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DEFENCE MATERIEL ORGANISATION

AGENCY RESOURCES AND PLANNED

PERFORMANCE Section 1: Agency overview and resources 1.1 Strategic direction 1.2 DMO resourcing 1.3 People

Section 2: Outcomes and planned performance 2.1 Outcomes and performance information

Section 3: Explanatory tables and budgeted financial statements 3.1 Explanatory tables

3.2 Budgeted Financial Statements

Defence Materiel Organisation

DEFENCE MATERIEL ORGANISATION

Section 1: Agency overview and resources

1.1 Strategic direction

The Defence Materiel Organisation (DMO) equips and sustains the Australian Defence Force (ADF) through the acquisition and sustainment of equipment. The DMO is currently managing over 200 major acquisition projects and programs and more than 120 minor acquisition projects. It also provides service to over 100 fleets of military equipment.

In 2010-11, the key priorities for the DMO will be:

1. continuing support to ADF operations

2. achieving Defence Strategic Reform Program (SRP) targets for the DMO

3. working with key customers (Navy, Army and Air Force) to reduce the cost of ownership of major Defence fleets and systems

4. improving performance on procurement and sustainment

5. delivering approved Defence Capability Plan (DCP) projects.

The DMO undertakes acquisition and sustainment activities in support of operations, predominantly using Rapid Acquisition and Urgent Operational Procurement procedures. The DMO also undertakes routine sustainment of deployed equipment and fleets, provision of stock against operational demands, and the kitting of forces, individuals and groups, as part of pre-deployment preparation.

The DMO has a major role in delivering on the decade-long SRP announced in the White Paper through its Smart Sustainment program (reforms in maintenance and inventory management, as well as the purchasing of explosive ordnance, clothing and fuel) and the delivery of reforms arising from the 2008 Defence Procurement and Sustainment Review (the Mortimer Review).

The SRP is focused on doing business better in order to generate savings. The SRP seeks to improve accountability and planning, and to increase productivity across Defence. Reforms in the DMO will result in more efficient and effective sustainment of the force in being, and improved cost effectiveness in the procurement of military capability.

The goal is a better equipped and prepared ADF at a lower cost. For the DMO, success in implementing the SRP will be measured against a triple bottom-line of capability, financial and cultural targets. Program success will free up resources - both people and dollars - to redirect to other priorities.

The Smart Sustainment reforms are expected to deliver gross savings of $5.5b over the decade to reinvest in new capability investments for the ADF. These savings will be achieved by reviewing all aspects of the sustainment business in partnership with the Capability Managers. The DMO will take an end to end view of the military capability being supported, and use proven techniques to raise productivity and remove waste. Sustainment savings will not be made at the expense of agreed capability levels, quality or safety.

The DMO has brought together new and existing functions to form the Acquisition and Sustainment Reform Division to lead the delivery of SRP outcomes in the DMO. The DMO is committed to a more 'cost-conscious' culture. This is typified by a stronger focus on cost-efficiency in decision-making and continually looking for better and more cost-effective ways of providing goods and services.

Industry suppliers also have a key role in the delivery of SRP commitments. Together with industry, the DMO must ensure that efficiencies achieved in current support arrangements are incorporated in the support concepts developed for new ADF equipment so that savings achieved in the support of existing fleets are not eroded through a return to inefficient approaches in the future.

In 2009-10, significant work has been undertaken to position the DMO and Defence so that the SRP targets can be achieved. The DMO and the Capability Managers have agreed to indicative savings targets for all products managed by the DMO under Materiel Sustainment Agreements (MSAs).

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Defence Portfolio Budget Statements 2010-11

Reform initiatives are now underway across the DMO. In most cases these will serve as 'pilot' programs to refine the DMO’s approach to future improvement initiatives. Products already under review include the C-130 tactical airlift fleets, the Wide Area Surveillance (Over-The Horizon Radar) network, the Mine Hunter Coastal vessels and the Army’s B-vehicle fleets. Inventory management reforms have commenced with initiatives to improve procurement decisions and to optimise inventory levels. Training in process improvement techniques is underway for personnel across Defence.

Within the Electronics domain, whole of capability reform reviews for communications, electronic warfare, tactical information exchange and surveillance and control are scheduled to start in the second half of 2010. The DMO and Navy are undertaking contract re-negotiations and seeking to reduce the amount of emergent work in maintenance contracts, with work in this area focusing on 'batching' of ship repair work across the Navy’s major surface ship fleets. Process improvement reviews will continue in 2010-11 for the Mine Hunter Coastal and Anzac Ship fleets, the Collins Class submarines and in Naval Aviation. Within the Air Force’s rolling wave program, Smart Sustainment initiatives will be underway across all Force Element Groups by the end of 2010. In relation to inventory management systems, a comprehensive review of the Economic Order Quantity algorithms in the inventory management system will also be completed by the end of 2010.

The Smart Sustainment program will continue to build momentum during 2010-11, with pilot programs concluding and work commencing across a number of platforms. Inventory improvement activities already completed in a number of Systems Program Offices within the DMO’s Land Systems Division will be evaluated with a view to extension across the DMO.

In addition to efficiency-based improvements within individual platforms, in 2010-11 the DMO will increasingly focus on cross-platform and cross-division opportunities for reform. Improvements in areas such as demand forecasting, service-level optimisation and the earlier consideration of support concepts within the overall capability planning process will be applied across the DMO’s operating domains to broaden the scope of reform and the potential cost savings.

In 2009-10, a number of the recommendations of the 2008 Mortimer Review were implemented. Achievements included:

• the direct appropriation of DMO’s workforce and operating expenses

• the establishment of charters for managers to clarify their responsibilities for delivering complex acquisition projects or sustainment products

• the appointment of a General Manager Commercial at the Senior Executive Service Band 3 level to drive commercial reforms

• continuation of the work to improve Defence’s capacity to provide the Government with better advice on major procurements.

In 2010-11, Defence and the DMO will continue to implement the Mortimer reforms as a critical enabler of effective delivery of major Defence capital equipment acquisitions and the through-life support of that equipment. The acquisition proposals put to Government will be enhanced by the DMO and Defence Groups and Services, with increased focus on incorporating cost, schedule, and risk information earlier in the development process. Greater clarity of performance expectations – for individuals through project charters, and for the DMO as an organisation through improved accountability for materiel release to the customer as one of the fundamental inputs to capability – will improve overall project performance.

Other areas of focus in 2010-11 for improving acquisition and sustainment delivery include:

• continuing emphasis on appropriate resourcing and providing training to develop the DMO’s expertise in cost estimation

• aggressive cost restraint through tighter control of changes to specified project requirements and greater discipline in seeking Government approval to project scope changes

• tailoring of contracting documentation requirements based on the risks and complexity of the program, not just the total cost

• instilling a commercially-sound outlook through a range of contracting reforms, including working with industry to further develop performance-based contracting.

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Defence M

ateriel Organisation

Figure 4: The DMO organisational structure as at 29 April 2010

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1.2 DMO resourcing

RESOURCING FOR 2010-11

The total net resourcing available to the DMO is $11,996.5m. The bulk of the total resourcing is provided by Defence as a payment of $10,536.8m in 2010-11 for the procurement of equipment and the provision of sustainment services to the ADF. The remaining amount constitutes a special account opening balance of $505.4m relating in the main to work yet to be performed on behalf of Defence from previous years, an appropriation receipt of $899.6m from Government for the payment of DMO’s workforce and operating expenses, and non-appropriation receipts of $54.7m for services for non ADF customers.

The DMO’s total income in 2010-11 is $11,535.3m which consists of $6,081.2m for the procurement of equipment, $5,342.2m for the sustainment of existing capability and $111.9m for the provision of Australian Defence Industry programs and management services.

The total income in 2010-11 represents an increase of $789m compared with the estimated income for 2009-10 reflecting an increase in work to be performed on behalf of the ADF.

In comparison to the 2010-11 estimates contained in the Portfolio Additional Estimates Statements (PAES) 2009-10, there has been an increase in the DMO’s income of $511.9m primarily as a result of:

• new major capital projects approved since the PAES and the reprogramming of cash flow for the Approved Major Capital Investment Program ($969m)

• foreign exchange gain hand back (-$713.3m)

• reduction of Net Personnel and Operating Costs provision held by Defence (-$79.8m)

• net reduction in unapproved major capital investment, excluding new project approvals (-$110m)

• supplementation for the support of ADF operations ($403.7m).

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Table 62: The DMO resource statement budget estimates for 2010-11 as at Budget May 2010[1]

Estimate of prior

year amounts available in

2010-11 $'000

+

Proposed at Budget

2010-11 $'000

=

Total Estimate

2010-11 $'000

Actual Available

Appropriation

2009-10

$'000 [1] Ordinary annual services

Departmental appropriation Prior year departmental

[2]appropriation

Departmental appropriation

TotalTotal ordinary annual services

Special Accounts [3]Opening balance

Appropriation receipts

Appropriation receipts[4] - other agencies

Non-appropriation receipts to Special Accounts

Total Special Account

Total resourcing

A+B

Less appropriations drawn from annual or special appropriations

above and credited to special accounts and/or CAC Act bodies through annual appropriations

Total net resourcing for DMO

A

B

505,434

899,607

505,434

899,607

269,296

898,617

505,434 899,607 1,405,041 1,167,913 505,434 899,607 1,405,041 1,167,913

505,434

899,607

10,536,764

54,681 11,491,052

12,390,659

899,60711,491,052

505,434

899,607

10,536,764

54,681

269,296

898,617

9,733,514

71,981 505,434 11,996,486

13,401,527

1,405,041

10,973,408

12,141,321

1,167,913

1,010,868

505,434 505,434 11,996,486 10,973,408

Notes 1. Appropriation Bill (No.1) 2010-11. 2. Estimated adjusted balance carried from previous year for annual appropriations. 3. Estimated opening balance for special accounts (less ‘Special Public Money’ held in accounts like Other Trust Monies (OTM)

and Services for other Government and Non-agency Bodies (SOG) accounts). For further information on special accounts see Table 73.

4. Appropriation receipts from the Department of Defence credited to DMO's special accounts.

2010-11 2009-10 $'000 $'000

Receipts received from the Department of Defence for the provision of goods and services 10,536,764 9,733,514 Payments made to the Department of Defence for the provision of goods and services[1] 456,505 437,685

Note 1. Prim arily relates to the payment of military staff posted to the DMO and services provided by Defence to the DMO in

accordance with the Defence Services Agreement.


DMO RESOURCE STATEMENT

Table 62 shows the total resources from all origins. The table summarises how resources will be applied by outcome and by administered and departmental classification.

Reader note: All figures are GST exclusive.

Table 63: Third Party Payments from and on behalf of other agencies

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1.3 DMO People

The D MO’s people strategies and initiatives will continue to focus on increasing productivity, reducing waste, greater accountability and increasing efficiencies while developing a more business-like culture to support the implementation of the SRP and Mortimer reforms.

While the acquisition workforce will be appropriately sized to deliver the Defence Capability Plan (DCP) outcomes, productivity initiatives and changes to the c omposition of DMO’s workforce are expected. There will be a focus on increasing productivity in sustainment work to realise savings that can be reinvested in new or high priority acquisition program tasks.

There will continue to be a strong commitment to the professionalisation agenda to develop workforce skills. Skilling programs to support sustainment improvement, such as supply chain management and inventory management, and procurement and contracting programs will be further developed. Selected training will be opened to Defence industry to assist in dustry in developing the requ isite skills.

The DMO must also address workforce demands in relation to difficult-to-acquire skills in areas that are critical to achieving the DCP and through-life support of existing platforms. These include project scheduling, integrated logistics support, and electronics and marine engineering disciplines. Targeted initiatives for these skill sets will be developed through strategic recruitment and accelerated in-house development programs.

Priorities for 2010-11 include:

• utilising innovative workforce planning and forecasting techniques and capabilities to align the DMO’s workforce with the demands of the DCP over time

• developing and implementing initiatives to assist DMO in managing the changing composition of its workforce in support of the SRP

• continuing to increase professionalisation of the DMO workforce in project management, engineering and technical professions, commerce and business, and logistics

• maintaining strong performance assessment and management policies and practices to support the goal of greater accountability of staff at all levels

• maintaining and building on the DMO’s reputation as a preferred employer

• optimising organisational and individual productivity and resilience during the ongoing reforms.

These priorities will be pursued as part of the reform of the Defence workforce announced in the White Paper. Other specific activities will include increased civilianisation of military support po sitions, and the conversion of contractors to Australian Public Servants (APS) while still ensuring the delivery of effective, safe and affordable Defence equipment.

In line with the SRP reforms, the DMO will strive for maximum efficiency in the use of resources, including workforce, and will not increase staff un less absolutely necessary. For this reason the DMO has operated within its maximum workforce allocation for 2009-10, as reflected in the estimated operating surplus reported in Section 2.

The DMO planned workforce allocation, including Reservists for 2010-11 is 7,954. Significantly, the allocations shown for DMO in Tables 64 and 65 have already taken anticipated SRP productivity savings into account. This includes savings of 220 in 2009-10 increasing to 360 in 2013-14. Minor increases to the allocation were approved by Government under the Defence White Paper for new project and sustainment activities.

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Table 64: Planned workforce for the 2010-11 budget and forward estimates

2010-11 Budget

estimates

2011-12 Forward

estimates

2012-13 Forward

estimates

2013-14 Forward

estimates ADF Permanent Forces Navy 367 374 381 386

Army 465 472 486 498

Air Force 928 978 963 981

Total Permanent Force 1,760 1,824 1,830 1,865 ADF Reserve Force Navy 140 140 140 140

Army 90 90 90 90

Air Force 90 90 90 90

Total Reserve Force 320 320 320 320 APS

[1] Contractor5,818

56

5,893

52

6,031 49

6,178 49

Total workforce Strength 7,954 8,089 8,230 8,412

Note 1. In 2010-11, the DMO expects a short-term

beyond. increase of 5 contractors. The number of contractors decreases in 2011-12 and


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Table 65: Breakdown of personnel numbers by Service, APS, and Contractors

Projected Result

2009-10

Budget Estimate 2010-11

NAVY Star Ranked Officers [1] 9 11 Senior Officers [2] 49 53 Junior Officers 118 148 Other Ranks 119 155 Sub Total: Permanent Force [3] [4] 295 367 Reserve Force [5] 155 140 Total Navy 450 507 ARMY Star Ranked Officers [1] 7 8 Senior Officers [2] 50 55 Junior Officers 191 213 Other Ranks 180 189 Sub Total: Permanent Force [3] [4] 428 465 Reserve Force [5] 101 90 Total Army 529 555 AIR FORCE Star Ranked Officers [1] 8 8 Senior Officers [2] 85 88 Junior Officers 369 466 Other Ranks 316 366 Sub Total: Permanent Force [3] [4] 778 928 Reserve Force [5] 88 90 Total Air Force 866 1,018 APS Senior Executives [1] 36 38 Senior Officers [2] 1,582 1,644 Other APS Staff 4,014 4,136 Total APS 5,632 5,818 Total Contractors [6]

Total DMO Workforce

51

7,528

56

7,954

Notes 1. Senior Executive Officers are of General to Brigadier rank equivalent and substantive Senior Executive Band 3 to 1. 2. Senior Officers are of Colonel and Lieutenant Colonel rank equivalent and substantive Executive Level 1 and 2. 3. The ADF rank distribution will be finalised in the Military Workforce Agreement with the Services. 4. Reflects the ADF Permanent forces and includes Reservists undertaking continuous full-time service. 5. Reservist figures represent numbers of active Reservists (excluding Reservists undertaking full-time service and Foreign

Service Reservists) who rendered service during 2009-10 and the DMO Reservist bids for 2010-11. 6. Contractors (formerly known as PSPs) are individuals with specialist skills under contract to fill line positions.

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Total Price of Programs: $11,535.265m

Total Departmental outcome appropriation: $899.607m

Administered Appropriation: Nil

Outcome 1

Contributing to the preparedness of Australian Defence Organisation through acquisition and

through-life support of military equipment and supplies

Total price: $11,535.265m

Total Departmental outcome appropriation: $899.607m

Program 1.2 Management of Capability

Sustainment

Total price: $5,342.209m Total Departmental program

appropriation: $578.303m

Program 1.1 Management of Capability

Acquisition

Total price: $6,081.201m Total Departmental program


Program 1.3 Provision of Policy Advice and

Management Services

Total price: $111.855m Total Departmental program



Section 2: Outcomes and planned performance Outcome 1 encapsulates the entire business of the DMO, the activities it undertakes for Defence in acquisition and sustainment of materiel and the advice it provides on contracting policy and industry policy.

