Background

Defence's ability to defend Australia and its interests depends, in part, on its ability to recruit sufficient numbers of personnel to the Australian Defence Force (ADF) to enable it to undertake complex military operations. Defence has previously acknowledged that recruiting personnel is one of the most significant challenges it faces, with changing demographics in the Australian workforce presenting substantial problems for successful recruitment.

In 2002–03, the ADF recruited 4322 members to its permanent force, against a target of 5164. In the same period, 3065 members were recruited to the Reserve force, against a target of 3605. For the permanent force, the percentage of the recruitment target achieved for the whole of the ADF improved from 76 to 93 per cent between 1999–2000 and 2001–02, falling to 84 per cent in 2002–03. For the Reserve force, the percentage of the recruitment target achieved increased from 34 to 85 per cent between 1999–2000 and 2002–03.

Following signature of the original outsourcing contract between Defence and Manpower Services (Australia) Pty Ltd (Manpower) in September 2000, two trials of outsourcing the provision of recruiting services to the ADF were conducted in the regions of Victoria, Southern NSW (excluding Sydney) and Tasmania. On 14 November 2002, Defence and Manpower signed the second amendment deed to the contract, providing for Manpower to supply recruiting services to the ADF nationally.

A composite organisation, Defence Force Recruiting (DFR), consisting of personnel from Defence (ADF and Australian Public Service) and Manpower, has been responsible for delivering ADF recruiting services since 1 July 2003. DFR's objectives, as specified by the second amendment deed, are to recruit the right number of people of the right quality at the right time to meet enlistment targets, while reducing the overall cost of recruiting services and ensuring uniform national standards and equality of access to an ADF career by all interested Australians.

As part of its 2001 inquiry into the recruitment and retention of ADF personnel, the Senate Foreign Affairs, Defence and Trade References Committee reviewed Defence's contract with Manpower for trialling the outsourcing of recruiting services to the ADF. In its inquiry, the Committee found that benchmarks against which an evaluation could be conducted were not included in the contract. From this, the Committee concluded that the evaluation regime lacked a pre-determined ‘line in the sand'. In its subsequent report, the Committee commented that the original contractual arrangements with Manpower for the trial left much to be desired and deserved further scrutiny by the Australian National Audit Office (ANAO).

The objective of the audit was to examine Defence's management of the contractual arrangements with Manpower for the provision of recruiting services to the ADF. In examining the management of the contract, the ANAO looked at the roles and responsibilities associated with ADF recruiting, and Defence's monitoring of contractual performance and management of risks associated with ADF recruiting. Manpower itself was not subject to the audit.

Key audit findings

Contract Evaluation

The ANAO examined the evaluations conducted of the two trials of outsourcing the provision of ADF recruiting services. Both of these evaluations were essentially benchmarking exercises.

The ANAO also considered the evaluation provisions of the contract's second amendment deed in the light of the Senate Committee's concerns. The provisions allow for an evaluation, to be
conducted by a professional evaluator, of the performance of DFR in the first three years of the contract. However, as there is no mention of benchmarks to be used in the evaluation, the ANAO considers that the Senate Committee's concerns would not be allayed. The ANAO considers that documented performance against the contract objectives would be an appropriate benchmark to inform the decision on whether Manpower's term is to be extended.

Contract Management

The ANAO found that roles and responsibilities for the delivery of ADF recruitment services are clearly specified in the contract. These are promulgated in Defence Instruction (General) Personnel 29–1 Defence Force Recruiting. DFR's organisational structure includes a Board of Management, intended to assist with the management and administration of DFR at a strategic level, and an Organisational Management Group, intended to advise on the management and administration of DFR at an operational level.

A cell in DFR manages the contract. The ANAO found that not all of the processes used by this cell for day-to-day management of the contract were adequately documented. Documentation of processes is under way but this is likely to be slow due to resource constraints.

A management information system has been developed by the contract administration cell to be used in managing and monitoring performance under the contract. This should prove to be useful in managing the contract and in monitoring Manpower's contractual compliance.

Monitoring Contract Performance

The ANAO found that DFR has put in place adequate processes to monitor performance under, and compliance with, the second amendment deed. These issues are regularly reported to the Board of Management and Operational Management Group.

