures, the terms ‘caveat’ and ‘deficiency’ as they relate to the declaration of significant capability milestones.⁸⁹

1.102 The ANAO first observed the declaration of a major milestone with caveats in 2013–14, and Defence has continued to declare major milestones with caveats since then. In the 2017–18 MPR the ANAO noted advice from Defence that it discourages Independent Assurance Reviewers from recommending caveats at FOC.⁹⁰ In July 2022, Defence advised the ANAO that caveats or deficiencies are used where a key milestone (Initial Materiel Release, Initial Operational Capability, Final Materiel Release, or Final Operational Capability) has been achieved in principle, with outstanding actions to be rectified or mitigated.

1.103 The JCPAA recommended, in March 2022, that:

Defence provide a clear definition of any term used in Project Data Summary Sheets or elsewhere in the Major Projects Report that is associated with a delta or deviation from a project milestone being achieved, to ensure that the use of such a term does not undermine the validity of the milestone having been achieved.⁹¹

1.104 In response, Defence advised the JCPAA on 9 September 2022 that:

Defence, in consultation with the Department of Finance, has developed definitions for the term caveat and deficiency when used in relation to project milestones. These definitions, along with additional guidance on responsibilities for declaring the achievement of key milestones, are due to be published later in 2022 as part of the normal cycle for updating capability guidance.

1.105 Implementation of Defence’s response to the JCPAA recommendation will provide clarity in this area. The ANAO has noted the use of a wide range of terms (listed in Table 8 below) over successive MPRs, indicating potential limitations on capability or milestone requirements. As discussed in paragraph 1.108, the term ‘issues’ was also used this year and has been added to the list of terms employed by Defence.

Table 8: Terms used by Defence to describe deficiencies in capability milestones or materiel release milestones

Source: ANAO analysis

1.106 Two of these terms were clarified in the Product Life Cycle Guidance glossary (October 2022).⁹²

Caveat – In relation to the declaration of Initial or Final Operational Capability or other capability milestone, is a plan, stipulation, condition or limitation to mitigate the capability impact of a Deficiency.

Deficiency – In relation to the declaration of Initial or Final Operational Capability or other capability milestone, is a shortfall between the Government agreed requirements and that which is provided at the milestone.

Declarations in 2021–22

1.107 In 2021–22, Defence declared the following caveats or deficiencies relating to projects in the MPR (prior to the introduction of the Product Life Cycle Guidance glossary in October 2022).

• Repl. Replenishment Ships — Defence declared Initial Operating Capability in October 2021 with one caveat relating to the ships’ communication system.
• Maritime Comms — Defence declared Initial Materiel Release in September 2021 with minor exceptions.

1.108 In addition, the Chief of Army declared Initial Operational Capability (IOC) for the Combat Reconnaissance Vehicles in June 2022, with a number of ‘issues for resolution’ noted in the IOC decision brief. Subsequent advice to the Minister for Defence highlighted these issues and the resulting risk the Chief of Army accepted in the declaration of IOC. Defence advised the ANAO in September 2022 that ‘IOC has been achieved unconditionally, without imposed caveats or issues.’

2.1 Performance information is important in the management and delivery of major defence equipment acquisition projects (Major Projects). It informs decisions about the allocation of resources, supports advice to government, and enables stakeholders to assess project progress.

2.2 Project performance has been the subject of many of the reviews of the Department of Defence (Defence)⁹³, and a consistent area of focus of the Parliament’s Joint Committee of Public Accounts and Audit (JCPAA) since the first Major Projects Report (MPR).

2.3 This year, Defence advised the ANAO of its decision that key schedule information for four of the 21 Major Projects (Offshore Patrol Vessel, Peregrine, SRGB Air Defence, and JORN Mid-Life Upgrade) is not for publication, and has not been disclosed in the relevant PDSS.

2.4 Due to the non-publication of this key information by Defence, the ANAO was not in a position to publish a complete analysis of schedule performance for the suite of MPR projects, as in the past. The ANAO analysis involves both in-year analysis (across the current MPR projects) and longitudinal analysis (across all projects included in the MPR over time). As a consequence, this year’s MPR does not provide the user with the same level of information, reducing the level of transparency and accountability over the MPR projects as a whole.

Project performance analysis by the ANAO

Information not published by Defence and more limited analysis

2.5 As discussed in paragraphs 20 and 35, aggregate schedule data for 2021–22 is not reported by the ANAO in this year’s MPR. This is due to the combined effect of Defence’s decision to not publish Final Operational Capability (FOC)⁹⁴ forecast dates in three PDSSs this year, and the fact that four projects do not have settled FOC dates.

