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Background

1. The Department of Defence’s (Defence) Capability Acquisition and Sustainment Group (CASG) manages the process of bringing 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 2024, Defence was managing 568 major and 99 minor acquisition projects, with a total acquisition cost of $245 billion.² Defence capitalised $10.3 billion from these projects in 2023–24.³

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 seventeenth 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 (16 projects) and NSSG (five projects) (see Table S.1).

4. The total approved budget for the 21 Major Projects included in this report is approximately $81.0 billion, which is 33.1 per cent of the total $245 billion budget for major and minor Defence acquisition projects (or 48.3 per cent of the total budget for projects managed by CASG and NSSG).

Selected projects

5. The 21 Major Projects selected for review comprise of seven SEA projects, seven LAND projects, six AIR projects and one joint (JNT) project. These projects and their government approved budgets, at 30 June 2024, are listed in Table S.1.

Table S.1. 2023–24 MPR — selected projects and approved budgets at 30 June 2024

Note a: This is one of 12 projects examined in an ANAO performance audit. See Appendix 1, on p. 88, for more information.

Note b: This is one of two projects included in the MPR for the first time in 2023–24.

Source: Defence’s Project Data Summary Sheets (PDSSs) are provided 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. Defence is expected to prepare Project Data Summary Sheet (PDSS) information for the ANAO to review in accordance with the 2023–24 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 ANAO 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 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 to the Parliament whether the PDSSs have been prepared in accordance with the Guidelines, including 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 Defence PDSSs, such as Australian Industry Capability (AIC), forecast dates, expected capability/scope delivery performance and future risks are excluded from the scope of the ANAO’s review.⁸ 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. Accordingly, the Auditor-General’s Independent Assurance Report does not provide assurance in relation to this information. However, where material inconsistencies between the information disclosed in these excluded sections and the ANAO’s understanding from performing review procedures on the in-scope information are identified, the Auditor-General’s conclusion is qualified. This has been an area of focus of the JCPAA over a number of years⁹ 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 review procedures performed in relation to the PDSSs, the ANAO has undertaken an analysis of the PDSSs, including longitudinal analysis.¹⁰

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 2024 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 endorsed 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 (see paragraph 1.22 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. Defence will provide data for inclusion in the final MPR in a way that allows for unclassified publication. Defence will provide advice to the ANAO on the classification of information contained across all PDSSs.

2023–24 MPR — not for publication material

16. In the course of preparing the 2023–24 MPR, Defence advised the ANAO of its decision that certain information relating to forecast dates¹¹, capability delivery information, variance information and risks and issues was not for publication (NFP), and would not be included in the relevant PDSSs for 20 of the 21 projects (see paragraphs 18 to 26 and Table S.2 and Table S.3).¹² This is an increase from:

• 12 projects reported in the 2022–23 MPR; and
• four projects reported in the 2021–22 MPR.

17. As required by the MPR Guidelines, the not for publication information was provided to the ANAO for review. The ANAO obtained limited assurance over the information provided where it was within the scope of the review procedures.

18. As was the case since the 2021–22 MPR, the 2023–24 report does not provide the same level of information compared to reporting prior to 2020–21 and provides a reduced level of transparency and accountability to Parliament and other stakeholders.

19. In contrast to the 2021–22 MPR, the ANAO is in a position to publish aggregate analysis 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 S.7). This results from the increase in the number of PDSSs, which have not disclosed Final Operational Capability (FOC) forecast dates — from nine last year to 18 this year.¹³ 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 60 to 68.

20. The 2022–23 and 2023–24 MPRs provide 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.

21. 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 2023–24 MPR Guidelines (Guidelines), Defence is responsible for ensuring that the information in the MPR is suitable for unclassified publication. 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 20 projects in this MPR in which 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.¹⁴

22. 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 PDSSs for release in the 2023–24 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 2023–24 PDSS.¹⁵

23. Table S.2 lists the 20 PDSSs affected by Defence’s position on publication and their approved budgets. The affected PDSSs represent 95.2 per cent of all PDSSs. The affected projects represent 98.8 per cent of the aggregate approved budget for the MPR projects as a whole.

Table S.2. PDSSs indicating that certain information is not for publication and approved budgets for affected projects

Note a: Content aligns to the 2023–24 MPR Guidelines, Table 2 and is documented in the respective 2023– 24 PDSSs.

Source: ANAO analysis of Defence’s 2023–24 PDSSs.

24. Table S.3 provides information on the sections of the 20 affected PDSSs that have been impacted by Defence not publishing certain information relating to forecast dates, capability delivery information and variance information.

25. Defence did not disclose the FOC forecast date in the PDSS for 18 projects (2022–23: nine). Of these, 16 projects did not disclose due to NFP considerations (2022-23: eight), and two projects did not have a settled FOC date (2022–23: one). This represents 85.7 per cent of PDSSs that did not include FOC dates this year.¹⁶

Table S.3. PDSSs — sections affected by not for publication decisions^a

Note a: Information not for publication that has changed from 2022–23 is marked in italics.

Note: LAND 4503 Phase 1 ARH Replacement and SEA 9100 Phase 1 IE Logistics Support Helicopter are included in the MPR for the first time in 2023–24.

Source: ANAO analysis of Defence’s 2023–24 PDSSs.

26. Defence’s decision to not disclose forecast dates, capability delivery information and variance information for the 20 projects, as outlined in Table S.3, reduces the level of transparency and accountability to Parliament and other stakeholders. The Auditor-General has included an Emphasis of Matter¹⁷ in the Independent Assurance Report (see the next section and Part 3 of this report).

Overall outcomes

Summary of the Auditor-General’s conclusion

27. The Auditor-General’s Independent Assurance Report for 2023–24 is found in Part 3 of this report.

28. Based on the review procedures and the evidence obtained, the Auditor-General concluded that, with one exception, nothing came to her attention that caused her to believe that the information reviewed was not prepared in accordance with the Guidelines.

29. The one exception was Section 6 — Lessons Learned for all 2023–24 PDSSs. The Guidelines require disclosure of a description of the project lessons that have been learned. Deficiencies in Defence’s processes in identifying lessons learned resulted in a limitation of the scope of the ANAO’s review. As a result, the ANAO was unable to obtain sufficient appropriate audit evidence to conclude whether the disclosure of the lessons learned in the PDSSs is in accordance with the requirements of the Guidelines.

30. The Auditor-General also included an Emphasis of Matter paragraph to draw attention to disclosures within the Statement by the Secretary of Defence (found in Part 3 of this report) that some information in 20 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

31. The Statement by the Secretary of Defence (Statement) was signed on 11 December 2024. The Secretary’s statement provides his opinion that the PDSSs for the 21 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 2024’.

32. The Secretary included commentary on the non-publication of information by Defence in 20 PDSSs (see paragraphs 21 to 22).

33. The Statement also details significant events occurring post 30 June 2024, which materially impact the projects included in the report and should be read in conjunction with the individual PDSSs. The Statement includes information on nine projects.¹⁹

• Maritime Communications Modernisation (SEA 1442 Phase 4).
• Pacific Patrol Boat Replacement (SEA 3036 Phase 1).
• Medium Heavy Capability Field Vehicles, Modules and Trailers (LAND 121 Phase 3B).
• Battlefield Command System (LAND 200 Tranche 2).
• Main Battle Tank Upgrade/ Combat Engineering Vehicles (LAND 907 Phase 2/LAND 8160 Phase 1).
• Jindalee Operational Radar Network (AIR 2025 Phase 6).
• New Air Combat Capability (AIR 6000 Phase 2A/2B).
• MQ-4C Triton Remotely Piloted Aircraft System (AIR 7000 Phase 1B).
• Battlespace Communications System Phase 2B (JNT 2072 Phase 2B).

Key observations

34. 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 leading to limited analysis

35. As discussed at paragraphs 16 to 26, Defence has not published certain information in 20 PDSSs (2022–23: 12). The 2022–23 and 2023–24 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

36. Chapters 1 and 2 of this MPR detail Defence’s implementation of JCPAA recommendations from the JCPAA 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 This includes prior JCPAA requests relating to Defence’s acquisition governance: governance for entry to the Projects of Interest and Projects of Concern lists; implementation and compliance with internal policies for contingency funding and lessons learned; and defining terms relating to a delta or deviation from the achievement of a Major Project milestone.²¹

37. Defence provided a response in December 2023 to all three recommendations made by the JCPAA in its Report 496.²² Defence agreed with all three recommendations and outlined improvements in policies and practice implemented by Defence since the 2022–23 MPR.

38. In June 2024 the JCPAA tabled Report 503: Inquiry into the Defence Major Projects Report 2020–21 and 2021–22 and Procurement of Hunter Class Frigates.²³ The committee made six recommendations relating to: provision of confidential submissions and briefings on information withheld from publication; updates on changes arising from internal review findings; updates on the Hunter Class Frigate project; the assessment of design maturity in future projects; implementation of a new record keeping framework and new Chief Information Governance Officer role; and amendments to the Commonwealth Procurement Rules. These recommendations, where applicable to the MPR, are also reported on in Chapters 1 and 2 of the 2023–24 MPR.

39. In its Report 503, the Committee²⁴:

…acknowledges that there are external accountability and assurance mechanism in place to scrutinise Defence activities other than the MPR. The Committee considers however that the MPR is an important accountability mechanism that should continue for the foreseeable future, as it provides a structured level of scrutiny and granularity across major capability projects that would not be provided through these other processes.

40. On 29 February 2024, the JCPAA commenced an inquiry into the 2022–23 Major Projects Report. This inquiry will consider the scope and Guidelines, which underpin the MPR and assess whether the MPR process 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. The inquiry report is yet to be released.

Auditor-General reports

Tabled in the Parliament

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

42. In July 2024, Recommendation 1 relating to compliance with record keeping requirements was closed by Defence after it reported that: NSSG introduced mandatory record keeping training; updated its onboarding processes; and undertook a review of record management practices in the Hunter Class Frigates Branch.

