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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). Since October 2022, the Naval Shipbuilding and Sustainment Group (NSSG) has had responsibility for building and sustaining maritime capabilities.¹ At 30 June 2023, Defence was managing 609 major and 93 minor acquisition projects, with a total acquisition cost of $190 billion.² Defence capitalised some $8.5 billion from these projects in 2022–23.³

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 sixteenth 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 NSSG.

4. The total approved budget for the 20 Major Projects included in this report is approximately $58.6 billion, which is 30.8 per cent of the total $190 billion budget for major and minor acquisition projects.

Selected projects

5. The 20 Major Projects selected for review comprise six SEA projects, eight LAND projects, five AIR projects and one joint (JNT) project. These projects and their government approved budgets at 30 June 2023 are listed in Table 1, below.

Table 1: 2022–23 MPR — selected projects and approved budgets at 30 June 2023

Note 1: This is one of two projects included in the MPR for the first time in 2022–23.

Note 2: This is one of 13 projects examined in an ANAO performance audit. See Appendix 1, on p. 102, 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 2022–23 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. A summary of the Auditor-General’s conclusion is set out in paragraphs 26 to 29. 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 Australian Industry Capability (AIC), forecast dates, expected capability/scope delivery performance and future risks.⁸ Accordingly, the Auditor-General’s Independent Assurance Report does not provide 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 evidence in a sufficiently timely manner to facilitate the review.⁹ 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 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 2023 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 PDSSs for each MPR project, including forecast dates and capability information. The Guidelines also provide (at paragraph 1.23 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.

2021–22 MPR — not for publication material

16. In the course of preparing the 2021–22 MPR, Defence advised the ANAO of its decision that schedule information for four projects¹² was not for publication, and had not been published in the relevant PDSSs. This meant that 19 per cent of the 21 PDSSs in last year’s MPR were affected by the decision to not publish certain information.

17. As required by the Guidelines, the not for publication information was provided to the ANAO for review. The ANAO obtained assurance over the information provided.

18. The Auditor-General included an Emphasis of Matter¹³, in the Independent Assurance Report, relating to the PDSSs for the four affected projects. This was the first time that information of this type had been excluded from a PDSS. The exclusion of forecast dates and variance information meant that this information was not available to users of the MPR. Further, as a result of non-disclosure 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.¹⁴ The 2021–22 MPR provided a reduced level of transparency and accountability to Parliament and other stakeholders.

2022–23 MPR — not for publication material

19. In the course of preparing the 2022–23 MPR, Defence again advised the ANAO of its decision that certain information relating to forecast dates, capability delivery information and variance information was not for publication, and would not been included in the relevant PDSSs for 12 projects.

20. The Secretary of Defence has stated, in Part 2 of this year’s MPR, that:

In accordance with the Joint Committee of Public Accounts and Audit (JCPAA) 2022-23 MPR Guidelines, Defence is responsible for ensuring that the information in the MPR is suitable for unclassified publication. The DSR highlighted that Australia’s strategic circumstances have markedly changed since the MPR was first implemented. Defence has assessed that some details, both in respect of individual projects and in 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. There are 12 projects in this MPR where some new or updated information has not been published on security grounds.

Defence provided the required information to the ANAO to conduct their assurance and analysis activities.¹⁵

21. The Secretary has further stated, in this year’s Statement by the Secretary of Defence, that:

A security classification review of the information contained within the PDSS for release in the 2022-23 MPR has been completed.

The purpose of the security review is to ensure that each individual PDSS reflects data at an ‘unclassified’ level and to confirm the aggregated information is not a risk to national security, and is suitable for public release through tabling in Parliament.

It is assessed that some details, both with respect to 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. These details have been removed from the relevant PDSS. This is marked in the PDSS by the terms “NFP” meaning Not for Publication, or “Delayed” meaning delayed from the Original Planned date or the Forecast date in the 2022–23 PDSS.¹⁶

22. Table 2 (below) lists the 12 affected PDSSs and the approved budgets for the affected projects. The affected PDSSs represent 60 per cent of all PDSSs. The affected projects represent 63.7 per cent of the aggregate approved budget for the MPR projects as a whole.

Table 2: Defence PDSSs indicating that certain information is not for publication (NFP), and approved budgets for affected projects

Source: ANAO analysis of Defence’s 2022–23 PDSSs.

23. Table 3 (below) provides information on the sections of the 12 affected PDSSs that have been impacted by Defence’s decision to not publish certain information relating to forecast dates, capability delivery information and variance information.

24. Notably, eight projects did not disclose a Final Operational Capability (FOC) forecast date in the PDSS (2021-22: three), and one project did not have a settled FOC date (2021-22: four). This means that 45 per cent of PDSSs (nine out of 20) do not include FOC dates this year.¹⁷

Table 3: Defence PDSSs – sections affected by not for publication (NFP) decisions

Source: ANAO analysis of Defence’s 2022–23 PDSSs.

25. Defence’s decision to not disclose forecast dates, capability delivery information and variance information for the 12 projects in Table 3 (above) means that this information is not available to users of the MPR. As with the 2021–22 MPR, the 2022-23 MPR provides a reduced level of transparency and accountability to Parliament and other stakeholders. The Auditor-General has included an Emphasis of Matter, in the Independent Assurance Report (see the next section and Part 3 of this report), relating to the PDSSs for the 12 affected projects.

Overall outcomes

Summary of the Auditor-General’s conclusion

26. The Auditor-General’s Independent Assurance Report for 2022–23 is found in Part 3 of this report.

27. Based on the review procedures and the evidence obtained, the Auditor-General concluded that, with two exceptions, nothing came to his attention that caused him to believe that the information reviewed was not prepared in accordance with the Guidelines.

28. The two exceptions were:

• The LAND 200 Tranche 2 Battlefield Command System PDSS is materially inconsistent with evidence obtained during the course of the review. The material inconsistencies relate to the degree of confidence that materiel capability will be met; and
• Defence removed previously reported lessons learned from all 2022-23 PDSSs. The information disclosed instead does not satisfy the requirements of the Guidelines and is materially inconsistent with evidence obtained by the ANAO.

29. The Auditor-General also drew attention to disclosures within the Statement by the Secretary of Defence (found in Part 3 of this report) that some information in 12 PDSSs has not been published due to Defence’s assessment that the information would or could reasonably be expected to cause damage to the security, defence or international relations of the Commonwealth.¹⁸

Statement by the Secretary of Defence

30. The Statement by the Secretary of Defence (Statement) was signed on 23 January 2024. The Secretary’s statement provides his opinion that the PDSSs for the 20 major acquisition projects that form part of the MPR ‘comply in all material respects with the Guidelines and reflect the status of the projects, as at 30 June 2023’.

31. The Secretary included commentary on the non-publication of information by Defence in 12 PDSSs (see paragraphs 20 to 21).

32. The Statement also details significant events occurring post 30 June 2023, which materially impact the projects included in the report and should be read in conjunction with the individual PDSSs. The Statement includes information on 13 projects.

• Offshore Patrol Vessel (SEA 1180 Phase 1).
• Collins Class Communications and Electronic Warfare (SEA 1439 Phase 5B).
• Maritime Communications Modernisation (SEA 1442 Phase 4).
• ANZAC Air Search Radar Replacement (SEA 1448 Phase 4B).
• Hunter Class Frigate Design and Construction (SEA 5000 Phase 1).
• Short Range Ground Based Air Defence Capability (LAND 19 Phase 7B).
• Medium Heavy Capability Field Vehicles, Modules and Trailers (LAND 121 Phase 3B).
• Protected Mobility Vehicles Light (Hawkei) (LAND 121 Phase 4).
• Battlefield Command System (LAND 200 Tranche 2).
• Advanced Growler – Airborne Electronic Attack Upgrade (AIR 5349 Phase 6).
• MQ-4C Triton Remotely Piloted Aircraft System (AIR 7000 Phase 1).
• Multi-Role Helicopter (AIR 9000 Phase 2/4/6).
• Battlespace Communications Systems (JOINT 2072 Phase 2B).¹⁹

Key observations

33. 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 observations is provided below.

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

34. As discussed at paragraphs 15 to 25, Defence has decided to not publish certain information in 12 PDSSs (2021–22: four). The not for publication information includes forecast dates, capability delivery information and variance information. The affected PDSSs are set out in Tables 2 and 3 (above).

35. As was the case in the 2021–22 MPR, this year’s report does not provide the same level of information compared to reporting in 2020–21 and prior years, and provides a reduced level of transparency and accountability to Parliament and other stakeholders.

36. However, in contrast to 2021–22, the ANAO is in a position to publish aggregate analysis this year on: total schedule slippage across this year’s projects, average schedule slippage across this year’s projects, and in-year schedule slippage across this year’s projects (see Table 7 at page 22). This results from the increase in the number of PDSSs which have not disclosed FOC forecast dates – from four last year to eight this year. The larger number of projects with information not disclosed this year means that it is not possible to derive the ‘not for publication’ information for individual projects from the aggregate analysis. The impacts on the ANAO’s analysis of schedule performance are discussed further in paragraphs 55 to 65.

37. While this year’s MPR provides the user with more aggregate performance information than in the 2021–22 MPR, it does not provide the same level of information on individual project performance compared to the 2020–21 MPR and prior years.

JCPAA recommendations and requests

38. Chapters 1 and 2 of the MPR report on Defence’s implementation of JCPAA recommendations and requests relating to Defence’s acquisition governance, including: Defence’s measurement of capability performance; implementation of CASG’s Predict! risk management system; reporting on major project cost variations; reporting on staff costs for Major Projects; the criteria for Defence’s Projects of Concern regime; and defining terms relating to a delta or deviation from the achievement of a Major Project milestone.

39. In June 2023 the JCPAA tabled Report 496 Inquiry into the Defence Major Projects Report 2020-21 and 2021-22 and Procurement of Hunter Class Frigates: Interim Report on the 2020-21 and 2021-22 Defence Major Projects Report.²⁰ The committee’s interim report made three recommendations relating to: Defence’s governance of its Projects of Interest and Projects of Concern regime; Defence’s contingency funding and lessons learned policies; and the closure of past JCPAA and Auditor-General recommendations. These recommendations are also reported on in Chapters 1 and 2 of the MPR.

40. In its interim report, the Committee indicated that the current MPR process and format remain appropriate for the 2022–23 and 2023–24 editions, and that ‘the Committee is examining the scope and guidelines of the MPR in the next phase of the inquiry to ensure that it continues to provide appropriate transparency and accountability to the Parliament in relation to Defence’s capability acquisition expenditure and remains fit for purpose into the future’.²¹

Auditor-General reports

41. SEA 5000 Phase 1 (Hunter Class Frigate Design and Construction) entered the MPR in 2019–20 and appears again in the 2022–23 MPR.

42. Auditor-General Report No. 21 2022–23 Department of Defence’s Procurement of Hunter Class Frigates was tabled in May 2023. This performance audit report included two recommendations to Defence. These were to improve: compliance with record keeping requirements; and advice to government on whole-of-life costs and value for money.

