The swings and roundabout of defence reform
12 Sep 2012| and

Roundabout funOn Monday we promised to provide some suggestions for implementing the recent 364-page report from the Senate Foreign Affairs Defence and Trade Reference Committee on ‘Procurement procedures for Defence capital projects’. Today we’ll discuss one of the most radical of its 28 separate recommendations: to transfer accountability for all procurement and sustainment of defence materiel to the service chiefs following second pass approval. Under the proposed model, the service chiefs ‘would be the sole client with the contracted suppliers’ and have control over the associated budgets, with Defence Material Organisation’s (DMO’s) role ‘limited to tendering, contracting and project management specialities’.

For long-time observers of Australian defence administration, there’s a ‘back to future’ feel about the proposed new arrangement. Indeed, there were times in the past when the service chiefs had much greater control of both sustainment and procurement. One has to ask; are current arrangements a failed experiment? If so, it seems reasonable to conclude that it wasn’t a good idea to centralise procurement and sustainment into what we know as the DMO.

But it’s not as simple as that. There is no perfect organisational solution to be found—whatever you do is a compromise between competing factors. The current arrangement consolidates hard-to-find sustainment and procurement expertise, but disempowers the service chiefs, who are the ultimate customers. The proposed new arrangement empowers the service chiefs, but at the cost of dispersing scare expertise. There are advantages and disadvantages either way. The danger is that we end up oscillating between the two suboptimal arrangements in a fruitless attempt to find a simple organisational solution to a complex management problem.

Be that as it may, the Committee’s proposal deserves to be considered on its merits. The trouble is that it’s not entirely clear what’s envisaged in key aspects. Here are some points that need to be clarified before any implementation should be considered.

First, what happens to sustainment? While most of the report is focused on procurement, its recommendations sweep up DMO’s sustainment function as well. So what about the several thousand personnel currently employed by DMO on sustainment? Will they now come under the management of the services? Who will be responsible for negotiating through-life-support contracts? Will the economy of scale of having those skills within one management chain be lost?

Second, what’s gained by having the service chiefs control acquisition budgets? A good case can be made for having the services control their sustainment budgets—so that they have the freedom to efficiently manage the delivery of capabilities. But it’s hard to see why they are in a better position than DMO to make financial decisions about acquisition projects, especially given the cross-service (‘joint’) aspects of many of them. Unlike the fungible nature of sustainment funds, project funds can only be used for the project they are approved for.

Third, how will the seconding of DMO acquisition personnel work in practice. Is it really practical to have a project team working within DMO one day, and then (following second pass) transfer them to the services on the next? Before you answer, remember these sorts of rearrangements are easier said than done in a highly regulated bureaucracy such as Defence. And what happens to the many ‘joint’ projects without a single service sponsor—are they to be managed by the Vice Chief of the Defence Force?

Fourth, if DMO loses its sustainment workforce to the services permanently and has most of its acquisition workforce seconded to the services, how will it ‘develop its multidiscipline skills base with the ultimate goal of achieving a world-class acquisition community’, as also recommended by the report?

Clearly there’s a lot to be worked through before the proposed new approach could be put in train. We’d suggest a refinement of the current approach rather than overturning it. For example, give the service chiefs more effective control over their sustainment budgets (at present they have only nominal control) for the reasons explained above, but leave the DMO as a consolidated service delivery organisation that provides sustainment and procurement services to Defence. That way the critical mass of skills can be kept in the DMO, while aligning the responsibility and resources for maintaining capabilities—an outcome that has been suggested in one form or another by most of the major reviews over the last decade.

Mark Thomson is senior analyst for defence economics, and Andrew Davies is senior analyst for defence capability and executive editor of The Strategist at ASPI. Image courtesy of Flickr user The World According to Marty.