casg cost principles

Bechtel is now, with others, providing the UK with tailored private sector expertise and human resources, indicating relevant experience in the Defence procurement field. [13], In March 2009, the Corporate general manager of the DMO, Jane Wolfe, was dismissed for unsatisfactory performance. 5.38Major industry organisations have continued to urge Defence to progress performance-based contracting as a means of improving capability while reducing sustainment costs. %PDF-1.4 % 136Defence advised the ANAO in March 2017 that examples of fully outsourced models in the Air Domain include AEW&C, C-17, the Lead-in-Fighter and the Heron Unmanned Aerial System. Under the PGPA Act, Defence will need to report meaningfully against this plan in its annual performance statement. 59Defence Materiel Organisation, Zero-Based ReviewPhase 2, Final Report, 9 December 2003. Box 2: Sustainment work in Defences Capability Acquisition and Sustainment Group. The Pappas review had observed that sustainment was an area with significant opportunities for efficiencies.105. 33Defence internal documents. Note a:In compiling the data underlying this table PMKeys Reporting is not able to identify all those organisational units now recognised by Capability Acquisition and Sustainment Group as Systems Program Offices. 169Defence, Observations and conclusions of the Gate Review Board, CA48MRH90 Multirole Helicopter: Sustainment Performance Gate Review, 12 May 2016. In this context any proposal for new reporting requirements will need to consider if the new information might be aggregated to disclose classified information on capability readiness and availability.. 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. The cost principles The government-wide principles, issued by OMB (or, in the case of commercial organizations, the Federal Acquisition Regulation [48 CFR 21], or, in the case of hospitals, 45 CFR 75, Appendix IX, "Principles For Determining Costs Applicable to Research and Development Under Grants and Contracts with Hospitals"), on allowability and unallowability of costs under federally sponsored agreements. Although this largely represents the absorption and re-badging of the former DMO, other subsidiary recommendations are directed at substantial restructuring and reformulating the business practices in this part of Defence. Such cost reductions may be required to re-invest into inventory, obsolescence remedies, new infrastructure to manage an ageing fleet and the transition to future submarines. Poor outcomes in this Key Health Indicator will also have an impact upon the Sustainment Efficiency outcomes, as rework will require additional funding and stores to remedy. Defence has not kept a systematic record of the outcomes of the Smart Sustainment initiative associated with the 2009 Strategic Reform Program. Source: Defence, Plan to Reform Support Ship Repair and Management Practices, [Rizzo Review] July 2011, p. 38. The Future PGCS 2019 Chloe Kempster www.pgcs.org.au/library/2019 2 85Deputy Secretary, Capability Acquisition and Sustainment Group, 5 July 2016, email Message [to CASG staff]. Earned Value Management in CASG - pgcs.org.au The First Principles Review observed that, at the project level, Defence treats staff as a free good (see paragraph 3.45), and the cost of those staff is a substantial omission from the apparent price of services facing the capability manager. There are 3 classifications of cost accounting practice changes: Required Cost Accounting Practice Change arises when the contractor: Needs to comply with a new or modified CAS; Changes from one compliant practice (disclosed or established) to another compliant practice to remain in compliance with CAS The term includes small and large businesses and is used interchangeably with "for-profit organization." As noted in paragraph 5.14, in July2016, a former senior Bechtel executive was seconded to the position of First Assistant Secretary Program Performance in Capability Acquisition and Sustainment Group, under the day-to-day direction of the senior Capability Acquisition and Sustainment Group leadership. public reporting principles and requirements, including under the, Defences public annual reporting of sustainment activity; and. 28. 3.57Defence provides information about sustainment in its Portfolio Budget Statements (PBS), Portfolio Additional Estimates Statements (PAES) and Annual Reports. A Smart Buyer undertakes the roles that government must perform, and effectively outsources other functions when that is the Smart thing to do. This introduces risks related to ensuring that Systems Program Office staff working on outsourcing have the necessary skills and competencies. 