Defence

Defence Materiel Organisation

Delivering Aerospace Capability to the ADF

The Defence Materiel Organisation's (DMO's) Head, Aerospace Systems Division (ASD), Air Vice-Marshal Clive Rossiter, recently presented the keynote address to the Defence Watch Seminar held in Canberra. In that address he spoke about delivering aerospace capability to the Australian Defence Force (ADF) - in particular, the scope of ASD's role in acquiring and sustaining the aerospace platforms; how ASD goes about business; and the vital role industry plays in partnership in delivering that capability. The following is an extract from that address...

Air Vice-Marshal Clive Rossiter

Aerospace Systems Division is a big, commercially demanding business in its own right and, in many ways, is comparable to the major Australian aerospace companies. We:

• employ a combined military and public service staff of about 1,950 people in business units located across Australia (this is 32 percent of total DMO staff);
• manage support to 20 aerospace weapon systems with an annual support budget of $1 billion and 35 major projects or phases of projects with a total capital value of close to $16.5 billion and an annual expenditure of about $1.2 billion; and
• conduct about 33 percent of DMO business across acquisition and in-service support.

I should point out that while I am responsible for just about everything that flies, including Unmanned Aerial Vehicles (UAVs), I am not responsible for the Airborne Early Warning & Control (AEW&C) Project or the New Air Combat Capability Project. Given the size and nature of these projects they have been assigned to dedicated DMO senior managers outside of ASD, and therefore these projects are not counted in ASD figures. However, if these aerospace projects were included, the total capital value would be bolstered by around $15 billion.

How do we deliver?

So, ASD is a big business and that business is all about acquiring and supporting major aerospace weapon systems - but how do we do our business?

Well the answer to that question has changed over the past 20 years or so. When I started as an engineer in the Royal Australian Air Force (RAAF), my first job was at No 3 Aircraft Depot at RAAF Base Amberley, managing a number of workshops filled with military tradesmen supporting the F-111. That maintenance depot no longer exists and today the hanger and the workshops and staff are employed by Boeing Australia. This example of a change from in-house to out-sourced has been repeated many times across our business. DMO's core business today is contract management and our role has changed from doing the work to managing the contract. Industry has always played a role in supporting capability, but today industry has become a vital partner and our reliance on a strong Defence industry has increased.

The Aerospace Strategic Sector Plan that was developed in consultation with industry in 2003 and endorsed by Government in mid 2004 outlines the direction we are taking in engaging industry to deliver capability. Some features of that Plan include:

• Total Contractor Support, with the exception of operational maintenance which is retained by the services. The first example of this was the introduction of the Lead-in Fighter in 1999. Since then, a Total Contractor Support approach has been applied to all new acquisitions, including the Special Purpose Aircraft, the KingAir Navigator Training Aircraft, the Boeing AEW&C, the new Airbus A330 Refueling Tanker, the Tiger Armed Reconnaissance Helicopter, the MRH-90 Troop Lift Helicopter and the JP-129 UAV. In addition, where a business case can be made, we are also moving our legacy platforms to Total Contractor Support arrangements.
• These contracts are set up as potentially long-term, performance based support contracts. In exchange we will be seeking efficiencies through economies of scale, increased focus on outcomes rather than process, and a more stable order book leading to industry investment in local innovation and upskilling of the workforce.
• These performance-based contracts will link the level of reward to the level of performance provided.

Competition versus long-term contracting

One challenge that ASD and industry partners will need to work on in relation to long term contracts is their impact on future competition.

A total contractor support approach is in place for all acquisitions, including the MRH-90 troop lift helicopter.
Photo © Eurocopter, used with permission.

Whilst long-term contracts may be won on the basis of competition, after contract signature they have more of the flavour of sole-source contracts. This is an issue given that competitive pressure drives innovation in order to reduce cost, and that prices are more reflective of true costs under competition than under sole-source situations. In addition, it is my experience that sole-source contracts are taking longer and costing more to negotiate than competitive contracts.

To compensate for the reduction in competition following contract signature of long-term sole-source arrangements, DMO has introduced certain contract features in order to ensure value for money is achieved. Some of the things that can be expected include whole-of-life selection criteria, with far more emphasis on the in-service phase. Accordingly, we will seek to negotiate the acquisition and support contracts at the same time, and will be looking for the best overall deal.

In addition, greater emphasis on contract design to stimulate innovation and efficiencies by including features such as:

• a requirement for open book transparency of costs with opportunities to re-price following award of the initial contract;
• review points with accompanying exit strategies giving the Commonwealth the flexibility to be able to re-compete elements of work or to terminate in whole or in part for failure to perform;
• mechanisms for controlling price variation such as agreed labour indices and agreed mark-up rates;
• a commitment to productivity improvements;
• a commitment to invest in upskilling and to build capacity; and
• a requirement for Primes to treat Small-to-Medium Enterprises (SMEs) properly, noting the need to support competition at the tier 2 level whilst protecting the SMEs intellectual property.

In other words, we deliver aerospace capability in partnership with industry and increasingly this will be under long-term performance-based contracts in exchange for cost transparency and commitments to improve productivity and capacity.

My marching orders from DMO's Chief Executive Officer, Dr Gumley, are pretty straight forward: to acquire and sustain aerospace systems for the ADF on time, on budget and to the required capability, safety and quality. It is a great job - and I have a great team working with me.

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