43. At December 2024, Recommendation 2 remains open. This relates to procurement advice to the Australian Government on major capital acquisition projects that documents the basis and rationale for proposed selection decisions, including information on the department’s whole-of-life cost estimates and assessment of value.

Performance audits underway

44. At December 2024, the ANAO is conducting four performance audits that may have a link to projects in the MPR.

• The effectiveness of Defence’s administration of contractual obligations to maximise Australian industry participation.²⁵
• The effectiveness of the Department of Defence’s sustainment arrangements for Navy’s Canberra Class fleet amphibious assault ships (Landing Helicopter Dock).²⁶
• The effectiveness of Airservices Australia’s management of the OneSKY contract.²⁷
• Defence’s Collins Class Life of Type Extension — planning and implementation.²⁸

Impact of Defence reviews

45. During 2023–24, four Defence reviews were concluded:

• National Defence: Defence Strategic Review 2023²⁹;
• Enhanced Lethality Surface Combatant Fleet: Independent Analysis into Navy’s Surface Combatant Fleet 2024³⁰;
• 2024 National Defence Strategy³¹; and
• 2024 Integrated Investment Program.³²

46. The National Defence: Defence Strategic Review 2023 identified^33:

Defence’s current approach to capability acquisition is not fit for purpose. The system needs to abandon its pursuit of the perfect solution or process and focus on delivering timely and relevant capability.

47. The ANAO may monitor impacts of these reviews across Major Projects as Defence implements the first 2023–2025 — Enhanced Force-In-Being capability milestone³⁴, and milestones into future years.

48. The Defence Chapter (Part 2) draws attention to the above reviews as well as the Defence Industry Development Strategy and Treatment of Classified and Sensitive Information.

49. Where Major Projects have identified an impact from the outcomes of the reviews identified in paragraph 45, these have been disclosed in the relevant PDSS in Part 3 (Hunter Class Frigate, Combat Reconnaissance Vehicles, Offshore Patrol Vessel, Overlander, Hawkei, Battlefield Command System, and Battle Comm. Sys.).

Defence acquisition governance

50. 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 2023–24, Defence completed an IAR on 18 of the 21 projects in this report (see paragraphs 1.22 to 1.24).³⁵
• Defence’s approach to entry and exit from the Projects of Interest and Projects of Concern lists (see paragraphs 1.25 to 1.41).
• Defence’s reporting to senior department leadership and government stakeholders on the delivery of capability to the Australian Defence Force (ADF) (see paragraphs 1.42 to 1.50).
• The importance of capturing government decisions in internal Defence documentation and ensuring that Materiel Acquisition Agreements are appropriately aligned with these decisions (see paragraphs 1.52 to 1.57).
• Defence’s implementation of business systems to report on the status of acquisition projects (see paragraphs 1.55 to 1.57).
• 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 1.58 to 1.61).
• Defence’s implementation of Australian Industry Capability (AIC) expectations in the acquisition of major projects (see paragraphs 1.62 to 1.71).³⁶
• Defence’s use of project contingency funds (see paragraphs 1.78 to 1.85). Three MPR projects expended contingency funds in 2023–24: SRGB Air Defence, CMATS and Pacific Patrol Boat Repl.
• The status of CASG’s Risk Management Reform Program and the establishment of the CASG Risk Management Framework (see paragraphs 1.86 to 1.91).
• 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 1.83) and risk management (see paragraph 1.89).
• 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 undertaken by the CASG Lessons Board (see paragraphs 1.92 to 1.105).
• Defence’s declaration of significant capability milestones with ‘caveats’ or ‘deficiencies’, and Defence guidance on the use of such terms³⁷ (see paragraphs 1.106 to 1.111).

Project performance analysis

51. In addition to its limited assurance review, the ANAO has undertaken an analysis of the PDSSs. The three aspects of project performance analysed in this report were cost, schedule and the delivery of capability/scope.

52. As discussed in paragraph 35, Defence has decided to not publish certain information in 20 PDSSs (2022–23: 12). The not for publication information includes forecast dates, capability delivery information and variance information. The affected PDSSs are set out in Table S.2 and Table S.3.

53. In common with the MPRs since 2021–22, the 2023–24 report does not provide the same level of transparency and information for users compared to the 2020–21 MPR and prior years. The ANAO is in a position to publish aggregate analysis across the 2023–24 Major Projects on: total schedule slippage, average schedule slippage, and in-year schedule slippage (see Table S.7 and paragraph 35). This results from the increase in the number of PDSSs which have not disclosed a Final Operational Capability (FOC) forecast date — from nine in 2022–23 to 18 in 2023–24. 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.

54. A summary of the ANAO’s cost, schedule and capability/scope analysis is set out below and a detailed analysis is found in Chapter 2: Analysis of project performance.

Cost analysis

55. The first principal component of project performance examined in this report is cost management, which is an ongoing process in Defence’s administration of the Major Projects. Defence has reported that all 21 projects in this year’s MPR could continue to operate within the total approved budget of $81.0 billion. The SRGB Air Defence, CMATS and Pacific Patrol Boat Repl projects drew upon contingency funds to complete project activities (see paragraph 1.81).

56. The total approved budget for the 21 Major Projects has increased by $40.9 billion (74.4 per cent) since initial Second Pass Approval by government (2022–23: $22.8 billion).

57. Budget variations greater than $0.5 billion are detailed in Table S.4.³⁸

58. As the MPR focuses on the approved capital budget for Defence acquisition, the ongoing costs of project offices, training, replacement capability, and other sustainment factors, are not reported here.

59. Cost information was not affected by Defence’s decision to not publish certain information in 20 PDSSs this year.

Table S.4. Total Budget variations over $0.5 billion — post initial Second Pass approval by variation type^{a b}

Note a: For the variations related to all Major Projects and their value, refer to Table 2.1 and Table 2.2 of this report. For the breakdown of in-year variation, refer to Table 2.1 of this report.

Note b: For Major Projects with multiple Second Pass Approvals, this table shows variations from the initial approval.

Note c: 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 $2,549.2 million, 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 d: 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 e: Figures do not add precisely due to rounding.

Source: ANAO analysis of Defence’s 2023–24 PDSSs.

Schedule analysis

60. 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.

61. In 2023–24, a total of 18 of the 21 projects (85.7 per cent) (2022–23: nine projects, 45 per cent) either did not disclose the FOC forecast date in the PDSS (16 projects) or did not have a settled FOC date (two projects).³⁹

• Defence has decided to not publish FOC forecast dates in 16 PDSSs (2022–23: eight) (Joint Strike Fighter, Combat Reconnaissance Vehicles, ARH Replacement, Offshore Patrol Boats, Advanced Growler, Peregrine, Heavy Armoured Capability, MQ-4C Triton, IE Logistics Support Helicopter, SRGB Air Defence, JORN Mid-Life Upgrade, Battlefield Command System, Maritime Comms, Collins Comms and EW, Pacific Patrol Boat Repl, and ANZAC Air Search Radar Repl). This represents 76.2 per cent of all PDSSs.⁴⁰
• Two of the PDSSs did not include an FOC forecast date (2022–23: one). The Hunter Class Frigate project did not have an FOC milestone approved by government at 30 June 2024 and the Hawkei was in negotiations with contractors as a result of changes resulting from the Defence Strategic Review.⁴¹ This represents 9.5 per cent of all PDSSs.

62. In 2022–23 and 2023–24 as an increased number of projects did not disclose their FOC forecast date, the ANAO is able to publish information in aggregate as it would not disclose the individual Major Projects, which have not reported FOC forecast dates (see paragraph 35). The ANAO has provided a summary longitudinal analysis in relation to: total schedule slippage across the 21 projects, average schedule slippage across the projects, and in-year schedule slippage across the Major Projects (see Table S.7 on page 25).

63. At 30 June 2024, the aggregate schedule performance for the 21 Major Projects were as follows.

• Total schedule slippage was 442 months when compared to the initial schedule (2022–23: 453 months⁴²). This represents a 21 per cent increase since Second Pass Approval.
• Average schedule slippage per project was 25 months (2022–23: 25 months), representing a six per cent increase since Second Pass Approval.
• In-year schedule slippage totalled 96 months (2022–23: 101 months), representing a four per cent increase since Second Pass Approval, and a decrease of five months from the prior year.

64. 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.

65. Table S.5 provides details of in-year and total schedule slippage by project⁴³, except where Defence has indicated that project information is not for publication (NFP). For 2023–24, the in-year schedule slippage across the 21 Major Projects was four per cent, which represents a decrease of one per cent from 2022–23.⁴⁴

Table S.5. In-year and total schedule slippage^a from original planned Final Operational Capability milestone

Note a: 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 b: This project had no FOC capability milestone approved by government at 30 June 2024.

Note c: This project’s FOC milestone had not been approved by government at 30 June 2024. 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 d: This project has reported its slippage in months but has not reported the Original Planned and Current Planned 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.

Source: ANAO analysis of the 2023–24 Defence PDSSs.

66. Since 2007–08, MPRs have reported that the management of platform availability has contributed to slippage in some projects.⁴⁵

67. Projects with developmental content have continued to experience delays. These projects are MQ-4C Triton, CMATS, and Battle Comm. Sys. (Land) 2B.⁴⁶

68. The MPR includes ANAO analysis relating to each project’s Acquisition Categorisation (ACAT) level, as reported by Defence.⁴⁷ The analysis indicates that since 2013 there has been an increase in the number of projects at the more complex ACAT I and ACAT II levels. ACAT I projects carry a higher level of technical risk.

Capability/scope analysis

69. The third principal component of project performance examined in this report is progress towards the delivery of capability as approved by government. While the measures of Materiel Capability / Scope Delivery Performance disclosed in 4.1 of each PDSS is excluded from the scope of the limited assurance review, it is included in this ANAO analysis to provide further perspective on project performance.

70. 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 2024. This project instead reports narratives describing its current project activities.

71. In 2023–24, the aggregated PDSSs reporting in Section 4.1 Measures of Materiel Capability/Scope Delivery Performance was as follows.

