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Annual Report 2014–15

Volume 1, Part 2 : Performance

Chapter 6
Defence Materiel Organisation


Review by the Chief Executive Officer

The 2014–15 Annual Report represents the last for the Defence Materiel Organisation (DMO) as it was officially delisted as a listed entity on 1 July 2015 and transitioned to form the Capability Acquisition and Sustainment Group within the Department of Defence. Given this move from a separate listed entity, this overview reflects on the many achievements brought about by the dedicated people of the DMO, who have worked tirelessly over many years to equip and sustain the ADF.

In reviewing what the DMO has achieved over the past 15 years, it is clear that the organisation has made a significant difference in ensuring that the ADF has been well supported and that the required equipment and sustainment support to be combat ready has been available. There are many success stories that DMO staff can proudly reflect on, and they all have one common thread—they all improved Australia’s defence capability and the safety of our warfighters. Since being prescribed in 2005, the DMO has delivered more than 170 projects, and for the most part those projects were delivered within budget and to the required capability level.

Recent examples of ADF capability enhancements include the Air-to-Air Refueller and Wedgetail, both of which are currently being used with significant effect in operations overseas. By all accounts, these are the platforms of choice for our allies. Both capabilities were previously on the ‘Projects of Concern’ list; however, thanks to the collective expertise and determination of many within the DMO and our industry partners, these projects were remediated and now provide the ADF with world-class capabilities. Another worthy example is the Australian-designed CEA Technologies phased-array radar, currently installed on our Anzac class frigates.

The Government recently gave second pass approval for LAND 2072 Phase 2B Battlespace Communications Systems to provide the ADF with the next generation of battlespace telecommunications network capability. Approval of this project is a critical milestone in achieving a modern, networked Army.

The JP 2048 Phase 4A/4B Amphibious Deployment and Sustainment project will provide the ADF with an increased amphibious deployment and sustainment capability through the acquisition of two landing helicopter docks (LHDs) and associated supplies and support. One of those vessels—HMAS Canberra—has already been delivered and commissioned. Together, these 27,000-tonne LHDs will be able to land a force of more than 2,000 personnel by helicopter and watercraft, along with all their weapons, ammunition, vehicles and stores.

We have been equally effective at sustaining capability and there are many examples where we have driven effective and innovative sustainment solutions, in particular by extending the life of various air, land and maritime fleets. The Smart Sustainment Reform Programme has resulted in approximately $2 billion worth of savings since 2009, while the introduction of performance-based contracting has resulted in significant improvements in sustainment efficiency and productivity by industry. Our Anzac and guided missile frigate (FFG) naval vessels are benefiting from this innovative business model, as is our AIR9000 helicopter training programme.

Aside from project and sustainment achievements, work by our commercial group staff in areas such as contracting, procurement, legal, industry engagement, reform and business operations provided a solid foundation for the DMO, allowing acquisition and sustainment functions to operate successfully.

Continuous reform has always been important to the DMO and the First Principles Review reinforces this reform agenda.

Finally, the achievements of the past years would not have been possible without the tremendous DMO staff who have contributed so much over the years. My thanks to all current and previous DMO staff for their hard work, dedication and commitment; the DMO has delivered great outcomes, which all DMO staff should be proud of.

DMO role and functions

During 2014–15, the DMO was responsible for the acquisition and sustainment of the materiel elements of capability for the ADF.

Performance against DMO strategic priorities

Driven by four strategic priorities in 2014–15, the DMO continued to provide the materiel equipment and sustainment elements of capability for the ADF in an effective, efficient, economical and safe manner. Its strategic priorities ensured that the focus of the DMO remained on sustainably delivering the outcomes agreed with capability managers, without compromising safety and within available resourcing. The four strategic priorities were:

1. Deliver acquisition and sustainment more efficiently

The DMO’s achievement of operating more effectively is reflected in its successful delivery of an increased acquisition and sustainment workload with 464 fewer people in its workforce and $28.249 million less operating expenditure than in 2013–14.

2. Interact with reviews

The DMO engaged proactively with the First Principles Review and turned its focus to implementation of a new operating model and smart buyer function.

