2008 Defence procurement and sustainment review

The Mortimer Review is a curate's egg.


Excluding the often flawed political and policy processes involved with how such decisions are made (or not made) in Australia, and on what strategic assessment basis, properly equipping our defence force is a perpetual problem beset by five enduring difficulties:

  • Australia is a continent not just a country on a continent. It is also located in a complex and diverse region in strategic, cultural, ethnic and political terms. Our population is relatively small in the region and our economy, standard of living and way of life are greatly dependent on sea-borne trade over vast distances. All these enduring geo-strategic factors result in a challenging and occasionally unique operational environment, including very large areas of land, water and airspace, enormous distances and wide climatic and sea-keeping variations. It necessitates a wider range of defence functions and tasks in comparison to most other countries. It means the need for a technological edge with weapons and equipment wherever possible to handle all these conditions generally, and to make up for our usual shortfall in numbers of personnel and equipments in particular. It also can mean needing to adapt foreign systems and equipment to unique Australian operational requirements and conditions, including the development of  'orphan platforms' (ships, vehicles, aircraft, etc) that no other country uses or uses in such a configuration. This latter aspect has often resulted in complex integration projects, compromises, delays, increased costs and fewer opportunities for economies of scale.
  • Long timescales are involved, including the time it takes to obtain equipment and the usually very long periods it remains in service with the ADF – often around 20-30 years and out to 45 years or more at times (such as the F-111 bombers, Caribou transport aircraft, M113 armoured personnel carriers and the Navy's heavy landing craft). 
  • Reaching a decision on what needs to be bought is rarely simple even in professional or strategic terms – and can often become controversial if the strategic or operational logic involved is ignored or downplayed by political or ideological influences. 
  • Agreement then needs to be reached on whether the equipment needed can be afforded (including over the life-of-type of the equipment concerned). If not, a decision then has to be made about what second, third or even lower-order choices are possible and available – and what continuing operational risks and perhaps longer-term financial penalties these less suitable choices involve.
  • Finally, reaching a decision on how each bit of equipment is to be purchased is rarely simple either, including whether this is from overseas or whether it should involve manufacture or assembly in Australia for genuine industry policy, strategic capability or balance of payments reasons. Local manufacture tends to increase the financial costs but some of these may be subsequently recouped if the industrial capacity developed leads to local economies of scale in manufacture, upgrading or sustainment over the long run.

The pitfalls and dilemmas inherent in defence equipment procurement

Trade-offs are inevitable, not least because Governments are always keen to spend the money they should be investing in defence over the long term somewhere else, generally where the perceived short-term political advantage is highest.

The urge to build or assemble locally is also often unduly influenced by political pork-barrelling rather than sound strategic or operational decision-making.

Moreover, the military generally want the best equipment and weapons they can get because they are primarily interested in operational efficiency and in minimising the danger to its ADF operators in worst-case combat and other operational scenarios.

Various political and budgetary imperatives often take the opposite tack for reasons of finance, party-political expediency, unconscious indifference and, at times, bureaucratic arrogance.

The military are therefore sometimes accused of “gold-plating” the requirement, sometimes justifiably but more often not.

The politicians and 'bean counters' are often accused by the military of groundless optimism or parsimony based on short-term thinking, insufficient expertise or a perceived lack of the focus and commitment that comes from not having to personally operate the equipment concerned in actual battle.


The challenges and dilemmas inherent in defence equipment sustainment

Then there are the problems of financing and staffing the equipment during its operational life.

For many years the way the annual way the federal budget works meant these aspects were managed quite separately to the initial procurement decision. Government parsimony with defence investment also encouraged the Services to downplay these ongoing costs during initial procurement decision-making in order to obtain the equipment they needed in the first place. How it would be paid for over the long run was wrongly regarded as a separate problem.

Until the mid 1990s once a decision was taken by the Government to purchase a specific weapons platform (ship, vehicle, aircraft, etc), weapon or other equipment for the ADF, the procurement was undertaken by the Navy, Army or Air Force. The logistic support and maintenance engineering involved during the life-cycle of the equipment involved was also undertaken by the relevant Service.