• Represented as ‘green’⁴⁸: 12 projects (57 per cent) report they will deliver all capability/scope requirements (2022–23: nine). This represents an increase of 12 per cent from the prior year.
• Represented as ‘amber’⁴⁹: Four projects (19 per cent) report they have experienced challenges with expected capability/scope delivery (2022–23: five). This represents a decrease of six per cent from the prior year. The projects were: Offshore Patrol Vessel, MQ-4C Triton, Peregrine and Battlefield Command System.
• Represented as ‘red’⁵⁰: Five projects (24 per cent) report they are unable to deliver all the required capability/scope by FOC (2022–23: six). This represents a decrease of six per cent from the prior year. The projects were: Offshore Patrol Vessel, Hawkei, Overlander Medium/Heavy, Battle Comm. Sys. (Land) 2B and Battlefield Command System. (See Table 2.5)
• Represented as ‘blue’⁵¹: One project (0.5 per cent) (Pacific Patrol Boat Repl.) reports an increase in project materiel capability/scope delivery (2022–23: one). This represents similar percentages to the prior year.⁵²

72. Table S.6 summarises the percentage of capability/scope Defence expects will be delivered by the Major Projects. The assessment is at 30 June 2024, as reported by Defence.⁵³

Table S.6. Capability/scope delivery

Note a: In this year Pacific Patrol Boat Repl delivered an additional element of capability/scope at FOC (which equated to approximately five per cent of project scope). Across all the Major Projects this percentage rounded to zero per cent.

Note b: In this year ANZAC Air Search Repl delivered an additional element of capability/scope at FOC (which equated to approximately 0.1 per cent of project scope). Across all the Major Projects this percentage rounded to zero per cent.

Note c: 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 2021–22 only).

Note d: In the 2022–23 Major Projects Report, the Battlefield Command System (LAND200 Tranche 2) was excluded from this analysis due to the Auditor-General’s Qualified Conclusion, see paragraphs 2.8 to 2.9 and the Independent Assurance Report in Part 3 of that report.

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

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

73. In addition to reporting on expected capability/scope delivery, Defence has continued the practice of including in the PDSS information (except for certain projects discussed in Table S.3) on contractual remedies for projects, including stop payments and liquidated damages.⁵⁴ Details on application of contractual remedies are discussed at paragraph 2.33.

Summary longitudinal analysis

Summary analysis — 2021–22 to 2023–24

74. Table S.7 summarises published PDSS data on Defence’s progress toward delivering the capabilities for the Major Projects covered in this 2023–24 report. The table compares current data with that reported in the two prior editions of the MPR (2021–22 and 2022–23).

Table S.7. Summary longitudinal analysis 2021–22 to 2023–24^a

Refer to paragraph 35 in Part 1 of this report.

Note a: 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 b: See Table S.4 for a breakdown of the major components of this variance and Table 2.1 for all real variations.

Note c: 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 d: 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 e: 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.

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

Note h: 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 i: 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 2021–22 only).

Note j: In 2023–24, Pacific Patrol Boat Repl delivered an additional element of capability/scope at FOC, which equated to approximately five per cent of project scope. This percentage was rounded to zero per cent when compared across all the Major Projects.

Note k: In 2023–24, ANZAC Air Search Radar Repl delivered an additional element of capability/scope at FOC, which equated to approximately 0.1 per cent of project scope. This percentage was rounded to zero per cent when compared across all the Major Projects.

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

Note m: In 2022–23 the data pertaining to the Battlefield Command System (LAND200 Tranche 2) was excluded from this analysis due to the Auditor-General’s Qualified Conclusion, see paragraphs 2.8 to 2.9 and the Independent Assurance Report in Part 3 of that report.

Source: ANAO analysis of PDSSs across multiple years.

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 21 Project Data Summary Sheets (PDSSs) prepared by Defence for the 2023–24 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 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 in 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 ANAO Auditing Standards set by the Auditor-General under section 24 of the Act. These standards incorporate 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: Sections 1.2 and 4.1 — Current status and Measures of Materiel Capability/Scope Delivery Performance; Sections 1.3 and 5 — Major Risks and Issues; Section 2.4 - Australian Industry Capability (AIC); and forecast dates where included. These exclusions are due to deficiencies in Defence systems from which to provide complete and/or accurate evidence, in a sufficiently timely manner to complete the review. Accordingly, the Independent Assurance Report by the Auditor-General does not provide assurance in relation to this information. However, where material inconsistencies between the information disclosed in these excluded sections and the ANAO’s understanding from performing review procedures on the in-scope information are identified, the Auditor-General’s conclusion is qualified.

1.4 The ANAO’s review procedures are sufficient and appropriate for the purpose of providing an Independent Assurance Report in accordance with the ANAO Auditing Standards. Review procedures performed on individual PDSSs are designed to provide limited assurance. These procedures are not as extensive, in terms of the extent of evidence required, as those performed in performance audits, performance statement audits and financial statement audits conducted by the ANAO, which provide reasonable assurance. The level of assurance provided by this review, in relation to the 21 major Defence equipment acquisition projects, is less than that provided by the ANAO’s program of performance, financial statements and performance statements audits.⁵⁵

1.5 In addition to the assurance review, the ANAO considers developments in Defence’s acquisition governance processes (information and commentary on Acquisition governance 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 Chapter 2: Analysis of project performance). This commentary and analysis is provided for information and does not constitute a review or audit and is not intended to provide assurance.

1.6 The ANAO’s review was conducted in accordance with the ANAO Auditing Standards at a cost to the ANAO of approximately $2.1 million.

Review methodology

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

• examining relevant internal systems, processes and internal controls, including governance and assurance mechanisms such as audit and other oversight committees that support the development of the Statement of the Secretary of Defence and the PDSSs;
• reviewing documents, holding meetings with Defence personnel and conducting analysis to assess the presentation of the PDSSs;
• considering industry contractor comments provided on draft PDSS information;
• examination of representations by Defence to support the Lessons Learned narratives included in Section 6 of the PDSS;
• analysis of project information, cost, Australian Industry Capability (AIC), schedule, progress towards delivery of required capability, risks and issues, lessons learned, and longitudinal analysis across these key elements of the Major Projects over time;
• assessing the assurance provided by Defence senior management 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 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 2024, and management representations by the Secretary of Defence.

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

• resolution of matters described in the 2022–23 Auditor-General’s Independent Assurance Report relating to the LAND200 Tranche 2 Battlefield Command System PDSS⁵⁶;
• developments in acquisition governance (see paragraphs 1.17 to 1.108);
• 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);
• declaration of exceptions (caveats or deficiencies) to materiel capability/scope (see paragraphs 1.105 to 1.110);
• the Defence Risk Management Framework, and the completeness and accuracy of major risks and issues data (see Section 5 of the PDSSs);
• the Defence Lessons Repository, CASG Lessons Program, and the completeness and accuracy of lessons learned data within the system (see Section 6 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 The ANAO also considered whether there were any material inconsistencies between the information disclosed in the sections outside the scope of the review and the ANAO’s understanding from performing review procedures on the in-scope information.

Project Data Summary Sheets

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 three⁵⁷ opportunities (in most instances) 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 in the pre-30 June period⁵⁸ to promote awareness of the MPR Guidelines and mitigate errors and quality issues in Defence’s PDSS preparation. For the 2023–24 MPR, the ANAO completed its first assessment of the PDSSs in the pre-30 June period and the final two assessments in the post-30 June period, as agreed with Defence.⁵⁹

1.12 Defence’s enhancement of its internal management methodology and quality assurance approach for the MPR has involved the use of standardised PDSS templates, the creation of some standardised financial reports and the continued development of internal guidance materials for projects preparing their individual PDSSs. Ongoing quality issues relating to Defence’s preparation of PDSSs as required by the MPR Guidelines, following the ANAO’s assessment of the first versions of the PDSSs, were identified and documented in an Interim Management Letter provided to Defence on 2 September 2024.

1.13 Quality issues included instances where evidence packs were incomplete⁶⁰ and inappropriately mapped⁶¹, sections of the PDSSs were not updated to reflect current year content⁶², and use of obsolete PDSS templates.⁶³ These issues related to elements of financial data, schedule milestone dates, quantities of materiel, risks and issues and lessons learned.

1.14 The ANAO advised Defence of the material errors and quality issues it identified in the PDSSs following the review of PDSS version one and version two. This process continued for a selected number of PDSSs after what was intended to be the ANAO’s third and final review of the PDSSs.⁶⁴ This has informed the ANAO’s assurance review and the Auditor-General’s conclusion (see the Independent Assurance Report found in Part 3 of this report).

1.15 Efficiencies could be gained through Defence process and system standardisation⁶⁵, including the development and generation of standard reports from Defence’s Financial Management and Information System (FMIS), Enterprise Resource Planning system (ERP) as it is implemented, Predict! (the Defence risk management system), the Defence Lessons Repository and continued engagement and review by Defence leaders.

Defence reporting in PDSSs — lessons learned and non-disclosures

1.16 The MPR Guidelines require PDSSs to include information on project lessons (at the strategic level) that have been learned. Projects are to state whether ‘systemic lessons’ have been identified. The Auditor-General’s Independent Assurance Report in respect of the 2022–23 MPR included a Qualified Conclusion on the basis that information on Lessons Learned disclosed in Section 6 of the PDSSs did not satisfy the requirements of the MPR Guidelines and was materially inconsistent with evidence obtained by the ANAO.⁶⁶

1.17 In its review of the 2023–24 MPR, the ANAO examined the Defence Lessons Repository (the DLR), which predominantly stores and maintains lessons learned to be incorporated into future policy and practice. The ANAO has determined that it is not able to rely on the DLR to gain assurance over lessons learned due to deficiencies in processes. Defence has disclosed 74 project level lessons in PDSSs and is unable to demonstrate why these lessons were categorised as strategic lessons compared with other lessons in the DLR.

