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Annual Report 2014–15

Volume 1, Part 3 : Governance and Accountability

Chapter 11
Asset management, procurement and capital investment

Defence asset management

Defence manages $78.4 billion of total assets. This includes:

  • approximately $42.7 billion of specialist military equipment
  • $25.0 billion of plant, land, buildings and infrastructure
  • $6.5 billion of inventory
  • $1.0 billion of heritage and cultural assets
  • $3.2 billion of other items, including cash, receivables and prepayments.

Defence Groups and Services, including the Defence Materiel Organisation (DMO), are accountable for the underlying business transactions and records that substantiate the reported financial balances of assets under their control.

The Chief Finance Officer Group undertakes accounting processes to enable the accurate and timely reporting of asset balances and ensure that they are consistent with requirements for financial statement reporting defined in the Australian Accounting Standards.

During 2014–15, Defence worked to secure and advance the improvements in financial and asset management achieved in previous years. This was achieved by:

  • evolving the shared service delivery model for asset accounting to further enhance financial reporting of assets and deliver standardised policies and processes to support the management of assets
  • using a maturing data assurance framework and controls environment to swiftly identify and resolve asset management issues as they occur.

Defence Materiel Organisation asset management

The DMO manages its assets in accordance with relevant Accountable Authority Instructions, accounting standards and internal DMO guidelines.

The DMO’s property, plant and equipment assets, which were valued at $5 million at 30 June 2015, are subject to an annual stocktake to ensure that records are accurate. Impairment reviews were also undertaken during the year. Valuations are conducted as outlined in note 1.19 of the DMO financial statements in Volume Two of this report.

Defence procurement

Defence undertakes procurement in accordance with the core purchasing policies and principles as articulated in the 2014 Commonwealth Procurement Rules (CPRs) and Defence policies.

Under non-materiel shared procurement services, high-level procurement advice and support is provided to staff who exercise delegations under the Public Governance, Performance and Accountability Act 2013 to ensure compliance with the CPRs.

The Defence Annual Procurement Plan is published on the AusTender website to give industry notice of potential business opportunities and to help it prepare for the competitive tendering phase. Defence publishes open tenders on AusTender.

Defence was a major member of the Department of the Prime Minister and Cabinet’s cross-agency working group for Indigenous engagement and is also developing Defence’s strategy in response to the new Commonwealth Government Indigenous Procurement Policy. The policy, which applies to all Australian government agencies, has two key objectives:

  • to stimulate Indigenous entrepreneurship and business development
  • to stimulate Indigenous employment.

Procurement initiatives to support small business

Defence supports small business participation in the Commonwealth Government procurement market. Small and medium enterprise (SME) and small enterprise participation statistics are available on the Department of Finance’s website.

Defence also recognises the importance of ensuring that small businesses are paid on time. The results of the survey of Australian Government payments to small business are available on the Treasury’s website.

Low-risk procurements valued under $200,000

The Defence Procurement Policy Manual and the Contract Template Selection and Tailoring Guide incorporate and encourage procurement officers to use the Commonwealth Contracting Suite for those procurements determined suitable under the Department of Finance Defence-specific decision tree.

The Chief Finance Officer Group provides finance shared services to Defence, including centralised payment of accounts. In addition, Defence promotes the use of credit cards to facilitate prompt payment.

Australian industry participation

Under Defence’s Australian industry participation policy, Defence requires prime contractors for materiel systems to provide Australian industry with opportunities to compete on merit in major procurements, and requires contractual commitments from suppliers to provide nominated domestic industry through an agreed plan. Under the policy, prime contractors are required to release a public version of the plan to provide industry with enhanced visibility and transparency of local industry commitments and business opportunities in relation to specific Defence procurements.

Small business engagement principles

Defence is committed to and has established a range of initiatives designed to promote industry engagement (particularly for SMEs) and reduced costs of tendering making Defence business opportunities more transparent and accessible.

  • During the reporting period, SMEs were able to access strategic insights and tailored information on opportunities in the national Defence market through the Defence Business Access Office network. Through tailored guidance, visits and briefings, the Business Access Office aids companies’ understanding of Defence’s capabilities, requirements and procurement processes. In addition, the revised approach (including discounted registration fees) to the Defence + Industry conference (held 29–30 July 2014 in Adelaide) made this keystone event more affordable and accessible to the broader Australian defence industry, particularly for SMEs. The conference provided an opportunity to hear from government and Defence leaders and to connect with other businesses in Defence and related sectors of industry.
  • In measures designed to improve the quality and integrity of AusTender data, AusTender provides industry with a single, easy-to-use information portal to new business opportunities with Defence. AusTender also provides companies with ready access to tender documentation and provides a cost-effective and simple electronic tender lodgment process that reduces the time and cost burden on companies when submitting tenders.

