casg cost principles

[6], Ministerial statements in 2010 and 2011 suggested that the Government believed new procurement reforms were needed. 208Internally, other areas within Defence had earlier recognised the need for being smart buyers in procurement. Failure to pay sufficient attention to sustainment early on will increase the cost of ownership to Defence. SeeCost Considerations-The Cost Principlesfor additional details. 86Department of Finance, Resource Management Guide No. Defences pubic reporting of program level estimates over time. CostPrinciples AuditRequirementsentsand ents Reasonableness Allocability Conformance Allowability MUST= Compositionof DirectCost IndirectCost Applicable Costs Credits REQUIRED SHOULD= Bestpractice or recommended 200.404Reasonable costs cost is reasonable if, in its nature and amit not exceed that which would be incurred ount, by adoes There had been limited progress on the 35 action items identified in the 2011 health check with seven action items implemented, five abandoned, and 23 outstanding (among which Defence intended to re-write 14). Consequently, even if an asset is acquired at an original cost of $50,000, and that asset's market value increases over five years to $75,000, the cost principle will remain recorded at the . Defence expected savings from: reducing spares; making more use of performance-based contracting; discouraging unnecessary end-of-year spending; travel efficiencies and improved maintenance philosophies. [4][3]. 154The template was referred to as ASDEFCON (Support) version 3.0, June 2011. Source:Department of Defence, Annual Report 201516, Web Table8.11 available from [accessed 20April2017]. Defence had not developed robust capability and cost baselines for all capabilities, did not fully understand sustainment cost drivers nor whole-of-life costs for platforms. It is apparent from this audit that Defence has developed information systems that could support the preparation of similar information for its sustainment work. This method produces a rough order-of-magnitude estimate, and is generally used early in the life cycle of a new asset/system when technical definition is immature and insufficient cost data is available. Reflecting the First Principles Review theme of better engagement with industry, Defence has engaged a USA-based engineering company, Bechtel, to help with implementing the Reviews recommendations. Note d:In late 2016, Defence estimated that the Collins Class submarine sustainment program would achieve international benchmarks for cost per materiel ready day by 202223. The Commonwealth's discretion, and a reasonableness test, will apply with regard to the use of the Cost Principles for tendered contracts. Accordingly, the Key Health Indicator will have a primary impact upon Materiel Confidence with a secondary, often more obvious, impact on Materiel Availability. MSAs include an agreed price for the sustainment work and performance indicators by which Capability Acquisition and Sustainment Group internal service delivery is measured and reported.22. 111The ANAO has not verified the reported savings in the three cases quoted here. 5.55In November2016, Defence informed the ANAO that it intends to use the principles of the ISO 55000 Asset Management Standard as a guide of good practice and to further develop Defences framework for the management of sustainment.175 In March2017, it advised that the policy issued under the earlier DMO governance framework was gradually being reviewed and updated. This is potentially useful information though not always written in clear language. 2.9Agreements, internal to Defence, between the Capability Acquisition and Sustainment Group and each capability manager, set out the level of performance and support required by the capability manager.21 These are Materiel Sustainment Agreements (MSAs). 5.44Defence began development of the Capability Acquisition and Sustainment Group Business Framework as of 31July2015 with a view to completion on 1February2016. This is a risk in light of the systemic issue identified by Defence in its work towards reforming Systems Program Offices: SPO staff have limited experience, skills, and competencies needed to effectively establish, govern, and assure industry delivery of capability (see Box 3, p.23 of this audit report). 48This is separate from the long-established Projects of Concern, which generally include acquisition projects rather than sustainment products. These risks and issues are highlighted so that stakeholders can respond in a coordinated manner to guide the conduct of remediation actions. These are known within Defence as Fleet Screenings.23 While Fleet Screening procedures vary among the Services, the intent is broadly similar: that is, to review the funding allocated to sustainment through the MSAs, and make decisions about changes to funding levels, equipment operation, or performance indicators.24 For example, additional funding may be required for equipment that has recently returned from operations. In the longer term the system is to be expanded to cover acquisition. At worst, nondelivery will result in a red traffic light status in DMO Sustainment Overview Reports which it seems that few stakeholders read.31. However, it does set two years as a timeframe for delivery of the changes it recommends.127 In setting that objective it allows for a tail of activity that might run beyond two years for which it gives, as an example, completing the roll-out of its new smart buyer model. 145According to AusTender records, the cost of the review and resulting report was $613 000. 279280. The data will be obtained from: Defences internal cost data; industry suppliers; industry-maintained databases; and cost data made available to Defence from the United States, United Kingdom, New Zealand and Canada.80. It is an estimate of the differential cost above that of the current capability and is included in submissions to government for approval. The Defence Science and Technology Group had been helping individual Systems Program Offices with asset management but believed its real potential was at the enterprise level. Simplicity The MPR has added value through the review process and the transparency of information providing increased assurance to the Parliament and the Government. [9], On 1 April 2015, the Minister for Defence released the First Principles Review. 4.18By June2015, Defence was claiming approximately $2billion in savings from the Smart Sustainment Program since its inception in 2009. Defence had multiple repositories and versions of asset management information making it hard to assess whether Defence was aligned to best practice. Defence is now undertaking a rolling program of reviews of all Systems Program Offices, adding a further 17 to those being reviewed. ADFs G-Wagon fleet, the commercial vehicle fleet and the B-vehicle fleet. 