71Defence, Rizzo Review, Chapter 4, p. 29. Defence is now undertaking a rolling program of reviews of all Systems Program Offices, adding a further 17 to those being reviewed. Systems Program Office consolidation and reform is one of the largest reforms to Capability Acquisition and Sustainment Group deriving from the 2015 First Principles Review. Source: NASA Cost Estimating Handbook, v.4.0, 2015, Appendix C: Cost Estimating Methodologies, available from [accessed 21 December 2016]. See Defence Portfolio Budget Statements 201718, Table 68: Top 30 Sustainment Products by End of Financial Year Outcome 201718, pp. Defence has developed its own meaning for the term smart buyer, which does not clearly articulate the intent of the First Principles Review recommendation. This has been achieved while managing risks to national security.2. 181Defence, ISO55000 Gap Assessment, Capability Acquisition and Sustainment Group, September 2015, p. 6. 5.40The analysis could usefully have regard to the outcomes of past reviews and audits, which provide insight into the effectiveness of Defences contracting arrangements for specific fleets of equipment. Defence lacked a single set of accurate information to inform decision makingThe review found that, whilst significant levels of information and analysis exist across the Collins Class Sustainment Program, the basis for long-term decision making was not always consistent or accurate, with multiple systems and datasets in use for financial, maintenance and supply chain activities. 5.5A subsidiary recommendation (2.2 disbanding the DMO and transferring its core responsibilities in relation to capability delivery to a new Capability Acquisition and Sustainment Group) has led to the creation of Capability Acquisition and Sustainment Group in Defence. The cost principles The government-wide principles, issued by OMB (or, in the case of commercial organizations, the Federal Acquisition Regulation [48 CFR 21], or, in the case of hospitals, 45 CFR 75, Appendix IX, "Principles For Determining Costs Applicable to Research and Development Under Grants and Contracts with Hospitals"), on allowability and unallowability of costs under federally sponsored agreements. 34Defence, Decision BriefSustainment Performance Management System Development, 8 August 2011. or an F&A cost Necessary costs incurred by a recipient for a common or joint purpose benefitting more than one cost objective, and not readily assignable to the cost objectives specifically benefitted, without effort disproportionate to the results achieved. Minister Smith also said that he had asked Defence to review the effectiveness of its management of major projects. 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. The Support and Operating Intent of the capability are not being adequately articulated by Capability Managers, which results in: Activities assigned to the Services that affect asset management and asset condition are not being completed, and limited feedback is being provided to the Capability Manager Representative regarding the impact of non-completion on cost and availability. Please use 43The Quarterly Performance Report, introduced in late 2015, has evolved from earlier management reporting designed to identify potential problems in the formative stages of the project life cycle (Defence advice of March 2017). 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. 1See, for example, ANAO Report No.40 201617, 201516 Major Projects Report. Deficiencies in the configuration record indicates potential Configuration variance and will impact the availability of necessary inventory for planned and corrective maintenance tasks resulting in increased risk to achieving Materiel Ready Days (Materiel Availability outcome). The number of SPO staff supporting activities such as planning, contract management, and assurance may not be sufficient and this is a risk to achieving FPR goals (including SPO reform) and ongoing delivery of [Integrated Investment Program] activities. 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. Defence had not established a strong case for value for money for the continual renewals of supplier contracts. The web tables are accessible through the on-line version of the Annual Report on Defences website, specifically at the end of Chapter 8. Failure to pay sufficient attention to sustainment early on will increase the cost of ownership to Defence. 198Defence, Going to the Next Level, the report of the Defence Procurement and Sustainment Review [Mortimer Review], 2008, p. 46. 16. In Defences case, this should eliminate the need for some 20000 manual update transactions to AusTender each year. 30Defence, Going to the Next Level, the report of the Defence Procurement and Sustainment Review [Mortimer Review], 2008, p. 49, Recommendation 4.2; Defence, Plan to Reform Support Ship Repair and Management Practices, [Rizzo Review] July 2011, p. 46. 73 0 obj<>stream 192Defence Portfolio Additional Estimates Statements 201516, Table 77: Top 30 Sustainment Products by End of Financial Year Outcome 201516, Appendix F, pp. It provides only a partial account of materiel sustainment within Defence and is potentially at odds with the One Defence model promoted by the First Principles Review. 