1.18 As summarised in paragraphs 27 to 30 and 1.15, the Auditor-General has expressed a Qualified Conclusion in the Independent Assurance Report (found in Part 3 of this report), on the basis that due to deficiencies in Defence’s processes over lessons learned, the ANAO is unable to obtain sufficient appropriate audit evidence to conclude whether the disclosure of the lessons learned in the PDSSs is in accordance with the requirements of the Guidelines.

1.19 Defence advised the ANAO on 5 December 2024 of its decision that certain information is not for publication (NFP) and has not been included in the relevant PDSSs for 20 projects, similar to the prior two MPRs. The NFP information includes forecast dates, capability delivery information and variance information. The affected PDSSs are set out in Table S.2 and Table S.3. Commentary provided by the Secretary of Defence on this matter is reproduced at paragraphs 21 to 22.

Acquisition governance

1.20 Consistent with prior years, the ANAO considered Defence’s Major Project acquisition governance processes when planning and conducting the review for the 2023–24 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

1.21 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.⁶⁷

1.22 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.⁶⁸

1.23 During 2023–24, 18 of the 21 Major Projects (2022–23: 13) had completed an IAR.⁶⁹

Projects of Concern and Projects of Interest

1.24 The Projects of Concern (POC) process is intended to manage:

…the remediation of underperforming projects. This is achieved through close collaboration and high engagement with senior Defence and industry partner management, led by the Minister for Defence Industry, to agree and implement a plan to resolve significant commercial, technical, cost and/or schedule difficulties.⁷⁰

1.25 Similarly, there is a related Projects of Interest (POI) process where projects are monitored internally by Defence to ‘ensure issues are remediated and that the project does not progress to a POC’.⁷¹ Formal monitoring of POIs commenced in July 2016. Prior to this time, POIs were referred to as ‘underperforming projects’.

1.26 Table 1.1 outlines the two MPR projects classified as a POC (2022–23: 2) and seven MPR projects classified as POI (2022–23: 4).

Table 1.1: 2023–24 MPR Projects of Concern and Interest

Source: Defence Ministerial Reporting on Projects of Concern and Interest at 30 June 2024.

Projects of Concern (POC)

1.27 At 30 June 2024, there are two MPR projects classified as POC: Civil Military Air Management System (CMATS) and Offshore Patrol Vessel (2022–23: 2) (see Table 1.1). The Minister for Defence Industry⁷² conducts POC summits as part of the governance process to discuss remediation issues for listed POC.⁷³ The target date for convening an initial POC summit is within four months of being classified as a POC, and subsequent meetings are scheduled by the Minister for Defence Industry based on advice from Defence.⁷⁴

1.28 During 2023–24, three POC summits were held.

• September 2023 — to discuss the OneSKY-CMATS project.
• December 2023 — one to discuss the OneSKY-CMATS project and one for the Offshore Patrol Vessel project.

1.29 The CMATS project was classified as a POC and placed on the list 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 until October 2022⁷⁵ when it was returned to the POC list as it continued to experience schedule delays for its agreed milestones, and the contractor had not provided authoritative forecast dates for system acceptance milestones.

1.30 Following the March 2023 POC Summit, a remediation plan was agreed to by Defence, Airservices Australia⁷⁶ and the contractor, which focused on simplified software development, test and deployment, and mitigated some of the challenges encountered by the contractor. This culminated in a nil-cost contract change proposal, which was executed on 20 December 2023.

1.31 In September 2023, parties agreed on milestones to be achieved before the end of the year, including the integrated master schedule that supports understanding the schedule and cost of the revised delivery pathway.⁷⁷

1.32 At the December 2023 POC summit, it was agreed that a contract change proposal and an integrated master schedule for the project would be finalised by early 2024.⁷⁸

1.33 On 8 July 2024, the Minister for Defence made a statement that the ‘summit discussed the integrated master schedule, completion of a test readiness review and commencement of software testing. All parties agreed to continue executing the agreed remediation plan through a set of regular milestones.’⁷⁹ Another summit was held on 26 November 2024.⁸⁰

1.34 Implementation of the revised CMATS deployment strategy has impacted government approved IOC and FOC dates. The CMATS PDSS Schedule Performance (Part 3 of the MPR) advises the project will seek government endorsement following evidence of the contractor’s performance against the revised delivery plan.

1.35 The CMATS PDSS Project Financial Assurance Statement (Part 3 of the MPR) notes that:

…there is insufficient budget remaining including contingency, for the project to complete, taking into account changes that resulted from the implementation of the Project of Concern (POC) remediation plan.

1.36 The Offshore Patrol Vessel (OPV) project was classified as a POC on 20 October 2023 due to delays to the construction of all ships and the associated support system. In 2024, the government directed an independent analysis⁸¹ to assess the Royal Australian Navy’s surface combatant fleet capacity and released the report on the Enhanced Lethality Surface Combatant Fleet: Independent analysis of Navy’s surface combatant fleet. It recommended that the OPV project be reduced from 12 to six ships.⁸² The government announced this reduction on 20 February 2024.⁸³ Defence and the contractor have committed to working collaboratively to resolve the challenges experienced and have committed to a POC remediation plan. Implementation of the revised plan will impact government approved IOC and FOC dates.

Projects of Interest (POI)

1.37 At 30 June 2024, seven MPR projects were considered POIs (2022–23: 4): Hunter Class Frigates⁸⁴; Joint Strike Fighter; Combat Reconnaissance Vehicles; Peregrine; Hawkei; JORN Mid-Life Upgrade; and Battlefield Command System (see Table 1.1).

• Hunter Class Frigates since March 2020 due to significant schedule, technical, workforce and cost challenges.
• Joint Strike Fighter since June 2017 due to its importance and issues identified that could impact achievement of Initial Operational Capability (IOC). Although IOC was declared on schedule in December 2020, the project remains a Project of Interest due to its size and complexity.
• Combat Reconnaissance Vehicles since June 2024 due to the complexity associated with the parallel delivery of LAND 400 Phase 2 and the Boxer Heavy Weapon Carrier Export project, together with ongoing schedule pressure on LAND 400 Phase 2 to achieve its Final Operational Capability milestone.
• Peregrine since September 2023 due to schedule delays to the aircraft flight test program.
• Hawkei from December 2018 to May 2021 and then again in July 2023 due to an inability to resolve the brake issue and lift the operating restrictions across the wider ADF fleet. There is also a critical shortage of Hawkei spare parts, including transparent armour (windscreens), engine and brake components, which is compounded by long lead-times. This created significant risk to the FOC milestone.
• JORN Mid Life Upgrade since September 2019 due to delays to engineering design milestones. These delays were unrecoverable and affected the original schedule to Initial and Final Materiel Release.
• Battlefield Command System since September 2018 due to issues associated with vehicle integration and realisation of risks resulting in the request to access contingency funding.

Governance for POC and POI

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

1.39 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.⁸⁵ As discussed in paragraph 36, the Committee recommended that⁸⁶:

… 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.

1.40 The JCPAA followed-up on Recommendation 2⁸⁷ 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 processes 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.⁸⁸

1.41 In October 2023, Defence updated its policy Delivery Group Performance Management and Reporting, and Management of Projects and Products of Interest and Concern.⁸⁹ This policy outlines performance measures and risk categories that may be used to monitor performance when considering placing a project on the POI or POC list, but that they are not automatically triggers for escalation. Performance measures considered include: project scope; initial and final operational capability schedule delivery; and cost.

Project Performance Reporting

1.42 During 2023–24, the ANAO observed changes in Defence’s project performance reporting for the major projects, including the reporting for POC and POI. As reported in the 2022–23 MPR, the Minister for Defence Industry introduced monthly reporting in October 2022.⁹⁰

1.43 In June 2023, following advice from Defence, the Minister for Defence Industry agreed to a change in the frequency of reporting: monthly reporting for POC and POI, and other projects as necessary by exception; and quarterly reporting (Quarterly Performance Report (QPR)) for all major projects and sustainment activities, to allow for timely analysis and advice about ongoing and emerging project performance issues.

1.44 Defence also proposed that the revised approach commence with a new QPR, which excluded POC and POI reports, for the period April to June 2023. This approach was approved in June 2023 by the Minister for Defence Industry. The first reports under the new arrangements were provided in October 2023.

Quarterly Reporting

1.45 In October 2023, Defence updated the policy on performance management, reporting and management of projects and products of interest and concern.⁹¹ 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.

1.46 Until March 2024, the Defence QPR was being produced with POC and POI information and included projects with exceptions to delivery. The QPR now focuses on performance trends of all second pass projects and products, identified exceptions and new approved projects. The March 2024 QPR did not reflect the Integrated Investment Program (IIP) rebuild.⁹² For 2023–24, timing for the provision of the QPR to the Minister for Defence Industry is occurring on an average of three months after the end of the reporting period.

Monthly Reporting

1.47 From March 2024, the monthly POC and POI reporting has been separated from other reporting deliverables to ensure information is provided by Defence to the Minister for Defence Industry in a timely manner (see paragraph 1.41).

1.48 In May 2024, a new traffic light approach was introduced in the monthly report to assess progress against the remediation plans. From June 2024, traffic-light ratings also provided an overall assessment of exit criteria performance. For 2023–24, timing for the provision of the monthly reporting to the Minister of Defence Industry was delayed, on average, by 1.6 months (see Table 1.2).

Table 1.2: 2023–24 Ministerial Reporting on Projects of Concern and Projects of Interest

Note a: July is considered a non-reporting month and the data is included in the following month’s report.

Note b: The July and October 2023 POI/POC report was not prepared due to concurrent efforts with the June 2023 Quarterly Performance Report.

Note c: Monthly POI and POC reports were separated from regular Quarterly Performance Reports in November 2023.

Note d: The November and December 2023 and the January and February 2024 monthly reports was a combined report covering both months.

Source: ANAO analysis of Defence’s Ministerial reporting.

1.49 The Defence 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 (see paragraph 1.41).

Longitudinal analysis — POC and POI

1.50 Figure 1.1 and Figure 1.2 set out the ANAO’s longitudinal analysis of all MPR projects since 2008 (for POC) and 2014 (for POI), which have had POC and POI status. Thirteen⁹³ MPR projects have been classified as POC (2022–23: 11), with an average of five years on the POC list. Sixteen MPR projects have been identified as POI, with an average of three years on the POI list.⁹⁴

Figure 1.1: MPR projects identified as Projects of Concern

Source: The ANAO’s review of projects entering and exiting the POC list from Ministerial reporting.