• Defence has decided to not publish FOC forecast dates in three PDSSs (Offshore Patrol Vessel, Peregrine, and JORN Mid-Life Upgrade).⁹⁵ This represents 14 per cent of all PDSSs.⁹⁶
• Four (19 per cent) of the 21 PDSSs did not have FOC forecast dates at 30 June 2022.⁹⁷
• The combined effect of Defence’s non-publication of the three FOC forecast dates, and the four FOC dates not settled, is that seven (33 per cent) of the 21 PDSSs do not include FOC dates this year. Any aggregated analysis of the remaining 14 projects (which have included FOC dates in their PDSS) would be incomplete.
• The inclusion of incomplete schedule performance analysis would misinform users of the MPR, as the 14 projects that have included FOC dates in their PDSS are not representative of all the Major Projects.

Guide to the ANAO analysis

2.6 The major dimensions of project performance are:

• Cost performance (discussed at paragraphs 2.10 to 2.18) — the ANAO analysis includes the percentage of budget expended (Budget Expended), changes in budget since Second Pass Approval, in-year changes to budget, and in-year expenditure.
• Schedule performance (discussed at paragraphs 2.19 to 2.42) — this year the ANAO analysis only includes historical data (as reported in previous MPRs) and limited analysis based on published Defence information from this year’s PDSSs.
• Capability/scope performance (discussed at paragraphs 2.43 to 2.63) — the ANAO analysis includes reporting on the key challenges faced by Defence in the delivery of materiel capability/scope.

2.7 This chapter provides ANAO analysis relating to the three principal dimensions of project performance noted above, drawing on Defence’s PDSSs for the 21 Major Projects.

2.8 Figure 3a, below, directly compares cost performance with schedule performance through two metrics, Budget Expended and Time Elapsed.⁹⁸ As noted in paragraph 2.5, seven projects have not included FOC dates in their PDSSs and a Time Elapsed metric is not available for these projects. Figure 3b reports on Budget Expended only for these projects. As a result of the missing data, the ANAO has not prepared analysis of trends across the Major Projects.

Figure 3a: Budget Expended and Time Elapsed at 30 June 2022 (for projects that have included FOC forecast date in their PDSS)

Source: ANAO analysis of Defence’s 2021–22 PDSSs.

Figure 3b: Budget Expended at 30 June 2022 (for projects that have not included FOC forecast date in their PDSS)

Note 1: As at 30 June 2022, Hunter Class Frigate and Future Subs did not have Final Operational Capability (FOC) milestones approved by government.

Note 2: As at 30 June 2022, Overlander Medium/Heavy and Pacific Patrol Boat Repl did not have FOC forecasts estimated in their PDSSs.

Note 3: Defence advised the ANAO that FOC dates for Offshore Patrol Vessel, Peregrine, and JORN Mid-Life Upgrade are classified and have not been published in the PDSSs by Defence.

Source: ANAO analysis of Defence’s 2021–22 PDSSs.

2.9 Where Budget Expended is significantly lagging Time Elapsed, the project schedule may be at risk — i.e. expenditure lags may indicate delays in milestone achievement. Where Budget Expended leads Time Elapsed, the project budget may be at risk — i.e. expenditure increases may indicate real cost increases. In each case of significant variance between Budget Expended and Time Elapsed, the performance information highlights projects that may require further attention. This is to ensure that unspent funds are returned to the Defence budget for re-allocation in a timely manner, the timing of key deliverables remains in focus, or planning focuses on bringing together all elements in a timely manner, as equipment is delivered.

Cost performance analysis

2.10 Cost information was not affected by Defence’s decision to not publish certain information in four PDSSs this year.

Approved budget at initial Second Pass Approval and at 30 June 2022

2.11 Figure 4, on p. 47, compares each project’s approved budget at initial Second Pass Approval and its approved budget at 30 June 2022. Five projects had variations of $500 million or more, with the following components:

• Joint Strike Fighter — net increase of $13.0 billion, comprising $10.5 billion for 58 additional aircraft in 2013–14, $2.2 billion for exchange rate variation and $0.4 billion for price indexation (figures do not add precisely due to rounding).
• Future Subs — net decrease of $1.1 billion, comprising $1.0 billion in Real Cost Decreases associated with the termination of the project by government and a $0.1 billion decrease for exchange rate variation.
• MRH90 Helicopters — net increase of $2.8 billion, comprising $2.6 billion for 34 additional aircraft in 2005–06 and other minor scope changes, and $0.7 billion for price indexation, offset by a $0.3 bill ion decrease due to scope transfers for facilities, and a $0.1 billion decrease for exchange rate variation.
• Overlander Medium/Heavy — net increase of $0.8 billion, comprising $0.7 billion ‘project supplementation’ to reduce cost pressures and $0.1 billion exchange rate variation.
• MQ-4C Triton — net increase of $1.1 billion, comprising $0.3 billion for an additional air vehicle in 2019–20, $0.8 billion for an additional air vehicle and interim support services for the first seven years in 2020–21, offset by a $0.1 billion decrease in exchange rate variation (figures do not add precisely due to rounding).

