Two recent articles on Defence acquisition one here by my colleague Mark Thomson and another in the AFR here by John Kerin quoting Warren King caused me to reflect on the long journey Defence has already travelled in the pursuit of acquisition reform and the enormous challenge it still faces as it stands up the new Capability and Sustainment Group (CASG) and implements the ‘Smart Buyer’ initiative.
The RAND Study into the lessons learnt from submarine programs in the UK, US and Australia observed (and later reiterated by the Parliamentary Review into Defence Capital Projects), that ‘…technical risks must be identified early, and much thought must be given to deciding, with industry (emphasis added), the appropriate form of the contract and the incentive and risk sharing clauses built into the contract. Getting this wrong can almost guarantee problems with the conduct of the program and the relationships between the government and the contractor.’
These issues aren’t new. Paul Rizzo identified the need for technical skills in his review of naval engineering. John Coles highlighted (PDF) in his Review the need for knowledgeable buyers to ensure program success. The ‘Smart Buyer’ function recommended by the First Principles Review (FPR) is clearly in response to these warnings but again the gap between the recommendation and implementation is as wide as ever. The re-occurring problem has been the Commonwealth’s ability to work with industry to achieve a capability outcome with some degree of consistency and confidence.
A well-run parallel bidding process as planned for the future submarine project certainly offers part of the solution. It should result in a refined solution, improved value for money as all parties refine and reduce risk and, most importantly, an improved capability outcome. Collaboration and transparency will be the key attributes of success but these can only be empowered by knowledgeable buyers and sellers.
Regardless of how successful the parallel bidding process is, the next phase—parallel negotiation—presents a real challenge if the well-informed buyer is missing.
Acquisition folklore tells us that parallel negotiation is the only true path to acquisition salvation. A process in which continued competitive tension improves schedule, price and process. Good process is rewarded with a good outcome, which is defined in terms of schedule and price.
The alternative view is that parallel negotiations increases the cost of bidding for both the Commonwealth, which needs to buy-in an evaluation team, and the bidders because of the time taken and the size of the team necessary to respond several more times over the length of the negotiations process. What’s not spoken of is that this approach also enables an ill-informed buyer to hide behind a process which is invariably run by a team of earnest but constrained individuals with no guarantee of a better outcome for taxpayers or for the capability users. It may be ‘safe’ because it has a ‘defensible’ audit trail, but there’s no level of assurance that the final outcome will deliver good capability in a timely or cost-effective manner.
In recent years the DMO has been the customer and the user’s representative; the FPR suggests nothing different. This has resulted in capability managers being excluded from the acquisition process. An example of this was in 2007 in the early stages of JP 2072—the battlefield communications project. Prior to the contract being terminated by the DMO, an Independent Review concluded that the initial schedule delay was in part the responsibility of the Commonwealth because of confusion around requirements and access to the end users. This was after 18 months of parallel negotiations and due diligence. Instead of the contract being a framework for the successful delivery of the capability it became a tool for contract termination. It took another 7 years for JP 2072 to be retendered and renegotiated at considerable cost to both industry and the Commonwealth.
The capability managers must be more than just sponsors of the capability life cycle as the FPR suggests. They must be accountable for and lead in the knowledge of their business and the capability outcomes required throughout the process, not just in the requirements phase. This is not a role for desk officers.
Once government approval has been given there is a critical role for the senior leadership team throughout the acquisition process. The leadership team needs to understand operational risk and the level of compromise they are willing to bear in capability outcomes. This is an important and explicit authority that has been missing in the acquisitions process.
While the FPR focused considerable effort on the revised two pass process and structural issues, at the end of the day a successful capability process has at its core three players: industry, the capability managers and CASG. If these players perform their roles correctly, capability should be delivered on time and on budget.
As CASG comes into being there are couple of points worth considering:
Firstly, CASG needs to put aside the fear that any imbalance in their relationship with industry leads inevitably to a price/profit advantage to industry.
Secondly, the role and authority of the capability managers remains unclear in the FPR and requires clarification. Red cards abound but this is focused on giving Government comfort during the approval process—it doesn’t recognise where budget and delivery fails.
Finally, CASG’s ability to ‘make strategic decisions regarding the most appropriate procurement and contracting methodologies’ can only be achieved with the continued involved and authority of knowledgeable and engaged capability managers. Without their involvement, one or more of the three legs of successful capability acquisition, capability outcome, schedule or price, will fail.