Figure 1.2: MPR projects identified as Projects of Interest^a

Note a: Combat Recon. Vehicles entered the POI list in June 2024 and is a continuing POI project, at September 2024.

Source: The ANAO’s review of projects entering and exiting the POI list from Defence and Ministerial reporting.

Materiel Acquisition Agreements

1.51 Since 2007–08 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. All projects in the 2023–24 MPR have an approved MAA.⁹⁵

1.52 In 2023–24, 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. MAAs and related documents should be reviewed with sufficient frequency to ensure approved changes to product capability, schedule and cost are properly managed with Defence contractors.

1.53 During 2023–24, 11 of the 21 projects have an MAA that was approved between 2022 and 2024; six were approved between 2020 and 2022; and four have an MAA that was approved prior to 2020.⁹⁶

Application of MAAs on business reporting systems

1.54 Defence uses MAAs to populate project reporting data in its business reporting systems, such as the Monthly Reporting Module (MRM)⁹⁷ and Project Performance Review and Information Platform (PPRIP).⁹⁸ The MAA is used to derive, and populate, information relating to: schedule milestone performance and status; measures of effectiveness against scope delivery⁹⁹; cost and budget; schedule performance; schedule status; and measures of effectiveness against scope delivery.¹⁰⁰

1.55 In May 2023, Defence mandated the use of MRM and PPRIP to inform decision making, enable data sharing across Defence, and facilitate official performance reporting to government. Defence intends to replace these business systems with the Enterprise Resource Planning (ERP) program.¹⁰¹

1.56 With delays extending beyond four years in updating MAAs, the quality of reporting generated from MRM and PPRIP is limited particularly when there has been change in project budget, schedule and scope.

Smart Buyer Framework

1.57 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’.¹⁰²

1.58 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:

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.¹⁰³

Application to MPR projects

1.59 The two projects entering the MPR in 2023–24, ARH Replacement and IE Logistics Support Helicopter, applied the Smart Buyer framework.¹⁰⁴

1.60 No Smart Buyer activity has been conducted during 2023–24 for any of the remaining MPR projects.

Australian Industry Capability

1.61 Defence has stated that the Australian Industry Capability (AIC) program aims to¹⁰⁵:

• 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.
• Encourage investment in Australian industry.

1.62 Tenderers are required to address Australian industry involvement for all Defence materiel and non-materiel procurement valued at or above $4 million ($7.5 million for construction services).¹⁰⁶ 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 1.65).¹⁰⁷ Whether a schedule or plan is used will depend on the size and nature of the procurement.¹⁰⁸

1.63 The AIC requirement for a Defence procurement is as follows.¹⁰⁹

• 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-materiel 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 Plan¹¹⁰ including an AIC Schedule.
• Non-materiel procurements valued at $20 million (incl GST) or more — requirement for an Industry Participation Plan including a Schedule.

1.64 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.¹¹¹

1.65 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.¹¹²

1.66 Defence has stated that it ‘has developed an enhanced AIC contractual framework and supporting artefacts with specific and measurable AIC commitments that promote greater accountability for achieving the AIC objectives’.¹¹³ It further provided that the enhanced AIC contractual framework was not applied retrospectively. Defence has adopted a phased implementation approach across the Australian Standard for Defence Contracting (ASDEFCON) template suite. Government-to-Government (GtG) procurements, including Foreign Military Sales (FMS) and Direct Commercial Sales, are not exempt from AIC Program requirements.¹¹⁴

Application to MPR projects

1.67 The 2023–24 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.

1.68 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.

1.69 Five of the Major Projects did not have AIC plans in place (Joint Strike Fighter, ARH Helicopters, Peregrine, IE Support Helicopters and MQ-4C Triton). The reasons provided in PDSSs were that these were collaborative programs with other countries or FMS cases.

1.70 The ANAO assessed 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.¹¹⁵ The following exceptions were identified.

• Hunter Class Frigates and Combat Reconnaissance Vehicles had not published a public plan for one or more of their eligible contractors.¹¹⁶

Results of the ANAO’s review

1.71 The following sections outline the results of the ANAO’s review, which inform the overall conclusion in the Independent Assurance Report by the Auditor-General for 2023–24.

Financial framework

1.72 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.

1.73 A project’s total approved budget comprises of the:

• allocated budget, which covers the project’s approved activities, as indicated in the MAA; and
• 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.¹¹⁷

1.74 In 2023–24, 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.

Project financial assurance statement

1.75 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’.¹¹⁸ The 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 2024.

1.76 Defence’s Chief Finance Officer’s representation letter to the Secretary of Defence on the 2023–24 MPR’s project financial assurance statements was unqualified.

Contingency statements and contingency management

1.77 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.¹¹⁹ 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.

1.78 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.¹²⁰

1.79 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.

1.80 In 2023–24, three projects applied contingency to manage project risks (2022–23: two):

• SRGB Air Defence for higher-than-expected inflation levels;
• CMATS for establishing and progressing the Air Traffic Management (ATM) Capability Assurance Program (CAP), being delivered by Surveillance and Control System Program Office (S&C SPO) under existing support arrangements for the Australian Defence Air Traffic System (ADATS); and
• Pacific Patrol Boat Repl. primarily for engineering modifications.

1.81 In 2023–24, all the Major Projects had complied with Defence’s financial policy relating to contingency funding.

1.82 The ANAO’s examination of project contingency logs at 30 June 2024, highlighted that the clarity of the relationship between contingency allocation and identified risks continues to be an issue. Two projects (Overlander 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) V1.0.¹²¹ The ANAO made similar observations in the 2022–23 MPR for two projects (Collins Comms and EW and ANZAC Air Search Radar Repl.).¹²²

1.83 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.¹²³ In response to the JCPAA interim report Recommendation 2 Defence stated¹²⁴:

Defence has been supporting its major project teams with additional guidance and assistance to improve their compliance with policies and processes associated with project management. Defence is seeing positive signs that the contingency funding and lessons learned policies are being adhered to across the MPR projects, and continues to assess compliance across all major projects.

1.84 In June 2024, the JCPAA reported that contingency funding has been a consistent issue across previous MPRs and continues to persist.¹²⁵

Risk Management Framework

1.85 While major risks and issues data in the PDSSs remains excluded from the formal scope of the Auditor-General’s Independent Assurance Report¹²⁶, any material inconsistencies identified between the information disclosed in these excluded sections and the ANAO’s understanding from performing review procedures on the in-scope information can result in a qualification to the Auditor-General’s conclusion. The following information is included to provide an overall perspective of how risks and issues are managed within Defence and the selected Major Projects.

1.86 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 Inquiry into the Defence Major Projects Report 2020–21 and 2021–22 and Procurement of Hunter Class Frigates. In its June 2024 report on the inquiry, the Committee observed that:

…there are still inconsistencies in Defence’s risk management practices, although improvements have been made, and this still needs to be addressed going forward.¹²⁷

1.87 Defence standardised the use of Predict! as its corporate risk management system, in May 2020.¹²⁸ In 2023–24, the ANAO’s review of risk management documentation relating to the 21 Major Projects indicated that:

• all 21 projects offices utilised Predict!;
• one project office (Hunter Class Frigate) used Predict! and Defence’s CapabilityOne system; and
• one project office (CMATS) used Predict! and a bespoke SharePoint based tool managed jointly with Airservices Australia, as Airservices Australia does not use Predict!.

1.88 In 2023–24, 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 following issues were identified relating to risk management.

• Variable compliance with corporate guidance. While most of the 21 Major Projects had an approved Risk Management Plan, four projects (Joint Strike Fighter, ANZAC Air Search Radar Repl, Overlander Medium/Heavy and Hawkei) were unable to demonstrate review of their risk management plan as required by Defence policy, CASG RMM V1.0.¹²⁹
• 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.

1.89 Controls within Predict! continue not to operate effectively.¹³⁰ Weaknesses in controls increase 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! identified in 2022–23¹³¹ have not been addressed by Defence.

1.90 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. Supporting reviews were conducted of project risk meeting minutes, risk mitigation strategies and activity results, to supplement evidence from Predict!.

Lessons learned arrangements

1.91 The CASG Lessons Program Policy of February 2022¹³² 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.

1.92 Defence’s lessons learned arrangements for the Major Projects were reviewed by the JCPAA in its 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, Recommendation 2¹³³ requested that Defence provide a detailed update on the implementation and compliance with internal policies for lessons learned for Major Projects as a result of its observations:

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.¹³⁴

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.¹³⁵

1.93 In its response to the JCPAA in relation to Recommendation 2, Defence advised¹³⁶:

Under the CASG Lessons Program, major projects must develop a Lessons Collection and Management Plan, which draws on existing information in the Defence Lessons Repository relevant for their project planning and management. The Plan also requires the project to record their own observations, insights and lessons. This process supports the planning of future projects…

Defence is undertaking specific action to record the lessons from previous exited Major Projects in the Defence Lessons Repository. This includes the issues identified regarding compliance with contingency management and lessons learned policies.

An assessment of the projects in scope of the 2022-23 Major Projects Report identified that all of the projects have related lessons information available within the Defence Lessons Repository. Defence has reinforced with its project teams the requirement for capturing lessons in the repository and is monitoring this and providing assistance to project teams to ensure this occurs.

1.94 Controls within the Defence Lessons Repository (DLR) are not operating effectively. Weaknesses in application controls increases the risk that data generated from DLR, as well as information derived from that data, may not be reliable. The ANAO identified weaknesses in the following application control areas:

• data input;
• data manipulation; and
• data output.