Figure 5: Contributions to outcomes and programs

The outcome is described below together with its related programs, specifying the performance indicators and targets used to assess and monitor the performance of the DMO in achieving Government outcomes.

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2.1 DMO Outcomes and performance information

Outcome 1: Contributing to the preparedness of Australian Defence Organisation through acquisition and through-life support of military equipment and supplies

OUTCOME 1 STRATEGY

The delivery of military equipment and supplies is managed through the DMO agreements framework. The principal agreements are the Materiel Acquisition Agreements (MAAs) and the Materiel Sustainment Agreements (MSAs). The DMO’s performance is measured against the key performance indicators within these agreements.

MAAs define the DMO’s acquisition services to be delivered to Defence for all major and minor capital equipment projects. Each MAA specifies the project in terms of the scope to be delivered, the schedule for delivery, and the budget that has been approved by the delegate. As part of the Mortimer reforms, the MAA framework has been further strengthened with the relevant Capability Manager now being a signatory, as well as the CEO DMO and the Chief Capability Development Group. In this way, the key stakeholder formally acknowledges the baseline against which the DMO’s delivery of equipment will be measured.

This budget statement uses several terms to describe schedule milestones, which reflects that the DMO is in the process of transitioning from using Initial Operational Capability (IOC) and Final Operational Capability (FOC) to using Initial Materiel Release (IMR) and Final Materiel Release (FMR).

IOC and FOC are Defence milestones that represent the estimated timeframe for when a capability system, comprising all fundamental inputs to capability, will achieve full capability. The DMO's materiel supplies are just one element of a number of fundamental inputs necessary to realise a capability that can be operationally employed by a Capability Manager. Consequently the 2009-10 budget statement reported that the new baseline reporting milestones of IMR and FMR would, in future, mark the delivery and release to Capability Managers of materiel supplies the DMO undertakes to support the achievement of IOC and FOC by the relevant Capability Manager.

The process of transitioning to the use of IMR and FMR for reporting purposes is expected to be complete by the end of the 2011 calendar year. IMR and FMR milestones have been included in the MAA template now being used for all new DMO projects, and all existing DMO major projects will be required to transition to this new MAA template by the end of 2011. The Defence instruction relating to capability acceptance into operational service is also being revised, inter alia, to reflect the use of the IMR and FMR milestones.

The terms used in this budget statement to describe schedule milestones are defined below:

• Initial Operational Capability (IOC). The point in time at which the first defined subset of a capability system that can be operationally employed is realised. IOC is a capability state endorsed at project approval at Second Pass, and reported as having been achieved by the Capability Manager.

• Final Operational Capability (FOC). The point in time at which the final subset of a capability system that can be operationally employed is realised. FOC is a capability state endorsed at project approval at Second Pass, and reported as having been reached by the Capability Manager.

• Initial Materiel Release (IMR). A milestone that marks the completion and release of DMO acquisition project supplies required to support the achievement of Initial Operational Release.

• Final Materiel Release (FMR). A milestone that marks the completion and release of DMO acquisition project supplies required to support the achievement of FOC.

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• Initial Operational Release (IOR). The milestone at which the Capability Manager is satisfied that the initial operational and materiel state of the capability system—including any deficiencies in the fundamental inputs to capability —are such that it is sufficiently safe, fit for service and environmentally compliant to proceed into a period of operational test and evaluation leading to an endorsed capability state.

• In-Service Date (ISD). The point in time that symbolically marks the beginning of the transition of a capability system, in part or full, from the acquisition phase to the in-service phase. ISD coincides as closely as is practicable with IOR.

MSAs are established between the Chief Executive Officer of the Defence Materiel Organisation (CEO DMO) and the relevant Capability Manager and define the Sustainment support required for Defence equipment such as weapons platforms, communications equipment, vehicles and supply of a range of consumable items (for example, uniforms, fuels and lubricants, health and medical supplies). MSAs establish the price the DMO receives for these sustainment services and the performance parameters by which delivery of services are measured. As part of the implementation of the Mortimer reforms, DMO and Defence will further develop the key performance indicators in MSAs. More appropriate and quantifiable performance indicators will improve measurement of the efficiency and effectiveness of the DMO’s delivery of sustainment services.

The DMO and defence industry are involved in some of the most complex and technologically challenging projects of any sector in Australia’s economy. Cutting edge technology, interoperability and long-term supportability, including issues of security and diversity of supply, introduce key risks to the acquisition, upgrade and sustainment of capital equipment. Our key risks are to schedule and cost.

Each acquisition and sustainment activity faces a different set of risks and identified risk mitigation measures are put in place and revised when necessary to minimise those risks wherever possible.

The DMO is exploring ways to improve schedule management by:

• setting realistic schedules

• improving the governance and performance of projects

• using the most appropriate contracting model and working constructively with industry

• working with industry to improve industry performance

• formalising the management of scope changes after project approval

• improving the transition of equipment into service.

The DMO has established a Cost Estimation and Assurance Unit to enhance the development and accuracy of cost estimates. Working with the Capability Development Group in Defence, the DMO is exploring ways to improve cost estimation through more contemporary cost policy and procedures, enhancing the collection and analysis of cost data and introducing improved costing methods and tools.

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Table 66: Budgeted Expenses and Resources for Outcome 1

Outcome 1: Contributing to the preparedness of Australian Defence Organisation through acquisition and through-life support of military

equipment and supplies

2009-10 Estimated

actual expenses

2010-11 Estimated expenses

$'000 $'000 Program 1.1: Management of Capability Acquisition Departmental expenses

219,250 5,837,759

24,192 -

Ordinary annual services (Appropriation Bill No.1) 209,206 Special Accounts 5,398,922

Expenses not requiring appropriation in the Budget year 23,194 Operating deficit (surplus) -8,115 Total for Program 1.1

Program 1.2: Management of Capability Sustainment Departmental expenses

5,623,207 6,081,201

578,303 4,752,661

11,245 -

Ordinary annual services (Appropriation Bill No. 1) 592,922 Special Accounts 4,404,592


Program 1.3: Provision of Policy Advice and Management Services Departmental expenses

4,948,933 5,342,209

102,054 1,025 8,776

-

Ordinary annual services (Appropriation Bill No. 1) 96,489 Special Accounts 1,981


Outcome 1 Totals by appropriation type Departmental expenses

89,361 111,855

899,607 10,591,445

44,213 -

Ordinary annual services (Appropriation Bill No. 1) 898,617 Special Accounts 9,805,495

Expenses not requiring appropriation in the Budget year 42,389 Operating deficit (surplus)[1]

Total expenses for Outcome 1 -85,000

10,661,501 11,535,265

Average Staffing Level (number)[2] 2009-10 2010-11

5,632 5,818


OUTCOME EXPENSES AND RESOURCES STATEMENT

Table 66 provides an overview of the total expenses for Outcome 1 by program.

Notes 1. The estimated operating surplus for 2009-10 reflects the delivery of programs in accordance with the workforce described in

Section 1.3 DMO people. 2. Average staffing levels do not include military staff posted to DMO, as military staff remain employees of Defence and are

included in its staffing numbers. The average staffing levels for military staff posted to DMO is provided in Table 65.

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2009-10 2010-11 2011-12 2012-13 2013-14 Estimated Budget Forward Forward Forward

actual year 1 year 2 year 3 $'000 $'000 $'000 $'000 $'000

Annual departmental expenses: Ordinary annual services (Appropriation Bill No.1) 209,206 219,250 230,226 258,271 265,011

Special account expenses: DMO Special Account 5,398,922 5,837,759 5,216,482 4,632,716 5,363,177

Expenses not requiring appropriation in the Budget year 23,194 24,192 24,796 25,540 26,204

Operating deficit (surplus) Total program expenses

-8,115 - - - -5,623,207 6,081,201 5,471,504 4,916,527 5,654,392


CONTRIBUTIONS TO OUTCOME 1

Program 1.1: Management of Capability Acquisition

Program 1.1 Objective

Acquisition projects will be delivered in a transparent and accountable man ner, on time, within budget and to the requ ired standard as identified in the specific MAA.

This Program delivers specialist military and associated equipment to Defence. It encompasses the DMO’s activities in support of the acquisition process, including all pre-approval activities, as well as the acquisition process for major and minor capital investments.

Program 1.1 Management of Capability Acquisition Expenses

The cost of Program 1.1 provides for estimated expenditure on acquisition of specialist military and assorted equipment for the ADF. This covers all the DMO activities in support of acquisition processes for major and minor capital investment projects. The estimated expenses for this Program include the estim ated budget for all approved projects together with the unapproved major and minor projects that are expected to be approved and delivered during that year.

Planned resource use for Program 1.1 is $6,081.2m in 2010-11 which represents 53 per cent of the DMO’s total expenses.

The planned resource use for Program 1.1 includes:

• direct appropriation of $219.3m relating to Acquisition Workforce and Operating Expenses

• the DMO major capital investment program of $5,680.2m, which comprises the Approved Major Capital Investment Program of $5,430.2m and $250.1m of work planned to be transferred to the DMO during 2010-11 from Defence

• the DMO minor capital investment program of $157.5m, including the approved minor program of $106 .6m and $50.9m of work to be transferred to the DMO during 2010-11

• resources received free of charge from Defence of $24.2m.

Table 67: Program 1.1 Management of Capability Acquisition

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Program 1.1 deliverables

The DMO is currently managing over 200 major projects. A major capital equipment project is defined as a project with strategic importance and is part of the DCP.

A detailed description of deliverables for the Top 30 DMO major capital equipment projects is provided under the project headings below. A status update on other major projects included in the Top 30 list in previous years is also provided, at Table 69 .

Minor capital projects deliver capability to meet emerging enhancement, replacement or new requirements of relatively low values and are funded from allocations outside the DCP. There are six Defence Minor Capital Investment Programs, funded by the Capability Managers through MAAs as described earlier in Section Two. There are currently over 120 minor projects with an average value of $8.8m.

Program 1.1 key performance indicators

The indicators vary with each project and are spec ified in the MAAs.

Australian Defence Industry involvement in major capital equipment projects will be reported as an appendix in the Defence Annual Report 2010-11.

TOP 30 PROJECTS BY 2010-11 FORECAST EXPENDITURE

Table 68 lists the Top 30 Government-approved projects by forecast expenditure for 2010-11. Schedules for delivery of the capability are included in the descriptions of the top 30 projects; descriptions also include project risk and strategies employed by the project office to manage the risk.

In 2010-11, the seven largest projects within the top 30 list are forecast to constitute 67.9 per cent of the DMO’s total forecast acquisition expenditure for 2010-11 (predicated on the forecast outcome for 2009-10). This level of dependence on a small number of projects for achieving the DMO’s overall acquisition budget is significant. Careful schedule management of these key projects by both the DMO and by industry suppliers throughout the supply chain will be essential to achieve the DMO’s forecast budget.

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Table 68: Top 30 projects by 2010-11 forecast expenditure [1]

Project Number /

Phase

Approved Project

Expenditure

Estimated Cumulative

Expenditure to 30 June

2010

Budget Estimate

2010-11 $m $m $m

General Manager Systems Aerospace Systems Bridging Air Combat Capability AIR 5349

Phase 1 3,629 2,226 493 Air to Air Refuelling Capability AIR 5402 1,889 1,076 493 F/A-18 Hornet Upgrade AIR 5376

Phase 2 1,947 1,484 107 Airborne Surveillance for Land Operations JP 129

Phase 2 135 2 77 Electronic Systems Next Generation Satellite Communications System JP 2008

Phase 4 894 223 193 Ultra High Frequency Satellite Communications JP 2008

Phase 5A 444 110 145 Battle Management System Land 75

Phase 3.4 331 46 124 Dismounted Battlegroup and Below Command, Control Communication System

LAND 125 Phase 3A 115 10 65

Battlespace Communications Systems (LAND) JP 2072 Phase 1 257 32 59

Tactical Information Exchange Domain JP 2089 Phase 2A 103 24 35

High Frequency Modernisation JP 2043 Phase 3A 663 413 34

New Air Defence Command and Control Systems for Control Units 2 & 3

AIR 5333 275 205 34

Explosive Ordnance Follow-On Stand Off Weapon AIR 5418

Phase 1 400 190 70 Lightweight Torpedo Replacement JP 2070

Phase 2 344 223 46 Lightweight Torpedo Replacement JP 2070

Phase 3 306 188 40 Mulwala Redevelopment Project JP 2086

Phase 1 371 244 39 Helicopter Systems Multi Role Helicopter AIR 9000

Phase 2 3,755 1,600 424 Armed Reconnaissance Helicopter AIR 87

Phase 2 2,076 1,714 151 Land Systems Bushmaster Protected Mobility Vehicle LAND 116

Phase 3 926 578 144 Field Vehicles and Trailers LAND 121

Phase 3 2,879 51 106 Upgrade of M113 Armoured Vehicles LAND 106 888 622 97 Artillery Replacement 155mm Howitzer LAND 17

Phase 1A 329 7 76 Direct Fire Support Weapons LAND 40

Phase 2 145 5 67

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Project Number /

Phase

Approved Project

Expenditure



2010

Budget Estimate

2010-11 $m $m $m

Maritime Systems Anzac Ship Anti-Ship Missile Defence SEA 1448

Phase 2B 459 242 76 Standard Missile Replacement SEA 1390

Phase 4B 620 277 49 Guided Missile Frigate Upgrade Implementation SEA 1390

Phase 2.1 1,530 1,339 36 General Manager Programs

Air Warfare Destroyer Air Warfare Destroyer Build SEA 4000

Phase 3 7,740 2,142 1,146 Airborne Early Warning and Control System

Airborne Early Warning and Control Aircraft AIR 5077 Phase 3 3,883 2,853 385

Amphibious Deployment and Sustainment Amphibious Deployment and Sustainment JP 2048

Phase 4A/4B 3,161 1,056 553 New Air Combat Capability

Joint Strike Fighter Aircraft AIR 6000 Phase 2A/B 2,573 4 43

TOTAL ESTIMATE 43,067 19,186 5,407 Other Approved Project Estimate 35,542 30,148 916

Total Program Estimate for Major Capital Projects 78,609 49,334 6,323 Management Margin[2] -893

Estimated Outturn from Existing Major Capital Projects 5,430 Projects Planned for Government Consideration 250 Total Funds Available 5,680

Notes 1. The Top 30 Projects are based on a review of expenditure plans for 2010-11 and the following years conducted in

December 2009. 2. Management margin is an estimate of possible overall approved capital program expenditure slippage that may accrue as

2010-11 year progresses.


TOP 30 PROJECT DESCRIPTIONS

General Manager Systems

Aerospace Systems

Bridging Air Combat Capability — AIR 5349 Phase 1

Prime Contractor: Boeing Company, under a Foreign Military Sales (FMS) arrangement with the United States (US) Government.

This phase of the project will acquire 24 F/A-18F Block II Super Hornet multi-role aircraft and associated support systems and services. This will ensure that Australia’s air combat capability edge is maintained through the transition to the F-35 Joint Strike Fighter during the coming decade.

Following successful testing and acceptance activities conducted by the US Navy (USN) in late 2009 and early 2010, five aircraft were ferried to Australia and arrived at RAAF Base Amberley on 26 March 2010 to commence operations. The remaining aircraft will be delivered to Australia by the end of 2011.

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The project remains on schedule for declaration of IOC in December 2010 with FOC to be achieved in December 2012. Support of the aircraft will be achieved through a mix of US FMS support via the USN and via direct contract arrangements established in Australia.

RAAF aircrew and ground crew personnel successfully completed USN training in the USA throughout 2009 in preparation to operate and support initial deliveries of aircraft. Future training will be provided through a mix of direct commercial and in-house arrangements.

The acquisition and delivery of Super Hornet aircraft remains low risk. Delivery of logistics support to meet IOC requirements is medium risk but is being progressively reduced through access to USN support infrastructure.

Air to Air Refuelling Capability — AIR 5402

Prime Contractor: EADS CASA (Trading as Airbus Military), (Spain).

This project is acquiring five new generation Airbus A330 Multi-Role Tanker Transport (MRTT) aircraft – to be known as KC-30A in RAAF service. The acquisition also establishes the infrastructure necessary to deliver services including engineering, maintenance, spares management, technical data, software and training support for the new fleet.

Programmed expenditure during 2010-11 is based on payment milestones and earned value in relation to delivery and acceptance of the first three aircraft and associated support system elements, conversion of the fourth A330 (in Australia), and delivery of the fifth commercial A330 to Airbus Military prior to commencement of conversion.