43. On 11 May 2023 the JCPAA broadened the scope of its inquiry into the 2020–21 and 2021– 22 Major Projects Reports to include consideration of the performance audit.²²

Defence acquisition governance

44. When reviewing Defence’s 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 2022–23, Defence completed an IAR on 13 of the 20 projects in this report (see paragraphs 1.18 to 1.20).²³
• Defence’s approach to entry and exit from the Projects of Interest and Projects of Concern lists (see paragraphs 1.21 to 1.37, and 1.42).
• Defence’s reporting to senior department leadership and government stakeholders on the delivery of capability to the Australian Defence Force (ADF) (see paragraphs 1.38 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 1.49).
• Defence’s implementation of the Smart Buyer Framework to support strategic decision making in the acquisition of major projects. The framework was used at the Second Pass government approval stage for two of the projects in this year’s MPR (see paragraphs 1.50 to 1.53).
• Defence’s implementation of Australian Industry Capability (AIC) expectations in the acquisition of major projects (see paragraphs 1.55 to 1.63).²⁴
• Defence’s implementation of new business systems to report on the status of acquisition projects (see paragraphs 1.64 to 1.65).
• Defence’s use of project contingency funds (see paragraphs 1.74 to 1.80). Two MPR projects expended contingency funds in 2022–23. MRH90 Helicopters used previously approved funds to progress treatment of various supportability and performance risks in support of the transition of the MRH90 Taipan into the 6^th Aviation Regiment, and SRGB Air Defence used previously approved funds to cover increased contract costs resulting from delays associated with the COVID-19 pandemic.
• The status of CASG’s Risk Management Reform Program and the establishment of the CASG Risk Management Framework (see paragraphs 1.86 to 1.93).
• 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 1.75) and risk management (see paragraph 1.91).
• The status of CASG’s Lessons Learned policy. The internal policy was updated in February 2022 and Defence is yet to fully implement it, including the compliance monitoring arrangements (see paragraphs 1.94 to 1.99).
• Defence’s declaration of significant capability milestones with ‘caveats’ or ‘deficiencies’²⁵, and Defence guidance on the use of such terms²⁶ (see paragraphs 1.104 to 1.107).

Project performance analysis

45. In addition to its limited assurance review, the ANAO has undertaken an analysis of the Defence PDSSs.

46. As discussed in paragraphs 15 to 25, Defence has decided to not publish certain information in 12 PDSSs (2021–22: four). The not for publication information includes forecast dates, capability delivery information and variance information. The affected PDSSs are set out in Tables 2 and 3 (see pages 7 to 11).

47. In common with the 2021–22 MPR, this year’s edition does not provide the same level of transparency and information for users compared to the 2020–21 MPR and prior years. However, as discussed in paragraphs 34 to 37, in contrast to last year the ANAO is in a position to publish aggregate analysis this year on: total schedule slippage across this year’s projects, average schedule slippage across this year’s projects, and in-year schedule slippage across this year’s projects (see Table 7 at page 22). This results from the increase in the number of PDSSs which have not disclosed a Final Operational Capability (FOC) forecast date – from four last year to eight this year. The larger number of affected projects this year means that it is not possible to derive the ‘not for publication’ information for individual projects from the aggregate analysis.

48. While this year’s MPR provides the user with more aggregate performance information than last year, it does not provide the same level of information on individual project performance compared to reporting in 2020–21 and prior years. There has been a reduction in the level of transparency and accountability over the MPR projects since the 2020–21 MPR.

49. A summary of the ANAO’s cost, schedule and capability/scope analysis is set out below. The detailed analysis is found in Chapter 2.

Cost analysis

50. Cost management is an ongoing process in Defence’s administration of the Major Projects. Defence has reported that all 20 projects in this year’s MPR could continue to operate within the total approved budget of $58.6 billion. The MRH90 Helicopters and SRGB Air Defence projects drew upon contingency funds to complete project activities.

51. The total approved budget for the 20 Major Projects has increased by $22.8 billion (39 per cent) since initial Second Pass Approval by government.

52. Budget variations greater than $0.50 billion are detailed in Table 4 (below).²⁷

53. 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.²⁸

54. Cost information was not affected by Defence’s decision to not publish certain information in 12 PDSSs this year.

Table 4: Budget variations over $0.5 billion — post initial Second Pass approval by variation type 1,2

Note 1: For the variations related to all projects and their value, refer to Table 11 on pages 58 to 59 of this report. For the breakdown of in-year variation, refer to Table 12 on p. 61 of this report.

Note 2: For projects with multiple Second Pass Approvals, this table shows variations from the initial approval.

Note 3: Defence has advised that ‘project supplementation’ is a unique term used to describe the approvals history of this project as follows: ‘The original amount of $2549.2, was the Government decision to split Phase 3 into Phase 3A and 3B. In 2011, Government approved Second Pass approval of Phase 3A and the ‘Interim Pass’ Government approval for Phase 3B. The decision to grant Phase 3B ‘Interim Pass’ was to allow greater bargaining power for Defence while negotiating Phase 3A. Phase 3B was always going to return to Government for formal Second Pass approval, which occurred in July 2013, once contract negotiations were complete.’

Note 4: Before 1 July 2010, projects were periodically supplemented for price indexation, whereas the allocation for price indexation is now provided for on an out-turned basis at Second Pass Approval.

Note 5: Figures do not add precisely due to rounding.

Source: ANAO analysis of Defence’s 2022–23 PDSSs.

Schedule analysis

55. Final Operational Capability (FOC) is the key milestone that forms the basis for the majority of the ANAO’s schedule analysis, including aggregate analysis of total schedule slippage across projects, average schedule slippage across projects, and in-year schedule slippage across projects.

56. This year, nine of the 20 projects (45 per cent) either did not disclose the FOC forecast date in their PDSS (eight projects) or did not have a settled FOC date (one project).²⁹

• Defence has decided to not publish FOC forecast dates in eight PDSSs (Joint Strike Fighter, Advanced Growler, Peregrine, Heavy Armoured Capability, JORN Mid-Life Upgrade, Battlefield Command System, Maritime Comms and ANZAC Air Search Radar Repl).³⁰ This represents 40 per cent of all PDSSs.³¹
• One of the PDSSs (Hunter Class Frigate Design and Construction) did not include an FOC forecast date. This is because the Hunter Class Frigate project did not have an FOC milestone approved by government at 30 June 2023. This represents five per cent of all PDSSs.

57. In the 2021–22 MPR, seven of the 21 Major Projects (33 per cent) either did not disclose their FOC forecast date in their PDSS (three projects) or did not have a settled FOC date (four projects).

• The ANAO reported last year that any aggregated analysis of the remaining 14 projects (which had included FOC dates in their PDSS) would be incomplete, and the inclusion of incomplete schedule performance analysis would misinform users of the MPR, as the 14 projects that had included FOC dates in their PDSS were not representative of all the Major Projects.
• The ANAO was not in a position last year to publish aggregate analysis on: total schedule slippage across the 21 projects, average schedule slippage across the projects, and in-year schedule slippage across the projects. This was reflected in Table 5 of the 2021–22 MPR, which set out the ANAO’s summary longitudinal analysis.

58. This year, an increased number of projects have not disclosed their FOC forecast date in their PDSS – from four (19 per cent) last year to eight (40 per cent) this year. This means that the ANAO is able to publish information in aggregate as it would not disclose the individual Major Projects which have no reported FOC forecast dates. The ANAO is therefore in a position to publish an analysis of: total schedule slippage across the 20 projects, average schedule slippage across the projects, and in-year schedule slippage across the projects. This is reflected in Table 7 (see page 22) of this year’s MPR, which sets out the ANAO’s summary longitudinal analysis.

59. In summary, at 30 June 2023, aggregate schedule performance was as follows for the 20 Major Projects.

• Total schedule slippage was 453 months³² when compared to the initial schedule (2020–21: 405 months). This represents a 23 per cent increase since Second Pass Approval.
• Average schedule slippage was 25 months (2020–21: 23 months).
• In-year schedule slippage totalled 101 months (2020–21: 73 months). This represents a five per cent increase since Second Pass Approval.

60. As indicated in Table 5 (below), in-year schedule slippage across the 20 Major Projects was five per cent.

• Two per cent of in-year schedule slippage was contributed by seven of the eight projects where FOC forecast dates were not disclosed.³³ This represents 40 per cent of in-year schedule slippage.

61. 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.

62. Table 5 (below) provides details of in-year and total schedule slippage by project, except where Defence has indicated that project information is not for publication (NFP).

Table 5: In-year and total schedule slippage1 from original planned Final Operational Capability milestone

Note 1: Slippage refers to a delay in the current forecast date compared to the original government approved date of FOC. These figures exclude delays to a project’s schedule that do not result in slippage past the original government approved date, and schedule reductions over the life of the project.

Note 2: This project had no capability milestones approved by government at 30 June 2023.

Note 3: This project experienced a two-month delay in the prior year, which was remediated In-year, with no resulting impact on the FOC milestone.

Note 4: This project’s FOC milestone had not been approved by government at 30 June 2023. The MPR analysis has referred to the current final scheduled operational milestone for this project (Tranche 1 Operational Capability 2). It is anticipated that subsequent government approvals will introduce new operational capability milestones including an FOC milestone.

Note 5: This project has reported its slippage in months but has not reported the Original Planned and Current Plans dates for its final milestone. The non-publication of these dates, while publishing a slippage figure, means that this project is reported on individually in some parts of the ANAO’s analysis and not in other parts.

Note 6: The Battlefield Command System (LAND200 Tranche 2) is excluded from this analysis due to the Auditor-General’s Qualified Conclusion, see paragraphs 2.8–2.9 and the Independent Assurance Report in Part 3 of this report.

Source: ANAO analysis of the 2022–23 PDSSs.

63. Past MPRs have reported that the management of platform availability has contributed to slippage in some projects.³⁴

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

65. The MPR includes ANAO analysis relating to each project’s Acquisition Categorisation (ACAT) level as reported by Defence.³⁵ The analysis indicates that there has been an increase in the number of projects at the more complex ACAT I³⁶ and ACAT II³⁷ levels. ACAT I projects carry a higher level of technical risk.

Capability/scope analysis

66. 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 further perspective on project performance.

67. The Hunter Class Frigate PDSS does not report quantified capability/scope information as this project did not have approved materiel capability/scope to be delivered at 30 June 2023. This project instead reports narratives describing its current project activities.

68. This year’s Defence PDSSs report as follows.

• Nine projects (45 per cent) report they will deliver all capability/scope requirements. This is indicated in ‘green’ in the traffic light diagram included in each PDSS.
• Five projects (25 per cent) report they have experienced challenges with expected capability/scope delivery (2021–22: seven). These are: Hunter Class Frigate, Offshore Patrol Vessel, Overlander Medium/Heavy, MQ-4C Triton, and Battlefield Command System. Defence’s assessment indicates that some elements of capability/scope to be delivered by these projects may be ‘under threat’, but the risk is assessed as ‘manageable’. This is indicated in ‘amber’ in the PDSS traffic light diagram.
• Six projects (30 per cent) report they are unable to deliver all the required capability/scope by FOC (2021–22: four). These are: Joint Strike Fighter, MRH90 Helicopters, Hawkei, JORN Mid-Life Upgrade, Battle Comm. Sys. (Land) 2B and Battlefield Command System. This is indicated in ‘red’ in the PDSS traffic light diagram. Table 15 (pages 78 to 80) outlines the reasons for each project’s ‘red’ assessment.

69. In last year’s MPR the PDSSs also quantified, for the first time, any increase to a project’s materiel capability/scope delivery. This was reported as ‘blue’ in the PDSS traffic light diagram for two projects. This year, ANZAC Air Search Radar Repl reported an increase in project materiel capability/scope delivery. This project will deliver a minor increase in scope relating to training simulators.

70. Table 6 (below) summarises the percentage of capability/scope Defence expects will be delivered by the Major Projects. The assessment is at 30 June 2023, as reported by Defence and analysed by the ANAO.³⁸

Table 6: Capability/scope — delivery

Note 1: The Blue reporting metric representing additional capability/scope was not used in these years.

Note 2: 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 of project scope). However, across all the Major Projects this percentage rounded to zero per cent.

Note 3: Defence advised in this year that ANZAC Air Search Repl would deliver an additional element of capability/scope at FOC (which equated to approximately 0.1 per cent of project scope). 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 (Future Subs was reported in 2020–21 and 2021–22 only).

Note 5: The Battlefield Command System (LAND200 Tranche 2) is excluded from this analysis due to the Auditor-General’s Qualified Conclusion, see paragraphs 2.8–2.9 and the Independent Assurance Report in Part 3 of this report.

Note 6: Figures do not add precisely due to rounding.

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

71. In addition to reporting on expected capability/scope delivery, Defence has continued the practice of including in the PDSSs information (except for certain projects discussed in Table 3, pages 8 to 11) on contractual remedies for projects, including stop payments and liquidated damages.

72. In 2022–23, Defence enforced stop payments for the Combat Reconnaissance Vehicles and Battlefield Command System projects and received liquidated damages for the MRH90 Helicopters project.

