Defence Update

“A multitude of factors have contributed to these unsatisfactory results. Most could be attributed to inefficient and ineffective Defence Project management,” the report asserted. Following on criticisms by the Utz Report on the Higher Defence Organisation about Defence procurement and the Auditor-General’s condemnation of Defence project management practices, the PAC has gone into great detail on specific projects.

The Mayer PAC Sectional Committee found that the most major shortcomings in Defence project management were: Inadequate evaluation of project proposals.

• Under estimates of project costs, time scales and risks.

• Incomplete project planning. Inadequate evaluation of tenders.

• Contracts which did not specify all contract requirements or provide effective incentives for contractors to minimise cost or perform to schedule. Inadequate monitoring of contractor performance.

• Contract supervision which did not submit the (sometimes) large number of contract changes to sufficient scrutiny to preserve project budgets and schedules.

Generally, slow Departmental decision-making processes. Projects examined by the PAC were: the Navy’s new fleet underway replenishment ship, HMAS Success (due to enter service soon); the Army/RAAF Hiport/Medport project to provide long and medium-range transportable communications capability to support a force employed in the field; the Navy’s FFG-7 guided missile project (for four ships, all of which have been delivered); the follow-on Australian frigate program (2 ships) based on the FFG design and the acquisition of over the horizon targeting, surveillance and anti-submarine warfare helicopters for them; the RAAF’s new tactical fighter project, the F-18 (now all underway); the Navy’s Minehunter Catamaran Project; the RAAF’s second batch of 10 P-3C Orion maritime patrol planes (currently being delivered); the RAAF Wamira basic pilot trainer which was scrapped late last year in favour of the Swiss Pilatus PC-9 to be built under licence in Australia; the RAAF’s four extra F-111 strike jets to replace four lost in accidents (very much old hat!); the Jindalee Over The Horizon radar research programme now likely to become an operational system; the RAAF’s Tactical t Air Defence System (TADS): the RAAF’s C-130 (Hercules trans-port) simulator project; the Army’s medium truck project to acquire 4 and 8-tonne vehicles (now nearing completion); the Army’s new small arms project; the Army’s Rapier Air Defence System; the Army’s 105mm light gun replacement program, Project Hamel (now well underway).

The response of the Defence Minister, Mr Kim Beazley, later in the year, should shed a more realistic picture on just what has been happening and what the situation is today. The creation of the Capital Procurement Organisation within the Defence Department in 1984 was designed to improve efficiency and overall project management and basically is believed to be meeting those objectives. Just how much further action is required is a matter for debate. The PAC appears to have paid inadequate attention to various remedial actions that were put in place at various times when it became clear that some projects were not running smoothly and to anywhere near time.

The PAC also appears to show little understanding of what inflation and changes in foreign exchange rates have done to a number of key projects of which the F-18 acquisition is a prime example. Government economic policies should bear some of the burden, if not the blame, for such blow-outs.

Rear Admiral Bill Rouke (who retired last year after a long term as Chief of Navy Materiel) rightly has pointed out that in any examination of Defence Project Management, it is important to distinguish between those projects that stay within the real costs estimated for and approved by the government and those that do not. Rourke, now the Chief Executive of the Institution of Engineers Australia said that the effects of inflation and exchange rates and the changing value of the Australian dollar compounded the problem of managing to budget, or otherwise. He said that in the United States it was the practice to estimate the effects of inflation and convert the planned expenditures into then-year dollars. The project out-turn should not exceed the then-year dollar estimate.

“Although this approach has many imperfections, it is a considerable improvement on the practice of Parliamentary committeemen and other commentators to lump real cost increases and inflation together and damn them indiscriminately,” The commented. He said he found that only by careful separation of the two types of cost variants could he get tight control of real costs.

Rourke also had a most telling argument on whether the cost of the FFG frigate program had really increased in real terms by 177. 5% overestimated cost. As he points out the basic factor in the cost increase was the Government’s decision to increase the order from two to four ships. Still in spite of some obvious defects, the detail of the PAC report on Defence Project Management should turn out to be a valuable exercise provided the lessons, if not already learned, are supplied.

The PAC report also coincided with the release of the US Presidential Commission on Defence Management. The Commission’s Chairman, Mr David Packard said it had come to the conclusion that the procurement problems (in the Pentagon) “the horror stories we all know about and the operational problems revealed by events like Desert One (the bungled Iranian hostage rescue mission), the Beirut bombing (of the Marine base) and Grenada (the mini invasion) were all symptoms of the same fundamental problem: the lack of an effective management structure in the (Defence) department”.

Interestingly, one proposal to give more authority to the Chairman of the Joint Chiefs of Staff (now Admiral William Crowe) has been addressed and acted upon in Australia. The Packard Commission advocates that final production approval would re-side with a new Under Secretary of Defence specifically responsible for weapons acquisition.

The 16 projects examined by the PAC Sectional Committee have a currently estimated total project cost of $6618m, some half of which is for the 75 new fighters. Four projects – HMAS Success, the minehunter-catamarans, the Basic air trainer and mobile radios- were considered by the committee to be ‘especial disasters’, meeting combinations of cost overruns, delays or continuing technical difficulties. Eight projects were well behind time, eight had significant cost overruns and three had come into service requiring major and expensive modifications to meet technical problems.

Let’s look at some of the comments on individual projects, particularly related to aviation.