The ANAO considers that the key performance indicators established in the contract are measurable and provide a focus on elements which are key to the achievement of the DFR mission, which is ‘to recruit the right people to sustain and enhance Defence capability.'

DFR also has measures in place to gain feedback on the recruiting process from those who have, and have not, been successful in their attempt to join the ADF. The level of satisfaction with the ADF recruiting process is measured by the ADF Entrant Opinion Survey, which is completed by new recruits to the permanent and Reserve forces on their appointment or enlistment day. Two
reports based on the analysis of responses have been completed. These reports indicate which aspects of the recruiting process successful applicants are satisfied with and which areas DFR may need to refine.

In addition, Air Force administers a series of questionnaires seeking opinions on the recruiting process. Following discussions between the Directorate of Strategic Personnel Planning and Research and Air Force, it has been agreed that they will work together on aligning or combining the Air Force questionnaires and the ADF Entrant Opinion Survey to avoid unnecessary duplication of resources.

Complaints about the recruiting process are centrally monitored to allow for the identification of trends.

Risk Management

The ANAO found that a risk management approach is apparent in Defence's approach to ADF recruiting, although this is not always evident in formal documentation. Steps are being undertaken in DFR to address this issue, and to update the risk management plan. The ANAO notes that Manpower is yet to meet its contractual requirement to provide a Risk Management Plan.

The DFR Risk Management Plan will be passed to the Operational Management Group for approval and ongoing management. High-level consideration is given to the issue of risk through regular consideration by the Board of Management.

Overall audit conclusion

Overall, the ANAO found Defence's contractual arrangements with Manpower for the provision of recruiting services to be sound. Over the course of the audit, the ANAO observed many areas of contract management, such as the reporting and monitoring of contract performance, to be in accordance with better practice. In other areas, DFR showed a willingness to implement suggested measures, subject to time and resource constraints. The ANAO also noted DFR exhibited an awareness for continuous improvement to identify and treat practices that affect recruiting outcomes.

The ANAO considers, however, that the arrangements for an evaluation of performance under the second amendment deed would be insufficient to meet the Senate Committee's concerns about the need for benchmarks or evaluation criteria to inform the decision on whether Manpower's term is to be extended. Defence has advised that it has commenced benchmarking recruiting finances and performance for the two years prior to national rollout, that is, 2001–02 and 2002–03. The results of the benchmarking exercise will be used in assessing the ongoing performance of the outsourced recruiting function, as well as assisting in the evaluation of the first three years of the contract term. Defence will capture recruiting data on a monthly basis to use in assessing Manpower's performance in providing ADF recruiting services.

Defence has further advised that a ‘line in the sand' will have to be agreed by Manpower to enable the full comparison of recruiting activity to be evaluated. It is Defence's intention to have the benchmark and evaluation criteria in place by end November 2003.

Recommendations

The ANAO made two recommendations, both of which Defence agreed to. Defence's response to the recommendations is reproduced in full in the report.

Recommendation No. 1: The ANAO recommends that, as a matter of priority, Defence complete the documentation of performance against the Australian Defence Force recruitment contract objectives, specified in the second amendment deed, for use in evaluating the performance of Defence Force Recruiting.

Recommendation No. 2: The ANAO recommends that Defence Force Recruiting continue to document the processes utilised in the management of the contract and establish a firm timetable for the completion of this task.

Response to the report

The proposed report was issued to Defence and Manpower. Manpower had no comments on the proposed report. Defence advised the ANAO of its response to the audit as follows:

Defence took the opportunity to work with the auditors at this early stage of the outsourced delivery of ADF recruiting services to focus on areas of the contractual arrangements between Defence and Manpower that could be improved. Defence agrees with the ANAO recommendations that Defence continue to develop performance measures and processes for evaluating the contract with Manpower. Defence Force Recruiting is currently developing benchmarks and criteria to do so and will take them to the ANAO for comment in November 2003. Defence appreciates the ANAO's overall conclusion that Defence's contractual arrangements with Manpower for the provision of recruiting services are sound.