casg cost principles

Key elements of the governance and organisational framework include: a specialist organisational unitcurrently the Capability Acquisition and Sustainment Groupstaffed by a mix of civilian and military personnel; contract-like arrangements for sustainment between that unit and the Chiefs of Navy, Army and Air Force (Defences Capability Managers); and day-to-day responsibility for most sustainment activities falling to Systems Program Offices, which carry out that work using a mix of in-sourced and out-sourced service provision. External Maintenance Period Activity Cost Growth. 2.8As a consequence of the 2015 First Principles Review and the decision to consolidate and reform Systems Program Offices, Defence has adopted a new definition of Systems Program Office. In 2011, a review of the Smart Sustainment program by consultants engaged by Defence identified that there were no records to support how these funds were spent or what benefits had been realised. 33. Cost principle is the accounting practice of recording the original purchase price of an asset on all financial statements. ), Figure 3.4:Estimates of Service sustainment costs, 200607 to 202021. The Dashboard area of Comodo Antispam Gateway ( CASG) allows administrators to take overall control of domain, account and customer management.The interface is divided into three areas - Domain Management, Account Management and Customer Management. 84Mr Kim Gillis, Deputy Secretary, Capability Acquisition and Sustainment Group, Defence, quoted in Ziesing, K, From the Source: Deputy Secretary CASG Kim Gillis, (interview) Australian Defence Magazine, 1 November 2016. This is a risk in light of the systemic issue identified by Defence in its work towards reforming Systems Program Offices: SPO staff have limited experience, skills, and competencies needed to effectively establish, govern, and assure industry delivery of capability (see Box 3, p.23 of this audit report). 5.44Defence began development of the Capability Acquisition and Sustainment Group Business Framework as of 31July2015 with a view to completion on 1February2016. It is now not clear whether Defence will continue with this work. The effectiveness of Defences internal reporting system for sustainment could be improved in several areas. The performance of the Armed Reconnaissance (Tiger) Helicopter is reported thus in the Quarterly Performance Report for April June2016, produced in August2016: The Final Acceptance Milestone under the Acquisition Contract with Airbus Group Australia Pacific (formerly Australian Aerospace) was declared achieved on 28May2013, approximately five years later than originally contracted. It is also seen as needed to streamline and consolidate the Systems Program Offices. Significantly, the Coles review recommended that Defence develop an asset management strategy for sustainment (see Appendix 5 of this audit report) and Chief of Navy subsequently expressed a strong desire for a total asset management framework.174. For example, a note to Table21: Army Deliverables, which in relation to the Armys Armed Reconnaissance (Tiger) Helicopter, states while Tiger reliability, availability and maintainability continue to improve, rate of effort is affected by the low rate of availability of aircraft with fully serviceable mission equipment due to poor but improving contracted sustainment support and the requirement for unscheduled maintenance. Develop clear lines of authority and responsibility for sustainment. The document details the cost principles that Defence and industry will utilise in costing contracts. Note c:Defence, Current e-Procurement Projects, June2016. 154The template was referred to as ASDEFCON (Support) version 3.0, June 2011. While poor outcomes in the Key Health Indicator represent risk across all Materiel Sustainment Agreement outcomes, these risks are more acute in relation to Material Confidence and Materiel. Obsolescence will result in increased Urgent Defect, Cannibalisations and reduced Demand Satisfaction Rates. Defence has drawn heavily on contracted industry expertise to support its implementation of the program of organisational change relating to acquisition and sustainment that has followed the First Principles Review. 4.21There are reasons to doubt some of the savings estimates for Smart Sustainment: 4.22The Smart Sustainment initiative lost momentum and its costs and benefits are uncertain. 323. Current proposals appear to be limited to an independent health check on progress.184 On the face of it, the scope of the health check is narrow, focused on closing recommendations and assessing progress. Consequently, while cannibalisations are undertaken to avoid failure against Materiel Ready Days (Materiel Availability outcome), their true impact is on Materiel Confidence with secondary impact upon Sustainment Efficiency outcomes. DMO's stated vision was to become the leading program management and engineering services organisation in Australia. 3.2The reporting system relied upon by Capability Acquisition and Sustainment Group and, before it, the DMO, to track major acquisition projects since mid-2004 has been its web-based Monthly Reporting System (MRS). 