3. Streamline internal processes

Significant progress was made on streamlining and simplifying the DMO’s internal processes under the ‘One Quality Management System’ reform programme, as well as improving procurement processes, and a greater reliance on the delivery of enabling support functions under the Defence shared service model.

4. Reform the DMO

The DMO’s continuous reform programme has been focusing on more effective work outcomes, enabled by increased productivity from rationalising and streamlining internal processes while also pursuing opportunities to better automate work practices.

DMO financial performance

The DMO receives approximately 92 per cent of its funding from Defence under agency agreements. The remaining 8 per cent of its funding is provided through a direct appropriation and own-source revenue. The DMO’s audited 2014–15 financial statements are included in Volume Two of this report.

An assessment of DMO financial performance in 2014–15 against budget estimates is provided online.

Table 6.1: DMO resource statement 2014–15

Actual available
for 2014–15






Ordinary annual services[1,2]

Departmental appropriation

Departmental appropriation[1,2]



Total departmental appropriation




Special accounts

(departmental and administered)

Opening balance


Appropriation receipts[1,2]


Appropriation receipts

– other agencies[3]


– adjustment for other agencies[3,4]


Non-appropriation receipts to special accounts


Adjustment for non-appropriation receipts to special accounts[5]



Payments made[7]


Appropriation reduction

Closing balance


Total special accounts





Less appropriations drawn from annual or special appropriations above and credited to special accounts




Total resourcing and payments (A+B–C)





  1. Appropriation Bill (No. 1) 2014–15 and Appropriation Bill (No. 3) 2014–15.
  2. Reported as $879.683 million estimated actual in the Portfolio Budget Statements 2015–16. The variation is because the planned appropriation reduction will not occur until the relevant Appropriation Acts are repealed by Parliament.
  3. Appropriation receipts from Defence credited to DMO’s special accounts.
  4. Adjustment is variance between estimated actuals as at Portfolio Budget Statements 2015–16 and actual available appropriations for 2014–15 as at
    30 June 2015.
  5. Adjustment is variance between estimated actuals as at Portfolio Budget Statements 2015–16 and actual receipts for 2014–15 as at 30 June 2015.
  6. Administered interest received from overseas bank accounts which is remitted to the Official Public Account.
  7. Excludes GST.

Appropriations and other resources

The DMO workforce and operating expenses (along with industry programmes) are directly appropriated by government through Appropriation Bill (No. 1). The DMO has flexibility over the allocation of its workforce across the various programmes it delivers. Variations for programmes from the revised budget to the actual result may reflect ongoing changes to activity levels prescribed by Defence, budgeted cash flow adjustments for movements in foreign exchange rates or delivery of programmes with fewer resources.

Programmes 1.1 and 1.2 were largely funded by payments from Defence for goods and services provided, as set out in the materiel acquisition agreements. Programme 1.3 was funded largely through a direct appropriation.

Table 6.2: Budgeted expenses and resources for DMO outcome

DMO outcome: Contributing to the preparedness of the Australian Defence organisation through acquisition and through-life support of military equipment and supplies




Programme 1.1: Management of Capability Acquisition

Departmental expenses

Ordinary annual services (Appropriation Bill Nos 1 and 3)




Special accounts




Expenses not requiring appropriation




Subtotal for Programme 1.1




Programme 1.2: Management of Capability Sustainment

Departmental expenses

Ordinary annual services (Appropriation Bill Nos 1 and 3)




Special accounts




Expenses not requiring appropriation




Subtotal for Programme 1.2




Programme 1.3: Provision of Policy Advice and Management Services

Departmental expenses

Ordinary annual services (Appropriation Bill Nos 1 and 3)




Special accounts




Expenses not requiring appropriation




Subtotal for Programme 1.3




Total departmental expenses for DMO outcome





  1. The variation is between the actual result as disclosed in the DMO’s audited 2014–15 financial statements and the revised budget published in the Portfolio Additional Estimates Statements 2014–15.

DMO outcome: Contributing to the preparedness of the Australian Defence organisation through acquisition and through-life support of military equipment and supplies


The DMO has three programmes:

  • Programme 1.1: Management of Capability Acquisition
  • Programme 1.2: Management of Capability Sustainment
  • Programme 1.3: Provision of Policy Advice and Management Services.

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