Figure 4: Approved project budgets at initial Second Pass Approval and at 30 June 2022 ($ million)

Note 1: ▯ symbol indicates that the budget for the project at 30 June 2022 is less than the original budgeted cost.

Source: ANAO analysis of Defence’s 2021–22 PDSSs. Previous MPRs have reported that budget variances since initial Second Pass Approval have resulted from: increasing the scope of a project via revised Second Pass Approvals, programmatic decisions, Real Cost Increases/Decreases, transfers to/from other projects, and budgetary adjustments. Project budgets may also be affected by price indexation⁹⁹ and foreign exchange variation.

2.12 The total budget for the 21 MPR projects at 30 June 2022 was $59.0 billion, a net increase of $17.5 billion when compared with the approved budget at initial Second Pass Approval of $41.5 billion. A summary of budget variations is at Table 2, on p. 13, and a more detailed analysis of these budget variations is included in Table 9, on p. 48.

Budget performance

2.13 The following figures and tables illustrate the budget performance of the 21 selected projects by way of:

• in-year budget variations by project (see Table 10, below); and
• expenditure forecasting performance against actual expenditure for 2021–22 (see Figure 5 on p. 53).

In-year budget variance analysis

2.14 Table 10, below, sets out the in-year budget variations for each project. Overall, the approved budget for the selected projects as at 30 June 2022 decreased by $732.6 million (a 1.2 per cent decrease) compared with their approved budget as at 30 June 2021. This was driven by exchange rate variation increases of $253.3 million and net real decreases of $955.2 million.

2.15 Exchange rate variations result from a project’s exposure to foreign currencies, predominantly the United States dollar and the Euro, and movements in exchange rates against the Australian dollar.¹⁰⁰ Budget adjustments aim to maintain the relative buying power of the project budget. Projects with larger movements in foreign exchange in 2021–22 included the following.

• Joint Strike Fighter — increase of $164.9 million, or 1.1 per cent.
• Combat Reconnaissance Vehicles — decrease of $49.1 million, or 0.9 per cent.

2.16 Real Variations¹⁰¹ primarily reflect changes in the scope of projects, transfers between projects for approved equipment/capability and budgetary adjustments such as administrative savings decisions.

In-year forecast and actual expenditure

2.17 Accurately forecasting and managing budget expenditure is an important element in the management of a portfolio of projects. Figure 5, on p. 53, sets out the expenditure forecasting performance of each project against actual expenditure in 2021–22. In total, actual in-year expenditure for the 21 Major Projects at 30 June 2022 was $5654.2 million. This is compared against an initial Portfolio Budget Statements (PBS) forecast expenditure of $6935.0 million, a mid-year Portfolio Additional Estimates Statements (PAES) forecast of $5879.9 million, and a final forecast of $5875.6 million (Final Plan, approved as at June 2022).

2.18 The Defence PDSSs report that the variances illustrated in Figure 5 reflect the following developments.

• Joint Strike Fighter (expenditure of $1701.7 million compared with $1949.3 million PBS, $1774.3 million PAES and $1754.4 million Final Plan estimates) — the underspend is attributed to the revised aircraft delivery schedule as agreed by the F-35 Joint Program Office due to COVID-19.
• Future Subs (expenditure of $1143.9 million compared with $981.8 million PBS, $980.6 million PAES and $961.7 million Final Plan estimates) — the overspend is predominantly attributed to the cancellation of the Attack Class submarine program and the resulting settlement payment to Naval Group.¹⁰²
• Combat Reconnaissance Vehicles (expenditure of $370.1 million compared with $665.1 million PBS, $374.1 million PAES and $370.0 million Final Plan estimates) — the underspend is reported as reflecting later than expected achievement of various milestones in the prime contract.
• MRH90 Helicopters (expenditure of $35.8 million compared with $166.7 million PBS, $60.7m PAES and $113.2 million Final Plan) — the underspend is due to a delay to the delivery schedule and achievement of prime contract milestones, including the Final Acceptance milestone, and other capability deliverables.
• Offshore Patrol Vessel (expenditure of $231.4 million compared with $366.5 million PBS, $367.8 million PAES and $366.8 million Final Plan estimates) — the underspend is due to the shift in deliverables including the support system and delay in current build performance. Other causes include shift in milestone deliverables against Offshore Patrol Vessel transition, ADF seaboat program, training systems and government furnished equipment.
• Hawkei (expenditure of $341.1 million compared with $548.1 million PBS, $341.1 million PAES and $338.5 million Final Plan) — the underspend is primarily due to schedule delays caused by problems with the vehicle braking system.
• Battlefield Command System (expenditure of $19.8 million compared with $155.8 million PBS, $57.3 million PAES and $57.0 million Final Plan estimates) — the underspend is due to delays to the Battle Management System (BMS) and Tactical Communications Network (TCN) prime contracts.

Figure 5: In-year (2021–22) projects’ forecast expenditure performance compared with actual expenditure ($m)

Sources: ANAO analysis of Defence’s 2021–22 PDSSs and Defence Portfolio Budget Statements.