175ISO 55000 is an international standard for management of physical assets. HWrH+z S, ?~#|~!hI&Y{/.>ae0KQ $$ 3,B(3ot=zh6+EZ(Z=\(]/EY&bm>KD_;$8Gb Defence received the final report in December2015.145 In August2016, Defence re-engaged the same consulting firm to complete reviews of a further 53 Systems Program Offices. 18. A 2016 Parliamentary inquiry into Capability of Defences physical science and engineering workforce noted that: Several submissions and witnesses emphasised the need for Defence to have a sufficient [science and engineering] workforce to allow it to be a smart buyer or an informed customer. In its 201415 Annual Report, Defence claimed to have achieved $2billion of savings from the initiative in its first five years. In Australia, see also Pat Barrett AM, Auditor-General for Australia, Some issues in contract management in the public sector, presentation to Australian Corporate Lawyers Association/Australian Institute of Administrative Law conference on outsourcing, Canberra, 26 July 2000. 3.17The ANAO observed marked differences in the information provided about Armys Armed Reconnaissance (Tiger) helicopter between: 3.18A comparison shows that the Quarterly Performance Report does not include information available to Defence that is critical to the readers ability to understand the gap between the expectation of capability and reality for the Tiger helicopter program (See Appendix 3). Defence would benefit from evaluating future major change programs. 209Defence, Defence and Industry Policy Statement 2007, p. 28: Defences in-house S&T organisation, DSTO, enables the ADF to be a smart buyer, user and adaptor of military technology. 3.57Defence provides information about sustainment in its Portfolio Budget Statements (PBS), Portfolio Additional Estimates Statements (PAES) and Annual Reports. This document applies to all NIH grants and cooperative agreements for budget periods beginning on or after October 1, 2022. The DMO was to be accountable for whole-of-life materiel management, with Systems Program Offices comprising multi-functional teams to undertake the work. It also agreed that deviation from the endorsed approach will be permitted only in exceptional circumstances, and with the approval of Defences costing authorityits Chief Finance Officer. The term includes small and large businesses and is used interchangeably with "for-profit organization." Thus, for example, slippage in new acquisition projects can increase sustainment costs for ageing platforms. 192Defence Portfolio Additional Estimates Statements 201516, Table 77: Top 30 Sustainment Products by End of Financial Year Outcome 201516, Appendix F, pp. The Product Delivery Agreement will cover both acquisition and sustainment of a capability system over its life, through to disposal. Nevertheless, the consultants considered the program was failing because of shortcomings in governance, program management, and Defences approach to reform described by a major vendor as minor reform, driven by piecemeal, top down budget pressure. Source:Defence, Portfolio Budget Statements and Additional Estimates Statements, 200607 to 201718. 6. The ANAO recommends that Defence institutes a risk-based quality assurance process for the information included in the Defence Quarterly Performance Report. The 201617 Defence Corporate Plan incorporated a revised set of Defence Purposes and performance measures.89 These identify sustainment more clearly than in the previous plan, under the revised Purpose 2, Deliver and sustain Defence capability and conduct operations. However, they are in a different order, which may reflect changes in organisation following the delisting of DMO. The ANAO work program outlines potential and in-progress work across financial statement and performance audit. Defence comprises the Department of Defence and the Australian Defence Force. 196Defence, Study into the Business of Sustaining Australias Strategic Collins Class Submarine Capability, November 2012. Defence has clear and long-standing governance and organisational arrangements for managing the sustainment of specialist military equipment. In March 2016, Defence extended Bechtels contract until 30 June 2016, which increased the value to $9.7 million. 160Defence, Review by Mr Jeff Worley, 30 May to 3 June 2016. Due to the nature of the Key Health Indicator, it seeks to measure disruption post External Maintenance Period and consequential impact on Materiel Ready Days (Materiel Availability outcome). 4. Earned Value Management in CASG - pgcs.org.au 144The First Principles Review (p. 36) states: We consider that it would be possible to rationalise and reduce the Systems Program Office structure and staffing levels as more sophisticated contracting models are established and their individual support functions are consolidated as part of the service delivery reform. Figure 3.3:Defence estimates of the cost of its capability sustainment program, 200506 to 202021. 147A summary of the findings of the first tranche of Systems Program Offices reviews is set out in Chapter 2. Box 3: Systemic issues identified by Defence in the reform of Systems Program Officesa. Once fully implemented this system should be capable of systematically reporting against a suite of performance indicators settled in agreement with Capability Managers. 