Electronic systems and other processes used to facilitate on-time payment performance

Defence has implemented a mandatory procurement policy on the use of the Defence Purchasing Card as the method of payment for purchases of less than $10,000 and for certain procurements categorised as low value and low risk over $10,000. To ensure compliance with the Department of Finance Resource Management Guide 417—Supplier Pay on Time or Pay Interest Policy, Defence contracting templates include provisions that require the Commonwealth to make a self-generated interest payment for any late payment (and without the need for any further invoice) for all contracts valued up to $1 million (GST inclusive).

Defence Materiel Organisation procurement

The Contracting and Legal Division, Commercial Group, DMO is responsible for providing strategic commercial law advice and contracting services directly to the DMO project and system project offices, and for maintaining and improving Defence’s procurement policy, guidance tools and Defence’s suite of contracting templates—known as the ASDEFCON templates. The Division also has responsibility for whole-of-Defence procurement training and the professionalisation of the Defence Procurement and Contracting (P&C) Job Family.

Key achievements in 2014–15 included:

  • Launch of the Defence P&C Job Family Professionalisation programme, which represents a significant commitment by Defence to provide the P&C Job Family workforce with career development and skilling opportunities consistent with the 70:20:10 learning framework, which comprises 70 per cent on-the-job experience; 20 per cent supervision, coaching and mentoring; and 10 per cent formal education and training. The programme is the result of extensive research and the considered application of global best practice to Defence’s unique and challenging procurement and contracting environment.
  • Significant progress on a range of major commercial reform initiatives aimed at improving the efficiency and effectiveness of Defence’s tendering practices and contracting outcomes. This work included significant updates to the ASDEFCON templates, including changes that reduce information demands on tenderers responding to major procurements, and the release of Defence’s third-generation performance-based contracting template—ASDEFCON Support (version 3)—in response to extensive internal and industry feedback.
  • Establishment of the Evaluation and Negotiation Centre of Excellence for the purpose of enhancing Defence’s capability in activities relevant to the critical evaluation and negotiation phases of a procurement. In 2014 the centre established a standing offer panel that provides project teams with access to a broad range of specialist providers capable of leading, supporting or preparing Defence for complex contract negotiations.

Approved Major Capital Investment Programme

The Approved Major Capital Investment Programme generally comprises those projects that cost more than $20 million and which, following approval, have been transferred from the Defence Capability Plan to acquisition areas within Defence to manage the acquisition phase.

Funding for approved major capital equipment projects, including project management and overhead costs, is usually provided by Defence to the DMO under separate materiel acquisition agreements for each project. Funding is also provided to other Groups, such as the Chief Information Officer Group and the Defence Support and Reform Group, to deliver the ICT and infrastructure components of the projects. A small number of projects are led by Groups other than the DMO, such as the Chief Information Officer Group and the Intelligence and Security Group.

Projects costing between $20 million and $100 million are jointly approved by the Minister for Defence and the Minister for Finance. Projects costing more than $100 million are approved by the National Security Committee of Cabinet.

2014–15 achievements

In 2014–15, a total of 35 submissions with a combined value of more than $7 billion were approved. Significant approvals included:

  • AIR 7403 Phase 3—Additional multi-role tanker transport aircraft
  • AIR 8000 Phase 4—Additional C-17A Globemaster III heavy lift aircraft
  • JP 9000 Phase 7—Helicopter aircrew training system
  • LAND 2072 Phase 2B.2—Acquisition of an integrated battlefield telecommunications network and the upgrade of current radios and facilities
  • SEA 1448 Phase 4B—Anzac air search radar.

Capital Facilities Programme

The Capital Facilities Programme comprises approved and unapproved major and medium projects.

Major capital facilities projects are defined as having expenditure of more than $15 million (including GST) and are subject to government approval and review by the Parliamentary Standing Committee on Public Works.

Medium facilities projects have expenditure of between $500,000 and $15 million (including GST). Projects of between $2 million and $15 million are subject to departmental or government approval and are notified to the Standing Committee on Public Works.

The Capital Facilities Programme develops facilities and infrastructure to support the Approved Major Capital Investment Programme, sustain current and future capability requirements, support other government initiatives, meet legislative obligations and assist initiatives that support Defence personnel. A significant proportion of the programme funding is directed towards the provision of basic engineering and infrastructure services, in support of new projects and upgrades to existing facilities.

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