Annual Report 2003-04

Defence Materiel Organisation

Introduction

The Defence Materiel Organisation supports the ADF by acquiring and sustaining leading-edge military equipment. It is staffed by 4,400 Australian Public Service personnel and approximately 1,700 ADF members. These numbers reflect the transfer of the Joint Logistic Command from the Defence Materiel Organisation into the Joint Operations Command with effect from 1 May 2004. The move resulted in a net reduction of 1300 staff from within the Defence Materiel Organisation.

The Defence Materiel Organisation has staff located in over 50 locations across Australia, with its headquarters in Canberra. The geographic spread allows staff in the organisation's core functions of acquisition and sustainment to be collocated with their ADF operational customers and to promote closer partnerships with industry.

There are 11 divisions in the organisation. The majority of these divisions are responsible for acquisition, contributing to capability development and whole-of-life support including product disposal. System Program Offices in these divisions are the focal point for procurement, delivery and in-service support for major capital equipment. Three corporate divisions are responsible for standardising business processes, contracting services, information technology, strategic communication, corporate governance, human relations, financial services and strengthening relationships with industry.

The Defence Materiel Organisation contributes to Defence's outcomes by equipping and sustaining the ADF. The organisation was responsible for the management of 248 major capital equipment projects as at 30 June 2004, with a total approved budget of approximately $52 billion. The organisation manages approximately $3.4 billion per annum to sustain ADF equipment and deliver the organisation's responsibilities. More detail on the top 20 major capital equipment projects for 2003-04 can be found in Chapter Four (Capital Budget).

Results for 2003-04

Defence Materiel Organisation Business Model

The business model is the basis for establishing the organisation as a prescribed agency from 1 July 2005, under the Financial Management and Accountability Act 1997. The model is currently being implemented. The outcomes and outputs delivered by the organisation have been finalised.

Agency Agreements

Considerable work has been undertaken to establish the agency agreement framework associated with the business model. Templates for acquisition agreements covering capital projects and sustainment agreements covering sustainment products have been developed. Under the framework, some 300 project agreements and 100 sustainment product agreements will detail the organisation's undertakings to its 'customers', in terms of deliverables, schedule, standard and price, and will be progressively completed during 2004-05.

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Overarching Business Management System

A corporate-level quality and environmental management system was established, which is the main source for policies, procedures, tools, templates and reference pages on the Defence Materiel Organisation's business activities. This system collocates up-to-date, internationally recognised processes and practices for easy reference.

Project Reporting Tool

An interim project reporting tool was implemented that focuses on providing an overview of a project's financial performance in a succinct way. The long-term solution will be an improved project schedule and status reporting project management tool, which will provide a uniform approach to progressively standardise project management across all capital projects.

Defence Procurement Advisory Board

The board, which consists of public and private sector representatives, had their inaugural meeting in March 2004, and has continued to meet on a monthly basis. The board provides advice and support to the Chief Executive Officer of the Defence Materiel Organisation, and reports to the Government on the implementation of all Defence Procurement Review recommendations.

Delivery of a Commercial Tanker

In January 2004, Maritime Division contracted several Australian companies, with expertise in the shipping industry, to assist the Commonwealth in identifying ships suitable for purchase and modification for operation as a naval oiler. MT Delos, a commercial double hull environmentally-sustainable tanker, was delivered on 17 June 2004 and will be modified for naval purposes by 2006-07. The acquisition demonstrates the organisation's ability to apply innovative procurement processes in response to operational requirements.

Delivery of Land Capabilities

During the period, initial testing of the M113 upgraded demonstration vehicles and Bushmaster infantry mobile vehicles was conducted, and the delivery of the Phase 3 Australian light armoured vehicles. Land Systems Division continued its support to ADF operations in the Middle East, the Solomon Islands and East Timor.

Electronic and Weapons Capabilities

ADF operations were supported by the effective deployment and maintenance of communications, command support, electronic warfare systems and explosive ordnance. The Electronic and Weapon Systems Division successfully delivered a new hydrographic database system for the Navy, and air traffic control systems and C-130 aircraft global positioning systems were upgraded for the Air Force. Successful trials of an indigenous phased array radar system were also conducted.

Contracts

Achievements in this area include the release of new templates and procurement manuals, a new intellectual property policy, and an interim Defence contracts register. The organisation is conducting further investigations into alternative contracting methodologies and, following a review of the current project alliancing contracts, has removed the 'trial' status from project alliancing.

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Purchasing

Contract Reporting

Defence reports on contracts in three complementary locations:

• in accordance with Australian Government requirements, eligible Defence contracts valued at $2,000 or more (including orders placed against standing offers, standing offers that have an expected value of $2,000 or more and amendments to contracts that are valued at $2,000 or more) are published on the Commonwealth (Purchasing and Disposals) Gazette;
• in response to the Senate Order on Departmental and Agency Contracts (last amended 6 December 2003), Defence makes available on its internet website (under the Industry, Business and Contracting link http://www.defence.gov.au/dmo/id/cic_contracts/cic_contracts.cfm) a list of contracts valued at $100,000 or over that meet certain criteria; and
• the 'Buying Australia Home Page' (http://www.defence.gov.au/dmo/buying/) provides a searchable database that enables users to access details on certain contracts entered into by the Defence Materiel Organisation. The database is focused primarily on issues associated with Australian and New Zealand content.

Small to Medium Sized Enterprises

Defence requires all purchasing areas to adopt processes intended to maximise the opportunity for small to medium enterprises, (enterprises employing less than the full-time equivalent of 200 persons). In particular, Defence will:

• regularly open restricted supplies to public tender, thus ensuring supplier lists are current and comprehensive;
• for larger purchases, identify opportunities for small to medium enterprises when developing industry requirements;
• ensure procurement methods do not discriminate against small to medium enterprises; and
• where appropriate, establish one-stop shops so that small to medium enterprises can learn more about Defence needs and register their interest.

The Department of Finance and Administration identifies gazetted procurements that are contracted to small to medium-sized enterprises annually. The whole-of-government estimate for 2002-03 is 27.1 per cent by value. It is not expected that the agency breakdown for 2002-03 will be available before early 2005.

Australian Industry Involvement

The Australian Industry Involvement Program is the major program through which Defence leverages its procurement activity to foster critical Australian industry capabilities and ensure that industry delivers more cost effective Defence capability. To achieve these twin industry goals, sector strategic plans and derivatives have been developed. These plans are aimed at identifying, obtaining and sustaining strategic Australian industry capabilities required to support the ADF now and into the future.

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