From trying to install 21st century avionics on 1960s helicopters to buying landing craft that crack and can’t fit onto their motherships, defence procurement in Australia has been fraught.

Within this context David Peever’s First Principles Review, the 36th significant review into Defence since 1973, was commissioned. Given the cost and importance of defence, especially platform acquisition, it’s no surprise that we have had almost as many reviews as we have had years since 1973.

I completely agree that there’s a dire need to reform capability definition and procurement.

The need for a truly professionalised capability development function is clearer than ever. The ANAO found that 79% of staff at the Capability Development Group (CDG) had worked there for less than 5 years and 20% of project managers stated that they had no skills or experience as project managers before they had their first project to manage.

It was amazing to read this finding. The report also showed that 70% had no or below average skills and experience in managing a project of the size that they were currently tasked with.

This pointed to an organisation that had project managers with poor training and experience. The ANAO also revealed that there was a total focus on getting projects approved by government but very little focus on running a project on time or budget. Contestability was weak and not at arm’s length.

Turning to the DMO, the FPR found that it:

‘…has also been beset with problems that have impacted its ability to achieve the required outcomes. It is clear that the organisation has become top heavy, complex and unnecessarily deep. This significantly contributes to Defence not getting the capability it needs at a reasonable cost or in reasonable time.’

Many have disputed the cost claim, but the performance of DMO had been suboptimal for some time and change was needed.

But was this the correct change?

The First Principles recommendations directly contradict the most recent, significant defence procurement reviews.

‘One Defence’ represents a massive centralisation of power within the mainstream defence organisation. But it ignores what really went wrong with the DMO.

The real problem with the DMO was that it was in no-man’s-land. It wasn’t completely outside the Defence organisation, therefore it lacked independence and accountability. But it wasn’t completely within the Defence organisation either, which meant it was exposed to intra-Defence conflicts. This was because governments of both persuasions were unable to implement strong recommendations from two landmark reviews of Defence—the Kinnaird and Mortimer reviews. Both reviews recommended that the DMO should become an executive agency.

Neither the Howard government nor the Rudd governments were able to get broad enough support within and outside Defence for DMO to become an executive agency. Instead, it became a prescribed agency, where it was separated from Defence but not given the independence, the budget and the authority to act as a commercial project manager.

The limited DMO reform did lead to some improved performance, most notably in schedule performance. For example, of the 30 top acquisition projects listed in a report tabled in Parliament in December 2014, 87% of the schedule slippage was in projects approved before 2007.

But we also we have seen the tensions with Defence over financial control and budgeting. The DMO also failed, in most cases, to attract commercial talent. We’ve seen unnecessary layers of management develop.

The ultimate sin was that the DMO was unable to consistently provide real contestability around acquisition strategies or industrial realities. That led to many poor acquisition outcomes.

It was unsustainable for DMO to be structured as it was before the Peever review. It had to be either fully out of Defence or fully within Defence.

However, risks arise from the abolition of the DMO and CDG. First, the risks are around contestability. I have concerns about whether the Policy and Intelligence Group will be able to provide the genuine contestability to challenge the capability definitions process being driven by the service chiefs. It isn’t just about rigorously defining military capabilities. It’s about providing truly independent advice on the financial, technical, industrial and economic implications of certain capability options being developed.

There’s also a risk in replacing CDG and DMO while we are undertaking acquisitions of submarines, future frigates and LAND 400 vehicles. To effectively abolish the CDG and the DMO while developing projects that cumulatively will cost more than $80 billion is a high risk indeed.

There’s also a risk that capability managers will specify narrow needs and timelines to game the system. This leads to a lack of real contestability, risk reduction and lack of focus on Australian options.

I saw an example firsthand, which was around LAND 121 Phase 4. Some parts of the Defence Organisation had their hearts set on the developmental US Joint Light Tactical Vehicle, and they specified timelines, processes and requirements that effectively ruled out almost every other option. It was only because of real leadership within the Labor Government at the time, driven by Greg Combet, that we saw an Australian option kept on the table.

In the end the Australian option was chosen ahead of the US option. It is more suited to our needs and will secure hundreds of Australian jobs. This is an example of the risk of giving too much power to one part of Defence without having true contestability.

The First Principles recommendation to abolish the DMO and CDG may pay off. It may lead to a truly integrated defence organisation with improved procurement. But the risks are considerable. What happens if true contestability is lost? What happens if there is less focus on commercial reality?

One Defence may be created, but what sort of Defence will it be?

By my count, the title page for the first chapter of the new First Principles Review (FPR) of the Department of Defence lists 48 previous reviews dating back to the Tange Review of 1973. You have to wonder if another one is going to succeed where all of the previous ones came up short.

If the FPR doesn’t work, it won’t be for lack of ambition. It’s a pretty significant shaking of the tree, and some of the structural changes are far reaching. Probably the most significant change, and certainly the most noticeable from the outside, is that the DMO will cease to be a semi-autonomous organisation and will be subsumed into the Defence central structure.