The first (prototype) aircraft commenced formal certification flight testing of the military systems in January 2010. The second aircraft has completed conversion in Australia and returned to Madrid, Spain, to join the first aircraft for certification of the military systems. The third aircraft is undergoing conversion by Qantas at the Australian Aircraft Conversion Centre. A significant certification milestone has been achieved with the granting of a Supplemental Type Certificate for the A330 MRTT by the European Aviation Safety Agency in March 2010.

The project remains within the approved budget. Completion of developmental flight test has reduced technical risk, although there remains a low to medium level of risk associated with certification and qualification testing of the military systems of the first-of-type A330 MRTT. The contract is currently running behind schedule and acceptance and introduction into service of the first aircraft is likely to occur 18 to 24 months later than originally contracted, due to delays associated with conversion and test of the first of type developmental tanker.

F/A-18 Hornet Upgrade — AIR 5376 Phase 2

Prime Contractors: The DMO is the prime systems integrator of elements provided by:

• The Boeing Company (US) – for the avionics and electronic warfare self protection upgrade

• The USN – for aircraft software integration and radar warning receiver acquisition

• SAAB (Sweden) – for supplementary countermeasures dispensing systems

• Elta (Israel) – for active radio frequency electronic counter measures systems

• Elbit Systems Limited (Israel) – for Hornet Data Recorder

• Boeing Defence Australia - for production installation of the electronic warfare self protection suite of modifications.

This phase of this project is upgrading the Air Force’s F/A-18 fleet to incorporate avionics enhancements that will improve mission situational awareness, radar and electronic warfare capabilities. It will also deliver an upgraded ground simulator training capability.

Fleet modification of the pilot situational awareness avionics upgrade was completed in late 2008. An interim electronic warfare capability, which introduced the radar warning receiver into service, was also delivered in late 2008. The mature aircraft electronic warfare modification program commenced in May 2009 and is progressing close to schedule. A contract for the acquisition of the new Hornet Data Recorder was awarded in September 2009. All other major acquisition contracts for procurement of equipment to support the supplementary countermeasure and electronic countermeasure capabilities are in place.

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In 2010, the supplementary countermeasures dispensing system will be introduced into service and the mission computer software required to operate the electronic countermeasures system will be delivered. The new electronic counter measures pods deliveries will commence in 2011.

The key risks for the mature aircraft electronic warfare modification program relate to the development and integration of aircraft and system software, as the systems have not previously been integrated and installed in other F/A-18 Hornet fleets. The primary strategy to alleviate the software risks is an iterative development and testing regime, which draws on USN subject matter experts and embedding Australian project team members at the USN software development and testing facility. This strategy enables the early identification of any integration issues. The project is in the final stage of the flight test program and technical integration risks are being reduced.

Airborne Surveillance for Land Operations — JP 129 Phase 2

Prime Contractor: To be determined.

This phase of the project seeks to provide two Tactical Uninhabited Aerial Vehicle (TUAV) systems; each comprising five air vehicles, two ground control stations, a tactical launch and recovery element, and associated tactical support systems.

Defence has finalised its capability requirements for this phase of the project, which places emphasis on operationally proven off-the-shelf systems which can be delivered in minimum time to support current and future operational needs. An analysis of candidate TUAV systems against capability, schedule, risk profile and cost has been completed, and an acquisition business case is being prepared for Government consideration.

Planned project expenditure during 2010-11 will be for acquisition of primary TUAV system hardware, required for fielding of two systems in 2011-12.

The key risk for this phase of the project relates to the ability to field two systems in 2011-12. Although delivery of the off-the-shelf TUAV systems are low risk, training of Army personnel must be achieved in a short timeframe following project approval.

Electronic Systems

Next Generation Satellite Communications System — JP 2008 Phase 4

Prime Contractor: Boeing via the US Government.

This phase of the project seeks to deliver high-priority components of the next generation satellite communication system supporting the ADF from 2008. The project will address the ADF’s wideband satellite communications requirements by partnering on the US Wideband Global Satellite (WGS) communication system program.

Interim anchoring provides early access to the first block of WGS through a mix of offshore anchoring using US facilities with backhaul to Australia and small capacity in-country anchoring for direct access to WGS satellites viewable from within Australia. The early realisation of space segment capability drives the ability to anchor the satellites and interface into the ADF networks. The FOC of the in-country anchoring capability will occur in late 2010.

The first satellite (WGS1), with a footprint over the Pacific Ocean, has been providing operational capability to Australia since June 2008. The second satellite (WGS2), with a footprint over the Indian Ocean, became operational in August 2009 and is being utilised by the ADF. WGS3, which is not viewable from Australia, was launched in December 2009 and following operational testing was accepted into service in April 2010.

The project is currently participating in the design and delivery of a satellite remote control capability in Australia which is critical to the placement of a satellite. The US remains on track for production of satellites four through six, which will occur in parallel during the coming financial years.

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The highest risk for this project remains satellite launch failure. With the successful launch of WGS1 in October 2007, reinforced by the good track record of the launch vehicles being used (100 per cent success rate since 2002 over 20 launches), the likelihood remains low.

Risk management rigour is being applied by the US joint program office. Boeing (USA) and Australia’s access to an expanding capability through a constellation of six satellites reduces the impact of the risk. Australia has confirmed that third party liability insurance is in place for liability related to the launch of satellite six.

Ultra High Frequency Satellite Communications — JP 2008 Phase 5A

Prime Contractor: Intelsat LLC.

This phase of the project seeks to deliver an enhanced Ultra High Frequency (UHF) satellite communications capability over the Indian Ocean region. Intelsat LLC has been contracted to include a hosted UHF payload, owned by Defence, on the IS-22 commercial satellite that Intelsat plans to launch to provide commercial pay-TV and data services. IS-22 is scheduled to commence in-orbit operations in mid-2012.

The project will also upgrade the Australian network control system to handle the additional capacity provided by the payload. Intelsat will support the capability for 15 years following in-orbit acceptance by Defence.

The satellite is planned to be operational in mid-2012 and will work with existing ADF UHF terminals. The contract has been signed with Intelsat and includes the delivery of the payload and 15 years of support. An upgrade is planned to ground infrastructure to support the increased capacity provided by the payload beyond that currently available to the ADF.

The key activity during 2010-11 will be the completion of the design of the satellite and hosted payload culminating in the critical design review. The contractor will then commence production and integration of the satellite.

The highest risk for this project remains a satellite launch failure. Due to the good track record of the launch vehicles being used, the likelihood remains low.

The design heritage of the payload, which traces back to several highly successful UHF payloads, ensures that the technical risk remains low.

Battle Management System (BMS) — LAND 75 Phase 3.4

Prime Contractor: Elbit Systems Limited.

This phase of the project will deliver a vehicle mounted BMS into a Brigade Group in support of Network Centric Warfare Roadmap milestones. This capability is to be delivered in cooperation with JP 2072 Phase 1 that is delivering the combat radio system, and LAND 125 Phase 3A that is delivering a dismounted BMS.

A Contract with Elbit Systems Limited was signed on 15 March 2010. IOC based on a combat team in 7 Brigade in Brisbane is due in July 2011. FOC in 7 Brigade is due in April 2013.

The major risk is the development of approved vehicle installation designs for the large number of platforms that the system is to be fitted to, and the associated complex design approval process. This risk is being managed through the use of the strategic materiel contracting template that will generate all of the necessary information needed for design approval.

Dismounted Battle Group and Below Command, Control Communication System (BGC3) — LAND 125 Phase 3A

Prime Contractor: Elbit Systems Limited.

This phase of the project will deliver 1,501 BMS-dismounted and 164 dismounted command posts to the ADF. This is part of the BGC3 requirement.

The project is delivering a dismounted BMS into a Brigade Group in support of the Network Centric Warfare Milestone 2 – Networked Battle Group 2011. It is delivering this capability in cooperation with project JP 2072 Phase 1, which will deliver the combat radio system and project LAND 75 Phase 3.4, which will deliver a vehicle mounted BMS.

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The Government agreed in June 2006 to combine the solicitation of LAND 125 Phase 3A and LAND 75 Phase 3.4 to enable Defence to obtain costs for a fully integrated system for mounted and dismounted battle management. In March 2007, the Government noted that the communications bearer requirements for the mounted BMS, originally to be provided separately by JP 2072 Phase 1, were also to be added to the combined BMS solicitation. A Request for Tender (RFT) was released to industry on 10 May 2007. In accordance with the tender evaluation plan, a refined RFT was released to the preferred tenderer on 17 March 2009. This incorporated a wider scale of provisioning largely due to the incorporation of the Army’s Enhanced Land Force (ELF) requirements. The preferred tenderer responded on 17 April 2009 and the project was approved by the Government in November 2009.

The contract was signed on 15 March 2010 with Elbit Systems Limited. The major activity for 2010-11 will be the completion of the BMS-dismounted detailed design, including integration onto the soldier, and the start of production to achieve IOC. IOC is scheduled for August 2011 and is based on a combat team in 7 Brigade (in Brisbane), with the FOC to be 7 Brigade in April 2013.

Battlespace Communications Systems (LAND) — JP 2072 Phase 1

Prime Contractors: Elbit Systems Limited; Harris and Raytheon via the US Government.

This phase of the project seeks to deliver commercial off-the-shelf and military off-the-shelf communications systems that will provide capabilities to meet the high priority gaps identified in the current Battlespace Communications System (LAND) (BCS(L)). In particular the project will acquire the combat radio system in support of the LAND 125 BMS, high capacity data radios in support of the Battlefield Command and Support System, and High Frequency (HF) radios.

Radios and ancillaries will be acquired through government to government arrangements. Integration and installation into platforms (including vehicles and soldiers) will be arranged via separate contracts. Initial support arrangements will be through the radio’s original equipment manufacturers or their Australian based representatives.

The project office, as the prime systems integrator, will define and update the BCS(L) architecture in support of future phases of the project. Project requirements will be clarified through an evolutionary incremental acquisition process.

Deliverables for 2010-11 include completion of the preliminary design review and detailed design review for the BGC3 and procurement of the radio systems that will enable data and voice tactical information communications.

The IMR has been aligned with Projects LAND 75 and LAND 125 and is based on outfitting a mounted company prior to Exercise Talisman Sabre in August 2011. The system provided for the exercise will include a limited capability which will be further developed during the BGC3 contract.

The highest risks for this project are platform systems integration and introduction into service activities. Competition for space, weight and power in the vehicles is a challenge due to ever increasing requirements to improve effectiveness and safety. The relative small size of the vehicles and increasing numbers of radio transmitters and receivers makes minimising interference a priority.

Tactical Information Exchange Domain — JP 2089 Phase 2A

Prime Contractors: The Anzac Ship Integrated Material Support Program Alliance contractors Saab and BAE Systems (for the Anzac Class Frigate multi-link upgrade). FMS and direct commercial procurements of military off–the-shelf and commercial off-the-shelf equipment, additional support to existing support infrastructure and additional training using existing contracts (for the initial common support infrastructure).

This phase of the project will substantially increase the interoperability of the Anzac Class Frigate with other ADF and coalition platforms through the installation of advanced tactical data links in Link 16 and Variable Message Format, to augment existing Link 11 data link capabilities. This phase will also develop an initial common support infrastructure on which the complete support system for future tactical information exchange systems will be built.

Deliverables for 2010-11 include overall critical design review for the Anzac Class Frigate multi-link upgrade, the Australia network management system, data terminal set Link 11 communications equipment, and multifunctional information distribution system terminals Link 16 communications equipment.

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The major risks for this project are the integration of the new data link processor with the Anzac Frigate Combat Management System. This has been largely mitigated, as part of the risk reduction exercise that occurred pre-contract under the best and final offer process, and is now considered low. Other risks include delays in acquisition of initial common support infrastructure equipment due to dependence on FMS and reliance on external agencies to provide subject matter expertise (considered a high risk).

High Frequency Modernisation — JP 2043 Phase 3A

Prime Contractor: Boeing Defence Australia Ltd.

This phase of the project is to replace Naval HF Stations at six sites, replace Air Force HF stations at four sites, upgrade design and performance of the replaced systems, and upgrade selected ADF mobile platforms.

The first stage of the project, completed late 2004, replaced the capability provided by the former Navy sites and Air Force stations. The second stage – which is to provide increased levels of automation, improved capability, enhanced security and survivability, reduced reliance on staff, and which will incorporate the new equipment into mobile platforms – is currently being implemented.

Following acceptance of the final fixed network system in April 2010, all work remaining on this system is expected to be completed by early 2011. Designated mobile platforms will now be upgraded on a progressive basis through to 2016 using products and design material developed under the prime contract with Boeing Defence Australia. The majority of mobile platforms are not included in the prime contract with Boeing and are yet to be contracted.

Some manageable remaining risk relates to the schedule for installation of upgrades into mobile platforms. Delays in completion of the prime contract work have delayed the start of the mobiles program, but platform availability remains the major schedule risk for the mobiles program.

New Air Defence Command and Control Systems for Control Units 2 & 3 — AIR 5333

Prime Contractor: Boeing Defence Australia Ltd.

This phase of the project is replacing the Air Defence Command and Control System with two new systems located at RAAF Bases Tindal and Williamtown. It will also design and deliver an integrated ADF Air Defence System communications network.

During 2009-10, factory acceptance testing, site acceptance testing, operator and maintainer training and upgrades to RAAF Base Williamtown facilities were completed. Delivery of the Northern Regional Operations Centre (NROC) located at RAAF Tindal is scheduled for August 2010. Delivery of the Eastern Regional Operations Centre (EROC) located at RAAF Williamtown is scheduled for September 2011. The major activities for 2010-11 will be the completion of operational test activities at NROC in conjunction with Exercise Pitch Black in the July to August 2010 period, and the installation and acceptance testing of the Vigilare system into EROC.

The major technical and schedule risk is the development of integrated tactical data links, specifically Link-16 capability. The risk is being managed through increased access to datalink expertise, in-country test equipment and close liaison with the ADF tactical datalink authority. Due to the overall complexity of integration and the large number of unique interfaces involved, the project remains a high-risk project until system testing is completed.

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Explosive Ordnance

Follow-on Stand off Weapon — AIR 5418 Phase 1

Prime Contractors: A FMS case was established with the US Air Force (USAF) in July 2006 to supply AGM-158 Joint Air-to-Surface Standoff Missiles (JASSM).

A commercial contract was signed with Lockheed Martin Missiles and Fire Control in September 2006 for support to integration of JASSM with F/A-18A/B aircraft, supply of technical data and documentation for JASSM airworthiness certification, and provision of an anti-surface warfare (maritime interdiction) capability study.

This phase of the project is acquiring JASSM for integration onto the F/A-18A/B aircraft to improve weapon terminal effectiveness against well defended targets. The project is to deliver an IOC in 2010 to engage fixed and relocatable land targets.

Flight testing to authorise the Australian F/A-18 A/B to carry JASSM has been conducted in Australia and was completed in April 2009. The USN continues to develop the F/A-18 A/B operational flight program software which will culminate in a live JASSM firing in the US from an Australian F/A-18A/B aircraft around June 2010. Following a successful US firing, an operational test firing will be conducted in Australia around September 2010 to confirm suitability of the JASSM capability to enter service.

The capability requirement to engage a moving maritime target is an option under the contract. Proceeding with this option is dependent on USAF development of an anti-surface warfare capability within a timeframe that is suitable for the Australian application. Defence-funded Lockheed Martin simulation studies into the missile performance in a maritime environment are now complete, and are informing Defence and Government decisions on whether to proceed with the moving maritime target capability.

The main risks to achieving IOC are timely development of the F/A-18 A/B Operational Flight Program by the USN and the completion of operational and test evaluation by Air Force culminating in a JASSM live fire at Woomera. The risks are being mitigated through close engagement with the USN, USAF, US Department of Defense and key Defence stakeholders to ensure that tasks are closely managed and key milestones met.

Lightweight Torpedo Replacement — JP 2070 Phase 2

Prime Contractor: Eurotorp, Thales.

This phase of the project originally covered integration of the MU90 torpedo in several ADF ship and aircraft types, provision of support facilities and acquisition of an initial outfit of European-manufactured weapons.

Significant activity planned for 2010-11 includes the conduct of further firings to complete the acceptance test and evaluation programme in order to proceed to initial operational release and operational test and evaluation. The project is planning to lease a suitable mobile target in early 2011 to support the firing programme. Plans to procure a suitable mobile target are also being progressed in parallel, to allow future tactical development of the weapon in service.