83Defence, FPR Implementation Committee paper, SPO Reform ImplementationAvoiding Cost Transfers, February 2017. The cost principles The government-wide principles, issued by OMB (or, in the case of commercial organizations, the Federal Acquisition Regulation [48 CFR 21], or, in the case of hospitals, 45 CFR 75, Appendix IX, "Principles For Determining Costs Applicable to Research and Development Under Grants and Contracts with Hospitals"), on allowability and unallowability of costs under federally sponsored agreements. 20. Instead, it would usually be done as several separate calculations, as we showed in the first 4 steps of the derivation. for commercial organizations An organization, institution, corporation, or other legal entity, including, but not limited to, partnerships, sole proprietorships, and limited liability companies, that is organized or operated for the profit or benefit of its shareholders or other owners. Aerospace Surveillance and Response Branch, Rotary, Aerospace and Surveillance Systems Division, Air and Space Surveillance Control Branch, Navy Aviation, Aircrew Training and Commons, Navy Army Aviation Acquisition Program Office, Intelligence, Surveillance, Reconnaissance and Electronic Warfare (ISREW) Branch, Joint Command, Control, Communications and Computer Systems (JC4S) Branch, Land Command, Control, Communications and Computer Systems (LC4S) Branch, Commercial and Financial Analysis Directorate (CFA), Commercial Policy and Practice Directorate (CPP), Ergas, Henry. 19The capability manager for most assets is one of the three Service chiefs (Navy, Army or Air Force). 171Defence, Airborne Early Warning and Control Sustainment Performance Gate Review, 30 July 2015. The concept was also included in the initial Materiel Sustainment Agreements in 2005 between DMO and the Defence Service Chiefs. The Chief of the Defence Forces Preparedness Directive provides the strategic preparedness guidance for Defence Groups, Services and Capability Acquisition and Sustainment Group. The application of these cost principles is based on the fundamental premises that: (a) The non-Federal entity is responsible for the efficient and effective administration of the Federal award through the application of sound management practices. Defence would benefit from evaluating future major change programs. 71 0 obj<> endobj The ANAO work program outlines potential and in-progress work across financial statement and performance audit. For example, sustainment cost has been identified as a key risk for the MRH90 helicopter: 3.25Information from sustainment gate reviews is not routinely incorporated into management reporting on sustainment. 23Fleet Screenings is a term originally used by Navy. 3.5In common with MRS, SPMS is a web-based system designed to provide performance reports for Capability Acquisition and Sustainment Group and Capability Managers. 5.60In May2015, DMO released a sustainment policy stating that Defence assets would be managed in accordance with the international standard for asset management. The last item of Support & Test Equipment requires codification before it can be formally accepted by the Commonwealth of Australia (CoA). 14. The CASG Cost Principles apply to all procurements. Consequently, DMO retains over 50 SPOs [Systems Program Offices] each operating relatively independently of others and in different positions in the value chain. 4. Specifically, the review identified instances where: 2.18Defence makes extensive use of external service providers and contractors to deliver acquisition and sustainment services. Defence has engaged industry expertise to guide and help it with the First Principles reforms relating to acquisition and sustainment, including $107million with a single company where the contract for services is not performance-based. Define and document a clear, unclassified requirement for the sustainment program. With the introduction of its Sustainment Performance Management System (SPMS), Defence continues to develop a basis for an effective monitoring system for sustainment. Poor Demand Satisfaction outcomes will ordinarily be reflected in the increase of Urgency of Need Designators A and B demands or directly in Priority 1 stores related Urgent Defect. 3.45The First Principles Review found that, at the project level, Defence treats staff as a free good across the department: Employee costs are not considered part of a projects costs and a manager cannot adjust numbers of staff based on project need. On 26 November 2010, the Minister for Defence, Stephen Smith, in adding project AIR 5418 Joint Air to Surface Stand-off Missile (JASSM) to the 'Projects of Concern' list, stated that the listing was because of "our poor management, our failure to keep government properly and fully informed about the project and its difficulties." That review found sustainment is still being treated as a poor relation compared to the generally higher-profile acquisition work.27 The Sustainment Complexity Review (2010), which found 50 plus sustainment business models in DMOs Systems Program Offices, explained this diversity by reference to the greater attention Defence had given acquisition. 3.16One potentially useful feature is a list of underperforming sustainment products.48 This is based on information provided through MRS, SPMS and gate reviews. 170This view is supported by a Defence Lessons Learned Report on the Tiger project (8 April 2015), which stated that The Commonwealth did not adequately enforce the provisions of the TLS [through-life support] Contract and if it had, then some of the dispute around sustainment performance may have been avoided. located at 48 CFR Part 31.2 Federal Acquisition Regulation. 0000001012 00000 n Committed people with the right skills in appropriate jobs. Decision-makers are empowered and held responsible for delivering on strategies and plans within agreed resourcing. The term contract for availability is a term used in British military circles but is equivalent to performance-based contracting. However, it was not: complete; consolidated in one easy to locate area; prepared in a manner which permitted the comparison of actual expenditure against estimates; or consistent in its presentation of clear reasons for full-year variances. This approach is problematic as it does not inform government of the total cost of the project across the life of the capability. <<964faa8c6ebb704a921f34cb193ed03f>]>> An alternative approach is to manage a total project budget that includes employee expenses. Defence informed the ANAO that it had used this work to reform Maritime asset management, inform its submissions to the First Principles Review, underpin the Systems Program Office reform guide and develop its Systems Program Office review methodology. Failure to pay sufficient attention to sustainment early on would increase the cost of ownership to Defence. 5.49Defence has developed its own meaning for the term smart buyer, which does not clearly capture the intent of the First Principles Review recommendation. Kettl, Sharing Power, Brookings Institution, 1994; and GAO/GGD-92-11 Government Contractors: Are Service Contractors Performing Inherently Governmental Functions?, 1991.

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