It’s effectively the end of the DMO as we know it. The rationale is that DMO provides services that are part of an end-to-end capability definition, acquisition and sustainment process, which all becomes part of the Capability Acquisition and Sustainment group under the Deputy Secretary for Policy and Intelligence. There’s some sense to that change, but there are dangers as well.

For a start, the DMO doesn’t just go and buy stuff. It also has a regulatory role, and acts to protect the Commonwealth’s interests in acquisition processes. As Mark Thomson once wrote, it’s not necessarily in Defence’s interest to downgrade those functions. Second, that’s a very big workload for the new DepSec position, and it’ll be quite a juggling act.

Those changes will require a number of senior positions to be downgraded, and there’ll be staffing reductions at other levels as well. In fact, there’ll be quite a few senior staff members seeking new opportunities. Seven of the current 16 Deputy Secretary positions will be abolished, along with a number of equivalent military positions, including the Head of Capability Development Group. I wrote about changes to responsibility for capability development in my previous post.

Changes go beyond the org chart, and the responsibilities of some of the continuing positions will be significantly altered. On the uniformed side of the house, the Chiefs of the three individual services will have a reduced role in the senior decision making framework. They’ll no longer sit on the Defence Committee, which will now be pared down to just six people. In terms of decision making, that’ll certainly make the room less crowded, with the group being about a third of the current size.

On the other hand, the responsibilities of the Chiefs for sustainment of their forces are said be enhanced under this review. Already being charged with the responsibility to ‘raise, train and sustain’ force elements for government in their role as Capability Managers , it’s not entirely clear what the Review means in terms of change. And there’s still a mismatch between responsibilities and resources—the Chiefs might be responsible for sustainment, but the sustainment resources appear to sit with the DepSec P&I.

Similarly, the Chiefs will retain carriage of the development of capability requirements, but the civilian side of the house will hold the contestability card. All in all, it’s hard to see the Chiefs being thrilled by these developments.

At the top of the uniformed ranks there are some welcome developments. As I wrote on The Strategist earlier, the ADF needed a Capability Manager for joint capabilities—those things that don’t naturally sit with any of the single Service Chiefs—and the Review has made that recommendation. There’s also a streamlining of the powers of the Chief of the Defence Forces vis-à-vis the Service Chiefs. No longer will a CDF Directive require three single service Directives to implement.

All in all, the FPR is a serious shakeup of the Defence Department. Some of the elements aren’t novel, and echo previous arrangements, and some are new ideas. But all of them will live or die on the quality of implementation, and that’s what we’ll have to keep an eye on over the next couple of years.

Defence Minister Kevin Andrews’ confirmation on Monday that tenders were finally about to open for LAND 400—a $10 billion project to replace Army’s thousand or so M113, ASLAV, and Bushmaster combat vehicles—sparked considerable interest from industry and Premiers but little from analysts. His announcement yesterday that Government has given the project first pass approval and released a request for tenders is likely to attract greater attention. The first tender will be to replace our ASLAVs, due for retirement around 2021. Specifications for their heavier and lighter counterparts are to be confirmed in the coming white paper.

Most commentators have been hostile toward the project from its inception a decade ago. The key complaint arises from a disconnect between strategic guidance in the 2000, 2009 and 2013 white papers, directing that equipment acquisitions be prioritised around what’s needed to prevent attacks against Australia and contribute to stability in our immediate region, and LAND 400’s focus on platforms for high-intensity contemporary and future operations including amphibious assault. Read more

There was a fascinating blip on the radar this week—a branch of Chinese local government accidentally let slip that work on China’s second aircraft carrier is underway. Boasts that a local company in Changzhou, Jiangshu province, had won a contract to provide electrical cabling were swiftly deleted, as was a report in a local newspaper.

A second carrier fits into a broader trend of growth for the Chinese navy, both in capacity and ambition. This piece from The Diplomat is a reminder of China’s growing presence in the Indian Ocean. More Chinese carrier-related analysis here from James Holmes. Read more

Today is the last day for submissions to the Foreign Affairs, Defence and Trade References Committee inquiry into the potential use by the Australian Defence Force of unmanned air, maritime and land platforms. The Strategist will publish two posts today on armed drones, which together form ASPI’s open submission to the Committee.

When looking at the future shape of the ADF, one of the possible force structure changes the government might chose to make is the addition of armed drones. There are some good reasons for that to happen, but also potential diplomatic downsides that would need to be managed.

Let’s start with the case for adding armed drones to the ADF’s inventory. There’re two obvious roles for them to play. The first is armed reconnaissance—being able to survey the battlefield and the wider environment, with the ability to engage the enemy if necessary. This is the same role as envisaged for the Tiger helicopter. Read more