Schedule performance analysis

2.19 As discussed in paragraph 2.5, the combined effect of Defence’s non-publication of FOC forecast dates for three of the Major Projects¹⁰³, and the fact that FOC dates have not been settled for four Major Projects¹⁰⁴, is that seven (33 per cent) of the 21 PDSSs do not include FOC dates this year. Any aggregated analysis of the remaining 14 Major Projects (which have included FOC dates in their PDSS) would therefore be incomplete. The inclusion of incomplete schedule performance analysis would misinform users of the MPR, as the 14 projects that have included FOC dates in their PDSS are not representative of all the Major Projects.

2.20 Historical Defence data continues to show that schedule performance is a key issue in delivering and sustaining Defence equipment and capability. Project schedule slippage can have the effect of introducing or exacerbating a capability gap or requiring an extension to the planned withdrawal date for those platforms being replaced.¹⁰⁵

Schedule slippage and acquisition category by approval date

2.21 The ANAO compared historical project slippage against the Acquisition Category (ACAT), as these categories are a general indicator of the difficulty associated with the procurement process. Prima facie, the more strategic, complex and technical in nature a project is, the greater the schedule risk and therefore the greater the need for more robust planning by Defence.^106,107

2.22 Defence grades projects into one of four (ACAT) acquisition categories.¹⁰⁸

• ACAT I — major capital equipment acquisitions that are normally the Australian Defence Force’s (ADF) most strategically significant. They are characterised by extensive project and schedule management complexity and very high levels of technical difficulty, operating, support and commercial arrangements.
• ACAT II — major capital equipment acquisitions that are strategically significant. They are characterised by significant project and schedule management and high levels of technical difficulty, operating, support arrangements and commercial arrangements.
• ACAT III — major or minor capital equipment acquisitions that have a moderate strategic significance to the ADF. They are characterised by the application of traditional project and schedule management techniques and moderate levels of technical difficulty, operating, support arrangements and commercial arrangements.
• ACAT IV — major or minor capital equipment acquisitions that have a lower level of strategic significance to the ADF. They are characterised by traditional project and schedule management requirements and lower levels of technical difficulty, operating, support and commercial arrangements.

ANAO analysis based on acquisition category level

2.23 Table 11, below, provides information on the ACAT level of all 57 Major Projects included in the MPR since its inception, and the year of approval (generally Second Pass) for each Major Project. In summary:

• 14 projects (25 per cent) were ACAT I.
• 30 projects (53 per cent) were ACAT II.
• 12 projects (21 per cent) were ACAT III.
• 1 project (2 per cent) was ACAT IV.

Table 11: Project year of approval and acquisition category

2.24 Figure 6, on p. 58, illustrates the proportion of ACAT I to IV projects over time. Figure 6 indicates a continuing trend towards the approval of more complex projects at the ACAT I and II levels since 2013.

2.25 Of the 20 Major Projects which have received government approval since 2013:

• 7 projects (35 per cent) were ACAT I.
• 12 projects (60 per cent) were ACAT II.
• 1 project (5 per cent) was ACAT III.
• no projects were ACAT IV.

Schedule slippage by acquisition category (historical data)

2.26 As discussed in paragraphs 2.5, this year the ANAO was not in a position to publish a complete analysis of schedule performance, as in the past. As a result, this section focuses on historical information.

2.27 Figure 7a, on p. 61, illustrates total schedule slippage¹⁰⁹ since Second Pass Approval for the 14 Major Projects which have included an FOC date in their PDSS this year (2021–22).¹¹⁰ Figure 7b, on p. 62, includes total schedule slippage up to 2020–21 for the seven projects that have not reported an FOC date this year (2021–22). Figures 7a and 7b also depict the acquisition category and place projects in order of government approval.

2.28 Figures 8a and 8b (on pp. 63–64) illustrate the total schedule slippage for the 34 projects that have exited the MPR.¹¹¹ Twenty-one post-Kinnaird¹¹² projects (Figure 8a) and 13 pre-Kinnaird projects (Figure 8b) have exited the MPR. In summary:

• Total slippage of the 21 post-Kinnaird projects is 40.5 years.
  • Two were ACAT I with an average slippage of 37 months.
  • Twelve were ACAT II with an average slippage of 18 months.
  • Seven were ACAT III with an average slippage of 12 months.
• Total slippage of the 13 pre-Kinnaird projects is 79.6 years.
  • One was ACAT I with slippage of 77 months.¹¹³
  • Six were ACAT II with an average slippage of 89 months.
  • Five were ACAT III with an average slippage of 47 months.
  • One was ACAT IV with slippage of 107 months.¹¹⁴

2.29 Figures 8a and 8b indicate that the inclusion of less complex acquisitions contributed, prima facie, to a reduction in schedule slippage in the Major Projects portfolio.