1.95 Defence continues to refine its approach to reporting and evidencing lessons learned disclosures in the PDSSs. ANAO sought representations from Defence to support the disclosures in the PDSSs, which relied upon data held within the DLR. Defence advised the ANAO on 23 October 2024 that:

• observations, insights and lessons are maintained in the DLR;
• an extract from the DLR is provided to the Branch Head for approval for inclusion in the PDSS; and
• a CASG Lessons Board for the 2023 –24 MPR will be held in June 2025.

1.96 The purpose of the CASG Lessons Board¹³⁷ is to:

…review Observations, Insights and Lessons Identified affecting multiple domains and functions across CASG and direct the implementation of remedial activities to remove weaknesses and maintain strengths identified through the lessons process.

1.97 On 21 October 2024, Defence provided the ANAO a management representation letter indicating that Lessons reported in the 2023–24 MPR will not be reviewed by the CASG Lessons Board until June 2025, after their inclusion in the 2023–24 PDSS. The CASG Lessons Board last met in June 2024 to discuss lessons reported in the 2022–23 MPR.

The CASG Lessons Board is scheduled to convene once per annum, preferably in lockstep with timings and/or frequency of any comparable Defence Enterprise Lessons activities.

1.98 Lessons reported in the 2023–24 PDSSs have not yet been ‘learned’ by Defence and are raised for input into the remediation phase through the next meeting of the Lessons Board.

A CASG Lessons Board (the ‘Board’) is convened to review Observations, Insights and Lessons affecting multiple domains and functions across CASG and direct the implementation of remedial activities to address immediate issues identified through the lessons process.

… Noting the project level lessons and DLR lessons have not undergone formal consideration as a lesson learned (outcome of the Lessons Remediation Phase), projects have identified in their 2023-24 PDSS Section 6 that projects have identified / submitted lessons for into the DLR for consideration as “strategic level lessons learned”.

… These lessons will then be considered each year under a CASG MPR Lessons Board to identify if there is a lesson learned.

1.99 All projects have lessons recorded in the DLR.

1.100 Seven of the 21 projects (2022–23: eight) are yet to fully implement the lessons learned framework and compliance monitoring process.¹³⁸ As advised by Defence in its response to the JCPAA in relation to Recommendation 2 (see paragraph 1.94), implementation of Defence processes was expected to enable projects to review and apply applicable lessons learned policies, and support more consistent and improved project outcomes. The remaining fourteen projects maintained a lessons learned log, which is mandated under the Integrated Project Management Plan.

PDSS reporting

1.101 The MPR Guidelines require 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 six categories¹³⁹ of system lessons are defined in the Guidelines as: program, project and product management; commercial management; engineering and technical; materiel logistics; decision support; and corporate performance.

1.102 In 2023–24, the PDSS for each project reports on a selection of lessons, and a summary of categories of lessons against the MPR Guidelines. Senior Executive clearance over the lessons disclosed in the PDSS was obtained.

1.103 The DLR may include multiple lessons for an individual project, however Defence has disclosed only between two to four in the respective PDSSs. By way of example, the Heavy Armoured Capability project has captured 51 lessons in the DLR, three of which are individual and the remaining 48 have been aggregated into four lessons against CASG Lesson Categories. The ANAO has not been provided evidence that supports the selection of lessons in the PDSS as being strategic and/or systemic in accordance with the MPR Guidelines reporting requirements.¹⁴⁰

1.104 The Auditor-General’s Independent Assurance Report (found in Part 3 of this report) includes a qualified conclusion on the basis that due to deficiencies in Defence’s processes over lessons learned, the ANAO is unable to obtain sufficient appropriate audit evidence to conclude whether the disclosure of the lessons learned in the PDSSs is in accordance with the requirements of the Guidelines.

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.

1.106 The JCPAA recommended in its June 2023 interim report¹⁴¹ 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.’¹⁴²

1.107 Defence advised the JCPAA in its response to Recommendation 4¹⁴³ that:

Defence acknowledges that “the 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”. Recommendation 4 of Report 489 was closed in accordance with Defence’s recommendation closure policy and process, with Defence advising the Joint Committee of Public Accounts and Audit of audit closure of Recommendation 4 of Report 489, via a tabling document on 1 June 2023.

Defence’s intention in responding to Recommendation 4 was to identify to the Committee that there would only be two terms going forward. Defence intended to define any remaining legacy references in the 2022-23 Major Projects Report via its glossary and accepts that the response to the recommendation would have benefited from that clarification. There are three projects that use the legacy term ‘exception’ from 2021 in relation to achievement of project milestones in the 2022-23 Major Project Report. Definitions of ‘exception’, ‘issue’ and ‘risk’ were included in the 2022-23 Major Projects Report glossary.

All projects will adhere to the endorsed terms of ‘caveats’ and ‘deficiencies’ going forward.

1.108 In 2023–24, other than those deemed not for publication, Defence declared the following caveats or deficiencies relating to Major Projects in the MPR.

• Overlander Medium/Heavy — Defence declared Final Operational Capability in December 2023 with caveats. These caveats related to remaining specialist capabilities which will be remediated under the follow-on Heavy Medium Vehicle Project (LAND121 Phase 5B).
• Battle Comm. Sys. (Land) 2B — Defence declared Final Materiel Release in February 2024 with caveats. Final Operational Capability was declared in March 2024. Caveats are to be addressed through a support contract in 2024.
• Collins Comms and EW — Initial Operational Capability was declared in March 2024 with caveats relating to accreditation requirements.

1.109 No other terms were used by Defence in the declaration of achievement of capability milestones.

1.110 In line with the MPR Guidelines¹⁴⁴, projects that have been removed from the MPR that still have outstanding exceptions to the achievement of significant milestones and/or significant remaining materiel capability to be delivered, are required to report on the status of these activities in the Statement by the Secretary of Defence until their final status is accepted by the Capability Manager.

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 stakeholders¹⁴⁵ 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)¹⁴⁶ and a consistent area of focus of the Joint Committee of Public Accounts and Audit (JCPAA) since the first Major Projects Report (MPR) in 2008–09.

2.3 The 2023–24 MPR Guidelines were endorsed by the JCPAA on 19 October 2023, and 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 16 to 26, Defence has decided not to publish certain information in 20 PDSSs (2022–23: 12). The not for publication (NFP) information includes forecast dates, capability delivery information and variance information. The affected PDSSs are set out in Table S.2 and Table S.3 (see pages 8 and 9).

2.5 Similar to the 2022–23 MPR, the Australian National Audit Office (ANAO) is in a position to publish aggregate analysis 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 S.7 on page 25). This results from the number of PDSSs that have not disclosed Final Operational Capability (FOC)¹⁴⁷ forecast dates — increasing from nine in 2022–23 to 18 in 2023–24 (see paragraph 25).

2.6 Due to the number of affected projects in 2023–24, it is not possible to derive the NFP information for individual projects from the aggregate analysis. There continues to be a reduction in the level of transparency and accountability to the Parliament and other stakeholders (see paragraph 18).

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

Analysis of acquisition approach

2.8 The suite of current and historical PDSSs¹⁴⁸ 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 (US) 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.¹⁴⁹ FMS cases tend to be acquisitions of mature platforms from existing production lines. In the 2023–24 MPR, the four FMS projects were: ARH Replacement; IE Logistics Support Helicopters; Heavy Armoured Capability; and Peregrine. This is an increase of two projects from the prior year due to the two new projects (ARH Replacement, IE Logistics Support) entering the MPR for this first time this year.
• Government-to-government (GtG) agreements or contracts. These acquisitions are based on a Memorandum of Understanding or other agreement between the Australian government and a foreign government, where the agreement is not a FMS acquisition. These procurements are typically for developmental programs where Australia and another country or countries will collaborate on the development of a platform. In 2023–24, the three GtG based projects in the MPR were: Joint Strike Fighter (JSF); Advanced Growler; and MQ-4C Triton (the same as in 2022–23).
• Other approaches, typically involving direct contracting with commercial suppliers. In 2023–24, all MPR projects not involving FMS or GtG arrangements were based on direct contracting arrangements.

2.9 A project may have multiple approaches to acquiring different aspects of its scope.¹⁵⁰ For example, while the JSF project is considered to be a GtG agreement or contract, 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 JSF PDSS as United States Government Contracts).

Use of different acquisition approaches

2.10 Figure 2.1 demonstrates the distribution of FMS, GtG, 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.

2.11 Figure 2.2 outlines the distribution of FMS projects across the domains of SEA, LAND and AIR. This 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 2.1: Acquisition approach approvals over time

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

Figure 2.2: FMS case approvals over time by domain

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

Schedule performance by acquisition approach

2.12 Figure 2.3 outlines the average schedule slippage to FOC for each acquisition approach in each year of the MPR. The vertical axis indicates months of slippage.

Figure 2.3: Average slippage over time by acquisition approach (months)^a

Note a: There is no data for GtG projects in 2008 and 2009 as there were no GtG projects in the MPR in those years.

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

2.13 The increase in slippage for 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 GtG agreement as scheduled, but installation was affected by delays to the docking schedule of the Collins Class submarines.¹⁵¹ 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.¹⁵²

2.14 For MQ-4C Triton (GtG project), development of the platform was delayed by a funding pause from February 2020 for two years (US Fiscal Years 2021 and 2022), affecting the United States Navy research and development program, as described in the PDSS.

2.15 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

2.16 Figure 2.4 outlines the average percentage of predicted ‘Green’ (see paragraph 2.57) meaning high confidence for delivery of each acquisition approach over time for MPR projects.

Figure 2.4: Average ‘Green’ capability forecast over time by acquisition approach

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

2.17 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

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

• Cost performance. The ANAO analysis includes the percentage of budget expended (Budget Expended), changes in budget since Second Pass Approval, in-year changes to budget, and in-year expenditure.
• Schedule performance. ANAO analysis 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.

Cost performance

2.19 Figure 2.5 directly compares cost performance with schedule performance through two metrics, Budget Expended and Time Elapsed.¹⁵³ Figure 2.5 relates to the projects, which have reported an FOC date in their PDSS for 2023–24.

2.20 As discussed in paragraph 2.5, 18 projects have not disclosed FOC dates in their PDSS in 2023–24. As such, in Figure 2.6, the Time Elapsed metric is not available for these projects. Figure 2.6 reports only on Budget Expended for these projects.