A significant body of certification work will also be completed to meet Navy regulatory requirements for initial operational release. Transition of support and operational capability is planned to commence in early 2011. The project plans to complete the full MU90 integration and modification work on Adelaide Class Frigates during the year, with full MU90 integration on the Anzac Class completed. Modification to Anzac Ship magazines will be deferred pending the outcome of the AIR 9000 Phase 8 competitive selection, which will impact on the nature of the air launched torpedo for that aircraft.

The major risk to the project for 2010-11 is that test assets will not be available to meet the schedule for the acceptance test and evaluation and operational test and evaluation programmes. This risk is being mitigated by continued close liaison between the project and Navy to ensure availability.

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Lightweight Torpedo Replacement — JP 2070 Phase 3

Prime Contractor: Eurotorp, Thales.

This phase of the project involves the acquisition of MU90 torpedoes and the assembly of locally and internationally produced torpedo components into MU90 torpedoes using facilities at Fleet Base West, Western Australia. The project will establish an Australian manufacturing and support capability for the Eurotorp MU90 lightweight torpedo, and deliver sufficient quantities to meet war reserve requirements.

Significant activity during 2010-11 will include batch deliveries of MU90 MK I Torpedoes, and the commissioning and set to work of commercial processes related to the Australian production of torpedo components and associated equipment in support of the MU90 MK II Torpedo.

The major risk to this project is potential difficulty in transferring overseas supplier skills and technical knowledge for a complex weapon system into Australian defence industry. This is planned for completion by August 2011, and is necessary to provide in-country through-life support for the weapon system. This risk is being mitigated through close management of the transition plan and management of deliverables under the contract. Delivery of the new Mk II capability relies on access to the assets of the European partner navies for firing of the torpedo during the test program. There is a risk that this new capability will be delayed by factors outside the control of the contractor, such as weather or national tasking in Europe. This risk is being mitigated through close liaison with the contractors and with the MU90 international user group community.

Mulwala Redevelopment Project — JP 2086 Phase 1

Prime Contractor: Bovis Lend Lease.

This phase of the project will deliver a modernised propellant manufacturing capability at Mulwala, New South Wales, to replace the existing capability that dates back to the 1940s. The works include construction of new nitrocellulose, solvent and propellant production plants, a confined burn facility and a Performance and Safety Testing Centre (PSTC).

A contract was signed with Bovis Lend Lease in June 2007 for the design and construction of the modernised facility.

Practical Completion of construction was contracted for March 2010 but, due to current delays against schedule by the contractor, will take place later in 2010. Commissioning of the new facility will commence shortly after Practical Completion with a 15 month propellant qualification period.

The most significant project risk is that there may be an extended transition phase from the existing plant which would adversely impact on cost and schedule. This is being mitigated by close collaboration with, and provision of technical support and advice by, the existing operator through a support services contract.

The contractor has employed a strategy to commence some construction activities prior to the completion of detailed design for those construction activities, in an attempt to mitigate against schedule slippage. There is a risk that this strategy may impact on schedule and capability. This risk will be realised if changes made at the detailed design stage result in rework of procurement or construction activities already commenced. This is being mitigated by the project through detailed review of design packages and close monitoring of construction activities.

There is a further risk to the project schedule that the contractor may not meet the plant commissioning and propellant qualification programme of 15 months due to the complexity of the manufacturing process and uncertainty of test results. Close monitoring of the contractor’s commissioning and qualification schedules is mitigating this risk. If this risk is realised, final acceptance of the Modernised Mulwala Facility will be further delayed.

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Helicopter Systems

Multi Role Helicopter — AIR 9000 Phase 2

Prime Contractor: Australian Aerospace.

This phase of the project is acquiring 46 MRH-90 helicopters for the Army and Navy (with a nominal split of 40 for Army and six for Navy). The support systems will include an electronic warfare self-protection support system, a ground mission management system, a software support centre, an instrumented system with telemetry capable of being installed into three instrument-capable aircraft, two full flight and mission simulators and facilities infrastructure at Townsville, Oakey, Brisbane and Nowra.

Eleven aircraft have been accepted and are based with the Army’s 5th Aviation Regiment in Townsville. Training for Navy and Army aircrew, maintenance and support personnel is underway. The MRH-90 flying rate of effort has been less than planned, leading to significant delays in training MRH-90 aircrew and certification activities. As a consequence, the Navy IOC of one aircraft at sea is now expected to be achieved in late 2010, and the Army IOC of a troop of four aircraft is now expected to be achieved in late 2011, both six months later than originally scheduled.

The major risk to the project schedule remains the flying rate of effort which is caused by an immature support system and poor reliability of a number of the systems on the aircraft. Significant effort by industry, Defence and the DMO project office to mature the MRH-90 logistics and support systems should result in the flying rate of effort improving throughout 2010 -11.

Armed Reconnaissance Helicopter — AIR 87 Phase 2

Prime Contractor: Australian Aerospace.

This phase of the project will acquire an Armed Reconnaissance Helicopter (ARH) System for the Army. The system will consist of 22 helicopters, an ARH software support capability, an electronic warfare mission support system, ground mission equipment, facilities, a training system and training devices including full flight and mission simulators.

The re-baselined schedule to deliver the first operational capability to Army was achieved in September 2009, 27 months later than originally contracted. All 22 ARHs are expected to be delivered by early 2011, with acceptance of final supplies by December 2011.

The key risks to the program are linked to maturing the logistic support system, specifically spares availability. This is being closely managed and improvement in the rate of effort achievement is expected to continue as Australian Aerospace’s maintenance and supply support networks become more effective.

Land Systems Bushmaster Protected Mobility Vehicle — LAND 116 Phase 3

Prime Contractor: Thales Australia.

This phase of the project is acquiring 737 vehicles in seven variants (troop, command, mortar, assault pioneer, direct fire weapon, ambulance and air defence). The vehicles will provide protected land mobility to Army combat units and Air Force Airfield Defence Guards. All 300 troop, command, assault pioneer, mortar, direct fire weapon and ambulance variants under the original acquisition contract have been delivered.

Delivery of 144 ELF vehicles was completed in April 2009. Delivery of 293 Bushmaster vehicles for Project LAND 121 Phase 3 will be completed by June 2012. The project is currently determining the most appropriate way ahead to meet an outstanding requirement for the provision of up to 184 protected mobility vehicle compatible trailers to meet an element of Project LAND 121 Phase 3.

A range of operational enhancements endorsed by the Government since 2007 have been undertaken as sustainment activities outside of Project LAND 116. Additionally, the Chief of Army has endorsed enhancements to both to the baseline and Middle East Area of Operations (MEAO) vehicle specification configurations. Baseline enhancements comprise an on board communications system, additional seating and an enhanced protective capacity.

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Key risks to the project are:

• The baseline configuration of the protected mobility vehicle may be affected by the backlog of engineering change proposals due to the extended production schedule. The project office is managing this through liaison and customer feedback with Thales.

• The delivery schedule of the trailer may be affected by the requirement to make design changes to the vehicle to allow interoperability with the trailer.

• The operational tempo may affect the availability of vehicles and delay the fitment of baseline and MEAO configuration enhancements.

Field Vehicles and Trailers — LAND 121 Phase 3

Prime Contractors: Light/Lightweight Capability: Mercedes-Benz Australia-Pacific Pty Ltd. Trailer (light/lightweight) Capability: Haulmark Trailers Australia. Trailer (mediumweight/medium/heavy) Capability: Yet to be selected. Mediumweight/medium/heavy Capability: Yet to be selected. Additional Bushmaster vehicles: Thales Australia.

Overlander is a multi-phased project to deliver the ADF’s future field vehicles, modules and trailers. Under this phase, Defence plans to acquire:

• 1,200 unprotected lightweight/light Mercedes G-Wagon vehicles comprising six vehicle variants and specialist modules

• protected and unprotected medium/heavy vehicles and specialist modules. The new fleet introduces integrated load handling systems to load shipping containers and pallets

• medium/heavy trailers

• 973 light and lightweight trailers

• 293 Bushmaster protected mobility vehicles in contract plus 184 trailers.

Light/lightweight capability: A critical design review has been completed on a number of the G-Wagon variants and 11 prototypes have been manufactured, delivered and accepted. Verification and validation is currently being progressed with batch production to start in September 2010. Key activities for 2010-2011 will be the receipt of the first vehicles into service, establishment of the through-life support capability and the training of vehicle operators and maintenance personnel.

Medium/heavy capability: Three companies have been short listed to participate in the final selection phase: MAN, Mercedes Benz Australia Pacific, and Thales. The project office released a draft RFT resubmission package to downselected tenderers on 31 March 2010. Tenderers have been requested to comment on the draft RFT with the aim of simplifying tender refresh processes and to maximise affordable capability outcomes. Source evaluation is scheduled to be completed by the end of 2010, with the intent to achieve contract signature in late 2011.

Trailer capability: The contracts for acquisition and support for light/lightweight trailers were signed with Haulmark Australia on 16 April 2010. Production is scheduled to commence in early 2011, with the trailers due to enter service in April 2012. Negotiations for the medium/heavy trailer will commence with Haulmark upon signature of the medium/heavy capability contract. Contract signature for the medium/heavy trailers is scheduled for the first quarter of 2013.

Upgrade of M113 Armoured Vehicles — LAND 106

Prime Contractor: BAE Systems Australia Defence.

This project is upgrading the Army's M113 A1 vehicles to improve protection, lethality, mobility and habitability. The upgrade replaces most of the vehicle, retaining only the hull, hatches, rear door and communications systems. In addition to the 350 vehicles for the initial requirement, 81 vehicles are being purchased to support the Army’s ELF. In August 2009, a contract change was approved to stretch the only un-stretched variant, the armoured mortar. The final contracted delivery date for all 431 vehicles is April 2012.

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Construction of the recovery vehicles is complete and assembly of the armoured personnel carrier and fitters variants is continuing. Deliveries of major drive system sub-assemblies for all variants are ahead of schedule. The design development reviews of the command and ambulance variants are complete. The logistics variant requires further testing to confirm the proposed minor design changes to increase the ground clearance in production vehicles. The testing is scheduled to be completed in late 2010. The seventh variant, the armoured mortar vehicle, is in the early stages of design development. Its final design review is scheduled for early 2011.

The designs for the first six variants (personnel, fitters, recovery, command, ambulance and logistics) are now in a mature state. The key remaining technical risk is the restoration of the mortar firing platform area in the seed hulls used for stretching the mortar variant. Defence is working with the contractor to develop approved repair methods ahead of commencement of the hull conversions scheduled for mid 2011.

The contractor remains committed to the delivery of the 431 vehicles as contracted by April 2012. However, Defence assesses this as a high risk as the contractor is reporting that the current delays will not be recovered until after December 2010 and full recovery relies on maintaining the current capacities of its Bandiana, Victoria facility and its new facilities at Williamstown, Victoria and Wingfield, South Australia.

Artillery Replacement 155mm Howitzer — LAND 17 Phase 1A

Prime Contractor: The capabilities will be purchased from the US Government through the FMS programme.

This phase of the project seeks to enhance the indirect fire support capability of the ADF. The project will replace and enhance specified elements of Army’s indirect fire system. The Project LAND 17 mission system will address the tactical joint fires artillery command and control systems, indirect fire system delivery platforms and other indirect fire system elements. The project will also meet the various integrated logistic support requirements including training support, facilities and all aspects of through-life support.

The project will deliver 35 M777A2 Lightweight 155mm Towed Howitzers, a Battle Management System – Fires (BMS-F) Command and Control (C2) system, and course correcting fuzes. This project has an ISD of mid-2011, with FOC scheduled for achievement in 2013. Key activities for 2010-11 are:

• the M777A2, produced by BAE Land Systems (UK and USA), is being procured through FMS arrangements with the US Government. An initial delivery of one gun is to occur in August 2010, to enable testing to be completed. The first major delivery of 10 guns is planned for March 2011.

• the Advanced Field Artillery Tactical Data System (AFATDS) produced by Raytheon Network Centric Systems (USA) has been selected as the BMS-F (C2) system and procured through FMS arrangements with the US Government. Initial deliveries of the software, for acceptance testing, is planned to occur from January 2011.

• the XM1156 Precision Guidance Kit, which has been selected as the course correcting fuze materiel solution. The XM1156 is produced by Alliant Techsystems (USA). The FMS case for procurement is planned for mid 2010, with initial deliveries for testing planned for mid 2011.

Direct Fire Support Weapons — LAND 40 Phase 2

Prime Contractors: Medium Direct Fire Support Weapons: SAAB Bofors Dynamics. Heavy weapon thermal sight: BAE Systems Australia. Light Weight Automatic Grenade Launcher (LWAGL): A contract is yet to be signed for the LWAGL.

This phase of the project will deliver two new types of direct fire support weapons to Army's Infantry Battalions, Special Forces and RAAF Airfield Defence Guards. The first of the systems to be delivered is the M3 Carl Gustaf medium direct fire support weapons fitted with a thermal sight. The second system is a LWAGL fitted with a night sight and a fire control system.

A contract was signed in November 2009 with SAAB Bofors Dynamics for 437 M3 Carl Gustaf Weapons. The first weapons are due to be delivered in July 2010 and all remaining deliveries will be completed by March 2011.

168


A contract was signed in December 2009 with BAE Systems Australia for 437 heavy weapon thermal sights for fitment to the M3 Carl Gustaf. The first sights are due to be delivered in April 2010 and all remaining deliveries will be completed by January 2011.

Sixty LWAGLs, with options for further quantities, are being sourced through an open tender process.

There remains a medium risk to the scheduled completion of acceptance testing for the LWAGL due to the system integration required for the program.

Maritime Systems

Anzac Anti-Ship Missile Defence — SEA 1448 Phase 2B

Prime Contractor: CEA Technologies Pty Ltd and the Anzac Ship Integrated Material Support Program Alliance (comprising the DMO, Saab Technologies Australia and BAE Systems).

This phase of the project is tasked to deliver a phased array radar system to the Anzac Class Frigate for target indication/tracking and mid-course guidance and target illumination for the Evolved Sea Sparrow Missile in conjunction with other sensor and combat management system upgrades delivered under Phase 2A.

Installation of the phased array radar in the lead ship will continue in 2010 with at-sea testing planned for early 2011. Operational capability is to be proven before commitment to installation in the remaining ships of the class. This is planned to occur in June 2011.

The highest risk relates to the development of this leading-edge radar technology. Achievement of phased array radar performance and understanding of inter-system interference effects in the complex electromagnetic environment of the ship will be measured in the at-sea testing in early 2011. The risk will be mitigated by a comprehensive regime of tests and evaluation.

Standard Missile Replacement — SEA 1390 Phase 4B

Prime Contractor: US Department of Defense under an FMS arrangement and various commercial contracts - Lockheed Martin-US, AAI Corporation, BAE Systems-US and Thales Australia.

This phase of the project is to upgrade four Adelaide Class Frigates with the SM-2 surface-to-air mid course guidance mode missile capability, to acquire the weapons, and to provide missile technician training.

The planned 2010-11 outcome is the completion of the modification of missile-related systems and software in the ships and the shore-based facility.

The highest risks (assessed as medium) are to schedule caused by the availability of ships for installation and test, and the risk inherent with interfacing this new technology into the existing ships. Schedule risk is mitigated by collaborative monitoring of the ships’ schedules for maintenance availabilities with Navy. The new technology integration risk is mitigated by a regime of comprehensive tests and evaluation prior to acceptance.

Guided Missile Frigate Upgrade Implementation — SEA 1390 Phase 2.1

Prime Contractor: Thales Australia.

This phase of the project is to upgrade four Adelaide Class Frigates to deliver integrated sensors, missile launchers, and combat management systems to improve aspects of the frigate’s war fighting capability. All four ships have been accepted and delivered to Navy as part of IOR. Changes to the ship’s platform systems will deliver reliability and supportability improvements.

The 2010-11 planned outcomes are the procurement and acceptance of equipment for the land-based Weapons System Support Centre, inventory spares, and support requirements arising out of Navy’s operational test and evaluation.

There is low risk to achieving the outcomes.

169


General Manager Programs

Air Warfare Destroyer Program Air Warfare Destroyer Build — SEA 4000 Phase 3

Prime Contractor: Delivered under an Alliance arrangement between ASC AWD Shipbuilder Pty Ltd, Raytheon Australia Pty Ltd and the Commonwealth represented by the DMO. The Commonwealth also has a platform system design contract with Navantia, SA (Spain), and the Aegis Combat System is being supplied by the US Navy via an FMS agreement.