• The less complex ACAT III projects tend to report lower slippage than the more complex ACAT I and ACAT II projects.
• Where ACAT III projects have experienced slippage, or for the significant slippage to the one ACAT IV project in the MPR, this tends to be related to the schedule in which these projects can access platforms for installation, rather than inherent risk in the project itself.

2.30 Decisions on whether to undertake complex developmental projects should be considered on a risk basis. In this context, the consideration of risk should be holistic and weigh up the level of capability to be acquired while having regard to Defence’s past experience in managing the delivery of developmental projects.

2.31 Figures 8a and 8b also illustrate that older projects have experienced the most slippage. These projects tended to be more developmental (complex) in nature and typically experienced schedule slippage in the past and have often continued to do so. This demonstrates an ongoing trend of slippage in historically late projects, which is more pronounced in older projects. This trend is also visible, but less prominent, in newer projects.

2.32 Figure 7a shows that three complex (ACAT I or ACAT II) projects with significant development or design activities — Combat Reconnaissance Vehicles, Hawkei, and ANZAC Air Search Radar Repl — are yet to experience slippage to their FOC dates. However, these projects have experienced slippage to design reviews, test programs, or materiel release milestones.

• Combat Reconnaissance Vehicles has experienced persistent slippage to the design milestones for its more complex Block II vehicles (compared to the Block I vehicles with relatively minimal design changes). The Detailed Design Reviews for four of the vehicle variants have slipped by between 24 and 30 months due to a combination of inherent design changes and challenges, as well as delays attributed to the COVID-19 pandemic.
• Hawkei experienced 24 months slippage to the Production Reliability Acceptance Test, leading to 17 months slippage to Initial Materiel Release (IMR) — which was declared in May 2020 with four caveats, which have now been resolved.¹¹⁵ Hawkei experienced an additional six-month slippage to Initial Operational Capability (IOC) pending resolution of a vehicle safety incident. Final Materiel Release (FMR) has slipped by 12 months, due to vehicle integration dependencies, the contractor’s Full Rate Production capacity, the requirement to uplift early production vehicles to the contracted product baseline, the vehicle braking safety issue, and COVID-19 global supply chain challenges.
• ANZAC Air Search Radar Repl experienced a total of 18 months of slippage to the original definition of IMR due to delays in receiving Identification Friend or Foe certification, which was impacted by COVID-19 travel restrictions. Early project milestones have also been delayed by manufacturing delays, delays in the contractor obtaining Environmental Qualification for equipment, limited numbers of test facilities and longer than anticipated test durations.

2.33 In contrast, a recent project with less design activity, Repl. Replenishment Ships, has adhered more closely to the design and materiel release schedule with only minor variances, which are attributed to effects of the COVID-19 pandemic rather to than inherent design issues or challenges.

2.34 The comparison of causes of slippage set out above indicates that developmental projects carry a higher level of technical risk.

Schedule performance

2.35 In this section the ANAO has previously reported on:

• the original and in-year forecasts for achieving Final Operational Capability (FOC);
• in-year schedule changes to achieving FOC; and
• total schedule slippage across the Major Projects.

2.36 As discussed in paragraph 2.5, this information is not reported this year (2021–22) due to the non-publication of FOC forecast information by Defence in three PDSSs and the fact that four PDSSs did not have settled FOC forecast dates at 30 June 2022.

Original and in-year Final Operational Capability (FOC) forecasts

2.37 Figure 9a, below, presents information on the selected Major Projects’ original and 30 June 2022 forecasts for achieving FOC, where 30 June 2022 FOC forecasts are reported. Seven projects did not disclose FOC dates for this year’s MPR. These projects’ original forecasts are shown in Figure 9b.

Figure 9a: Original and 30 June 2022 Final Operational Capability (FOC) forecasts (for projects which have included FOC forecast dates in their PDSS)¹

Note 1: ▯ symbol indicates that the schedule for the project at 30 June 2022 is earlier than originally planned.

Source: ANAO analysis of the 2021–22 PDSSs.

Figure 9b: Original Final Operational Capability (FOC) forecasts (for projects which have not included FOC forecast dates in their PDSS)¹

Note 1: As at 30 June 2022, Hunter Class Frigates and Future Subs did not have FOC milestones approved by Government.

Source: ANAO analysis of the 2021–22 PDSSs.

2.38 The ANAO has previously observed, in respect to schedule slippage, the importance of initial assessments of project complexity. Experience indicates that a key factor is the overall complexity inherent in the project.¹¹⁶ One project, MRH90 Helicopters, was originally classified by Defence as ACAT II. The project was reclassified by Defence to ACAT I (i.e. more complex) subsequent to Second Pass approval, and a Defence Independent Assurance Review of this project in December 2020 noted that ‘[MRH-90] was a developmental platform’. This project has continued to experience schedule slippage, with an additional nine months of slippage in 2021–22.¹¹⁷

In-year schedule performance

2.39 As discussed in paragraph 2.5, due to the non-inclusion of key schedule information by Defence in a number of PDSSs, this year the ANAO was not in a position to publish a complete analysis of schedule performance, as in the past. Information regarding schedule performance during 2021–22 is not included in the ANAO’s analysis for this MPR.¹¹⁸

2.40 Project delays may indicate unanticipated problems with project progress or optimism in previous forecasting, regardless of whether the delay makes the project later than originally approved by government. All delays should be monitored to ensure that a project remains on track and any issues can be managed.