It is worth noting that in this era each Service undertook these functions supervised by only a two-star Chief-of-Materiel and a two-star Chief-of-Logistics respectively. Cost over-runs and delays where they occurred were also much smaller than in the modern era, even for complex projects by the technological standards of the time.

This system was efficient in its day but needed to become better integrated as the defence force increasingly became joint-focused in its capability development, command structures and operations.

The commercialisation of base-level logistic support and maintenance engineering in order to save money (even where this resulted in operational inefficiencies) also had a large effect.

As did the trend for less and less equipment, especially larger platforms or more complex items, to be manufactured in Australia for economic and technological reasons. This latter aspect included the rise of the analogue and then the digital age, with the result that procurement programs often involved complex software integration challenges.

Finally, more and more procurement contracts involved the contractor providing through-life support and sustainment, thus displacing much of the former Service requirement for maintaining associated maintenance engineering and logistic capabilities in-house (particularly in uniform).

This has significantly reduced the ADF’s surge capabilities in this regard.

It also has had the unintended consequence of technologically de-skilling each Service to some degree. This latter aspect has unfortunately affected the ADF’s capacity for capability development adversely, especially as many higher-level decisions appear to now be made exclusively by operators without the traditional expert input from the engineering and logistic disciplines [as the 2011 Rizzo Review subsequently confirmed had happened disastrously in the Navy].

All these factors and developments, and the ever-increasing bureaucratisation of the Department of Defence, eventually resulted in the creation of the Defence Materiel Organisation (DMO) in 2003.

It is worth noting at this juncture, that for all the alleged faults of the Services with regard to procurement in the past, they undoubtedly did most of it very efficiently in terms of results and staffing.

The centralised procurement and sustainment of defence force equipment now undertaken by the 7000-strong DMO is supervised by an Associate Secretary equivalent (the highest paid Public Servant in the Commonwealth), three – soon to be four if the Mortimer Review has its way – deputy secretary (three-star) equivalents and some 13 two-star equivalents; nearly all of them public servants.


The Mortimer Review

Under both the former Howard Government, and the current Rudd one, there has been a general political consensus that the DMO needs to be more commercially oriented and organised.

Few outside government dispute this either. In May 2008 a further review led by Mr David Mortimer was commissioned, with Going to the Next Level: The Report of the Defence Procurement and Sustainment Review duly tabled in parliament by the Minister for Defence on 23 September 2008.

The review makes 46 recommendations for consideration by the Government. In most cases they are commonsense ones intended to formalise experiments and practices resulting from the operations of the DMO since its birth after the 2003 Kinnaird Review into defence procurement.

In some cases recommendations are somewhat vague or contradictory and with a few they appear to have drawn back from advocating substantive reform.

Some of this impression may be as much the accidental result of jargon and obtuse expression in the review as deliberate policy.

The report’s recommendations about better prescribing responsibilities for defining the defence capabilities required in the first place are relatively uncontroversial.

The proposed assistance to this definitional process from the DMO in regard to financial costings and project management estimates is similarly logical, but care will be necessary to ensure the tail does not end up wagging the dog.

The ADF is, after all, the only customer involved and its moral and institutional situation as an unlimited liability company is unique in Australian society.

What specific defence capabilities (including equipment) are needed for our defence force, and what should be recommended to the Government for decision, must remain primarily a matter of military professional judgement – albeit with appropriate input from policy areas of the Department of Defence and, where relevant, the wider government apparatus.

The major bureaucratic decision recommended in the review is to establish the DMO as an executive agency, as well as a prescribed one, within the Defence portfolio.

This means the CEO of the DMO will answer directly to the Minister for Defence, through the Parliamentary Secretary for Defence Procurement, rather than through the Secretary of the Department of Defence and the Chief of the Defence Force (CDF).

It is not resurrecting the failed concept of the Hawke-era Department of Defence Support but there are some similar potential pitfalls with too much independence, and ignoring the customer, that will need careful consideration by the Government.

As an executive agency the DMO would be larger than most government departments in numbers of staff, budget and breadth of responsibilities. Whatever the eventual decision, the report further strengthens the case for upgrading the DMO's supervising parliamentary secretary to a junior minister within the defence portfolio.