This phase of the project remains on schedule and budget to deliver HMAS Hobart in December 2014, HMAS Brisbane in March 2016 and HMAS Sydney in June 2017.

Key project milestones achieved include the AWD critical design review, the opening of the new ASC shipyard and the signing of contracts by the AWD Alliance for almost all major equipment and material. AWD Block construction has commenced at the three shipyards, ASC in Adelaide, BAE Systems in Melbourne, and Forgacs in Newcastle.

Major milestones in 2010-2011 include AWD support system detailed design review, delivery of the Aegis Combat System equipment for the first ship and delivery of hull blocks ready for consolidation at the ASC shipyard.

Areas of risk and opportunity for the project in 2010-2011 include improving the block delivery schedule, finalising the design of an efficient and effective support system, and establishing a production workforce in an environment where there is increasing pressure on labour costs associated with an improving economy.

Airborne Early Warning and Control System Airborne Early Warning and Control Aircraft — AIR 5077 Phase 3

Prime Contractor: Boeing.

This phase of the project will provide Defence with an Airborne Early Warning and Control (AEW&C) capability, with the provision of six aircraft and associated supplies and support.

In November 2009, Boeing and the Commonwealth reached agreement on a commercial settlement that addressed, among other things, compensation for project delays, compensation for projected performance shortfalls, an incremental delivery regime and the way forward for the program.

As a result of this agreement, Boeing made two aircraft available to the Air Force in November 2009 for the conduct of familiarisation activities leading to acceptance of these aircraft in an initial operating configuration in early-mid May 2010. A third aircraft is planned for acceptance in this configuration in June 2010 and a fourth in September 2010. Boeing plans to offer all six aircraft for acceptance in their final operating configuration over the period December 2010 to April 2011. Delivery of the first fully configured aircraft in December 2010 would represent a 49 month delay against the original contract baseline, however, based on the amount of work to go, the DMO assesses that there is four to six months risk to this date. Associated ground support systems and supplies will be delivered incrementally from April 2010 to July 2011. Construction of the main AEW&C facility at RAAF Tindal is planned for completion in February 2011.

While the major risks associated with the radar have been mitigated through the commercial settlement, the overall risk rating for the project remains high due to risks associated with integrated system maturity (notably electronic support measures technical maturity) ongoing software development and completion of the test and evaluation program. These risks continue to be actively managed through close interaction between the Commonwealth and the contractor.

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Amphibious Deployment and Sustainment Program

Amphibious Deployment and Sustainment — JP 2048 Phase 4A/B

Prime Contractor: BAE Systems Australia Defence (formerly Tenix Defence).

This phase of the project will acquire two 27,000-tonne Amphibious Ships referred to as Landing Helicopter Dock (LHD) ships to replace the Heavy Landing Ship HMAS Tobruk and one of the two Landing Platforms Amphibious (either HMAS Manoora or Kanimbla).

This project is one of a number of projects grouped under the Amphibious Deployment and Sustainment (ADAS) Program and designed to replace and enhance Navy’s amphibious and afloat support capability.

Design reviews were completed in 2009 and the first LHD keel-laying occurred on 23 September 2009. First steel was cut for the second LHD on 2 February 2010, seven weeks ahead of schedule. Approximately 25 per cent of the first LHD had been erected on the slipway by the end of March 2010. The ships are due to be accepted in January 2014 and August 2015.

Schedule risks include the ability of the contractor to attract sufficient personnel to meet the resource profile, and the extensive work needed to set up in-service support arrangements and to assist Navy to prepare to operate the capability. The first of these risks is being actively managed by the contractor through recruitment and internal transfers. The second risk is being managed by the project office through a range of strategies including regular briefings for Australian industry to help local companies plan for the support program.

New Air Combat Capability

Joint Strike Fighter Aircraft — AIR 6000 Phase 2A/B

Prime Contractor: Lockheed Martin is contracted to the US Government for the development and production of the Joint Strike Fighter (JSF). Australia will procure the aircraft through a government to government co-operative agreement.

On 25 November 2009, the Australian Government announced Second Pass approval of Stage 1 of Phase 2A/B of the New Air Combat Capability (NACC) project, comprising acquisition of Australia’s first 14 Conventional Take-Off and Landing F-35 JSF aircraft and the infrastructure and support required for initial training and testing, with delivery commencing in 2014. These 14 aircraft are the first tranche of Phase 2A/B. A Government decision on the next stage of Phase 2A/B is expected to be made in 2012.

On current plans, Australia’s first 10 JSF will remain in the US for a number of years for initial conversion training of Australian pilots and maintainers and also participation in operational test activities. The next four JSF are planned to arrive in Australia in 2017 to commence Australian-specific operational test activities, primarily to ensure effective integration with other ADF air and ground systems.

This staged acquisition approach allows time for refinement of costs and more detailed definition of support requirements prior to the Government’s decision on the bulk of Australia’s remaining aircraft in 2012 when cost confidence will be higher.

Acquisition of an additional operational squadron (Phase 2C) will be considered at a later date in conjunction with a decision on the withdrawal of the Super Hornet. A decision is not expected before 2015.

On 1 February 2010, the US Secretary of Defense announced a major restructuring of the JSF Program to address the Program’s failure to meet performance goals in 2009 and ongoing cost and schedule issues. The NACC project has considerable cost and schedule buffers against the core JSF Program to accommodate the JSF Program restructuring action.

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Acquisition Projects not included in the Top 30 projects—Current Status Table 69 provides an update on the status of major projects reported in previous financial years. These projects were not ranked in the Top 30 projects by expenditure in 2010-11.

Table 69: Current status of previously reported Top 30 projects (projects reported in the last five financial years)

Project Number / Phase

Last Financial Year Reported in Top 30

Approved Project

Expenditure

$m



2010 $m

Budget Estimate

2010-11 $m

Status Report

General Manager Systems Aerospace Systems C-17 Globemaster III AIR 8000 2008-09 1,835 1,312 6 All four C-17 aircraft are in service with the Air Force. All four aircraft are

Phase 3 operating in an air logistics support role (personnel, cargo transport and high-dependency patient aero-medical evacuation role). Expansion to other roles, including personnel and equipment air drop, will occur progressively during 2009-11. A C-17 aircrew training simulator and maintenance training system were commissioned at RAAF Amberley, within the C-17 training facility in 2009-10. The project is within budget and on schedule to deliver remaining self-protection improvements, a cargo compartment training device, specialist role equipment and mature support arrangements. FOC will be achieved when mature C-17 facilities have been established. This is anticipated to occur during 2011.

Strategic Air Lift Capability

AIR 5216 Phase 1

2005-06 1,048 1,024 0 The capability has been delivered and accepted into service. Project closure will occur in 2010-11.

Hornet Structural Refurbishment Program Stage 2

AIR 5376 Phase 3.2

2009-10 929 307 22 This project comprises two elements. The first is a package of discrete structural modifications aimed at delaying or avoiding the need for the major Centre Barrel Replacement (CBR) modification. A total of 59 aircraft will receive this first element, of which 42 are currently in contract. The second is the CBR program. Up to 49 aircraft are approved to undergo CBR however significant work by the Project Office, the Defence Science and Technology Organisation and the Air Force Technical Airworthiness authority on fatigue testing has generated substantial fatigue life gains, with the number of aircraft requiring CBR reduced to 10. Seven CBR aircraft have been delivered to date, with the last three currently being reassembled.

Defence P

ortfolio Budget S

tatements 2010-11

172

Defence M




Approved Project

Expenditure

$m



2010 $m

Budget Estimate

2010-11 $m

Status Report

P-3C Update Implementation

AIR 5276 Phase 2

2007-08 908 873 9 Two aspects of the project remain outstanding: Acoustics Stage 2: Prime Contractor: General Dynamics -Canada. System Acceptance complete. Aircraft modification to commence August 2010. ISD is forecast for early 2011. Radar Processor - Advanced: Prime Contractor: ELTA - Israel. Factory Acceptance Testing complete. Aircraft modification and test commenced March 2010. ISD is forecast for early 2011.

Hornet Upgrade Project AIR 5376 2006-07 151 119 7 The Litening Pod is currently operating under a limited service release, Target Designation Phase 2.4 pending resolution of some flight envelope restrictions. Contractors are System working on removing the restrictions by the end of 2010. Maritime Patrol and Response Aircraft System

AIR 7000 Phase 2

2008-09 148 35 22 On 17 April 2009, DMO entered into a cooperative Memorandum of Understanding (MoU) with the USN to participate in the P-8A Spiral 1 cooperative development program. During 2011, AIR 7000 Phase 2 will seek Government approval to enter into a Production, Sustainment and Follow-on Development (PSFD) MoU with the USN, which is intended to provide the framework under which future P-8A acquisition and through-life support can be conducted if approved by Government at Second Pass. Project activity and expenditure during 2010-11 is focused on ongoing management of the P-8A Spiral 1 cooperative development MoU and development of the PSFD MoU.

AP-3C Electronic Support Measure Upgrade

AIR 5276 Phase 8B

2009-10 129 51 22 An estimated delay of 26 months to ISD from December 2010 to February 2013 is attributed by BAE Systems to a dependency with AIR 5077 (AEW&C) and the contractor’s under-estimation of the software development activity. While the dependency with AIR 5077 has been largely mitigated through a differing evolved design, the dependency on a common contractor/subcontractor remains a risk.

AP-3C Capability AIR 5276 2009-10 89 42 15 Project approved in July 2008. Supply of hardware from FLIR Systems Assurance Program CAP 1 Inc and L3 Communications (via FMS), and aircraft installation design

by BAE Systems is well advanced. Aircraft modification is on schedule to commence mid 2010 and ISD is forecast for early 2011.

173

Defence P

ortfolio Budget S

tatements 2010-11



Approved Project

Expenditure

$m



2010 $m

Budget Estimate

2010-11 $m

Status Report

Electronic Systems Jindalee Radar Network JP 2025

Phase 3&4 2006-07 1,249 1,238 3 The residual activities on this project relate to the finalisation of the

capability’s support environment. Electronic Warfare Self Protection for Selected

AIR 5416 Phase 2

2009-10 291 254 29 The Government decision in September 2009 not to continue with the installation of the advanced level Electronic Warfare Self Protection

Aircraft (EWSP) capability upgrade to the Black Hawk and Chinook has resulted in the contract with BAE Systems Australia being truncated to a basic level of EWSP for 12 Black Hawks and the fleet of six Chinooks. The EWSP modification to the Chinooks was completed in 2006 and the program for the Black Hawk aircraft remains on track to complete modification to the twelfth, and final, aircraft by mid-2010.

MILSATCOM Terrestrial Infrastructure

JP 2008 Phase 3E

2007-08 211 207 2 The operations and support contract for the primary injection facility is in place with BAE Systems Australia and is on schedule to achieve operational release in April 2010. All maritime terminals have been installed and operational test and evaluation of the maritime terminals was conducted successfully during Talisman Sabre 2009 (July 2009). The project is on schedule for completion by December 2010.

Explosive Ordnance Explosive Ordnance Reserve Stocks

JP 2085 Phase 1B

2008-09 238 209 18 A partial delivery of Naval 5”/54 Projectiles from the US was achieved in February 2010. The remainder will arrive in July 2010. Procurement of AFATDS was approved on 31 March 2009. It has achieved IOC; however, this was enabled by a leased AFATDS subsystem from the US Army. Final Materiel Release for the capability is expected to be completed in February 2011, with FOC expected in April 2011. The major focus for 2010-11 will be: Completion of the deliveries of AFATDS hardware by December 2010 and software by February 2011. Delivery of the full inventory of the Excalibur 155mm munitions by mid 2011.

174

Defence M




Approved Project

Expenditure

$m



2010 $m

Budget Estimate

2010-11 $m

Status Report

Bridging Air Combat AIR 5349 2009-10 188 91 28 This project is acquiring and introducing into service a number of new Capability Weapons Phase 2 weapons and countermeasures under the Australian Super Hornet

program. The project has established FMS cases for the acquisition of AIM-9X Sidewinder missiles, AGM-154 C Joint Stand Off Weapons (JSOW), Infrared flares, and is seeking to acquire additional AIM-120 Advanced Medium Range Air to Air Missiles. Delivery of AIM-9X and JSOW missiles occurred in January 2010, with associated training and test planning activities to support operational test and evaluation planned for the latter half of 2010.

Evolved Sea Sparrow SEA 1428 2009-10 87 69 10 This project is procuring a number of Evolved Sea Sparrow Missiles Missiles Phase 4 (ESSM) and Mk25 quad-pack canisters to increase the RAN’s war

reserve holdings. Orders for the procurement of missiles and canisters commenced in 2006 with the final canister order being placed in 2010. Deliveries are due to commence in late 2010 and be completed by the end of 2013. Production delays have resulted in a delay of two years for IOC and one year for FOC.

Land Systems Australian Light Armoured Vehicles

LAND 112 Phase 3

2005-06 686 595 3 All prime equipment has been delivered. The ASLAV surveillance suite prototype has been accepted by the project office. The proposal for the production stage of the surveillance suite is being negotiated with start of work expected mid-2010. A through-life support tender has been evaluated with contract signature expected by late 2010. A through-life support contract for crew procedural trainers has been negotiated with execution planned for mid-2010. Extensions to ASLAV unit hangars and support facilities are being managed by the Defence Support Group.

Tank Replacement LAND 907 2007-08 563 436 15 All major capability platforms have been delivered and IOC achieved. Project Phase 1 Goals for 2010-11 include establishing a through-life support contract,

Leopard tank disposal and the acquisition of tank urban survivability kits.

175

Defence P

ortfolio Budget S

tatements 2010-11



Approved Project

Expenditure

$m



2010 $m

Budget Estimate

2010-11 $m

Status Report

General Service Field Vehicles

LAND 121 Phase 2

2005-06 95 69 2 Remaining elements of this phase of the project are: Mack in-cabin noise reduction - in contract, due for completion ahead of schedule by July 2010. Unimog and Mack Gun Tractors passenger/cargo restraint and separation - safety enhancements are being undertaken, testing is planned for April 2010, and this project element is on track to close by December 2010. Land Rover safety improvements – this project element is on track to close by July 2010.

Maritime Systems Anzac Ship Project SEA 1348

Phase 2 2007-08 5,380 5,361 11 Contractor warranty work and essential safety upgrades of ships to

contemporary standards continue to be progressed during maintenance availability periods. Financial reconciliation of the original project scope of ships, related shore facilities and logistic support has progressed.

Armidale Class Patrol SEA 1444 2007-08 537 481 3 The 14 patrol boats are in operational service and engaged in Boat Phase 1 operations. All vessels are being upgraded to improve a number of

engineering and habitability features. Collins Replacement Combat System

SEA 1439 Phase 4A

2007-08 458 425 7 Installation is complete in HMA Ships Waller, Farncomb and Dechaineux. Waller and Farncomb have achieved operational release by Navy. Installation is progressing satisfactorily in Sheean and is scheduled to complete in late 2011. The final two systems are planned for installation in HMA Ships Collins and Rankin during their respective dockings commencing in 2011 and 2012.

New Heavyweight Torpedo

SEA 1429 Phase 2

2009-10 442 269 26 Platform modifications and software have been installed in HMA Ships Waller and Farncomb and have been accepted for operational release by Navy. Platform modifications have been completed in Dechaineux and are progressing in Sheean. Modifications in Collins and Rankin are scheduled to meet the future submarine docking program. Torpedo deliveries from the US are being received and meeting Navy’s requirements.

176

Defence M




Approved Project

Expenditure

$m



2010 $m

Budget Estimate

2010-11 $m

Status Report

Collins Class Submarine Reliability and Sustainability

SEA 1439 Phase 3

2008-09 408 301 21 Major modifications to fire fighting safety, sewage system safety, submerged signal ejector, diesel safety modifications, training systems and a special forces capability continue. Torpedo countermeasure trials are progressing and planned to achieve Navy’s IOR by end 2010. Installation of the shore-based propulsion control and reference system is planned for completion in mid 2010.

Anzac Ship Anti-Ship Missile Defence

SEA 1448 Phase 2A

2007-08 377 196 34 Progression of installation of the combat management and the infra-red search and track systems in the lead-ship HMAS Perth continues on schedule. Modifications to the shore-based Anzac Systems Support Centre are nearing finalisation.

Ships Self Defence Capability

SEA 1779 Phase 1

2007-08 53 47 5 Installation in all ships (HMA Ships Manoora, Kanimbla and Tobruk) is complete. Acceptance testing of the systems installed in Kanimbla and Manoora is complete. Testing of the Tobruk system is scheduled for mid to late 2010.