Longitudinal analysis of slippage

2.41 Figures 10, below, and 11, on p. 68, show the historical percentage change in FOC forecast, compared with the FOC date at Second Pass Approval, for all MPR projects. Figure 10 shows the total percentage change in FOC forecast since Second Pass Approval. Figure 11 shows the in-year change in FOC forecast.

2.42 As discussed in paragraph 2.5, data for this year (2021–22) is not included in Figures 10 and 11, as aggregated analysis covering only 14 of the 21 Major Projects (i.e. those which have included FOC forecast dates in their PDSSs) would be incomplete and would misinform users of the MPR.

Figure 10: Total percentage change in FOC forecast across all MPR projects, by reporting year (excluding 2021–22) ¹

Note 1: Data for 2021–22 is not included, as the ANAO was unable to publish a complete analysis of schedule slippage due to the combined effect of: Defence’s non-publication of FOC forecast dates in three PDSSs; and the fact that four projects did not have settled FOC dates at 30 June 2022.

Source: ANAO analysis of MPRs.

Figure 11: In-year percentage change in FOC forecast across all MPR projects, by reporting year (excluding 2021–22)¹

Note 1: Data for 2021–22 was not included, as the ANAO was unable to publish a complete analysis of schedule slippage due to the combined effect of: Defence non-publication of FOC forecast dates in three PDSSs; and the fact that four projects did not have settled FOC dates at 30 June 2022.

Note 2: There is no data for 2007–08. As this was the first year of the MPR, there was no prior year to compare with in identifying in-year FOC forecast change.

Source: ANAO analysis of MPRs.

Capability/scope performance analysis

2.43 Capability/scope information was not affected by Defence’s decision to not publish certain information in four PDSSs this year.

2.44 Defence defines capability as the power to achieve a desired operational effect in a nominated environment, within a specified time, and to sustain that effect for a designated period.¹¹⁹ An operational effect is achieved by combining the nine Fundamental Inputs to Capability — organisation, command and management, personnel, collective training, major systems, facilities and training areas, supplies, support, and industry — and undertaking designated operations.¹²⁰

2.45 In acquiring Defence platforms and systems, a range of documentation (including capability definition, operational concept, function and performance specification, and Test and Evaluation Master Plans) is developed, which establishes the detailed requirements/performance attributes to be achieved.

Capability/scope delivery

2.46 The Defence PDSSs report that 11 projects in this year’s MPR will deliver all their key capability/scope requirements without elevated levels of risk to the achievement of requirements.

2.47 Defence’s assessment indicates that some elements of the capability/scope required may be ‘under threat’, but the risk is assessed as ‘manageable’.

2.48 The 10 project offices experiencing challenges with expected capability/scope delivery (2020–21: six) were: Joint Strike Fighter, Hunter Class Frigate, Future Subs, MRH90 Helicopters, Offshore Patrol Vessel, Overlander Medium/Heavy, Hawkei, Battlefield Command System, Battle Comms. Sys. Land (2B), and Pacific Patrol Boat Repl.

• Four of these projects, Future Subs, MRH90 Helicopters, Hawkei and Battlefield Command System, report that they are unable to deliver all the required capability/scope.

2.49 Table 12, below, summarises the issues reported by Defence in its PDSSs as impacting the achievement of the expected capability/scope.

Capability reporting

2.50 Since the 2009–10 MPR, capability reporting¹²¹ has been based on Defence’s prediction of the final capability that would be achieved on the basis of deliverables and/or activities completed.

2.51 This assessment of capability performance (Expected Capability) is measured against the Materiel Release Milestones (MRMs) and Completion Criteria specified in each project’s Materiel Acquisition Agreement (MAA). This is distinct from an assessment of whether milestones will be achieved on schedule.

2.52 As the ANAO has previously noted, this data involves making certain assumptions in forecasting achievements and is therefore subjective in approach.¹²²

• For example, the Light Tactical Fixed Wing project reported a 100 per cent Green capability prediction at its inclusion in the MPR in 2013–14.
• However, the 2013–14 PDSS also reported major risks relating to capability deficiencies arising from the United States Government divesting from the program, with Australia no longer able to rely on United States Air Force processes. These risks have continued to affect the project, with a mature training system and a number of baseline capability requirements not expected to be delivered until after FOC. These capability issues were reported in Section 4.1 of the PDSS (Measures of Materiel Capability Delivery Performance) for the first time in 2018–19, indicating that the earlier level of confidence in the project’s ability to achieve the required capability may have been overly optimistic.
• In 2020, the Australian Government approved an operational capability ‘pivot’ for this project, from ‘Battlefield Airlifter’ to ‘Light Tactical Fixed Wing’. This involved re-scoping and re-scheduling activities, resulting in an updated Materiel Acquisition Agreement (MAA). The revised FOC was achieved in June 2022. Notwithstanding the ‘pivot’ for this project, which represents a substantive change in capability delivery, the Materiel Capability Delivery Performance in the 2020–21 PDSS included a three per cent reduction in capability delivery.