20In April 2016, Capability Acquisition and Sustainment Group defined a Systems Program Office as a business unit that works directly with Capability Managers and Suppliers as necessary to deliver agreed capability across the CLC [capability lifecycle], coordinating the FIC [fundamental-inputs-to-capability] elements required to achieve this objective. Asset management is not mentioned in the 2007 DMO Acquisition and Sustainment Manual. The assessment method is to be Assessment of sustainment against capability manager requirements. In particular, the other recommendations with substantial implications for the management of sustainment are as follows: 2.3 developing a new organisational design and structure as part of the implementation process for the Capability Acquisition and Sustainment Group with reduced management layers; 2.4 examining [and analysing] each Systems Program Office to determine where each fits within the smart buyer function, [and] the most appropriate procurement model [for delivering the capability] and achieving value for money; and, 2.11 significant investment to develop an operational framework which comprehensively explains how the organisation operates and the roles and responsibilities within it; a detailed set of life cycle management processes which provide project and engineering discipline to manage complex materiel procurement from initiation to disposal; and reviewing architecture to reinforce accountability at all levels and bringing together information upon which good management decisions can be made.123. SPO overhead has increased through a number of avenues: i. 32. There are others which relate to the more detailed findings of the First Principles Review, including those identified in the paragraph above (such as a common approach to project management).125 All elements have implications for both acquisition and sustainment. 9Executive Minute on Joint Committee of Public Accounts and Audit Report No. Defence advised that a contract variation has been applied to accommodate this additional work, bringing the total cost to $16.3million. 2The MPR Guidelines, which are endorsed by the JCPAA, provide that data of a classified nature is to be prepared in such a way as to allow for unclassified publication (see ANAO Report No.40 201617, 201516 Major Projects Report, paragraph 1.16, p. 463). A list of Systems Program Offices (including staff numbers, assets under sustainment and contracts) is at Appendix 1. 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. 163Defence informed the ANAO that it is seeking to address the capacity and technical knowledge of Defence staff in CASG through the introduction of the matrix management approach. , O8>vz_y!_BG10Vu j1+f)*f) A0 u`e0;F)l` qX+^09Wy7k&C ) 5.17As set out above (paragraph 5.8), the activities most likely to affect the management of sustainment are: 5.18When Defence established Systems Program Offices in 2000 as the focus of the newly created DMO, Systems Program Offices were to have the following characteristics: 5.19Defence has more recently (April2016) defined Systems Program Offices as: a business unit that works directly with Capability Managers and Suppliers as necessary to deliver agreed capability across the [Capability Life Cycle], coordinating the [Fundamental Inputs to Capability] elements required to achieve this objective.133. 90In the 201718 Defence PBS, Defence presents the estimates and descriptive information for its Top 30 sustainment products in a single table. 3.1To assess whether Defence has in place an effective performance framework to support the management and external scrutiny of materiel sustainment, the ANAO examined: With the introduction of its Sustainment Performance Management System (SPMS), Defence continues to develop a basis for an effective monitoring system for sustainment. Defence advised the ANAO in March2017 that it was looking into what became of the [unquantified] residual seed funds. FIFO: What the First In, First Out Method Is and How . Accountability and Transparency in procurement 3.15Under current arrangements for its production, the Quarterly Performance Report is neither timelyit is more than 50 days old by the time it gets to ministersnor clearit is dense with acronyms and jargon. 157Defence, Report on Defence Governance, Acquisition and Support, (KPMG), April 2000, p. 51. 194Defence Annual Report 201516, Chapter 8, Web Table 8.11: Top 30 sustainment products by expenditure, as forecast in the Portfolio Budget Statements 201516, available from [accessed 20 April 2017]. Since 2001, the budget has increased by $418.2million from price index variation, and $121.5million from exchange rate variation. If the owner does not have the capacity to operate as a smart buyer, the owner risks project schedule and cost overruns and facilities that do not meet performance objectives.165. 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. 