Home' Future Building Australian Infrastructure Review : December 2011 Contents Spotlight on Defence procurement
funded and procured its major projects. Mortimer
particularly singled out the opportunities available
to Defence through the well targeted, well structured
use of Public Private Partnerships.
All told, Mortimer made 46 recommendations.
For its part, the Commonwealth Government has
agreed to 42 recommendations in full – and a further
three in part. But, as with previous inquiries such as
Kinnaird in 2003 and the 2009 Defence white paper,
agreement in principle has not flowed through to
Of course, Defence is a massive agency with a
complex supply chain and even more challenging
requirements from its capital assets. Nonetheless,
the inability of the Australian Defence Force to assist
with civilian relief efforts post-Yasi, and the massive
losses sustained on the Sea Sprite procurement,
show that significant changes are needed.
In its 2008 reform paper prepared for the Mortimer
Review, Infrastructure Partnerships Australia argued
for significant governance and policy reforms within
Defence. IPA’s submission argued that the time had
arrived for Defence to be taking a long, hard look
at the way its capital, maintenance and training
programmes are managed and identify where new
procurement models can be deployed to drive up
quality and contain costs.
One area that clearly requires change is the
practice of staff rotations. Current arrangements
mean that just as personnel become skilled in
procuring assets and services, they are rotated to
other roles. This leads to a loss of skill and means
that the lessons learned from procurements – good
and bad – are quickly lost.
One option would be to create an executive
procuring agency that spans the spectrum of Defence
procurement. Such an agency, answerable to the
Minister, would give Defence the capacity to pay
highly skilled procurers outside of the constraints
of Defence pay scales, and ensure the retention
and development of highly skilled staff. This kind of
Major Projects Victoria-style agency seems to have
much to commend it in driving better outcomes.
Of course, the challenges run deeper than just
governance and structural considerations – better
outcomes will necessarily require Defence itself
to change its attitude, approach and mindset to
The experience of Defence PPPs is a case in
point. In the period from 2001 to 2008, Australia’s
Department of Defence procured two PPP projects
Single Leap One and HQJOCC. Over the same
period, the UK Ministry of Defence used PPP models
to deliver more than 25 specialist military projects.
PPPs are a proven model to balance risk and
reward, with a Melbourne University study finding
the model will deliver an average cost saving to the
public sector of around 12 per cent – and transfer
risks away from the public sector. In light of the $1.4
billion Sea Sprite experience, it’s clear that project
risks are not always well managed by Defence and
that other models should be given a much clearer
and more transparent analysis.
The Cyclone Yasi experience is going to change
mindsets in Government and Defence alike, with real
steps toward better project and materiel procurement
Immediately following the Tobruk’s inability to
deploy, Smith ordered that an inquiry be undertaken
by National Australia Bank and Mallesons Stephen
Jaques Director Paul Rizzo.
Released in July, the Rizzo Report reaffirmed the
‘long-standing’ problems around the Department’s
maintenance and procurement, adding that these
problems were ‘well known to Defence and DMO,
and the subject of many prior reports’.
Rizzo identified the disproportionate focus given
to the acquisition of assets, with too little regard to
their whole-of-life maintenance and management.
Specifically, it stated that ‘sustainment is neglected
in priority, which leads to inadequate logistic support
products and increased sustainment requirements,
often to the detriment of whole-of-life capability and
This is another strut to support a greater role for
PPP procurement in Defence, which will ensure that
whole-of-life considerations are at the forefront of an
For its part, the Commonwealth Government
appears to have a real commitment to drive change.
Minister Smith and Defence Materiel Minister Jason
Clare – a former Transurban executive – have taken
an important step through the establishment of the
Independent Project Performance Office (IPPO).
The IPPO is designed to shine a light on
procurements and ensure that problem projects
are identified early. The IPPO will conduct gateway
reviews of major Defence capital acquisition
projects – and undertake an ex-post analysis of
actual procurement performance.
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