2.53 Defence does not have a standard methodology for the assessment of capability delivery performance. A combination of methods is used, including an assessment based on the proportion of overall cost for each milestone, or the percentage the milestone represents with respect to the overall capability. Defence’s approach to assessment does not include weighting of the elements of capability, which affects the effectiveness of its reporting.

2.54 Over time, the JCPAA has sought the use of a more robust measure of capability performance.¹²³

2.55 In October 2017, the JCPAA recommended that Defence ‘review the procedure for the development of expected capability estimates for future Major Projects Reports. The outcomes of this review should be provided to the Committee within six months of the tabling of this report. Further, the Committee requests that Defence provide a progress report within three months of the tabling of this report.’¹²⁴

2.56 Defence made a submission to the JCPAA in March 2018 regarding the JCPAA recommendation, which advised that:

Defence will conduct a schedule baseline validation activity for the Major Projects Report projects to drive greater consistency in schedule reporting.

Once this activity is complete, Defence should be in a better position to investigate a more robust approach to measuring Capability estimates. Utilising the validated baseline data could inform:

• A simple percentage of schedule milestones achieved to measure progress to date. This is a quantitative assessment that relies on the maintenance of a robust project baseline, which is not dissimilar to the approach proposed by ANAO previously;
• CASG working with Force Design to identify how to measure capability, that considers all elements of Fundamental Inputs to Capability, and that is suitable for unclassified publication; and
• Defence is working towards a new whole of organisational reporting system (the Enterprise Resource Planning (ERP) System) which is expected to roll-out in Financial Year 2020–21. CASG will endeavour to incorporate the work conducted with Force Design on measuring capability.¹²⁵

2.57 In September 2018, the JCPAA noted that ‘Materiel Capability Delivery Performance charts continue to be ambiguous in displaying actual current capability levels.’¹²⁶

2.58 Defence advised the ANAO in November 2018 that partial progress had been made on its ‘schedule baseline validation activity’ discussed in paragraph 2.56. The ANAO notes that a measurement of schedule milestones will not necessarily reflect a measurement of capability delivered.

2.59 The Deputy Secretary of Defence’s Capability Acquisition and Sustainment Group (CASG) advised the JCPAA in a public hearing on 27 May 2020 that:

I acknowledge the issues of the National Audit Office and would like to work with them, as we indicated in our submission, by perhaps reviewing the report and the way in which we articulate the information.¹²⁷

2.60 As reported in last year’s MPR, as at November 2021 Defence had not updated the method of capability forecasting in the MPR.

Transfers of project scope

2.61 As part of Second Pass Approval, government directs Defence projects to deliver certain defined capabilities within the scope of the project. During a project, Defence may change the scope to be delivered, which can be approved through a revised government approval. A project’s scope may be expanded or reduced and may include a budget increase or decrease for the project to deliver its revised requirements.

2.62 The 2021–22 MPR Guidelines require information on all scope transfers that have occurred across the current Major Projects to be reported in Section 1.3 of the relevant Defence PDSS. These transfers are described in Table 13, on p. 74.

2.63 A variety of transfers were also reported by Defence in Section 2.1 of some PDSSs, either as ‘Real Variation – Transfer’ or ‘Real Variation – Scope’. Explanatory notes relating to Section 2.1 indicated that project deliverables, and associated funding, had been transferred into or out of the relevant project.¹²⁸ These transfers are also described in Table 13.

Table 13: Examples of transfers of scope occurring in the Major Projects as at 30 June 2022

Note 1: The transfer for Joint Strike Fighter was reported in Auditor-General Report No. 19 2019–20 2018–19 Major Projects Report, paragraphs 1.38–1.39.

Source: 2021–22 Defence PDSSs.

Appendix 1 Improvements observed by the ANAO

1. During the conduct of the ANAO’s priority assurance review, the following matters were identified in respect of specific aspects of the review. These matters were addressed in the context of the assurance review as a whole. The Auditor-General, in forming the conclusion found in the Independent Assurance Report in Part 3 of this report, does not provide a separate conclusion on these matters.

2. The existence of independent external audit and review, and the accompanying potential for scrutiny, improves performance. Improvements in administrative and management practices usually occur: in anticipation of ANAO audit or review activity; during the engagement as interim findings are made; and/or after the audit or review has been completed and formal findings are communicated.

