The cost principles The government-wide principles, issued by OMB (or, in the case of commercial organizations, the Federal Acquisition Regulation [48 CFR 21], or, in the case of hospitals, 45 CFR 75, Appendix IX, "Principles For Determining Costs Applicable to Research and Development Under Grants and Contracts with Hospitals"), on allowability and unallowability of costs under federally sponsored agreements. The project has spent $133.966million on sustainment in 201516 against a budget for the year of $133.679million, and $1867million of an acquisition budget of $2033million. The ANAO suggests that Defence could devise a means of doing this, thereby capturing additional useful information on sustainment performance and current risks. Using internal and external expertise to provide the best advice so that the outcome is delivered in the most cost-effective and efficient manner. First Principles Review (April 2015) 2. Committed people with the right skills in appropriate jobs. 141Defence, DMO End State Design Final Report, December 2013. The Review found a need for the Ministry of Defence to rebuild its capability as an intelligent client for warship design and build.172 It concluded that, to ensure pace could be maintained additional technical expertise in the form of a Client Friend (or Friends) is procured early, in particular to assist in the development of a detailed specification. Defence records show that the department made substantial efforts to keep track of the large number of diverse initiatives identified across the department under the smart sustainment reforms associated with the SRP, including internal reporting to management. 144The First Principles Review (p. 36) states: We consider that it would be possible to rationalise and reduce the Systems Program Office structure and staffing levels as more sophisticated contracting models are established and their individual support functions are consolidated as part of the service delivery reform. , O8>vz_y!_BG10Vu j1+f)*f) A0 u`e0;F)l` qX+^09Wy7k&C ) Defence has not been able to provide the ANAO with adequate evidence to support this claim, nor an account of how $360million allocated as seed funding for Smart Sustainment initiatives was used. 2.12Navy, Army and Air Force policy requires six-monthly reviews of MSAs. There is no record of whether the intended savings to sustainment costs were achieved from DMOs 2008 initiative to identify efficiencies. Top Cash Management Strategies to Manage Cash Effectively For example, Dr Davies211 noted that in his experience, having in-house expertise from public service engineers who could examine bids for work from external firms made him a much smarter buyer.212. 3.54Under section 17 of the PGPA Act, one of the functions of a Commonwealth entitys audit committee is to provide independent advice and assurance to the entitys accountable authoritythe Secretary of Defenceon performance reporting for the entity. Due to the nature of the Key Health Indicator, it seeks to measure disruption post External Maintenance Period and consequential impact on Materiel Ready Days (Materiel Availability outcome). 22Performance measurement and reporting on sustainment is considered in Chapter 3 of this report. 5.17As set out above (paragraph 5.8), the activities most likely to affect the management of sustainment are: 5.18When Defence established Systems Program Offices in 2000 as the focus of the newly created DMO, Systems Program Offices were to have the following characteristics: 5.19Defence has more recently (April2016) defined Systems Program Offices as: a business unit that works directly with Capability Managers and Suppliers as necessary to deliver agreed capability across the [Capability Life Cycle], coordinating the [Fundamental Inputs to Capability] elements required to achieve this objective.133. There is no evidence that specific merger integration activities have been undertaken to ensure consistent integrated operating models. They are mandatory for all procurements valued at greater than two million Australian dollars (AUD$2m), and guidance for all others, unless exemptions apply. At the time DMO developed MRS it was noted internally that DMO currently spends around 3billion dollars per year on sustainment activities and at this stage has no system that can adequately report on the effectiveness or efficiency of these activities.29 Work began in September2005 to introduce sustainment reporting capacity into MRS. 3.3Several major reports have criticised sustainment reporting over the last decade, including Mortimer (2008) and Rizzo (2011).30 Rizzo was highly critical of existing performance indicators: Each current [MSA] Product Schedule has inadequate Key Performance Indicators They only include a small subset of the contractual measures that should be placed on each party and there are no consequences associated with noncompliance. According to the online course Financial Accounting: "The purpose of the statement of cash flows is to provide a more detailed picture of what happened to a business's cash during an accounting period." There has long been a strong internal perception in Defence that sustainment attracts less management attention than acquisition. The Focus on core business principle led to the contracting of many roles within CASG, and the lowest number of civilian APS staff within Defence. They provide recommendations as to how government can become a smart buyer, knowing what it wants and judging better what it has bought. In 2016, the Coles review team found significant improvements in the performance of the Collins Class submarines. Applicability of a particular set of cost principles The government-wide principles, issued by OMB (or, in the case of commercial organizations, the Federal Acquisition Regulation [48 CFR 21], or, in the case of hospitals, 45 CFR 75, Appendix IX, "Principles For Determining Costs Applicable to Research and Development Under Grants and Contracts with Hospitals"), on allowability and unallowability of costs under federally sponsored agreements. Performance has been effective but unstable during the recent high demand collective training exercise series period that culminated in Exercise Hamel. 72ANAO Report No.6 201314, Capability Development Reform, Chapter 7. Defence has not published program level expenditure data on a consistent basis over time, or time series analysis, to assist with external scrutiny of its sustainment expenditure. 5.6Recommendation 2.11 aggregates three First Principles Review recommendations which appear after the following conclusions in the text: In an organisation which routinely manages complex projects and programs we found it remarkable that there is no common project management architecture or artefacts to support it. 5.49Defence has developed its own meaning for the term smart buyer, which does not clearly capture the intent of the First Principles Review recommendation. Demand Satisfaction Rate measures the effectiveness of the supply chain. Reporting and compliance was devoted to soft governance rather than to hard asset management decisions, based on sound financials, across the whole capability lifecycle. Note d:In late 2016, Defence estimated that the Collins Class submarine sustainment program would achieve international benchmarks for cost per materiel ready day by 202223. Obsolescence will result in increased Urgent Defect, Cannibalisations and reduced Demand Satisfaction Rates. LAND 121 PH 3B Project Office [Project OverlanderMedium Heavy Capability, Field Vehicles, Modules and Trailers], LAND 121 PH 4 Project Office [Protected Mobility Vehicles (Light)Hawkei], LAND 400 [Combat Reconnaissance Vehicles, Infantry Fighting Vehicles, Manoeuvre Support Vehicles, and an Integrated Training System. As an executive agency, the DMO would receive its own acquisition funding stream as a government appropriation, and would be headed by a chief executive with "significant private sector and commercial experience". 187Defence Portfolio Budget Statements 201516, Table 94: Top 30 Sustainment Products by End of Financial Year Outcome 201516, p. 190, available from [accessed 20 April 2017]. 4.13In contrast to the advice to ministers, in September2012, an internal progress report on the action items from the 2011 health check showed that Smart Sustainment was still struggling to gain traction. To facilitate the reforms, Defence made $360million of investment funds available for projects that would yield net savings. Progress in implementing the quoted recommendation has not been explicitly tracked with the other recommendations such as 2.12 and 2.13 in regular reporting on progress of the First Principles Review. Defences 201516 public reporting of sustainment activity included expenditure information and other descriptive material. 69Defence Annual Report 199798, p. 224. Box 1: The origin of Systems Program Offices. Cost Recovery Method - Definition, When to Use It, and Examples The SPMS system was not fully implemented during the ANAOs audit fieldwork but is expected to be fully operational by the end of June2017.