General Manager Programs Amphibious Deployment and Sustainment Program Maritime Operations Support Capability

SEA 1654 Phase 2A

2006-07 142 137 2 Integrated Logistics Support (ILS) rectification continues with the aim of achieving ILS and IOR certification in 2010. FOC is scheduled for the end of 2010.

New Air Combat Capability Detailed Analysis and Acquisition Planning

AIR 6000 Phase 1B

2009-10 104 102 2 Phase 1B is largely complete following Second Pass approval of Stage 1 of AIR 6000 Phase 2A/B in November 2009. The final milestone in this phase is completion of an environmental impact statement which is scheduled for December 2010.

Human Resources and Corporate Services Improvements to the Logistics Information Systems

JP 2077 Phase 2B

2009-10 154 137 13 Phase 2B IOC implementation will commence in July 2010 with FOC scheduled for September 2010.

177

Table 70: Program 1.2 Management of Capability Sustainment


actual year 1 year 2 year 3 $'000 $'000 $'000 $'000 $'000

Annual departmental expenses:

Ordinary annual services (Appropriation Bill No.1) 592,922 578,303 611,997 627,848 670,408

Special account expenses:

4,752,661 4,591,923 4,703,918 4,896,183 DMO Special Account 4,404,592 Expenses not requiring appropriation in

11,245 11,526 11,871 12,180 the Budget year 10,781 Operating deficit (surplus)

Total program expenses -59,362 - - - -

4,948,933 5,342,209 5,215,446 5,343,637 5,578,771


Program 1.2: Management of Capability Sustainment


The ADF and its capabilities will be sustained to meet operational requirements as identified in the specific MSA.

Sustainment involves the provision of in service support for specialist military equipment, including platforms, fleets and systems operated by Defence. Typical services include repair and maintenance, engineering, supply, configuration management and disposal action. It includes the maintenance o f equipment and purchasing of inventory, such as explosive ordnance, fuel, stores and spare parts.

Program 1.2 Management of Capability Sustainment Expenses

The cost of Program 1.2 provides for estimated expenditure on maintenance and inventory purchases and the DMO’s costs in delivering sustainment services, including support to ADF Operations.

Planned resource use for Program 1.2 is $5,342.2m in 2010-11 which represents 46 per cent of the DMO’s total expenses.

The planned resource use for Program 1.2 includes:

• direct appropriation of $578.3m relating to Sustainment Workforce and Operating Expenses

• the cost of contracted sustainment services to Defence of $4,023.3m

• support for current ADF operations of $514.6m

• a variation to DMO Net Operating Costs of $161.1m in support of new capabilities expected to enter service

• support to foreign government activities of $53.7m

• resources received free of charge from Defence of $11.2m.

As the Smart S ustainment in itiative is rolled out by the DMO and the Capability Managers the savings it will deliver will grow progressively across the decade. Savings targets average around $450m over the forward estimates period and $600m across the decade. These savings have been earmarked for reinvestment in current and future c apability.

178


Program 1.2 Deliverables

Key deliverables are specified under each MSA, and are discussed below. There are currently eight MSAs under management in Program 1.2, incorporating 107 sustainment product schedules.

Program 1.2 Key Performance Indicators

The indicators vary with each sustainment product and are specified in the MSAs.

179


TOP 20 SUSTAINMENT PRODUCTS BY 2010-11 FORECAST EXPENDITURE

Table 71: Top 20 sustainment products by forecast expenditure in 2010-11[1]

Budget Estimate 2010-11

$m General Manager Systems Aerospace Systems P-3C/AP-3C Orion Weapons System 115 F/A-18 Hornet Weapons System 105 F/A-18F Block II Super Hornet Weapons System 95 Lead-in Fighter Hawk 127 Weapons System 88 C-130J-30 Weapons System 75 C-130H Weapons System 61

Electronic Systems Wide Area Surveillance Capability 72

Explosive Ordnance Explosive Ordnance - Navy, Army, Air Force 249

Helicopter Systems Multi Role Helicopter 124 Armed Reconnaissance Helicopter Weapons System 97 S70B-2 Seahawk Weapons System 59 S70A-9 Black Hawk Weapons System 64

Land Systems General Service B Vehicle Fleet 82 ADF Clothing and Personal Equipment 60 Protected Mobility Fleet 60

Maritime Systems Fuels and Lubricants - Navy, Army, Air Force 454 Collins Class Submarines 352 Anzac Class Frigate 222 Adelaide Class Frigate 103

General Manager Programs Airborne Early Warning and Control Airborne Early Warning and Control System 142

Sub Total Top 20 Sustainment Products 2,679 Other Sustainment Product Estimates 1,344 Total Sustainment Product Funds Available 4,023 Support for ADF Operations 515 Total Sustainment and Operations Funding 4,538

Note 1. The figures in the table above include baseline sustainment funding and funding to support ADF operations.

180


TOP 20 SUSTAINMENT PRODUCT DESCRIPTIONS

General Manager Systems In 2010-11, Systems Divisions will be implementing a range of sustainment reform activities including pilot programs across a number of platforms. These sustainment reforms will result in more efficient and effective delivery of sustainment services without impacting agreed capability levels, quality or safety.

Aerospace Systems The division provides through-life support to 13 fixed wing aircraft types including the F/A-18 Hornet and Super Hornet, AP-3C Orion, C-17 Globemaster III, C-130H and J, and PC9. The Division also provides through-life support to a number of advanced flight simulators. Major challenges for sustainment during 2010-11 include:

• introducing incentive-based support contracts for new and existing aircraft fleets to improve efficiency

• managing the Classic Hornet ageing aircraft issues to maintain the aircraft until 2020

• the planned withdrawal of the F-111 aircraft in December 2010 and subsequent disposal activities

• supporting operationally deployed weapons systems such as the C-130 and the AP-3C

• continuing the establishment and implementation of support arrangements for the 24 F/A-18F Super Hornets as they are progressively delivered to Australia from March 2010

• contributing to the development of acquisition and sustainment strategies for future aerospace projects including Maritime Patrol and Response capabilities, and Pilot Training Systems

• providing support to emergent operational capabilities such as the Heron Uninhabited Aerial System

• delivering the first three Air to Air Refuelling Aircraft

• implementing efficiency initiatives aligned with SRP for maintenance and engine support to a range of aerospace weapons systems.

Aerospace Systems Products

P-3C/AP-3C Orion Weapons System

Nineteen Orion aircraft together with their significant ground-based training facilities will undergo a series of key systems upgrades over the next seven years to treat major system obsolescence and improve capability. The weapons system also faces increased deeper maintenance and obsolescence costs associated with an ageing aircraft. Over one third of the AP-3C Orion aircraft have reached their structural safe design life, and have been retained in service as a result of a successful safety-by-inspection program with targeted additional structural inspections, repairs and modifications.

During 2010-11, a further three aircraft will undertake the safety-by-inspection program and the major Capability Assurance Program Phase 1 will commence aircraft modification incorporation, placing pressure on operational aircraft availability. A significant maintenance re-engineering review will be conducted to preserve safety yet optimise cost (consistent with the SRP) and availability until the capability transitions out of service in 2019-20.

An alliance arrangement, established with BAE Systems and Australian Aerospace (known as the P3 Accord), continues to provide the core capability and capacity to deliver an integrated upgrade, major maintenance and key support services for the weapon system. Other significant support contractors include Raytheon Australia, Thales Australia and Qantas Defence Services.

181


F/A-18 Hornet Weapons System

Seventy-one F/A-18 Classic Hornet aircraft and training systems are supported by a range of contracts and in-house RAAF workshops. The major challenge in supporting the Classic Hornet fleet continues to be converting available aircraft into serviceable aircraft, principally due to increased maintenance requirements of the ageing aircraft. Tactical Fighter Systems Program Office continues to work closely with Air Force on a number of initiatives to increase serviceability levels, whilst remediating ageing aircraft and equipment issues such as structural fatigue, corrosion and spares obsolescence. Management focus is on achieving significant savings across all elements of sustainment, as part of the SRP, while continuing to sustain the fleet to the extended planned withdrawal date of 2020. Significant contracting activity will occur throughout 2010 and 2011 for the provision of the Hornet deeper maintenance and structural upgrade, Hornet usage monitoring services, automatic test equipment support, structural component repairs and hydraulic component repairs.

F/A-18/F Block II Super Hornet Weapons System

Twenty-four F/A-18F Block II Super Hornet aircraft are being progressively introduced to service over the period March 2010 to August 2011. No 1 Squadron at RAAF Base Amberley commenced flying operations in March 2010 and will receive the first 12 aircraft. No 6 Squadron at RAAF Base Amberley will commence flying operations in January 2011.

Three FMS cases have already been established with the USN to provide spares and repair services for the RAAF Super Hornet fleet. A further FMS case will be established in 2010-11 to provide engineering and logistics support from the USN. Three commercial contracts have been established covering the provision of aircraft maintenance and sustainment services, training device maintenance and aircrew instructional services, and engine maintenance and support. These contracts establish an Australian support base with the majority of work being performed in Australia. The focus for 2010-11 will be bedding-in these FMS and commercial contracts to sustain the increasing numbers of delivered Super Hornets and associated flying rate of effort in order to achieve IOC in December 2010.

Lead-In Fighter Hawk 127 Weapons System

Thirty-three Hawk 127 aircraft and training devices are sustained through a single prime contract. This is a performance-based in-service support contract covering all support other than the operational maintenance performed by the Air Force. The major challenge in the future is to achieve a more cost effective support solution to meet SRP objectives. Closer working relationships between Air Force, the DMO and the prime contractor are being fostered to facilitate a deep and enduring reform program. The major initiative for 2010 is to implement the Hawk integrated logistics operations cell which will see staff from the contractor and the Commonwealth collocated and operating as a single team, with common objectives to maximise the Lead-In Fighter training capability. The other major focus is to plan and implement the contract support arrangements for the capability.

C-130J-30 Weapons System

The C-130J fleet consists of 12 aircraft and one Level 5 simulator. The DMO completed transition of all deeper maintenance, engineering and logistics support for the C-130J aircraft to the through-life support contractor, Australian Aerospace, in March 2010. The C-130J propulsions system is supported through a separate performance-based contract with Standard Aero.

In 2010-11, the major challenge in supporting the C-130J fleet is to continue to assure availability of limited spares over the extended supply lines to deployed aircraft; while also maintaining in-country aircraft availability. Continued remediation of wear and tear caused by the harsh operating environment experienced by deployed aircraft will continue to put pressure on maintenance support and the maintenance budget, particularly for the propulsion system. The major focus in 2010-11, as part of the SRP, is to implement an alternate model for C-130J propulsion support that will deliver sustainable savings. In conjunction with Air Force the DMO will identify areas of cost reduction through reform programs. The DMO will continue to work with the new support provider, Australian Aerospace, to assist Air Force to improve aircraft serviceability and reliability. The DMO will provide logistic and engineering support to the C-130J role expansion.

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C-130H Weapons System

The 12 C-130H aircraft and the C-130H full flight simulator are supported through a mix of short-term spares supply, component repair support, aircraft deeper maintenance, and engineering services contracts. Of the 12 C-130H aircraft, eight are in active service and four have been placed in preservation maintenance.

Throughout 2010-11, the DMO will closely manage the C-130H deeper maintenance program to constrain the cost of emerging ageing aircraft issues, such as fatigue and corrosion at a reduced ownership cost. Under the SRP, support contracts for avionic and engine support will be examined for reform opportunities.

Electronic Systems The sustainment of electronic systems is managed in 20 System Program and System Support Offices. These cover command and control systems, communications, satellites and tactical interoperability, airspace surveillance and control systems and electronic warfare systems.

Details of sustainment activities scheduled for 2010-11 include:

• continuing to centralise and improve efficiencies from standardising hardware platforms for deployable command support networks

• rationalising communications system support contracts where possible

• contracting for the operation, maintenance and support of the very low frequency capability at Harold E Holt Naval Communications Station, for which a tender has been developed and was released on 12 March 2010

• continuing engagement with Airservices Australia on the Government’s joint civil and military aviation initiatives as described in the 2009 Aviation White Paper

• taking delivery of new transportable air operations towers, tower visual simulators, pilot monitoring facilities and upgraded navigational aids to provide enhanced levels of equipment in support of the air traffic control capability

• reconstituting the Mobile Control and Reporting Unit, including a tactical air defence radar system, following its active service in the MEAO in support of Operation Slipper

• rolling-out Project Vigilare into the regional operations centres and subsequent transition to sustainment support to the agreed schedule

• remediating discrete obsolescence issues affecting the Woomera Test Facility range control safety system to sustain range safety operations until the Woomera Range Remediation Project JP 3024 is delivered. A contract has been let, with work commencing in March 2010 and expected to be finished in 2011

• a whole-of-Division implementation plan is being developed in response to the SRP. Major reform programs focused on cost reduction and efficiency improvement have commenced in Wide Area Surveillance (Over-The-Horizon-Radar) and Command and Support Systems. Similar reform programs for all capabilities supported by the Division will commence in 2010.

Electronic Systems Products

Wide Area Surveillance Capability

Wide area surveillance consists of three Over-The-Horizon Radars based at Longreach, Queensland, Laverton, Western Australia and Alice Springs, Northern Territory. All three radars are remotely operated from the operations centre located at Edinburgh, South Australia.

Due to the developmental heritage of the Alice Springs Radar, there are challenges with respect to obsolescence and ageing facilities issues. These issues are being managed as they arise in concert with a suite of capability upgrades to all three radars that are being delivered through a mix of major and minor projects during 2010-11.

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As part of the SRP, the DMO is working with Air Force to scrutinise all supply and through-life support programs for possible enhancements in efficiency, and cost savings.

In addition, a series of upgrades to the capability are due for incorporation and service release during 2010-11.

Explosive Ordnance The Division was established to provide dedicated focus to the reform of explosive ordnance acquisition and sustainment outcomes. The Division is responsible for the acquisition and sustainment of guided weapons and non-guided munitions. The current focus is on improvements across four key result areas:

• customers – close and active engagement with senior Service and Departmental representatives to ensure expectations are met and priorities are reflected in activities

• strategic suppliers – close and effective engagement with strategic suppliers to improve governance outcomes over new and existing contractual arrangements

• procurement – reform to procurement practices to create long-term relationships with suppliers

• inventory – focussed efforts to improve the overall health of the explosive ordnance inventory, especially reliability and availability.

The divisional business model has provided the ideal vehicle to consolidate all explosive ordnance activities occurring in the DMO and provide greater emphasis on the customers – Navy, Army and Air Force – and forces deployed overseas by the Joint Operations Command. Opportunities to refine the model are continually being explored.

During 2010-11, the Division will continue to progress deep reform. A key objective to assist longer term performance improvements is establishment of competency-based frameworks for professionalisation of the APS and ADF workforce in the Division.

Explosive Ordnance Products Explosive Ordnance — Navy, Army, Air Force

The ability to provide munitions products in the required quantities to Navy, Army and Air Force is impacted by ongoing high demand in the international manufacturing base. Price increases for some munitions products are being experienced. The most significant challenges to improving the state of the inventory are accurate demand forecasting and lengthy procurement lead times. Significant effort is to be applied to improving the serviceability levels of existing stock. This will aid short term availability and obviate the need for some procurements.

Guided weapons sustainment activities are primarily focussed on maintenance and recertification of the in-service inventory. The minor requirements to support current operations have allowed availability levels to be maintained or improved over recent times. In support of the SRP, opportunities to improve missile availability and lower sustainment costs are being progressed in close consultation with the respective Services, industry partners and key suppliers.

The focus during 2010-11 will be to:

• work with our suppliers to generate SRP savings from existing contracts

• work to refine and simplify our inventory categorisation so that the health of the inventory is easier to manage to improve over time

• improve inventory management practices and implement a lean maintenance program

• work with our customers to develop a consolidated set of explosive ordnance requirements, including stock targets and forecasts of annual consumption, and inclusion of those consolidated requirements and funding into a single MSA for munitions, to be managed on behalf of customer stakeholders by the Vice Chief of Defence Force and which will provide the basis for a three-year procurement program and inventory plan

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• contribute to work by Defence to develop an explosive ordnance performance measurement framework

• continue work to reduce the volume of stock held awaiting disposal

• work to re-coup a financial return on obsolete items

• contribute to the strategic review of domestic manufacturing arrangements whereby Defence will assess the ongoing strategic importance of domestic munitions manufacturing and the viability of investment in these capabilities

• develop systems management plans which document a holistic capability approach to managing munitions products, including the optimum manner in which to leverage industry capability and DMO purchasing power for specific capability requirements

• develop strategies to support and manage the endorsed war reserve requirements as procured under JP 2085 Phases 2/3 (War Stock Remediation) and other capital acquisition projects

• build the capability and competency of the Division’s staff.