4.6The Strategic Reform Program comprised 15 separate streams of reform, several of which were intended to reduce costs.106 Overall, Defence expected the program to yield $20.6billion, to be reallocated within Defence over the following decade, with Smart Sustainment contributing $5.5billion of that figure.107 This would make sustainment savings the largest single source of funds under the Strategic Reform Program. Introducing performance-based contracting into Defence sustainment has been underway for over a decade. This has occurred with the extension of DMOs earlier program of gate reviews to cover sustainment as well as acquisition.54. 3.22In 2009 Defence commenced gate reviews for capital acquisition projects as an internal assurance process.55 They have provided insight into a projects progress and an opportunity for project staff to discuss difficult issues with senior management and seek guidance. Such visibility would enhance Defences ability to benchmark its sustainment performance against allied countries with similar equipment. SeeCost Considerations-The Cost Principlesfor additional details. Source: NASA Cost Estimating Handbook, v.4.0, 2015, Appendix C: Cost Estimating Methodologies, available from [accessed 21 December 2016]. The skill sets required in sustainment are quite different from those required for design and build: repairing the range of equipments in a submarine poses problems of access and control which are not likely to be experienced during build, and the design issues which crop up during sustainment are focused on keeping equipment operational rather than on design for performance. The capability management role needs to be resourced appropriately to be able to take the lead roles of the asset owner and the sustainment customer. Defence had developed, by the time of that review, a consistent approach to acquisition. This resulted in the various parties failing to act on, or enforce, their responsibilities within the sustainment space. In May 2016, Defence entered into another contract with Bechtel for $65.8 million, to conclude in June 2018. The report includes performance summaries for the Top 30 major acquisition projects, all major acquisition projects reported in the Major Projects Report and the Top 30 sustainment products. SeeCost Considerations-The Cost Principlesfor additional details. 24. The ANAO has recommended that Defence institute a risk-based quality assurance process for information included in the Quarterly Performance Report. It is now not clear whether Defence will continue with this work. In 2011, a health check by external consultants found some early successes with cost reductions and changes in practice. Reporting and compliance was devoted to soft governance rather than to hard asset management decisions, based on sound financials, across the whole capability lifecycle. There remains potential to improve some core key performance indicators used within the systemfor example, to more usefully determine the total cost of the capability to Defence. Defence advises that Over the past 12months the CASG e-Procurement Team and the DoF AusTender Team, and SAP Australia Canberra Office have been progressing a whole of Government project to address the technical and business process risks posed by the current SAP AusTender Contract Reporting data capture and reporting solution. The Canberra Times reported that its 'senior public service sources' believe she is the highest-ranking Australian Commonwealth public servant to ever have been dismissed for underperformance. [Materiel Acquisition Agreement] Closure and accompanying Product Schedule Change Proposal (PdCP) to transfer the delivery of the Deployable Aircraft Maintenance Rig capability to CA12 completed and awaiting Assets Under Control (AUC) balance adjustments before paperwork can be processed for signature. The nature of the contracts provides an inherent disincentive for contractors to improve platform supportability of their own accord as the quantum of their financial reward is often directly linked to the volume of repairs conducted.150. 0000001107 00000 n Defence has not implemented measures of efficiency and productivity for all sustainment products. General Provisions for Selected Items of Cost: 200.420 - 200.476 200.420: 56Defence, Plan to Reform Support Ship Repair and Management Practices, [Rizzo Review] July 2011, p. 68. This approach is problematic as it does not inform government of the total cost of the project across the life of the capability. There is no record of target for these objectives. This introduces risks related to ensuring that Systems Program Office staff working on outsourcing have the necessary skills and competencies. The cost principles are set forth in HHS regulations at 2 CFR Part 200, Subpart E, 45 CFR Part 75, Subpart E, and Appendix IX (Hospital Cost Principles) to Part 200 and Part 45. 27. 81Defence, First Principles Review, p. 66. 3.44The Mortimer Review (2008) observed that through-life maintenance and support account for more than half of the DMO annual budget and involve about two-thirds of its workforce. 