Figure 2.5: Budget Expended and Time Elapsed at 30 June 2024 (for projects that have included FOC forecast date in their PDSS)

Source: ANAO analysis of Defence’s 2023–24 PDSSs.

Figure 2.6: Budget Expended at 30 June 2024 (for projects that have not included FOC forecast date in their PDSS)

Note: Defence has decided to not publish FOC forecast dates in 16 PDSSs due to NFP considerations (Joint Strike Fighter, Combat Reconnaissance Vehicles, ARH Replacement, Offshore Patrol Boats, Advanced Growler, Peregrine, Heavy Armoured Capability, MQ-4C Triton, IE Logistics Support Helicopter, SRGB Air Defence, JORN Mid-Life Upgrade, Battlefield Command System, Maritime Comms, Collins Comms and EW, Pacific Patrol Boat Repl, and ANZAC Air Search Radar Repl).

Hunter Class Frigate project did not have an FOC milestone approved by government at 30 June 2024 and Hawkei FOC was in negotiations with contractors as a result of changes resulting from the Defence Strategic Review.

Source: ANAO analysis of Defence’s 2023–24 PDSSs.

2.21 Where Budget Expended is materially 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 material 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 2024

2.22 Figure 2.7 compares each project’s approved budget at initial Second Pass Approval and its approved budget at 30 June 2024. Five projects had variations of $500 million or more (2022–23: five), with the following components:

• Hunter Class Frigate — net increase of $19.7 billion, comprising the government approval for Batch 1 Construction in 2023–24 for the purchase of the first three ships from a total of six.
• Joint Strike Fighter — net increase of $13.7 billion, comprising $10.5 billion for 58 additional aircraft and enabling elements in 2013–14, $2.8 billion for exchange rate variation and $0.4 billion for price indexation.
• ARH Replacement — net increase of $0.7 billion for 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 off set by a $69.1m transfer to Defence Security and Estate Group to fund the Minimum Level of Operational Capability facilities.
• 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 2.7: Approved project budgets at initial Second Pass Approval and at 30 June 2024 ($ million)

Source: ANAO analysis of Defence’s 2023–24 PDSSs.

2.23 The total budget for the 21 MPR projects at 30 June 2024 was $81.0 billion, a net increase of $40.9 billion when compared with the approved budget at initial Second Pass Approval of $40.1 billion.

2.24 A summary of budget variations is at Table S.4 (see page 19), and a more detailed analysis of these budget variations is included in Table 2.1.

Budget performance

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

• in-year budget variations by project (see Table 2.2); and
• expenditure forecasting performance against actual expenditure for 2023–24 (see Figure 2.8 on page 67).

In-year budget variance analysis

2.26 Table 2.2 sets out the in-year budget variations for each project. Overall, the approved budget for the selected projects at 30 June 2024 increased by $19,930.1 million (32.6 per cent increase) compared with their approved budget at 30 June 2023. This was driven by a net real increase of $19,098.4 million and exchange rate variation of $831.7 million.

2.27 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.¹⁵⁴ Budget adjustments aim to maintain the relative buying power of the project budget.

2.28 The five projects with larger movements in foreign exchange in 2023–24 were:

• Combat Reconnaissance Vehicles — increase of $117.4 million, or 2.1 per cent;
• ARH Replacement — increase of $94.5 million, or 2.5 per cent;
• Advanced Growler — increase of $91.2 million, or 2.8 per cent;
• Heavy Armoured Capability — increase of $76.6 million, or 3.4 per cent; and
• IE Logistics Support Helicopter — increase of $62.0 million, or 4.2 per cent.

2.29 Real Variations¹⁵⁵ primarily reflect changes in the scope of projects, transfers between projects for approved equipment/capability and budgetary adjustments such as administrative savings decisions. The two projects with material Real Variations in 2023–24 were:

• Hunter Class Frigate — $19,680.6 million for Second Pass Approval of Batch 1 Construction for the first of three ships; and
• Overlander — a reduction of $536.9 million for the transfer of funding the remaining capability to LAND 121 Phase 5B.

Table 2.2: In-year (2023–24) budget variations by project

Note a: ARH Replacement and IE Logistics Support Helicopter were not reported in the MPR for 2022–23.

Source: ANAO analysis of Defence’s 2022–23 and 2023–24 PDSSs, and Defence records in relation to 2022–23 data for ARH Replacement and IE Logistics Support Helicopter.

In-year forecast and actual expenditure

2.30 Accurately forecasting and managing budget expenditure is a key element in the management of a portfolio of projects. Figure 2.8 sets out the key expenditure forecasting performance of each project against actual expenditure in 2023–24, on a dollar basis. Figure 2.9 presents this information as a percentage. Table 2.3 provides further detail on each project’s in-year forecast expenditure performance compared with actual expenditure, in both dollars ($million) and as a percentage.

2.31 In total, actual in-year expenditure for the 21 Major Projects at 30 June 2024 was $4,482.1 million. This is compared against an initial Portfolio Budget Statements (PBS) forecast expenditure of $5,658.9 million, a mid-year Portfolio Additional Estimates Statements (PAES) forecast of $5,174.1million, and a final forecast of $4,754.5 million (Final Plan, approved at June 2024).

2.32 The PDSSs report that the significant variances outlined in Figure 2.8, Figure 2.9 and Table 2.3 reflect the developments listed below.

• Hunter Class Frigates (expenditure of $1,068.2 million compared with $779.6 million PBS, $1,190.5 million PAES and $1,062.8 million Final Plan estimates) — the increase from the PBS budget is due to additional Head Contract requirements relating to the Schedule Protection Blocks; increase in forecasted FMS disbursements; increase in Towed Array Sonar expenditure for long lead-time items to meet schedule; and increase in foreign exchange adjustments.
• Joint Strike Fighter (expenditure of $577.7 million compared with $870.0 million PBS, $563.5 million PAES and $566.6 million Final Plan estimates) — the reduction from the PBS budget is attributed to the Air Force approved acceleration of the planned Air Vehicle procurement program in 2022–2023, which drove a corresponding decrease in 2023–2024. Other reductions in budget costs resulted from weapons/equipment delivery delays, Memorandum of Understanding administration and components being transferred to sustainment, and reduction in spares costs.
• Combat Reconnaissance Vehicles (expenditure of $369.3 million compared with $812.3 million PBS, $612.5 million PAES and $492.9 million Final Plan estimates) — the decrease from the PBS budget is primarily due to a combination of production and manufacturing delays in Europe, the impact of COVID-19 on supply chains in both Europe and Australia, and foreign exchange movements. The delays have resulted in the rescheduling of contract milestones, including integration activities, and deliveries for equipment and spares. The underspend against the PAES and Final Plan budget is reported as reflecting delays to prime contract milestones, delivery of radio equipment, active protection system development, remote weapon station design, testing and development and other contract delays.
• ARH Replacement (expenditure of $254.5 million compared with $285.1 million PBS, $114.5 million PAES and $160.1 million Final Plan estimates) — the decrease from the PBS budget to PAES is due to the request triggered by the Defence Strategic Review to move money into the outer years. The overspend from the PAES budget to actual expenditure is primarily due to higher than projected FMS expenditure due to the maturity and visibility of expected expenditure within the FMS case.
• Offshore Patrol Vessel (OPV) (expenditure of $218.2 million compared with $413.8 million PBS, $418.8 million PAES and $289.0 million Final Plan estimates) — the decrease from the PAES to final plan is primarily due to ships construction delay relating to OPV 1 and OPV 2 acceptance and delay in delivery of the Support System.
• Heavy Armoured Capability (expenditure of $629.8 million compared with $970.8 million PBS, $629.2 million PAES and $580.0 million Final Plan) — the decrease from PBS budget is attributed to a change in FMS disbursements and re-programming forward estimates while the overspend from the estimate final plan is primarily due to the timing of disbursements relating to the FMS projects with the United States Government and the bringing forward of elements relating to simulation and training.

Figure 2.8: In-year (2023–24) forecast expenditure performance compared with actual expenditure ($m)

Source: ANAO analysis of Defence’s 2023–24 PDSSs and Defence Portfolio Budget Statements.

Figure 2.9: In-year (2023–24) forecast expenditure performance compared with actual expenditure (%)

Source: ANAO analysis of Defence’s 2023–24 PDSSs and Defence Portfolio Budget Statements.

Table 2.3: In-year (2023–24) forecast expenditure performance compared with actual expenditure ($million and %)^a

Note a: A negative figure represents an underspend.

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

Stop payments and liquidated damages

2.33 In 2023–24, two projects enforced stop payments and one received liquidated damages. These were:

• Offshore Patrol Vessel — enforced stop payments due to the late delivery of the support system for the Offshore Patrol Vessels;
• Hawkei — received liquidated damages through the provisions of the contract through goods and services in kind, reductions to milestone payments and a credit note; and
• Battlefield Command System — enforced stop payments due to an inability to achieve system acceptance.

2.34 Terms used by Defence in the PDSSs to reference stop payments or liquidated damages were:

• stop payments or suspension of payments; and
• liquidated damages or compensation.

Schedule performance

2.35 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.

2.36 As discussed in paragraphs 25 and 61, in 2023–24, 18 of the 21 Major Projects (85.7 per cent) either did not disclose an FOC forecast date in their PDSS (16 projects) or did not have a settled FOC date (two projects).¹⁵⁶

2.37 As discussed in paragraph 2.6, the ANAO is in a position to publish aggregate analysis 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 (also see paragraph 25 and Table S.7). At 30 June 2024, the aggregate schedule performance for the 21 Major Projects were (also see paragraph 63).

• Total schedule slippage was 442 months when compared to the initial schedule (2022–23: 453 months). This represents a 21 per cent increase since Second Pass Approval.
• Average schedule slippage per project was 25 months (2022–23: 25 months), representing a six per cent increase since Second Pass Approval.
• In-year schedule slippage totalled 96 months (2022–23: 101 months), representing a four per cent increase since Second Pass Approval, and a decrease of five months from the prior year.

