This article is an excerpt from The Art of Tendering: A Global Due Diligence Guide, which is available for purchase.
Australia’s military procurement projects have been the subject of multiple audit reports by Australia’s National Audit Office, which have raised ongoing concern over project delays and their adverse impact on the government’s long-term military operations.
Rather than being isolated incidents, project delays appear to be systemic in Australia’s military procurement. For example, in its 2012–13 Major Projects Report released December 2013, Australia’s Auditor General reviewed the status of a selection of 29 major defence projects with a total approved budget of $44.3 billion. These included projects for the procurement of early warning and control aircraft, amphibious ships, naval aviation combat systems, armed reconnaissance helicopters, F/A18 Hornet aircraft upgrades, air-to-air refuelling capability, guided missile frigate upgrades, anti-ship missile defence, medium-lift helicopters, battleship communication systems, heavyweight torpedoes, and battlefield command support systems. The report noted that major defence acquisition projects “remain the subject of considerable parliamentary and public interest, in view of their high cost, contribution to national security and the challenges involved in completing them within budget, on time and to the required level of capability.” While the report found that the reviewed projects were being managed within their $44.3 billion approved budget, it also found that the overall schedule slippage for the 29 projects was 957 months, representing a “35% increase on the originally approved schedule”, including 147 months of slippage in the 12 months since the prior report.
Furthermore, in its June 2014 Multi-Role Helicopter Program report, Australia’s Auditor General reviewed the Department of Defence’s $4 billion Multi-Role Helicopter (MRH90) Program for the acquisition of 47 helicopters and related support systems. The report stated that by March 2014, “over $2.4 billion had been spent acquiring and sustaining the MRH90 aircraft, with 27 delivered.” The report also found that the program was running four years behind schedule and had not achieved the operational milestones required by the Army and Navy.
The Auditor General attributed the delays to program development deficiencies, flawed decision-making for defining requirements, and resulting delays in the contract selection and award process. As the report noted, “Defence’s helicopter capability requirements definition was inadequate, did not properly inform the source selection process, and led to gaps in contract requirements.”
The report also found that the Department of Defence “did not effectively assess the maturity of the MRH90 and S-70M Black Hawk aircraft designs” during the source selection process, and that the awarded contracts “did not contain adequate protections” for the government. The Auditor General also found that the government selected the specific aircraft model against the recommendations of the Department of Defence. This resulted in an ongoing need for post-award modifications to design elements to meet the multi-role requirements of that aircraft.
With respect to lessons learned, the Auditor General noted that “the underlying causes of schedule delay in the acquisition phase can very often relate to weaknesses or deficiencies in the requirements phase of the capability development cycle.” The report concluded that the program “proceeded into its acquisition and sustainment phases with inadequately defined capability requirements, and inadequate program cost investigations and analysis”, and that the “procedures to verify and validate compliance with requirements also need to be adequately defined” prior to contract award.
More recently, in its 2018 audit entitled 2016–2017 Major Projects Report, Department of Defence, Australia’s National Audit Office once again found significant ongoing delays in the government’s major military procurements:
Delivering Major Projects on schedule continues to present challenges for Defence; affecting when the capability is made available for operational release and deployment by the Australian Defence Force, as well as the cost of delivery. The total schedule slippage for the 27 selected Major Projects, as at 30 June 2017, is 793 months (2015–16: 708 months) when compared to the initial schedule. This represents a 29 per cent (2015–16: 26 per cent) increase since approval.
The report revealed that “schedule slippage was more pronounced in projects with the most developmental content”, since complex equipment purchases that require high degrees of design customization tend to increase the risk of delay when compared with more standard “off-the-shelf” equipment purchases. While this principle applies to all equipment purchases, the report showed that the risk of delays attributed to design complexities is amplified in more complex purchases.
As these case studies illustrate, ongoing systemic procurement delays in high-profile and high-cost portfolio areas, such as military procurement, tend to attract increased levels of audit scrutiny, particularly when those delays have significant impact on government spending and operational needs. Project teams should therefore be careful to properly plan their procurement projects and base their projects on clear requirements and realistic timeframes.
