Defence Update

His task, which includes running the Value Management Incentive Program, is to provide incentives to local industry to be more competitive and innovative in bidding for defence contracts in Australia. The Minister for Defence, Senator Robert Ray, issued a 60 page booklet mid year as a Guide for Contractors on value Management Incentive contracting.

In recent months Colonel Dace has spoken to more than 400 Australian companies about the scheme and has received an enthusiastic response. “A lot of companies have come forward with ideas which could cut costs and provide them with incentives,” Dace said. “Basically we’re replying that if anyone has good ideas, we’re interested. ”

The material released at the time of Senator Ray’s announcement mainly related to Army type equipment, but there are areas concerning the Air Force which are likely to be applicable. For example the Royal Australian Air Force uses a considerable number of 500Ib iron bombs. The current indicative cost is about $2,000 a bomb. Based on United States prices, the Value Management directorate is now aiming to reduce this cost in Australia to about $600. Dace says that there appears no reason why the price should not come down to around $600, and this also would provide added export potential.

Interestingly the 5001b training bombs are more expensive than the operational bombs which are filled with high explosive. The inert material in a practice bomb being more costly than the HE filling. On top of that the RAAF wants a practice bomb that does not explode and leave metal fragments all over the bombing range. So they want a bomb which has the characteristics of the operational bomb, but does not explode the metal casing all over the place and cause damage to the ranges.

Another aspect which the RAAF has under consideration is stopping the practice of buying items, such as tools, by a brand name. The Air Force is now requiring all local purchase organisations, particularly in the case of tooling, to be competitive and offer a variety of options. No longer will the tender call for only say Brand X to be supplied. Such items can be up to five times more expensive, yet do not carry out the task in hand any better than lesser priced items. An officer from Colonel Dace’s office also recently discussed with RAAF Support Command in Melbourne the possibility of extending the move to have more RAAF maintenance work done by private contractors.

For some time now the RAAF has been looking at what might be described as fairly ambitious plans for a whole range of activities to be bid for by private contractors. These cover the maintenance of equipment and the provision of facilities and clothing. (On-line maintenance of the PC-9 trainers at East Sale, Victoria, is carried out by Hawker de Havilland, Victoria. )

Apart from new RAAF initiatives, there is examination of whether many of the workshops run by the three Armed Services could be made more cost effective. It seems likely that some of them could become Government owned contractor operated (GOCO) facilities under which they also could take on private sector work to help cash flows. Fulfillment of work for the Navy, Army and Air Force would still be the prime requirement, but such facilities could have civilian employees as well as Service personnel. The retention of Service personnel would be regarded as essential to maintain skills in the Australian Defence Force which could be expanded in times of a Defence emergency.

Under the new guidelines announced by Senator Ray, Defence contractors will be encouraged to seek innovation and efficiency. He said that in the future, contracts would be written with an objective in mind rather than an exhaustive set of inflexible specifications.

Under the new system, if a contractor’s research or experience reveals a more efficient way of achieving the contract’s objective, the contractor would be encouraged to negotiate changes to the contract. Ray said that if, for example, the contract specification called for a particular material to be used and the contractor found that an alternative material would perform as well at less cost, the contract could be altered and the savings shared with the contractor.

Some examples of what value management has already achieved: The 81mm mortar, an American designed bomb which was manufactured in Australia until recently. It was expensive in world terms (around $465), had poor lethality and accuracy and was limited to a range of 4,500 metres. A Joint ADF/Australia Defence Industries study has produced a new Australian mortar bomb; it is more effective, has a range in excess of 6,000 metres and will cost the ADF in the region of $220. It is seen as a ‘world beater’ with tremendous export potential.

The smoke grenade, from a $45 British design to a $22 Australian design. It is not only cheaper but more reliable.

Senator Ray said that cost saving ideas were not only coming from within Defence.

The Army Slouch Hat is also an example. The Queensland manufacturer, Mountcastle Pty Ltd, pointed out to Defence that a considerable saving is available if it can bring the Defence specification into line with industry standards. In this instance the defence specification calls for a brim width tolerance of +/-1mm; a relaxation of this to +/-2mm will offer a 24% cost saving. The Victorian company ofTrimcast has suggested changing from a traditional metal box used to package rations to a plastic container which would reduce packaging costs by around 30%.

“The range of examples is extensive, which serves to emphasise just how innovative we can be as a nation when we put our mind to it”, Ray said. “What this program is offering in essence is better value for the Defence dollar. It will provide a springboard for Defence industry and will enhance our current import replacement program, while at the same time helping to provide the ADF with what it needs when it needs it. ”

The Minister said a valid question was why such a program had not been adopted earlier. He pointed out that Defence went to considerable time and effort to negotiate the details of the program with the private sector in order to ensure their support. “As far as the public sector is concerned this program is very much a trail-blazer, and from the interest which other Federal departments plus State and Territory governments are already showing, now is the time for the public sector and industry to work together to our mutual benefit “, he added.

“The concept of financial incentives to industry flowing from this program is very simple”, the Minister said. If a Defence contractor can offer an alternative way to satisfy the functional requirements of their contract,Defence would share any net savings with them – usually on a 50/50 basis. ”

Senator Ray said that while this program opened new opportunities in Defence manufacturing in Australia, it was based upon a similar US DoD program which last year saved the taxpayer around $US2bn. So successful had the American experience been that similar incentive contracting programs were now being widely used by other US Federal departments.