39Capability Acquisition and Sustainment Group Cost is the MSA-related expenditure. They include: 2.21The review is examined in more detail in Chapter 5 of this audit report, while the transparency of internal costs is examined in Chapter 3. Defence advised the ANAO in March2017 that it was looking into what became of the [unquantified] residual seed funds. Defence should give sustainment much higher attention and priority during the initial phases of the assets life cycle (Needs, Requirements, and Acquisition). The absence of asset management strategy resulted in poor obsolescence and a lack of reliability management and, consequently, a bow wave of reliability defects and obsolescence. More efficient support services for the Jindalee Operational Radar Network, reportedly saving $100million over ten years; Navy using Telstras NextG network for several minor war vessels, relinquishing satellite communications subscriptions and saving $2.3million a year; and. 4.1Sustainment practices have been subject to numerous reform initiatives over the last decade, especially since the Mortimer Review (2008).99 In 2015, the First Principles Review concluded that the change programs associated with previous reviews have resulted in only incremental change.100 This remark explicitly included all phases of the capability lifecycle, including sustainment. 46Defence, Decision BriefSustainment Performance Management System Development, 8 August 2011. An alternative approach is to manage a total project budget that includes employee expenses. Note a:Navy Allowance (NAVALLOW) is the Navy logistics system. 205See, in particular, D.F. They may also be involved in acquisition projects but the greater bulk of their work involves sustainment. 4.19Notwithstanding Defences effort to keep track of the claimed and planned savings from Smart Sustainment, Defence has not been able to provide the ANAO with adequate evidence that the savings were realised. See Defence Portfolio Budget Statements 201718, Table 68: Top 30 Sustainment Products by End of Financial Year Outcome 201718, pp. Later (April2004), senior DMO managers stated that there was scope to achieve a better risk balance in sustainment program management, where well-defined tasks had, in the past, been transferred to industry successfully with net savings, thereby improving efficiency. There are no standardised reporting mechanisms (reporting is informal, anecdotal, local or crisis based) or management processes, with all divisions having different methodologies and management systems. For example, a small number of products could be selected, with rotation or other variation from year-to-year, limiting the risks that may flow from time-series analysis and the release of other material whose aggregation could add risk. Manufacturing Overhead Costs | Explanation | AccountingCoach PDF Market Standards for Corporate Actions Processing Defence spends similar amounts each year on sustainment and the acquisition of new equipment. From the perspective of the field review, there is some indication that the sustainment models continue to drift apart.202. 87Department of Finance, Resource Management Guide No. What is Cost Principle? (Definition and Examples) | Indeed.com The value of these contracts totals about $835000. 25Defence, Inspector Generals Group, Review of Support Provided to DMO Systems Program Offices by the DMO Operations Divisions, 2006, p. 16. The availability of the aircraft is either shown as Green (acceptable performance) or Amber (early signs of underperformance), depending on the part of the report examined. 68The Defence qualification was that The amount and type of LCC [life cycle costing] information presented to committees will vary according to the issues being considered and only pertinent information should be included. Many antiviral agents exert significant host cellular toxicity, a limitation that has hindered antiviral drug development. 71 0 obj<> endobj Defence expects full implementation to take a further two years. The term smart buyer is a term of art, with a specific meaning in public administration, relating to outsourcing, and which arose around 1990 following work in the USA by the GAO and the Brookings Institution.205 The key paragraph in an early GAO study states: The government must have an active role in the decision-making process. Develop and implement a contracting strategy to improve performance based contracting [Management Recommendation. Navy, Army, Air Force units and Joint Logistic Command business units also conduct sustainment activities at a tactical level, inclusive of maintenance, inventory management and regulation of the technical integrity of materiel within units. Improvements are still being seen in Rate of Effort (ROE) generation, since the implementation of the renegotiated ARH Sustainment contract arrangement. 1. It is now too late to revisit these events; nonetheless, Defence could benefit from evaluating future major change programs. This proposal is regarded as a key principle, integral to the acquisition and reform agenda. Source:Defence, Portfolio Budget Statements and Additional Estimates Statements; ANAO analysis. The review considered the causes of this complexity, made comparisons with commercial organisations with similar operations and analysed the impact of this complexity on DMO. 121Annex A to the First Principles Review report indicates that the reviewers considered six FPR recommendations, including one key recommendation, to have been influenced by Coles earlier review. 