Summary longitudinal analysis

Summary analysis — 2020–21 to 2022–23

73. Table 7 (below) summarises published PDSS data on Defence’s progress toward delivering the capabilities for the Major Projects covered in this year’s report (2022–23). The table compares current data with that reported in the two most recent editions of the MPR (2020–21 and 2021–22).

Table 7: Summary longitudinal analysis 2020–21 to 2022–23

Refer to paragraphs 34 to 37 in Part 1 of this report.

Note 1: The Major Projects included in each MPR will differ, 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 4 on p. 17 for a breakdown of the major components of this variance and Table 12 on p. 61 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: The ANAO was unable to publish this analysis in 2021–22 due to the non-publication by Defence of FOC information in three PDSSs and because four projects did not have approved FOC dates. See paragraph 57.

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 Defence systems from which to obtain complete and accurate evidence in a sufficiently timely manner to facilitate the ANAO’s 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: The Blue reporting metric representing additional scope was not used in this year.

Note 11: 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 of project scope). However, across all the Major Projects this percentage rounded to zero per cent.

Note 12: Defence advised in this year that ANZAC Air Search Radar Repl would deliver an additional element of capability/scope at FOC (which equated to approximately 0.1 per cent of project scope). However, across all the Major Projects this percentage rounded to zero per cent.

Note 13: Figures do not add precisely due to rounding.

Note 14: The data pertaining to the Battlefield Command System (LAND200 Tranche 2) is excluded from this analysis due to the Auditor-General’s Qualified Conclusion, see paragraphs 2.8–2.9 and the Independent Assurance Report in Part 3 of this report.

Source: ANAO analysis of Defence PDSSs across multiple years

COVID-19 impacts

74. Nine Major Projects reported disruptions to project delivery in 2022–23 caused by the COVID-19 pandemic. Three of these projects reported impacts across multiple domains of cost, schedule and capability.

Cost

75. Four projects reported an impact of the COVID-19 pandemic on project cost during 2022– 23. SRGB Air Defence expended previously approved contingency funds to manage increased costs associated with milestone delays, and Offshore Patrol Vessel plans to seek contingency funding to cover additional costs attributed to COVID-19. JORN Mid-Life Upgrade reported impacts on supply chain costs for some components. Battle Comm. Sys. (Land) 2B reported an underspend attributed to delays to delivery arising from supply chain issues associated with COVID-19.

Schedule

76. Seven projects reported an impact of the COVID-19 pandemic on their schedule during 2022–23. These were: Joint Strike Fighter, Hunter Class Frigate, Offshore Patrol Vessel, Overlander Medium/Heavy, Peregrine, Hawkei, and Battle Comm. Sys. (Land) 2B. All seven projects reported delays to project milestones.

Capability/scope

77. The Joint Strike Fighter project reported minor impacts of the COVID-19 pandemic on the Verification and Validation Program. No other 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 acquisition projects (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 20 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: Australian Industry Capability (AIC); materiel capability/scope delivery performance; 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 20 major Defence equipment acquisition 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 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:

• evaluation of the governance and oversight in place to ensure appropriate project management;
• assessment of the systems and controls that support project financial management, risk management and project status reporting within Defence;
• examination of each PDSS and the documents and information relevant to them;
• 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, AIC and schedule variances;
• taking account of industry contractor comments provided on draft PDSS information;
• assessment of the assurance by Defence managers attesting to the accuracy and completeness of the PDSSs;
• examination of representations by the Chief Finance Officer supporting the project financial assurance and contingency statements;
• examination of any representations by the Vice Chief of the Defence Force (VCDF) supporting the non-disclosure of information for publication after security review;
• 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 2023, 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 1.17 to 1.67, 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 capabilities, particularly where caveats are placed on the Capability Manager’s declaration of significant milestones (see Section 4 of the PDSSs);
• the Defence Enterprise Risk Management Framework, and the completeness and accuracy of major risks and issues 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 2022–23 review period. It also highlighted issues in those systems and processes that warrant attention.

Project Data Summary Sheets (PDSSs)

Preparation and review processes

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.

1.11 As part of the MPR process, Defence’s PDSS preparers receive guidance on expectations and have multiple opportunities to refine the PDSSs before the ANAO finalises its assurance review. The ANAO and Defence MPR team conduct educative activities, including visits, with Major Project teams before 30 June⁴⁰ to ensure awareness of the MPR Guidelines and mitigate errors in PDSS preparation. The ANAO also conducts a preliminary assessment of the early iteration of each Defence PDSS (generally prepared before 30 June) and the outcome is provided to Defence. The ANAO’s expectation for the 2022–23 MPR was to base its assurance review on the third post–30 June 2023 version of the PDSS submitted by Defence.⁴¹

1.12 This year the ANAO has observed Defence implement a new internal management methodology and quality assurance approach for the MPR. This has involved the creation of standardised PDSS templates, some standardised financial reports and the development of internal guidance materials for projects preparing PDSSs. Nonetheless, the ANAO also observed ongoing quality issues relating to Defence’s preparation of iterations of PDSSs for ANAO review, in the post–30 June period.

1.13 These quality issues included instances where internal project reporting was accurate, however was not accurately reflected in the PDSSs. These issues related to elements of financial data, schedule milestone dates, quantities of materiel, and risks and issues. The ANAO continued to advise Defence of the material errors and quality issues it identified in the PDSSs. This process continued after what was intended to be the ANAO’s third and final review of the PDSSs. While this additional activity provided Defence with a further opportunity to prepare quality PDSSs, a number of unresolved material errors persisted in some PDSSs and this has informed the ANAO assurance review and the Auditor-General’s conclusion (see the Independent Assurance Report found in Part 3 of this report).⁴²

1.14 Further efficiency can be gained through Defence process standardisation, including the development and generation of standard reports from Defence’s Financial Management and Information System (FMIS) and Predict! (the Defence risk management system), and continued engagement and review by Defence leaders.

Defence reporting in PDSSs – lessons learned and non-disclosures

1.15 The MPR Guidelines require Defence PDSSs to include information on project lessons (at the strategic level) that have been learned, and ‘systemic lessons’ where they are applicable to the project. This year Defence reassessed its approach to reporting on Lessons Learned in its PDSSs and has removed all content previously reported in PDSSs.⁴³ The PDSS for each Major Project now reports on a selection of three Project Lessons, and a summary of categories of lessons against the MPR Guidelines. This change is discussed further in paragraphs 1.93 to 1.103. As summarised in paragraphs 27 to 28, the Auditor-General has expressed a qualification of this matter in the Independent Assurance Report (found in Part 3 of this report), on the basis that the information disclosed in 2022-23 does not satisfy the requirements of the Guidelines and is materially inconsistent with evidence obtained by the ANAO.

1.16 Defence also advised the ANAO of its decision that certain information is not for publication and has not been included in the relevant PDSSs for 12 projects. The not for publication information includes forecast dates, capability delivery information and variance information. The affected PDSSs are set out in Tables 2 and 3 at pages 7 to 11. Commentary provided by the Secretary of Defence on this matter is reproduced at paragraphs 20 to 21.

Acquisition governance

1.17 Consistent with previous years, the ANAO considered Defence’s Major Project acquisition governance processes when planning and conducting the review for the 2022–23 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

1.18 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.⁴⁴

1.19 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.⁴⁵

1.20 Thirteen of the 20 Major Projects had an IAR completed during 2022–23⁴⁶, which formed evidence for the ANAO’s assessment.

Projects of Concern

1.21 The Projects of Concern (POC) process is intended to focus the attention of the highest levels of government, Defence and industry on remediating problem projects.⁴⁷ There is also a related Projects of Interest (POI) process. At 30 June 2023 two MPR projects, MRH90 Helicopters and Civil Military Air Management System (CMATS), were continuing Projects of Concern.

1.22 The Statement by the Secretary of Defence details significant events occurring post 30 June 2023. The Secretary reported that:

• Offshore Patrol Vessel (SEA 1180 Phase 1) was announced as a POC on 20 October 2023; and
• Protected Mobility Vehicles Light (Hawkei) (LAND 121 Phase 4) was elevated to a POI in July 2023.

MRH90 Helicopters project

1.23 Last year’s MPR reported that the MRH90 Helicopters project was placed on the POC list in November 2011 due to contractor performance relating to significant technical issues preventing the achievement of milestones on schedule.⁴⁸

1.24 In December 2021, the government announced plans to investigate other aircraft types to immediately replace the MRH90 helicopter fleets. Following this decision, Navy commenced project SEA 9100 Phase 1 Improved Embarked Logistics Support Helicopter Capability to replace its fleet of six MRH90 helicopters with 12 MH-60R (Romeo) Seahawk helicopters for operations on the Navy Amphibious and Afloat Support fleet. An additional helicopter (total 13) will also be acquired to remediate a fleet loss on operations in October 2021, expanding the MH-60R fleet to 36 in total. In May 2022, Navy ceased operation of its MRH90 fleet. In January 2023, the government announced the acquisition of 40 UH-60M Black Hawk helicopters to replace Army’s MRH90 fleet.

1.25 Following an IAR of the project conducted in April 2022, the Deputy Secretary of Defence’s Capability Acquisition and Sustainment Group (CASG) directed that the project was to remain a POC until project closure.

1.26 In this year’s PDSS, Defence reported that at 30 June 2023, FMR had been delayed to September 2023, nine months later than stated last year, with a total of 110 months slippage over the life of the project. In addition, FOC would not be achieved as the MPRH-90 had not been able to meet the ADF’s capability requirements and was reporting 100 per cent ‘red’ in Section 4.1 of the PDSS, in relation to materiel capability delivery performance.

1.27 In 2023 there were two incidents, in March and July, involving Army MRH90 helicopters, which have resulted in the fleet’s permanent grounding and a subsequent government decision that MRH90 helicopters will not return to flying operations prior to the planned withdrawal date in December 2024.⁴⁹

1.28 In the Statement by the Secretary of Defence, which details significant events occurring post 30 June 2023, the Secretary reported that: ‘On 29 September 2023, the Government announced that the MRH90 Taipan helicopters will not return to flying operations before their planned withdrawal date of December 2024. On 13 November 2023, Minister for Defence Industry approved removal of the project from Projects of Concern list.’ FOC will not be declared for the MRH90 helicopters.

CMATS project

1.29 The CMATS project was a POC 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 POI.

1.30 In last year’s MPR the ANAO reported that in September 2021, the Minister for Defence made a written direction that CMATS return to the POC list. Defence did not update internal reporting, such as the Acquisition and Sustainment Update and its POC 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 Airservices⁵⁰ and with the Department of Infrastructure, Transport, Regional Development and Communications, which needed to occur post the Ministers 25 August 2021 decision.’ The ANAO also observed that Defence guidance stated that ‘entry to … the Projects of Concern list is decided by the Minister for Defence and the Minister for Defence Industry’.⁵¹ 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.

1.31 This matter was subsequently considered by the Parliament’s Joint Committee of Public Accounts and Audit (JCPAA), which recommended that Defence update its internal governance to require that decisions for projects to enter the POC or POI list be actioned in a timely manner, taking no more than three months between decision and implementation.⁵²

1.32 This year’s PDSS reports that CMATS has continued to experience schedule delays to its IOC dates and the contractor has been unable to provide authoritative forecast dates for system acceptance milestones. At 30 June 2023 delivery of a schedule remained an outstanding action for the contractor. The FOC date remains at Quarter 1 2028, which is over four years after the original planned date.

1.33 CMATS was publicly announced as a POC by the Minister for Defence Industry on 27 October 2022. It has been monitored by Defence and reported on to the Minister for Defence Industry in that context.

Governance – POC and POI

1.34 The governance of Defence’s POC and POI processes has been considered by the JCPAA on a number of occasions in recent years.

1.35 Most recently, the JCPAA considered acquisition governance issues during its Inquiry into the Defence Major Projects Report 2020–21 and 2021–22 and Procurement of Hunter Class Frigates.⁵³ As discussed in paragraphs 39 and 40 (above), Recommendation 1 of the Committee’s June 2023 interim report for the inquiry was that:

The Committee recommends that the Department of Defence updates internal governance to require decisions for projects to enter the Projects of Interest or Projects of Concern list be actioned in a timely manner, taking no more than three months between decision and implementation.

