Background

In 1998, Defence awarded Initial Design Activity contracts, valued at $A 8.48 million each, to the leading tenderers for Defence's ‘Wedgetail' Airborne Early Warning and Control (AEW&C) project. In July 1999, the then Minister for Defence announced that The Boeing Company (Boeing) was the preferred tenderer for the project. It was envisaged at the time that the first of seven aircraft would be delivered in 2004-05 with a total cost of the project estimated to be over $2 billion.

In December 2000, the contract was awarded to Boeing. The Wedgetail project has an approved budget of $A 3.43 billion as at December 2003.¹ It is to provide the Australian Defence Force (ADF) with an AEW&C capability based on four Boeing 737 AEW&C aircraft and associated supplies and logistic support. The Airborne Surveillance and Control Division of the Defence Materiel Organisation (DMO) manages the Wedgetail project.² By November 2003, Defence had spent $A 1.107 billion on the project.

The AEW&C mission will be to conduct surveillance, air defence, fleet support and force coordination operations in defence of Australian sovereignty and other national interests. When required, the AEW&C capability will support civil or military operations through law enforcement, regional cooperation and peacekeeping.

At the time of the audit, the Wedgetail project was in its acquisition phase. The AEW&C systems were undergoing varying stages of design, development, integration and test. Development of the principal component of the system, the Boeing 737 AEW&C Airborne Mission Segment, involves extensive integration of advanced radar, communications and self-protection systems, and major structural and systems modifications to the 737-700 airframe, avionics and engines. The 737 AEW&C aircraft are valued at some five times the cost of the unmodified 737 aircraft.

The Wedgetail project has attracted wide interest in terms of its systems development and management. Defence's management of the project is seen to benefit from lessons learnt in other major Defence projects, including the Jindalee Operational Radar Network (JORN) project and the Collins submarine project. It is also seen as a ‘model' for future DMO projects.

Audit Approach

The audit objective was to assess the adequacy of DMO's management of the AEW&C acquisition, post December 2000 contract signature. The audit examined the project from the project management perspective, including the link between the requirements, acquisition and in¬service support phases. The audit did not examine the processes giving rise to the terms of the contract and the Government's approval. Nor did it examine the project's management of the AEW&C Australian–US Government¬to-Government contracts,³ or the project's infrastructure components managed by Defence Corporate Services and Infrastructure Group.

Audit conclusion

Since the mid-1990s, Defence has effectively managed the AEW&C requirements phase and the links to the acquisition phase. Even though much of that work pre¬dated Defence's post-1990s acquisition reforms, in essence it satisfies the acquisition phase requirements of the most recent defence capability development process, namely, the capability systems life-cycle management process. The ANAO found that this substantial body of work provides the project's acquisition personnel with a vital foundation of capability requirements analysis, effective contracting strategies, and project management strategies and processes.

Conclusive evidence as to how effectively Defence has performed its Wedgetail acquisition management responsibilities will be some years off given that, at the time of the audit, the AEW&C systems were still in their early development phase, with first system integration scheduled for late 2005.

However, we note that the Wedgetail project team has implemented organisational designs, strategies and management processes, which remain appropriate for this advanced technology project. The ANAO found that the progress measurement system indicates the contractors are on track to effectively meet required outcomes, within an ambitious development schedule. The ANAO plans to include a follow-up audit of the Wedgetail acquisition project in the 2005–06 audit work program.

At the time of the audit field work, the ANAO found the key factors contributing to successful management of this complex project include:

• a carefully developed and effectively implemented project management method, coupled with effectively tailored systems engineering processes. These enable sufficient data to be available for effective management of the project, and ensure that process tailoring continues as needed;
• extensive initial design and risk management processes that sought to define and reduce project risks as far as possible before acquisition contract signature. This included a requirements definition process that, in discrete and successively detailed stages, refined the acquisition contract's statement of work and the Wedgetail system's function and performance specifications;
• well-developed and competently implemented design approval and acceptance strategy and engineering management systems, that comply with the ADF's technical regulations;
• a comprehensive test and evaluation strategy and organisational structure, designed to demonstrate the system's operational integrity;
• appropriate logistics support strategies aimed at achieving compliance with the ADF's technical regulations in terms of providing assurance concerning the AEW&C system's continued technical and operational integrity;
• effective incremental build processes, and computing system development measurements, capable of detecting early deviations from planned progress and then informing management at all levels. The measurements form an integral part of the project's risk and issues management systems, rather than simply satisfying progress reporting requirements; and
• comprehensive risk and issues management systems that remain actively engaged with project management and systems engineering processes, as well as with contingency fund management.

The ANAO made six recommendations. Two are specific to the Wedgetail project, which aim to assist the project to sustain its management achievements. The remaining four are relevant to DMO's reform program. These aim to assist other DMO projects to benefit from the management innovations used by the Wedgetail project.

Defence's response

Defence agreed with all six recommendations. Defence advised the ANAO of its response to the audit as follows:

Defence agrees with the structure, content and findings of the report.

The report correctly concludes that the Wedgetail project is being managed effectively and efficiently, and is employing a comprehensive risk management approach. Defence agrees with the audit finding that, while conclusive evidence of the effectiveness of the acquisition approach will only be available when the system meets its delivery milestones in late 2006, the Wedgetail team has implemented appropriate organisational designs, strategies and management processes for this advanced technology project.

The DMO reform program aims to ensure that all projects are managed effectively, and that they learn from the experiences of others. Consequently, I welcome the recommendations in the report which aim to assist other projects to benefit from the management innovations used by the Wedgetail project; Defence agrees all the recommendations and has, indeed, commenced their implementation.

Footnotes

2 Defence's AEW&C project is also referred to as ‘AIR 5077 - Airborne Early Warning and Control', ‘Project Wedgetail' or ‘the Wedgetail project'. This project will produce the first Boeing 737-based AEW&C aircraft.

3 Foreign Military Sales contracts.