3. The Joint Committee of Public Accounts and Audit (JCPAA) has encouraged the ANAO to consider ways in which the ANAO could capture and describe some of these impacts. The ANAO’s Corporate Plan states that the ANAO’s annual performance statements will provide a narrative that will consider, amongst other matters, analysis of key improvements made by entities during an audit process based on information included in tabled reports.

4. The MPR review involves close engagement between the ANAO and the entity, in this instance Defence, as well as other stakeholders involved in the limited assurance review. Throughout the review, the ANAO engages with Defence on governance and the implementation of policy, procedures and guidelines. The Auditor-General may also provide commentary in relation to the ANAO review and analysis of the information obtained during the review. Remedial actions Defence may take during the review include:

• strengthening governance arrangements;
• introducing or revising policies, strategies, guidelines or administrative processes; and
• initiating reviews or investigations.

5. In this context, the below actions or intended actions were observed by the ANAO during the MPR review. The ANAO has not sought to obtain assurance over the source of these actions or whether they have been appropriately implemented.

Table 14: Actions observed during the course of the review

Appendix 2 ANAO performance audits related to the Major Projects

• Auditor-General Report No. 28 1995–96: Jindalee Operational Radar Network
• Auditor-General Report No. 24 2005–06: Acceptance, Maintenance and Support Management of the JORN System
• Auditor-General Report No. 23 2008–09: Management of the Collins-class Operations Sustainment
• Auditor-General Report No. 57 2010–11: Acceptance into Service of Navy Capability
• Auditor-General Report No. 6 2012–13: Management of Australia’s Air Combat Capability – F-35A Joint Strike Fighter Acquisition
• Auditor-General Report No. 3 2013–14: AIR 8000 Phase 2 – C- 27J Spartan Battlefield Airlift Aircraft
• Auditor-General Report No. 52 2013–14: Multi-Role Helicopter Program
• Auditor-General Report No. 52 2014–15: Australian Defence Force’s Medium and Heavy Vehicle Fleet Replacement (LAND 121 Phase 3B)
• Auditor-General Report No. 9 2015–16: Test and Evaluation of Major Defence Equipment Acquisitions (paragraph 4.54)
• Auditor-General Report No. 1 2016–17: Procurement of the International Centre for Complex Project Management to Assist on the OneSKY Australia Program
• Auditor-General Report No. 46 2016–17: Conduct of the OneSKY Tender
• Auditor-General Report No. 48 2016–17: Future Submarine – Competitive Evaluation Process
• Auditor-General Report No. 39 2017–18: Naval Construction Programs – Mobilisation
• Auditor-General Report No. 6 2018–19: Army’s Protected Mobility Vehicle – Light
• Auditor-General Report No. 14 2018–19: Joint Strike Fighter — introduction into service and sustainment planning
• Auditor-General Report No. 30 2018–19: ANZAC Class Frigates - Sustainment
• Auditor-General Report No. 40 2018–19: Modernising Army Command and Control – the Land 200 Program
• Auditor-General Report No. 4 2019–20: OneSky: Contractual Arrangements
• Auditor-General Report No. 22 2019–20: Future Submarine Program – Transition to Design
• Auditor-General Report No. 12 2020–21: Defence’s Procurement of Offshore Patrol Vessels – SEA 1180 Phase 1
• Auditor-General Report No. 18 2020–21: Defence’s Procurement of Combat Reconnaissance Vehicles (LAND 400 Phase 2)

Part 2. Defence Major Projects Report is available to download in a separate PDF file, or in the complete report PDF which is available to download at Related documents on this page.

Statement by the Secretary of Defence

Due to the complex nature of the material, the Project Data Summary Sheets (PDSS) are available in PDF only. You can view the PDSS section in the complete report PDF which is available to download at Related documents on this page, or download individual PDSS PDF files below:

• New Air Combat Capability
• Hunter Class Frigate Design and Construction
• Combat Reconnaissance Vehicles
• Future Submarines Design Acquisition
• Multi-Role Helicopter
• Offshore Patrol Vessel
• Medium Heavy Capability, Field Vehicles, Modules and Trailers
• Airborne Intelligence, Surveillance, Reconnaissance and Electronic Warfare (ISREW) Capability
• MQ-4C Triton Remotely Piloted Aircraft System
• Protected Mobility Vehicle – Light (PMV-L)
• Battlefield Airlift – Caribou Replacement
• Short Range Ground Based Air Defence
• Jindalee Operational Radar Network
• Maritime Operational Support Capability
• Civil Military Air Traffic Management System
• Battlefield Command System
• Battlespace Communications System Phase 2B
• Collins Class Communications and Electronic Warfare Improvement Program
• Pacific Patrol Boat Replacement
• Maritime Communications Modernisation
• ANZAC Air Search Radar Replacement

The JCPAA 2021–22 Major Projects Report Guidelines part is available to download in a separate PDF file, or in the complete report PDF which is available to download at Related documents on this page.