1.36 The JCPAA also considered POC and POI governance issues in its earlier Report 489 Defence Major Projects Report 2019-20, which was tabled in March 2022. Recommendation 2 of that report was that:

The Committee recommends that the Department of 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 gives further consideration to these issues in the next MPR.

1.37 The JCPAA followed-up on Recommendation 2 in its June 2023 interim report on the MPR and made the following observations on governance issues.

• In October 2022, the Minister for Defence announced that the government would strengthen the POI process and that in March 2023, Defence had released the ‘Delivery Group Performance Management and Reporting, and Management of Projects of Interest and Concern Policy’ in direct response to this announcement.
• The policy provided guidance on the identification of, and response to, underperformance, through a tiered system of elevation, enabling timely advice to the relevant decision makers, and the prompt remediation planning for projects and products.
• Defence had confirmed that this new policy framework formalised the entry and exit criteria for POC and POI.
• A Defence submission to the inquiry on the implementation of Recommendation 2 stated that Defence considered no further action was required to implement the recommendation due to the revised POI policy.⁵⁴

1.38 On 10 October 2022 Defence Ministers announced that the government would improve the POC process by introducing (among other things): monthly reports on POC and POI to the Minister for Defence and Minister for Defence Industry; establishing formal processes and ‘early warning’ criteria for placing projects on the POC and POI lists; and ‘the establishment of an Independent Projects and Portfolio Management Office (IPPMO), which provides centralised delivery group performance monitoring and reporting to senior Defence stakeholders and committees, to the Government, and to external bodies’.⁵⁵

1.39 In line with the October 2022 ministerial announcement, monthly reporting has been provided to the Minister for Defence Industry on POC/POI and, by exception, for acquisition projects post Gate 2 approval. Performance measures for exception reporting are considered against scope, schedule and cost.

1.40 Monthly reporting commenced in October 2022 (see Table 8, below). A dashboard style report has been produced by Defence and submitted to the Minister for Defence Industry between two and three months after each reporting month (there was no report for December 2022). The time taken to provide reports to the minister introduces a risk that information in the report will be outdated.

Table 8: Ministerial Reporting on Projects of Concern and Projects of Interest

Source: ANAO analysis of Defence’s Ministerial reporting.

1.41 In February 2023 Defence formalised an internal policy on performance management, reporting and management of projects and products of interest and concern.⁵⁶ The policy contains the following six directives.

• Policy Directive 1: Responsibility for acquisition and sustainment delivery and performance is assigned to accountable line managers, who report to senior officers, through their chains of command.
• Policy Directive 2: Delivery Groups must ensure that their reporting is timely, transparent and forward looking, and provides early warning of risks and issues.
• Policy Directive 3: Tiered approach to the identification, management and mitigation of risks and issues in Group project and product delivery is to be applied within Delivery Group governance processes.
• Policy Directive 4: Senior level management of entry into and exit from the Watch List, POI or POC Lists, is based on the tiered approach.
• Policy Directive 5: A recommendation for entry into the Watch, POI or POC List is based on both quantitative measures and qualitative judgments.
• Policy Directive 6: Responsible managers must act with managed urgency, in collaboration with other stakeholders, to remediate identified issues in a project or product on the POI and POC Lists.

1.42 The new policy also sets out a high level process flow intended to introduce a consistent approach to the entry and exit of projects from POI/POC status, and performance measures which may be considered in the elevation of a project to POI/POC status (Figure 1, below).

Figure 1: May 2023 performance measures for elevation of CASG projects to POI/POC

Source: Department of Defence, Acquisition and Sustainment Performance Report May 2023, Attachment F.

Longitudinal analysis – POC

1.43 Figure 2 (below) sets out the ANAO’s longitudinal analysis of all MPR projects (past and present) which have had POC status. Eleven MPR projects have been identified as POC, with an average of four years on the POC list.

Figure 2: MPR projects identified as Projects of Concern

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

Project Performance Reporting

1.44 There continues to be change in Defence’s project performance reporting for the major projects.

1.45 In previous MPRs the ANAO has reported on the Capability Acquisition and Sustainment Group’s (CASG) Quarterly Performance Report (QPR), which CASG ceased producing after June 2020 and which was superseded in February 2021 by the Project and Sustainment Report (PSR). A further report, the Acquisition and Sustainment Update (ASU) was trialled in September 2021 and accepted as CASG’s replacement report for the PSR by the Deputy Secretary CASG in October 2021.

1.46 As reported in last year’s MPR, the most recent finalised ASU was the March 2022 version. This report was received by Defence leaders in August 2022. The ASU provided CASG leadership with significantly less detail of project/product performance, at a lower security classification. 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; and an explanation of CASG Performance Measures. Defence has advised the ANAO that decision makers could 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.

1.47 In October 2022 the Minister for Defence Industry introduced monthly reporting. The Defence policy directives, including those for monthly reporting, are discussed at paragraph 1.41. In June 2023 Defence requested approval from the Minister for Defence Industry to change the reporting frequency. This would involve: monthly reporting for POC and POI, and other projects as necessary by exception (Monthly report); and quarterly reporting for all major projects and sustainment activities, to allow for timely analysis and advice about ongoing and emerging project performance issues. Defence also proposed that the revised approach commence with a new Quarterly Performance Report (QPR) for the period April to June 2023. This approach was approved in June 2023 by the Minister for Defence Industry. The first Monthly and QPR reports under the new arrangements were provided in October 2023.

Materiel Acquisition Agreements

1.48 In previous MPRs the ANAO has reported on the evolution of Materiel Acquisition Agreements (MAAs) and related documents, and their role in materiel governance. MAAs are internal agreements between CASG and the military Service Chiefs, which relate to product delivery and set out a project’s approved activities. Projects in this MPR have an approved MAA.

1.49 During 2022–23 MAAs continued to be a key source of information for project teams on product delivery and approved activities. They contain information drawing on original approval documents, such as government decisions, and are used to validate project requirements.

Smart Buyer Framework

1.50 The 2015 First Principles Review recommended the construction of a ‘smart buyer’ framework, with the aim of ensuring that ‘Defence can make strategic decisions regarding the most appropriate procurement and contracting methodologies’.

1.51 In March 2023 Defence released an updated version of its Smart Buyer Guidance. The guidance describes the application of the Smart Buyer Framework, consisting of a series of facilitated workshops, and states that:

This guidance provides an approach that enables Defence to act as a Smart Buyer. This encompasses the need for Defence to be more commercially oriented and deliver value for money whilst optimising capability outcomes through-life and in accordance with Government direction and Capability Manager priorities.

This guidance also describes the application of the Smart Buyer Framework, an integral step in the development of the Project Execution Strategy (PES) and aspects of the Business Case prior to consideration by the Investment Committee at each decision Gate. The Smart Buyer Framework can also be adapted to support strategy validation or strategy development at other decision points in the One Defence Capability System.⁵⁷

Application to MPR projects

1.52 The two projects entering the MPR in 2022–23, Advanced Growler and Heavy Armoured Capability, applied the Smart Buyer framework.⁵⁸

1.53 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.⁵⁹

Australian Industry Capability

1.54 Defence has stated that the Australian Industry Capability (AIC) program aims to:

• provide opportunities for Australian companies to compete on merit for Defence work within Australia and overseas;
• influence foreign prime contractors and original equipment manufacturers, including Australian subsidiaries, to deliver cost-effective support;
• facilitate transfer of technology and access to appropriate intellectual property rights; and
• encourage investment in Australian industry.⁶⁰

1.55 Tenderers are required to address Australian industry involvement for all Defence material and non-material procurement valued at or above $4 million ($7.5 million for construction services).⁶¹ This approach requires tenderers to demonstrate appropriate formal consideration of Australian industry—locally and nationally—through a schedule or plan that forms part of their tender response, including versions for public release (see paragraph 1.63). Whether a schedule or plan is used will depend on the size and nature of the procurement.⁶²

1.56 The AIC requirement for a Defence procurement is as follows.⁶³

• Procurements valued less than $4 million – no specific requirements.
• Materiel procurements valued between $4 million and $20 million – requirement for an AIC Schedule.
• Non-materiel procurements valued between $4 million and $20 million – requirements for an Industry Participation Schedule. Non-material procurements relate to a range of goods and services managed by CASG, such as maintenance, health, logistics, training and travel.
• Materiel procurements valued at $20 million or more – continued requirement for an AIC Plan including an AIC Schedule.
• Non-materiel procurements valued at $20 million (incl GST) or more – requirement for an Industry Participation Plan including a Schedule.

1.57 Industry Schedules require a breakdown of the value of the planned expenditure in Australia in terms of companies, nature and value of work. They are a means for tenderers to address local industry involvement where relevant and contribute to Defence’s assessment of the economic benefit of the tendered solution as part of considering overall value for money.⁶⁴

1.58 Industry Plans describe how the tenderer has engaged with Australian industry at the national and local levels (where applicable) to deliver the required goods, works or services.⁶⁵

1.59 A revised AIC contractual framework was expected to apply to future contracts from 1 January 2021. Defence has adopted a phased implementation approach across the Australian Standard for Defence Contracting (ASDEFCON) template suite. Government-to-Government procurements, including Foreign Military Sales and Direct Commercial Sales, are not exempt from AIC Program requirements.⁶⁶

Application to MPR projects

1.60 This year’s MPR Guidelines provide for reporting in the PDSS on whether there is an AIC Plan(s) for large contracts, and the inclusion of a short description of the key elements of the plan. Projects are also expected to state whether there are contracted AIC targets.

1.61 The ANAO considered if contractors for each Major Project had an established AIC plan, or schedule as appropriate, based on the value of the procurement. A summary of the AIC plan has been included in the relevant PDSSs, which also report on whether AIC targets have been established.

1.62 Three of the Major Projects did not have AIC plans in place (Joint Strike Fighter, Peregrine and MQ-4C Triton). The reasons provided in PDSSs were that these were collaborative programs with other countries, foreign military sales (FMS), or involved sole source procurement.

1.63 The ANAO also conducted an assessment to determine if public AIC plans had been published in line with the AIC Program, where it is a requirement that tailored versions of AIC plans be prepared for public release.⁶⁷ The following exceptions were identified.

• Hunter Class Frigates, Combat Reconnaissance Vehicles, Advanced Growler, and Battlefield Command System had not published a public plan for at least one of their eligible contractors.

Business systems

1.64 In previous MPRs the ANAO has reported on Defence business systems and their reliability as a source of evidence for the ANAO’s review of Defence PDSSs. 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. Additional evidence is sourced to support the ANAO’s review. Defence intends to replace these business systems with the Enterprise Resource Planning (ERP) program.

1.65 In May 2023 the Deputy Secretary CASG outlined expectations to all CASG Division Heads in relation to information systems to be used to support project management and reporting. The use of MRM and PPRIP was mandated, to inform decision making, enable data sharing across Defence, and facilitate official performance reporting to government.

Naval Shipbuilding and Sustainment Group

1.66 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. Five of the Major Projects in this year’s MPR are managed by NSSG.

• SEA5000 Phase 1 Hunter Class Frigates.
• SEA1180 Phase 1 Offshore Patrol Vessel.
• SEA1439 Phase 5B2 Collins Comms and EW.
• SEA3036 Phase 1 Pacific Patrol Boat Replacement.
• SEA1448 Phase 4B ANZAC Air Search Radar Replacement.

1.67 In 2022–23 the acquisition governance arrangements employed by NSSG were largely the same as those employed by CASG. CASG has also coordinated input to the MPR on behalf of NSSG.

Results of the ANAO’s review

1.68 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 2022–23.

Financial framework

1.69 The project financial assurance statements were introduced in the 2011–12 MPR and have been included within the scope of the Auditor-General’s Independent Assurance Report 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.

1.70 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.⁶⁸

1.71 In 2022–23, 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

1.72 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’.⁶⁹ 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 at 30 June 2023.