2.38 Historical Defence data, presented from paragraphs 2.39 to 2.55 (see paragraph 63 for summary analysis), 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.¹⁵⁷

Schedule slippage and acquisition category by approval date

2.39 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.^{158 159}

2.40 Defence grades projects into one of four (ACAT) acquisition categories.¹⁶⁰

• ACAT I projects are major capital acquisitions in the Integrated Investment Program that are Defence’s most strategically significant. They are characterised by very high project and schedule management complexity and very high levels of technical difficulty, operating, support and commercial arrangements.
• ACAT II projects are major capital acquisitions in the Integrated Investment Program that are strategically significant to Defence. They are normally characterised by high levels of complexity in several of the following categories: project and schedule management complexity, technical difficulty, operating, support arrangements and commercial arrangements.
• ACAT III projects are major or minor capital equipment acquisitions that have a moderate strategic significance to Defence. They are normally characterised by moderate levels of complexity in several of the following categories: project and schedule management complexity, technical difficulty, operating, support arrangements and commercial arrangements.
• ACAT IV projects are major or minor capital equipment acquisitions that have a lower level of strategic significance to Defence. They are normally characterised by low levels of complexity in several of the following categories: project and schedule management complexity, technical difficulty, operating, support arrangements and commercial arrangements.

ANAO analysis based on acquisition category level

2.41 Table 2.4 provides information on the ACAT level of all 61 Major Projects included in the MPR since its inception, and the year of approval (generally Second Pass) for each Major Project. In summary:

• ACAT I — 14 projects (23 per cent);
• ACAT II — 33 projects (54 per cent);
• ACAT III — 13 projects (21 per cent); and
• ACAT IV — 1 project (2 per cent).

Table 2.4: Project year of approval and acquisition category

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

2.42 Figure 2.10 illustrates the proportion of ACAT I to IV projects over time and indicates a continuing trend towards the approval of more complex projects at the ACAT I and II levels since 2013.

2.43 Of the 24 Major Projects, which have received government approval since 2013:

• ACAT I — 7 projects (29 per cent);
• ACAT II — 15 projects (63 per cent);
• ACAT III — 2 projects (8 per cent); and
• ACAT IV — Nil projects.

Figure 2.10: Categorisation (ACAT) type and year of approval^a

Note a: 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)

2.44 Figure 2.11 illustrates total schedule slippage¹⁶¹ since Second Pass Approval for the Major Projects (ACAT I), which published FOC forecast information in 2023–24.¹⁶² There are no ACAT II projects with a published FOC forecast date in 2023–24.

2.45 Figure 2.12 illustrates total schedule slippage, up to 2020–21, for the Major Projects (ACAT I or ACAT II), which did not publish FOC forecast information in 2023–24 or 2022–23. IE Logistics Support Helicopter did not publish an FOC forecast in 2023–24 and is not included in this analysis as it is an ACAT III project.

2.46 Figure 2.11 and Figure 2.12 also group projects by acquisition category and place projects in order of government approval within their category.

2.47 Current MPR projects showing material slippage tend to be developmental in nature, including MQ-4C Triton, and CMATS.

2.48 Figure 2.12 indicates that one complex (ACAT I or ACAT II) project with significant development or design activities —SRGB Air Defence — is yet to experience slippage to their FOC date. This project has experienced slippage to design reviews, test programs, or materiel release milestones.

• 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 2.11: Current Major Projects (which have included an FOC date in their PDSS) — total slippage post Second Pass approval (years)^a

Note a: The order of the projects in each ACAT level is from latest to earliest approved. All project slippage relates to FOC dates. Project data is prepared based on the current final milestone to be declared, which is not FOC.

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

Figure 2.12: Current Major Projects (which have not included an FOC date in their PDSS) — total slippage post Second Pass approval (years)^{a b c d}

Note a: The order of the projects is from latest to earliest ACAT approval. All project slippage relates to the latest FOC dates disclosed in the MPR.

Note b: In 2023-24 Defence did not publish FOC dates for Joint Strike Fighter, Combat Reconnaissance Vehicles, ARH Replacement, Offshore Patrol Boats, Advanced Growler, Peregrine, Heavy Armoured Capability, MQ-4C Triton, IE Logistics Support Helicopter, SRGB Air Defence, JORN Mid-Life Upgrade, Battlefield Command System, Maritime Comms, Collins Comms and EW, Pacific Patrol Boat Repl, and ANZAC Air Search Radar Repl.

Note c: Hunter Class Frigate is excluded from this analysis as its FOC milestones was yet to be approved by Government at 30 June 2024 and Hawkei FOC is reported as TBA.

Note d: The Battlefield Command System (LAND200 Tranche 2) was excluded from the 2022–23 Major Projects Report analysis due to the Auditor-General’s Qualified Conclusion. See paragraphs 2.8 to 2.9 and the Independent Assurance Report in Part 3 of that report.

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

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

2.49 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.

2.50 Some information is not reported this year due to the non-publication of FOC forecast information by Defence in certain PDSSs. As discussed in paragraph 2.36, in 2023–24, 18 of the 21 projects (85.7 per cent) either did not disclose the FOC forecast date in their PDSS (16 projects) or did not have a settled FOC date (two projects).¹⁶³

2.51 Figure 2.13 presents information on the original and 30 June 2024 forecasts for achieving FOC, for the three projects, which have published FOC forecast information.

2.52 Figure 2.14 presents information on the original forecasts for achieving FOC, for 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 2024. There is no entry for ARH Helicopters, Advanced Growler or IE Logistics Support Helicopter as Defence has not published the original FOC forecast dates.

Figure 2.13: Original and 30 June 2024 Final Operational Capability (FOC) forecasts (for projects which have included FOC forecast dates in their PDSS)

Source: ANAO analysis of the 2023–24 PDSSs.

Figure 2.14: Original Final Operational Capability (FOC) forecasts (for projects which have not included FOC forecast dates in their PDSS)^{a b}

Note a: There is no entry for Hunter Class Frigates as this project did not have an FOC milestone approved by government at 30 June 2024.

Note b: There is no entry for ARH Replacement or IE Logistics Support Helicopter (projects which entered the MPR this year) or Advanced Growler (which entered the MPR in 2022–23) as these projects entered the MPR without disclosing an FOC milestone.

Source: ANAO analysis of the 2023–24 PDSSs.

2.53 The ANAO has 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.¹⁶⁴ 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 before exiting the MPR in 2022–23.¹⁶⁵

Performance against schedule

2.54 Further to paragraphs 2.35 to 2.38, the ANAO has undertaken longitudinal analysis of project slippage. Figure 2.15 and Figure 2.16 illustrate 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.

Figure 2.15: Total percentage change in FOC forecast across all MPR projects, by reporting year

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

Figure 2.16: In-year percentage change in FOC forecast across all MPR projects, by reporting year

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

2.55 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

2.56 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.¹⁶⁶ 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.¹⁶⁷

Capability/scope delivery

2.57 The 2023–24 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 or where a project’s materiel capability/scope is amended, and the change represents a reduction (including transfers to other Defence projects or capabilities) in materiel capability/scope.

Blue – where a project’s materiel capability/scope is amended and the change represents an increase (including transfers from other Defence projects or capabilities) of materiel capability/scope.

2.58 Defence did not publish certain information relating to the reasons for the ‘amber’ assessment in the PDSS for the MQ-4C Triton and Peregrine projects. Defence did not publish certain information relating to the reasons for the ‘red’ assessment in the PDSS for the Overlander Medium/Heavy and Hawkei projects. The ANAO’s analysis of capability/scope assessments in PDSSs was not affected by Defence’s decision to not publish this information.

2.59 The PDSSs report that 13 Major Projects¹⁶⁸ will deliver all their key capability/scope requirements without elevated levels of risk to the achievement of requirements (2022–23: nine).

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

2.61 Project offices reported experiencing challenges with expected capability/scope delivery for seven projects (2022–23: 10). These were: Offshore Patrol Vessel, Overlander Medium/Heavy, MQ-4C Triton, Peregrine, Hawkei, Battlefield Command System and Battle Comm. Sys. (Land) 2B.¹⁶⁹

• Five of these projects (Offshore Patrol Vessel, Overlander Medium/Heavy, Hawkei, Battlefield Command System and Battle Comm. Sys. (Land) 2B) report that they are unable to deliver all the required capability/scope.

2.62 Table 2.5 summarises the issues reported by Defence in its PDSSs as impacting the achievement of the expected capability/scope.

Table 2.5: Issues impacting expected materiel capability/scope delivery performance in 2023–24

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

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

Note c: This project does not report quantified capability/scope information in the PDSS as at 30 June 2024. The project has included a narrative describing its current project activities.

Source: Defence Project Data Summary Sheets.

Transfers of project scope

2.63 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.

2.64 The 2023–24 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 PDSS. Examples of these transfers are described in Table 2.6.

2.65 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.¹⁷⁰ These transfers are described in Table 2.6.

Table 2.6: Transfers of scope occurring in the Major Projects as at 30 June 2024

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

Note b: The information presented in this table is from the 2023–24 PDSS.

Source: 2023–24 and previously published Defence PDSSs.

Appendix 1 ANAO performance audits related to the Major Projects

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.

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
• SEA9100 Phase 1 Improved Embarked Logistics Support Helicopter
• 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 Vehicles
• LAND4503 Phase 1 Armed Reconnaissance Helicopter (ARH) Replacement
• AIR555 Phase 1 Airborne Intelligence, Surveillance, Reconnaissance and Electronic Warfare (ISREW) Capability
• AIR2025 Phase 6 Jindalee Operational Radar Network
• AIR5349 Phase 6 Advanced Growler Development
• AIR5431 Phase 3 Civil Military Air Management System
• AIR6000 Phase 2A/2B New Air Combat Capability
• AIR7000 Phase 1B MQ-4C Triton Remotely Piloted Aircraft System
• JNT2072 Phase 2B Battlespace Communications System

The JCPAA 2023–24 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.