- The Strategist - https://www.aspistrategist.org.au -

Smart buyer: just saying it doesn’t make it so

Posted By on May 24, 2017 @ 13:30

A key metric for the delivery of the 2016 Integrated Investment Plan [1] is the approval of defence procurement projects. However, after years of uninterrupted transparency, the government has stopped disclosing what it approves.

While that could be taken as a sign that things aren’t going well, that’s probably not the case. As best as I can tell, although approvals look to be running somewhat behind schedule, it’s not by much. If anything, the recent pace of project approvals has matched or exceeded historical rates. I had anticipated that the disruption wrought by the First Principles Review [2] reforms would result in severe delays. I was wrong.

What I failed to appreciate, but now understand, is that the reforms to capability development were just a dismantling of the Kinnaird reforms of 2004 [3]. Acquisition and sustainment are now back within Defence, internal contestability has been re-established, Finance gets its seat back at Defence’s capability committee, and the detailed paperwork introduced under the Kinnaird reforms has been pared back substantially. Everything old is new again. We’ve even gone back to the old 1990s ‘buy Australian’ policy.

The only major structural change that was genuinely new was the dismantling of Capability Development Group (CDG)—capability development was a consolidated entity at least as far back as the early 1990s. But breaking up CDG was dumb because economies of scale and scope have been lost.

Of course, we now have the ‘smart buyer’ approach, which tailors acquisition strategies to the demands of specific projects. The recent decision to sole-source the Ground Based Air Defence (GBAD) project following a request for information, rather than going to a competitive tender, is an oft-cited example. But acquisition strategies have always been tailored to the problem at hand, and sole-source acquisitions have been commonplace for as long as defence has been buying kit.

For example, a haunting parallel of the recent GBAD decision can be found in the October 1999 decision [4] to sole-source the MU90 lightweight torpedo, truncating the approval process following a request for proposal. Despite the immaturity of the product, and the challenge of integrating the European torpedo onto multiple US designed platforms, Defence thought they knew enough to make the call. It probably didn’t hurt that—like the successful GBAD proposal—the project came with a juicy local-content package.

After languishing on the projects of concern list, the MU90 achieved final operational capability in September 2013 [5], one month shy of 14 years after the decision to sole-source. And, as the ANAO observed [6], the project experienced a real cost increase that was only accommodated by reducing the number of platforms onto which the torpedo was integrated. As a result, the ADF now has two types of light-weight torpedoes in inventory—with all the duplication of costs that entails.

Now, consider the Air Warfare Destroyer project [7]. The design phase began with a bespoke ‘baby-Bourke’ as the preferred design. Even Blind Freddy knew that the Navantia F-100 was a stalking horse that had only been included because of the Kinnaird rule that mandated an off-the-shelf option. But once the analysis was complete, it became clear that a properly informed analysis of cost, risk and capability favoured the Spanish design. Given the multiple schedule delays and cost blow out experienced with the less-ambitious F-100, imagine where we would be now if we’d truncated the process and sole-sourced the US design. The lesson is that you don’t know what you don’t know.

We shouldn’t fool ourselves about the revised approach. There’s no magic formula to allow essentially the same group of people to make better decisions in less time and with less information. We’ve gone back to the sort of approach that spawned such memorable favorites as JORN, FFG Upgrade, Super Seasprite, HF Modernisation and, yes, Collins.

It’s delusional to think we’ve moved to a new process that’s better in every way than the old one. The world isn’t like that; everything involves tradeoffs. Although some unnecessary work has surely been eliminated, the more crucial factor is that we’ve adopted a different tradeoff between time and risk. Under the Kinnaird system we expended time to reduce risk. Now we accept greater risks to save time.

Those observations aren’t made as criticisms; our current strategic situation justifies an elevated tolerance of procurement risk. I endorse the revised approach. But if that’s what we’re going to do, we need to recognise it and adjust accordingly. Most importantly, we need to marshal sufficient resources to manage the risks we’re shouldering.

Given the massive scale and manifest risk of the planned program, we could devote substantial additional resources to its management and be confident of a positive return on investment. The danger is that recent reforms to Defence have stripped away program management capacity just when the opposite should be happening. With billions of dollars and the strength of the ADF on the line, now is not the time to be penny wise and pound foolish.



Article printed from The Strategist: https://www.aspistrategist.org.au

URL to article: https://www.aspistrategist.org.au/smart-buyer-just-saying-doesnt-make-true/

URLs in this post:

[1] 2016 Integrated Investment Plan: http://www.defence.gov.au/whitepaper/Docs/2016-Defence-Integrated-Investment-Program.pdf

[2] First Principles Review: http://www.defence.gov.au/Publications/Reviews/Firstprinciples/

[3] Kinnaird reforms of 2004: http://www.defence.gov.au/publications/dpr180903.pdf

[4] October 1999 decision: https://www.anao.gov.au/sites/g/files/net2766/f/ANAO_Report_2009-2010_37.pdf

[5] final operational capability in September 2013: http://www.defence.gov.au/annualreports/13-14/dar_1314_v1.pdf

[6] ANAO observed: https://www.anao.gov.au/sites/g/files/net2766/f/201213%20Audit%20Report%20No%2026.pdf

[7] Air Warfare Destroyer project: https://www.anao.gov.au/work/performance-audit/air-warfare-destroyer-program

Copyright © 2016 The Strategist. All rights reserved.