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The demise of the DMO: an industry view

Posted By on April 24, 2015 @ 13:49

[1]The First Principles Review of Defence called for abolition of the Capability Development Group (CDG) and Defence Materiel Organisation (DMO). The review recommended a new oversight structure for Defence capital equipment procurement and sustainment, but lacked a clear blueprint for how the new arrangements would work. To what extent this will impact on the defence industry is unclear.

Priorities for the new procurement stream must include delivering capability on time and on budget, early and regular industry consultation, application of proven commercial practices and further streamlining. Agility is the key to future procurement success.

There are examples of the current procurement system working effectively. However, many reviews of Defence over the past 20 years have highlighted that this is not always the case. The Projects of Concern list affirms this.

The Projects of Concern list initially included more than 20 projects which had either been delayed, had proceeded well over budget or a combination of both. A number of the projects were of a complex development type, involving considerable risk, such as Wedgetail, which is now operating successfully in the Middle East. Other projects were poorly executed (eg FFG modernisation). These ships are now operating effectively in RAN service, including along the African coast against pirates. However, the Seasprite debacle confirmed the fraught nature of incorporating advanced technologies into platforms designed in the 1960s.

The list is now down to just a handful, to the credit of both defence industry and the DMO. Remediation of projects on the list has provided valuable lessons for current and future capability acquisition. There’s a strong incentive for industry and departmental project office players to stay off the list.

Early and regular consultation with industry on planned capability acquisitions is essential. Various mechanisms have been tried, but not always successfully. An exception was the regular defence industry CEOs roundtable held by the head of the DMO; they’ve proven to be valuable.

The time to reach contract has long been a bug-bear to defence industry. Defence Capability Plans have foreshadowed the likely timing of the release of Requests for Tenders, with reasonable indications of successive governments’ planned introduction of individual capabilities into military service. On occasions, these plans haven’t come to fruition, with extensive delays in release of tenders a common phenomenon.

An added industry frustration has been the practice of extensive, unnecessarily time-consuming contract negotiations. Commercial acquisition experiences— the domain of most defence contractors—aren’t often duplicated in defence procurement. This shouldn’t be the case, as many projects are relatively straight forward. As Peever observes, agility is paramount.

Tender documents are often far too lengthy. As the Chief of Air Force recently drew attention to in relation to Project Air 5428–Pilot Training System, the tender document is more than 3,000 pages long, and is difficult to understand. His Singaporean counterpart had recently advised that a similar tender in his country amounted to less than 50 pages.

Some of the clauses in tender documentation, such as Unlimited Liability, are an anathema to companies. Can anyone applying a common-sense test appreciate the absurdity of asking an SME to accept such a clause? Others, such as improvements to insurance clauses, have been substantially improved in recent years.

For those of us who experience monopoly behaviour at airports, it’s the case that defence industry feels that it observes similar traits in dealing with a Defence monopsony. It’s hoped that the recommendations of the Peever Review, if fully implemented, will overcome this burden. Defence industry will be watching closely.



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