22. Defence has also been developing its approach to asset management over many years, having obtained substantial advice from internal and external sources to adopt a Defence-wide asset management strategy to underpin a sustainment business mode for specialist military equipment. F&A (indirect) cost pools must be distributed to benefitted cost objectives on bases that will produce an equitable result in consideration of relative benefits derived.. The report assessed the maturity level of asset management policy and supporting guidance documentation only. Defences devolved and fragmented leadership approach to the program meant that Defence had no holistic vision of what the reform program was setting out to achieve, and therefore no logical program of work designed to support it. Support of products represents about 2025percent of sustainment expenditure. The indicator was replaced with a measure CASG-related Product Cost per materiel-ready day, whose value could be generated automatically and would not require comment by the Systems Program Office.39 This would be reported in SPMS but not be represented as a key performance indicator40 because it did not include the cost of all the fundamental-inputs-to-capability and did not measure the cost per materiel-ready day. Primary impact will be on achievement of Materiel Ready Days (Materiel Availability outcome) with secondary impact upon Sustainment Efficiency outcome as alternate supply chain or cannibalisation will be required. Note e:The 2016 report from the Coles review team states that Attaining benchmark performance was a higher priority than efficiency. It is apparent from this audit that Defence has developed information systems that could support the preparation of similar information for its sustainment work. Further, the ANAO understands that the adjustments related to the expected savings were not identified in the Commonwealths central budget management system. 195Defence Annual Report 201516, Chapter 8, Web Table 8.2: Top 30 sustainment products, performance summary as at 30 June 2016, available from [accessed 20 April 2017]. Capability Acquisition and Sustainment Group also undertook in July2016 that over the next 12months, Capability Acquisition and Sustainment Group will commence effort capture (where staff time is tracked against the projects and products we support), led by the Group Business Manager.85. CASG Cost Principles V2.0 I 9 October 2017 Foreword The CASG Cost Principles support the Defence objective to standardise applicability and transparency of the cost basis used in Defence contracts. 38Defence, Navy/MSD [Maritime Systems Division of Capability Acquisition and Sustainment Group] Performance Framework Review, Summary of Issues and Recommendations, 4 March 2016. The tasks articulated in the Directive cover the full range of Defence activities from humanitarian assistance and disaster relief to peace and stability operations, while ensuring the joint force retains the necessary baseline posture to mobilise in the self-reliant defence of Australia. 1. However, even with higher rates of availability, improved fleet serviceability and Repairable Item (RI) turnaround time, flying hours are still lower than expected. Project Accountant at Northrop Grumman | The Muse In June2017, Defence advised the ANAO that implementation plans for significant reforms to Systems Program Offices would be developed in the second half of 2017. Note a:The Collins Class submarine sustainment program has been a project of concern since November2008. Defence has not implemented measures of efficiency and productivity for all sustainment products. For example, the Systems Program Office reviews are not yet complete and Defence has provided no evidence that decisions have been taken on any changes to their structure and functioning. 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. Defence has summarised Bechtels tasks under the contract as follows: The contract is fee-based with no performance measures. 80An example of a potential comparator database is the US Navys Visibility and Management of Operating and Support Costs (VAMOSC) database. 5.14Defence offered Bechtel significant additional work in May2016, engaging them to provide advisory services and a senior manager, seconded into a Capability Acquisition and Sustainment Group division head role.130 The estimated cost of all current contracts with Bechtel is about $107million.131. Principles of Antiviral Therapy | Clinical Gate 200.408 Limitation on allowance of costs. 55ANAO Audit Report No.52 201112, Gate Reviews for Defence Capital Acquisition Projects, June 2012. Table10: Capability Sustainment Program corresponds to Table6 in the PBS (see above). 3.5In common with MRS, SPMS is a web-based system designed to provide performance reports for Capability Acquisition and Sustainment Group and Capability Managers. A target expenditure cut of five per cent of sustainment costs over a financial year was set by the Chief Executive Officer of the DMO in February2008. 