Helicopter Systems The Division provides through-life support to seven rotary wing weapons systems through an Aviation System Program Office based at Nowra for Navy Aviation and another based at Oakey for Army Aviation. In addition, teams have been established in Brisbane to manage sustainment of the recently introduced ARH and the MRH-90. They provide fleet-wide engineering, repair parts, contract management for deeper level maintenance and replacement of ageing and obsolescent aircraft equipment for all the ADF’s helicopters.

The sustainment tasks are driven by operational unit requirements and deployments such as Seahawk helicopters on ships serving in the Middle East, the Chinooks and Uninhabited Aerial Systems in Afghanistan, and the Black Hawks in East Timor. Sea King and Squirrel helicopters also embark and deploy with Navy ships.

In 2010-11, the major factors affecting sustainment include:

• ongoing support to operationally deployed helicopters and Uninhabited Aerial Systems

• providing cost effective support of Seahawk, Sea King and Black Hawk helicopters for training and operations whilst managing increasing levels of obsolescence and impending replacement by new aircraft

• maturing the support arrangements for the ARH and MRH-90, and transition into service of individual helicopters as they are delivered

• disposal planning and execution for Iroquois, Seasprite and Sea King helicopters.

Under the Smart Sustainment stream of the SRP, management of all helicopter fleets is being reviewed to ensure that the appropriate level of aircraft availability is achieved and that this is done in the most cost effective manner possible, in order to achieve SRP savings targets.

Helicopter Systems Products Multi Role Helicopter

Eleven MRH-90 helicopters have been accepted and are based with the Army’s 5th Aviation Regiment in Townsville. A further five MRH-90 helicopters are expected to be delivered by December 2010. Training for Army and Navy aircrew, maintenance and support personnel is being conducted in purpose-built training facilities in Townsville. MRH-90 flying rate of effort has been significantly less than expected and this has resulted in delays to aircrew training and certification. The flying rate is expected to increase as the MRH-90 support systems mature and aircraft reliability is improved by the manufacturer.

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Armed Reconnaissance Helicopter Weapons System

Seventeen of the 22 aircraft have been accepted and in excess of 5,500 hours flown. Six of the mature configuration aircraft have been fielded in Army’s 1st Aviation Regiment, Darwin. Four of the mature configuration aircraft are being used for training at the Army Aviation Training Centre, Oakey, with the remainder of the aircraft accepted to date undergoing retrofit to the mature configuration in Australian Aerospace’s production facilities in Brisbane. A Troop level deployable capability into a permissive environment was achieved in April 2010 within the 1st Aviation Regiment in Darwin. The DMO and the prime contractor, Australian Aerospace, are focussed on continuing to mature the logistic support system in 2010-11 so that the flying hour rate can continue to increase and to enable sufficient multiple aircraft training and development to achieve higher level combat readiness milestones.

S70B-2 Seahawk Weapons System

The fleet of 16 Seahawk helicopters contributes to the anti-surface warfare and anti-submarine warfare capabilities for the Navy. Based at HMAS Albatross in Nowra New South Wales for training and providing operational flights at sea, the embarked Seahawk extends the FFG Frigate sensor and weapons system, and provides a similar supplementary capability to the Anzac Frigate.

Maintenance support for the Seahawk is provided through a combination of contracted support primarily by BAE Systems Australia and Asia Pacific Aerospace, in-unit 816 Squadron support, and some support is provided by Sikorsky.

In 2010-11, the performance-based deeper maintenance contract for Seahawk, which became effective in April 2010, will be matured and will contribute to addressing the increased difficulty of supporting obsolete systems on Seahawk to maintain the required available aircraft until replacement by AIR 9000 Phase 8.

S70A-9 Black Hawk Weapons System

The fleet of 34 Black Hawk helicopters contributes to the airmobile and special operations helicopter capabilities for Army.

Selected upgrades will continue to be introduced until 2010-11 to address system obsolescence and to ensure operational viability is maintained until the Black Hawk is replaced by the MRH-90.

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Land Systems The sustainment of land systems is managed by 10 Systems Program Offices (SPO) within the Division. The range of land materiel managed by the Division is significant and includes:

• armoured fighting vehicles

• combat support vehicles

• engineer systems

• field vehicles, e.g. trucks, trailers

• bulk liquid distribution and storage systems

• weapon systems, from small arms to mobile guided missile systems

• health systems, medical and dental equipment

• tentage and defence stores

• ADF clothing and uniforms

• surveillance and simulation systems

• consumable stores such as combat rations.

During 2010-11, these products will be managed across 30 separate MSAs. Sustainment support to operations remains the highest priority. The Division continues to provide support to forces deployed outside Australia, including the Middle East, East Timor and the Solomon Islands and will continue to refurbish equipment returning from overseas deployments to ensure its availability for future operations.

The Division has identified over 150 SRP initiatives across the 10 SPOs. These initiatives offer reductions in the cost of ownership through enhanced planning, optimisation of holdings and improved business practices. Implementation of these is ongoing.

Under the Smart Sustainment initiative, the Advanced Inventory Management System (AIMS) work is completed in seven SPOs and will be completed in the remaining SPOs in 2010. Development of AIMS skill sets continues, with the benefits yet to be fully realised.

Other significant sustainment activities include:

• improved vehicle servicing schedules to achieve cost saving without a reduction in availability, functionality or safety

• continued downsizing of the commercial vehicle fleet from six to four cylinder vehicles

• increased engagement with original equipment manufacturers to improve efficiencies and reduce through-life support costs.

The Division is committed to supporting the ADF operations while sustaining current fleets and delivering new complex capabilities. The Division aims to deliver further business efficiencies in 2010-11.

The Division continues to develop a workforce with sufficient experience and depth to remain agile to deliver new capability into service while supporting legacy equipment during transition.

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Land Systems Products

General Service B Vehicle Fleet

B Vehicles are unprotected Land Rovers, Mercedes Unimog 4-tonne and Mack 8-tonne trucks, and associated trailers. The fleet contains limited numbers of protected cabins for Unimog and Mack vehicles. There are approximately 12,000 vehicles and trailers under management. A small number of motorcycles, all terrain vehicles and ceremonial vehicles are also under management.

Planned activities to enhance the operation of the fleet include optimising the servicing schedules for the Mercedes Benz Unimog and Mack R Series truck fleet, to ensure the most cost effective support arrangements. To ensure the continued sustainment of the fleet until replacement vehicles are delivered, the LAND 121 (Project Overlander), Service Support contracts will be entered into with the primary equipment manufacturers.

ADF Clothing and Personal Equipment

ADF clothing includes combat clothing, non-combat clothing, footwear and accoutrements for operational and non-operational roles. The 4th edition of the ADF Clothing and Personal Equipment Procurement Plan 2010-2014 was released on 1 July 2009. This plan outlines significant tendering activities to be conducted in 2010 to meet the ADF’s combat clothing requirements. Critical items in the plan include disruptive pattern uniforms, combat boots, fire fighting clothing, and wet weather clothing. There will also be procurement activities in support of the Australian Navy in providing operational and sustainment stock for their disruptive pattern Navy uniforms. Clothing SPO is also conducting six-monthly clothing industry forums, with the intention of continuing to foster relationships with the textile clothing and footwear industry.

A tendering process is underway to establish a prime vendor for non-combat clothing based on three work packages, namely for the provision of general duty and ceremonial uniforms, sports wear and commercial work wear. Each work package will deliver a complete head to foot solution for the identified uniform requirements. This activity is scheduled for contract signature in the third quarter of 2010 with deliveries commencing near the end of 2010.

The SPO is also working with Army, Navy and Air Force to analyse and rationalise clothing items. Excess and slow moving stock is also being reviewed with the aim of optimising stock holdings across the supply chain.

Protected Mobility Fleet

The Protected Mobility Vehicle (PMV) fleet is currently sustaining 540 vehicles in six variants (troop, command, mortar, assault pioneer, direct fire weapon, and ambulance). PMVs are designed to provide protected land mobility to Army combat units and RAAF airfield defence guards on operations. Project LAND 116 is currently in contract to deliver a further 197 vehicles. The mature fleet will comprise 737 vehicles across seven variants with the seventh variant being configured for Air Defence roles.

The primary focus of the fleet activity for 2010-11 is the support to the preparation and deployment of vehicles on operations. A number of vehicles will be enhanced to increase operability and safety prior to use on operations in the Middle East.

Key reform activities planned for 2010-11 include continuing the transition to a performance-based contracting model for the PMV support services contract, identification of efficiency measures for implementation in the support services contract, replacement of transparent armour with automotive glass for peace time training activities and extension of the maintenance model on the PMV from 10,000km or one year (whichever occurs soonest) to 10,000km or two years (whichever occurs soonest).

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Maritime Systems The Maritime Systems sustainment concept is to support the Navy and the Army maritime capability through cost effective materiel design, engineering maintenance and logistic support to platforms, equipment and systems. The provision of these sustainment services is under a structure of SPOs that are collocated regionally with the Navy force element by ship class, and under various forms of outsourced commercial contracts.

The major challenges for sustainment during 2010-11 include:

• implementation of effective and sustainable initiatives under the SRP whilst meeting agreed service delivery levels

• establishment of the Major Fleet Unit Repair and Maintenance Reform Program

• improvement of inventory management

• improvement of submarine availability and cost of ownership by working with ASC Pty Ltd to develop and implement the in-service support contract

• management of a program of extensive upgrades to submarine capability in conjunction with routine maintenance and operational availability requirements

• improvement of configuration management and maintenance baseline of major surface ships

• development of options for restoration or replacement of the Australian submarine rescue launch and recovery system whilst maintaining capability.

Maritime Systems Products

Fuels and Lubricants — Navy, Army, Air Force

The support objective is to provide petrol, oil and lubricant products by Defence supply chain and industry delivery methods to Defence operational and support elements and visiting foreign forces.

Planned outcomes for 2010-11 are the revision of the procurement strategy for fuel; the replenishment of fuel stocks to meet the requirements of the ADF and identification of optimal operational and reserve holding requirements for bulk facilities across the ADF.

Collins Class Submarines

The support objective is to maintain the Australian submarine materiel capability, optimise the logistic costs of ownership of the submarines, and provide sustainable and cost effective design, engineering and logistics support under the through-life support agreement for platform systems with ASC Pty Ltd, and through Raytheon Australia, Thales and BAE Systems for combat systems.

Planned outcomes for 2010-11 are the implementation of the revised in-service support contract to provide increased platform availability through increased industry efficiency and the implementation of a 10-year maintenance and operating cycle, addressing the obsolescence of platform and systems and the declining stock levels of inventory. Options will be developed for the restoration or replacement of the submarine rescue launch and recovery system.

Anzac Class Frigate

The support objective is to maintain the materiel capability of the Anzac Class Frigate by the provision of materiel support and ongoing maintenance of eight ship platforms and associated equipment, systems and operator training facilities.

The 2010-11 planned outcomes are the delivery of SRP Smart Sustainment outcomes, contracting of the Major Fleet Unit Repair and Maintenance Reform Program for implementation in 2011-12, and implementation of inventory management reforms, while providing ongoing sustainment of materiel capability to meet Navy’s operational requirements.

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Adelaide Class Frigate

The support objective is to maintain the materiel capability of the Adelaide Class Frigate by the provision of materiel support and ongoing maintenance of four ship platforms and associated equipment, systems and operator training facilities.

The 2010-11 planned outcomes are the contracting of Major Fleet Unit Repair and Maintenance Reform Program for implementation in 2011-12 and the provision of ongoing sustainment of materiel capability to meet Navy’s operational requirements.

General Manager Programs

Airborne Early Warning and Control Airborne Early Warning and Control System

A five year cost-plus fixed fee sustainment contract was signed in January 2010 with The Boeing Company and major subcontractor Boeing Defence Australia to perform total logistic support to the platform.

The focus in 2010-11 will be on maturing the AEW&C sustainment requirements, including spares provisioning and logistics support arrangements. Incremental delivery of both airframes and systems will occur progressively in 2010-11 as acquisition testing activity is completed. IOC will be achieved following in-country training of sufficient crews, when initial levels of aircraft availability are achieved and required airworthiness accreditation is obtained. This is not anticipated to occur before the end of calendar year 2011.

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year 1 year 2 year 3 actual $'000 $'000 $'000 $'000 $'000

Annual departmental expenses: Ordinary annual services (Appropriation Bill No.1) 96,489 102,054 106,088 97,637 97,479

Special account expenses: DMO Special Account 1,981 1,025 1,032 1,044 1,050

Expenses not requiring appropriation in the Budget year 8,414 8,776 8,995 9,264 9,505

Operating deficit (surplus) Total program expenses

-17,523 - - - -89,361 111,855 116,115 107,945 108,034


Program 1.3: Provision of Policy Advice and Management Services


The DMO will meet Ministerial, Government, Defence and DMO expectations and timeframes for the provision of policy, advice and support, including the delivery of programs to support Australian Defence Industry.

Linked to: The Treasury Program 1.10 - Payments to the States.

The National Partnership on the School Pathways Program will provide $8.1m from 2009-10 over five years to South Australia and Western Australia. The school pathway programs are designed to increase the pool of young people ready to move from school into further education and apprenticeships and part-time work/study combinations in defence industry. They will also increase employer awareness of options for recruiting young people and the value to business of doing so.

Program 1.3 Provision of Policy Advice and Management Services Expenses

The cost of Program 1.3 provides for estimated expenditure in delivering industry and procurement policy and advice to both the Defence Portfolio and the Gove rnment, and the corporate functions in support of the DMO’s business activities.

Planned resource use for Program 1.3 is $111.9m in 2010-11 representi ng one per cent of the DMO’s total expenses.

The planned resource use for Program 1.3 primarily includes:

• direct appropriation of $102.1m relating to policy advice and management services

• resources received free of charge from Defence and ANAO of $8.8m.

The expenses relating to this Program show an increasing trend till 2011-12 and then decrease in 2012-13 reflecting the maturity of the Skilli ng Australian Defence Initiative.

Table 72: Program 1.3 Provision of Policy Advice and Management Services

Program 1.3 Deliverables

This Program delivers specialist legal and procurement contracting policy, acquisition and sustainment, advice to support the Government and Defence, industry engagement and corporate functions to support the management of the DMO. More detail on specific deliverables is provided in the following text.

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Program 1.3 Key Performance Indicators

The DMO is meeting Ministerial, Government, Defence and DMO expectations and timeframes for provision of policy, advice and support.

Performance targets for Program 1.3 are the quality and timely provision of:

• contracting and procurement policy, procedures and advice for Defence and the DMO

• industry policy and advice to both the Defence portfolio and the Government.

The Mortimer Review and SRP provide key drivers for Defence reforms in procurement and contracting. As the domain policy owner for procurement in Defence and the DMO, the General Manager Commercial will oversee a continued drive towards a more efficient, effective and commercially astute procurement and contracting workforce as a whole.

Major procurement policy initiatives for 2010-11 include:

• continued updating of the Defence Procurement Policy Manual and related operational procurement guidance

• developing new ASDEFCON contracting templates (including performance based and incentive models) and new internal procurement process templates

• engaging with industry in a range of policy related reviews to pursue best commercial practice and reduce inefficiencies and costs

• improving the quality of data provided to deliver Defence-wide statutory reporting obligations

• continued simplification and standardisation of procurement and contracting policy, procedure and training to reduce waste and variation

• updating existing and developing new internal training courses, and working with the educational and tertiary sector to develop a comprehensive framework of vocational and university courses to support Defence procurement and contracting job family professionalisation.

The Government recognises the important role that Defence industry plays in support of ADF capability, from the provision and maintenance of military equipment through to the delivery of a wide range of support services. In delivering this capability, the Government has a key objective of growing the capacity and competitiveness of the Australian defence industry.

To achieve this measure, performance outcomes for 2010-11 will include delivering the industry outcomes framed by the White Paper, the current DCP and the next Defence Industry Policy. The DMO will monitor the level of expenditure with local contractors to understand achievement against the Government’s policy of growing local Defence industry by ensuring that as much of the defence budget as reasonably practicable is spent in Australia. In addition, the DMO will analyse the health of Priority Industry Capabilities (PICs) in the Australian industrial base to provide industry with specific direction on requirements.