The F-18 Tactical Fighter Project

The Committee noted an interest in the change in Air Force requirements from a tactical fighter to the eventual selection of a multi-role aircraft (or from a simple air-to-air role). It expressed concern that while the project management and control of the project was ‘sound’, a new project price, particularly in view of major price impacts on recent exchange rate variations, was long overdue’. The last estimated project cost (which is quite different to the unit fly-away cost multiplied by the number of aircraft) was $3,396m in December 1982 terms but adjusted for the 10% currency devaluation of March, 1983. The first project cost estimate was $2,427m in August 1981. (This writer believes the Defence Department’s revised cost estimate as at late last year was around $4,600m, with virtually all of the increase due to adverse exchange rate fluctuations).

The PAC expressed concern that while the F-18 “may prove to be a cost-effective fighter aircraft it may not be as effective as an attack aircraft. “Australia possesses long and medium-range strike capability in the F-111 and the Harpoon-equipped P-3C Orion. Compared with these aircraft, the F-18 appears to have a limited strike range,” the committee commented. “Additionally. The requirements to provide air-to-ground attack missions in support of Army units did not appear to be an efficient use of high-cost aircraft. ” Evidence was given to the PAC that the F-18 had an interdiction range “in excess of 450 nautical miles”. Performance parameters are classified on the range in a typical fighter configuration with two Sparrow and two Sidewinder missiles and a 20mm gun and in an attack role, with two missiles, four bombs and external fuel tanks. But evidence was given that the RAAF could deploy from bases around the coastline such as Cairns, Weipa, Gove, Kununurra, Derby, Learmonth, Broome and so on and, within the publishable radius of action of up to 600 nautical miles, provide protection out at sea to the Royal Australian Navy. (We believe the Navy is sceptical about such claims).

The Committee questioned witnesses about the capability of the RAAF to deploy an operational squadron to bare bases. Details of the deployment requirements remain classified, but the Committee was advised that in addition to the high durability and maintainability of the aircraft, it had the transport capability to move squadrons to bare bases.

The committee received evidence on the RAAF proposal to convert its four Boeing 707 transports to incorporate air-to-air refuelling capabilities. This was strongly favoured by the RAAF but was not essential for the operational deployment of the new fighters. The PAC noted that “high density operations will clear- ly demand a substantial increase in air refuelling capability”.

Australian Industry Participation (AIP), project management, contractual arrangements and financial arrangements under the US Foreign Military Sales (FMS) arrangements were also closely examined by the PAC.

The committee said the general devaluation of the Australian dollar between August 1981 and December 1982 was regarded as ‘significant’, yet it was puzzling that the further decline in the dollar during 1985 should not be equally described as significant. It noted this alone would add at least $700m to the F-18 project. A statement that “an up-to-date breakdown of estimated costs cannot be provided until the revised total project cost is approved” is described by the PAC as “perplexing”. A three-year delay in updating project costs was “unacceptable”, the Committee found.

But it was given figures which showed how unit flyaway costs for the US Navy acquisitions had fallen thus: Fiscal Year 1982: $US22. 5m; FY83: $US20. 8m; FY84: $US20. 2m.

Additional P-3C Orion aircraft

The acquisition of 10 more P-3C Lockheed Orion ASW and maritime patrol planes at a currently estimated cost of $412m and the fitting of the AQS-901 sonic processors has proceeded on schedule, the PAC reported.

This is a direct Australian Government contract with Lockheed rather than the usual Government-to-Government deal and was necessary because Lockheed offered a trade-in on the older RAAF P-3Bs of $US6m each. Even when the contract was estimated at $362m in May 1982, it was the largest value commercial contract entered into on behalf of the RAAF by the Defence Department.

The Basic Pilot Trainer Aircraft Project

The Public Accounts Committee naming the Basic Trainer Project as one of the least successful of the 16 projects examined, said that when it is looked at the project in April and May 1985, the design and development of the A-10 project by the Australian Aircraft Corporation (AAC) was 13 months behind schedule and the estimated total project cost had more than doubled in nominal terms. A Government review of the project, by then restructured around revised RAAF requirements, led the Government to announce that the Swiss-designed Pilatus PC-9 had been chosen as the RAAF’s new basic trainer and would be built under licence in Australia (refer p18, March AA).

The PAC found that the schedule and cost overruns of the A-10 were the direct result of: (a) delays in commencing detailed design work while the sub-contractors brought their procedures up to the required standard; (b) frequent design changes by industry to produce design solutions which complied with the RAAF’s specifications; (c) additional work required by the large number of (minor) specification changes which arose out of the RAAF’s assessment of the aircraft mockup; and (d) the limited ability of either the RAAF or the AAC to agree to time and cost saving design options.

The committee also declared that the sources of many of these difficulties lay with the AAS and its sub-contractors, specifically on the industry’s lack of recent aircraft design experience in general and its lack of experience in design to military specifications in particular.

It contended that this caused the industry to substantially underestimate the magnitude of the design and development task. It also stated that management problems within the AAC made it difficult for the consortium to coordinate the design effort and monitor the performance of its sub-contractors.

Nevertheless, the committee said it believed the RAAF should take ultimate responsibility for the project’s lack of success. It said in the first place, that the RAAF’s definition and evaluation of its requirements was inadequate “with the result that the project was compromised at the outset by ill-considered and conflicting objectives, bad timing and poor estimates. Second, RAAF project management arrangements were not commensurate with the known risks of local design and development in which industry had no recent experience”.

The PAC noted that project coordination was made difficult by the fact that the project was divided between the Air Force Materiel and Technical Services divisions.

(There is a lot more about this sorry saga, but space limitations prevent us from going into greater detail).

(Max Hawkins Is the Editor of Defence Industry Newsletter.)