1.73 The Chief Finance Officer’s representation letter to the Secretary of Defence on the 2022–23 MPR’s project financial assurance statements was unqualified.

Contingency statements and contingency management

1.74 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.⁷⁰ 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.

1.75 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 Military Equipment Acquisition Program, Enterprise Estate and Infrastructure Program or ICT Capital Program. In this case, the project must make an application to access the project’s contingency to a designated official within Defence Finance Group (DFG). 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.⁷¹

1.76 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.

1.77 In 2022–23, two projects applied contingency to manage project risks: MRH90 Helicopters (to manage supportability and performance risks) and SRGB Air Defence (to meet additional contract costs associated with delays resulting from the COVID-19 pandemic).

1.78 The ANAO observed that in 2022–23 all the Major Projects had complied with Defence’s financial policy relating to contingency funding.

1.79 The ANAO’s examination of project contingency logs at 30 June 2023 highlighted that the clarity of the relationship between contingency allocation and identified risks continues to be an issue. Two projects (Collins Comms and EW and ANZAC Air Search Radar Repl.) did not explicitly align the contingency log with the 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) V1.0.⁷² The ANAO made similar observations in last year’s MPR for three projects (Joint Strike Fighter, Hunter Class Frigate and MRH90 Helicopters).

1.80 During the JCPAA’s Inquiry into the Defence Major Projects Report 2020–21 and 2021–22 and Procurement of Hunter Class Frigates, Defence advised the Committee that alignment of risks and contingency logs was being addressed as part of its risk management processes, and that Defence was assessing this for projects outside the MPR as part of its project assurance activities.⁷³ In its June 2023 interim report, the JCPAA recommended that Defence provide a detailed update on the implementation of and compliance with internal policies for contingency funding.⁷⁴

Reporting on cost variations, project personnel numbers and costs

1.81 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.’⁷⁵

Cost variations since Second Pass Approval

1.82 Table 11 (pages 58 to 59) shows all budget variations post initial Second Pass Approval for projects.

Project personnel numbers and costs

1.83 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.

1.84 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.

1.85 In the course of preparing the 2022–23 financial statements audit, Defence estimated its in-year employee costs (for Australian Public Service and Australian Defence Force employees only) in all assets under construction projects, not just those in the MPR, to be $152.6 million.

Risk Management Framework

1.86 While major risks and issues data in the Defence PDSSs remains excluded from the formal scope of the Auditor-General’s Independent Assurance Report⁷⁶, 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.

1.87 Defence’s risk management has been a focus of the MPR since its inception, and has been reported on by the ANAO in successive MPRs. Risk management has also been reviewed by the JCPAA on a number of occasions, most recently in its 2023 Inquiry into the Defence Major Projects Report 2020–21 and 2021–22 and Procurement of Hunter Class Frigates. In its June 2023 interim report on the inquiry, the Committee observed that:

A key concern of both the Committee and the ANAO has been to see Major Projects’ transition from spreadsheets and other uncontrolled risk management tools to a more robust toolkit. In 2018, due to the Committee’s concerns with Defence’s risk management processes, the JCPAA recommended that Defence plan and report a methodology showing how acquisition projects can transition from using spreadsheets to tools with better version control.

In relation to risk management, the Committee recognises the progress Defence has made in transitioning the majority of projects from Excel spreadsheets to using the approved risk management tool, but notes progress can still be made. Despite Defence’s reform in this area there are still inconsistent risk management practices and the Committee encourages Defence to consistently apply its policy in all Major Projects.⁷⁷

1.88 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.⁷⁸ In response, Defence advised the JCPAA in May 2020 that Predict! would be mandated as the risk management system. The ANAO reported on Defence’s roll-out of this system in last year’s MPR. On 23 May 2023, CASG reconfirmed the mandate for Predict! as the Defence enterprise risk management system.

1.89 The ANAO’s review of risk management documentation relating to CASG’s 20 project offices indicates the following at 30 June 2023

• Nineteen project offices utilised Predict!.
• One project office (MRH90) utilised MS Excel spreadsheets as the primary risk management tool.
• One project office (Hunter Class Frigate) used Predict! and Defence’s CapabilityOne system.
• One project office (CMATS) used Predict! and a bespoke SharePoint based tool managed jointly with Airservices Australia, as Airservices Australia does not use Predict!.

1.90 Table 9 (below) lists the Major Projects’ use of the Predict! Risk Management System tool at 30 June 2023.

Table 9: MPR projects’ use of Predict! Risk Management System at 30 June 2023

Source: ANAO analysis of Defence’s 2022-23 PDSSs.

1.91 In 2022–23, the ANAO examined project offices’ risks and issue logs at the Group and Service level, which are predominantly created and maintained utilising Predict! software. The ANAO observed the following issues relating to risk management.

• Variable compliance with corporate guidance. While most of the 20 Major Projects had an approved Risk Management Plan, only six projects (Joint Strike Fighter, Combat Recon. Vehicles, MQ-4C Triton, Peregrine, JORN Mid-Life Upgrade, and Advanced Growler) had reviewed or updated their risk management plan within six months, as required by CASG RMM V1.0.⁷⁹
• The visibility of risks and issues when a project is transitioning to sustainment.
• The frequency with which risks and issues 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.
• Risk management logs and supporting documentation of variable quality, particularly where spreadsheets are used in conjunction with Predict! ⁸⁰

1.92 Some controls within Predict! were not operating effectively. Weaknesses in application controls increases the risk that data generated from Predict!, as well as information derived from that data, may not be reliable. The identified control weaknesses in Predict! included the following.

• Lack of segregation of duties between capturing and approving data in Predict! as well as capturing, and approving, any changes to risk identifiers or fields that determine the risk rating.
• No logging or reviewing high-risk user actions on application level and no controls in place to ensure that logs, or log descriptions, cannot be changed by users being logged.
• No identification of privileged user accounts, including ensuring that only those who require privileged access are assigned those roles, and no regular monitoring controls over the actions performed by privileged users.
• No regular process for the revalidation of user access to Predict! including privileged user access.

1.93 For the Major Projects, the ANAO identified instances of risks and issues information in Predict! not being updated in a timely manner, or not being a complete and accurate record of the current mitigations or ratings. The ANAO did not rely solely on Predict! to gain assurance over the risks and issues disclosures within the PDSSs. Supporting reviews were conducted of project risk meeting minutes, risk mitigation strategies and activity results, to supplement evidence from Predict!

Lessons learned arrangements

1.94 As reported in last year’s MPR, CASG released version 3.0 of its Lessons Program Policy in February 2022. 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’. Version 3.0 of the 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.

1.95 Defence’s lessons learned arrangements for the Major Projects were reviewed by the JCPAA in its 2023 Inquiry into the Defence Major Projects Report 2020–21 and 2021–22 and Procurement of Hunter Class Frigates. In its June 2023 interim report on the inquiry, the Committee observed that:

Previous JCPAA inquiries, MPRs and ANAO performance audits of Defence projects have found areas for improvement in Defence’s procurement and management of Major Projects. This highlights the need for Defence to share and understand the lessons from current and previous Major Projects to better identify and mitigate risks for future Major Projects. The changes from the Defence Strategic Review further highlight the importance of implementing lessons learnt from previous Major Projects, as the risks of these are higher as procurements need to happen more quickly.

In February 2022 CASG released a revised Lessons Program Policy requiring all Defence leaders to participate in and record the outcomes of Lessons Learned activities. The ANAO observed nine of the 21 projects in the 2021–22 MPR did not have Lessons Learned in the required location, and seven projects did not maintain a log at all.⁸¹

As with the use of risk management tools, contingency funding and Defence’s approach to Lessons Learned have been consistent issues across previous MPRs and persist to this day.

Defence’s processes for Lessons Learned are particularly important to capture centrally for new projects to consider as Defence aims to accelerate its capability acquisition process and needs to learn from past challenges to make this a success. The Committee understands there can be a delay in implementing processes, but it is important for Defence to learn from previous experiences and consider these throughout the acquisition and management of future Major Projects.⁸²

1.96 The Committee recommended that Defence provide a detailed update on the implementation of and compliance with internal policies for Lessons Learned for Major Projects.⁸³

1.97 As indicated in Table 10 (below), the Major Projects are yet to fully implement the lessons learned framework and compliance monitoring process. Full implementation of Defence processes was expected to enable projects to review and apply applicable lessons learned, and support more consistent and improved project outcomes.

Table 10: Major Projects – application of the Defence Lessons Learned Policy at 30 June 2023

Source: ANAO analysis of Defence’s 2022-23 PDSSs.

1.98 The lessons for four of the Major Projects were added to the central Defence Lessons Repository (DLR). These were: Joint Strike Fighter, MQ-4C Triton, Peregrine and SRGB Air Defence.

1.99 Two projects (MRH90 and Battlefield Command System) did not maintain a lessons learned log or Lessons Collection and Management Plan, which is mandated under the Integrated Project Management Plan.

PDSS reporting

1.100 The MPR Guidelines require Defence PDSSs to include information on project lessons (at the strategic level) that have been learned, and ‘systemic lessons’ where they are applicable to the project. The seven categories of system lessons are defined in the Guidelines as: requirements management, first of type equipment, off the shelf equipment, contract management, schedule management, resourcing, and/or governance.

1.101 This year Defence reassessed its approach to reporting on Lessons Learned in its PDSSs and has removed all content previously reported in PDSSs. The PDSS for each Major Project now reports on a selection of three Project Lessons, and a summary of categories of lessons against the MPR Guidelines.

1.102 Defence advised the ANAO as follows.

• Many of the lessons previously included in PDSSs were at a project level and would not be considered strategic lessons of the sort that must be captured under its revised policy.
• A lesson inserted by a project into the Defence Lessons Repository is either an observation, insight or lesson identified. These are collectively referred to as ‘lessons’.
• For a ‘lesson’ to be considered a strategic/systemic lesson learned, it needs to go through a Defence lessons assessment and review process.
• Defence considered that under its lessons assessment and review process, none of the 20 Major Projects had ‘learned’ any strategic/systemic lessons.
• In consequence, Defence removed all but three previously reported lessons from its PDSSs and provided a summary against the seven systemic lesson categories applied to the project-level lessons.

1.103 By way of example, this year’s PDSS for the New Air Combat Capability project reports that: ‘The project has captured eight lessons related to Requirements Management and Governance.’ In contrast, last year’s PDSS (Section 6.1) reported on eight specific lessons learned against two categories (governance and requirements management). At least two of the lessons learned in last year’s PDSS were reported as being of a strategic/systemic nature, with implications for other complex ICT intensive materiel projects. These lessons were as follows.⁸⁴

• ‘The complexity and effort to integration JSF [the Joint Strike Fighter/F-35A] into ADF systems of systems has been underestimated.’ This was listed against the requirements management category as a systemic lesson.
• ‘The ongoing sustainment costs of ICT intensive projects is expensive – hardware refresh, software licensing, upgrades, personnel (administrators) – and cannot be underestimated.’ This was also listed against the requirements management category as a systemic lesson.

1.104 The Auditor-General has expressed a qualification of this matter in the Independent Assurance Report (found in Part 3 of this report), on the basis that Defence’s reporting in this year’s PDSSs did not meet the full intent of the MPR Guidelines where key lessons at the strategic level were to be included.

Caveats and deficiencies

1.105 Defence’s reporting on ‘caveats’ and ‘deficiencies’ relating to the Major Projects was reviewed by the JCPAA in its 2023 Inquiry into the Defence Major Projects Report 2020–21 and 2021–22 and Procurement of Hunter Class Frigates. In its June 2023 interim report on the inquiry, the Committee observed that:

Defence uses caveats or deficiencies 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. The ANAO observed Defence declaring major milestones with caveats since the 2013–14 MPR and, prior to 2022, Defence had not defined what these terms relating to the caveats against major milestones meant.

In its review of the 2019–20 MPR, JCPAA recommended [Recommendation 4] that Defence provide clear definitions for any term used in the MPR associated with a delta or deviation from project milestones being achieved. Defence advised in June 2023 that it considered the recommendation implemented following updates to its internal guidance in October 2022 to define the terms ‘caveat’ and ‘deficiency’ as they relate to the declaration of capability milestones.