The DMO will strengthen its existing initiatives and implement new initiatives to enable the further development of a sustainable domestic industry capable of bidding and winning the opportunities for Australian defence industry. These activities will include:

• The Australian Industry Capability program, that requires an 'Australian Industry Capability Plan' for all Defence contracts valued at $50m or greater or where there is an identified PIC, for the purpose of maximising the use of cost-effective Australian industry in Defence procurement.

• The Global Supply Chain program that will use Defence’s procurement leverage to facilitate opportunities for Australian industry into the supply chains of multinational defence primes.

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• Programs to improve Australian defence industry productivity including:

- the Skilling Australian Defence Industry (SADI) initiative that focuses on the up-skilling of existing employees, and improvements to the quality and quantity of skills training in defence industry

- the SADI extension initiative, Industry Skilling Program Enhancement package that in partnership with defence industry, State Governments and other stakeholders aims to increase the skills base of defence industry, create entry pathways into the sector and address skill capability gaps.

• Support for the Defence Materiel Technologies Centres that is a joint venture between defence industry, universities and government research agencies that focuses on working collaboratively to enhance Defence capability by developing new materials and manufacturing technologies.

• The ongoing promotion of Australian-based companies through the expansion of the DMO’s ePortal that allows industry to register their capabilities. More than 1300 local companies have taken up this opportunity to date.

• The Defence Industry Innovation Centre that will continue to work towards increasing the competitiveness and productivity of Australian small to medium enterprises.

• Ongoing promotion and maintenance of defence materiel and capability cooperation with our major allies through formal bilateral activities focused on identifying collaborative activities, resolving impediments to trade and identification of business opportunities for Australian defence industry.

Industry Division is continuing to work with the Capability Development Group to ensure Defence industry and its stakeholders are kept well informed, particularly through the Public DCP.

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Table 73: Estimates of Special Account Flows and Balances

Opening balance 2010-11 2009-10

Outcome $'000

Receipts

2010-11 2009-10

$'000

Payments

2010-11 2009-10

$'000

Closing balance 2010-11 2009-10

$'000 Defence Materiel Special Account [D&A] 1 505,434

269,296Other Trust Monies Special Account - Defence Materiel Organisation [T] [1] 1 -

- Services for Other Entities and

Trust Monies - Defence Materiel Organisation [T] [1] 1 -

383 Total Special Accounts

2010-11 Budget estimate 505,434

Total Special Accounts 2009-10 estimated actual 269,679

12,212,564 11,455,085

12,206,174 11,218,947

511,824 505,434

- -

- -

- -

- -

- 383

- -

12,212,564 12,206,174 511,824

11,455,085 11,219,330 505,434

Notes (D) = Departmental (A) = Administered (T) = Trust Money for Comcare Receipts

1. The balance of the Other Trust Monies Special Account was transferred to the Services for Other Entities and Trust Monies Account in the 2009-10 financial year. The Other Trust Monies Special Account was subsequently closed.


Section 3: Explanatory tables and budgeted financial statements Section 3 presents explanatory tables and budgeted financial statements which provide a comprehensive overview of agency finances for the 2010-11 budget year. It explains how budget plans are incorporated into the financial statements and provides further details of the reconciliation between appropriations and program expenses, movements in administered funds, special accounts and government Indigenous expenditure.

3.1 Explanatory tables

3.1.1 SPECIAL ACCOUNTS

Special Accounts provide a means to set aside and record amounts used for specified purposes. Special Accounts can be created by a Finance Minister’s Determination under the FMA Act or under separate enabling legislation. Table 73 shows the expected additions (receipts) and reductions (payments) for each account used by DMO.

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3.2 Budgeted Financial Statements

3.2.1 ANALYSIS OF BUDGETED FINANCIAL STATEMENTS

Income Statement The DMO is budgeting for a break-even operating result for 2010-11, with total income and expenses of $11,535.3m. Of this amount, the DMO will earn $10,578.5m (91.7 per cent) from Defence, $899.6m (7.8 per cent) through direct appropriation from Government, and $57.2m (0.5 per cent) from other sources (including $53.656m from foreign governments). The DMO’s operating costs, e mployees and suppliers expenses reflect increases in Defence requirements and programmed savings contributing towards the Defence Strategic Reform Program.

The price received from Defence for the delivery of Programs 1.1 and 1.2 is recorded as revenue to the extent that the DMO delivers goods and services to Defence during the financial year. Amounts received for goods and services not yet delivered are recorded as a liability (unearned revenue within Payables – Other) in the DMO financial statements.

The income for 2010-11 is expected to be $788.8m (7.3 per cent) higher than the 2009-10 estimated actual. The variation is mainly the result of the increase in program activities as follows:

• Program 1.1 (Management of Capability Acquisition) $6,081.2m – increase of $449.9m (8.0 per cent)

• Program 1.2 (Management of Capability Sustainment) $5,342.2m – increase of $333.9m (6.7 per cent)

• Program 1.3 (Provision of Policy Advice and Management Services) $111.9m – increase of $5.0m (4.7 per cent).

The net cash resourcing reforms under Operation Sunlight are not appl icable to the DMO as it is already essentially operating on a net cash basis. Accordingly the DMO appropriation has not been adjusted for depreciation and the DMO continues to meet asset purchases through internal reserves.

Balance Sheet With the exception of employee entitlements that are expected to increase consistent with salary growth, other assets and liabilities are expected to remain relatively c onsistent of the forward estimates. This includes the unearned revenue from Defence as the DMO expects to deliver based on the funding provided by Defence.

Statement of Cash Flows Cash flows are consistent with the income statement and growth in employee entitlements as described above.

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3.2.2 BUDGETED FINANCIAL STATEMENTS TABLES

Table 74: Comprehensive Income Statement (Showing Net Cost of Services) (for the period ended 30 June)

Estimated Budget Forward Forward Forward actual estimate estimate estimate estimate

2009-10 2010-11 2011-12 2012-13 2013-14 $'000 $'000 $'000 $'000 $'000

EXPENSES Employee benefits 510,808 569,496 595,579 634,438 674,236 Supplier expenses 10,135,902 10,952,734 10,194,109 9,719,127 10,651,100 Grants 11,742 11,553 12,735 13,902 15,219 Depreciation and amortisation 3,049 1,482 642 642 642 Total expenses 10,661,501 11,535,265 10,803,065 10,368,109 11,341,197

LESS: OWN-SOURCE INCOME Revenue Sale of goods and rendering of services 9,735,495 10,537,789 9,754,440 9,281,031 10,202,290 Other 70,000 53,656 54,997 56,647 58,120 Total revenue 9,805,495 10,591,445 9,809,437 9,337,678 10,260,410

Gains Other 42,389 44,213 45,317 46,675 47,889 Total gains 42,389 44,213 45,317 46,675 47,889

Total own-source income 9,847,884 10,635,658 9,854,754 9,384,353 10,308,299

Net cost of (contribution by) services 813,617 899,607 948,311 983,756 1,032,898

Revenue from Government 898,617 899,607 948,311 983,756 1,032,898

Surplus (Deficit) 85,000 - - -

OTHER COMPREHENSIVE INCOME Changes in asset revaluation reserves - - -

Total other comprehensive income - - -Total comprehensive income 85,000 - - -


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Table 75: Budgeted departmental balance sheet (as at 30 June)

Estimated Forward Forward Forward actual estimate estimate estimate

2009-10 2011-12 2012-13 2013-14 $'000 $'000 $'000 $'000

ASSETS Financial assets

Cash and equivalents 30,000 30,000 30,000 30,000 Trade and other receivables 572,657 586,489 592,794 601,569

Total financial assets 602,657 616,489 622,794 631,569

Non-financial assets Property, plant and equipment 8,045 8,045 8,045 8,045 Intangibles 4,765 4,765 4,765 4,765 Other 1,537,235 1,537,235 1,537,235 1,537,235

Total non-financial assets 1,550,045 1,550,045 1,550,045 1,550,045 Total assets 2,152,702 2,166,534 2,172,839 2,181,614

LIABILITIES Payables

Suppliers 1,123,549 1,123,549 1,123,549 1,123,549 Other 462,186 466,972 467,455 470,219

Total payables 1,585,735 1,590,521 1,591,004 1,593,768

Provisions Employee provisions 170,095 179,141 184,963 190,974

Total provisions 170,095 179,141 184,963 190,974 Total liabilities 1,755,830 1,769,662 1,775,967 1,784,742 Net assets 396,872 396,872 396,872 396,872

EQUITY[1]

Parent entity interest Contributed equity 155,368 155,368 155,368 155,368 Retained surplus (accumulated deficit) 241,504 241,504 241,504 241,504

Total parent entity interest 396,872 396,872 396,872 396,872

Total equity 396,872 396,872 396,872 396,872

Note 1. 'Equity' is the residual interest in assets after deduction of liabilities.

Budget estimate 2010-11

$'000

30,000 579,047 609,047

8,045 4,765

1,537,235 1,550,045 2,159,092

1,123,549 464,494

1,588,043

174,177 174,177

1,762,220 396,872

155,368

241,504 396,872

396,872

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Table 76: Departmental statement of changes in equity — summary of movement (Budget year 2010-11)

Retained Asset Other Contributed Total earnings revaluation reserves equity/ equity

reserve capital $'000 $'000 $'000 $'000 $'000

Opening balance as at 1 July 2010 Balance carried forward from

previous period 241,504 - - 155,368 396,872 Adjustment for changes in accounting policies - - - - -

Adjusted opening balance 241,504 - - 155,368 396,872

Surplus (deficit) for the period - - - - -

Total comprehensive income recognised directly in equity - - - - -

Estimated closing balance as at 30 June 2011 241,504 - - 155,368 396,872

Table 77: Budgeted departmental statement of cash flows (for the period ended 30 June)


2009-10 2010-11 2011-12 2012-13 2013-14 $'000 $'000 $'000 $'000 $'000

OPERATING ACTIVITIES

Cash received Goods and services 9,569,831 10,531,399 9,746,998 9,274,726 10,193,515 Appropriations 898,617 899,607 948,311 983,756 1,032,898 Net GST received 660,687 717,512 667,671 636,449 697,692 Other 70,000 53,656 54,997 56,647 58,120

Total cash received 11,199,135 12,202,174 11,417,977 10,951,578 11,982,225

Cash used Employees 495,955 563,106 588,137 628,133 665,461 Suppliers 10,043,513 10,908,521 10,148,792 9,672,452 10,603,211 Grants 11,742 11,553 12,735 13,902 15,219 Net GST paid 660,687 717,512 667,671 636,449 697,692

Total cash used 11,211,897 12,200,692 11,417,335 10,950,936 11,981,583 Net cash from (used by)

operating activities (12,762) 1,482 642 642 642

INVESTING ACTIVITIES

Cash used Purchase of property, plant

and equipment 3,049 1,482 642 642 642 Total cash used 3,049 1,482 642 642 642 Net cash from (used by)

investing activities (3,049) (1,482) (642) (642) (642) Net increase (decrease)

in cash held (15,811) - -Cash and cash equivalents at the

beginning of the reporting period 45,811 30,000 30,000 30,000 30,000 Cash and cash equivalents at the

end of the reporting period 30,000 30,000 30,000 30,000 30,000

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Table 78: Departmental Capital Budget Statement


2009-10 2011-12 2012-13 2013-14 $'000 $'000 $'000 $'000

PURCHASE OF NON-FINANCIAL ASSETS Funded internally from

departmental resources[1] 3,049 642 642 642 TOTAL 3,049 642 642 642


$'000

1,482 1,482


RECONCILIATION OF CASH USED TO ACQUIRE ASSETS TO ASSET MOVEMENT TABLE

Total purchases 3,049 1,482 642 642 642 Total cash used to

acquire assets 3,049 1,482 642 642 642

Note 1. Includes the following sources of funding:

- annual and prior year appropriations - donations and contributions - gifts - internally developed assets - s31 relevant agency receipts (for FMA agencies only) - proceeds from the sale of assets

Table 79: Statement of Asset Movements (2010-11)

Asset Category Other property, Intangibles Total

plant and equipment

$'000 $'000 $'000 As at 1 July 2010 Gross book value 11,432 19,937 31,369 Accumulated depreciation/amortisation

and impairment 3,387 15,172 18,559 Opening net book balance 8,045 4,765 12,810

CAPITAL ASSET ADDITIONS Estimated expenditure on

new or replacement assets By purchase - other 917 565 1,482 Total additions 917 565 1,482

Other movements Depreciation/amortisation expense 917 565 1,482 As at 30 June 2011 Gross book value 12,349 20,502 32,851 Accumulated depreciation/amortisation

and impairment 4,304 15,737 20,041 Closing net book balance 8,045 4,765 12,810

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Table 80: Schedule of budgeted income and expenses administered on behalf of Government (for the period ended 30 June)


2009-10 2011-12 2012-13 2013-14 $'000 $'000 $'000 $'000

INCOME ADMINISTERED ON BEHALF OF GOVERNMENT

Revenue Non-taxation revenue

Interest 4,000 4,000 4,000 4,000 4,000 4,000 4,000

Total revenues administered on behalf of Government 4,000

Total non-taxation revenue 4,000

4,000 4,000 4,000

Total income administered on behalf of Government 4,000 4,000 4,000 4,000

Table 81: Schedule of budgeted assets and liabilities administered on behalf of Government (as at 30 June)


$'000

4,000 4,000

4,000

4,000


2009-10 2010-11 2011-12 2012-13 2013-14 $'000 $'000 $'000 $'000 $'000

ASSETS ADMINISTERED ON BEHALF OF GOVERNMENT

Financial assets Receivables - - -

Total financial assets - - -

Total assets administered on behalf of Government - - -

Table 82: Schedule of budgeted administered cash flows (for the period ended 30 June)


2009-10 2010-11 2011-12 2012-13 2013-14 $'000 $'000 $'000 $'000 $'000

OPERATING ACTIVITIES Cash received

Interest 4,000 4,000 4,000 4,000 4,000 Total cash received 4,000 4,000 4,000 4,000 4,000

Net cash from (used by) operating activities 4,000 4,000 4,000 4,000 4,000

Net increase (decrease) in cash held 4,000 4,000 4,000 4,000 4,000 Cash and cash equivalents at beginning of reporting period - - -

- Transfers to other entities (Finance - Whole of Government) 4,000 4,000 4,000 4,000 4,000

Cash and cash equivalents at end of reporting period - - -

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3.2.3 NOTES TO THE FINANCIAL STATEMENTS

BUDGETED FINANCIAL STATEMENTS

The budgeted financial statements (income, balance sheet, cash flows and capital budget statement) show the revenues, expenses, assets and liabilities of the DMO. These budgeted statements contain estimates prepared in accordance with the requirements of the Government’s financial budgeting and reporting framework and reflect the planned financial performance of the DMO in delivering its programs to Defence and the Government. Unless otherwise stated, the convention used in these budgeted financial statement is to round amounts to the nearest $’000.

DMO Departmental Revenue Appropriation received from the Government is recognised as revenue. Revenue for the delivery of Programs 1.1 and 1.2 is recognised by reference to the stage of completion of contracts or other agreements and in accordance with expense incurred. The direct appropriations are a fixed amount and are fully recognised in the financial year. Revenue from other sources represents sales to non-Defence organisations for goods and services and is recognised at the time the service is provided.

DMO Departmental Expenses

EMPLOYEES

Employee expenses include payments and net increases in entitlements to civilian employees for services rendered in the financial year. The DMO pays a fee for service to Defence for the use of military personnel, which is reported as part of suppliers expenses.

Suppliers This includes payments to suppliers for goods and services used in providing DMO programs and cost of sales expenses associated with the delivery of goods and services to Defence.

Depreciation and Amortisation Items of property, plant and equipment and intangible assets are depreciated to their estimated residual values over their estimated useful lives. In all cases, the ‘straight-line’ method of depreciation is used.

DMO DEPARTMENTAL ASSETS

Departmental Assets — Financial The primary financial assets are cash and receivables.

Departmental Assets — Non-financial This includes infrastructure, plant and equipment and intangibles and other non-financial assets (including payments), which are used in the delivery of Programs. The reported value represents the purchase price paid less depreciation incurred to date in using the asset.

DMO DEPARTMENTAL LIABILITIES

Departmental Liabilities — Provisions Provision has been made for the Agency’s liability for employee entitlements, arising from services rendered by employees. This liability includes unpaid annual leave and long service leave.

Departmental Liabilities — Payables Payables include unpaid suppliers and an unearned revenue liability associated with goods and services awaiting delivery to Defence.

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