2 CFR 200.400 - Policy guide. | Electronic Code of Federal The ANAO found that, 18months after implementation commenced, there had been limited progress. One recommendation was not accepted that the DMO should be separated from the Department of Defence and become an executive agency. 3.46Treating staff as costless lessens transparency of the true cost of activity and introduces risks because of the inaccurate price signals and distorted incentive structure then facing Systems Program Office managers and the capability manager. The idea is to establish a managed resource pool that provides skilled personnel for CASG activities. 3.26Moreover, there is an opportunity for Defence to extend the use of its Sustainment Gate Review program to have those reviews consider the quality of the information provided in the most recent Quarterly Performance Report for the asset under review, to help quality assure the accuracy, clarity and completeness of that information. Appendix 5 of this audit report sets out both the root causes and those of the Coles Reviews consequential recommendations that have wider applicability in Defence sustainment. startxref But no such global improvement approach had been implemented across sustainment. The recruitment freeze has resulted in the incremental engagement of multiple individual contractors versus a single Integrated Support Contractor; and. In February2016, the Deputy Secretary, Capability Acquisition and Sustainment Group, informed the First Principles Review Implementation Committee that the business framework project has commenced and been resourced to deliver a fundamental rebuild of all Group processes.159 The completion date was extended to 1July2016 and the objective was to have a High-level business framework approved. The Defence White Paper, Defence 2000Our Future Defence Force, stated that the DMO will adopt commercial best practice as its norm and assess its performance against industry benchmarks. 74In all cases Defence included estimates for Net Personnel and Operating costs, even though the First Principles Review (p. 40) had recommended that Defence stop using this concept: Net Personnel and Operating Cost is Defences current estimate of the [additional] personnel, operating and sustainment cost of a proposed capability. 14 of 51. . In July2011, a further health checkthis time by external consultantsfound that Smart Sustainment had achieved some early successes with cost reductions and changes in practice. For example, Dr Davies211 noted that in his experience, having in-house expertise from public service engineers who could examine bids for work from external firms made him a much smarter buyer.212. There has been no consistent application of fundamental tools such as Earned Value Management. 0000000883 00000 n In early 2018, CASG, the Defence group that acquires and sustains military capability, established a panel through which the overwhelming majority of contracted and consulting services to Defence are delivered. A Smart Buyer maintains ethical, transparent and constructive engagement with industry, establishing trusted long term relationships that can better be relied upon to deliver capabilities for its Customers. 178British Standards Institution, Publicly Available Specification for the optimal management of physical assets PAS 55-1:2008: Asset Management, cited in Defence, Defence Asset Management Landscape Document, May 2012, p. 1. 3.9In September2016, Defence decided to expand SPMS to cover acquisition. 14For the great majority of Defences military assets, Capability Acquisition and Sustainment Group (CASG) is responsible for sustainment. Internal Defence briefs and letters of assurance reveal that Defence believed it could claim some $500million in savings from no longer having to sustain the Super Seasprite helicopter following the projects cancellation. They do this through a combination of internal work and commercial contracts. When implemented, the system will be renamed the Program Performance Management System.42 In the long term, Defence intends to build an enterprise solution to encompass both sustainment and acquisition management and reporting using SAP software. 5.43Developing the Capability Acquisition and Sustainment Group Business Framework is the first component of First Principles Review Recommendation 2.11, which provides: that there be significant investment in the development of an operational framework which briefly but comprehensively explains how the organisation operates and the roles and responsibilities within it (the full recommendation is set out in paragraph 5.5, above). The Materiel Ready Days measure is applicable to Platform related products only. The ability to maintain, change and control the Configuration baseline of the product is key to ensuring long-term supportability and the health of maintenance and supply support outcomes.

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