Defence

Defence Materiel Organisation

Prescription: one year on

Dr Stephen Gumley

On 1 July this year Defence Materiel Organisation (DMO) marked its first birthday as a Prescribed Agency under the Financial Management and Accountability Act 1997.

As a Prescribed Agency, DMO remains part of the Department of Defence for the purposes of general administration, and I remain accountable to the Secretary of the Department of Defence under the Public Service Act 1999 and to the Chief of the Defence Force under the Defence Act 1903. But I am now directly and independently accountable to the Government for all financial management and reporting.

To reflect the new agency status and to promote a more business-like relationship with Defence, a framework of agency agreements has been established. These agreements have made us focus on responsiveness to our owners and customers within Defence. At the highest level, these agency agreements involve a directive from the Minister for Defence to myself as the Chief Executive Officer (CEO) of DMO, outlining expectations of me. There is also a Memorandum of Agreement between Defence and DMO that outlines the responsibilities and arrangements existing between the two agencies.

Below these high-level documents sits a myriad of detailed agency agreements. These are similar to the contracts that DMO has with industry, albeit more strategic in nature. They clarify what Defence expects of DMO, in terms of outcomes, and what price Defence agrees to pay DMO for those outcomes. They are the basis on which DMO receives most of its budget.

There are three main categories of agreement: Materiel Acquisition Agreements (MAA), Materiel Sustainment Agreements (MSA) and Shared Service Agreements (SSA). The first category covers all major and minor acquisition projects managed by DMO; the second covers all fleets sustained by DMO; and the last outlines the allocation of responsibilities and services for which there is no transfer of funds.

Further agreements exist to lock down the military workforce that will be provided to DMO, and to define payments DMO makes to Defence for services in such areas as warehousing and maintenance.

The Chief Executive Officer of the Defence Materiel Organisation, Dr Stephen Gumley, cuts the cake to mark the first anniversary of DMO as a Prescribed Agency.
Photo provided by DMO

The suite of agreements was set up for the start of 2005–06, and all but a few MAA are now in place. Work is well advanced on preparing MSA, which are updated annually, for 2006–07. Each month, as the CEO I report to the Defence Committee on progress against these agreements, tabling Acquisition Overview Reports and Sustainment Overview Reports that summarise progress with significant projects and fleet support. These reports now provide maturity scores reflecting the risk assessment approach developed by DMO.

In addition to outcome performance reporting to Defence on goods and services delivered, DMO is also required to report its financial performance monthly to the Department of Finance and Administration (DoFA). This requirement has been met throughout 2005–06. Work is now well advanced on preparation of the much more comprehensive end-of-year financial statements that must be reviewed by the Australian National Audit Office, signed by me, and tabled in Parliament (as part of the Defence portfolio Annual Report).

As well as financial reporting DMO must also develop budget data and contribute to preparation of the Defence Management and Finance Plan. It has been effective in meeting all requirements in this regard throughout its first year as an agency, submitting detailed budget data to DoFA for the 2005–06 Budget, the 2005–06 Additional Estimates and most recently for the 2006–07 Budget. In addition to the detailed data, DMO has also provided separate sections in the Portfolio Budget Statements (PBS)—2005–06 PBS, 2005–06 Portfolio Additional Estimates Statements and 2006–07 PBS—that have been submitted to Parliament and formed the basis for regular review by the Senate Legislation Committee.

In agreeing the arrangements for funding DMO through a special account, the Finance Minister sought six-monthly reports on progress by DMO in delivering against its budget. Reports have been provided to the Minister for Defence and Finance Minister in accordance with this requirement.

DMO has also reported regularly to the Defence Procurement Advisory Board on progress with implementation of reform. The board has been very positive in its support for DMO’s reform program and the achievements of DMO.

One year on, it is clear that the increased transparency and accountability that has come with achieving prescription status is starting to show results. It has been an exciting year in terms of progress. DMO will continue to drive the reform program hard and work together to meet the goal of delivering capability and sustainment on time, on budget and to the required capability, safety and quality.

New Head of Industry Division

Mr Kerry Clarke

Mr Kerry Clarke has been appointed as Defence Materiel Organisation’s (DMO) new Head of Industry Division.

The former Royal Australian Air Force (RAAF) Air Vice-Marshal has undertaken extensive work with industry.

His résumé includes heading up the Washington Office’s role in the procurement of RAAF’s F/A-18 aircraft in the 1980s, leading the review of the Australian Defence Capability Plan, and playing a lead role in establishing the Rapid Prototyping, Development and Evaluation (RPDE).

In developing the RPDE, Mr Clarke worked with Defence stakeholders and a core group of defence industry companies—Australian Defence Industries, British Aerospace Systems Australia, Tenix, Defence Industries, Raytheon and Saab. He has worked with all of the Chief Executive Officers of defence industry’s prime contractors and has had considerable exposure to innovative small to medium enterprises.

This knowledge of Defence capability and defence industry issues combined with a stint at Harvard business school before he retired from the RAAF confirmed in Mr Clarke’s mind the need for Defence to deal with industry in a more constructive and business-like manner.

Mr Clarke said when the Chief Executive Officer of DMO, Dr Stephen Gumley, called him to see if he was interested in the job, all the pieces fell into place.

‘I have a good understanding of the front end of the capability acquisition system and felt I could make a real difference,’ he said.

‘I believe that I am a known and trusted entity in the industry world. I bring to Industry Division leadership skills honed through years of military service, along with business skills finetuned at Harvard business school, and energy and drive to get things done.

‘The timing of my taking on this role is really opportune, with Defence Minister Brendan Nelson recently announcing a review of industry policy.

‘The review has two key aims. One is to ensure Australian industry is competitive against international companies, creating a level playing field. The second is to sustain the limited number of critical capabilities that government requires.

‘The outcome of the review, if government accepts it, will form a really good basis for implementation of defence industry policy that Industry Division can assist in applying,’ Mr Clarke said.

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