Aligning priorities for success

On 10 November 1989 Tenix Defence, then AMECON, signed a contract with the Commonwealth to supply ten ANZAC Class Frigates to the Royal Australian and Royal New Zealand Navies.

Seventeen years later, in 2006, Defence Materiel Organisation (DMO) and Tenix delivered the last Royal Australian Navy ANZAC, Her Majesty’s Australian Ship (HMAS) Perth, completing the $6 billion ANZAC Ship project (Sea 1348) on time, on performance and on budget.

Adding to the success of being on time and on budget, external bodies have praised Sea 1348’s success in regard to ‘bang for the buck’. In 2005 the Australian Defence Magazine (ADM) named the ANZAC Project team ‘Defence Project Team of the Year’ at its annual awards. They won the award for displaying innovation in planning, efficiency in execution and delivery of results, and a strong relationship between DMO and the contractor teams.

More than six DMO Project Directors, ably supported by RNZN executives, were at Sea 1348’s helm from the beginning to the delivery of the final ship. The man who coordinated the team to deliver the last three ships, ANZAC Systems Program Office Director, Chris Eggleton said even though there was a positive outcome, in retrospect there were things the ANZAC team might have done differently in the overall project strategy.

‘A key attribute to success was the no change policy, the turn key nature of the contract and the arms length management by the project team. This was determined through detailed risk profiling in consideration of the ten-ship build, and the need for maximum Australian/New Zealand industrial participation,’ Mr Eggleton said.

‘It required the successful contractor to be involved in a series of detailed documentation contracts to evolve and optimize the ‘contract content’ leading to a ‘hard money deal’. This strategy had some known downsides, including a fundamentally adversarial relationship potential and a significant risk transference back onto the project should major changes be required by the customer (Navy).

‘Batching the ships in flights may have allowed both parties opportunities to better manage obsolescence/evolving capability gap challenges. History will show the project team was well able to predict the areas where the above aspects would present. Also when you look at the need to now start looking at an ANZAC Class replacement, providing options for negotiation of extra ships as the program matured would also have been an option when measured against the huge cost of retendering/re-establishing the whole supply chain for the impending replacement for the ANZAC Class.

‘A fixed price contract was established for Sea 1348 as per contemporary contracting doctrine and in the knowledge of the risks, today we would probably have used an Alliance style arrangement.

‘In a fixed price contract you can get an adversarial environment between the project and the contractor because once the contract is signed the contractor will naturally try to protect their profits and the project is trying to control costs. All this is happening in a Defence and strategic environment that is seldom static. This affected our relationship with Tenix for about the first four ships.

‘An alliance was formed between the Prime Contractor and the Combat System Integrator as a result of the delivered ships moving into the In Service environment and the need to maximize the opportunity of the “sunk” taxpayers' investment in the existing Industry support networks to modify and support them.

‘Director General Major Surface Ships, Commodore Peter Hatcher instigated the deal. Under the original fixed price prime contract it was extremely difficult and expensive to change scope for good reasons as explained before.

‘To deliver the alliance, we had to get together (DMO, SAAB and Tenix) and look at commercial arrangements that we could move forward on to get improvements into the built and in-build ships without affecting the prime contract. This arrangement changed the way we interacted with each other by modifying behaviours and creating a collegiate environment of cooperation. It took 18 months to establish the alliance, and once it was “institutionalized” the whole relationship changed. Anything we asked for in the contract was no longer a problem; we understood each other’s drivers better through the Alliance negotiation; and we were a team with a common aim.

‘Alliances are about rounding everybody up and pointing them in the same direction. Expanding the Alliance across all operations of the ANZAC Systems Program Office gave us all the benefits of a generation alliance and removed the limitations of the legacy contracts.

‘In the end I think our overall relationship with Tenix and SAAB improved immeasurably. We were focused on delivery of capability to the warfighters and interested in the program beyond financial gain.

‘Industry should be getting the message now that DMO is all about schedule and capability. We are willing to pay for risk and deliver a reasonable profit to our industry partners. We are informing commercial acumen with technical risk appreciation and our demands as a customer are likely to be more effective into the future.

‘On the AWD and LHD projects industry can expect tighter margins, better project controls and a more educated project management team.

‘They can expect a more informed customer, who can empathise with them more, as we now have a better understanding of their position through DMO Chief Executive Officer, Dr Stephen Gumley’s roll out of the Business Acumen course.

‘The ANZAC build was the largest ship project undertaken in Australia . It has given us the skill set to move into building the AWD and LHD ships, an even greater challenge. We had ten ships to mature the processes. On the next two ship projects the number of opportunities to develop process is fewer. I think these project teams are going to have to be a lot tighter up front and hit the ground running with all their project management systems and industry relationships established and in place,’ Mr Eggleton said.

He closed the interview with a little known fact. He said the DMO Project team delivered the Vertical Launch Missile and Gun Systems as Government Furnished Material to the shipbuilder. The critical interfaces for these were determined before contract signature and such was the effectiveness of this that through the life of the shipbuilding project no excusable delay was ever presented to the DMO as a consequence of this essential decision. Mr Eggleton said this was proof that the DMO can provide the systems engineering competency, in cutting edge technology, to compliment a total team outcome. A classical example of the adage ‘he who best manages the risk owns it’.

The ANZAC Alliance collect their 2005 Australian Defence Magazine Award (left to right): Tenix representative, John Favoloro; Defence Materiel Organisation Director General Major Surface Ships, Commodore Drew McKinnie; Grandson of Essington Lewis, Ed Lewis; Australian Defence Magazine Editor, Gregor Ferguson; Saab representative, Tony Davis.