What Mortimer seems to have misunderstood

With this in mind, a major difficulty in deciphering Going to the Next Level is its apparent lack of recognition or understanding of the diarchical control of the Department of Defence by the Secretary and the CDF.

Now this diarchy, for reasons best not elaborated on here, in part results from the constitutional and statutory responsibilities vested in the CDF that authorise his command of the defence force (under the civil political control of the Minister and the elected Government). This command by the CDF includes his ultimate responsibility for the equipping of the ADF. This is a responsibility he may partly delegate to a subordinate ADF commander (such as Service Chief) but not otherwise avoid. It also involves an accountability to the Minister (and the Government) held by no other person or appointment in the ADF or the Department of Defence.

This underlies the review’s somewhat convoluted discussion of the sustainment of equipment through its operational life as opposed to its procurement in the first place.

Even more than the initial procurement, this through-life support of equipment is inextricably and directly bound up with the operational efficiency and employment of the ADF. In both legal and practical terms the command and control of sustainment is a military not a public service or commercially-contractable responsibility.

The bottom line here is that it all very well to further define the responsibilities of the ADF’s capability managers, especially the CDF and the three Service Chiefs, but somewhat contradictory to lessen their ability to exercise their command responsibilities by hiving off actual control of some of them to the DMO too readily.

The same argument applies to further divesting the CDF and the Service Chiefs of budgetary responsibilities, especially their capacity for discretionary procurement spending to meet urgent capability or operational needs.

If a commander is responsible for an operational output they must also have primary control over their financial or personnel inputs.

The CDF and Service Chiefs also need to retain sufficient staff capacity and analytical capability to achieve their responsibilities, including the ability to monitor how well the DMO is achieving procurement and sustainment functions (such as fleet management) on their behalf.

The Mortimer Review does not clearly address how this could be done if the DMO was to become an executive agency fully independent of the ADF chain of command.

In a nutshell, we must always remember to let commanders command – and that proper accountability in both peace and war requires a clear chain of command.

Finally, the most wishy-washy recommendation in the whole review is that the Defence Procurement Advisory Board instituted in 2003 ‘should continue’.

There is little discussion of why (beyond its apparent success so far), and no mention of how, or just as importantly how it should be protected from any future bureaucratic urge to abolish it.

The review also ducks the question of whether the DMO needs to be overseen by a statutory board given the intended commercial role and culture, and its projected independence as an executive agency.

Surely if such a board structure works so well in commerce and industry, and worked so well in the old Department of Supply up until 1974, it seems odd the review did not bite the bullet in this regard.

In 1997 the thoroughly mis-named Defence Efficiency Review (DER) was ostensibly focused on reorganising the Department of Defence and the higher echelons of the ADF using the principle structured for war, adapted for peace.

Over the next ten years, in keeping with the Orwellian terminology of the DER, the bureaucratisation of the Department of Defence grew even worse in size, complexity and inertia. 

The few genuine reforms stemming from the DER were largely neutered or reversed within a few years, sometimes deliberately, sometimes not.

The Mortimer review, for all the fact that most of its recommendations seem logical, at least in principle, also seems to have been prepared with a view more to harmonising bureaucratic and financial responsibilities in peacetime even at the cost of complicating the CDF’s command of the ADF in both peace and war. This peacetime focus is seriously mistaken.

The Department of Defence and the DMO primarily exist to support the ADF not vice versa.


What Mortimer clearly misunderstood

The Australian Government must have useable and relevant defence force capability at its disposal when needed.

Consequently, the prime output of our defence efforts is the development and maintenance of such capability, not marginal endeavours or quasi-outputs such as "policy", "paper" or "financial efficiency".

Saving money, rationalising bureaucratic processes or introducing a more commercial approach to procurement functions are not ends in themselves where Australia's need for, and consequently the national purpose of, the defence force is concerned.

Particularly if they come at the price of greater strategic and operational risks, flawed command structures, increased casualties, potential strategic humiliation or actual military defeat.

We should not forget why Australia maintains a defence force.

Nor why the operational efficiency alone of that force must always remain the over-riding principle in how it is controlled by Ministers, how it is employed by the Government to execute national resolve, and how it is commanded, structured, equipped, supported and financed.

Hopefully the Government recognises this and will be logical in its consideration and implementation of the relevant recommendations.