Defence’s definition of the two terms does not meet the intention of the Committee’s recommendation to clarify any term relating to a deviation from project milestones being achieved. The declared deficiencies in the 2020–21 and 2021–22 MPRs show that these new definitions only covered three of the six (50 per cent) reported deviations from project milestones.

However, these are only two of the terms used by Defence to indicate potential limitations on capability or milestone requirements Over successive MPRs, the ANAO found Defence also used the following terms which are not defined:

• challenge
• concession
• condition
• exception
• impact
• issue, and
• risk.⁸⁵

… in relation to Defence’s use of caveats and deficiencies, the Committee does not consider that Defence has met the intent of the previous recommendation to properly define terms that are used in relation to a delta or deviation from project milestones being achieved. Defence continues to use a variety of terms with no clear definitions to limit Major Project’s achievement of major milestones. This continues the same issue the Committee identified in its review of the 2019–20 MPR, that these undefined terms can undermine the validity of the milestone being achieved and the ability of readers to clearly understand what is meant.

The Committee notes the ANAO’s previous findings that Defence considered recommendations as implemented, which the ANAO assessed were not implemented. The Committee accepts that Defence has defined two of the terms⁸⁶ and requests further advice on this issue noting that Defence may choose to define additional terms, or stop using undefined terms in relation to project milestones that are not fully achieved.⁸⁷

1.106 The JCPAA recommended in its June 2023 interim report that Defence provide an update on the requirements and consideration process to close recommendations from the ANAO and JCPAA, ‘including an explanation as to why Recommendation 4 of Report 489: Defence Major Projects Report 2019-20 has been closed without meeting its intended purpose.’⁸⁸

1.107 In 2022–23, Defence did not declare the achievement of any IOC, FOC or other capability milestones for the Major Projects. In consequence the issue of declaring milestones with ‘caveats’ or ‘deficiencies’ did not arise for these projects.

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

2.2 Project performance and delivery has been the subject of many of the reviews of the Department of Defence (Defence)⁸⁹ 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 The MPR Guidelines endorsed by the JCPAA specify the performance information to be included in the Project Data Summary Sheets (PDSSs) prepared by Defence for each of the Major Projects appearing in the MPR.

Project performance analysis and information

Treatment of not for publication information

2.4 As discussed in paragraphs 19 to 25, this year Defence has decided to not publish certain information in 12 PDSSs (2021–22: four). The not for publication information includes forecast dates, capability delivery information and variance information. The affected PDSSs are set out in Tables 2 and 3 at pages 7 to 11.

2.5 As discussed in paragraphs 34 to 37, in contrast to last year, the ANAO is in a position to publish aggregate analysis this year on: total schedule slippage across this year’s projects, average schedule slippage across this year’s projects, and in-year schedule slippage across this year’s projects (see Table 7 at page 22). This results from the increase in the number of PDSSs which have not disclosed Final Operational Capability (FOC) forecast dates – from four last year to eight this year.⁹⁰ The larger number of affected projects this year means that it is not possible to derive the ‘not for publication’ information for individual projects from the aggregate analysis.

2.6 While this year’s MPR provides the user with more aggregate performance information than last year, it does not provide the same level of information on individual project performance compared to reporting in 2020–21 and prior years. There has been a reduction in the level of transparency and accountability, to the Parliament and other stakeholders, over the MPR projects since the 2020–21 MPR.

2.7 The impacts on the ANAO’s analysis of schedule performance are discussed in the relevant sections of this chapter.

Other information not included in the ANAO’s analysis

2.8 As discussed in paragraph 28, the LAND 200 Tranche 2 Battlefield Command System PDSS is materially inconsistent with evidence obtained during the course of the review. The material inconsistencies relate to the degree of confidence that materiel capability will be met.

2.9 The PDSS data pertaining to LAND200 Tranche 2 has therefore been excluded from all ANAO analysis on Schedule Performance and Materiel Capability/Scope Delivery Performance. The relevant Table or Figure notes where information has been excluded from the ANAO’s analysis.

Additional ANAO analysis by acquisition approach

2.10 This year the ANAO has undertaken additional analysis of Defence’s PDSSs, to report on the acquisition approach adopted for the suite of Major Projects.

2.11 An examination of Defence’s PDSSs (both current and historical) indicates that Defence has primarily acquired the Major Projects using three approaches: foreign military sales, government-to-government agreements or contracts, and other approaches.

2.12 This analysis is set out in the following section.

Analysis of acquisition approach

2.13 The suite of current and historical Defence PDSSs indicates that Defence has primarily acquired the Major Projects using the following approaches.

• Foreign Military Sales (FMS). The FMS program is a form of security assistance authorised by the President of the United States of America to sell defence articles and services to foreign countries and international organisations. Under FMS, the US government and a foreign government enter into an agreement called a Letter of Offer and Acceptance.⁹¹ FMS cases tend to be acquisitions of mature platforms from existing production lines. In 2022–23, the two FMS projects in the MPR were Heavy Armoured Capability and Peregrine.
• Government-to-government agreements or contracts. These acquisitions are based on Memoranda of Understanding or other agreements between the Australian government and a foreign government, where the agreement is not a FMS. These procurements are typically for developmental programs where Australia and another country or countries will collaborate on development of the platform. In 2022–23, the three government-to-government–based projects in the MPR were Joint Strike Fighter, Advanced Growler and MQ-4C Triton.
• Other approaches, typically involving direct contracting with commercial suppliers. In 2022–23, all MPR projects not involving FMS or government-to-government arrangements were based on direct contracting arrangements.

2.14 A project may have multiple approaches to acquiring different aspects of its scope. For example, while the Joint Strike Fighter (JSF) project is considered to be government-to-government, it also reports two FMS arrangements among its major contracts. For the purposes of analysis in this report, the ANAO has categorised projects based on their lead contract or primary acquisition arrangement (for example, the acquisitions of the JSF/F-35A air vehicle and engine are described in the Joint Strike Fighter PDSS as United States Government Contracts).

Use of different acquisition approaches

2.15 Figure 3 (below) demonstrates the distribution of FMS, government-to-government, and ‘other’ approaches for the suite of Major Projects over time. This figure indicates that FMS arrangements were most common in a period following the 2003 Defence Procurement Review and less common since the 2015 First Principles Review. In contrast, ‘other’ approaches became more common following the 2015 First Principles Review.

2.16 Figure 4 (below) shows the distribution of FMS projects across the domains of SEA, LAND and AIR. This figure indicates that the majority of Major Projects with FMS arrangements have been AIR projects, and in particular, procurements of air platforms (C-17 Heavy Airlifter, Super Hornet, Additional Chinook, MH-60R Seahawk, Growler, Light Tactical Fixed Wing, and Peregrine).

Figure 3: Acquisition approach approvals over time

Figure 4: FMS case approvals over time by domain

Source: ANAO analysis of Defence’s PDSSs across multiple years.

Schedule performance by acquisition approach

2.17 Figure 5 (below) shows the average schedule slippage to FOC for each acquisition approach in each year of the MPR. The vertical axis indicates months of slippage.

Figure 5: Average slippage over time by acquisition approach (months)⁹²

Note 1: There is no data for government-to-government projects in 2008 and 2009 as there were no government-to-government projects in the MPR in those years.

Source: ANAO analysis of Defence’s PDSSs across multiple years.

2.18 The increase in slippage for government-to-government (GtG) projects from 2013 is attributable to performance of the Heavyweight (Hw) Torpedo, P-8A Poseidon and MQ-4C Triton projects. Hw Torpedo received all deliveries under the government-to-government agreement as scheduled, but installation was affected by delays to the docking schedule of the Collins Class submarines.⁹³ This delay would have affected this project’s FOC date regardless of its acquisition approach. For P-8A Poseidon, the slippage is due to the Australian Government’s decision to extend the project to purchase an additional four air vehicles, rather than unplanned delays.⁹⁴

2.19 For MQ-4C Triton (a GtG project) development of the platform has been delayed by a funding pause affecting the United States Navy research and development program, as described in the PDSS.

2.20 The increased slippage for FMS in 2021 and 2022 is attributable to a single project, Light Tactical Fixed Wing. This project was atypical for an FMS arrangement in that the United States Air Force divested from the capability early in the project’s life and the air vehicle was not part of a large fleet or production run. This project’s schedule was affected by delays to aircraft production and construction of Australian facilities, and a government decision to redefine the requirements for FOC to exclude certain capabilities not considered achievable as previously planned.

Predicted capability delivery performance by acquisition approach

2.21 Figure 6 (below) shows the average percentage of predicted ‘Green’ delivery for each acquisition approach over time, for the suite of MPR projects.

Figure 6: Average ‘Green’ capability forecast over time by acquisition approach⁹⁵

Source: ANAO analysis of Defence’s PDSSs across multiple years.

2.22 The figure indicates that projects involving FMS arrangements have reported higher assessments of ‘Green’, representing greater certainty that the scope of the project will be delivered as planned. The figure indicates greater variability in projects involving government-to-government and ‘other’ arrangements.

Project Performance Analysis

Guide to the ANAO analysis

2.23 The major dimensions of project performance reported in the PDSSs are as follows.

• Cost performance. The ANAO analysis which follows 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. This year the ANAO analysis only includes historical data (as reported in previous MPRs) and limited aggregated analysis based on published Defence information from this year’s PDSSs.
• Capability/scope performance. The ANAO analysis includes reporting on the challenges faced by Defence in the delivery of materiel capability/scope.

2.24 The following sections provide ANAO analysis relating to these dimensions of project performance, drawing on Defence’s PDSSs for the 20 Major Projects.

Cost performance

2.25 Figure 7a (below) directly compares cost performance with schedule performance through two metrics, Budget Expended and Time Elapsed.⁹⁶ Figure 7a relates to the projects which have reported an FOC date in their PDSS this year.

2.26 As discussed in paragraph 2.5, eight projects have not included FOC dates in their PDSS this year. As indicated in Figure 7b (page 55), the Time Elapsed metric is not available for these projects. Figure 7b therefore reports only on Budget Expended for these projects.

Figure 7a: Budget Expended and Time Elapsed at 30 June 2023 (for projects that have included FOC forecast date in their PDSS)

Source: ANAO analysis of Defence’s 2022–23 PDSSs.

Figure 7b: Budget Expended at 30 June 2023 (for projects that have not included FOC forecast date in their PDSS)

Note 1: Defence advised the ANAO that FOC dates for Joint Strike Fighter, Advanced Growler, Peregrine, Heavy Armoured Capability, JORN Mid-Life Upgrade, Battlefield Command System, Maritime Comms, and ANZAC Air Search Radar Repl are not for publication and have not been published in the PDSSs by Defence.

Note 2: At 30 June 2023, Hunter Class Frigate did not have a Final Operational Capability (FOC) milestone approved by government.

Source: ANAO analysis of Defence’s 2022–23 PDSSs.

2.27 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.

Approved budget at initial Second Pass Approval and at 30 June 2023

2.28 Figure 8 (below) compares each project’s approved budget at initial Second Pass Approval and its approved budget at 30 June 2023. Five projects had variations of $500 million or more, with the following components:

• Joint Strike Fighter — net increase of $13.7 billion, comprising $10.5 billion for 58 additional aircraft in 2013–14, $2.8 billion for exchange rate variation and $0.4 billion for price indexation.
• MRH90 Helicopters — net increase of $2.7 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 billion decrease due to scope transfers for facilities, a $0.1 billion decrease due to funding transferred to the Multi Role Helicopter Rapid Replacement project (LAND4507 Phase 1), 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 address cost pressures and $0.1 billion exchange rate variation.
• Advanced Growler — increase of $2.9 billion for project approvals to develop the Next Generation Jammer and acquire aircraft upgrades, AGM-88G missiles, electronic warfare range upgrades, and associated sustainment costs.
• MQ-4C Triton — net increase of $1.5 billion, comprising $1.2 billion for additional air vehicles and $0.2 billion for initial sustainment funding for the first seven years in 2020–21 (figures do not add precisely due to rounding).