2.20Defence records indicate that, as at February2017, the project had reviewed 24 Systems Program Offices across three domains (Maritime, Aerospace, and Joint), comprising 37.5percent of the Groups business delivery units. 132Defence considered not using the term Systems Program Office as this could be confused with the use of the same term in the USA, where Systems Program Offices were said to be concerned only with acquisition and not sustainment. 5.55In November2016, Defence informed the ANAO that it intends to use the principles of the ISO 55000 Asset Management Standard as a guide of good practice and to further develop Defences framework for the management of sustainment.175 In March2017, it advised that the policy issued under the earlier DMO governance framework was gradually being reviewed and updated. 3.36Numerous reviews and audits have urged greater focus on whole-of-life costs and better knowledge of the total costs of ownership of military assets, including sustainment, but have found that Defence has struggled to establish the skills, systems and data for this activity66: 3.37In recent years, Defence has generally estimated whole-of-life costs when seeking government agreement to a proposed acquisition. 11Military units regulate the technical integrity of capability and undertake some operational level maintenance. The 2003 Australian Defence Aerospace Industry Sector Strategic Plan, produced jointly by Defence and industry representatives, recommended this approach, as well as a move to long-term through-life support contracts.149 Aerospace Systems Division then led in this reform area, producing a Performance-Based Contracting Handbook in 2005. In the longer term the system is to be expanded to cover acquisition. SeeCost Considerations-The Cost Principlesfor additional details. This measure seeks to qualify the degree to which the supply chain is confined by obsolescence - systems or components. 3.6SPMS was introduced, first, for Navy (MayJuly2015) following work to develop its sustainment performance framework with a standard suite of performance indicators.37 The system was being implemented in Air Force and Army from late 2015 through 2016. Maintenance is still a large cost component for sustainment of these systems but regular replacement is more significant in comparison with platforms. 2.5Defence describes the accountabilities of the Group as follows: The Capability Acquisition and Sustainment Group (CASG) purchases and maintains military equipment and supplies in the quantities and to the service levels that are required by Defence and approved by Government.16. 7. In practical terms, it would not make sense to calculate FCF all in one formula. Commercial organizations are subject to the cost principles located at 48 CFR Part 31.2 Federal Acquisition Regulation. Defences asset management project is also examined. CASG customers means internal customers: the Capability Managers for whom the Capability Acquisition and Sustainment Group undertakes sustainment. Based on this analysis the Review suggested indicative savings targets. For example, a commercial organization An organization, institution, corporation, or other legal entity, including, but not limited to, partnerships, sole proprietorships, and limited liability companies, that is organized or operated for the profit or benefit of its shareholders or other owners. Nevertheless, an internal review conducted by Defence and research conducted for Defence following the 2015 First Principles Review have identified a range of operational problems that detract from the efficient and effective sustainment of Defence capability, including: adherence to procurement principles; staff capabilities; duplication of effort and transparency of internal costs. The ANAO has recommended that Defence develop and implement an evaluation plan. 3.69When sustainment costs are presented cumulatively, the contribution of items other than Navy, Army and Air Force sustainment to sustainment cost growth over the forward estimates can be seen. Opinion: Defence's MSP creation is without strategy, and at a premium Cash Accounting Definition, Example & Limitations - Investopedia They do this through a combination of internal work and commercial contracts. 1. The report also acknowledged that contract amendments were made to introduce a revised performance management regime. Areas for improvement include: Defences second corporate plan prepared under the Public Governance, Performance and Accountability Act 2013 (PGPA Act) identifies sustainment more clearly than the first corporate plan. The report is expected to be a direct acquittal of the performance measurement and reporting intentions identified in the corporate plan.87. The ANAO found that, 18months after implementation commenced, there had been limited progress.
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casg cost principles 2023