Figure 8: Approved project budgets at initial Second Pass Approval and at 30 June 2023 ($ million)

Note 1: ▯ symbol indicates that the budget for the project at 30 June 2023 is less than the original budgeted cost.

Source: ANAO analysis of Defence’s 2022–23 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 indexation⁹⁷ and foreign exchange variation.

2.29 The total budget for the 20 MPR projects at 30 June 2023 was $58.6 billion, a net increase of $22.8 billion when compared with the approved budget at initial Second Pass Approval of $35.7 billion.

2.30 A summary of budget variations is at Table 4 (see page 17), and a more detailed analysis of these budget variations is included in Table 11 (below).

Table 11: Budget variations post initial Second Pass Approval by variation type at 30 June 2023

Note 1: Some projects have multiple Second Pass Approvals. This table reports on variations since the first, i.e. initial, Second Pass Approval.

Note 2: Projects that have had no Real Variations to their budget do not appear in this table. They are: Combat Reconnaissance Vehicles, Offshore Patrol Vessel, Hawkei, SRGB Air Defence, Battlefield Command System, Pacific Patrol Boat Repl., Maritime Comms and ANZAC Air Search Radar Repl. For a definition of ‘Real Variations’ see the 2022–23 MPR Guidelines in Part 4 of this report.

Note 3: Described by Defence as ‘project supplementation’. Refer to Note 3 of Table 4 (page 17).

Source: ANAO analysis of Defence’s 2022–23 PDSSs.

Budget performance

2.31 The following figures and tables illustrate the budget performance of the 20 selected projects by way of:

• in-year budget variations by project (see Table 12 below); and
• expenditure forecasting performance against actual expenditure for 2022–23 (see Figure 9a on page 63).

In-year budget variance analysis

2.32 Table 12 (below) sets out the in-year budget variations for each project. Overall, the approved budget for the selected projects at 30 June 2023 increased by $4291.0 million (a 7.9 per cent increase) compared with their approved budget at 30 June 2022. This was driven by a net real increase of $2957.5 million and exchange rate variation of $1333.5 million.

2.33 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.⁹⁸ Budget adjustments aim to maintain the relative buying power of the project budget.

2.34 Projects with larger movements in foreign exchange in 2022–23 included the following.

• Joint Strike Fighter — increase of $660.0 million, or 4.2 per cent.
• Heavy Armoured Capability — increase of $219.2 million, or 10.6 per cent.
• MQ-4C Triton — increase of $134.1 million, or 6.7 per cent.

2.35 Real Variations⁹⁹ primarily reflect changes in the scope of projects, transfers between projects for approved equipment/capability and budgetary adjustments such as administrative savings decisions. Projects with more significant Real Variations in 2022–23 were the following.

• Advanced Growler — $2671.7 million for Second Pass Approval of Tranche 1 funding for development of aircraft upgrades, Next Generation Jammers, AGM-88G missiles acquisition, electronic warfare range upgrades, and associated sustainment costs.
• MQ-4C Triton — $270.1 million for an additional air vehicle.
• JORN Mid-Life Upgrade — $141.9 million funding transfer for High Power Amplifier Replacement Project.

Table 12: In-year (2022–23) budget variations by project

Note 1: The Total Variance and components for this project do not add up due to rounding differences.

Note 2: Advanced Growler and Heavy Armoured Capability were not reported in the MPR for 2021–22.

Source: ANAO analysis of Defence’s 2021–22 and 2022–23 PDSSs, and Defence records in relation to 2021–22 data for Advanced Growler and Heavy Armoured Capability.

In-year forecast and actual expenditure

2.36 Accurately forecasting and managing budget expenditure is an important element in the management of a portfolio of projects. Figure 9a (below) sets out the expenditure forecasting performance of each project against actual expenditure in 2022–23, on a dollar basis. Figure 9b (below) presents this information as a percentage. Table 13 (page 65) provides further detail on each project’s in-year forecast expenditure performance compared with actual expenditure, in both dollars ($million) and as a percentage.

2.37 In total, actual in-year expenditure for the 20 Major Projects at 30 June 2023 was $4229.0 million. This is compared against an initial Portfolio Budget Statements (PBS) forecast expenditure of $4413.9 million, a mid-year Portfolio Additional Estimates Statements (PAES) forecast of $4665.6 million, and a final forecast of $4313.5 million (Final Plan, approved at June 2023).

2.38 The Defence PDSSs report that the variances illustrated in Figures 9a and 9b and Table 13 reflect the developments listed below.

• Joint Strike Fighter (expenditure of $1089.8 million compared with $1261.4 million PBS, $976.4 million PAES and $933.4 million Final Plan estimates) — the reduction from the PBS budget is attributed to deferrals and delays to the Lot 15 Air Vehicle main contract, spares and depot support equipment, and weapons production, while the overspend against the Final Plan budget is attributed to earlier than expected Air Vehicle and Propulsion contracts invoicing and reconciled historical invoices.
• Hunter Class Frigates (expenditure of $742.1 million compared with $600.4 million PBS, $724.9 million PAES and $725.1 million Final Plan estimates) — the overspend is primarily due to payments of UK Licence fee on achievement of design zone separation and the ramp-up of activities within the Head Contract.
• Combat Reconnaissance Vehicles (expenditure of $569.6 million compared with $508.8 million PBS, $685.7 million PAES and $616.4 million Final Plan estimates) — the increase from the PBS budget is attributed to the milestone schedule and commercial reset of the prime contract, while the underspend against the PAES and Final Plan budget is reported as reflecting delays to prime contract milestones, procurement of sparing equipment¹⁰⁰, delivery of radio equipment, and other contract delays.
• Offshore Patrol Vessel (expenditure of $291.7 million compared with $364.4 million PBS, $514.6 million PAES and $344.1 million Final Plan estimates) — the increase from the PBS budget to PAES is due to expected delivery of the support system and OPV1, and launch of OPV2, while the underspend from the PAES budget to actual expenditure is primarily due to delays to these milestones, as well as sparing and support system activities being funded by another area in Defence.
• Heavy Armoured Capability (expenditure of $79.9 million compared with $21.1 million PBS, $181.3 million PAES and $142.4 million Final Plan) — the increase from PBS budget is attributed to the timing of the project’s Second Pass Approval, with the Final Plan budget being the first review for the project since the budget was approved at Second Pass,¹⁰¹ while the underspend is primarily due to the timing of disbursements relating to the FMS projects with the United States Government.
• Battlefield Command System (expenditure of $102.1 million compared with $164.0 million PBS, $202.5 million PAES and $168.0 million Final Plan estimates) — the underspend is due to milestone slippage in the Tactical Communications Network (TCN) contract, including the imposition of Stop Payments, and the reduction in scope of the Battle Management System (BMS) contract.

Figure 9a: In-year (2022–23) forecast expenditure performance compared with actual expenditure ($m)

Source: ANAO analysis of Defence’s 2022–23 PDSSs and Defence Portfolio Budget Statements.

Figure 9b: In-year (2022–23) forecast expenditure performance compared with actual expenditure (%)

Source: ANAO analysis of Defence’s 2022–23 PDSSs and Defence Portfolio Budget Statements.

Table 13: In-year (2022–23) forecast expenditure performance compared with actual expenditure ($million and %)¹

Note 1: A negative figure represents an underspend.

Source: ANAO analysis of Defence’s 2022–23 PDSSs and Defence Portfolio Budget Statements.

Schedule performance

2.39 Final Operational Capability (FOC) is the key milestone that forms the basis for the majority of the ANAO’s schedule analysis, including aggregate analysis of total schedule slippage across projects, average schedule slippage across projects, and in-year schedule slippage across projects.

2.40 As discussed in paragraph 56, this year nine of the 20 Major Projects (45 per cent) either did not disclose an FOC forecast date in their PDSS (eight projects) or did not have a settled FOC date (one project).¹⁰²

• Defence has decided to not publish FOC forecast dates in eight PDSSs (Joint Strike Fighter, Advanced Growler, Peregrine, Heavy Armoured Capability, JORN Mid-Life Upgrade, Battlefield Command System, Maritime Comms and ANZAC Air Search Radar Repl).¹⁰³ This represents 40 per cent of all PDSSs.¹⁰⁴
• One of the PDSSs (Hunter Class Frigate Design and Construction) did not include an FOC forecast date. This is because the Hunter Class Frigate project did not have an FOC milestone approved by government at 30 June 2023. This represents five per cent of all PDSSs.

2.41 As described in paragraphs 57 to 58, the increased number of projects which have not disclosed an FOC forecast date in this year’s PDSS – from four last year (19 per cent) to eight this year (40 per cent) – means that it is not possible to derive the ‘not for publication’ information for individual projects from the ANAO’s aggregate schedule analysis. The ANAO is therefore in a position to publish an analysis of: total schedule slippage across the 20 projects, average schedule slippage across the projects, and in-year schedule slippage across the projects. This is reflected in the ANAO’s summary longitudinal analysis in Table 7 (page 22). In summary, at 30 June 2023, aggregate schedule performance was as follows for the 20 Major Projects (see paragraph 59).

• Total schedule slippage was 453 months when compared to the initial schedule (2020–21: 405 months). This represents a 23 per cent increase since Second Pass Approval.
• Average schedule slippage was 25 months (2020–21: 23 months).
• In-year schedule slippage totalled 101 months (2020–21: 73 months). This represents a five per cent increase since Second Pass Approval.

2.42 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.

2.43 Historical Defence data, discussed in the next section, indicates that schedule performance continues to be an 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

2.44 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

2.45 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

2.46 Table 14 (below) provides information on the ACAT level of all 59 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 (24 per cent) were ACAT I.
• 32 projects (54 per cent) were ACAT II.
• 12 projects (20 per cent) were ACAT III.
• 1 project (2 per cent) was ACAT IV.

Table 14: Project year of approval and acquisition category

Source: ANAO analysis of Defence’s PDSSs across multiple years.

2.47 Figure 10 (below) illustrates the proportion of ACAT I to IV projects over time. Figure 10 indicates a continuing trend towards the approval of more complex projects at the ACAT I and II levels since 2013.

2.48 Of the 22 Major Projects, which have received government approval since 2013:

• 7 projects (32 per cent) were ACAT I.
• 14 projects (64 per cent) were ACAT II.
• 1 project (5 per cent) was ACAT III.
• No projects were ACAT IV.

Figure 10: Categorisation (ACAT) type and year of approval

Note 1: Projects to the left of the dotted line were approved prior to implementation of the Kinnaird reforms in 2005. Projects to the right were approved following the reforms being implemented. The 2003 Kinnaird Review observed that off-the-shelf equipment can usually be delivered faster than equipment requiring development, and proposed that off-the-shelf alternatives must be one of the options put to government when seeking approval to procure a capability.

Source: ANAO analysis of Defence’s PDSSs across multiple years.

Schedule slippage by acquisition category (historical data)

2.49 Figure 11a (below) illustrates total schedule slippage¹⁰⁹ since Second Pass Approval for the 11 Major Projects which published FOC forecast information this year (2022–23).¹¹⁰

2.50 Figure 11b (below) illustrates total schedule slippage, up to 2020–21, for the Major Projects which did not publish FOC forecast this year (2022–23) or last year (2021–22).

2.51 Figures 11a and 11b also group projects by acquisition category and place projects in order of government approval within their category.

2.52 Current MPR projects showing significant slippage tend to be developmental in nature, including MRH90 Helicopters, MQ-4C Triton, and CMATS.

2.53 Figure 11a indicates that two complex (ACAT I or ACAT II) projects with significant development or design activities — Combat Reconnaissance Vehicles and SRGB Air Defence — 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 Critical Design Reviews for all of the Block II vehicle variants have slipped by between 27 and 38 months due to a combination of design changes and challenges, supply chain issues, and contractor resourcing limitations, as well as delays attributed to the COVID-19 pandemic.
• SRGB Air Defence has experienced delays to acceptance of the First of Type Fire Unit and the First of Type Tactical and Operational Radars. The amount of slippage has not been published by Defence in the PDSS.

Figure 11a: Current Major Projects (which have included an FOC date in their PDSS) — total slippage post Second Pass approval and ACAT rating by approval date (years)

Note 1: The order of the projects in each ACAT level is from latest to earliest approved. All project slippage relates to FOC dates with the exception of MRH90 Helicopters (in 2022–23 only) and Advanced Growler. These projects’ data is prepared based on the current final milestone to be declared, which is not FOC. Advanced Growler is yet to define its FOC milestone (but has defined other operational capability milestones) and in 2022–23 the FOC milestone for MRH90 Helicopters was cancelled.

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

Figure 11b: Current Major Projects (which have not included an FOC date in their PDSS) — total slippage post Second Pass approval and ACAT rating by approval date (years) to 2020–21 4

Note 1: The order of the projects is from latest to earliest approved. All project slippage relates to FOC dates.

Note 2: Figure 11b does not include data for 2022 and 2023 as:

Defence did not publish FOC forecast dates for Offshore Patrol Vessel, Peregrine, and JORN Mid-Life Upgrade in 2021–22.

Defence did not publish FOC forecast dates for Joint Strike Fighter, Peregrine, Heavy Armoured Capability, JORN Mid-Life Upgrade, Battlefield Command System, Maritime Comms and ANZAC Air Search Radar Repl in 2022–23.

Note 3: Hunter Class Frigate is excluded from this analysis as its FOC milestones was yet to be approved by Government at 30 June 2023.

Note 4: The Battlefield Command System (LAND200 Tranche 2) is excluded from this analysis due to the Auditor-General’s Qualified Conclusion. See paragraphs 2.8–2.9 and the Independent Assurance Report in Part 3 of this report.

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

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

2.54 Up to and including the 2020–21 MPR, in this section the ANAO reported on:

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

2.55 As was the case in last year’s MPR (2021–22), some of this information is not reported this year (2022–23) due to the non-publication of FOC forecast information by Defence in certain PDSSs. As discussed in paragraph 2.40, this year nine of the 20 Major Projects (45 per cent) either did not disclose the FOC forecast date in their PDSS (eight projects) or did not have a settled FOC date (one project, Hunter Class Frigates).

2.56 Figure 12a (below) presents information on the original and 30 June 2023 forecasts for achieving FOC, for the 11 Major Projects which published FOC forecast information this year.

2.57 Figure 12b (below) presents information on the original forecasts for achieving FOC, for a number of the projects that did not disclose FOC dates this year. There is no entry for the Hunter Class Frigate project, as it did not have an FOC milestone approved by government at 30 June 2023. Further, there is no entry for Advanced Growler and Heavy Armoured Capability as Defence has decided that the original FOC forecast dates are not for publication. These two projects entered the MPR this year.

Figure 12a: Original and 30 June 2023 Final Operational Capability (FOC) forecasts (for projects which have included FOC forecast dates in their PDSS)

Source: ANAO analysis of the 2022–23 PDSSs.

Figure 12b: Original Final Operational Capability (FOC) forecasts (for projects which have not included FOC forecast dates in their PDSS)1,2

Note 1: There is no entry for Hunter Class Frigates as this project did not have an FOC milestone approved by government at 30 June 2023.

Note 2: There is no entry for Advanced Growler and Heavy Armoured Capability as Defence has decided that the original FOC forecast dates for these projects are not for publication. These projects entered the MPR this year.

Note 3: The data pertaining to the Battlefield Command System (LAND200 Tranche 2) is excluded from this analysis due to the Auditor-General’s Qualified Conclusion. See paragraphs 2.8–2.9 and the Independent Assurance Report in Part 3 of this report.

Source: ANAO analysis of the 2022–23 PDSSs.

2.58 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.¹¹¹ By way of example, one Major Project, MRH90 Helicopters, was originally categorised by Defence as ACAT II. This project’s category was amended 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 MRH90 ‘was a developmental platform’. The project experienced slippage throughout its life.¹¹²

Performance against schedule

2.59 As was the case last year, the non-inclusion of key schedule information by Defence in a number of PDSSs means that the ANAO was not in a position to publish a complete analysis of schedule performance (on a project-by-project basis) as in the past. Information regarding schedule performance for individual projects during 2022–23 is not included in the ANAO’s analysis for this MPR.¹¹³

2.60 As reported in paragraph 2.41, at 30 June 2023 aggregate in-year schedule slippage for this year’s Major Projects totalled 101 months (2020–21: 73 months). This represents a five per cent increase since Second Pass Approval.

2.61 The ANAO has also undertaken longitudinal analysis of project slippage. Figures 13 and 14 (below) show the historical percentage change in FOC forecast, compared with the FOC date at Second Pass Approval, for all projects appearing in the MPR over time.

2.62 Figure 13 shows the total percentage change in FOC forecast since Second Pass Approval. Figure 14 shows the in-year change in FOC forecast.

Figure 13: Total percentage change in FOC forecast across all MPR projects, by reporting year ^xvii

Source: ANAO analysis of MPRs.

Figure 14: In-year percentage change in FOC forecast across all MPR projects, by reporting year ^xvii

Note 1: 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.

2.63 Project slippage 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 slippage and delays should be monitored to ensure that a project remains on track and any issues can be managed.

Capability/scope performance

2.64 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.¹¹⁴ 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.¹¹⁵

Capability/scope delivery

2.65 The 2022–23 MPR Guidelines provide that section 4 of each PDSS is to present a forecast of the materiel capability to be delivered by the acquisition project by FOC. Materiel capability is assessed as follows.

Green – a high level of confidence that the capability outcome will be met.

Amber – the capability outcome being under threat but still considered manageable and able to be met.

Red – at this stage, the capability outcome is unlikely to be fully met.

2.66 This year, Defence did not publish certain information relating to the reasons for the ‘amber’ assessment in the PDSS for the MQ-4C project. The ANAO’s analysis of capability/scope assessments in PDSSs was not affected by Defence’s decision to not publish this information.

2.67 The PDSSs report that nine Major Projects will deliver all their key capability/scope requirements without elevated levels of risk to the achievement of requirements.

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

2.69 Project offices reported experiencing challenges with expected capability/scope delivery for 10 Major Projects (2021–22: 10). These were: Joint Strike Fighter, Hunter Class Frigate, MRH90 Helicopters, Offshore Patrol Vessel, Overlander Medium/Heavy, MQ-4C Triton, Hawkei, JORN Mid-Life Upgrade, Battlefield Command System, and Battle Comm. Sys. (Land) 2B.

• Six of these projects (Joint Strike Fighter, MRH90 Helicopters, Hawkei, JORN Mid-Life Upgrade, Battlefield Command System and Battle Comm. Sys. (Land) 2B) report that they are unable to deliver all the required capability/scope.

2.70 Table 15 (below) summarises the issues reported by Defence in its PDSSs as impacting the achievement of the expected capability/scope.

Table 15: Issues impacting expected materiel capability/scope delivery performance in 2022–23

Note 1: ‘Amber’ indicates that the capability/scope is under threat but considered manageable.

Note 2: ‘Red’ indicates that the capability/scope is unlikely to be met.

Note 3: This project does not report quantified capability/scope information as it did not have approved materiel capability/scope to be delivered at 30 June 2023. The project has included a narrative describing its current project activities.

Source: Defence Project Data Summary Sheets.

Capability reporting

2.71 The ANAO reported on shortcomings in Defence’s MPR capability reporting in last year’s MPR, at paragraphs 2.50 to 2.60. In summary, Defence’s approach involves making certain assumptions in forecasting achievements and is therefore subjective in approach.

2.72 Defence’s capability reporting and forecasting for the MPR were reviewed by the JCPAA during its 2023 Inquiry into the Defence Major Projects Report 2020–21 and 2021–22 and Procurement of Hunter Class Frigates.¹¹⁶ In its June 2023 interim report on the inquiry, the Committee observed that:

The ANAO noted in the 2020–21 and previous MPRs that Defence capability reporting is subjective and may be overly optimistic. An example of this subjectivity occurred in previous reporting of the Battlefield Airlift – Caribou Replacements (Light Tactical Fixed Wing 128) project in the 2013–14 MPR which reported a ‘100 per cent green capability prediction’ despite the PDSS also reporting major risks related to capability deficiency arising from the United States divesting from the program. These risks were first reported in the material capability delivery in 2018–19, one year before the Australian Government ‘pivoted’ the program and re-scoped the project. The 2020-21 MPR showed the project continues to experience issues with its capability performance and is unable to deliver all required capability by the FOC.

In previous MPR reviews the JCPAA has encouraged Defence to find a more robust and objective measure of capability performance.¹¹⁷

…

Defence made a submission to the JCPAA in March 2018 which advised that it would conduct a schedule baseline validation activity, which should support it to investigate a more robust approach to measuring capability estimates. As at November 2021, Defence had not updated its methodology for capability forecasting for the MPR.¹¹⁸

Transfers of project scope

2.73 As part of Second Pass Approval, government directs Defence to deliver certain defined capabilities within the scope of the approved 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.

2.74 The 2022–23 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. Examples of these transfers are described in Table 16 (below).

2.75 Transfers of scope were also reported by Defence in Section 2.1 of some PDSSs, either as ‘Real Variation – Transfer’ or ‘Real Variation – Scope’. The explanatory notes relating to Section 2.1 indicated that in certain instances, project deliverables and associated funding had been transferred into or out of the relevant project.¹¹⁹ These transfers are also described in Table 16 (below).

Table 16: Transfers of scope occurring in the Major Projects at 30 June 2023

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.

Note 2: The information presented in this table is from the 2021-22 PDSS. Information on changes in scope reported in the 2022- 23 PDSS is excluded from the ANAO’s analysis due to the Auditor-General’s Qualified Conclusion, discussed in paragraphs 2.8–2.9 and the Independent Assurance Report in Part 3 of this report.

Source: 2022–23 and previously published Defence PDSSs.

Appendix 1 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)

Auditor-General Report No. 34 2020–21: Implementation of ANAO and Parliamentary Committee Recommendations – Department of Defence

Auditor-General Report No. 15 2021–22: Department of Defence’s Procurement of Six Evolved Cape Class Patrol Boats

Auditor-General Report No. 7 2022-23: Defence’s Administration of the Integrated Investment Program

Auditor-General Report No. 21 2022-23: Department of Defence’s Procurement of Hunter Class Frigates

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:

• SEA1180 Phase 1 Offshore Patrol Vessel
• SEA1439 Phase 5B2 Collins Class Communications and Electronic Warfare Improvement Program
• SEA1442 Phase 4 Maritime Communications Modernisation
• SEA1448 Phase 4B ANZAC Air Search Radar Replacement
• SEA3036 Phase 1 Pacific Patrol Boat Replacement
• SEA5000 Phase 1 Hunter Class Frigate Design and Construction
• LAND19 Phase 7B Short Range Ground Based Air Defence
• LAND121 Phase 3B Medium Heavy Capability, Field Vehicles, Modules and Trailers
• LAND121 Phase 4 Protected Mobility Vehicles – Light
• LAND200 Tranche 2 Battlefield Command System
• LAND400 Phase 2 Mounted Combat Reconnaissance Capability
• LAND907 Phase 2/8160 Phase 1 Main Battle Tank Upgrade/Combat Engineering Vehicle Acquisition
• AIR555 Phase 1 Airborne Intelligence, Surveillance, Reconnaissance and Electronice Warfare (ISREW) Capability
• AIR2025 Phase 6 Jindalee Operational Radar Network (JORN) Mid-Life Upgrade
• AIR5349 Phase 6 Advanced Growler – Airborne Electronic Attack Upgrade
• AIR5431 Phase 3 Civil Military Air Traffic Management System (CMATS)
• AIR6000 Phase 2A/2B New Air Combat Capability
• AIR7000 Phase 1B MQ-4C Triton Remotely Piloted Aircraft System
• AIR9000 Phase 2/4/6 Multi-Role Helicopter
• JNT2072 Phase 2B Battlespace Communications System

The JCPAA 2022–23 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.